diff --git a/raw/proxies/0000077877/0000077877-01-500004/proxy.txt b/raw/proxies/0000077877/0000077877-01-500004/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c96dbbe98f4a7d950907b225b5215fdb485f7678 --- /dev/null +++ b/raw/proxies/0000077877/0000077877-01-500004/proxy.txt @@ -0,0 +1,815 @@ +DEF 14A +1 +pdcproxy.txt +2001 DEF 14A +PETROLEUM DEVELOPMENT CORPORATION +103 East Main Street +Bridgeport, West Virginia 26330 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +June 29, 2001 +To the Stockholders of +PETROLEUM DEVELOPMENT CORPORATION: +Notice is hereby given that the Annual Meeting of Stockholders of +Petroleum Development Corporation (the "Company") will be held at the +office of the Company at 103 East Main Street, Bridgeport, West +Virginia 26330, on June 29, 2001 at 10:00 A.M., West Virginia time, for +the following purposes, all as more fully described in the accompanying +Proxy Statement: +(1) To elect three directors to serve a term of three years or until +their successors shall be elected and shall qualify; +(2) To ratify and approve the selection of independent public +accountants for the Company for the fiscal year ending December 31, 2001. +The Board of Directors has fixed the close of business on May 11, 2001 +as the record date for the determination of stockholders entitled to +notice of and to vote at the Annual Meeting. The presence in person or by +proxy of the holders of a majority of the outstanding shares of the +Company's Common Stock is required to constitute a quorum. +EACH STOCKHOLDER IS CORDIALLY INVITED TO BE PRESENT AND TO VOTE AT +THIS MEETING IN PERSON. STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND ARE +REQUESTED TO SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT +PROMPTLY IN THE ENCLOSED POSTPAID ENVELOPE. +By Order of the +Board of Directors, +James N. Ryan +Chairman +Bridgeport, West Virginia +May 15, 2001 +PETROLEUM DEVELOPMENT CORPORATION +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +June 29, 2001 +INTRODUCTORY STATEMENT +This Proxy Statement is furnished in connection with the solicitation by +the Board of Directors of proxies for use at the Annual Meeting of +Stockholders of Petroleum Development Corporation (the "Company") to +be held on June 29, 2001, notice of which is attached, and at any +adjournment thereof. +Any stockholder giving the accompanying proxy has the power to revoke it +prior to its exercise by filing with the Secretary of the Company a +written notice of revocation or a duly executed proxy bearing a later +date. Giving the accompanying proxy will not affect your right to vote in +person should you find it convenient to attend the Annual Meeting. Shares +represented by proxy will be voted by the proxy holders in accordance with +your instructions unless you revoke your proxy or attend the meeting and +elect to vote in person. This Proxy Statement and the proxy were first +mailed to stockholders on May 15, 2001. The mailing address of the +principal executive offices of the Company is Petroleum Development +Corporation, P.O. Box 26, Bridgeport, West Virginia 26330. +The Annual Report to Stockholders for 2000, containing certified +financial and other information about the Company, accompanies this Proxy +Statement. +VOTING SECURITIES +The outstanding voting securities of the Company as of March 31, 2001, +consisted of 16,244,044 shares of $0.01 par value common stock ("Common +Stock"). Stockholders of record as of the close of business on May 11, +2001 are entitled to vote. Each stockholder is entitled to one vote for +each share of Common Stock held of record on this date. Stockholders are +not permitted to cumulate their votes for the election of directors. +Abstentions and broker non-votes will be counted in the number of shares +present in person or represented by proxy for purposes of determining +whether a quorum is present. +PROPOSAL #1 +ELECTION OF DIRECTORS +The Company's By-Laws provide that the directors of the Company shall be +divided into three classes and that, at each annual meeting of +stockholders of the Company, successors to the class of directors whose +term expires at the annual meeting will be elected for a three-year term. +The classes are staggered so that the term of one class expires each year. +Mr. D'Annunzio and Mr. Ryan are members of the class whose term expires in +2001; and Mr. Rettinger and Mr. Swoveland are members of the class whose +term expires in 2002; and Mr. Morgan, Mr. Nestor and Mr. Williams are +members of the class whose term expires in 2003. There is no family +relationship between any director or executive officer and any other +director or executive officer of the Company. There are no arrangements +or understandings between any director or officer and any other person +pursuant to which such person was selected as an officer. Votes pursuant +to the enclosed proxy will be cast, unless authority is withheld, for the +election of the two persons named under "Nominees for Terms Expiring 2004" +below, each of whom are members of the present Board and each of whom are +expected to be able to serve on the Board to be elected at this meeting. +If any of such persons is unwilling or unable to act in such capacity, an +event which is not now anticipated, the enclosed proxy will be voted for +such person or persons as the Board of Directors may designate. During +2000, the Board of Directors held seven meetings. No director attended +fewer than 75% of the aggregate of all meetings of the Board and the +committees, if any, upon which such director served. +Vote Required +A plurality of the votes cast at the Annual Meeting in person or by +proxy, is required for the election of directors. Abstentions and broker +non-votes will not be considered as votes cast with respect to the +election of directors, and therefore any abstentions or broker non-votes +will not affect the election of the candidates receiving a majority of the +votes cast. +THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" PROPOSAL #1 +DIRECTORS OF THE COMPANY +NOMINEES FOR TERMS EXPIRING 2004 +The following persons, each of whom are currently serving as directors, +have been nominated to serve as +directors: +Name and Principal Year First +Occupation Past Five Years Elected +and Other Directorships Age Director +JAMES N. RYAN has served as President and Director of PDC from 1969 +to 1983 and was elected Chairman and Chief Executive Officer in +March 1983 69 1969 +VINCENT F. D'ANNUNZIO has served as president of Beverage +Distributors, Inc. located in Clarksburg, West Virginia since 1985. 48 1989 +CONTINUING DIRECTORS TERMS EXPIRING IN 2002 +DALE G. RETTINGER has served as Vice President and Treasurer of +PDC since July 1980, and was appointed Chief Financial Officer in +September 1997. Mr. Rettinger was elected Director in 1985. +Previously Mr. Rettinger was a partner with Main Hurdman, +Certified Public Accountants, having served in that capactiy +since 1976. 56 1985 +JEFFREY C. SWOVELAND has served as Chief Financial Officer +of Body Media since September, 2000. Prior thereto, Mr. +Swoveland was Vice President-Finance and Treasurer of Equitable +Resources Inc since 1994. 45 1991 +CONTINUING DIRECTORS TERMS EXPIRING IN 2003 +STEVEN R. WILLIAMS has served as President and Director of PDC +since March 1983. Prior to joining PDC, Mr. Williams was employed +by Exxon until 1979 and attended Stanford Graduate School of +Business, graduating in 1981. He then worked with Texas Oil and +Gas until July 1982, when he joined Exco Enterprises, an oil and +gas investment company as manager of operations. 50 1983 +ROGER J. MORGAN has been a member of the law firm of Young, +Morgan & Cann, Clarksburg, West Virginia since 1955. Mr. Morgan +is not active in the day-to-day business of PDC, but his law +firm provides legal services to PDC. 74 1969 +DONALD B. NESTOR elected as a director in March, 2000, is a Certified +Public Accountant and a Partner in the CPA firm of Toothman +Rice, P.L.L.C. and is in charge of the firm's Buckhannon, +West Virginia office. Mr. Nestor has served in that capacity since 1975. 52 2000 +Committees of the Board of Directors +The Company has three standing committees of the Board of Directors: +the Executive Committee; the Audit Committee; and the Stock Option +and Executive Compensation Committee. The Executive Committee is +comprised of Messrs. Ryan, Williams, and Rettinger. The Audit +Committee is comprised of Messrs. D'Annunzio, Nestor, and Swoveland. +The Stock Option and Executive Compensation Committee is comprised +of Messrs. D'Annunzio, Nestor and Swoveland. The Company does not +have a formal Nominating Committee, the full Board of Directors +handles these responsibilities. The functions performed by the +Executive Committee include handling important Board of Directors +matters that arise between Board of Directors meetings, serving as a +liaison between the Board of Directors and senior management on +important matters requiring Board of Directors attention and +recommending to the Board of Directors nominations for election of +new and existing members of the Board of Directors. +The Audit Committee is comprised entirely of outside Directors +of the Company. The functions performed by the Audit Committee +include recommending the selection of independent accountants, +reviewing with the Company's independent accountants the +results of audits performed by them and overseeing and reviewing +monthly and quarterly unaudited financial statements. These +reviews include the adequacy of cash flow and the status of credit +arrangements of the Company. The Board of Directors has adopted +the Charter of the Audit Committee attached to this Proxy as +Exhibit A. +The Stock Option and Executive Compensation Committee is comprised +entirely of outside Directors of the Company. The functions +performed by this committee include recommending to the Board +of Directors compensation levels of senior management and directing +and recommending levels of corporate stock options and other benefit +plans of the Company. In this regard, the committee monitors trends +to ensure the Company's compensation levels are competitive in the +oil and natural gas industry. +Compensation Committee Interlocks and Insider Participation +The members of the Stock Option and Executive Committee are Messrs. +D'Annunzio, Nestor and Swoveland. There are no Stock Option and +Executive Committee interlocks. +Indemnification of Directors and Officers +The Company's By-Laws provide that the Company shall indemnify any +director, officer, employee, or other agent of the Company who is +or was a party, or is threatened to be made a party, to any proceeding +(other than an action by or in the right of the Company to procure a +judgment in its favor) by reason of the fact that such person is or +was an agent of the Company against expenses, judgments, fines, +settlements, and other amounts actually and reasonably incurred in +connection with such proceeding, if that person acted in good faith +and in a manner that person reasonably believed to be in the best +interest of the Company, and in the case of a criminal proceeding, +had no reasonable cause to believe the conduct of that person +was unlawful. +The Company has entered into separate indemnification agreements +with each of its directors and officers whereby the Company has +agreed to indemnify the director or officer against all expenses, +including attorneys' fees, and other amounts reasonably incurred by +the officer or director in connection with any threatened, pending +or completed civil, criminal, administrative or investigative action +or proceeding to which such person is party by reason of the fact +that he is or was a director or officer, as the case may be, of +the Company, if the person acted in good faith and in a manner +reasonably believed to be in or not opposed to the best interests +of the Company, and, with respect to any criminal action or +proceeding, the person had no reasonable cause to believe such +conduct to be unlawful. The agreements provide for the advancement +of expenses and that the Company has the right to purchase and +maintain insurance on behalf of the director or officer against any +liability or liabilities asserted against him, whether or not the +Company would have the power to indemnify the person against such +liability under any provision of the agreement. The Company has +agreed to indemnify such person against expenses actually and +reasonably incurred in connection with any action in which the +person has been successful on the merits or otherwise. +Indemnification must also be provided by the Company (unless +ordered otherwise by a court) only as authorized in the specific +case upon a determination that the indemnification of the person +is appropriate because he has met the applicable standard of +conduct described in the agreement made by (i) the Board of +Directors, by a majority vote of a quorum consisting of directors +who are not parties to such action or proceeding, (ii) by +independent legal counsel in a written opinion or (iii) the +shareholders of the Company. +Director Compensation +Each non-salaried employee director and outside director of the +Company is paid an annual fee of $20,000. Each inside director +is paid an annual fee of $10,000. +EXECUTIVE COMPENSATION +The following table sets forth in summary form the compensation +received during each of the Company's last three fiscal years by +the Chief Executive Officer and by each other executive officer +of the Company whose salary and bonus exceeded $100,000 in +2000 (the "Named Executives"). +Summary Compensation Table +Annual Compensation Long Term Compensation +Other Securities +Annual underlying All Other +Name and Compen- Options Compen- +Principal Position Year Salary($) Bonus (1)($) sation($)(2) (#)(3) sation($)(3) +James N. Ryan 2000 182,715 514,830 10,000 10,500 +Chairman and Chief 1999 178,200 470,436 10,000 12,157 +Executive Officer 1998 175,425 355,473 10,000 10,868 +Steven R. Williams 2000 144,315 514,830 10,000 10,500 +President 1999 139,800 470,436 10,000 12,157 +and Director 1998 137,025 355,473 10,000 10,838 +Dale G. Rettinger 2000 144,315 514,830 10,000 10,500 +Executive Vice President, 1999 139,800 470,436 10,000 12,157 +Treasurer, and Director 1998 137,025 355,473 10,000 10,838 +(1) In 1994, the Board of Directors approved a deferred compensation +arrangement for the Named Executives. See "Employment and Other +Agreements and Arrangements." Under the arrangements, each Named +Executive may choose to defer any portion of his bonus +compensation until retirement or separation from the Company. +Included are deferred bonuses the Named Executives voluntarily +deferred of $180,000 each in 2000, $130,000 each in 1999 and 1998. +In 2000, 1999 and 1998, $30,000 of the deferred bonus compensation +of Messrs. Williams and Rettinger was utilized to pay the premiums +of split-dollar life insurance policies for Messrs. Williams and +Rettinger. +(2) The respective Named Executives receive fees as directors of the +Company in the amount of $10,000 per year. +(3) This amount includes contributions made by the Company under the +Company's Employee Profit Sharing Plan and 401(k) plan. In 1999 +and 1998 the Company contributed $47,000 and $17,000, +respectively, to the Employee Profit Sharing Plan. Of these +contributions, each of the Named Executives was credited $2,157 +in 1999 and $911 in 1998. The Company provided a matching of +401(k) contribution based upon varying rates of the Named +Executives' respective contributions. Of the total Company +matching contribution of $252,600, $217,400 and $202,600 in +2000, 1999 and 1998 the Named Executives were credited with +matching contributions of $10,500, $10,500 and $10,500 +respectively in 2000; $10,000, $10,000 and $10,000 respectively +in 1999 and $9,957, $9,927 and $9,927, respectively in 1998. +Compensation Committee Report +The Compensation Committee is composed of three outside directors. +The committee's responsibility is to develop the Company's compensation +policy to enable the Company to hire, retain and motivate high performing +employees. The committee also administers the Company's Savings and +Protection Plan (the "401(k) Plan"), various Employee Stock Option Plans, +and the Company's Profit Sharing Plan. The committee reviews the +performance and compensation of the Chief Executive Officer, and the two +executive officers of the Company. Final approval of all contracts +with company executives is reserved to the full Board of Directors. +During 2000, and over the past five years, the company has posted +excellent operating reports. During 2000 the company posted records for +revenue, net income, cash flow, production and reserves, among other +accomplishments. Over the past five years, the company's stock has +significantly out-performed the oil and gas industry as a whole. The +compensation committee also believes that the management has positioned +the company to continue its exemplary performance in the future with a +strong balance sheet, strong cash flow, and diverse development +opportunities. It is the opinion of this committee that the management +team of the company merits compensation at the very top of its peer group. +Compensation paid to the CEO, Mr. Ryan, and to the executive +officers of the Company is based on several factors, including the terms +of their employment contracts, the earnings of the Company, the evaluation +of the Board of the performance of the employees, as well as compensation +paid to similarly situated employees with other similar firms. +As CEO, Mr. Ryan received a salary of $182,715 in 2000, which +reflected cost of living increases from his salary in 1999. Also during +2000 Mr. Ryan earned a cash bonus of $514,830 based on Company earnings, +including $141,000 to partially offset the taxes associated with an +exercise of stock options during 1999. Under the terms of his employment +contract, Mr. Ryan's bonus is based on the company's cash flow (pre-tax +earnings plus depreciation, depletion and amortization). The compensation +committee believe that the long term valuation of the company is closely +related to the company's cash flow. +As a condition of the tax reimbursement Mr. Ryan agreed not to sell +the shares received in the exercise for a period of two years. The +company's income tax savings associated the stock exercise were +greater than the reimbursement made to Mr. Ryan. In addition, the +compensation committee believes limiting the need for the executive to +sell stock to meet tax obligations to be in the interest of the +shareholders. +The Company also contributed $10,500 in 2000 to Mr. Ryan's 401(k) +account in accordance with the plan's matching provisions to all +participating employees. +The compensation of the two executive officers of the Company is +also comprised of a salary, a performance based bonus, and a tax +reimbursement associated with the exercise of stock options. Like Mr. +Ryan, the executive's performance bonuses are based on the cash flow of +the company. The executives also received a tax reimbursement estimated +to partially offset the tax liability associated with the option +exercise, and agreed to a two year sale restriction on stock obtained in +the option exercise associated with the tax reimbursement. Salaries of +both were increased by a cost of living adjustment and performance +bonuses were paid based on the Company's earnings, both as provided in the +executive's employment agreements. Both executives also received a share +of Company matching contributions to the Company 401(k) plan. +During 2000 the Company reviewed the employment contracts of the CEO +and the executive officers of the Company, and determined that no changes +were required. The Compensation Committee believes the Company has made +substantial progress over the past several years through varying industry +and economic conditions, and that the progress is attributable in large +measure to the efforts of the CEO and the executive officers. +Compensation Committee +Vincent F. D'Annunzio, Chair +Donald B. Nestor +Jeffrey C. Swoveland +Aggregated Option Exercises in Last Fiscal Year +and Fiscal Year-End Option Values +The following table provides certain information with respect to +options exercised during 2000 by the persons named in the summary +compensation under the Company's stock option plans. The table also +represents information as to the number of options outstanding as of +December 31, 2000 with respect to options granted pursuant to the +Company's Employee Stock Option Plans. No options were granted in the +last fiscal year. +Number Value of Unexercised +of Shares Value Number of Unexercised Options In-The-Money Options +Exercised Realized ($) at Year-end at Year-End(1)($) +Exercisable Unexercisable Exercisable Unexercisable +James N. Ryan 83,203 442,623 178,000 - 535,964 - +Steven R. Williams 80,689 429,249 178,000 - 535,964 - +Dale G. Rettinger 80,689 429,249 178,000 - 535,964 - +(1) On December 31, 2000, the closing sales price of the Common Stock was +$6.563 per +share. +Employment and Other Agreements and Arrangements +The Company has entered into employment agreements with each +of the Named Executives, each of which has a term ending +December 31, 2003. Pursuant to the respective terms of the +employment agreements, each of the Named Executives is entitled +to receive the basic annual salary set forth therein that is +subject to increase, but not decrease (unless dire economic +circumstances as declared by the Board of Directors requires +a reduction for all senior executive employees of the +Company), as the Board of Directors may determine to reflect +changes in the cost of living, the financial success of the +Company and the performance of such Named Executive. For +2000, the basic salary has been set by the Board of +Directors under the respective agreements as $182,715 for Mr. +Ryan, $144,315 for Mr. Williams and $144,315 for Mr. Rettinger. +Each Named Executive is also entitled to be paid an annual +bonus equal to 2.5% of the Company's annual earnings in excess +of $300,000 without deduction for Depreciation, depletion, and +amortization and income taxes. The Compensation Committee also +awarded a bonus of $141,000 to each named executive officer to +defray the income tax effect of the exercise of stock options. +In exchange, the exercised shares cannot be sold in the open +market for a period of two years from date of exercise. The +bonus is tax deductible for the company. The Company has been +required to establish a deferred compensation plan, described +below, for the Named Executives and to fund such plan with an +annual contribution of $30,000 commencing in 1994, subject to +adjustment for inflation. Commencing January 1, 2004, each +of the three executive officers will vest and be entitled to +receive an annual payment equal to $60,000 for Mr. Ryan and +$40,000 for Mr. Rettinger and Mr. Williams per year upon +retirement from the company and continuing for 10 years payable +on July 1st of each year. +In the event of a change in control of the Company, each Named +Executive has the right within six months after such change of +control to elect to terminate his employment under his employment +agreement and receive severance compensation equal to the sum of +his basic salary plus an amount equal to the average bonus paid +to him over the preceding three years as provided in the agreement +multiplied by the remaining years of the employment agreement, +provided, however, that the minimum severance compensation must not be +less than the amount equal to three years of basic compensation +plus an amount equal to three times the average bonus paid to such person +over the preceding three-year period. +Each employment agreement also provides that if the Company +obtains the right to sell working interests in any drilling program, +the Named Executive is entitled to participate as an investor +in such oil and gas drilling project subject to the prior approval +by the Board of Directors of the terms of any such participation. +Each employment agreement contains a standard non-disclosure +covenant. Each employment agreement also provides that the Named +Executive is prohibited during the term of his employment and for +a period of one year following his termination from engaging in any +business that is competitive with the Company's oil and gas +drilling business, unless his termination results from a change of +control of the Company. During any period for which the +non-competition provision prohibits the officer from pursuing +activities that would compete with the Company's business as +provided in the agreement following termination of the agreement, +the Company is required to pay the officer his basic salary and +bonus as provided in the agreement. +In the event of termination under the terms of the agreement, +the Company will be required to loan to the officer funds equal +to the exercise price of all options held by the Named Executive +under the Company's stock option plans, which loan, if made, must +be repaid within nine months and will bear interest at the prime +rate then in effect. +Each employment agreement may be terminated for cause for +willful misfeasance or malfeasance, disregard of the Named +Executive's duties or negligence related to the performance +of his duties, if so determined by a court of competent +jurisdiction. Also, the Company may terminate the employment +agreement without cause, in which case the Company must either (i) +reassign the Named Executive to a comparable executive position +or designate him as a consultant for the remaining term of his +agreement (ii) pay him liquidated damages in an amount equal +to his then basic salary for the remaining term of the employment +agreement, with a minimum payment equal to twelve months +of basic salary. +The Company has entered into stock redemption agreements with +each of the Named Executives. The agreements require the Company +to maintain life insurance policies on each of them in the amount +of $1 million. At the election of the Named Executive's estate +or heirs made within one year of such person's death, the Company +must utilize the proceeds from such insurance policies to purchase +from his estate or heirs all or a portion of his shares of the +Company's Common Stock owned by him, including shares subject +to outstanding stock options or warrants owned by such Named +Executive at the time of his death, up to an aggregate sale price +of $1 million. The purchase price for such shares of Common Stock +will be based upon the average closing asked price for the +Company's Common Stock as quoted by Nasdaq during a specified period. +The Company is not required to purchase any shares in excess of +the amount provided by such insurance policies. If the Named +Executive's estate or heirs elect not to sell any or all of the shares +to the Company, the estate or heirs will be precluded from selling +the shares to anyone for a period of two years after the +date of the person's death, except that the shares may be transferred +into the names of the decedent's heirs and beneficiaries and the +stock sold pursuant to Rule 144 under the Securities Act. +If the Named Executive terminates his employment with the Company or +disposes of all or substantially all of his shares of Common Stock +in the Company, the Named Executive has the right to purchase his +respective insurance policy for a price equal to the cash surrender +value of the policy as of the date of such event. If the Named +Executive fails to purchase the policy within ninety days after +such event, the Company may cancel all policies covering the life +of the Name Executive. The stock redemption agreements will +terminate upon bankruptcy or cessation of business by the Company. +Mr. Ryan, Mr. Williams and Mr. Rettinger are also the +participants in the Company's deferred bonus compensation plan. Under +this plan, the Company's Board of Directors must declare a year-end +bonus for each participant, the receipt of which is automatically +deferred pursuant to the plan, unless prior to the beginning of a +particular year, the participant enters into a voluntary bonus +compensation agreement under which he irrevocably elects to receive +his year-end bonus as cash compensation, payable as soon as +practicable following the end of the year. The amount of the +participant's year-end bonus is a minimum of $30,000 or such greater +amount as may be declared by the Board of Directors. The +participant also has the right to elect to defer receipt of his +other bonus compensation under this plan. Any bonus compensation +deferred under this plan will not be paid until such participant's +retirement, or upon termination of employment, disability or death +or upon hardship, as provided in the plan. A trustee selected by the +Board of Directors maintains accounts for each participant under +the plan. The Company has reserved the right to terminate the +deferred bonus compensation plan, in whole or in part, at any time +and without liability for such termination or discontinuance. +Stock Option Plans +Under the Company's incentive stock option plans, options +to purchase shares of Common Stock of the Company may be granted +to certain officers and key employees of the Company, which options +are intended to qualify as incentive stock options under the +provisions of the Internal Revenue Code. Under the plan adopted +in 1999, the Company granted options during 2000 for an aggregate +of 180,000 shares of Common Stock at an exercise price of 100% of +the fair market value per share of the Company's Common Stock on +the date of grant. None of the 180,000 options were granted to +the three executive officers of the Company. The options may be +exercised six months after the date of grant. Options will expire +ten years from the date of grant if not exercised. A dissolution +or liquidation of the Company or a merger or consolidation in which +the Company is not the surviving corporation will cause each +outstanding option to terminate, provided that each optionee, in +such event, will have the right immediately prior to said +dissolution or liquidation or merger or consolidation to exercise +his option in whole or in part without regard to any +installment vesting provisions with respect to such options. +Key-Man Life Insurance +The Company maintains key-man life insurance policies on the +lives of Messrs. Ryan, Williams and Rettinger in the amounts of +$5.0 million, $1.0 million, and $1.0 million, respectively. The +Company is the beneficiary of each policy. +Employee 401k and Profit Sharing Plan +In 1987, the Company established a retirement plan qualified +under Section 401(k) of the Internal Revenue Code. The plan is +funded by employee contributions and a company matching +contribution. Administrative costs of the plan are borne by +the Company. The employees choose from eight investment programs +and, therefore, the amount of an individual's plan assets depends +on the amount of their contributions and the performance by their +chosen investments. +In 1992, the Company began a Profit Sharing Retirement plan +to supplement the 401(k) Plan. Contributions are dependent on +corporate profitability and are at the discretion of the Board of +Directors of the Company. The Company filed and qualified the plan +with the Internal Revenue Service. +Stockholder Performance Graph +The following graph illustrates the performance of Petroleum +Development Corporation common stock over a five year period +compared to the performance of the S&P 500 Index and a peer group +index. The peer group index consists of 194 Crude Petroleum and +Natural Gas Companies. The table includes the cumulative +shareholder return assuming the reinvestment of dividends. +Petroleum Development Corporation +Stock Performance Graph +500.0 +400.0 +300.0 +200.0 +100.0 +0.0 +12/31/95 12/31/96 12/31/97 +12/31/98 +12/31/9912/31/00 +1995 1996 1997 +1998 +19992000 +Petroleum +Development +Corporation 100.0 257.69 323.08 188.46 +234.62 403.88 +Industry Index 100.0 132.97 134.78 +107.96 +131.87167.53 +Broad Market +Index 100.0 122.96 163.98 210.84 +255.22 231.98 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following table sets forth certain information regarding ownership +of the Company's Common Stock as of March 31, 2001 by (a) each person +known by the Company to own beneficially more than 5% of the +outstanding shares of Common Stock; (b) each director of the Company; +(c) each Named Executive; (d) all directors and executive officers as +a group. +Beneficial Ownership (1) +Name and Address Number Percent +Fidelity Management. . . . . . . . . . . . . . . . . . . . . . 1,623,800 10.0 +82 Devonshire Street +Boston, MA 02109 +James N. Ryan(2)(3). . . . . . . . . . . . . . . . . . . . . . . 845,568 5.1 +103 East Main Street +Bridgeport, WV 26330 +Dimensional Fund Advisors Inc. . . . . . . . . . . . . . . . . 1,099,100 6.8 +1299 Ocean Avenue +Santa Monica, CA 90401 +Steven R. Williams(3). . . . . . . . . . . . . . . . . . . . . . 559,326 3.4 +103 East Main Street +Bridgeport, WV 26330 +Dale G. Rettinger(3) . . . . . . . . . . . . . . . . . . . . . . 472,016 2.9 +103 East Main Street +Bridgeport, WV 26330 +Roger J. Morgan. . . . . . . . . . . . . . . . . . . . . . . . . .69,140 * +Vincent F. D'Annunzio. . . . . . . . . . . . . . . . . . . . . . .37,899 * +Jeffrey C. Swoveland . . . . . . . . . . . . . . . . . . . . . . .16,728 * +Donald B. Nestor . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 * +All directors and executive officers as a +group (7 persons)(4). . . . . . . . . . . . . . . . . . . . . 2,001,677 11.9 +* Less than 1% +(1) Includes shares over which the person currently holds or shares +voting or investment power. Unless otherwise indicated in the +footnotes to this table, the persons named in this table have +sole voting and investment power with respect to the shares +beneficially owned. +(2) Includes 401,389 shares owned by Mr. Ryan's wife. The balance +of the shares are owned solely by Mr. Ryan. +(3) Includes options to purchase 178,000 shares that such person can +currently exercise within 60 days. +(4) Includes options to purchase 534,000 shares that such persons +can currently exercise within 60 days. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires the Company's officers and +directors, and persons who own more than 10% of a Company's equity +securities, to file reports of ownership and changes in ownership +with the Securities and Exchange Commission. Officers, directors and +holders of more than 10% of the Common Stock are required by regulations +promulgated by the Commission pursuant to the Exchange Act to furnish the +Company with copies of all Section 16(a) forms they file. The Company +assists officers and directors, and will assist beneficial owners, if any, +of more than 10% of the Common Stock, in complying with the reporting +requirements of Section 16(a) of the Exchange Act. +Based solely on its review of the copies of such forms received by it, +the Company believes that since January 1, 2000, all Section 16(a) filing +requirements applicable to its directors, officers and greater than +10% beneficial owners were met. +Audit Committee Report +Audit Committee Report to Shareholders +The Audit Committee of the Board is responsible for providing independent, +objective oversight of the Company's accounting functions and internal +controls. The Audit Committee is composed of three directors, each of +whom is independent as defined by the National Association of Securities +Dealers' listing standards. The Audit Committee operates under a written +charter approved by the Board of Directors. A copy of the charter is +attached to this Proxy Statement as Exhibit A. +Management is responsible for the Company's internal controls and +financial reporting process. The independent accountants are responsible +for performing an independent audit of the Company's consolidated +financial statements in accordance with generally accepted auditing +standards and to issue a report thereon. The Audit Committee's +responsibility is to monitor and oversee these processes. +In connection with these responsibilities, the Audit Committee met with +management to review and discuss the December 31, 2000 financial +statements. The Audit Committee also discussed with the independent +accountants the matters required by Statement on Auditing Standards No. +61, Communication with Audit Committees. The Audit Committee also +received written disclosures from the independent accountants +required by Independence Standards Board Standard No. 1, Independence +Discussions with Audit Committees, and the Audit Committee discussed with +the independent accountants that firm's independence. +Based upon the Audit Committee's discussions with management and the +independent accountants, and the Audit Committee's review of the +representations of management and the independent accountants, the Audit +Committee recommended that the Board of Directors include the audited +consolidated financial statements in the Company's Annual Report on Form +10-K for the year ended December 31, 2000, to be filed with +the Securities and Exchange Commission. +Respectfully, +THE AUDIT COMMITTEE +Vincent F. D'Annunzio, Chair +Donald B. Nestor +Jeffrey C. Swoveland +Audit Fees +The aggregate fees billed for professional services rendered by KPMG LLP +for the audit of our annual financial statements for the year ended +December 31, 2000, and reviews of the condensed financial statements +included in our quarterly reports on Form 10-Q for the year ended December +31, 2000, were $104,970. +Additionally, KPMG LLP performs annual audits on the financial statements +of 46 limited partnerships for which the Company acts as managing general +partner. The aggregate billing for those professional services +was $189,200 for the year ended December 31, 2000. +PROPOSAL #2 +RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS +At the Meeting, the Stockholders of the Company will be asked to ratify +the Board of Directors' selection of KPMG LLP as the Company's certified +public accountants for the fiscal year ended December 31, 2001. KPMG LLP +conducted the audit for the fiscal year ended December 31, 2000. A +representative of KPMG LLP will be present at the Meeting, will have an +opportunity to make statements if he so desires, and will be available to +respond to appropriate questions. +Vote Required +A majority of the votes cast at the Annual Meeting, in person or by +proxy, is required for the ratification of the Board of Directors' +selection of independent accountants. Abstentions and broker non-votes +will not be considered as votes cast with respect to the ratification of +the Board of Directors' selection of independent accountants. +THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" PROPOSAL #2 +OTHER BUSINESS +As of the date of this Proxy Statement, management of the Company is +not aware of any matters to be brought before the Annual Meeting other +than the matters set forth in this Proxy Statement. However, if +other matters properly come before the Meeting, it is the intention of the +proxy holders named in the enclosed form of proxy to vote in accordance +with their discretion on such matters pursuant to such proxy. +General +The enclosed Proxy is solicited by the Company's Board of Directors. +The Company expects to solicit proxies primarily by mail, but solicitation +may also be made personally, by telephone or by telegraph, by +regularly employed officers and employees of the Company who will receive +no extra compensation for doing so. +The Company will request brokers and other custodians, nominees and +fiduciaries to forward proxy soliciting material to, and obtain +instructions from, the beneficial owners of shares held by record by such +persons and will reimburse reasonable out-of-pocket expenses. The Company +will bear all costs of proxy solicitation. +Stockholder Proposals for 2002 Annual Meeting +Stockholder proposals must be received by the Company at its principal +executive office on or prior to March 1, 2002 in order to be included in +the Company's proxy statement for the 2002 annual meeting of stockholders. +By Order Of The Board of Directors +James N. Ryan +Chairman +Dated: May 15, 2001 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR +BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF +SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE +FISCAL YEAR ENDED DECEMBER 31, 2000 INCLUDING FINANCIAL STATEMENTS AND +SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND +EXCHANGE COMMISSION. COPIES MAY BE OBTAINED BY WRITING TO CORPORATE +COMMUNICATIONS DEPARTMENT, PETROLEUM DEVELOPMENT CORPORATION, P.O. BOX 26, +BRIDGEPORT, WEST VIRGINIA 26330. +Exhibit A +PETROLEUM DEVELOPMENT CORPORATION +Charter of the Audit Committee of the Board of Directors +I. Audit Committee Purpose +The Audit Committee is appointed by the Board of Directors to +assist the Board in fulfilling its oversight responsibilities. +The Audit Committee's primary duties and responsibilities are to: +- Monitor the integrity of the Company's financial reporting +process and systems of internal controls regarding finance, +accounting, and legal compliance. +- Monitor the independence and performance of the Company's +independent auditors. +- Provide an avenue of communication among the independent +auditors, management and the Board of Directors. +The Audit Committee has the authority to conduct any investigation +appropriate to fulfilling its responsibilities, and it has direct +access to the independent auditors as well as anyone in the +organization. The Audit Committee has the ability to retain, at the +Company's expense, special legal, accounting, or other consultants +or experts it deems necessary in the performance of its duties. +II. Audit Committee Composition and Meetings +Audit Committee members shall meet the requirements of the NASDAQ +Exchange. The Audit Committee shall be comprised of three or more +directors as determined by the Board, each of whom shall be +independent nonexecutive directors, free from any relationship that +would interfere with the exercise of his or her independent +judgment. All members of the Committee shall have a basic +understanding of finance and accounting and be able to read and +understand fundamental financial statements, and at least one member +of the Committee shall have accounting or related financial +management expertise. +Audit Committee members shall be appointed by the Board on +recommendation of the Board of Directors. If an audit committee +Chair is not designated or present, the members of the Committee +may designate a Chair by majority vote of the Committee membership. +The Committee shall meet at least two times annually, or more +frequently as circumstances dictate. The Audit Committee Chair shall +prepare and/or approve an agenda in advance of each meeting. The +Committee should meet privately in executive session at least +annually with management, the independent auditors, and as a +committee to discuss any matters that the Committee or each of these +groups believe should be discussed. +III. Audit Committee Responsibilities and Duties +Review Procedures +1. Review and reassess the adequacy of this Charter at least +annually. Submit the charter to the Board of Directors for +approval and have the document published at least every three +years in accordance with SEC regulations. +2. Review the Company's annual audited financial statements. +Review should include discussion with management and +independent auditors of significant issues regarding +accounting principles, practices, and judgments. +3. In consultation with the management and the independent +auditors, consider the integrity of the Company's financial +reporting processes and controls. Discuss significant +financial risk exposures and the steps management has taken to +monitor, control, and report such exposures. Review +significant findings prepared by the independent auditors +together with management's responses. +4. Review with financial management the company's quarterly +financial results. Discuss any significant changes to the +Company's accounting principles and any items required to be +communicated by the independent auditors in accordance with +SAS 61 (see item 9). The Chair of the Committee may represent +the entire Audit Committee for purposes of this review. +Independent Auditors +5. The independent auditors are ultimately accountable to the +Audit Committee and the Board of Directors. The Audit +Committee shall review the independence and performance of the +auditors and annually recommend to the Board of Directors the +appointment of the independent auditors or approve any +discharge of auditors when circumstances warrant. +6. Approve the fees and other significant compensation to be paid +to the independent auditors. +7. On an annual basis, the Committee should review and discuss +with the independent auditors all significant relationships +they have with the Company that could impair the auditors' +independence. +8. Review the independent auditors audit plan discuss scope, +staffing, reliance upon management, and general audit +approach. +9. Discuss the results of the audit with the independent +auditors. Discuss certain matters required to be communicated +to audit committees in accordance with AICPA SAS 61. +10. Consider the independent auditors' judgments about the quality +and appropriateness of the Company's accounting principles as +applied in its financial reporting. +Legal Compliance +11. On at least an annual basis, review with the Company's +counsel, any legal matters that could have a significant +impact on the organization's financial statements, the +Company's compliance with applicable laws and regulations, and +inquiries received from regulators or governmental agencies. +Other Audit Committee Responsibilities +12. Annually prepare a report to shareholders as required by the +Securities and Exchange Commission. +13. Perform any other activities consistent with this Charter, the +Company's by-laws, and governing law, as the Committee or the +Board deems necessary or appropriate. +14. Maintain minutes of meetings and periodically report to the +Board of Directors on significant results of the foregoing +activities. +ADOPTED MARCH 21, 2000 \ No newline at end of file diff --git a/raw/proxies/0000077877/0000077877-01-500004/proxy_rpt.txt b/raw/proxies/0000077877/0000077877-01-500004/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000077877/0000077877-07-000079/proxy.txt b/raw/proxies/0000077877/0000077877-07-000079/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f1004a602990851792beca4d2a0db3a21160cb4d --- /dev/null +++ b/raw/proxies/0000077877/0000077877-07-000079/proxy.txt @@ -0,0 +1,4375 @@ +DEF 14A +1 +pdc2007proxy.htm +pdc2007proxy.htm +TOC +PETROLEUM +DEVELOPMENT CORPORATION +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330 +____________________ +NOTICE +OF ANNUAL MEETING OF SHAREHOLDERS +August +28, 2007, at 10:00 a.m., Local Time +____________________ +Bridgeport +Conference Center +300 +Conference Way +Bridgeport, +WV 26330 +To +the +Shareholders: +Notice +is hereby given that the +Annual Meeting of Shareholders of Petroleum Development Corporation (the +"Company") will be held at the Bridgeport Conference Center, 300 Conference +Way, +Bridgeport, West Virginia 26330, on August 28, 2007, at 10:00 a.m., local +time, +for the following purposes, all as more fully described in the accompanying +Proxy Statement: +(1) +To +elect two directors to serve three-year terms or until their successors +shall be elected and shall qualify. +(2) +To +ratify the selection of PricewaterhouseCoopers LLP by the Audit +Committee +of the Board of Directors as the Company's independent registered +public +accounting firm for the fiscal year ending December 31, +2007. +(3) +To +consider such other business as may properly come before the meeting +and +at any and all adjournments or postponements +thereof. +The +Board of Directors has fixed the +close of business on July 24, 2007, as the record date for determining the +shareholders having the right to vote at the annual meeting or any adjournment +or postponement thereof. The presence in person or by proxy of the +holders of a majority of the outstanding shares of the Company's common stock +entitled to vote is required to constitute a quorum. +Each +shareholder is cordially +invited to attend and to vote at this meeting in person. Shareholders +who do not expect to attend are requested to sign and date the accompanying +proxy card and return it promptly in the enclosed postpaid +envelope. +By +Order of the Board of +Directors, +Steven +R. Williams, +Chairman +Bridgeport, +West Virginia +July +31, 2007 +TOC +PETROLEUM +DEVELOPMENT CORPORATION +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330 +____________________ +PROXY +STATEMENT +ANNUAL +MEETING OF SHAREHOLDERS +TO +BE HELD AUGUST 28, 2007 +____________________ +The +accompanying proxy is solicited by the Board of Directors ("Board") of Petroleum +Development Corporation ("PDC" or the "Company") for use at the Annual Meeting +of Shareholders of the Company to be held on Tuesday, August 28, 2007, at +10:00 +a.m., and at any and all adjournments or postponements of the meeting, for +the +purposes set forth in this Proxy Statement and the attached Notice of Annual +Meeting of Shareholders. This Proxy Statement and the enclosed form +of proxy are first being mailed to the shareholders of the Company on or +about +July 31, 2007. +The +Company will bear the cost related to the solicitation of +proxies. The Company will reimburse brokerage firms and other +custodians, nominees and fiduciaries for reasonable and appropriate expenses +incurred by them in sending proxy materials to the beneficial owners of the +Company's common stock. In addition to solicitations by mail, +directors, officers and employees of the Company may solicit proxies by +telephone and, to the extent necessary, by telegraph, or other electronic +communication, and personal interviews without additional +compensation. +TOC +TABLE +OF CONTENTS +GENERAL +INFORMATION +1 +PROPOSALS +REQUIRING +SHAREHOLDER VOTE +3 +Proposal +1 - Election of Directors +3 +DIRECTOR +COMPENSATION +5 +Proposal +2 - Ratification of Selection of an Independent +Registered Public Accounting Firm +6 +REPORT +OF THE AUDIT +COMMITTEE +11 +ALL +OTHER BUSINESS THAT MAY COME BEFORE +THE 2007 ANNUAL MEETING +12 +SECURITY +OWNERSHIP OF CERTAIN +BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER +MATTERS +13 +Section +16(a) Beneficial Ownership Reporting +Compliance +14 +CORPORATE +GOVERNANCE +15 +Board +of Directors +15 +Director +Independence +15 +Board +Meetings and +Attendance +16 +Committees +of the +Board +16 +Communications +with +Directors +19 +Code +of Business Conduct and +Ethics +19 +Policies +and Procedures with Respect to +Transactions with Related Persons +19 +Indemnification +of Directors and +Officers +20 +Additional +Information +20 +EXECUTIVE +OFFICERS +21 +COMPENSATION +COMMITTEE +REPORT +22 +COMPENSATION +DISCUSSION AND +ANALYSIS +22 +Compensation +Philosophy +22 +Objectives +of Compensation +Program +23 +Pay-for-Performance +23 +The +Role of Equity-Based +Compensation +24 +Use +of Benchmarking to Establish Target +Compensation Levels +24 +Review +of Overall Compensation +25 +Consideration +of Prior +Compensation +25 +Elements +of Executive +Compensation +25 +Base +Salary +26 +Short-Term +Incentives +26 +Long-Term +Incentives +27 +Retirement +Plans +29 +Other +Compensation and +Benefits +29 +Termination +Benefits including Change in +Control Payments +30 +Executive +and Director Share Retention +and Ownership Guidelines +31 +Employment +Agreements +32 +Other +Agreements and +Arrangements +32 +Internal +Revenue Code Section +162(m) +33 +EXECUTIVE +COMPENSATION +34 +2006 SUMMARY +COMPENSATION +TABLE +34 +2006 +GRANTS OF PLAN-BASED AWARDS +TABLE +35 +OUTSTANDING +EQUITY AWARDS AT 2006 FISCAL +YEAR-END TABLE +36 +2006 +OPTIONS EXERCISES AND STOCK VESTED +TABLE +37 +2006 +NONQUALIFIED DEFERRED COMPENSATION +TABLE +37 +EQUITY +COMPENSATION PLAN +INFORMATION +38 +SHAREHOLDER +PERFORMANCE +GRAPH +39 +SHAREHOLDER +NOMINATIONS AND +PROPOSALS +40 +TOC +GENERAL +INFORMATION +Who +May Vote +Shareholders +of Petroleum Development Corporation ("PDC" or the "Company"), as recorded +in +the Company's stock register on July 24, 2007, may vote at the +meeting. The outstanding voting securities of the Company as of June +30, 2007, consisted of 14,887,912 shares of common stock. Each share +is entitled to one vote on each matter considered at the meeting. +How +to Vote +You +may +vote in person at the meeting or by proxy. The Board recommends you +vote by proxy even if you plan to attend the meeting. You can always +change your vote at the meeting. +How +Proxies Work +The +Board +is asking for your proxy. Giving the Board your proxy means you +authorize the Board to vote your shares at the meeting in the manner you +direct. You may vote for all, either or both director candidates, or +you may withhold your vote from either or both of the director +candidates. You may also vote for or against the other proposals, or +abstain from voting. Cumulative voting is not permitted by the +Company's By-Laws in the election of directors. +If +your +shares are held in your name, you can vote by completing, signing and dating +your proxy card and returning it in the enclosed envelope. +If +you +give the Board your signed proxy but do not specify how to vote, they will +vote +your shares in favor of their director candidates and in favor of the +ratification of the appointment of the Independent Registered Public Accounting +Firm. +If +you +hold shares through someone else, such as a stockbroker, you will receive +material from that firm asking how you want to vote. Check the voting +form used by that firm to see what voting options you have +available. +Revoking +a Proxy +You +may +revoke your proxy before it is voted by: +· +Submitting +a new signed proxy with a later +date; +· +Notifying +PDC's Secretary in writing before the meeting that you wish to +revoke your +proxy; or +· +Appearing +at the meeting, notifying the Inspectors of the Election that you +wish to +revoke your proxy, and voting in person at the +meeting. +If +you +hold your shares through someone else, such as a stockbroker, you will need +to +follow the directions they give you to revoke a proxy or otherwise vote at +the +meeting. +Quorum +In +order +to carry on the business of the meeting, there must be a quorum. This +means at least a majority of the outstanding shares eligible to vote must +be +represented at the meeting, either by proxy or in person. Treasury +shares, which are shares owned by PDC itself, are not voted and do not count +for +this purpose. +1 +TOC +Votes +Needed +The +director candidates who receive the most votes will be elected to fill the +available seats on the Board. Approval of other proposals requires +the favorable vote of a majority of the votes cast. Only votes for or +against a proposal count. Abstentions and broker non-votes count for +quorum purposes but not for voting purposes. Broker non-votes occur +when a broker returns a proxy but does not have authority from the owner +of the +stock to vote on a particular proposal. Although there are no +controlling precedents under Nevada law regarding the treatment of broker +non-votes in certain circumstances, the Company intends to apply the principles +presented herein. +Attending +in Person +Only +shareholders or their proxy holders and PDC's guests may attend the annual +meeting. For safety and security reasons, no cameras, audio or video +recording equipment, large bags, briefcases or packages will be permitted +in the +meeting. In addition, each shareholder and guest may be asked to +present valid, government-issued picture identification, such as a driver's +license, before being admitted to the meeting. +If +your +shares are held in the name of your broker, bank, or other nominee, you must +bring to the meeting an account statement or letter from the nominee indicating +that you beneficially owned the shares on July 24, 2007, the record date +for +voting. Shareholders who do not present proxies at the meeting will +be admitted upon verification of ownership at the admissions +counter. +Conduct +of the Meeting +The +Chairman has broad authority to conduct the annual meeting in an orderly +and +timely manner. This authority includes establishing rules for +shareholders who wish to address the meeting. Copies of these rules +will be available at the meeting. The Chairman may also exercise +broad discretion in recognizing shareholders who wish to speak and in +determining the extent of discussion on each item of business. In +light of the need to conclude the meeting within a reasonable period of time, +there can be no assurance that every shareholder who wishes to speak on an +item +of business will be able to do so. The Chairman may also rely on +applicable law regarding disruptions or disorderly conduct to ensure that +the +meeting is conducted in a manner that is fair to all shareholders. +Contact +Information +If +you +have questions or need more information about the annual meeting, write to +or +call: +Corporate +Secretary +Petroleum +Development +Corporation +120 +Genesis +Boulevard +P.O. +Box +26 +Bridgeport, +WV +26330 +(304) +842-3597 +For +information about +shares registered in your name, call PDC at 1-800-624-3821. You are +also invited to visit PDC's internet site at www.petd.com. Internet +site materials are not part of this proxy solicitation. +2 +TOC +PROPOSALS +REQUIRING SHAREHOLDER +VOTE +PROPOSAL +1 – ELECTION OF +DIRECTORS +As +of the +date of this proxy statement, the Company's Board of Directors ("Board") +has +seven members divided into three classes. Directors are elected for +three-year terms. The terms for members of each class end in +successive years. Unless the Board determines otherwise, directors +elected to fill vacancies hold office for a term expiring at the annual meeting +when the term for their class expires. +The +Board +of Directors has nominated two directors, Vincent F. D'Annunzio and Thomas +E. +Riley, whose terms expire in 2007, to stand for election to the board for +a +three-year term expiring in 2010. Mr. D'Annunzio has served on the +Board since 1989 and currently serves as the Chair of the Nominating and +Governance Committee of the Board as well as a member of the Compensation +and +Executive Committees. Mr. Riley, President of PDC, currently serves +as a member of the Executive and Planning and Finance Committees of the +Board. +The +appointed proxies will vote your proxy for the election of the two nominees +unless you withhold your authority to vote for either or both of +them. The Board does not contemplate that any of the nominees will +become unavailable for any reason; however, if any director is unable to +stand +for election, the Board may reduce its size or choose a +substitute. Proxies cannot be voted for a greater number of persons +than the number of nominees named. +NOMINEES +FOR A THREE YEAR TERM EXPIRING IN 2010 +Name, +Principal +Occupation +for Past Five Years +and +Other Directorships +Age +Year +First +Elected +Director +VINCENT +F. D'ANNUNZIO has served as president of Beverage Distributors, +Inc. +located in Clarksburg, West Virginia since 1985. +54 +1989 +THOMAS +E. RILEY assumed the position of President in December +2004. Previously, Mr. Riley served as Executive Vice President +of Production, Natural Gas Marketing and Business Development since +November 2003. Prior thereto, Mr. Riley served as Vice +President Gas Marketing and Acquisitions of the Company since April +1996. Prior to joining the Company, Mr. Riley was president of +Riley Natural Gas Company, a natural gas marketing company which +the +Company acquired in April 1996. +54 +2004 +3 +TOC +Continuing +Directors with Terms Expiring in 2008 +DAVID +C. PARKE is a managing director in the investment banking group +of +Boenning & Scattergood, Inc., West Conshohocken, Pennsylvania, a +full-service investment banking firm. Prior to joining Boenning +& Scattergood in November 2006, he was a director with Mufson Howe +Hunter & Company LLC, Philadelphia, Pennsylvania, an investment +banking firm, from October 2003 to November 2006. From 1992 +through 2003, Mr. Parke was director of corporate finance of Investec, +Inc., and its predecessor Pennsylvania Merchant Group Ltd., investment +banking companies. Prior to joining Pennsylvania Merchant +Group, Mr. Parke served in the corporate finance departments of +Wheat +First Butcher & Singer, now part of Wachovia Securities, and Legg +Mason, Inc., now part of Stifel Nicolaus. Mr. Parke serves as a +member of the board of directors of Zunicom, Inc., a public company +providing business communication services to the hospitality +industry. +40 +2003 +JEFFREY +C. SWOVELAND is the chief operating officer of Coventina Healthcare +Enterprises, a medical device company specializing in therapeutic +warming +and multi-modal treatment systems used in the treatment, rehabilitation +and management of pain. Previously, Mr. Swoveland served as the +chief financial officer of Body Media, a life-science company specializing +in the design and development of wearable body monitoring products +and +services, from September 2000 to May 2007. Prior thereto, Mr. +Swoveland held various positions, including vice president of finance, +treasurer and interim chief financial officer, with Equitable Resources, +Inc., a diversified natural gas company, from 1997 to September +2000. Mr. Swoveland serves as a member of the board of +directors of Linn Energy, LLC, a public, independent natural gas +and oil +company. +52 +1991 +Continuing +Directors with Terms Expiring in 2009 +KIMBERLY +LUFF WAKIM, an +attorney and certified public accountant, is a partner with the +law firm +Thorp, Reed & Armstrong LLP. Ms. Wakim joined Thorp Reed +& Armstrong LLP in 1990. +49 +2003 +STEVEN +R. WILLIAMS was elected Chairman and Chief Executive Officer in +January +2004. Mr. Williams served as President from March 1983 until +December 2004. +56 +1983 +ANTHONY +J. CRISAFIO is a certified public accountant and serves as an independent +business consultant, providing financial and operational advice +to +businesses since 1995. He owned two small businesses during the +period of 1991 to 2002. Additionally, Mr. Crisafio served as +the chief operating officer of Cinema World, Inc. from 1989 until +1993 and +was a partner with Ernst & Young from 1986 until 1989. +54 +2006 +4 +TOC +DIRECTOR +COMPENSATION +Each +non-employee director received an annual retainer of $40,000 during +2006. Additionally, non-employee directors receive a fee for being a +member of certain committees. During the third quarter of 2006, the +audit committee chairperson began receiving an annual fee of $13,000, payable +quarterly, and the other audit committee members began receiving an annual +fee +of $8,000 each, payable quarterly. The compensation committee +chairperson received an annual fee of $2,500 and the nominating committee +chairperson received an annual fee of $2,500. Non-employee directors +also receive restricted stock compensation. Pursuant to the +shareholder approved Non-Employee Director Restricted Stock Plan (the +“Restricted Stock Plan”), as of the date of each annual shareholders meeting of +the Company each non-employee director will be awarded a specified number +of +shares of restricted stock as determined by the Board. Directors +receiving restricted stock under the Restricted Stock Plan will have all +of the +rights of a shareholder including the right to vote the shares and receive +cash +dividends and other cash distributions. Restricted stock will be +subject to the restrictions for the restricted period commencing on the date +the +stock is awarded. +Each +non-employee director can choose to defer a portion or all of their annual +cash +compensation by participating in the Non-Employee Director Deferred Compensation +Plan. The plan's trustee will invest all cash deposits received +exclusively in the common stock of the Company. +For +the +2007-2008 Board term, each non-employee director will be paid an annual fee +of +$55,000 and will receive 2,000 shares of restricted stock, which will be +awarded +on the date of the annual meeting. Additional fees will be paid to +the Presiding Independent Director of $27,500, the Audit Committee Chair +of +$22,500, Audit Committee members of $10,000, Chairs of the Compensation, +Planning and Finance and Nominating and Governance Committees of $7,500 for +each +committee for which he or she serves as Chair, and members of the Compensation, +Executive, Planning and Finance and Nominating and Governance Committees +of +$2,500 for service on each committee on which he or she serves. +2006 +Director Compensation Table +Fees +Earned/ +Stock +Option +All +Other +Name +Paid +in Cash +Awards +(1) +Awards +Compensation +Total +Kimberly +Luff Wakim +$ 46,500 +(2) +$ 26,310 +$ - +$ - +$ 72,810 +Vincent +F. D'Annunzio +42,500 +(3) +41,464 +- +- +83,964 +David +C. Parke +44,500 +23,088 +- +- +67,588 +Jeffrey +C. Swoveland +45,250 +23,088 +- +- +68,338 +Donald +B. Nestor +35,750 +(4) +19,996 +- +- +55,746 +Anthony +J. Crisafio +12,000 +2,882 +- +- +14,882 +_______________ +(1) +Represents +compensation expense recorded by the Company pursuant to FAS +123(R). +(2) +Includes +amounts deferred (20%) pursuant to stock purchase +election. +(3) +Includes +amounts deferred (100%) pursuant to stock purchase +election. +(4) +Retired +from directorship on September 1, 2006; Mr. Nestor received a prorated +annual retainer and fees for three quarters of the year based on +his time +of service. +THE +BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES TO THE BOARD +OF +DIRECTORS SET FORTH IN THIS PROPOSAL 1. +5 +TOC +PROPOSAL +2 - RATIFICATION OF SELECTION OF AN +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The +Audit +Committee has the authority to appoint and discharge the independent registered +public accounting firm. On +May 24, 2007, the Audit Committee recommended and the Board ratified the +engagement of PricewaterhouseCoopers LLP ("PwC") as the Company’s independent +registered public accounting firm with respect to its year ending December +31, +2007. The Board is submitting the appointment of PwC to the +shareholders for ratification. If the appointment of PwC is not +ratified, the Board will require the Audit Committee to reconsider its +selection. A representative of PwC is expected to be present at the +meeting, will have an opportunity to make a statement if he or she so desires, +and will also be available to respond to appropriate questions. It is +not expected that representatives of KPMG LLP ("KPMG"), the Company’s +independent registered public accounting firm for 2006, will be present at +the +annual meeting of shareholders. +During +the Company’s two most recent fiscal years ended December 31, 2006 and 2005, and +through May 24, 2007, the Company did not consult with PwC regarding either +(i) +the application of accounting principles to a specified transaction, either +completed or proposed, or the type of audit opinion that might be rendered +on +the Company’s financial statements, and neither a written report was provided to +the Company nor oral advice was provided that PwC concluded was an important +factor considered by the Company in reaching a decision as to any of the +accounting, auditing or financial reporting issues; or (ii) any matter that +was +either the subject of a disagreement, as that term is defined in paragraph +304(a)(1)(iv) of Regulation S-K, or a reportable event required to be reported +under paragraph 304(a)(1)(v) of Regulation S-K. +On +May +24, 2007, the Audit Committee recommended, and the Board ratified, the dismissal +of KPMG as its principal accountants. The audit reports of KPMG on +the consolidated financial statements of the Company as of December 31, 2006 +and +2005, and for the three years ended December 31, 2006, contained no adverse +opinion or disclaimer of opinion, nor were such reports qualified or modified +as +to uncertainty, audit scope or accounting principles, except as +follows: +The +audit +report of KPMG on the Company’s consolidated financial statements as of December +31, 2006 and 2005, and for the three years ended December 31, 2006, dated +May +22, 2007, indicated that, as described in Note 1 to such consolidated financial +statements, the Company adopted the provisions of Statement of Financial +Accounting Standards No. 123(R), Share-Based Payment , and the Company +changed its method of quantifying errors based on SEC Staff Accounting Bulletin +No. 108, Considering the Effects of Prior Year Misstatements when +Quantifying Misstatements in Current Year Financial Statements , in +2006. +The +audit +reports of KPMG on management's assessment of the effectiveness of internal +control over financial reporting and the effectiveness of internal control +over +financial reporting as of December 31, 2006 and 2005, did not contain any +adverse opinion or disclaimer of opinion, nor were they qualified or modified +as +to uncertainty, audit scope, or accounting principles, except that: +(1) +KPMG's +report as of December 31, 2006, includes an explanatory paragraph +stating +that “the Company acquired Unioil on December 6, 2006, and management +excluded from its assessment of the effectiveness of the Company's +internal control over financial reporting as of December 31, 2006, +Unioil’s internal control over financial reporting associated with total +assets of $26.1 million and total revenues of $0.3 million included +in the +consolidated financial statements of the Company as of and for +the year +ended December 31, 2006. Our audit of internal control over +financial reporting of the Company also excluded an evaluation +of the +internal control over financial reporting of +Unioil.” +6 +TOC +(2) +KPMG’s +reports indicate that the Company did not maintain effective internal +control over financial reporting as of December 31, 2006 and 2005, +because +of the effect of material weaknesses on the achievement of the +objectives +of the control criteria as described +below: +Material +Weaknesses as of December 31, 2006, Identified in KPMG’s +Report +· +The +Company did not have effective policies and procedures to ensure +the +timely reconciliation, review and adjustment of significant balance +sheet +and income statement accounts. As a result, material +misstatements were identified during the Company's closing process +in +certain significant balance sheet and income statement accounts +of the +Company’s 2006 consolidated financial statements. This +deficiency resulted in a more than remote likelihood that a material +misstatement of the Company’s annual or interim financial statements would +not be prevented or detected. +· +The +Company did not have effective policies and procedures, or personnel +with +sufficient technical expertise to ensure proper accounting for +derivative +instruments. Specifically, the Company’s internal control +processes did not ensure the completeness of all derivative contracts +related to oil and gas sales, and also did not ensure the determination +of +the fair value of certain derivatives. As a result, +misstatements were identified in the fair value of derivatives +and related +income statement accounts of the Company’s 2006 consolidated financial +statements. This deficiency resulted in a more than remote +likelihood that a material misstatement of the Company’s annual or interim +financial statements would not be prevented or +detected. +· +The +Company did not have effective policies and procedures to ensure +proper +accounting for oil and gas properties. Specifically, the +Company’s review procedures were not sufficient to ensure that the +calculations of depreciation and depletion were performed accurately +and +that the capitalization of costs was performed in accordance with +the +applicable authoritative accounting guidance. As a result, +misstatements were identified in 2006 in depreciation, depletion +and +amortization expense of the Company’s consolidated financial +statements. This deficiency resulted in a more than remote +likelihood that a material misstatement of the Company’s annual or interim +financial statements would not be prevented or +detected. +Material +Weaknesses as of December 31, 2005, Identified in KPMG’s +Report +The +Company did not have effective policies and procedures, and was not adequately +staffed with accounting personnel possessing an appropriate level of technical +expertise in U.S. generally accepted accounting principles, as further described +below: +· +The +Company did not have effective policies and procedures, or personnel +with +sufficient technical expertise, to properly account for derivative +transactions in accordance with generally accepted accounting +principles. Specifically, the Company's policies and procedures +relating to derivatives transactions were not designed effectively +to +ensure that each of the requirements for hedge accounting was evaluated +appropriately with respect to the Company's commodity based +derivatives. Additionally, the Company's policies and +procedures relating to the derivative transactions entered into +on behalf +of affiliated partnerships were not adequate to ensure these transactions +were recorded properly in the financial statements. As a +result, a misstatement was identified in the fair value of derivatives +and +the oil and gas price risk management loss accounts that was corrected +prior to the issuance of the Company's 2005 consolidated financial +statements. This deficiency results in more than a remote +likelihood that a material misstatement of the Company's annual +or interim +consolidated financial statements would not be prevented or +detected. +7 +TOC +· +The +Company did not have effective policies and procedures, or personnel +with +sufficient technical expertise, to ensure compliance with appropriate +accounting principles for its oil and gas +properties. Specifically, the Company's policies and procedures +were not designed effectively to ensure that the calculation of +depreciation and depletion and the determination of impairments +were +performed in accordance with the applicable authoritative accounting +guidance. As a result, misstatements were identified in the +accumulated depreciation, depletion and amortization and the depreciation, +depletion and amortization expense accounts that was corrected +prior to +the issuance of the Company's 2005 consolidated financial +statements. This deficiency results in more than a remote +likelihood that a material misstatement of the Company's annual +or interim +consolidated financial statements would not be prevented or +detected. +· +The +Company did not have effective policies and procedures, or personnel +with +sufficient technical expertise, to ensure proper accounting and +disclosure +for income taxes. Specifically, the Company's policies and +procedures did not provide for appropriate control documentation +or +supervisory review of permanent and temporary differences, or assessment +of tax reserves to ensure that they were properly reflected and +disclosed +in the Company's financial statements. As a result, +misstatements were identified in the deferred income tax liability +and +income tax expense accounts in the Company's preliminary 2005 consolidated +financial statements. This deficiency results in more than a +remote likelihood that a material misstatement of the Company's +annual or +interim consolidated financial statements would not be prevented +or +detected. +· +The +Company did not have effective policies and procedures, or personnel +with +sufficient technical expertise, to ensure that its accounting for +asset +retirement obligations complied with generally accepted accounting +principles. Specifically, the Company's policies and procedures +regarding the estimate of the fair value of the asset retirement +obligations were not designed effectively to ensure that it was +estimated +in accordance with FAS No. 143, Asset Retirement +Obligations . This deficiency results in more than a remote +likelihood that a material misstatement of the Company's annual +or interim +consolidated financial statements would not be prevented or +detected. +· +The +Company did not have effective policies and procedures, or personnel +with +sufficient technical expertise, to provide for adequate monitoring +and +assessment of the application of accounting principles, standards +or rules +as it relates to proportionate consolidation in a timely +manner. As a result of this control deficiency, the Company did +not appropriately eliminate its proportionate share of transactions +with +the Company sponsored limited partnerships, which resulted in the +restatement of the Company's financial statements for the first +three +quarters of 2005, the years ended December 31, 2004, 2003, 2002, +and 2001 +and each of the quarters in 2004 and +2003. +During +the two years ended December 31, 2006, and the subsequent interim period +through +May 24, 2007, there were no: 1) disagreements with KPMG on any matter of +accounting principles or practices, financial statement disclosure, or auditing +scope or procedure that, if not resolved to KPMG’s satisfaction, would have +caused KPMG to make reference to the subject matter of the disagreement in +connection with its audit reports on the Company’s financial statements for such +years, or 2) reportable events, except for the material weaknesses described +above. +KPMG +has +been authorized to respond fully to the inquiries of the successor independent +registered public accounting firm concerning the subject matter of the +foregoing. +8 +TOC +In +connection with its change in independent registered public accounting firm, +the +Company provided KPMG with a copy of the foregoing statements and requested +that +KPMG furnish the Company with a letter addressed to the Securities and Exchange +Commission stating whether KPMG agreed with the foregoing statements, and, +if +not, stating the respects in which KPMG did not agree. KMPG furnished +the Company with such a letter, addressed to the SEC. A copy of +KPMG's letter was filed as an Exhibit to a Current Report on Form 8-K filed +with +the SEC on May 31, 2007. +Principal +Accountant Fees and Services +The +following table presents the aggregate fees billed to the Company by PwC +and +KPMG for services in 2006 and 2005 as of June 30, 2007. +PwC +KPMG +2006 +2005 +2006 +2005 +Audit +fees +$ - +$ - +$ 3,261,822 +$ 2,457,423 +Audit +related fees +- +- +983,701 +394,543 +Tax +fees +346,743 +258,131 +- +- +Total +fees (1) +$ 346,743 +$ 258,131 +$ 4,245,523 +$ 2,851,966 +_______________ +(1) +There +were no other fees for services rendered to the Company during +either of +the years by either PwC or +KPMG. +Audit +Fees . Include amounts billed for professional services rendered +by KPMG for audit procedures performed with regard to the Company's annual +consolidated financial statements and the report on management's assessment +of +internal control over financial reporting and the effectiveness of the Company's +internal control over financial reporting for the years ended December 31, +2006 +and 2005, including reviews of the condensed consolidated financial statements +included in the Company's quarterly reports on Form 10-Q during the years +ended +December 31, 2006 and 2005. The 2005 audit fees also include fees +billed for professional services rendered by KPMG for the audit of the +consolidated financial statements included in the Company's Form 10-K/A for +the +year ended December 31, 2004. +Audit +Related Fees . Include amounts billed for professional services +rendered by KPMG for the audits of the annual financial statements of the +Company-sponsored drilling partnerships for which the Company acts as managing +general partner. The aggregate billings for those professional +services rendered during 2006 primarily represent audits for years ended +December 31, 2005 and prior. Total audit related fees for the year +ended December 31, 2006, includes $39,450 related to due diligence services +provided for the acquisition of Unioil and for the year ended December 31, +2005, +includes $140,977 related to due diligence services provided for a contemplated +transaction. +Tax +Fees . Include amounts billed for professional services rendered +by PwC primarily for partnership tax services. The Audit Committee +has considered the nature of such services provided to the Company by PwC +prior +to its engagement of PwC as the Company's Independent Registered Public +Accounting Firm, and believes that such services did not create any real +or +perceived conflicts, independence issues, or other impediments to retaining +the +services of PwC as the Company's auditors for 2007. +9 +TOC +Audit +Committee Pre-Approval Policies and Procedures +The +Sarbanes-Oxley Act of 2002 requires that all services provided to the Company +by +its Independent Registered Public Accounting Firm be subject to pre-approval +by +the Audit Committee or authorized members of the Committee. The Audit +Committee has adopted policies and procedures for pre-approval of all audit +services and non-audit services to be provided by the Company's Independent +Registered Public Accounting Firm. Services necessary to conduct the +annual audit must be pre-approved by the Audit Committee annually at a +meeting. Permissible non-audit services to be performed by the +independent accountant may also be approved on an annual basis by the Audit +Committee if they are of a recurring nature. Permissible non-audit +services, which are not eligible for annual pre-approval, to be conducted +by the +independent accountant must be pre-approved individually by the full Audit +Committee or by an authorized Audit Committee member. Actual fees +incurred for all services performed by the independent accountant will be +reported to the Audit Committee after the services are fully +performed. The duties of the Committee are described in the Audit +Committee Charter, which is available at the Company's website under Corporate +Governance. +THE +BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 2. PROXIES +SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY +VOTE. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON +STOCK CAST AT THE MEETING REPRESENTED IN PERSON OR BY PROXY AND ENTITLED +TO VOTE +AT THE MEETING IS REQUIRED FOR APPROVAL OF THIS PROPOSAL +2. +10 +TOC +REPORT +OF THE AUDIT +COMMITTEE +The +Audit +Committee of the Board is composed of four directors and operates under a +written charter adopted by the Board of Directors. Each member of the +committee meets the independence requirements of Rule 4200(a)(15) of the +NASDAQ's listing standards. The duties of the Committee are +summarized in this proxy statement under "Committees of the Board of Directors" +and are more fully described in the charter, which is available at the Company’s +website under “Corporate Governance.” +Management +is responsible for the Company's internal controls and preparation of the +consolidated financial statements in accordance with generally accepted +accounting principles. The Company's Independent Registered Public +Accounting Firm is responsible for performing an independent audit of +consolidated financial statements in accordance with the standards of the +Public +Company Accounting Oversight Board (United States) and issuing a report +thereon. The Committee's responsibilities include monitoring and +overseeing these processes. +The +Committee met 23 times during 2006, and has continued to meet frequently +during +2007. In addition to normal meetings to accomplish the work of the +Committee, the Committee also held numerous meetings with the management +of the +Company and KPMG LLP to review the progress on the implementation of improved +internal controls early in the year, and regarding the causes, impacts and +corrective measures related to the Company's historical accounting errors +and +financial statements at various times throughout 2006 and into early +2007. +In +this +context, the Committee reviewed and discussed the Company's audited consolidated +financial statements for the year ended December 31, 2006 (the "audited +financial statements") with management and the Company's Independent Registered +Public Accounting Firm for 2006, KPMG LLP. The Committee also +discussed with KPMG LLP the matters required to be discussed by Statement +of +Auditing Standards No. 61, as amended ( Communication with Audit +Committees ), and KPMG LLP directly provided reports on significant matters +to the Committee. +The +Committee has received the written disclosures and the letter from KPMG LLP +required by Independence Standards Board Standard No. 1 ( Independence +Discussion with Audit Committees ), and has discussed with KPMG LLP its +independence from the Company. +The +Committee has discussed with management and KPMG LLP such other matters and +received such assurances from them as the Committee deemed +appropriate. +Based +on +the foregoing review and discussions and relying thereon, the Committee +recommended that the Board of Directors include the audited financial statements +in the Company's Annual Report on Form 10-K for the year ended December 31, +2006. +On +May +24, 2007, the Committee dismissed KPMG LLP as the Company's Independent +Registered Public Accounting Firm, and appointed PricewaterhouseCoopers LLP +("PwC") to serve as the Company's Independent Registered Public Accounting +Firm +for 2007. In connection therewith, the Audit Committee considered +whether the provision of non-audit services by PwC prior to their engagement +was +compatible with maintaining the Independent Registered Public Accounting +Firm’s +independence. This appointment is subject to ratification by the +Company's shareholders. +Jeffrey +C. Swoveland, Chair +Kimberly +Luff Wakim +David +C. Parke +Anthony +J. Crisafio +AUDIT +COMMITTEE +of +the Board of Directors +11 +TOC +ALL +OTHER BUSINESS THAT MAY COME BEFORE THE +2007 ANNUAL MEETING +As +of the +date of this proxy statement, the Board is not aware of any matters to be +brought before the 2007 annual meeting other than the matters set forth in +this +proxy statement. However, if other matters properly come before the +meeting, it is the intention of the proxy holders named in the enclosed form +of +proxy to vote in accordance with their discretion on such matters pursuant +to +such proxy. +12 +TOC +SECURITY +OWNERSHIP OF CERTAIN +BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER +MATTERS +The +following table sets forth certain information regarding ownership of the +Company's common stock as of June 30, 2007, by (a) each person known by the +Company to own beneficially more than 5% of the outstanding shares of common +stock; (b) each director of the Company; (c) each executive officer; and +(d) all +directors and executive officers as a group. As of June 30, 2007, +14,887,912 common shares of the Company were issued and +outstanding. +Name +and Address of Beneficial Owner +Number +of +Shares +Beneficially +Owned +Percent +of +Shares +Beneficially +Owned +FMR +Corp. +82 +Devonshire Street +Boston, +MA 02109 +2,420,360 +(1) +16.3% +Steinberg +Asset Management, LLC +12 +East 49th Street +New +York, NY 10017 +2,085,868 +(2) +14.0% +Kayne +Anderson Rudnick +Investment +Management, LLC +1800 +Avenue of the Stars, 2nd Floor +Los +Angeles, CA 90067 +1,078,093 +(3) +7.2% +Barclays +Global Investors, NA +45 +Fremont Street +San +Francisco, CA 94105 +1,029,403 +(4) +6.9% +Steven +R. Williams +310,931 +(5) +2.1% +Thomas +E. Riley +104,605 +(6) +* +Eric +R. Stearns +56,828 +(7) +* +Richard +W. McCullough +- +(8) +* +Darwin +L. Stump +26,540 +(9) +* +Vincent +F. D'Annunzio +21,042 +* +Jeffrey +C. Swoveland +12,916 +* +Kimberly +Luff Wakim +4,479 +* +David +C. Parke +4,129 +* +Anthony +J. Crisafio +1,035 +* +All +directors and executive officers +as +a group (10 persons) (10) +542,505 +(11) +3.6% +_______________ +* +Less +than 1% +13 +TOC +(1) +According +to the Schedule 13G filed by FMR Corp. with the SEC on February +14, +2007. +(2) +According +to the Schedule 13G filed by Steinberg Asset Management with the +SEC on +February 9, 2007. +(3) +According +to the Schedule 13G filed by Kayne Anderson Rudnick Investment +Management +with the SEC on February 5, +2007. +(4) +According +to the Schedule 13G filed by Barclays Global Investors, NA with +the SEC on +January 23, 2007. +(5) +Includes +4,814 shares subject to options exercisable within 60 days of June +30, +2007; excludes 19,561 restricted shares subject to +vesting. +(6) +Includes +3,179 shares subject to options exercisable within 60 days of June +30, +2007; excludes 13,971 restricted shares subject to +vesting. +(7) +Includes +2,928 shares subject to options exercisable within 60 days of June +30, +2007; excludes 12,597 restricted shares subject to +vesting. +(8) +Excludes +4,256 restricted shares subject to +vesting. +(9) +Includes +2,605 shares subject to options exercisable within 60 days of June +30, +2007; excludes 9,316 restricted shares subject to +vesting. +(10) +Address: 120 +Genesis Boulevard, Bridgeport, WV +26330. +(11) +Includes +13,526 shares subject to options exercisable within 60 days of +June 30, +2007; excludes 59,701 restricted shares subject to +vesting. +Section +16(a) Beneficial Ownership Reporting +Compliance +Section +16(a) of the Exchange Act +requires the Company's officers and directors, and persons who own more than +10% +of the Company's equity securities, to file reports of ownership and changes +in +ownership with the Securities and Exchange Commission. Officers, +directors and holders of more than 10% of the common stock are required by +regulations promulgated by the Commission pursuant to the Exchange Act to +furnish the Company with copies of all Section 16(a) forms they +file. The Company assists officers and directors, and will assist +beneficial owners, if any, of more than 10% of the common stock, in complying +with the reporting requirements of Section 16(a) of the Exchange +Act. +Based +solely on its review of the copies of such forms received by it, the Company +believes that since January 1, 2006, all Section 16(a) filing requirements +applicable to its directors, officers and greater than 10% beneficial owners +were met. +14 +TOC +CORPORATE +GOVERNANCE +Corporate +Governance Guidelines +The +Board +has adopted Corporate Governance Guidelines that govern the structure and +functioning of the Board and establish the Board's policies on a number of +governance issues. The Guidelines are posted under “Governance +Policies” in the Corporate Governance section of the Company's internet site at +www.petd.com . They are also available to any shareholder on +request; see "Contact Information" above. +Board +of Directors +The +Company's By-Laws provide that the number of members of the Board of Directors +shall be designated from time to time by a resolution of the Board; and, +in the +absence of such designation, the number of directors shall be +seven. The By-Laws provide that the Board shall be divided into three +separate classes of directors which are required to be as nearly equal in +number +as practicable. At each annual meeting of shareholders one class of +directors, whose term expires, will be elected to a term of three +years. The classes are staggered so that the term of one class +expires each year. There is no family relationship between any +director or executive officer and any other director or executive officer +of the +Company. There are no arrangements or understandings between any +director or officer and any other person pursuant to which the person was +selected as an officer. +Director +Independence +Subject +to some exceptions and transition provisions, the NASDAQ standards generally +provide that a director will not be independent if: +(A) +the +director is, or at any time during the past three years was, employed +by +the Company; +(B) +the +director or a member of the director's immediate family has received +from +the Company compensation of more than $100,000 during any period +of 12 +consecutive months within the three years preceding the determination +of +independence other than for service as a +director; +(C) +the +director is a family member of an individual who is, or at any +time during +the past three years was, an executive officer of the +Company; +(D) +the +director or a member of the director's immediate family is a partner +in, +or a controlling person of, or an executive officer of any organization +to +which PDC made, or from which PDC received, payments for property +or +services in the current or any of the three past fiscal years that +exceed +5% of the recipient’s consolidated gross revenues for that year, or +$200,000, whichever is more; +(E) +the +director or a member of the director's immediate family is employed +as an +executive officer of another entity where at any time during the +past +three years any of the Company’s executive officers serves on the +compensation committee of the other entity; +or +(F) +the +director or a member of the director's immediate family is a current +partner of PwC, the Company's independent registered public accounting +firm, or during the past three years was a partner or employee +of either +PwC or KPMG, the Company's former independent registered public +accounting +firm. +Additionally, +Audit Committee members are subject to additional, more stringent NASDAQ +and +Exchange Act requirements. +15 +TOC +The +Board has +reviewed business and charitable relationships between the Company and each +non-employee director to determine compliance with the NASDAQ standards +described above and to evaluate whether there are any other facts or +circumstances that might impair a director's independence. The Board +has determined that all non-employee directors are independent under NASDAQ +Marketplace Rule 4200 and the Exchange Act. +Board +Meetings and +Attendance +The +Board met +10 times in 2006. Each of PDC's directors attended at least 75% of +the aggregate Board and committee meetings during 2006. +Annual +Meeting Attendance +As +specified +in the Company's Corporate Governance Guidelines, directors are strongly +encouraged to attend the annual meeting of shareholders. All +directors attended last year's meeting. +Committees +of the +Board +The +following +table identifies the current membership and chair of the five standing +committees of the Board. +Name +Audit +Compensation +Executive +Nominating/ +Corporate Governance +Planning/ +Finance +Jeffrey +C. Swoveland +Chair +– +Member +– +Member +Kimberly +Luff Wakim +Member +– +– +Member +– +Vincent +F. D'Annunzio +– +Member +Member +Chair +– +David +C. Parke +Member +Chair +– +Member +Chair +Anthony +J. Crisafio +Member +Member +– +– +– +Steven +R. Williams +– +– +Chair +– +– +Thomas +E. Riley +– +– +Member +– +Member +The +non-employee directors meet in "executive sessions" without the presence +of +employee directors, Messrs. Williams and Riley, generally in connection with +each regularly scheduled board meeting. Mr. Swoveland serves as +Presiding Independent Director at these sessions; however, the other +non-employee directors may, in the event of his absence, select another director +to preside over a particular session. +Audit +Committee +The +Audit +Committee, which met 23 times in 2006, is comprised entirely of persons whom +the +Board has determined to be independent under NASDAQ Rule 4200(a)(15), Section +301 of the Sarbanes-Oxley Act of 2002 and Section 10A(m)(3) of the Exchange +Act.. Mr. Swoveland chairs the committee; other audit committee +members are Ms. Wakim, Mr. Parke and Mr. Crisafio. The Board has +determined that Mr. Swoveland and the other Audit Committee members, with +the +exception of Mr. Parke, qualify as audit committee financial experts as defined +by SEC regulations and are all, without exception, independent of +management. The audit committee’s purpose is to assist the Board in +monitoring the integrity of the financial reporting process, systems of internal +controls and financial statements of the Company, and compliance by the Company +with legal and regulatory requirements. Additionally, the committee +is directly responsible for the appointment, compensation and oversight of +the +independent auditors employed by the Company for the purpose of preparing +or +issuing an audit report or related work and to assess the need for an internal +audit function and recommend its establishment when deemed +appropriate. +16 +TOC +In +performing +its responsibilities, the Audit Committee monitors the integrity of the +Company's financial reporting process and systems of internal controls regarding +finance, accounting and legal compliance; monitors the independence of the +Independent Registered Public Accounting Firm; and provides an avenue of +communications among the Independent Registered Public Accounting Firm, +management and the Board of Directors. The Board has adopted a +Charter of the Audit Committee which is posted on the Company's +website. The Board continues to assess the adequacy of the Charter +and will revise it as necessary. +Compensation +Committee +The +Board has +determined that all members of the Compensation Committee are independent +of the +Company under Rule 4200(a)(15) of the NASDAQ's listing standards. The +Compensation Committee met nine times in 2006. The Board has adopted +a Compensation Committee Charter which is posted on the Company's +website. +The +purpose +and functions of the Compensation Committee are to (1) oversee the development +of a compensation strategy for the Company subject to approval by the Board, +(2) +oversee the administration of the Company's compensation programs, (3) evaluate +the performance of and set compensation for the Chief Executive Officer, +(4) +review and approve the elements of compensation for other executive officers +of +the Company, (5) negotiate the terms of employment agreements with executive +officers of the Company, (6) review the compensation of the Company's Directors +and recommend changes in compensation levels to the Board of Directors, (7) +recommend equity-based incentive programs necessary to implement the Company's +compensation strategy, and (8) administer all equity-based incentive programs +of +the Company. +Compensation +Committee Interlocks and Insider Participation . There are no +Compensation Committee interlocks. +Executive +Committee +The +purpose +and functions of the Executive Committee are to exercise the powers and duties +of the Board between Board meetings and, while the Board is not in session, +implement the policy decisions of the Board. The Board has adopted an +Executive Committee Charter which is posted on the Company's +website. +Nominating +and Governance Committee +The +Board has +determined that all members of the Nominating and Governance Committee are +independent of the Company under Rule 4200(a)(15) of the NASDAQ's listing +standards. The Nominating and Governance Committee met five times in +2006. The purpose and functions performed by the Committee are to (1) +assist the Board by identifying individuals qualified to become Board members +and to recommend to the Board the director nominees for the next annual meeting +of shareholders or fill any vacancies; (2) recommend to the Board corporate +governance guidelines applicable to the Company; (3) lead the Board in its +annual review of the Board's performance and (4) recommend to the Board director +nominees for each committee. The Board has adopted a Charter for the +Nominating and Governance Committee. The Charter has been posted on +the Company's website. +Director +Qualifications and Selection +The +Board has +adopted Director Nomination Procedures that prescribe the process the Nominating +and Governance Committee will use to select the Company’s nominees for election +to the Board. The Nominating and Governance Committee evaluates each +candidate based on the candidate's level and diversity of experience and +knowledge (specifically within the industry and relevant industries in which +the +Company operates, as well as his or her general overall experience and +knowledge), skills, education, reputation and integrity, professional stature +and other factors that may be relevant depending on the particular +candidate. Additional factors considered by the Committee include the +size and composition of the Board at a particular time, allowing the Company +to +benefit from having a broad mixture of skills, experience and perspectives +on +the Board. Accordingly, one or more of these factors may be given +more weight in a particular case at a particular time, no single factor would +be +viewed as determinative, and the Committee has not specified any minimum +qualifications that the Committee believes must be met by any particular +nominee. The Company's Director Nomination Procedures are posted on +the Company's website. +17 +TOC +The +Committee identifies director candidates primarily through recommendations +made +by the non-employee directors. These recommendations are developed +based on the directors' own knowledge and experience in a variety of fields, +and +research conducted by PDC staff at the Committee's direction. The +Committee also considers recommendations made by the employee directors, +employees, shareholders, and others, including search firms. All +recommendations, regardless of the source, are evaluated on the same basis +against the criteria contained in the guidelines. The Committee has +the authority to engage consultants to help identify or evaluate potential +director nominees but has not done so recently. +Shareholder +Recommendations +The +Company's Nominating and Governance Committee will consider director candidates +recommended by shareholders of the Company. Any shareholder who +wishes to recommend a prospective Board nominee for the Committee to consider +should notify the Nominating and Governance Committee of their recommendation +by +writing to the Committee at the Company's headquarters, or by sending the +information via email to board@petd.com . All recommendations +will be received by the Nominating and Governance Committee. +A +submission recommending a candidate should include: +· +Sufficient +biographical information to allow the Committee to evaluate the +candidate +in light of the guidelines; +· +An +indication as to whether the proposed candidate will meet the requirements +for independence under the NASDAQ +guidelines; +· +Information +concerning any relationships between the candidate and the shareholder +recommending the candidate; and +· +Material +indicating the willingness of the candidate to serve if nominated +and +elected. +Shareholder +Nominations +Shareholders +who wish to may nominate candidates for election to the Board. The +Company's By-Laws require shareholders who wish to submit nominations of +persons +for election to the Board of Directors at the annual meeting of shareholders +to +follow certain procedures. The shareholder must give written notice +to the Corporate Secretary at Petroleum Development Corporation, 120 Genesis +Boulevard, Bridgeport, West Virginia 26330 or may email notice to +board@petd.com , not later than 80 days or earlier than 90 days prior to +the first anniversary of the preceding year's annual meeting. The +shareholder must be a shareholder of record at the time the notice is +given. The written notice must set forth (a) as to each nominee all +information relating to that person that is required to be disclosed in +solicitations of proxies for election of directors in an election contest, +or is +otherwise required, in each case pursuant to Regulation 14A under the Securities +Exchange Act of 1934 (including such person's written consent to being named +in +the proxy statement as a nominee and to serving as a director if elected); +(b) +as to the shareholder giving the notice and the beneficial owner, if any, +on +whose behalf the nomination is made (1) the name and address of the shareholder, +as they appear on the Company's books, and of such beneficial owner and (2) +the +class and number of shares of the Company's securities that are beneficially +owned by such shareholder and the beneficial owner; and (c) any material +interest of such shareholder and such beneficial owner in such +nomination. +Planning +and +Finance Committee +The +purpose +of the Planning and Finance Committee is to oversee the responsibilities +of the +Board relating to planning and finance, including: (1) to organize and oversee +the Board’s participation in the development of the Strategic Plan and the risk +assessment and management process; (2) to follow the progress in the +implementation of the Strategic Plan and to advise the Board if additional +Board +action appears to be needed to assure successful implementation of the plan +or +if a need exists to revise the plan in the face of changing conditions or +other +factors; (3) to assure that management is addressing the personnel requirements +for the successful implementation of the Strategic Plan; (4) to assure that +a +talent-rich organization is being developed to address both current and future +leadership needs; (5) to assure that robust management development and +succession planning processes are developed and implemented for management +at +all levels in the Company; and (6) work with the CFO and other executive +management regarding corporate financial matters including operating and +capital +budgets, capital structure, dividends, and other significant financial and +capital issues. The Board has adopted a charter for the Planning and +Finance Committee which is posted on the Company’s website. +18 +TOC +Regarding +the +announced intention of the Company's CEO, Mr. Williams, to retire by the +end of +2008, the Committee has commenced with its succession plan, which includes +the +search for and evaluation of qualified candidates as well as a period for +training and transition for the new CEO. Since this is a planned +succession, there are no changes in management responsibilities or to the +Company's ongoing strategic efforts. The Company +anticipates having a qualified candidate in place upon Mr. Williams' +departure. +Communications +with +Directors +Shareholders +wishing to communicate with the Board or a committee may do so by writing +to the +attention of the Board or Committee at the corporate headquarters or by emailing +the Board at board@petd.com , with "Board" or appropriate committee in the +subject line. +Code +of Business Conduct and +Ethics +In +January 2003, the Company adopted its Code of Business Conduct and Ethics, +as +amended (the “Code of Conduct”) applicable to all directors, officers, +employees, agents and representatives of the Company and +consultants. The Company's principal executive officer, principal +financial officer and principal accounting officer are subject to additional +specific provisions under the Code of Conduct. The Company's Code of +Conduct is posted on its website at www.petd.com . In the event +of an amendment to, or a waiver of, including an implicit waiver, the Code +of +Conduct, the Company will disclose the information on its internet +website. +Policies +and Procedures with Respect to +Transactions with Related Persons +The +Board +has adopted a policy for the review, approval and ratification of transactions +that involve related parties and potential conflicts of interest. +The +related party transaction policy applies to each director and executive officer +of the Company, any nominee for election as a director, any security holder +who +is known to own more than five percent of the Company's voting securities, +any +immediate family member of any of the foregoing persons and any corporation, +firm or association in which one or more of the Company's directors are +directors or officers, or have a substantial financial interest. +Under +the +related party transaction policy a related person transaction is a transaction +or arrangement involving a related person in which the Company is a participant +or that would require disclosure in the Company's filings with the SEC as +a +transaction with a related person. +The +related persons must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to +such +interest. All related person transactions will be reviewed by the +Audit Committee. In determining whether to approve or ratify a +transaction, the Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such as the +relationship of the related person with the Company, the materiality or +significance of the transaction to the Company and the business purpose and +reasonableness of the transaction, whether the transaction is comparable +to a +transaction that could be available to the Company on an arms-length basis, +and +the impact of the transaction on the Company's business and +operations. +19 +TOC +During +the year ended December 31, 2006, there was no transaction or series of +transactions, or any currently proposed transaction, in which the amount +involved exceeds $120,000 and in which any director, executive officer, holder +of more than 5% of the Company's common stock or any member of the immediate +family of any of the foregoing persons had or will have a direct or indirect +material interest. +Indemnification +of Directors and +Officers +The +Company's By-Laws provide that the Company shall indemnify any director, +officer, employee, or other agent of the Company who is or was a party, or +is +threatened to be made a party, to any proceeding (other than an action by +or in +the right of the Company to procure a judgment in its favor) by reason of +the +fact that such person is or was an agent of the Company, against expenses, +judgments, fines, settlements, and other amounts actually and reasonably +incurred in connection with such proceeding, if that person acted in good +faith +and in a manner that person reasonably believed to be in the best interest +of +the Company, and in the case of a criminal proceeding, had no reasonable +cause +to believe the conduct of that person was unlawful. +The +Company has entered into separate indemnification agreements with each of +its +directors and officers whereby the Company has agreed to indemnify the director +or officer against all expenses, including attorneys' fees, and other amounts +reasonably incurred by the officer or director in connection with any +threatened, pending or completed civil, criminal, administrative or +investigative action or proceeding to which such person is party by reason +of +the fact that he is or was a director or officer, as the case may be, of +the +Company, if the person acted in good faith and in a manner reasonably believed +to be in or not opposed to the best interests of the Company, and, with respect +to any criminal action or proceeding, the person had no reasonable cause +to +believe such conduct to be unlawful. The agreements provide for the +advancement of expenses and that the Company has the right to purchase and +maintain insurance on behalf of the director or officer against any liability +or +liabilities asserted against him, whether or not the Company would have the +power to indemnify the person against such liability under any provision +of the +agreement. The Company has agreed to indemnify such person against +expenses actually and reasonably incurred in connection with any action in +which +the person has been successful on the merits or +otherwise. Indemnification must also be provided by the Company +(unless ordered otherwise by a court) only as authorized in the specific +case +upon a determination that the indemnification of the person is appropriate +because he has met the applicable standard of conduct described in the agreement +made by (i) the Board of Directors, by a majority vote of a quorum consisting +of +directors who are not parties to such action or proceeding, (ii) independent +legal counsel in a written opinion or (iii) the shareholders of the +Company. +Additional +Information +The +Corporate Governance section of the Company's internet site contains additional +information, including PDC's Certificate of Incorporation and By-Laws; written +charters for each Board committee; and Board policy statements. +20 +TOC +EXECUTIVE +OFFICERS +The +executive officers of the Company, their principal occupations for the past +five +years and additional information is set forth below. +Director +Directorship +Name +Age +Position(s) +Since +Term +Expires +Steven +R. Williams +56 +Chairman, +Chief Executive Officer and Director +1983 +2009 +Thomas +E. Riley +54 +President +and Director +2004 +2007 +Richard +W. McCullough +55 +Chief Financial +Officer and Treasurer +– +– +Darwin +L. Stump +52 +Chief Accounting Officer +– +– +Eric +R. Stearns +49 +Executive +Vice President, Exploration and Production +– +– +Steven +R. Williams was elected Chairman and Chief Executive Officer in January +2004. Mr. Williams served as President from March 1983 until December +2004. As reported on July 12, 2007, Mr. Williams announced his +intention to retire at the end of 2008. The Company is using the +18-month period between his announcement and his planned departure to implement +its Board-led CEO succession plan. Since this is a planned +succession, there are no changes in management responsibilities. +Thomas +E. Riley assumed the position of President in December +2004. Previously Mr. Riley was appointed Executive Vice President of +Production, Natural Gas Marketing and Business Development in November +2003. Prior thereto, Mr. Riley served as Vice President Gas Marketing +and Acquisitions of the Company since April 1996. Prior to joining +the Company, Mr. Riley was president of Riley Natural Gas Company, a natural +gas +marketing company which the Company acquired in April 1996. +Richard +W. McCullough was appointed Chief Financial Officer and Treasurer in +November 2006. Prior to joining the Company, Mr. McCullough served as +president and chief executive officer of Gasource, LLC, Dallas, Texas, a +marketer of long-term, natural gas supplies. From 2001 to 2003, Mr. +McCullough served as an investment banker with J.P. Morgan Securities, Atlanta, +Georgia, and served in the public finance utility group supporting bankers +nationally in all natural gas matters. Additionally, Mr. McCullough +has held senior positions with Progress Energy, Deloitte and Touche, and +the +Municipal Gas Authority of Georgia. Mr. McCullough, a CPA, was a +practicing certified public accountant for eight years. +Darwin +L. Stump was appointed Chief Accounting Officer in November +2006. Mr. Stump has been an officer of the Company since April 1995 +and held the position of Chief Financial Officer and Treasurer from 2003 +until +November 2006. Previously, Mr. Stump served as Corporate Controller +from 1980 until November 2003. Mr. Stump, a CPA, was a senior +accountant with Main Hurdman, Certified Public Accountants prior to joining +the +Company. +Eric +R. Stearns was appointed Executive Vice President of Exploration and +Production in December 2004. Prior to his current position, Mr. +Stearns was Executive Vice President of Exploration and Development since +November 2003, having previously served as Vice President of Exploration +and +Development since April 1995. Mr. Stearns joined the Company as a +geologist in 1985 after working for Hywell, Incorporated and for Petroleum +Consultants. +21 +TOC +COMPENSATION +COMMITTEE +REPORT +The +Compensation Committee has met to review and discuss with the Company’s +management the specific disclosure contained under the heading “Compensation +Discussion and Analysis.” Based on its review and discussions with +management, the Compensation Committee has recommended to the Board of Directors +that the Compensation Discussion and Analysis be included in this proxy +statement and in the Company's Annual Report on Form 10-K for the year ended +December 31, 2006. +This +report has been provided by the Compensation Committee of the Board of Directors +of the Company. +David +C. +Parke, Chairman +Vincent +F. D'Annunzio +Anthony +J. Crisafio +COMPENSATION +COMMITTEE +of the Board of Directors +*** +COMPENSATION +DISCUSSION AND +ANALYSIS +The +Compensation Committee of the Board of Directors ("Board") of Petroleum +Development Corporation (the “Committee”), which consists of three independent +Board members, developed and recommended for Board approval the compensation +program for 2006 for the Chief Executive Officer ("CEO") and the other executive +officers listed in the “2006 Summary Compensation Table” (collectively, the +"named executive officers" or "executive officers") appearing +below. The Committee’s recommendations of compensation for the +executive officers were approved by the Board. For 2007 executive +compensation, the Board authorized the Committee to make final determinations +for all elements of compensation for the executive officers, which the Committee +did after reviewing its proposals with all other independent board members +who +are not part of the Committee. The Committee also negotiates terms of +employment agreements with the executive officers. Prior to +determining executive compensation, the Compensation Committee consults with +the +CEO for his evaluation of performance and recommendation for compensation +of the +other executive officers. +The +Compensation Committee utilized the compensation consulting service of Towers +Perrin ("Consultant") in recent years. Over the past 18 months, the +Consultant: conducted a competitive benchmarking of the Company's executive +and +non-employee director compensation programs, helped the Committee in its +redesign of the Long-Term Incentive ("LTI") program in 2007 as described +below, +and led an educational session focused on new SEC pay disclosure +rules. The Consultant also assisted the Company with the design of a +retention-based stock plan for non-officers. The Committee +periodically assesses the effectiveness and competitiveness of the Company’s +executive compensation structure with the assistance of the Consultant, and +utilizes the assistance of the Consultant in assessing the value and cost +of +various proposed compensation arrangements. The Consultant is engaged +by, and reports directly to, the Committee. +Compensation +Philosophy +The +Committee considers many factors in establishing the compensation packages +for +the executive officers of the Company. The ultimate goal is to +provide compensation that is fair to both the Company and the executive +officers, that motivates behavior that will enhance the value of the Company, +that avoids encouraging behavior that does not serve the best interests of +the +Company and that will allow the Company to attract and retain executive +officers. +22 +TOC +Objectives +of Compensation +Program +The +Committee’s philosophy is to provide compensation packages that will attract, +motivate and retain executive talent and deliver rewards for superior +performance and consequences for underperformance. Specifically, the +objectives of the Committee’s executive compensation practices are +to: +· +Offer +a total compensation program that is competitive with the compensation +practices of those peer companies with which the Company competes +for +talent; +· +Tie +a significant portion of executive compensation to the Company’s +achievement of pre-established financial and operating objectives +and to +personal objectives established for each executive +individually; +· +Provide +a significant portion of overall compensation in the form of equity-based +compensation in order to align the interests of the Company’s executives +with those of the Company’s shareholders; +and +· +Structure +a significant proportion of total compensation in a fashion that +promotes +executive retention. +The +Committee seeks to attract executive talent by offering competitive base +salaries, annual performance incentive opportunities under the Company’s +Short-Term Incentive (“STI”) program and the potential for long-term rewards +under the Company’s equity-based LTI program. The Committee believes +that to attract and retain a highly-skilled executive team, the Company’s +compensation practices must be competitive with those of other employers +with +which the Company competes for talent. +Pay-for-Performance +The +Committee believes that significant portions of executive compensation should +be +closely linked to both the Company’s and the individual’s +performance. The Committee’s pay-for-performance philosophy is +reflected in the Company’s compensation practices, which tie a significant +portion of executive compensation to the achievement of financial and operating +objectives of the Company and also to take into account personal objectives +and +performance. The Committee believes that using solely financial +objectives could unduly reward or punish executives for financial performance +resulting from issues beyond the executive’s control, such as changes in energy +prices. On the other hand, using solely operating measures could +result in compensation practices that did not align the executive’s interests +with those of the shareholders. As a result, the Committee has chosen +to use a combination of financial and operating measures as determinants +for STI +compensation. This philosophy is reflected in annual incentive +awards, which are directly linked to the achievement of short-term financial +and +operating objectives, set by the Committee and have potential payouts ranging +from zero to 200% of target for each of the three components. During +2006, the targets were increases in diluted earnings per share, increases +in +production, and the Committee’s assessment of other factors related to the +individual’s performance and development. The following table +summarized the criteria used in determining the bonus amount. +Criteria +Lower +Threshold Amount +Target +Bonus +Maximum +Bonus +Percent +of Total Maximum Bonus +Production +increase based on Mcfe +6% +10% +14% +40% +Diluted +earnings per share +$2.42 +$2.66 +$3.03 +30% +Discretionary +evaluation +Compensation +Committee Determination +30% +23 +TOC +The +Committee also ties +compensation to performance through equity-based LTI awards that are designed +to +motivate executives to meet the Company’s long-term performance goals and to tie +their interests to those of the shareholders. In 2006, the LTI awards +consisted of restricted stock and stock options that vest 25% per year over +a +period of four years. For 2007, all of the LTI awards are restricted +stock, a portion of which vest over time. The balance of the +restricted stock awards will be long-term incentive performance shares (“LTIP +shares”). The LTIP shares will vest only if certain minimum +thresholds of stock price appreciation are met. One-half of the +LTIP shares will vest and be issued based upon an annual stock price increase +of +approximately 12%. An additional 25% of the awarded LTIP shares will +vest and be issued at annualized increased hurdles of 16% and an additional +25% +at 20%. The stock price will be measured based on the average daily +closing price for each of the three monthly periods: December 2009, 2010 +and +2011. Any shares not vested in 2009 or 2010 will remain eligible to +be vested in future years; however, any unvested shares at December 31, 2011 +will be forfeited. The Committee decided to use three measurement +dates to take into account the volatility of energy prices and their impact +on +the stock price of the Company. +As +a result of the structure of the STI and LTI compensation, a significant +amount +of variable compensation under the Company’s compensation program is contingent +on the achievement of key financial and operating objectives of the Company +and +on increasing the value of the shares of the Company’s stock. +For +2006, +30% of the Company’s STI compensation program also accounts for individual +performance through individual objectives and evaluation of individual executive +performance by the Committee, which enables the Committee to differentiate +among +executives and emphasize the link between personal performance and +compensation. For 2007, 100% of Mr. Stump's STI is discretionary and +for the other executive officers, their STI performance based award percentages +remain unchanged from 2006. +The +Role of Equity-Based +Compensation +The +Company’s LTI program is an integral part of the Company’s overall executive +compensation program. The LTI program is intended to serve a number +of objectives. These include aligning the interests of executives +with those of the Company’s shareholders, and focusing senior executives on the +achievement of well-defined, long-term performance objectives that are aligned +with the Company’s corporate strategy, thereby establishing a direct +relationship between compensation and shareholder value. The program +also furthers the goal of executive retention, since the executive officer +will +forfeit any unvested awards in the event the officer voluntarily terminates +employment with the Company without "good reason." +In +making +long-term incentive awards, the Committee uses a pre-determined market-based +value approach. The Committee determines the dollar value of awards +in the marketplace using a valuation methodology. The Committee +establishes the desired dollar value for each executive officer relative +to the +market. The corresponding number of equity instruments to be awarded +is then determined using the same valuation methodology, based on prevailing +factors in advance of the award date. The valuation for financial +statement purposes is subsequently re-calculated based on the prevailing +factors +at the time of the award. +The +value-based approach can cause the number of equity instruments needed to +be +granted from year to year to vary, even though the awards may have the same +dollar value. This can be caused by, among other things, fluctuations +in the Company’s common stock price at the time of grant. This issue +is further addressed in the Long-Term Incentives section. +Use +of Benchmarking to Establish Target +Compensation Levels +In +furtherance of its compensation objectives, the Committee compared the Company’s +compensation levels with those of a group of 14 companies in 2006, and 15 +companies in 2007, in setting compensation targets. These groups, +collectively, are referred to as the “Peer Group.” This benchmarking is done +with respect to each of the key elements of the Company’s executive compensation +programs discussed above (salary, STI and LTI compensation), as well as the +compensation of individual executives based on their position in the overall +compensation hierarchy. The Committee uses data from the Peer Group +to establish a dollar target level for each key element to deliver compensation +to each executive at approximately the 50th percentile of the Peer Group, +with +adjustments made based on the executive’s individual +performance. Targeting the 50th percentile helps ensure that the +Company’s compensation practices will be competitive in terms of attracting and +retaining executive talent, while performance based compensation provides +for +variations due to superior or sub-par performance. Because +compensation for the Peer Group is for prior periods, the Committee attempts +to +anticipate future movements in compensation levels when it sets compensation +targets. For example, when setting compensation for 2006, the most +recent compensation information available was from the 2005 proxy statements +for +compensation paid in 2004. As more up to date information becomes +available, it is reviewed by the Committee to evaluate whether future +compensation plans should be adjusted to take unanticipated changes in actual +compensation of the Peer Group into account. +24 +TOC +The +2006 +Peer Group was comprised of the following companies: +• +Unit Corporation +• St. +Mary Land & Exploration Company +• Cabot +Oil & Gas Corporation +• +Penn Virginia Corporation +• Whiting +Petroleum Corporation +• Range +Resources Corporation +• Encore +Acquisition Company +• Berry +Petroleum Company +• KCS +Energy Incorporated +• +Quicksilver Resources Inc +• Clayton +Williams Energy Incorporated +• Brigham +Exploration Company +• +Magnum Hunter Resources Incorporated +• Cimarex +Energy Company +For +2007, +Forest Oil Corporation, Comstock Resources Incorporated and Bill Barrett +Corporation were added to the Peer Group. Cimarex acquired Magnum +Hunter in 2005 and these companies were removed from the Peer Group as they +were +no longer comparable due to size. The Committee believes that the +Peer Group represents companies with similar operations, of similar complexity, +and with which the Company believes it competes for executive +talent. +Review +of Overall +Compensation +The +Committee reviews for each of the executive officers the total dollar value +of +the officer’s annual compensation, including salary, STI, LTI compensation, +perquisites, deferred compensation accruals and other +compensation. The Committee also reviews shareholdings and +accumulated unrealized gains under prior equity-based compensation awards, +and +amounts payable to the executive officer upon termination of the executive’s +employment under various different circumstances, including retirement and +termination in connection with a change in control. See 2006 Summary +Compensation Table below in section titled Executive Compensation. +Consideration +of Prior +Compensation +While +the +Committee considers all compensation previously paid to the executive officers, +including amounts realized or realizable under prior equity-based compensation +awards, the Committee believes that current compensation practices must be +competitive to retain the executives in light of prevailing market practices +and +to motivate the future performance of the executive +officers. Accordingly, wealth accumulation through superior past +performance of the Company should not be punished through reductions in current +compensation levels. +Elements +of Executive +Compensation +To +accomplish the objectives of the executive compensation program, the Committee +uses four elements of compensation in varying proportions for the different +executive officers. These elements are base salary, STI, LTI, and +other benefits. The Committee uses cash payments (base salary and +STI), awards tied to the Company's stock (LTI, which is also referred to +as +“equity-based compensation”) and non-cash benefits in its overall compensation +packages. The Committee balances salary and performance-based +compensation, and cash and non-cash compensation, in a manner it believes +best +serves the objectives of the Company’s compensation program. The +Committee allocates among the different elements of compensation in a manner +similar to the median allocation of the Peer Group, based on the level of +the +executive's position. Generally, it is the policy of the Committee +that, as income levels increase, a greater proportion of the executive’s income +should be in the form of STI and LTI compensation. For example the +CEO of the Company receives a higher percentage of his compensation in the +form +of short and long term incentives compared to other executives, as is the +case +of CEOs in the Peer Group. The following table shows the breakdown of +target compensation among the three elements for 2006 and 2007 for each +executive officer. +25 +TOC +Target +Compensation for Elements +as +a Percentage of Total Target Compensation +2006 +2007 +Name +Base +Salary +Bonus +Target +Equity +Target +Base +Salary +Bonus +Target +Equity +Target +Steven +R. Williams +31% +23% +46% +33% +24% +43% +Thomas +E. Riley +36% +18% +46% +36% +22% +42% +Eric +R. Stearns +37% +19% +44% +36% +23% +41% +Richard +W. McCullough (1) +– +– +– +40% +20% +40% +Darwin +L. Stump +39% +19% +42% +44% +22% +34% +_______________ +(1) +Mr. +McCullough was appointed as CFO in November 2006. The initial +contract period runs through +2008. +Base +Salary +The +Committee annually reviews the base salaries of the Chief Executive Officer +(“CEO”) and other executive officers. Salaries are also reviewed in +the case of promotions or other significant changes in +responsibilities. In each case, the Committee takes into account the +results achieved by the executive, his or her future potential, scope of +responsibilities and experience, and competitive salary practices of the +Peer +Group. Base salary is intended to provide a baseline of compensation +that is not contingent upon the Company’s performance. +After +reviewing the Peer Group salary levels and considering individual performance, +the Committee established Base Salary increases for 2006 of 8.5% for the +CEO and +between 5% and 8.7% for the other executive officers. The total +compensation of the executive officers approximated the mean of the Peer +Group, +although the spread between the highest and lowest is less than the Peer +Group. This is consistent throughout the elements of compensation, +and reflects the goal of the Committee to encourage a strong team among the +executive officers. For 2007, the Committee established Base Salary +increases of 7.2% for the CEO and between 0% and 8.2% for the other executive +officers. Mr. McCullough, the Company’s CFO, will receive the +compensation established in his employment contract, executed in November +2006. Annual base salaries for the executive officers for 2006 and +2007 are shown in the following table: +Annual +Base Salaries +Name +2006 +2007 +Steven +R. Williams +$ 345,000 +$ 370,000 +Thomas +E. Riley +272,000 +292,500 +Eric +R. Stearns +251,000 +271,500 +Richard +W. McCullough +– +235,000 +Darwin +L. Stump +220,500 +220,500 +Short-Term +Incentives +Annual +STI are tied to the Company’s overall performance for the fiscal year, as +measured against objective criteria set by the Committee, as well as the +Committee’s assessment of individual performance of each +executive. For 2006, at least 70% of the target STI payments are +performance based awards measured against objective criteria established +early +in the fiscal year. The remainder may include additional awards based +on performance goals, or may be awarded at the discretion of the Committee +based +on its assessment of the executive’s performance. For 2007, 100% of +Mr. Stump's STI is discretionary and for the other executive officers, their +STI +performance based award percentages remain unchanged from 2006. The +Compensation Committee has decided to maintain discretion over STI bonus +amounts +for Mr. Stump to emphasize the focus of his role in 2007 on the continued +development of the accounting functions of the Company rather than on production +targets and overall financial performance. The Committee, comprised +entirely of independent directors, believes that some discretion with respect +to +individual awards is desirable to compensate for unusual and unexpected +events. +26 +TOC +Target +STI payments, expressed as a percentage of base salary, are set for each +executive officer prior to the beginning of the fiscal year based on job +responsibilities. STI payments for the year may range from zero up to +150% of the executive officer’s base salary, based on the achievement of the +objective criteria for performance based payments and the assessment by the +Committee for individual goals. For fiscal year 2006 and again in +2007, target STI awards for the executive officers ranged from 50% to 75% +of +salary. +With +respect to the executive officers, the Committee establishes formulae to +determine the percentage of the target annual incentive payment that may +be +payable for the fiscal year. The Committee does not have the +discretion to change any objective criteria once they have been +established. However, the Committee does retain discretion over 30% +(in 2007, 100% for Mr. Stump) of the total target STI to allow some flexibility +to award superior, or reflect the effect of sub-par, personal performance +that +may not be captured by the financial and operating criteria. In +addition, the Committee has the authority to recommend to the Board compensation +for unusual events. In 2006, Eric Stearns, the Executive Vice +President of Exploration and Production, received a special bonus for his +key +role in the $354 million acreage sale to Marathon. The following +table sets forth the STI threshold, target and maximum levels for 2006 and +2007 +for the executives expressed as a percentage of base salary. +Short-Term +Incentive Compensation +2006 +2007 (1) +% +of Base Salary +% +of Base Salary +Name +Threshold +Target +Maximum +Threshold +Target +Maximum +Steven +R. Williams +0% +75% +150% +0% +75% +150% +Thomas +E. Riley +0% +50% +100% +0% +62.5% +125% +Eric +R. Stearns +0% +50% +100% +0% +62.5% +125% +Richard +W. McCullough (2) +– +– +– +0% +50% +100% +Darwin +L. Stump +0% +50% +100% +– +– +– +_______________ +(1) +In +2007, the target percentages apply to Messrs. Williams, Riley, +Stearns and +McCullough. For Mr. Stump, 100% of his STI is +discretionary. +(2) +Mr. +McCullough was appointed as CFO in November 2006. The initial +contract period runs through +2008. +Long-Term +Incentives +Historically, +the primary form of equity compensation awarded by the Company was qualified +and +non-qualified stock options. This form was selected because of the +favorable individual and corporate accounting and tax treatments provided +by the +accounting and tax rules prevalent at the time, and the widespread use of +stock +options in executive compensation. In 2004, the Committee began +utilizing a combination of restricted stock and options for executive +compensation, believing that the restricted stock was better appreciated +by +employees and resulted in less dilution for the +Shareholders. Beginning in 2006, the accounting treatment for stock +options changed as a result of the applicability of Statement of Financial +Accounting Standards No. 123(R), making the use of stock options less +attractive. As a result, the Committee assessed the desirability of +granting only shares of restricted stock to executives, and concluded that +shifting entirely to restricted stock would provide an equally motivating +form +of incentive compensation, while permitting the issuance of fewer shares, +thereby reducing potential dilution to other shareholders. The +Committee did want to tie the value received by executives to performance +for a +portion of the equity compensation, thereby providing executives with a greater +incentive to focus on the long-term appreciation of the stock. To +accomplish this, a portion of the LTI for each executive consists of LTI +performance shares (“LTIP shares”), which require both the passage of time and +specified increases in the stock price to become vested. +27 +TOC +The +Committee’s practice has been to determine the dollar amount of equity +compensation and to then grant a number of shares of restricted stock and +options that have a fair value equal to that amount on the date of +grant. The 2007 awards were determined using the fair value of the +awards based on the average daily closing price of the Company's stock in +December 2006. The Consultant calculated the fair value utilizing +methods they have developed for use with these types of equity valuations, +including taking into account the probability and/or timing of vesting under +the +performance criteria for the LTIP shares and the other restricted +stock. For the purpose of recording an expense for financial +reporting purposes, the awards will be revalued based on the prevailing capital +markets factors at the time of the award. +In +April +2007, the Company corrected an administrative error in the stock option exercise +price of shares awarded the executive officers in March 2006, none of which +were +exercised. The administrative error related to the use of the closing +price of the Company's common stock on the day prior to the award, rather +than +the closing price on the day of the award in accordance with the Company's +2004 +Long-Term Equity Compensation Plan. The need for the correction was +identified by the Company and the effect of the correction was not material +to +the fair value of the awards, either at the time of the award or the time +of the +correction. +For +2006, the fair value of all Long-Term Incentive (“LTI”) awards was divided as +follows: 70% for time vesting restricted stock and 30% for stock +options (with both types of awards vesting 25% per year over a four year +period). In 2007, a percentage of the equity-based compensation +awards are LTIP shares with the percentage increasing for more highly +compensated executives, and the balance of the awards are time vesting +restricted stock. For example, 50% of the CEO’s equity-based +compensation in 2007 will be LTIP shares, in contrast to 40% for the President +and 30% for the CAO. The following table summarizes LTI awards for +2006 and 2007, and the second table summarizes the target prices for the +performance vesting of the LTIP awards. +Long-Term +Incentive Compensation +2006 +2007 +Name +Percent +of +Salary +Percent +of Value from +Time +Vesting Restricted +Stock +Percent +of Value +from +Stock +Options +Percent +of +Salary +Percent +of Value from +Time +Vesting Restricted +Stock +Percent +of Value from +LTIP +Stock +Steven +R. Williams +150% +70% +30% +175% +50% +50% +Thomas +E. Riley +125% +70% +30% +145% +60% +40% +Eric +R. Stearns +120% +70% +30% +140% +60% +40% +Richard +W. McCullough (1) +100% +70% +30% +– +– +– +Darwin +L. Stump +110% +70% +30% +90% +70% +30% +_______________ +(1) +LTI +awarded in 2006 pursuant to initial employment agreement. Mr. +McCullough will be eligible for annual award consideration beginning +in +2008. +LTIP +Target Prices (1) +Approximate +Target +Price +Percent +Vested if +Growth +Target +Year +3 +Year +4 +Year +5 +Target +Attained (2) +12% +$ 60.00 +$ +67.50 +$ 75.00 +50% +16% +67.50 +77.50 +90.00 +75% +20% +75.00 +90.00 +107.50 +100% +_______________ +(1) +Growth +target percentages and target prices are based on the average closing +price of the Company's common stock during the preceding December +for each +of the years ended December 31, 2009, 2010 and +2011. +(2) +Performance +shares will vest for a performance period only if the target price +is met +or exceeded for such period. Performance shares vested for a +performance period shall not be subject to divestment in the event +the +share price subsequently decreases below the threshold in a subsequent +performance period. +28 +TOC +Retirement +Plans +As +of +January 1, 2006, the Company maintained a 401(k) plan and a qualified profit +sharing plan for all of the Company’s employees including the executive +officers. On July 1, 2006, the two plans were combined into a single +plan. The plan provides for discretionary matching +contributions. Generally, the Company matches employee 401(k) +contributions dollar for dollar up to 10% of the employee’s compensation and +then matches 20% for contributions above 10% of the employees' compensation +up +to the maximum allowable limits under the Internal Revenue Code +("IRC"). The Company's profit sharing contribution is discretionary +and for 2006 was equal to 1% of the Company's consolidated net +income. Total Company contributions, to both 401(k) and profit +sharing, to the plan in 2006 were $3.1 million. +Under +their current employment agreements, each of the executive officers also +earns +the right to future payments following their retirement or other departure +from +the Company. For each year worked under his current agreement, the +CEO earns an annual retirement benefit equal to $500 times the number of +his +full years of service times 10 ($500 per year of service for 10 +years). Following the termination of his service with the Company, +the cumulative total of the calculated annual retirement benefits is disbursed +in ten equal annual installments. For 2006, the retirement benefit +was $115,000 ($11,500 per year for 10 years) and for 2007, the retirement +benefit will be $120,000 ($12,000 per year for 10 years). The CEO's +total cumulative retirement benefit, under this plan, at December 31, 2006, +was +$330,000 ($33,000 per year for 10 years). Each of the other executive +officers, under their respective employment agreements, annually earns a +retirement benefit equal to $75,000 ($7,500 per year for 10 +years). Following their termination of service with the Company, +their cumulative total annual retirement benefit will be disbursed in ten +equal +annual installments. As of December 31, 2006, for each of the other +executive officers, excluding Mr. McCullough, the total cumulative benefit, +including the 2006 increment, was $225,000 ($22,500 per year for 10 +years). As of December 31, 2006, Mr. McCullough had not yet completed +sufficient service to qualify for the benefit, but will, like the others, +be +eligible in 2007. +Additionally, +under his previous employment agreement, Mr. Williams earned supplemental +retirement benefits. The prior agreement requires the Company to pay +Mr. Williams an annual sum of $40,000 per year for the ten year period following +his retirement from the Company (an aggregate of $400,000). This +benefit was fully vested on December 31, 2003. Under provisions of +his previous employment agreement, Mr. Williams may elect to defer payment +up to +five years following his retirement. In the event of employment +beyond the five year vesting period or the deferral of payment following +retirement the amount of the annual benefit will be increased by 10.75% +compounded annually. As of December 31, 2006, the amount of this +benefit is $543,470 (or $54,347 per year for 10 years). In the event +of change in control the benefits due under this agreement will be accelerated +and due immediately. +Other +Compensation and +Benefits +The +Company also provides certain other benefits to its executive officers that +are +not tied to any formal individual or Company performance criteria and are +intended to be part of a competitive overall compensation +program. Each of the executive officers has (1) a Company vehicle (or +vehicle allowance) that they use for Company business, and are allowed to +use +for personal uses as well, (2) coverage under the Company’s medical plan and +reimbursement of medical expenses not covered by the plan, (3) the right +to be +reimbursed for one Board-approved club membership, (4) reimbursement of the +cost +of a $1 million life insurance policy, and (5) reimbursement of the cost +of +disability insurance. Given the importance of the executives and +their good health to the success of the Company and the achievement of its +business goals, the Committee believes that the medical insurance and +reimbursement encourage the executives to seek appropriate medical +assistance. The other benefits are commonly provided to executives +and are necessary to create a competitive compensation package. +29 +TOC +Termination +Benefits including Change in +Control Payments +The +Committee believes that severance benefits for senior management should reflect +the fact that it may be difficult for employees to find comparable employment +within a short period of time. They also should disentangle the +Company from the former employee as soon as practicable. For +instance, while it is possible to provide salary continuation to an employee +during the job search process, which in some cases may be less expensive +than a +lump-sum severance payment, a lump-sum severance payment is preferable in +order +to most cleanly sever the relationship as soon as practicable. The +Company has entered into employment agreements with each of the executive +officers that include change in control provisions. These agreements +provide for the continued employment of the executives for a period of two +years +following a change in control of the Company. These agreements are +intended to retain the executives and provide continuity of management in +the +event of an actual or threatened change in the control of the Company and +ensure +that the executive’s compensation and benefits expectations would be satisfied +in such event. +The +compensation provisions in the event of a change in control also serve to +lessen +the potential negative impact of a change in control on the executive +officers. The Committee believes this is desirable to encourage the +executives to consider possible change in control situations that might benefit +the Company’s shareholders. +Where +the +termination is without “cause” or the executive officer terminates employment +for “good reason,” the severance plan provides for benefits equal to three times +the sum of: a) the executive officer’s highest base salary during the previous +two years of employment immediately preceding the termination date, plus +b) the +highest bonus paid to the executive officer during the same two year +period. The executive officer is also entitled to (1) vesting of any +unvested equity compensation, (2) reimbursement for any unpaid expenses, +(3) +retirement benefits earned under the current or previous agreements, (4) +continued coverage under the Company’s medical plan for up to 18 months, and (5) +payment of any earned, unpaid bonus amounts. In addition, a +terminated executive officer is entitled to receive any benefits that he +otherwise would have been entitled to receive under the Company's 401(k) +and +profit sharing plan, although those benefits are not increased or +accelerated. The Committee believes that these termination benefits +are comparable to the general practice among similar companies, although +it has +not conducted a study to confirm this. +Good +reason includes (1) assignment to the executive of duties materially and +adversely inconsistent with his position, duties, responsibilities and status +with the Company, (2) an adverse change in the executive’s position with the +Company, (3) a change in control of the Company, (4) a decrease of the executive +officer’s base salary, (5) a material reduction in the benefits provided by the +Company, (6) the requirement by the Company for the executive officer to +be +based anywhere outside of Bridgeport, West Virginia, (7) the failure by the +Company to obtain a satisfactory agreement from any successor or assignee +of the +Company to assume and agree to the Company’s obligations under the employment +agreement, or (8) any other material breach of the employment agreement by +the +Company. +The +Company may terminate any of the executive officers for just cause, which +is +defined in the employment agreements to include (1) a failure by the executive +to perform his duties, (2) conduct by the executive that results in consequences +which are materially adverse to the Company, monetarily or otherwise, (3) +a +guilty plea or conviction of a felony, or (4) a material breach of the terms +of +the employment agreement by the executive officer. If an executive +officer is terminated for just cause, the Company is required to pay the +executive officer his base salary through the termination date plus any bonus +(only for periods completed and accrued, but not paid), incentive, deferred, +retirement or other compensation, and provide any other benefits, which have +been earned or become payable as of the termination date but which have not +yet +been paid or provided. +30 +TOC +If +an +executive officer voluntarily terminates his employment with the Company +for +other than good reason, he is entitled to receive (1) the base salary, bonus +and +incremental retirement payment prorated for the portion of the year that +the +executive officer is employed by the Company, (2) any incentive, deferred +or +other compensation which has been earned or has become payable, but which +has +not yet been paid under the schedule originally contemplated in the agreement +under which they were granted or in full without discount within 60 days +of the +termination date at the discretion of the Company, (3) any unpaid expense +reimbursement upon presentation by the executive officer of an accounting +of +such expenses in accordance with normal Company practices, and (4) any other +payments for benefits earned under the employment agreement or Company +plans. +The +table +below provides information regarding the amounts each of the executive officers +would be eligible to receive if a termination event had occurred as of December +31, 2006: +Termination +Benefits +Name +Retirement +or +Voluntary +Termination +by +Executive +Termination +For +Cause +by +Company +Change +in Control or +Termination +Without +Cause or +Good +Reason +by +Executive +Death/ +Disability (1) +Steven +R. Williams (2) +$ 1,669,067 +$ 1,513,817 +$ 4,198,813 +$ 2,286,078 +Thomas +E. Riley +541,252 +459,652 +2,172,522 +1,069,117 +Eric +R. Stearns +520,252 +444,952 +2,315,782 +1,000,160 +Richard +W. McCullough (3) +- +- +1,153,767 +317,267 +Darwin +L. Stump +456,677 +423,602 +1,839,846 +681,171 +_______________ +(1) +In +the event of death or disability, the termination benefits would +consist +of (i) the base salary and bonus for the portion of the year the +executive +officer is employed by the Company; (ii) the base salary that would +have +been earned for six months after termination; (iii) immediate vesting +of +all equity and option awards; (iv) the payment of deferred retirement +compensation based upon the schedule originally contemplated in +the +deferred retirement compensation agreement or in a lump-sum no +later than +two and one-half months following the close of the calendar year +in which +the death or disability occurred; (v) reimbursement for any unpaid +expenses; (vi) any benefits earned under the 401(k) and profit +sharing +plan; and (vii) continued coverage under the Company's medical +plan, life +time coverage for Mr. Williams and for up to 18 months for all +other named +executive officers. +(2) +Includes +(i) the estimated lifetime value of medical benefits for Mr. Williams +and/or his spouse; and (ii) the sum of deferred retirement compensation +benefits related to prior employment agreement and current employment +agreement. +(3) +Includes +a signing bonus of $83,000 (employment effective November 15, +2006). If employment terminates within one year after +commencement of employment, Mr. McCullough must refund to the Company +a +pro-rata portion of the signing +bonus. +Executive +and Director Share +Retention and Ownership Guidelines +In +order +to promote equity ownership and further align the interests of management +with +the Company’s shareholders, the Committee has adopted share retention and +ownership guidelines for senior management and non-employee +directors. Under these guidelines, executive officers and +non-employee directors are required to achieve and continue to maintain a +significant ownership position, expressed as a multiple of salary as +follows: +Chief +Executive Officer +3 +times salary +Other +Executive Officers (4 persons) +2 +times salary +Non-Employee +Directors +1 +times retainer +31 +TOC +The +Committee periodically reviews share ownership levels of the persons subject +to +these guidelines. Shares held by the executive officers and shares +held indirectly through the Company 401(k) plan are included in determining +an +executive officer’s share ownership. Shares underlying stock options, +including vested options, as well as unvested restricted stock, are not +included. Each of the executive officers, excluding Mr. McCullough +who was hired in November 2006, and the non-employee directors have achieved +shareholdings in excess of the applicable multiple set forth above. +The +Company’s insider trading policy expressly prohibits Company officers, +directors, employees and associates from engaging in options, puts, calls +or +other transactions that are intended to hedge against the economic risk of +owning the Company shares. +Employment +Agreements +The +Company entered into employment agreements with Messrs. Williams, Riley, +Stearns +and Stump effective January 1, 2004, and Mr. McCullough effective November +13, +2006. The initial term of the agreements is for two years and they +are automatically extended for an additional 12 months beginning on the first +anniversary of the effective date and on each successive anniversary unless +either party cancels. The employment agreements provide for the base +annual salary to be reviewed annually (see "Base Salary" discussion +above). +Each +employment agreement provides for an annual performance bonus as determined +by +the Compensation Committee and is based in part upon written objective criteria +and in part upon the discretion of the Compensation Committee. The +annual performance bonus earned is calculated as a percentage, as determined +by +the Compensation Committee, of the executive officers' base salary. +Each +employment agreement contains a standard non-disclosure covenant and provides +that the executive officer is prohibited during the term of his employment +and +for a period of one year following his termination from engaging in any business +that is competitive with the Company's oil and gas drilling +business. Additionally, the employment agreements state that the +executive officer must devote substantially all of his business time, best +efforts and attention to promote and advance the business of the +Company. The executive officer may not be employed in any other +business activity, other than with the Company, during the term of the +employment agreement, whether or not such activity is pursued for gain, profit +or other pecuniary advantage without approval by the Compensation Committee +of +the Board. This restriction will not prevent the executive officer +from investing his personal assets in a business which does not compete with +the +Company or its affiliates, and where such investment will not require services +of any significance on the part of the executive officer in the operation +of the +affairs of the business. +Other +Agreements and +Arrangements +Executive +officers may invest in a Board-approved executive drilling program at the +Company's cost. During 2006, Messrs. Williams, Riley and Stump +invested approximately $40,000, $20,000 and $17,000, +respectively. Other investors participating in drilling with the +Company are generally charged a profit or markup above the cost of the wells; +for example, the markup on Company-sponsored partnerships is approximately +15% +of the cost of the wells. As a result, the executive officers realize +a benefit not generally available to other investors. The Board +believes that having the executive officers invest in wells with the Company +and +other investors helps to create a commonality of interests much like share +ownership creates a commonality of interests between the shareholders and +executive officers. +32 +TOC +Internal +Revenue Code Section +162(m) +The +Committee is aware of IRC Section 162(m) of the tax code, which generally +limits +the deductibility of executive pay in excess of one million dollars, and +which +specifies the requirements for the “performance-based” exemption from this +limit. Elements of the executive compensation program are indeed +performance-based, and vehicles such as stock options are believed to qualify +as +performance-based under Section 162(m). Other aspects of the +executive compensation program may not qualify as performance-based, such +as +time-based restricted stock and the Company's annual incentive plan because +the +Committee prefers the ability to exercise discretion in evaluating a portion +of +participants' performance. The financial implications of a potential +lost deduction are not expected to be material. The Committee will +continue to monitor its position on the impact of Section 162(m) for the +Company's executive compensation programs. +33 +TOC +EXECUTIVE +COMPENSATION +2006 +SUMMARY COMPENSATION +TABLE +The +following +table provides summary compensation information for the Company's Chief +Executive Officer, the Chief Financial Officer, and the three most highly +compensated executive officers, other than the Chief Executive Officer and +Chief +Financial Officer, whose total compensation exceeded $100,000 in 2006 (the +"named executive officers"). +Non-Equity +Nonqualified +Stock +Option +Incentive +Plan +Deferred +All +Other +Total +Name +and Principal Position +Salary +Bonus (1) +Awards +(2) +Awards +(3) +Compensation (4) +Compensation +(5) +Compensation +(6) +Compensation +Steven +R. Williams +$ 345,000 +$ +155,250 +$ +163,023 +$ +54,546 +$ 362,250 +$ 88,438 +$ 37,778 +(7) +$ +1,206,285 +Chairman, +Chief Executive Officer +and Director +Thomas +E. Riley +272,000 +81,600 +107,580 +35,977 +190,400 +30,824 +9,357 +(8) +727,738 +President +and Director +Eric +R. Stearns +251,000 +175,300 +(9) +98,318 +32,806 +175,700 +21,730 +17,773 +772,627 +Executive Vice President, +Exploration and Development +Richard +W. McCullough +32,237 +83,000 +(10) +5,928 +2,289 +- +3,848 +- +127,302 +Chief Financial Officer +and Treasurer +Darwin +L. Stump +220,500 +33,075 +85,963 +28,484 +154,350 +25,880 +17,610 +(11) +565,862 +Chief Accounting Officer +_______________ +(1) +The +annual STI bonus plan provides for a discretionary component equal +to 30% +of the total STI award. The amounts for Messrs. Williams, +Riley, and Stump represent only the discretionary amounts earned +pursuant +to the STI plan. The annual STI bonus plan has established +performance criteria that must be met before 70% of the annual +cash bonus +may be paid. See discussion of the STI bonus plan +above. +(2) +Represents +compensation expense recorded by the Company pursuant to FAS 123(R) +related to outstanding restricted stock awards. See Note 8, +Common Stock, to the Consolidated Financial +Statements. +(3) +Represents +compensation expense recorded by the Company pursuant to FAS 123(R) +related to outstanding stock options. See Note 8, Common Stock, +to the Consolidated Financial +Statements. +(4) +Represents +performance based cash bonuses earned during the year and paid +shortly +after year-end. As noted above in the discussion and analysis, +the STI bonus plan has established performance criteria that must +be met +for the executive to earn 70% of the targeted annual cash bonus +amount. +(5) +Represents +the present value of the current year benefit earned related to +the +deferred compensation retirement plan. The amount for Mr. +McCullough was based upon a prorated annual amount since 2006 was +the +initial year of employment. +(6) +All +Other Compensation includes insurance and medical reimbursements, +social +fringe benefits such as club dues and athletic event tickets, the +value +for the personal use of Company automobiles and discounts related +to +Company-sponsored drilling +programs. +(7) +Includes, +in addition to other compensation items discussed in (6) +above, $20,170 for post retirement medical and a discount +received of $5,216 related to investments in Company-sponsored +drilling +programs, see discussion above in Other Agreements and +Arrangements. +(8) +Includes, +in addition to other compensation items discussed in (6) above, +a discount +received of $2,649 related to investments in Company-sponsored +drilling +programs. +(9) +Includes +$75,300 pursuant to discretionary component of the STI plan and +an +additional $100,000 bonus for his role in the sale of an undeveloped +leasehold in Grand Valley Field in +September. +(10) +Represents +a signing bonus paid at the start of employment with the Company +in +November 2006. +(11) +Includes, +in addition to other compensation items discussed in (6) above, +a discount +received of $2,437 related to an investment in a Company-sponsored +drilling program. +34 +TOC +2006 +GRANTS OF PLAN-BASED AWARDS +TABLE +Estimated +Future Payouts +Number +of +Grant +Date +Under +Non-Equity +Securities +Exercise +Price +Fair +Value of +Incentive +Plan Awards +Number +of +Underlying +Per +Share +Stock +and +Shares +Option +of +Option +Option +Name +Grant +Date +Threshold +Target +Maximum +Awarded +Awards (1) +Awards (1) +Awards +(2) +Steven +R. Williams +3/16/2006 +$ - +$ - +$ - +9,348 +7,517 +$ 44.95 +(3) +$ 571,886 +6/23/2006 +- +258,750 +517,500 +- +- +- +- +Thomas +E. Riley +3/16/2006 +- +- +- +6,141 +4,939 +44.95 +(3) +375,707 +6/23/2006 +- +136,000 +272,000 +- +- +- +- +Eric +R. Stearns +3/16/2006 +- +- +- +5,441 +4,375 +44.95 +(3) +332,860 +6/23/2006 +- +125,500 +251,000 +- +- +- +- +Richard +W. McCullough +11/14/2006 +- +- +- +4,256 +3,333 +43.60 +255,688 +Darwin +L. Stump +3/16/2006 +- +- +- +4,381 +3,523 +44.95 +(3) +268,020 +6/23/2006 +- +110,250 +220,500 +- +- +- +- +_______________ +(1) +Represents +awards under the Company's long-term equity compensation plan (see +Note 8, +"Common Stock," to the consolidated financial statements and "Long-Term +Incentives" above in the Compensation Discussion and Analysis for +additional discussion). +(2) +The +Grant Date Fair Value of stock and option awards is computed by +multiplying the restricted stock number of shares awarded by the +closing +price of the Company's stock on the date of the grant, plus the +Black +Scholes value per share times the number of securities underlying +the +option shares. The closing price per share of awards on March +16, 2006, and November 14, 2006, was $44.95 and $43.60, +respectively. The Black Scholes estimated fair value per share +of the options awarded on March 16, 2006, and November 14, 2006, +was +$20.18 and $21.04, +respectively. +(3) +In +April 2007, the Company corrected an administrative error related +to the +use of the closing price of the Company's common stock on the day +prior to +the award, rather than the closing price on the day of the award +in +accordance to the plan, see Long-Term Incentives discussion +above. The Exercise Price Per Share correctly reflects the +closing price per share on the day of the +award. +35 +TOC +OUTSTANDING EQUITY +AWARDS AT 2006 FISCAL +YEAR-END TABLE +Option +Awards +Restricted +Stock Awards +Number +of Securities +Number +Market +Value +Underlying +Unexercised +of +Shares +of +Shares +Options +Held at +That +Have +That +Have +December +31, 2006 +Exercise +Expiration +Not +Not +Name +Exercisable +Unexercisable +Price +Date +Vested +Vested +(1) +Steven +R. Williams +2,935 +2,935 +(2) +$ 37.15 +12/13/2014 +13,413 +(3) +$ 577,430 +- +7,517 +(4) +44.95 +3/16/2016 +- +- +Thomas +E. Riley +1,945 +1,945 +(5) +37.15 +12/13/2014 +8,836 +(6) +380,390 +- +4,939 +(7) +44.95 +3/16/2016 +- +- +Eric +R. Stearns +1,835 +1,835 +(8) +37.15 +12/13/2014 +7,981 +(9) +343,582 +- +4,375 +(10) +44.95 +3/16/2016 +- +- +Richard +W. McCullough +- +3,333 +(11) +43.60 +11/14/2016 +4,256 +(12) +183,221 +Darwin +L. Stump +1,725 +1,725 +(13) +37.15 +12/13/2014 +6,771 +(14) +291,492 +- +3,523 +(15) +44.95 +3/16/2016 +- +- +_______________ +(1) +Market +value of shares is based on the closing price of the Company's +common +stock on December 29, 2006, $43.05 per +share. +(2) +Vesting: +1,467 shares in 2007 and 1,468 shares in +2008. +(3) +Vesting: +4,369 shares in 2007, 4,370 shares in 2008, 2,337 shares in 2009 +and 2,337 +shares in 2010. +(4) +Vesting: +25% in each of the years 2007 through +2010. +(5) +Vesting: +972 shares in 2007 and 973 shares in +2008. +(6) +Vesting: +2,882 shares in 2007, 2,883 shares in 2008, 1,535 shares in 2009 +and 1,536 +shares in 2010. +(7) +Vesting: +25% in each of the years 2007 through +2010. +(8) +Vesting: +917 shares in 2007 and 918 shares in +2008. +(9) +Vesting: +2,630 shares in 2007, 2,630 shares in 2008, 1,360 shares in 2009 +and 1,361 +shares in 2010. +(10) +Vesting: +25% in each of the years 2007 through +2010. +(11) +Vesting: +25% in each of the years 2007 through +2010. +(12) +Vesting: +25% in each of the years 2007 through +2010. +(13) +Vesting: +862 shares in 2007 and 863 shares in +2008. +(14) +Vesting: +2,290 shares in 2007, 2,290 shares in 2008, 1,095 shares in 2009 +and 1,096 +shares in 2010. +(15) +Vesting: +25% in each of the years 2007 through +2010. +36 +TOC +2006 +OPTIONS EXERCISES AND STOCK VESTED +TABLE +Option +Awards +Stock +Awards +Number +of +Number +of +Shares +Acquired +Value +Realized +Shares +Acquired +Value +Realized +Name +on +Exercise +on +Exercise +on +Vesting +on +Vesting (1) +Steven +R. Williams +- +$ - +2,032 +$ 90,932 +Thomas +E. Riley +- +- +1,347 +60,278 +Eric +R. Stearns +- +- +1,270 +56,833 +Richard +W. McCullough +- +- +- +- +Darwin +L. Stump +- +- +1,195 +53,476 +_______________ +(1) +Based +on the closing price of the Company's common stock on the date +of vesting, +December 13, 2006, $44.75 per +share. +2006 +NONQUALIFIED DEFERRED +COMPENSATION TABLE +Executive +Company +Aggregate +Aggregate +Aggregate +Contributions +in +Contributions +in +Earnings +in +Withdrawals/ +Balance +at +Name +2006 +2006 (1) +2006 (2) +Distributions +December +31, 2006 +Steven +R. Williams +$ - +$ 88,438 +(3) +$ 35,699 +(4) +$ - +$ 754,821 +Thomas +E. Riley +- +30,824 +3,489 +- +92,471 +Eric +R. Stearns +- +21,730 +2,460 +- +65,189 +Richard +W. McCullough +- +3,848 +- +- +3,848 +Darwin +L. Stump +- +25,880 +2,930 +- +77,641 +_______________ +(1) +Company +contributions include the present value cost of providing the defined +compensation payout over a ten year period. Since this is a +self funded deferred compensation plan, the Company’s additional annual +deferred compensation expense, less the interest component noted +as +aggregate earnings above, equals the increase in the accrued Company +contributions that are required to fund the plan. These annual +amounts are a component of the executive officers' 2006 compensation +and +are included in the 2006 Summary Compensation +Table. +(2) +Aggregate +earnings consist of interest income earned on the beginning of +the year +compensation balance at a 6% interest rate. These earnings are +not included in the 2006 Summary Compensation Table as they are +not above +market rate. +(3) +Mr. +Williams received deferred compensation benefits from both the +current +deferred compensation plan for all named executive officers, as +well as a +prior retirement plan. The amount for Mr. Williams includes a +reduction of $8,990 in the current funding amount due to the fact +that the +deferral option has been elected by Mr. Williams for the start +of benefits +under the prior retirement plan. The deferred payment start +date has been deferred for five years after retirement. In +addition, current year required Company contributions were also +reduced by +$35,699 due to a change in Mr. Williams’ projected retirement +date. +(4) +Aggregate +earnings for Mr. Williams include additional earnings of $4,590 +on the +Company’s previous retirement plan due to that plan’s “five year deferral +option.” +37 +TOC +EQUITY +COMPENSATION PLAN +INFORMATION +The +following table summarizes information related to the Company's equity +compensation plans under which its equity securities are authorized for issuance +as of June 30, 2007. +Plan +category +Number +of securities to be issued +upon exercise of outstanding +options +Weighted-average +exercise +price of outstanding +options +Number +of securities +remaining +available for +future +issuance under equity +compensation +plans (1) +Equity +compensation plans +approved +by +security holders (2) +56,567 +(3) +$ 30.92 +528,331 +Equity +compensation plans +not +approved by +security holders +- +- +- +Total +56,567 +30.92 +528,331 +_______________ +(1) +Excludes +the number of securities to be issued upon exercise of outstanding +options +and performance shares subject to certain performance goals over +a +specified period of time. +(2) +These +plans consist of the 1999 Incentive Stock Option and Non-Qualified +Stock +Option Plan, the 2004 Long-Term Equity Compensation Plan and the +2005 +Non-Employee Director Restricted Stock +Plan. +(3) +Excludes +31,972 shares of common stock issuable upon the obtainment of specified +performance goals over a specified period of +time. +38 +TOC +SHAREHOLDER +PERFORMANCE +GRAPH +The +following graph illustrates the cumulative total return on the Company's +common +stock over a five year period ended December 31, 2006, compared to the +cumulative total returns for the same period for the S&P 500 Index and a +peer group index. The peer group index consists of 203 Crude +Petroleum and Natural Gas Companies. The cumulative total shareholder +return computations assume the investment of $100 in Company common stock, +the +S&P 500 Index and the peer group index. The table includes the +cumulative shareholder return assuming the reinvestment of +dividends. +Year +ended December 31, +2001 +2002 +2003 +2004 +2005 +2006 +PETROLEUM +DEVELOPMENT CORPORATION +$ 100.00 +$ 85.90 +$ 384.12 +$ 625.12 +$ 540.36 +$ 697.73 +SIC +CODE INDEX +100.00 +106.61 +171.22 +217.51 +312.49 +406.32 +S&P +500 INDEX +100.00 +77.90 +100.25 +111.15 +116.61 +135.03 +39 +TOC +SHAREHOLDER +NOMINATIONS AND +PROPOSALS +Advance +Notice Procedures +Under +the +Company's By-Laws, no business may be brought before an annual meeting of +the +Company unless it is specified in the notice of the meeting or is otherwise +brought before the meeting by or at the direction of the Board or by a +shareholder entitled to vote who has delivered advance notice to the +Company. The notice must contain certain information specified in the +By-Laws and be delivered to the Corporate Secretary at Petroleum Development +Corporation, 120 Genesis Boulevard, Bridgeport, West Virginia 26330, not +less +than 80 days (June 9, 2008) nor more than 90 days (May 30, 2008) prior to +the +first anniversary of the preceding year's annual meeting. These +requirements are separate from and in addition to the SEC's requirements +that a +shareholder must meet in order to have a shareholder proposal included in +the +Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange +Act of 1934. Under federal proxy rules, if a shareholder wishes to +present such a proposal, but fails to notify the Company by the date required +by +the Company's By-Laws, the proxies solicited by the Board will include +discretionary authority to vote on the shareholder's proposal in the event +the +proposal is properly brought before the meeting. +Shareholder +Proposals for 2008 Annual Meeting +In +order +to be included in the Company's Proxy Statement for the 2008 Annual Meeting +of +Shareholders, shareholder proposals must be received by the Company at its +principal executive office on or prior to April 2, 2008. Proposals +should be addressed to: +Corporate +Secretary +Petroleum +Development Corporation +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330 +In +addition, for any proposal that is not submitted for inclusion in next year's +proxy statement, but is instead sought to be presented directly at the 2008 +Annual Meeting of Shareholders, SEC rules permit management to vote proxies +in +its discretion if the Company (1) receives written notice of the proposal +not +later than June 9, 2008, nor earlier than May 30, 2008, and advises shareholders +in the 2008 proxy statement about the nature of the matter and how management +intends to vote on the matter; or (2) does not receive written notice of +the +proposal prior to the close of business on June 16, 2008. Notices of +intention to present proposals at the 2008 annual meeting of shareholders +should +be addressed to Corporate Secretary, Petroleum Development Corporation, 120 +Genesis Boulevard, Bridgeport, West Virginia 26330. +By +Order of the Board of Directors, +Steven +R. Williams, Chairman +40 +TOC +Dated: July +31, 2007 +THE +COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL +HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, +A COPY +OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER +31, 2006, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE +COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY +BE OBTAINED BY WRITING TO CORPORATE COMMUNICATIONS DEPARTMENT, PETROLEUM +DEVELOPMENT CORPORATION, 120 GENESIS BOULEVARD, BRIDGEPORT, WEST VIRGINIA +26330. +Petroleum +Development Corporation +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330 +Proxy +Solicited by the Board of Directors for the Annual Meeting of +Shareholders +The +undersigned hereby appoints STEVEN R. WILLIAMS and DARWIN L. STUMP, and either +of them, proxies, each with full power to act without the other and with +full +power of substitution for and in the name of the undersigned at the Annual +Meeting of Shareholders of Petroleum Development Corporation (the "Company") +to +be held on August 28, 2007, at 10:00 a.m. and at any adjournment or postponement +thereof to vote all shares of the common stock of the Company, held by the +undersigned with respect to the following matters or postponement and on +such +other matters as may properly come before the meeting. +(1) +ELECTION OF DIRECTORS +Nominees: +Vincent F. D'Annunzio and Thomas E. Riley + +FOR +ALL  +WITHHOLD +ALL  +FOR ALL EXCEPT +(See +Instructions +Below) +Instructions: To +withhold authority to vote for either nominee, mark "FOR ALL EXCEPT" and +circle +the nominee's name above. +(2) +TO +RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, +2007. + +FOR  +AGAINST  +ABSTAIN +In +their +discretion, the proxies are authorized to vote upon such other business as +may +properly come before the meeting and at any and all adjournments or +postponements thereof. +(CONTINUED +AND TO BE SIGNED ON THE OTHER SIDE) +TOC +The +undersigned hereby acknowledges receipt of the Notice of Annual Meeting of +Shareholders and Proxy Statement for such meeting dated August 28, 2007, +and a +copy of the Company's 2006 Annual Report. +THIS +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED +PRIOR +TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, +WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF +NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR PROPOSALS 1 AND 2. +Date: +__________________, 2007 +Signature +(Please +sign in the above box EXACTLY as your name(s) appears on this +proxy. All joint holders must sign. When signing in +a representative capacity, please provide your full +title.) +IMPORTANT +INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD, PLEASE READ BOTH SIDES +OF +THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED +ENVELOPE. +TOC \ No newline at end of file diff --git a/raw/proxies/0000077877/0000077877-07-000079/proxy_rpt.txt b/raw/proxies/0000077877/0000077877-07-000079/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e13bfc21f8804780232ee1edcffcb2b0b9781e07 --- /dev/null +++ b/raw/proxies/0000077877/0000077877-07-000079/proxy_rpt.txt @@ -0,0 +1,105 @@ +Transactions with Related Persons +The +Board +has adopted a policy for the review, approval and ratification of transactions +that involve related parties and potential conflicts of interest. +The +related party transaction policy applies to each director and executive officer +of the Company, any nominee for election as a director, any security holder +who +is known to own more than five percent of the Company's voting securities, +any +immediate family member of any of the foregoing persons and any corporation, +firm or association in which one or more of the Company's directors are +directors or officers, or have a substantial financial interest. +Under +the +related party transaction policy a related person transaction is a transaction +or arrangement involving a related person in which the Company is a participant +or that would require disclosure in the Company's filings with the SEC as +a +transaction with a related person. +The +related persons must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to +such +interest. All related person transactions will be reviewed by the +Audit Committee. In determining whether to approve or ratify a +transaction, the Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such as the +relationship of the related person with the Company, the materiality or +significance of the transaction to the Company and the business purpose and +reasonableness of the transaction, whether the transaction is comparable +to a +transaction that could be available to the Company on an arms-length basis, +and +the impact of the transaction on the Company's business and +operations. +19 +TOC +During +the year ended December 31, 2006, there was no transaction or series of +transactions, or any currently proposed transaction, in which the amount +involved exceeds $120,000 and in which any director, executive officer, holder +of more than 5% of the Company's common stock or any member of the immediate +family of any of the foregoing persons had or will have a direct or indirect +material interest. +Indemnification +of Directors and +Officers +The +Company's By-Laws provide that the Company shall indemnify any director, +officer, employee, or other agent of the Company who is or was a party, or +is +threatened to be made a party, to any proceeding (other than an action by +or in +the right of the Company to procure a judgment in its favor) by reason of +the +fact that such person is or was an agent of the Company, against expenses, +judgments, fines, settlements, and other amounts actually and reasonably +incurred in connection with such proceeding, if that person acted in good +faith +and in a manner that person reasonably believed to be in the best interest +of +the Company, and in the case of a criminal proceeding, had no reasonable +cause +to believe the conduct of that person was unlawful. +The +Company has entered into separate indemnification agreements with each of +its +directors and officers whereby the Company has agreed to indemnify the director +or officer against all expenses, including attorneys' fees, and other amounts +reasonably incurred by the officer or director in connection with any +threatened, pending or completed civil, criminal, administrative or +investigative action or proceeding to which such person is party by reason +of +the fact that he is or was a director or officer, as the case may be, of +the +Company, if the person acted in good faith and in a manner reasonably believed +to be in or not opposed to the best interests of the Company, and, with respect +to any criminal action or proceeding, the person had no reasonable cause +to +believe such conduct to be unlawful. The agreements provide for the +advancement of expenses and that the Company has the right to purchase and +maintain insurance on behalf of the director or officer against any liability +or +liabilities asserted against him, whether or not the Company would have the +power to indemnify the person against such liability under any provision +of the +agreement. The Company has agreed to indemnify such person against +expenses actually and reasonably incurred in connection with any action in +which +the person has been successful on the merits or +otherwise. Indemnification must also be provided by the Company +(unless ordered otherwise by a court) only as authorized in the specific +case +upon a determination that the indemnification of the person is appropriate +because he has met the applicable standard of conduct described in the agreement +made by (i) the Board of Directors, by a majority vote of a quorum consisting +of +directors who are not parties to such action or proceeding, (ii) independent +legal counsel in a written opinion or (iii) the shareholders of the +Company. +Additional +Information +The \ No newline at end of file diff --git a/raw/proxies/0000077877/0000950123-10-042057/proxy.txt b/raw/proxies/0000077877/0000950123-10-042057/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..083e0f1704a58fc307b72c32f347a22108a46638 --- /dev/null +++ b/raw/proxies/0000077877/0000950123-10-042057/proxy.txt @@ -0,0 +1,6843 @@ +DEF 14A +1 +l39235def14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the Registrant +Filed by a Party other than the Registrant +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Petroleum Development Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +No fee required. +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +Fee paid previously with preliminary materials. +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and +identify the filing for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +1775 Sherman Street, +Suite 3000 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF +SHAREHOLDERS +June 4, 2010 +Denver +Financial Center +Lobby Conference Room +1775 Sherman Street +Denver, Colorado 80203 +To the Shareholders: +Notice is hereby given that the Annual Meeting of Shareholders +of Petroleum Development Corporation (the “Company”) +will be held at the Denver Financial Center, Lobby Conference +Room, 1775 Sherman Street, Denver, Colorado 80203, on +June 4, 2010, at 11:30 a.m., Mountain Time, for the +following purposes, all as more fully described in the +accompanying Proxy Statement: +(1) +To elect the three Director nominees identified in the +accompanying Proxy Statement for a three-year term until the +2013 annual meeting of shareholders and until their successors +are elected; +(2) +To approve the Company’s 2010 Long-Term Equity Compensation +Plan; +(3) +To ratify the selection of PricewaterhouseCoopers LLP as +independent registered public accounting firm for the Company +for the year ending December 31, 2010; and +(4) +To consider such other business as may properly come before the +meeting and at any and all adjournments or postponements thereof. +The Board of Directors has fixed the close of business on +April 7, 2010, as the record date for determining the +shareholders having the right to vote at the annual meeting or +any adjournment or postponement thereof. The presence in person +or by proxy of the holders of a majority of the outstanding +shares of the Company’s common stock entitled to vote is +required to constitute a quorum. +Each shareholder is cordially invited to attend and to vote at +this meeting in person. Shareholders who do not expect to attend +are requested to sign and date the accompanying proxy card and +return it promptly in the enclosed postpaid envelope. +By Order of the Board of Directors, +Daniel W. Amidon, +Corporate Secretary +Denver, Colorado +April 30, 2010 +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +1775 Sherman Street, +Suite 3000 +Denver, Colorado 80203 +PROXY +STATEMENT +ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD JUNE 4, 2010 +Denver +Financial Center +Lobby Conference Room +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors +(“Board”) of Petroleum Development Corporation +(“PDC” or the “Company”) for use at the +Annual Meeting of Shareholders of the Company to be held on +June 4, 2010, at 11:30 a.m. Mountain Time, and at +any and all adjournments or postponements of the meeting, for +the purposes set forth in this Proxy Statement and the attached +Notice of Annual Meeting of Shareholders. This Proxy Statement +and the enclosed form of proxy are first being mailed to the +shareholders of the Company on or about April 30, 2010. +The Company will bear the cost related to the solicitation of +proxies. The Company will reimburse brokerage firms and other +custodians, nominees and fiduciaries for reasonable and +appropriate expenses incurred by them in sending proxy +.materials to the beneficial owners of the Company’s common +stock. In addition to solicitations by mail, Directors, officers +and employees of the Company may solicit proxies by telephone +and, to the extent necessary, other electronic communication, +and personal interviews without additional compensation. +TABLE OF +CONTENTS +GENERAL INFORMATION +1 +PROPOSALS REQUIRING SHAREHOLDER VOTE +2 +Proposal 1 — Election of +Directors +2 +Director Compensation +6 +Proposal 2 — Approve 2010 +Long-Term Equity Compensation Plan +7 +Description of the 2010 Plan +7 +Proposal 3 — Ratification of +Selection of an Independent Registered Public Accounting Firm +16 +REPORT OF THE AUDIT COMMITTEE +17 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2010 +ANNUAL MEETING +18 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +18 +Section 16(a) Beneficial Ownership Reporting +Compliance +20 +CORPORATE GOVERNANCE +20 +Board of Directors +20 +Director Independence +21 +Board Meetings and Attendance +21 +Annual Meeting Attendance +21 +Committees of the Board +22 +The Board Role in Risk Management +25 +Communications with Directors +26 +Code of Business Conduct and Ethics +26 +Policies and Procedures with Respect to +Transactions with Related Persons +26 +Indemnification of Directors and Officers +27 +Additional Information +27 +EXECUTIVE OFFICERS +28 +COMPENSATION COMMITTEE REPORT +29 +COMPENSATION DISCUSSION AND ANALYSIS +29 +Executive Summary +29 +COMPENSATION DESIGN +30 +Compensation Philosophy +30 +Resources and Other Considerations Used in the +Decision Making Process +31 +ELEMENTS OF EXECUTIVE COMPENSATION +34 +Base Salary +34 +Short-Term Incentives +35 +Long-Term Incentives +37 +Retirement Plans +38 +Other Compensation and Benefits +39 +2010 Compensation +39 +Executive Officer and Director Share Retention +and Ownership Guidelines +41 +EXECUTIVE AGREEMENTS +41 +Employment Agreements +41 +Other Agreements and Arrangements +44 +EXECUTIVE COMPENSATION +45 +2009 Summary Compensation Table +45 +2009 Grants of Plan-Based Awards Table +47 +Outstanding Equity Awards at 2009 Fiscal Year-End +Table +48 +2009 Options Exercises and Stock Vested Table +48 +2009 Nonqualified Deferred Compensation Table +49 +Equity Compensation Plan Information +49 +SHAREHOLDER NOMINATIONS AND PROPOSALS +50 +Advance Notice Procedures +50 +Shareholder Proposals for 2011 Annual Meeting +50 +EXHIBIT A — 2010 Long-Term Equity +Compensation Plan +A-1 +Table of Contents +GENERAL +INFORMATION +Who May +Vote +Shareholders of PDC, as recorded in the Company’s stock +register on April 7, 2010, may vote at the meeting. The +outstanding voting securities of the Company as of April 7, +2010, consisted of 19,253,526 shares of common stock. Each +share is entitled to one vote on each matter considered at the +meeting. +How +Proxies Work +The Board is asking for your proxy. Giving the Board your proxy +means that you authorize the Board to vote your shares at the +meeting in the manner you direct. You may vote for any or all +Director Nominees, or you may withhold your vote from any or all +of the Director Nominees. You may also vote for or against the +other proposals, or abstain from voting. Cumulative voting is +not permitted by the Company’s By-Laws in the election of +Directors. +If your shares are held in your name, you can vote by +completing, signing and dating your proxy card and returning it +in the enclosed envelope. +If you give the Board your signed proxy but do not specify how +to vote, your shares will be voted in favor of the Director +Nominees named on the proxy, in favor of approving the 2010 +Long-Term Equity Compensation Plan, and in favor of the +ratification of PricewaterhouseCoopers LLP as the Company’s +independent registered accounting firm for the year ending +December 31, 2010. +If you hold shares through someone else, such as a stockbroker, +you will receive material from that firm asking how you want to +vote. Check the voting form used by that firm to see what voting +options you have available and to determine what procedures you +must follow. +Revoking +a Proxy +You may revoke your proxy before it is voted by: +• +Submitting a new signed proxy with a later date; +• +Notifying PDC’s Corporate Secretary in writing before the +meeting that you wish to revoke your proxy; or +• +Appearing at the meeting, notifying the Inspector of the +Election that you wish to revoke your proxy, and voting in +person at the meeting. Merely attending the meeting will not +result in your revoking your proxy. +If you hold your shares through someone else, such as a +stockbroker, you will need to follow the directions they give +you to revoke a proxy or otherwise vote at the meeting. +Quorum +In order to carry on the business of the meeting, there must be +a quorum. This means that at least a majority of the outstanding +shares eligible to vote must be represented at the meeting, +either by proxy or in person. Treasury shares, which are shares +owned by PDC itself, are not voted and do not count for this +purpose. +Votes +Needed +The Director Nominees who receive the most votes will be elected +to fill the available seats on the Board. There is no provision +in the Company’s By-Laws which requires Director Nominees +to receive a majority of the votes cast to be elected. Approval +of each of the other proposals requires the favorable vote of a +majority of the votes cast. Only votes for or against a proposal +count. Abstentions and broker non-votes will count for quorum +purposes but not for voting purposes. Broker non-votes occur +when a +1 +Table of Contents +broker returns a proxy but does not have authority from the +owner of the stock to vote on a particular proposal. +Attending +in Person +Only shareholders or their proxy holders and PDC’s guests +may attend the annual meeting. For safety and security reasons, +no cameras, audio or video recording equipment, large bags, +briefcases or packages will be permitted in the meeting. In +addition, each shareholder and guest may be asked to present +valid, government-issued picture identification, such as a +driver’s license, before being admitted to the meeting. +If your shares are held in the name of your broker, bank, or +other nominee, you must bring to the meeting an account +statement or letter from the nominee indicating that you +beneficially owned the shares on April 7, 2010, the record +date for voting. Shareholders who do not present such +information at the meeting will be admitted upon verification of +ownership at the admissions counter. +Conduct +of the Meeting +The Chairman has broad authority to conduct the annual meeting +in an orderly and timely manner. This authority includes +establishing rules for shareholders who wish to address the +meeting. The Chairman may also exercise broad discretion in +recognizing shareholders who wish to speak and in determining +the extent of discussion on each item of business. In light of +the need to conclude the meeting within a reasonable period of +time, there can be no assurance that every shareholder who +wishes to speak on an item of business will be able to do so. +The Chairman may also rely on applicable law regarding +disruptions or disorderly conduct to ensure that the meeting is +conducted in a manner that is fair to all shareholders. +Contact +Information +If you have questions or need more information about the annual +meeting, write to or call: +Corporate Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +For information about shares registered in your name, call PDC +at +1-800-624-3821. +You are also invited to visit PDC’s internet site at +www.petd.com . Internet site materials are not part of +this proxy solicitation. +PROPOSALS REQUIRING +SHAREHOLDER VOTE +PROPOSAL 1 – +ELECTION OF DIRECTORS +(ITEM 1 +ON THE PROXY) +As of the date of this proxy statement and as permitted by the +Company’s By-Laws, the Company’s Board of Directors +(“Board”) has nine members divided into three classes. +Directors are usually elected for three-year terms. The terms +for members of each class end in successive years. +The Board has nominated three continuing Directors, Larry F. +Mazza, James M. Trimble and Richard W. McCullough, whose terms +expire in 2010 at the annual meeting, to stand for election to +the Board for a three-year term expiring in 2013. Vincent F. +D’Annunzio has chosen not to stand for re-election. By +resolution, the Board of Directors has decreased the size of the +Board to eight members to be effective as of the date of the +2010 annual shareholder meeting. Mr. Mazza joined the +Board in 2007 and currently serves on the Compensation Committee +and the Nominating and Governance Committee. Mr. Trimble +2 +Table of Contents +joined the Board in September 2009 and currently serves on the +Planning and Finance Committee as well as the Compensation +Committee. +The appointed proxies will vote your proxy in accordance with +your instructions, and for the election of the three nominees +unless you withhold your authority to vote for any of them. The +Board does not contemplate that any of the nominees will become +unavailable for any reason; however, if any Director is unable +to stand for election, the Board may reduce its size or choose a +substitute. Proxies cannot be voted for a greater number of +persons than the number of nominees named or for a person who is +not named in this Proxy Statement as a candidate for Director. +NOMINEES +FOR A THREE-YEAR TERM EXPIRING IN 2013 +Year First +Name, Principal Occupation for Past Five Years +Elected +and Other Directorships +Age +Director +LARRY F. MAZZA is President and Chief Executive Officer of MVB +Bank, Inc. in Fairmont, West Virginia. He has been Chief +Executive Officer since March 2005, and added the duties of +President in January of 2009. Prior to 2005, Mr. Mazza +served as Senior Vice President Retail Banking for BB&T and +its predecessors in West Virginia, where he was employed from +June 1986 to March 2005. A Certified Public Accountant for +26 years, Mr. Mazza also was previously an auditor +with KPMG. Mr. Mazza brings to the Board extensive +leadership and banking experience. Banking relationships and +experience have become particularly important to the Company +during the last few uncertain years. The Company benefits from +Mr. Mazza’s firsthand continuing experience as a chief +executive officer, a specific attribute sought by the Board when +Mr. Mazza initially became a Director in 2007. +Mr. Mazza also provides an important link to community and +employee stakeholders, demonstrating a continuing commitment to +our largest workforce located in Bridgeport, West Virginia. +49 +2007 +JAMES M. TRIMBLE has served as Managing Director of Grand Gulf +Energy, Limited (ASX:GGE), a public company traded on the +Australian Exchange, since August 2006. In January 2005, +Mr. Trimble founded and has since served as President and +Chief Executive Officer of the U.S. subsidiary Grand Gulf Energy +Company LLC, an exploration and development company focused +primarily on drilling in mature basins in Texas, Louisiana and +Oklahoma. From 2000 through 2004, Mr. Trimble was Chief +Executive Officer of Elysium Energy and then Tex-Cal Energy LLC, +both were privately held oil and gas companies that he was +brought in to take through troubled workout solutions. Prior to +this, he was Senior Vice President of Exploration and Production +for Cabot Oil and Gas (NYSE:COG). From November 2002 until May +2006, he also served as a Director of Blue Dolphin Energy, an +independent oil and gas company with operations in the Gulf of +Mexico. Mr. Trimble is a Registered Professional Engineer +who brings many years of broad oil and gas industry executive +management experience to the Board, including experience as a +chief operating officer, and knowledge of current developments +and best practices in the industry. +61 +2009 +3 +Table of Contents +RICHARD W. MCCULLOUGH was appointed Chief Executive Officer of +the Company in June 2008 and Chairman of PDC’s Board of +Directors in November 2008. From November 2006 until November +2008, he served as Chief Financial Officer of the Company. Prior +to joining PDC, Mr. McCullough served from July 2005 to +November 2006 as an energy consultant. From January 2004 to July +2005, he was President and Chief Executive Officer of Gasource, +LLC, a marketer of long-term, natural gas supplies in Dallas, +Texas. From 2001 to 2003, Mr. McCullough served as an +investment banker with J.P. Morgan Securities, Atlanta, +Georgia, in the public finance utility group supporting bankers +nationally in all natural gas matters. Additionally, +Mr. McCullough has held senior positions with Progress +Energy, Deloitte and Touche, and the Municipal Gas Authority of +Georgia. He holds BS and MS degrees from the University of +Southern Mississippi and was a practicing Certified Public +Accountant for eight years. Mr. McCullough serves on the +boards of several oil and gas trade industry associations and +brings to the Board extensive and diverse oil and gas industry, +public accounting and investment banking expertise, and strong +leadership and management skills. +58 +2007 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2011 +DAVID C. PARKE is a Managing Director in the investment banking +group of Boenning & Scattergood, Inc., West +Conshohocken, Pennsylvania, a full-service investment banking +firm. Prior to joining Boenning & Scattergood in +November 2006, he was a Director with investment banking firm +Mufson Howe Hunter & Company LLC, Philadelphia, +Pennsylvania, from October 2003 to November 2006. From 1992 +through 2003, Mr. Parke was Director of Corporate Finance +of Investec, Inc. and its predecessor Pennsylvania Merchant +Group Ltd., both investment banking companies. Prior to joining +Pennsylvania Merchant Group, Mr. Parke served in the +corporate finance departments of Wheat First Butcher & +Singer, now part of Wachovia Securities, and Legg Mason, Inc., +now part of Stifel Nicolaus. Mr. Parke’s extensive +investment banking experience, including experience in the oil +and gas area, allows him to contribute broad financial and +investment banking expertise to the Board and to provide +guidance on capital markets and acquisition matters. +43 +2003 +JEFFREY C. SWOVELAND is President and Chief Executive Officer of +ReGear Life Sciences, Inc. in Pittsburgh, Pennsylvania +(previously named Coventina Healthcare Enterprises), which +develops and markets medical device products, where he was +previously Chief Operating Officer. From 2000 until 2007, +Mr. Swoveland served as Chief Financial Officer of Body +Media, Inc., a life-science company specializing in the design +and development of wearable body monitoring products and +services. Prior thereto, Mr. Swoveland held various +positions, including Vice-President of Finance, Treasurer and +interim Chief Financial Officer with Equitable Resources, Inc., +a diversified natural gas company, from 1994 to September 2000. +Mr. Swoveland serves as a member of the Board of Directors +of Linn Energy, LLC, a public, independent natural gas and oil +company. Mr. Swoveland brings to the Board extensive +corporate management, accounting and finance experience, and oil +and gas industry expertise. Additionally, his service as a +director of another public energy company provides leadership +and knowledge of best practices that benefit the Company. His +guidance and understanding of management processes of larger oil +and gas companies benefits the Company as it grows. +55 +1991 +4 +Table of Contents +JOSEPH E. CASABONA served as Executive Vice President and member +of the Board of Directors of Denver-based Energy Corporation of +America, a natural gas exploration and development company, from +1985 until his retirement in May 2007. Mr. Casabona’s +responsibilities included strategic planning as well as +executive oversight of drilling operations in the continental +U.S. and internationally. In 2008, Mr. Casabona became +Chief Executive Officer of Paramax Resources Ltd, a junior +public Canadian oil & gas company (PMXRF) engaged in +the business of acquiring and exploration of oil and gas +prospects, primarily in Canada and Idaho. Mr. Casabona +brings to the Board extensive experience in all aspects of the +oil and gas industry, including natural gas exploration, +development, acquisitions, operations and strategic planning. +Mr. Casabona has direct oil and gas knowledge and +experience in the Company’s two primary areas of +operations, the Rocky Mountain Region and Appalachian Basin. +66 +2007 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2012 +ANTHONY J. CRISAFIO, a Certified Public Accountant, has served +as an independent business consultant for more than fifteen +years, providing financial and operational advice to businesses +in a variety of industries and stages of development. He also +serves as an interim Chief Financial Officer and Advisory Board +member for a number of privately held companies and has been a +Certified Public Accountant for more than thirty years. +Mr. Crisafio served as the Chief Operating Officer, +Treasurer and member of the Board of Directors of Cinema World, +Inc. from 1989 until 1993. From 1975 until 1989, he was employed +by Ernst & Young and was a partner with +Ernst & Young from 1986 to 1989. He was responsible +for several Securities and Exchange Commission (“SEC”) +registered client engagements and gained significant experience +with oil and gas industry clients and mergers and acquisitions. +Mr. Crisafio brings to the Board more than thirty years of +financial accounting and management expertise, with demonstrated +business management and accounting experience. +57 +2006 +KIMBERLY LUFF WAKIM, an attorney and a Certified Public +Accountant, is a Partner with the Pittsburgh, Pennsylvania law +firm Thorp, Reed & Armstrong LLP, where she serves as +a member of the Executive Committee and is the Practice Group +Leader for the Bankruptcy and Financial Restructuring Practice +Group. Ms. Wakim has practiced law with Thorp, +Reed & Armstrong LLP since 1990. Ms. Wakim was +previously an auditor with Main Hurdman (now KPMG) and was +Assistant Controller for PDC from 1982 to 1985. She has been a +member of AICPA and the West Virginia Society of CPAs for more +than fifteen years. Ms. Wakim brings to the Board a +combination of strong legal background and expertise in +accounting oversight. +52 +2003 +5 +Table of Contents +DIRECTOR +COMPENSATION +For the +2009-2010 +Board term, each non-employee Director was paid an annual fee of +$55,000 and received 4,000 shares of restricted stock of +the Company. The Presiding Independent Director was paid an +additional fee of $27,500. Each Non-Employee Director received +the following fees for services on each committee on which he or +she served: +2009-2010 Director +Term Committee Fees +Non-Chair +Standing Committees of the Board +Chair +Member +Audit +$ +27,500 +$ +10,000 +Compensation +10,000 +5,000 +Executive +— +5,000 +Nominating and Governance +7,500 +2,500 +Planning and Finance +7,500 +2,500 +In addition, a Special Committee consisting of +Messrs. Crisafio, Mazza, Parke and Swoveland was created to +consider the potential repurchase of certain of the partnerships +for which the Company is the managing general partner. Each +Special Committee member was paid a fee of $3,500 for 2009. +As of the date of each annual shareholders’ meeting of the +Company, each non-employee Director will be awarded a specified +number of shares of restricted stock as determined by the Board. +In 2009, Directors receiving restricted stock under the 2005 +Non-Employee Director Restricted Stock Plan (“2005 +Plan”) had all of the rights of a shareholder including the +right to vote the shares and receive cash dividends and other +cash distributions. Restricted stock will be subject to the +restrictions for the restricted period commencing on the date +the stock is awarded. +Each non-employee Director may also choose to defer a portion or +all of +his/her +annual cash compensation by participating in the Non-Employee +Director Deferred Compensation Plan. The plan’s trustee +invests all cash deposits received exclusively in the common +stock of the Company. +On April 19, 2010, the Board of Directors approved +compensation for the +2010-2011 +Board year. The annual compensation for the Chairs and members +of the Planning and Finance Committee, Compensation Committee +and Nominating and Governance Committee was raised to $12,000 +and $6,000, respectively. The equity compensation was determined +to be twice the retainer, or $110,000, for +2010-2011. +2009 Director +Compensation +Fees Earned +or Paid +Stock +Name +in Cash(1) +Awards(2) +Total +Jeffrey C. Swoveland +$ +103,500 +$ +61,520 +$ +165,020 +Vincent F. D’Annunzio +72,500 +61,520 +134,020 +Kimberly Luff Wakim +77,500 +61,520 +139,020 +David C. Parke +76,000 +61,520 +137,520 +Anthony J. Crisafio +88,500 +61,520 +150,020 +Joseph E. Casabona +70,000 +61,520 +131,520 +Larry F. Mazza +66,000 +61,520 +127,520 +James M. Trimble +17,344 +51,360 +68,704 +Steven R. Williams +30,000 +16,710 +46,710 +(1) +Compensation paid to Mr. McCullough for his services as an +executive officer is shown in the Summary Compensation Table +below; no additional compensation was received for his services +as a +6 +Table of Contents +Director while serving concurrently as an executive officer. +Mr. Williams did not stand for reelection to the Board of +Directors at the 2009 Annual Shareholders meeting. +Mr. Swoveland deferred 20% of his 2009 fees pursuant to the +stock purchase election under the Company’s Non-Employee +Deferred Compensation Plan. +(2) +Awards reflect the grant date fair value as computed in +accordance with FASB ASC Topic 718. Messrs. Williams and +Trimble each received restricted stock awards representing the +pro rata portion of the +2009-2010 +Board term non-employee Director restricted stock award. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH +OF THE NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS +PROPOSAL #1. PROXIES SOLICITED BY THE BOARD WILL BE SO +VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES +WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS’ +SPECIFICATIONS. DIRECTORS ARE ELECTED BY A PLURALITY OF THE +VOTE. +PROPOSAL 2 – +APPROVE 2010 LONG-TERM EQUITY COMPENSATION PLAN +(ITEM 2 +ON THE PROXY) +Purpose +of this Proposal +The purpose of this proposal is to seek shareholder approval of +the Company’s 2010 Long-Term Equity Compensation Plan, +effective April 1, 2010. We refer to this plan as the 2010 +Plan. The 2010 Plan authorizes the issuance to employees and +directors of up to 1,400,000 total shares of equity, in various +forms, including but not limited to options, restricted stock +and stock appreciation rights. +The Board of Directors proposes that you approve the 2010 Plan. +The following is a substantive summary of the material +provisions of the 2010 Plan. This summary is qualified in its +entirety by reference to the full text of the 2010 Plan which +appears as Exhibit A to this Proxy Statement. +Description +of the 2010 Plan +In submitting the 2010 Plan to the shareholders for their +consideration and approval, the Board is proposing to continue +its program of equity incentives to key employees of the Company +(currently through the Company’s 2004 Long-Term Equity +Compensation Plan (the “2004 Plan”)) and its program +of equity incentives to the Company’s non-employee +Directors (currently through the 2005 Non-Employee Director +Restricted Stock Plan (the “2005 Plan”)). The +Company’s shareholders have previously considered and +approved each of these earlier plans. As of April 20, 2010, +the 2004 Plan currently has only 144 shares available for +award and grant to key employees, while the 2005 Plan has only +27,144 shares available for award to non-employee +Directors. In aggregate, there were 67,588 options and SARs +outstanding as of April 20, 2010 with a weighted average +exercise price of $27.10 and a weighted average term of +9.34 years. Also, as of April 20, 2010 there were +455,349 full value awards outstanding under all plans. The Board +has determined that it is advisable for the Company to +authorize, subject to shareholder approval, additional shares +for issuance to the Company’s key employees and +non-employee Directors in order to continue to further +incentivize them in their management of the Company and to +encourage them to own Company stock to further align their +interests with those of the Company’s shareholders. For +ease of administration, the Board has determined further that it +is advisable to continue these programs in one new plan, the +2010 Plan, instead of two new freestanding plans. In this +regard, the Board has determined to allocate and reserve a total +of 1,400,000 shares of the Company’s common stock for +future issuance, grant and award under the 2010 Plan. Awards may +not be amended to reduce the exercise price of outstanding +options or SARs or cancel outstanding options or SARs in +exchange for cash, other awards or options or SARs with an +exercise price that is less than the exercise price of the +original options or SARs without shareholder approval. +7 +Table of Contents +The +Board’s Reasons for the 2010 Plan +The success of the Company depends, in large measure, upon its +ability to recruit and retain key employees with outstanding +ability and experience. The Board also believes there is a need +to align shareholder and employee interests by encouraging +employee ownership of Company stock and to motivate employees +with compensation conditioned upon achievement of the +Company’s financial goals. Additionally, the Company’s +Board plays a key role in setting the direction of the Company +and representing the shareholders’ interests. Recent +changes in rules and regulations governing public corporations +and the general business environment have greatly increased the +time and effort required of all directors of publicly traded +companies, including the Company’s non-employee Directors. +The Board believes that it is necessary to (1) compensate +its non-employee Directors in a manner that will help attract +qualified candidates to serve as non-employee Directors, and +(2) induce incumbent non-employee Directors to continue to +serve if the Board desires that they remain on the Board. At the +same time, the Board desires to provide a vehicle by which +non-employee Directors can increase their stock ownership and +proprietary interest in the Company and enhance their +identification with the interests of the Company’s +shareholders through awards of shares of common stock. +In order to accomplish these objectives, the Board has adopted +the 2010 Plan. The 2010 Plan is being presented to the +shareholders for their approval as required by listing standards +of the NASDAQ Stock Market. The affirmative vote of a majority +of the shares of common stock cast at the annual meeting +represented in person or by proxy and entitled to vote at the +annual meeting is required for approval of the 2010 Plan. +Summary +Description of the 2010 Plan +The following summary of the material terms of the 2010 Plan is +qualified in its entirety by reference to the text of the 2010 +Plan, which is attached as Exhibit A to this Proxy +Statement. The 2010 Plan was adopted by the Board of Directors +effective as of April 1, 2010, subject to your approval. +The 2010 Plan requires the participant to enter into an award +agreement at the time the Committee makes an award. The award +agreement will describe the terms and conditions of the +particular grant. +Administration +The 2010 Plan is administered by the Compensation Committee of +the Board of Directors (the “Committee”). As permitted +by law, the Committee may delegate its authority. +Eligibility +Officers, key salaried employees and Directors who are employees +of the Company and its subsidiaries are eligible to participate +in all forms of awards in the 2010 Plan. Approximately +159 employees of the Company and its subsidiaries are +presently eligible to participate. However, because the 2010 +Plan provides for broad discretion by the Committee in selecting +participants and in making awards, the total number of persons +who will participate and the respective benefits to be accorded +to them cannot be determined at this time. +Directors who are not employees of the Company or its +subsidiaries are eligible to participate in all forms of award +in the 2010 Plan, except for incentive stock options, +performance shares and performance units. Currently, seven +non-employee Directors of the Company are eligible to +participate. However, because the size of the Board could change +or other non-employee Directors could be elected, the total +number of persons who will be eligible to participate in the +future and the respective benefits to be accorded to them +likewise cannot be determined at this time. +Stock +Available for Issuance Through the 2010 Plan +The 2010 Plan provides for a number of forms of stock-based +compensation, as further discussed below. Up to +1,400,000 shares of the Company’s common stock are +authorized for issuance through the +8 +Table of Contents +2010 Plan. Shares issued under the 2010 Plan may be either +authorized but unissued shares, treasury shares, or any +combination thereof. Provisions in the 2010 Plan permit the +reuse or reissuance by the 2010 Plan of shares of common stock +for numerous reasons including shares of common stock underlying +canceled, expired, or forfeited awards of stock-based +compensation and stock appreciation rights (“SARs”) +paid out in the form of cash. On April 26, 2010, the +closing price for a share of the Company’s common stock on +the NASDAQ Stock Market was $26.21. Stock-based compensation +will typically be awarded in consideration for the future +performance of services to the Company. +Description +of Awards Under the 2010 Plan +Awards to Company Employees . The +Committee may award to eligible employees incentive and +nonqualified stock options, SARs, restricted stock, restricted +stock units, performance units and performance shares. +Awards to Non-Employee Directors . The +Committee may award to non-employee Directors non-qualified +stock options, SARs, restricted stock and restricted stock units. +Stock +Options +The Committee has discretion to award incentive stock options +(“ISOs”), which are intended to comply with +Section 422 of the Internal Revenue Code (the +“Code”), or nonqualified stock options +(“NQSOs”), which are not intended to comply with +Section 422 of the Code. The exercise price of an option +may not be less than the fair market value of the underlying +shares of common stock on the date of grant. If an award of +stock options is intended to qualify as performance-based +compensation under Section 162(m) of the Code, the maximum +number of shares which may be subject to stock options granted +in any calendar year to any one participant is 200,000. Options +granted to employees under the 2010 Plan will expire at such +times as the Committee determines at the time of the grant; +provided, however, that no option will be exercisable later than +ten years after the date of grant. Subject to the specific terms +of the 2010 Plan, the Committee will have discretion to set such +additional limitations on such grants as it deems appropriate; +the award agreement will reflect these limitations. +Each option award agreement will set forth the extent to which +the participant will have the right to exercise the option +following termination of the participant’s employment with +the Company. The termination provisions will be determined +within the discretion of the Committee, might not be uniform +among all participants and might reflect distinctions based on +the reasons for termination of employment. +Upon the exercise of an option granted under the 2010 Plan, the +option price is payable in full to the Company, either: +(a) in cash or its equivalent, (b) if permitted in the +award agreement, by tendering shares having a fair market value +at the time of exercise equal to the total option price +(provided that such shares have been held by the optionee for at +least six months prior to their tender) or (c) by any +combination of the foregoing methods of payment. The Committee +may also allow options granted under the 2010 Plan to be +exercised by a cashless exercise through a broker, as permitted +under Federal Reserve Board Regulation T, or any other +means the Committee determines to be consistent with the 2010 +Plan’s purpose and applicable law, including by cashless +exercise directly with the Company whereby the Company would +withhold the proper number of shares which would have a fair +market value on the date of exercise equal to the option +exercise price. +SARs +The Committee may award SARs under the 2010 Plan upon such terms +and conditions as it may establish. The Committee may award +either freestanding SARs or SARs in tandem with stock options (a +“tandem SAR”); a tandem SAR may not be granted to a +non-employee Director unless the related option is a NQSO. The +exercise price of a freestanding SAR will equal the fair market +value of a share of common stock on the date of grant, whereas +the exercise price of a tandem SAR issued in connection with a +stock option will equal the option price of the related option. +If an award of SARs is intended to +9 +Table of Contents +qualify as performance-based compensation under +Section 162(m) of the Code, the maximum number of shares +which may be subject to SARs awarded in any calendar year to any +one participant is 200,000. At the discretion of the Committee, +the payment upon SAR exercise may be in cash, in shares of +Company common stock of equivalent value, or in some combination +thereof. +If granted other than in tandem, the Committee will determine +the number of shares of common stock covered by and the exercise +period of the SAR. Upon exercise of a freestanding SAR, the +participant will receive an amount equal to the excess of the +fair market value of one share of common stock on the date of +exercise over the grant price, multiplied by the number of +shares of stock exercised under the SAR. In the case of a tandem +SAR, the Committee may determine the exercise period of the SAR +except that the exercise period may not exceed that of the +related option. The participant may exercise the tandem SAR when +the option is exercisable, surrender the option and receive on +exercise an amount equal to the excess of the fair market value +of one share of common stock on the date of exercise over the +option purchase price, multiplied by the number of shares of +stock covered by the surrendered option. Each award agreement +will set forth the extent to which the participant will have the +right to exercise the SAR following termination of the +participant’s employment with the Company. The termination +provisions will be determined by the Committee in its sole +discretion, need not be uniform among all participants and may +reflect distinctions based on the reasons for termination of +employment. +Restricted +Stock +The Committee may impose restrictions and conditions as to +awards of shares of restricted stock as it deems advisable. With +certain exceptions, all awards of restricted stock that are +based on the passage of time may vest no more rapidly than over +a three year period from the date of award; awards of restricted +stock that are based on the achievement of specific measures may +vest no more rapidly than one year from the date of award. +Awards to Key Employees . The Committee +may choose to award shares of restricted common stock under the +2010 Plan upon such terms and conditions as it may establish. If +an award of restricted stock is intended to qualify as +performance-based compensation under Section 162(m) of the +Code, the maximum number of shares which may be granted in the +form of restricted stock in any one calendar year to any one +participant is 100,000. The award agreement will specify the +period(s) of restriction, the number of shares of restricted +stock granted, requirements that a participant pay a stipulated +purchase price for each share, restrictions based upon the +achievement of specific performance objectives +and/or +restrictions under applicable federal or state securities laws. +Recipients may have the right to vote these shares from the date +of grant, as determined by the Committee on the date of award. +As determined by the Committee on the date of award, +participants may receive dividends on their shares of restricted +stock. Dividends accrued on restricted stock will be paid only +if the restricted stock vests. +Each award agreement for restricted stock will set forth the +extent to which the participant will have the right, if any, to +retain unvested restricted stock following termination of the +participant’s employment with the Company. The Committee +will in its sole discretion make these determinations; these +provisions need not be uniform among all shares of restricted +stock issued under the 2010 Plan and may reflect distinctions +based on reasons for termination of employment. Except in the +case of terminations by reason of death or disability, the +vesting of restricted stock, which qualifies for +performance-based compensation under Section 162(m) and +which are held by “covered employees” under +Section 162(m), will occur at the time it otherwise would +have vested, but for the employment termination. +Awards to Non-Employee Directors . The +Committee may award to non-employee Directors non-qualified +stock options, SARs, restricted stock and restricted stock +units. Restricted stock awards to non-employee Directors will be +subject to the restrictions for a period (the “Restricted +Period”) which will +10 +Table of Contents +commence upon the date when the restricted stock is awarded and +will end on the earliest of the first to occur of the following: +• +the retirement of the non-employee Director from the Board in +compliance with the Board’s retirement policy as then in +effect; +• +the termination of the non-employee Director’s service on +the Board as a result of the non-employee Director’s not +being nominated for reelection by the Board; +• +the termination of the non-employee Director’s service on +the Board because of the non-employee Director’s +resignation or failure to stand for reelection with the consent +of the Board (which means approval by at least 80% of the +Directors voting, with the affected non-employee Director +abstaining); +• +the termination of the non-employee Director’s service on +the Board because the non-employee Director, although nominated +for reelection by the Board, is not reelected by the +shareholders; +• +the termination of the non-employee Director’s service on +the Board because of (i) the non-employee Director’s +resignation at the request of the Nominating and Governance +Committee of the Board, (ii) the non-employee +Director’s removal by action of the shareholders or by the +Board, or (iii) a Change in Control of the Company, as +defined in the 2010 Plan; +• +the termination of the non-employee Director’s service on +the Board because of disability or death; or +• +the vesting of the award. +As of the date specified by the Committee, each non-employee +Director will be awarded that number of shares of restricted +stock as determined by the Board, after consideration of the +recommendations of the Committee. A non-employee Director who is +first elected to the Board on a date subsequent to the date so +specified will be awarded that number of shares of restricted +stock as determined by the Board, after consideration of the +recommendations of the Committee. The amount of the award for +the upcoming plan year will be disclosed in the Company’s +proxy statement for the Company’s annual meeting of +shareholders. The 2010 Plan provides that non-employee Directors +receiving restricted stock may have, subject to the provisions +of the 2010 Plan, all of the rights of a shareholder with +respect to the shares of restricted stock, including the right +to vote the shares and receive cash dividends and other cash +distributions thereon. Non-employee Directors receiving +restricted stock units will have no voting rights during the +restrictive period, but will be credited with an amount equal to +the dividends paid on a share of common stock between the date +of grant and the date the restricted stock unit is paid to the +participant, if at all. If a non-employee Director ceases to be +a member of the Board for any other reason, including removal or +resignation for “Cause,” as defined in the 2010 Plan, +the non-employee Director will forfeit to the Company all +restricted stock awarded to him or her for which the Restricted +Period has not ended. +Restricted +Stock Units +The Committee may award restricted stock units +(“RSUs”) to key employees and non-employee Directors +upon such terms and conditions as the Committee determines. Each +RSU will have a value equal to the fair market value of a share +of the Company’s common stock on the date of grant. The +maximum aggregate award of RSUs to any one participant during +any one fiscal year will be equal to the fair market value of +100,000 shares; provided, further, that the maximum +aggregate award of restricted stock and RSUs for any one fiscal +year will be coordinated so that in no event will any one +participant be awarded more than the fair market value of +100,000 shares taking into account all such awards. In its +discretion, the Committee may impose conditions and restrictions +on RSUs, as specified in the RSU award agreement, including +restrictions based upon the achievement of specific performance +goals and time-based restrictions on vesting following the +attainment of the performance goals. As determined by the +Committee at the time of the award, settlement of vested RSUs +may be made in the form of cash, +11 +Table of Contents +shares of Company stock, or a combination of cash and Company +stock. Settlement of vested RSUs will be solely in a lump sum as +soon as practicable after the vesting date. The amount of the +settlement will equal the fair market value of the RSUs on the +vesting date. Each RSU will be credited with an amount equal to +the dividends paid on a share of Company stock between the date +of award and the date the RSU is paid to the participant, if at +all. Dividends will vest, if at all, upon the same terms and +conditions governing the vesting of the RSU under the 2010 Plan. +Payment of the dividend equivalent will be paid at the same time +as payment of the RSU. The holders of RSUs will have no voting +rights. +Performance +Units/Performance Shares +The Committee has the discretion to award performance units and +performance shares under the 2010 Plan upon such terms and +conditions as it may establish. If an award of performance units +or performance shares is intended to qualify as +performance-based compensation under Section 162(m) of the +Code, the maximum aggregate payout for awards of performance +shares which may be granted in any one calendar year to any one +participant will be the fair market value of +100,000 shares, whereas the maximum aggregate payout for +awards of performance units which may be granted in any one +calendar year to any one participant will be $1,500,000. +Performance units will have an initial value as determined by +the Committee, whereas performance shares will have an initial +value equal to one share of common stock on the date of award. +The payout on the number and value of the performance units and +performance shares will be a function of the extent to which +corresponding performance goals are met. Payment of performance +shares and performance units will be made in a single lump sum +following the close of the applicable performance period. In its +discretion, the Committee may pay earned performance shares or +performance units in cash, in shares of Company stock or in a +combination of cash and stock, which will have an aggregate fair +market value equal to the value of the earned performance share +or performance unit at the close of the applicable performance +period. Participants will not be entitled to dividend or voting +rights with respect to any performance shares or performance +units earned but not yet distributed to a participant. Unless +otherwise determined by the Committee, in the case of death or +disability during the performance period, the participant, or +his or her estate, will not be entitled to receive any payout of +the performance shares or performance units. In the case of any +other termination of the participant’s employment during +the performance period, all performance shares and performance +units intended to qualify as performance-based compensation will +be forfeited by the participant. +Performance +Measures +The Committee may grant awards under the 2010 Plan to eligible +employees and to non-employee Directors, subject to the +attainment of certain specified performance measures. The number +of performance-based awards granted to an officer, key employee +or non-employee Director in any year is determined by the +Committee in its sole discretion, subject to the maximum awards +set forth in the 2010 Plan and as summarized above. +The value of each performance-based award will be determined +solely upon the achievement of certain pre-established objective +performance goals during each performance period. The duration +of a performance period will be established by the Committee. +The Committee will establish, in writing, the objective +performance goals applicable to the valuation of +performance-based awards granted in each performance period, the +performance measures which will be used to determine the +achievement of those performance goals, and any formulas or +methods to be used to determine the value of the +performance-based awards. Under the 2010 Plan, the Committee may +utilize any of the following measures of performance: net income +either before or after income taxes, including adjusted net +income; share price; earnings per share (basic or diluted); +total shareholder return; return on assets; return on equity; +operating income; return on capital or investment; cash flow or +adjusted cash flow from operations; economic value added or +adjusted cash flow per share of Company stock (net income plus +or minus change in operating assets and liabilities); debt +level; cost reduction targets; equity ratios; capital efficiency +(adjusted EBITDA divided by production and divided by average +finding and development cost per unit); operating and general +and administrative expense per Mcfe (the sum of total lease +12 +Table of Contents +operating expense, exploration general and administrative +expense and corporate general and administrative expense divided +by Mcfe (mcf equivalent for gas and oil)); average reserve +replacement ratio (the sum of extensions and discoveries, +revisions in previous estimates and purchase of reserves divided +by the sum of the same); and production (actual production +volume for a specified period of time); amount of the +Company’s oil and natural gas reserves; oil and gas reserve +additions; and costs of finding for oil and gas reserves. The +value of performance-based awards may be based on absolute +measures or on a comparison of the Company’s financial +measures during a performance period to the financial measures +of a group of competitors. +Following the end of a performance period, the Committee will +determine the value of the performance-based awards granted for +the period based on the attainment of the pre-established +objective performance goals. The Committee will also have +discretion to reduce (but not to increase) the value of a +performance-based award. The Committee will certify, in writing, +that the award is based on the degree of attainment of the +pre-established objective performance goals. As soon as +practicable thereafter, payment of the awards to participants +will be made in the form of shares of Company common stock +and/or cash, +as applicable. +Conditions +to Award Payments +With respect to participants who are employees, if such +participant terminates employment with the Company for any +reason other than death while any award under the 2010 Plan +remains outstanding, that participant will receive such shares +or benefit only if, during the entire period from his or her +date of termination to the date of such receipt, the participant +(i) consults and cooperates with the Company on matters +under his or her supervision during the participant’s +employment, and (ii) refrains from engaging in any activity +that is directly or indirectly in competition with any activity +of the Company for a one-year period. If a participant fails to +comply with this requirement, the participant’s rights +under any outstanding award will be forfeited unless otherwise +waived by the Committee. +Adjustment +and Amendments +The 2010 Plan provides for appropriate adjustments in the number +of shares of Company stock subject to awards and available for +future awards in the event of changes in outstanding common +stock by reason of a merger, stock split, stock dividend, or +certain other events. +The 2010 Plan may be modified or amended by the Board at any +time and for any purpose which the Board deems appropriate. +However, no such amendment may adversely affect any outstanding +awards without the affected holder’s consent. NASDAQ +listing standards require shareholder approval for all material +amendments of the 2010 Plan. +Change +in Control +In the event of a change in control, as defined in the 2010 +Plan, generally all options and SARs granted under the 2010 Plan +will become immediately exercisable; restriction periods and +other restrictions imposed on restricted stock and RSUs which +are not performance-based will lapse; and the target payout +opportunities attainable under all outstanding awards of +performance-based restricted stock, RSUs, performance shares and +performance units will be deemed to have been fully earned for +the entire performance period as of the effective date of the +change in control. The vesting of such awards will be +accelerated as of the effective date of the change in control. +Nontransferability +No award under the 2010 Plan may be sold, assigned or otherwise +transferred in any manner by a participant except by will or by +the laws of descent and distribution; and any award will be +exercisable during a participant’s lifetime only by the +participant or by the participant’s guardian or legal +representative. These limitations may be waived by the +Committee, subject to restrictions imposed under the SEC’s +short-swing trading rules and federal tax requirements relating +to incentive stock options. +13 +Table of Contents +Duration +of the Plan +The 2010 Plan will remain in effect until all shares subject to +the 2010 Plan have been purchased or acquired under the terms of +the 2010 Plan, and all performance periods for performance-based +awards granted under the 2010 Plan have been completed. However, +in no event will an award be granted under the 2010 Plan on or +after April 1, 2020. +Certain +Federal Income Tax Consequences +The following description of the material federal income tax +consequences of awards under the 2010 Plan is a general summary. +State, local, and other taxes may also be imposed in connection +with awards. This discussion is intended for the information of +shareholders considering how to vote at the annual meeting and +not as tax guidance to individuals who participate in the 2010 +Plan. +Options +With respect to options which qualify as ISOs, a 2010 Plan +participant will not recognize income for federal income tax +purposes at the time options are granted or exercised, and the +Company will not be entitled to a deduction with respect to the +granting or exercise of such an option except in the limited +circumstances discussed below. However, for purposes of the +alternative minimum tax, in the year in which an ISO is +exercised, the amount by which the fair market value of the +shares acquired upon exercise exceeds the exercise price will be +treated as an item of adjustment and included in the computation +of the recipient’s alternative minimum tax. If the +participant disposes of shares acquired by exercise of an ISO +either before the expiration of two years from the date the +options are granted or within one year after the issuance of +shares upon exercise of the ISO (the “holding +periods”), the participant will recognize in the year of +disposition: (a) ordinary income, to the extent the lesser +of either (1) the fair market value of the shares on the +date of option exercise or (2) the amount realized on +disposition, exceeds the option price; and (b) capital +gain, to the extent the amount realized on disposition exceeds +the fair market value of the shares on the date of option +exercise. In addition, if the holding periods are not met, the +Company will be entitled to a deduction corresponding to the +ordinary income amount recognized by the participant. If the +shares are sold after expiration of the holding periods, the +participant generally will recognize long-term capital gain or +loss equal to the difference between the amount realized on +disposition and the option price. +With respect to NQSOs, the participant will not recognize any +income and the Company will not be entitled to a deduction upon +grant of the option. Upon exercise, the participant will +recognize ordinary income, and the Company will be entitled to a +corresponding deduction, in an amount equal to the excess of the +fair market value of the shares on the date of option exercise +over the amount paid by the participant for the shares. Upon a +subsequent disposition of the shares received under the option, +the participant generally will recognize capital gain or loss to +the extent of the difference between the fair market value of +the shares at the time of exercise and the amount realized on +the disposition. +SARs +The recipient of a grant of SARs will not realize taxable income +and the Company will not be entitled to a federal income tax +deduction with respect to such grant on the date of such grant. +Upon the exercise of an SAR, the recipient will realize ordinary +income, and the Company will generally be entitled to a +corresponding deduction, equal to the amount of cash received. +Restricted +Stock +A participant holding restricted stock will realize, at the time +the shares vest, ordinary income in an amount equal to the fair +market value of the shares and any cash received attributable to +credited dividends at the time of vesting, and the Company will +generally be entitled to a corresponding deduction for federal +income tax purposes. +14 +Table of Contents +RSUs +A participant holding RSUs will, at the time the participant +receives a distribution, realize ordinary income in an amount +equal to the distribution (which will be a single lump sum +payment in cash or stock equal to the fair market value of the +units held by the participant) and the Company will be entitled +to a corresponding deduction for federal income tax purposes. +Performance +Units and Performance Shares +The recipient of an award of performance units or performance +shares will not realize taxable income and the Company will not +be entitled to a deduction with respect to such grant on the +date of such grant. Upon the payout of such award, the recipient +will realize ordinary income and the Company will generally be +entitled to a corresponding deduction, equal to the amount of +cash or stock received. +Section 409A +Notwithstanding any contrary provision in the 2010 Plan, each +provision in the 2010 Plan that otherwise relates to +nonqualified deferred compensation benefits will be interpreted +to permit the deferral of compensation and the payment of +deferred amounts in accordance with Section 409A of the +Code, to the extent applicable. +Section 162(m) +Under Section 162(m) of the Code, compensation paid by the +Company in excess of $1 million for any taxable year to a +“Covered Employee” generally is not deductible by the +Company or its affiliates for federal income tax purposes unless +an exemption from such limitation exists. One such exemption is +if the subject compensation is based on the attainment of +performance goals, is paid pursuant to a plan approved by +shareholders of the Company, and meets certain other +requirements. Generally, “Covered Employee” under +Section 162(m) means the chief executive officer and the +three other highest paid executive officers of the Company other +than the Chief Executive Officer as of the last day of the +taxable year. The Committee will at all times consist of +“outside directors” as required for purposes of +Section 162(m), and that the Committee will take the effect +of Section 162(m) into consideration in structuring 2010 +Plan awards. +Prospective awards of equity compensation under the 2010 Plan, +if approved by the shareholders, are not currently determinable. +As disclosed in the Company’s Current Report on +Form 8-K, +filed with the SEC on April 23, 2010, the Compensation +Committee has made various awards of restricted shares and SARs +to the Company’s CEO and each of the named executive +officers with respect to 2010 compensation. The 2004 Plan had +sufficient remaining shares of common stock to fulfill these +equity awards. At the date of this Proxy Statement, there are no +current plans for additional equity awards to the CEO and named +executive officers during 2010. +Also disclosed in the +Form 8-K +referenced in the previous paragraph is the determination by the +Committee to award to each of the Company’s continuing +non-employee Directors shares of restricted stock with a value +of $110,000. These shares will be awarded to these Directors as +of July 1, 2010 and will be priced on the basis of the +average closing price on the NASDAQ Stock Market for the fifteen +business days beginning ten days prior to the date of the Annual +Meeting on June 4, 2010. Consequently, as of the date of +this Proxy Statement, the Company is unable to determine the +total number of restricted shares that each non-employee +Director will receive as a result of this award. As of the date +of this Proxy Statement, the Company anticipates that the +27,144 shares remaining in the Company’s 2005 +Non-Employee Director Restricted Stock Plan will be issued under +this award to the subject Directors. The remaining +indeterminable number of shares of restricted stock under the +award will be issued to the subject Directors from the 2010 +Plan, if approved by the shareholders at the annual meeting. +15 +Table of Contents +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THIS +PROPOSAL #2 TO APPROVE THE 2010 LONG-TERM EQUITY +COMPENSATION PLAN. PROXIES SOLICITED BY THE BOARD WILL BE SO +VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES +WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS’ +SPECIFICATIONS. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES +OF COMMON STOCK CAST AT THE MEETING REPRESENTED IN PERSON OR BY +PROXY AND ENTITLED TO VOTE AT THE MEETING IS REQUIRED FOR +APPROVAL OF THIS PROPOSAL #2. +PROPOSAL 3 – +RATIFICATION OF SELECTION OF AN INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +The Audit Committee and the Board have ratified the engagement +of PricewaterhouseCoopers LLP (“PwC”) as the +Company’s independent registered public accounting firm +with respect to its year ending December 31, 2010. The +Board is submitting the appointment of PwC to the shareholders +for ratification. If the appointment of PwC is not ratified, the +Board will require the Audit Committee to reconsider its +selection. A representative of PwC is expected to be present at +the meeting, will have an opportunity to make a statement if he +or she so desires, and will also be available to respond to +appropriate questions. +Principal +Accountant Fees and Services +2009 +2008 +Audit +fees (1) +$ +2,496,000 +$ +3,110,000 +Audit related +fees (2) +1,706,384 +2,192,650 +Tax +fees (3) +550,867 +961,491 +Other +fees (4) +237,500 +1,067,505 +Total fees +$ +4,990,751 +$ +7,331,646 +(1) +Audit fees consist of the aggregate fees billed for professional +services rendered for audit procedures performed with regard to +the Company’s annual consolidated financial statements and +the report on management’s assessment of internal control +over financial reporting and the effectiveness of the +Company’s internal controls over financial reporting, +including reviews of the consolidated financial statements +included in our Quarterly Reports on +Form 10-Q, +and services that are normally provided by the independent +registered public accounting firm in connection with statutory +and regulatory filings or engagements. +(2) +Audit-related fees consist of the aggregate fees billed for +assurance and related services that are reasonably related to +the performance of the audit or review of the Company’s +annual consolidated financial statements and are not reported +under “Audit Fees.” Fees billed primarily represent +our proportionate share of amounts billed for the audits of the +annual financial statements of the Company-sponsored drilling +partnerships. +(3) +Tax fees consist of the aggregate fees billed for professional +services rendered for tax compliance, tax advice and tax +planning for the Company and the Company-sponsored drilling +partnerships. +(4) +All other fees consist of aggregate fees billed for products and +services other than the services reported above. Fees billed in +2009 were primarily related to the formation of PDC Mountaineer, +LLC and the Company’s equity offering and, in 2008, were +primarily related to potential acquisition projects. +Audit +Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services +provided to the Company by its independent registered public +accounting firm be subject to pre-approval by the Audit +Committee or authorized Audit Committee members. The Audit +Committee has adopted policies and procedures for pre-approval +of all audit services and non-audit services to be provided by +the Company’s independent registered public accounting +firm. Services necessary to conduct the annual audit must be +pre-approved +16 +Table of Contents +by the Audit Committee annually. Permissible non-audit services +to be performed by the independent accountant may also be +approved on an annual basis by the Audit Committee if they are +of a recurring nature. Permissible non-audit services, which are +not eligible for annual pre-approval, to be conducted by the +independent accountant must be pre-approved individually by the +full Audit Committee or by an authorized Audit Committee member. +Actual fees incurred for all services performed by the +independent accountant will be reported to the Audit Committee +after the services are fully performed. The duties of the +Committee are described in the Audit Committee Charter, which is +available at the Company’s website under “Corporate +Governance.” +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THIS +PROPOSAL #3. PROXIES SOLICITED BY THE BOARD WILL BE SO +VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES +WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS’ +SPECIFICATIONS. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE +SHARES OF COMMON STOCK CAST AT THE MEETING REPRESENTED IN +PERSON OR BY PROXY AND ENTITLED TO VOTE AT THE MEETING IS +REQUIRED FOR APPROVAL OF THIS PROPOSAL #3. +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee of the Board is composed of four Directors +(five prior to August 2009) and operates under a written +charter adopted by the Board. Each member of the Audit Committee +meets the independence requirements of Rule 5605(a)(2) of +the NASDAQ listing standards. The duties of the Audit Committee +are summarized in this Proxy Statement under “Committees of +the Board of Directors” and are more fully described in the +charter, which is available at the Company’s website under +“Corporate Governance.” +Management is responsible for the Company’s internal +controls and preparation of the consolidated financial +statements in accordance with generally accepted accounting +principles. The Company’s independent registered public +accounting firm is responsible for performing an independent +audit of the Company’s consolidated financial statements in +accordance with the standards of the Public Company Accounting +Oversight Board (United States) (“PCAOB”) and issuing +a report thereon. The Committee’s responsibilities include +monitoring and overseeing these processes. +The Committee met eight times during 2009 and the subcommittee +related to the partnerships operated by the Company met an +additional seven times. The Committee has continued to meet +frequently during 2010. +The Committee reviewed and discussed the Company’s audited +consolidated financial statements for the year ended +December 31, 2009 (the “audited financial +statements”) with management and the Company’s +independent registered public accounting firm, +PricewaterhouseCoopers LLP (“PwC”). The Committee also +discussed with PwC the matters required to be discussed by +Statement of Auditing Standards No. 61, as amended, and PwC +directly provided reports on significant matters to the +Committee. +The Committee has received the written disclosures and the +letter from PwC required by PCAOB Rule 3526 and has +discussed with PwC its independence from the Company. +The Committee has discussed with management and PwC such other +matters and received such assurances from them as the Committee +deemed appropriate. +Based on the foregoing review and discussions and relying +thereon, the Committee recommended that the Board include the +audited financial statements in the Company’s Annual Report +on +Form 10-K +for the year ended December 31, 2009. +17 +Table of Contents +The Board approved the Committee’s recommendation to +appoint PwC to serve as the Company’s independent +registered public accounting firm for 2010. In connection +therewith, the Audit Committee considered whether the provision +of non-audit services by PwC prior to their engagement was +compatible with maintaining the independent registered public +accounting firm’s independence. This appointment is subject +to ratification by the Company’s shareholders. +Anthony J. Crisafio, Chair +Joseph E. Casabona +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE +of the Board of Directors +ALL OTHER +BUSINESS THAT MAY COME BEFORE THE 2010 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware +of any matters to be brought before the 2010 Annual Meeting +other than the matters set forth in this Proxy Statement. +However, if other matters properly come before the meeting, it +is the intention of the proxy holders named in the enclosed form +of proxy to vote in accordance with their discretion on such +matters pursuant to such proxy. +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND +RELATED +SHAREHOLDER MATTERS +The following table sets forth certain information regarding +ownership of the Company’s common stock as of April 1, +2010, by (a) each person known by the Company to own +beneficially more than 5% of the outstanding shares of common +stock; (b) each Director of the Company; (c) each +executive officer; and (d) all Directors and executive +officers as a group. As of April 1, 2010, 19,253,526 common +shares of the Company were issued and outstanding. Except as +otherwise indicated, the address for each of the named security +holders is 1775 Sherman Street, Suite 3000, Denver, +Colorado 80203. +18 +Table of Contents +Number +Percent +of +of +Shares +Shares +Beneficially +Beneficially +Name and Address of Beneficial Owner +Owned +Owned +FMR LLC +1,937,167 +(1) +10.1 +% +82 Devonshire Street +Boston, MA 02109 +BlackRock, Inc. +1,443,293 +(2) +7.5 +% +55 East 52nd Street +New York, NY 10022 +Wellington Management Company, LLP +1,116,800 +(3) +5.8 +% +75 State Street +Boston, MA 02109 +Dimensional Fund Advisors LP +990,690 +(4) +5.1 +% +6300 Bee Cave Road +Building One +Austin, Texas 78746 +Richard W. McCullough +15,180 +(5) +* +Gysle R. Shellum +1,745 +(6) +* +Barton R. Brookman, Jr. +25,553 +(7) +* +Daniel W. Amidon +6,051 +(8) +* +Lance A. Lauck +361 +(9) +* +Vincent F. D’Annunzio +20,483 +(10) +* +Kimberly Luff Wakim +8,728 +(11) +* +David C. Parke +9,719 +(12) +* +Jeffrey C. Swoveland +12,533 +(13) +* +Anthony J. Crisafio +7,900 +* +Joseph E. Casabona +6,955 +* +Larry F. Mazza +6,013 +* +James M. Trimble +6,200 +* +All Directors and executive officers as a group (13 persons) +127,421 +(14) +* +* +Represents less than 1% of the outstanding shares of common stock +(1) +According to the Schedule 13G/A filed by FMR LLC with the +SEC on February 16, 2010. +(2) +According to the Schedule 13G filed by BlackRock, Inc. with +the SEC on January 29, 2010. +(3) +According to the Schedule 13G filed by Wellington +Management Company, LLP with the SEC on February 12, 2010. +(4) +According to the Schedule 13G/A filed by Dimensional +Fund Advisors LP with the SEC on February 8, 2010. +(5) +Excludes 32,400 restricted shares subject to vesting greater +than 60 days after April 1, 2010; includes +2,499 shares subject to options exercisable within +60 days of April 1, 2010. +(6) +Excludes 9,180 restricted shares subject to vesting greater than +60 days after April 1, 2010. +(7) +Excludes 15,326 restricted shares subject to vesting greater +than 60 days after April 1, 2010; includes 1,091 +restricted shares subject to vesting within 60 days of +April 1, 2010. +(8) +Excludes 12,531 restricted shares subject to vesting greater +than 60 days after April 1, 2010. +(9) +Excludes 26,701 restricted shares subject to vesting greater +than 60 days after April 1, 2010. +(10) +Excludes 5,335 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +19 +Table of Contents +(11) +Excludes 1,046 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +(12) +Excludes 571 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +(13) +Excludes 1,321 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +(14) +Excludes 96,138 restricted shares subject to vesting greater +than 60 days after April 1, 2010, and 8,273 common +shares purchased pursuant to the Non-Employee Director Deferred +Compensation Plan; includes 2,499 shares subject to options +exercisable within 60 days of April 1, 2010 and 1,091 +restricted shares subject to vesting within 60 days of +April 1, 2010. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +(“Exchange Act”) requires the Company’s officers +and Directors, and persons who own more than 10% of the +Company’s equity securities, to file reports of ownership +and changes in ownership with the SEC. Officers, Directors and +holders of more than 10% of the common stock are required by +regulations promulgated by the SEC pursuant to the Exchange Act +to furnish the Company with copies of all Section 16(a) +forms they file. The Company assists officers and Directors, and +will assist beneficial owners, if any, of more than 10% of the +common stock, in complying with the reporting requirements of +Section 16(a) of the Exchange Act. +Based solely on its review of the copies of such forms received +by it, the Company believes that for the year ended +December 31, 2009, all Section 16(a) filing +requirements applicable to its Directors, officers and greater +than 10% beneficial owners were met, with the following +exceptions: Form 4s were filed one day late for +Messrs. Brookman, Mazza and Swoveland due to administrative +delay. +CORPORATE +GOVERNANCE +Corporate +Governance Guidelines +The Board has adopted Corporate Governance Guidelines that +govern the structure and functioning of the Board and establish +the Board’s policies on a number of corporate governance +issues. The Guidelines are posted under “Governance +Policies” in the Corporate Governance section of the +Company’s internet site at www.petd.com . They are +also available to any shareholder on request; see “Contact +Information” above. +Board of +Directors +The Company’s By-Laws provide that the number of members of +the Board shall be designated from time to time by a resolution +of the Board. Currently, the designated number of Directors is +nine, but with the decision by Vincent D’Annunzio not to +stand for re-election, the Board has reduced the number of +Directors to eight, effective on the date of the 2010 annual +shareholders meeting. The By-Laws provide that the Board shall +be divided into three separate classes of directors which are +required to be as nearly equal in number as practicable. At each +annual meeting of shareholders one class of Directors, whose +term expires, will be elected to a term of three years. The +classes are staggered so that the term of one class expires each +year. There is no family relationship between any Director or +executive officer and any other Director or executive officer of +the Company. There are no arrangements or understandings between +any Director or officer and any other person pursuant to which +the person was selected as an officer. +20 +Table of Contents +Director +Independence +Subject to some exceptions and transition provisions, the NASDAQ +listing standards generally provide that a Director will not be +independent if: +(A) the Director is, or at any time during the past three +years was, employed by the Company; +(B) the Director or a member of the Director’s +immediate family has received from the Company compensation of +more than $120,000 during any period of 12 consecutive months +within the three years preceding the determination of +independence other than for service as a Director; compensation +paid to a family member who is an employee of the Company (other +than an executive officer); or benefits under a tax-qualified +retirement plan; +(C) the Director is a family member of an individual who +is, or at any time during the past three years was, an executive +officer of the Company; +(D) the Director or a member of the Director’s +immediate family is a partner in, or a controlling person of, or +an executive officer of any organization to which PDC made, or +from which PDC received, payments for property or services in +the current or any of the past three fiscal years that exceed 5% +of the recipient’s consolidated gross revenues for that +year, or $200,000, whichever is more; +(E) the Director or a member of the Director’s +immediate family is employed as an executive officer of another +entity where at any time during the past three years any of the +Company’s executive officers serves on the compensation +committee of the other entity; or +(F) the Director or a member of the Director’s +immediate family is a current partner of PwC or during the past +three years was a partner or employee of PwC. +Audit Committee members are subject to additional, more +stringent NASDAQ and Exchange Act requirements. +The Board has reviewed business and charitable relationships +between the Company and each non-employee Director to determine +compliance with the NASDAQ listing standards described above and +to evaluate whether there are any other facts or circumstances +that might impair a Director’s independence. The Board has +determined that all non-employee Directors are independent under +NASDAQ Listing Rule 5605 and the Exchange Act. +Board +Meetings and Attendance +The Board met ten times in 2009. Each of PDC’s Directors +attended at least 75% of the aggregate Board and committee +meetings (on which he or she served) during 2009. +Annual +Meeting Attendance +As specified in the Company’s Corporate Governance +Guidelines, Directors are strongly encouraged to attend the +annual meeting of shareholders. All Directors attended last +year’s meeting, except for Ms. Wakim, who was ill. +21 +Table of Contents +Committees +of the Board +The following table identifies the current membership and chairs +of the five standing committees of the Board. +Nominating and +Planning and +Name +Audit +Compensation +Executive +Governance +Finance +Joseph E. Casabona +Member +— +— +— +Chair +Anthony J. Crisafio +Chair +Member +— +— +— +Vincent F. +D’Annunzio (1) +— +Member +Member +Chair +— +Larry F. Mazza +— +Member +— +Member +— +Richard W. McCullough +— +— +Chair +— +Member +David C. Parke +— +Member +— +Member +Member +Jeffrey C. Swoveland +Member +— +Member +— +Member +James M. Trimble +— +Member +— +— +Member +Kimberly Luff Wakim +Member +Chair +— +Member +— +(1) +Mr. D’Annunzio has notified the Board that he will not +stand for re-election as a Director at the Annual Meeting. +The non-employee Directors generally meet in “executive +session” without the presence of employee Directors at +their discretion in connection with each regularly scheduled +Board meeting. Mr. Swoveland serves as Presiding +Independent Director at these sessions; however, the other +non-employee Directors may, in the event of his absence, select +another Director to preside over a particular session. +Audit +Committee +The Audit Committee, which met 15 times in 2009, is composed +entirely of persons whom the Board has determined to be +independent under NASDAQ Listing Rule 5605(a)(2), +Section 301 of the Sarbanes-Oxley Act of 2002 and +Section 10A(m)(3) of the Exchange Act. Mr. Crisafio +chairs the Audit Committee; other members are Ms. Wakim and +Messrs. Casabona and Swoveland. The Board has determined +that all four members of the Audit Committee qualify as +financial experts as defined by SEC regulations and that all of +the Audit Committee members are independent of management. The +Audit Committee’s purpose is to assist the Board in +monitoring the integrity of the financial reporting process, +systems of internal controls and financial statements of the +Company, and compliance by the Company with legal and regulatory +requirements. Additionally, the Committee is directly +responsible for the appointment, compensation and oversight of +the independent auditors employed by the Company for the purpose +of preparing or issuing an audit report or related work and to +assess the need for an internal audit function and recommend its +establishment when deemed appropriate. +In performing its responsibilities, the Audit Committee monitors +the integrity of the Company’s financial reporting process +and systems of internal controls regarding finance, accounting +and legal compliance; monitors the independence of the +independent registered public accounting firm; and provides an +avenue of communications among the independent registered public +accounting firm, management and the Board. The Board has adopted +a Charter of the Audit Committee which is posted on the +Company’s website. The Board continues to assess the +adequacy of the Charter and will revise it as necessary. +Compensation +Committee +The Board has determined that all members of the Compensation +Committee are independent of the Company under +Rule 5605(a)(2) of the NASDAQ listing standards. The +Compensation Committee met eight times in 2009. The Board has +adopted a Compensation Committee Charter which is posted on the +Company’s website. +22 +Table of Contents +The purpose and functions of the Compensation Committee are to +(1) oversee the development of a compensation strategy for +the Company; (2) oversee the administration of the +Company’s compensation programs; (3) evaluate the +performance of and set compensation for the Chief Executive +Officer; (4) review and approve the elements of +compensation for other executive officers of the Company; +(5) negotiate the terms of employment agreements with +executive officers of the Company; (6) review and recommend +to the full Board compensation of the Company’s Directors +and changes in compensation levels to the Board; +(7) approve equity grants and recommend equity-based +incentive plans necessary to implement the Company’s +compensation strategy; and (8) administer all equity-based +incentive programs of the Company. +Compensation +Committee Interlocks and Insider Participation. +There are no Compensation Committee interlocks. +Executive +Committee +The purpose and functions of the Executive Committee are to +exercise the powers and duties of the Board between Board +meetings and, while the Board is not in session, implement the +policy decisions of the Board. The Board has adopted an +Executive Committee Charter which is posted on the +Company’s website. +Nominating +and Governance Committee +The Board has determined that all members of the Nominating and +Governance Committee are independent of the Company under +Rule 5605(a)(2) of the NASDAQ listing standards. The +Nominating and Governance Committee met six times in 2009. The +purpose of and functions performed by the Committee are to +(1) assist the Board by identifying individuals qualified +to become Board members and to recommend to the Board nominees +for the next annual meeting of shareholders or fill any +vacancies; (2) recommend to the Board corporate governance +guidelines applicable to the Company; (3) lead the Board in +its annual review of the Board’s performance; and +(4) recommend to the Board Director nominees for each +committee. The Board has adopted a Charter for the Nominating +and Governance Committee. The Charter has been posted on the +Company’s website. +As noted in the Corporate Governance Guidelines, the Board +believes it is appropriate and efficient to combine the offices +of Chairman and Chief Executive Officer, provided that a Lead +Director is in place to preside at executive sessions of the +independent Directors and otherwise provide leadership for the +independent Directors. Particularly at a small business, such as +the Company, the Board believes that separation of these roles +is not necessary. In addition, the Board currently consists of +eight independent Directors and only one management Director, +further mitigating any risks associated with combining the +offices of Chairman and Chief Executive Officer. The Committee +reviews this position of combined offices , as well as the other +Governance Guidelines, on an annual basis. +Director +Qualifications and Selection +The Board has adopted Director Nomination Procedures that +prescribe the process the Nominating and Governance Committee +will use to select the Company’s nominees for election to +the Board. The Nominating and Governance Committee evaluates +each candidate based on the candidate’s level and diversity +of experience and knowledge (specifically within the industry +and relevant industries in which the Company operates, as well +as his or her general overall experience and knowledge), skills, +education, reputation and integrity, professional stature and +other factors that may be relevant depending on the particular +candidate. +Additional factors considered by the Committee include the size +and composition of the Board at a particular time, and allowing +the Company to benefit from having a broad mixture of skills, +experience and perspectives on the Board. Accordingly, one or +more of these factors may be given more weight in a particular +case at a particular time, no single factor would be viewed as +determinative, and the +23 +Table of Contents +Committee has not specified any minimum qualifications that it +believes must be met by any particular nominee. The +Company’s Director Nomination Procedures are posted on the +Company’s website. +The Committee identifies Director candidates primarily through +recommendations made by the non-employee Directors. These +recommendations are developed based on the Directors’ own +knowledge and experience in a variety of fields, and research +conducted by PDC staff at the Committee’s direction. The +Committee also considers recommendations made by the employee +Directors, employees, shareholders, and others, including search +firms. All recommendations, regardless of the source, are +evaluated on the same basis against the criteria contained in +the guidelines. The Committee has the authority to engage +consultants to help identify or evaluate potential Director +nominees but has not done so recently. Mr. Trimble, +appointed in 2009, was recommended by several non-employee +Directors. +Diversity +Consideration +In addition to qualities of intellect, integrity and judgment, +the Nominating and Governance Committee takes into consideration +diversity of background, senior management experience, +education, and an understanding of some combination of oil and +gas marketing, finance, technology, government regulation, and +public policy. The Committee makes its determination in the +context of an assessment of the perceived needs of the Board at +that point in time. The Committee evaluates all nominees for +Director considering these criteria, including nominees +recommended by shareholders. The new director nomination process +specifically includes disclosure of the diversity provided by +each candidate, but the Nominating and Governance Committee does +not make the recommendations of nominees based solely on any +such criteria, nor does it have any official or unofficial goals +for any specific group. +Shareholder +Recommendations +The Company’s Nominating and Governance Committee will +consider Director candidates recommended by shareholders of the +Company. Any shareholder who wishes to recommend a prospective +Board nominee to the Committee should notify the Nominating and +Governance Committee of the recommendation by writing to the +Committee at the Company’s headquarters, or by sending the +information via email to board@petd.com . All +recommendations will be received by the Nominating and +Governance Committee. +A submission recommending a candidate should include: +• +Sufficient biographical information to allow the Committee to +evaluate the candidate in light of the Director Nomination +Guidelines; +• +An indication as to whether the proposed candidate will meet the +requirements for independence under the NASDAQ guidelines; +• +Information concerning any relationships between the candidate +and the shareholder recommending the candidate; and +• +Material indicating the willingness of the candidate to serve if +nominated and elected. +Shareholder +Nominations +Shareholders who wish to may nominate candidates for election to +the Board. The Company’s +By-Laws +require shareholders who wish to submit nominations of persons +for election to the Board of Directors at the annual meeting of +shareholders to follow certain procedures. The shareholder must +give written notice to the Corporate Secretary at Petroleum +Development Corporation, 1775 Sherman Street, Suite 3000, +Denver, Colorado 80203 or may email notice to +board@petd.com not later than 80 days nor more than +90 days prior to the first anniversary of the preceding +year’s annual meeting or, if the date of the annual meeting +is more than 30 days before or more than 60 days after +that anniversary date, notice by such shareholder to be timely, +not later than 80 days before such annual meeting, or +within 10 days following the Company’s public +announcement of the date of its annual shareholder meeting. The +24 +Table of Contents +shareholder notice also must be received by the Company no +earlier than 90 days prior to the annual meeting. The +shareholder must be a shareholder of record at the time the +notice is given. The written notice must set forth (a) as +to each nominee all information relating to that person that is +required to be disclosed in solicitations of proxies for +election of directors in an election contest, or is otherwise +required, in each case pursuant to Regulation 14A under the +Exchange Act (including such person’s written consent to +being named in the proxy statement as a nominee and to serving +as a Director if elected); (b) as to the shareholder giving +the notice and the beneficial owner, if any, on whose behalf the +nomination is made (1) the name and address of the +shareholder, as they appear on the Company’s books, and of +such beneficial owner and (2) the class and number of +shares of the Company’s securities that are beneficially +owned by such shareholder and the beneficial owner; and +(c) any material interest of such shareholder and such +beneficial owner in such nomination. +Planning +and Finance Committee +The purpose of the Planning and Finance Committee is to oversee +the responsibilities of the Board relating to planning and +finance, including: (1) to organize and oversee the +Board’s participation in the development of the +Company’s Strategic Plan and the risk assessment and +management process; (2) to follow the progress in the +implementation of the Strategic Plan and to advise the Board if +additional Board action appears to be needed to assure +successful implementation of the plan or if a need exists to +revise the plan in the face of changing conditions or other +factors; (3) to assure that management is addressing the +personnel requirements for the successful implementation of the +Strategic Plan; (4) to assure that a talent-rich +organization is being developed to address both current and +future leadership needs; (5) to assure that robust +management development and succession planning processes are +developed and implemented for management at all levels in the +Company; and (6) to work with the CFO and other executive +management regarding corporate financial matters including +operating and capital budgets, capital structure, dividends, and +other significant financial and capital issues. The Board has +adopted a charter for the Planning and Finance Committee which +is posted on the Company’s website. +The Board +Role in Risk Management +The Board seeks to understand and oversee critical business +risks. Risks are considered in every business decision, not just +through Board oversight of the Company’s Risk Management +system. For instance, a special assessment of risks (financial +and otherwise) is included in every acquisition proposal +presented to the Planning and Finance Committee. The Board +realizes, however, that it is not possible to eliminate all +risk, nor is it desirable, and that appropriate risk-taking is +essential to achieve the Company’s objectives. +The Board risk oversight structure provides that management +report on risk to the Planning and Finance Committee. Other +committees, however, are active in managing the risks related to +such committees’ oversight areas. For example, the Audit +Committee reviews many risks and related controls in areas that +it considers fundamental to the integrity and reliability of the +financial statements, such as counterparty risks and derivative +program risks. Similarly, the Compensation Committee considers +risks related to the structure and size of the Company’s +compensation plans as noted in the following section. +Compensation +Risk Assessment +We do not believe the Company’s executive and non-executive +compensation structure is reasonably likely to have a materially +adverse effect on the Company. With respect to specific elements +of compensation and risk analysis: +• +Base salary does not encourage risk-taking as it is a fixed +amount and is set at market rates. +• +The annual incentive plan is designed to reward achievement of +short-term performance metrics. Through a combination of plan +design and Board and management procedures, undue risk-taking is +mitigated. Specifically, the plan has a cap on the award for any +individual and the annual incentive constitutes a relatively +small portion of total direct compensation for executive +officers. +25 +Table of Contents +Board and management procedures include ongoing management +review and quarterly review of business performance by the Audit +Committee and the Company’s internal disclosure committee. +The Committee has also added “clawbacks” to all +executive officers’ employment agreements to discourage +excessive risk-taking. +• +A number of factors mitigate risks inherent in long-term equity +compensation. Specifically, the Company has stock ownership +requirements for senior executives. Executive officers must also +obtain permission from the Company’s General Counsel before +selling any Company shares, even during an open trading window +under its Insider Trading Policy. +One element of compensation for Mr. Lauck is a bonus +related to successful results from future acquisitions over +several years. The Company has considered this risk and does not +consider it to be inappropriate. Other units of the Company +receive incentive compensation primarily related to Company +performance as a whole. For example, the individuals responsible +for oil and gas price hedging transactions are not compensated +on the basis of the success or timing of those trades. +Furthermore, they can only initiate trades approved by the +Company’s Derivative Committee, which includes a broad +cross-section of management, and whose committee charter +prohibits speculative trading. +Communications +with Directors +Shareholders wishing to communicate with the Board or a +committee may do so by writing to the attention of the Board or +committee at the Company’s corporate headquarters or by +emailing the Board at board@petd.com , with +“Board” or the appropriate committee in the subject +line. +Code of +Business Conduct and Ethics +In January 2003, the Company adopted its Code of Business +Conduct and Ethics, as amended (the “Code of Conduct”) +applicable to all Directors, officers, employees, agents and +representatives of the Company and consultants. The +Company’s principal executive officer, principal financial +officer and principal accounting officer are subject to +additional specific provisions under the Code of Conduct. The +Company’s Code of Conduct is posted on its website at +www.petd.com . In the event of an amendment to, +or a waiver of, including an implicit waiver, the Code of +Conduct, the Company will disclose the information on its +internet website. The Board approved a waiver regarding any +potential conflict related to the service of Mr. Swoveland +on the Board of Directors of Linn Energy LLC. If the Board +becomes aware of a potential conflict in the future, it will +consider at that time whether or not to continue this waiver. +Policies +and Procedures with Respect to Transactions with Related +Persons +The Board has adopted a written policy for the review, approval +and ratification of transactions that involve related parties +and potential conflicts of interest. +The related party transaction policy applies to each Director +and executive officer of the Company, any nominee for election +as a Director, any security holder who is known to own more than +five percent of the Company’s voting securities, any +immediate family member of any of the foregoing persons and any +corporation, firm or association in which one or more of the +Company’s Directors are directors or officers, or have a +substantial financial interest. +Under the related party transaction policy, a related person +transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would +require disclosure in the Company’s filings with the SEC as +a transaction with a related person. +The related persons must disclose to the Audit Committee any +potential related person transactions and must disclose all +material facts with respect to such interest. All related person +transactions will be reviewed by the Audit Committee. In +determining whether to approve or ratify a transaction, the +Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such +as the relationship of the related person with the Company, the +materiality or significance of +26 +Table of Contents +the transaction to the Company and the business purpose and +reasonableness of the transaction, whether the transaction is +comparable to a transaction that could be available to the +Company on an arms-length basis, and the impact of the +transaction on the Company’s business and operations. +From January 1, 2009 to the present, there was no +transaction or series of transactions, or any currently proposed +transaction, in which the amount involved exceeds $120,000 and +in which any director, executive officer, holder of more than +five percent of the Company’s common stock or any member of +the immediate family of any of the foregoing persons had or will +have a direct or indirect material interest. +Indemnification +of Directors and Officers +The Company’s By-Laws provide that the Company shall +indemnify any Director, officer, employee, or other agent of the +Company who is or was a party, or is threatened to be made a +party, to any proceeding (other than an action by or in the +right of the Company to procure a judgment in its favor) by +reason of the fact that such person is or was an agent of the +Company, against expenses, judgments, fines, settlements, and +other amounts actually and reasonably incurred in connection +with such proceeding, if that person acted in good faith and in +a manner that person reasonably believed to be in the best +interest of the Company, and in the case of a criminal +proceeding, had no reasonable cause to believe the conduct of +that person was unlawful. +The Company has entered into separate indemnification agreements +with each of its Directors whereby the Company has agreed to +indemnify the Director against all expenses, including +attorneys’ fees, and other amounts reasonably incurred by +the director in connection with any threatened, pending or +completed civil, criminal, administrative or investigative +action or proceeding to which such person is party by reason of +the fact that he is or was a Director, as the case may be, of +the Company, if the person acted in good faith and in a manner +reasonably believed to be in or not opposed to the best +interests of the Company, and, with respect to any criminal +action or proceeding, the person had no reasonable cause to +believe such conduct to be unlawful. The agreements provide for +the advancement of expenses and that the Company has the right +to purchase and maintain insurance on behalf of the director +against any liability or liabilities asserted against such +person, whether or not the Company would have the power to +indemnify the person against such liability under any provision +of the agreement. The Company has agreed to indemnify such +person against expenses actually and reasonably incurred in +connection with any action in which the person has been +successful on the merits or otherwise. Indemnification must also +be provided by the Company (unless ordered otherwise by a court) +only as authorized in the specific case upon a determination +that the indemnification of the person is appropriate because he +or she has met the applicable standard of conduct described in +the agreement made by (1) the Board of Directors, by a +majority vote of a quorum consisting of Directors who are not +parties to such action or proceeding, (2) independent legal +counsel in a written opinion or (3) the shareholders of the +Company. +Additional +Information +The “Corporate Governance” section of the +Company’s internet site contains additional information, +including PDC’s Certificate of Incorporation and By-Laws, +written charters for each Board committee, and Board policy +statements. +The Company files annual, quarterly and current reports, proxy +statements and other information with the SEC. Copies of the +Company’s filings with the SEC are available to the public +at the SEC’s website at +http://www.sec.gov . +These documents may also be viewed at the SEC’s public +reference room located at 100 F Street, N.E., +Washington, D.C. 20549. Please call the SEC at +1-800-SEC-0330 +for further information on the public reference room. +27 +Table of Contents +EXECUTIVE +OFFICERS +The current executive officers of the Company, their principal +occupations for the past five years and additional information +is set forth below. +Name +Age +Position(s) +Richard W. McCullough +58 +Chairman, Chief Executive Officer and Director +Gysle R. Shellum +58 +Chief Financial Officer +Barton R. Brookman, Jr. +47 +Senior Vice President Exploration and Production +Daniel W. Amidon +49 +General Counsel and Secretary +Lance +Lauck (1) +47 +Senior Vice President Business Development +(1) +Mr. Lauck became Senior Vice President Business Development +on August 31, 2009. +RICHARD W. MCCULLOUGH was appointed Chief Executive +Officer of the Company in June 2008 and Chairman of PDC’s +Board of Directors in November 2008. From November 2006 until +November 2008, he served as the Chief Financial Officer of the +Company. Prior to joining PDC, Mr. McCullough served from +July 2005 to November 2006 as an energy consultant. From January +2004 to July 2005, he was President and Chief Executive Officer +of Gasource, LLC, a marketer of long-term, natural gas supplies +in Dallas, Texas. From 2001 to 2003, Mr. McCullough served +as an investment banker with J.P. Morgan Securities, +Atlanta, Georgia, in the public finance utility group supporting +bankers nationally in all natural gas matters. Additionally, +Mr. McCullough has held senior positions with Progress +Energy, Deloitte and Touche, and the Municipal Gas Authority of +Georgia. He holds BS and MS degrees from the University of +Southern Mississippi and was a practicing Certified Public +Accountant for eight years. +Gysle R. Shellum was appointed Chief Financial Officer in +2008. Prior to joining the Company, Mr. Shellum served as +Vice President, Finance and Special Projects of Crosstex Energy, +L.P., Dallas, Texas. Mr. Shellum served in this capacity +from September 2004 through September 2008. From March 2001 +until September 2004, Mr. Shellum served as a consultant to +Value Capital, a private consulting firm in Dallas, Texas, where +he worked on various projects, including corporate finance and +Sarbanes-Oxley Act compliance. Crosstex Energy, L.P. is a +publicly traded Delaware limited partnership whose securities +are listed on the NASDAQ Global Select Market and is an +independent midstream energy company engaged in the gathering, +transmission, treating, processing and marketing of natural gas +and natural gas liquids. +Barton R. Brookman, Jr. was appointed Senior Vice +President Exploration and Production in March 2008. Previously, +Mr. Brookman served as Vice President Exploration and +Production since joining PDC in July 2005. Prior to joining PDC, +Mr. Brookman worked for Patina Oil and Gas and its +predecessor Snyder Oil for 17 years in a series of +positions of increasing responsibility, ending his service as +Vice President of Operations of Patina. +Daniel W. Amidon was appointed General Counsel and +Secretary in July 2007. Prior to his current position, +Mr. Amidon was employed by Wheeling-Pittsburgh Steel +Corporation beginning in July 2004; he served in several +positions including General Counsel and Secretary. Prior to his +employment with Wheeling-Pittsburgh Steel, Mr. Amidon +worked for J&L Specialty Steel Inc. from 1992 through July +2004 in positions of increasing responsibility, including +General Counsel and Secretary. Mr. Amidon practiced with +the Pittsburgh law firm of Buchanan Ingersoll PC from 1986 +through 1992. +Lance Lauck was appointed Senior Vice President Business +Development in August 2009. Previously Mr. Lauck served as +Vice President - Acquisitions and Business Development for +Quantum Resources Management LLC from 2006 - 2009. From +1988 until 2006, he held various management positions at +Anadarko Petroleum Corporation in the areas of acquisitions and +divestitures, corporate mergers and business development. +28 +Table of Contents +COMPENSATION +COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the +Company has reviewed and discussed the following Compensation +Discussion and Analysis with management and, based on its review +and discussions, recommends its inclusion in the Proxy Statement. +Kimberly Luff Wakim, Chair +Vincent F. D’Annunzio +Anthony J. Crisafio +Larry F. Mazza +David C. Parke +James M. Trimble +COMPENSATION COMMITTEE +of the Board of Directors +*** +COMPENSATION DISCUSSION AND ANALYSIS +This Compensation Discussion and Analysis focuses on the +following: +• +the principles on which our executive compensation program is +based; +• +how we make compensation decisions and determine the amount of +each element of compensation; +• +the elements of our total compensation program and the reasons +why we have chosen these elements; and +• +an analysis of the material compensation decisions made by the +Compensation Committee in 2009. +The +Compensation Committee +The Board has assigned to the Compensation Committee the +responsibility for developing and overseeing the Company’s +compensation programs and executive compensation. The Committee +consists entirely of independent Board members. The Committee +has been authorized by the Board to make final determinations +for all elements of compensation for the executive officers. +Independent Board members who are not part of the Committee are +often consulted as part of the Committee’s decision making +process. The Committee also negotiates terms and approves all +executive employment agreements and administers the +Company’s long-term incentive plans. +Executive +Summary +In early 2009, the oil and gas industry faced very low gas +prices, tight credit markets and depressed stock prices. The +Company found itself in a challenging position and as a result, +chose to focus on ways to improve the Company’s liquidity +and maintain cash flow to fund ongoing operations. The Company +delivered strong financial performance for 2009 by exceeding its +cash flow and liquidity goals and making some key strategic +moves such as aggressive and timely hedging late in the year +which sustained the Company’s bank line of credit amount +and the formation of the Marcellus joint venture. During 2009, +the Company’s executive leadership team conducted a full +strategic assessment and determined to increase the +Company’s focus on ways of reducing the Company’s cost +structure through cost management and leveraging economies of +scale in existing basins and to look at some significant asset +reconfiguration efforts. These measures are tied to the +short-term incentive goals for 2010. By focusing on +strengthening the Company’s financial position in 2009, PDC +is financially poised for strategic growth in the future. +29 +Table of Contents +During this period, the Compensation Committee reviewed its +executive compensation programs to ensure that they provide +appropriate incentive and reward in this environment based upon +the Company’s +pay-for-performance +objectives. As described below, no significant changes were made +in the compensation programs for 2009, although the short-term +incentive goals were shifted from the traditional focus on +earnings and production to a focus on liquidity and cash flow, +as the ultimate depth of the recession was still uncertain. Even +though the Company’s stock price was depressed, no +repricing or accommodation was made for past restricted stock or +performance share awards, which are now worth a fraction of +their value upon issuance, or for options that now have no +intrinsic value. +The Committee believes that the competition remains tight for +effective oil and gas executives. The Compensation Committee +targets total direct compensation (combination base salary, +short-term incentives and long-term incentives) for the +executive group at the median of the market measured against a +group of peer companies and industry survey data (as defined +below). Although the Committee believes Company performance has +been excellent in recent years, target total direct compensation +for the entire officer group was found to be below the market +median when the Committee evaluated compensation in hindsight +after 2009 peer data became available. As the market has +improved, the Committee has made adjustments in pay for 2010 as +described below. +The Compensation Committee will continue to monitor trends and +developments to ensure that the Company provides the appropriate +executive compensation incentives and remains competitively +positioned to attract and retain executive talent. The Committee +believes that the total executive compensation program provides +significant incentive, but does not encourage management to take +excessive risks, and serves the shareholders’ best +interests: it features short- and long-term performance +measures, an appropriate balance of operating and financial +performance goals, and promotes long-term retention and +significant stock ownership. We believe that these elements, in +combination, tie our executives’ compensation to the +Company’s sustained long-term performance. +COMPENSATION +DESIGN +Compensation +Philosophy +The following characteristics of the compensation program +constitute the Committee’s general philosophy: +• +Provide compensation that is fair to the Company and to the +executive officers, while motivating behavior that will enhance +the value of the Company; +• +Offer a total compensation program that is competitive with the +compensation practices of those peer companies with which the +Company competes, so that the Company will attract, motivate and +retain executive talent; +• +Tie a significant portion of executive compensation to the +Company’s achievement of pre-established financial +and/or +operating objectives and to personal objectives established for +each executive individually; +• +Provide a significant portion of overall compensation in the +form of equity-based compensation in order to align the +interests of the Company’s executives with those of the +Company’s shareholders and to avoid excess focus on +short-term results; +• +Structure a significant proportion of total compensation in a +fashion that promotes executive retention; a substantial portion +of compensation should be forfeitable by the executive upon +voluntary termination; +• +Structure performance-based compensation so that it does not +encourage excessive risk-taking that may compromise the +Company’s value or the investment interests of its +shareholders; and +• +Require executives to achieve and maintain a significant level +of equity ownership over time. +30 +Table of Contents +Resources +and Other Considerations Used in the Decision Making +Process +The Compensation Committee utilizes several different tools and +resources in reviewing elements of executive compensation and +making compensation decisions. These decisions, however, are not +formulaic and the Compensation Committee exercises judgment and +discretion in making them. +Compensation Consultant. The Committee uses a +nationally recognized independent executive compensation +consultant, Towers Watson (formerly known as Towers Perrin), to +review the Company compensation programs. The Compensation +Committee directly retained Towers Watson (sometimes referred to +herein as the “Consultant”). In this engagement, the +Consultant reported directly and exclusively to the Compensation +Committee. At the Committee’s direction, the Consultant +works directly with management to review or prepare materials +for the Committee. The Consultant assists the Committee with the +annual review and revision of the peer group, conducts a +competitive benchmarking of the Company’s executive and +Non-Employee Director compensation programs, provides relevant +market data as a background against which the Compensation +Committee considers total compensation elements and awards, and +attends and participates in Compensation Committee meetings +throughout the year as the Committee deems appropriate. With the +assistance of Towers Watson, the Committee periodically assesses +(1) the effectiveness and competitiveness of the +Company’s executive compensation and compensation design, +ensuring that the Company’s programs are effectively +aligned with the interests of our shareholders, and (2) the +value and cost of various potential compensation arrangements. +The Compensation Committee reviews the engagement of its +independent compensation consultant on an annual basis and as a +part of that process reviews a summary of all services provided +by the Consultant and related costs. In 2009, the Consultant did +not perform any other material services for the Company. +Benchmarking. The Compensation Committee +targets compensation around the median of the market through a +mix of cash and long-term incentives with a heavier emphasis on +long-term incentives. The Committee believes that the executives +should receive pay above the median when Company performance and +individual performance so warrant and below the median when +performance is not achieved. To determine the competitive +market, the Committee conducts an annual benchmarking review of +an industry peer group to use as a reference point for assessing +competitive compensation data. This industry peer group consists +of select oil and gas industry peer companies that are similar +in size, scope and nature of business operations. The initial +step in the annual benchmarking process is to evaluate the +composition of the peer group and determine whether any changes +are warranted due to changes among the peers that render them +too large, too small, or otherwise less useful, e.g. , due +to merger/acquisition activity. The composition of the peer +group over the past three years is summarized below. +31 +Table of Contents +These companies, collectively, are referred to as the “Peer +Group.” +Company +2007/08 +2008/09 +2009/10 +Atlas Energy Resources +x +ATP Oil & Gas Company +x +Berry Petroleum Corporation +x +x +x +Bill Barrett Corporation +x +x +x +Brigham Exploration Company +x +Cabot Oil & Gas Corporation +x +x +x +Carrizo Oil & Gas +x +x +x +Callon Petroleum +x +Clayton Williams Energy +x +x +Comstock Resources +x +x +x +Concho Resources Inc. +x +Delta Petroleum +x +x +x +Encore Acquisition Company +x +Energy Partners +x +Goodrich Petroleum Corporation +x +x +Parallel Petroleum +x +x +Penn Virginia Corporation +x +Petroquest Energy +x +x +x +Rosetta Resources +x +x +x +St. Mary Land & Exploration +x +x +x +Stone Energy Corporation +x +Swift Energy Company +x +Unit Corporation +x +Venoco +x +x +x +Whiting Petroleum +x +x +Benchmarking is conducted annually with respect to each of the +key annual elements of the Company’s executive compensation +programs discussed above (salary, short-term incentive (this +annual cash bonus is referred to as “STI”) and +long-term incentive (this stock/equity is referred to as +“LTI”) compensation). Historically, the primary source +of the benchmarking analysis was the peer group described above. +Beginning in 2009, in connection with 2010 compensation +planning, the Consultant also benchmarked our executive +positions using proprietary survey data from a broader sample of +comparably-sized oil and gas companies in order to provide an +additional market perspective. The Committee uses benchmarking +data to establish a dollar target level for each key element to +deliver a target total direct compensation to each executive at +approximately the market median, with consideration of the +executive’s individual performance. Targeting the median +with the ability to receive compensation above the median if +Company and individual performance so warrants helps ensure that +the Company’s compensation practices will be competitive in +terms of attracting and retaining executive talent, while +performance based compensation provides for variations due to +superior or +sub-par +performance. +Role of Chief Executive Officer +and/or Other +Executive Officers in Determining Executive +Compensation. The Committee consults with the CEO +regarding: proposed peer group changes; his evaluation of the +Company’s performance for the year; his assessment of his +own performance and his evaluation of performance of the other +executive officers; short-term and long-term incentive plans; +individual executive achievement of key operating targets; the +Company’s strategic plan; and management development and +succession planning. At the Compensation Committee’s +request, our executive officers assess the design of, and make +observations or recommendations related to, our compensation and +benefit programs, including recommendations related to the +appropriate financial and operational performance measures used +in our incentive programs. +32 +Table of Contents +The Compensation Committee, with input from the Consultant, +determines each element of compensation for the CEO and, with +input from the Consultant and the CEO, determines each element +of compensation for the other executive officers. The CEO is not +present during voting or deliberations with regard to his own +compensation. +Review of Total Compensation. The Committee +reviews for each of the executive officers the total dollar +value of each officer’s annual compensation, including +salary, STI and LTI compensation, perquisites, retirement +benefits, deferred compensation accruals and other compensation. +The Committee also reviews shareholdings and accumulated +unrealized gains under prior equity-based compensation awards, +and amounts payable to the executive officer upon termination of +the executive’s employment under various different +circumstances, including retirement and termination in +connection with a change in control. See the 2009 Summary +Compensation Table and the Termination Benefits Table below. As +none of the current executive officers have served in their +current positions long enough to have accumulated significant +wealth from the Company, wealth accumulation is not a current +consideration in Committee deliberations. +Other Considerations. In addition to the above +resources, the Compensation Committee considers other factors +when making compensation decisions, such as individual +experience, individual performance, internal equity, development +and/or +succession status, and other individual or organizational +circumstances. With respect to equity-based awards, the +Compensation Committee also considers the cost of such awards, +the impact on dilution, and the relative value of each element +comprising total target executive compensation. +Regulatory Requirements. Together with the +Consultant, the Compensation Committee carefully reviews and +considers current tax, accounting and securities regulations as +they relate to the design of the Company’s compensation +programs and related decisions. +Section 162(m) of the Internal Revenue Code of 1986, as +amended (“IRC”), limits a company’s ability to +deduct compensation paid in excess of $1 million during any +fiscal year to the CEO and the next three highest executive +officers, other than the CFO, unless the compensation is +“performance-based” as defined under the IRC. Elements +of the executive compensation program are indeed +performance-based, such as stock options, SARs and +performance-based equity awards issued under the Company’s +2004 Long-Term Equity Compensation Plan. Other aspects of the +executive compensation program do not qualify as +performance-based, such as time-based restricted stock and the +Company’s STI annual incentive bonus program, because the +Committee prefers to maintain the ability to exercise discretion +in evaluating a portion of participants’ performance. It is +our intent to maximize our income tax deductions by qualifying +compensation paid to our top executives, where practicable under +our compensation policies. The Compensation Committee +nonetheless may approve compensation that may not qualify for +the compensation deduction if, in light of all applicable +circumstances, the Committee believes that it would be in our +best interest for such compensation to be paid. The financial +implications of a potential lost deduction were not material in +prior years; the Committee will continue to monitor its position +on the impact of Section 162(m) for the Company’s +executive compensation programs. +Section 409A of the IRC provides that all amounts deferred +under a non-qualified deferred compensation plan are currently +included in gross income, to the extent not subject to a +substantial risk of forfeiture and not previously included in +gross income, unless certain requirements are met. We have +designed or amended our plans and programs to either be exempt +from Section 409A or, if subject to Section 409A, in +compliance with applicable regulations to properly allow +deferral. +33 +Table of Contents +ELEMENTS +OF EXECUTIVE COMPENSATION +To achieve the objectives of the executive compensation program, +the Committee uses four elements of compensation in varying +proportions for the different executive officers. These +elements, described below, are cash compensation (comprised of +base salary and STI), awards tied to the Company’s stock +(LTI, which we also refer to as “equity-based +compensation”) and other perquisites and benefits. The +Committee balances salary and performance-based compensation, +and cash and non-cash compensation, in a manner it believes best +meets the overall compensation philosophy in its judgment as a +Committee. The Committee allocates among the different elements +of compensation in a manner similar to the median allocation of +the Peer Group, based on the level of the executive’s +position, but generally targets the median in base salary and +median in total direct compensation (base, target STI and LTI +value). If Company and individual performance so warrants, the +Committee may award above or below the market median. Generally, +it is the policy of the Committee that, as +position/responsibility levels increase, a greater proportion of +the executive’s income should be in the form of STI and LTI +compensation. For example, the CEO of the Company receives a +higher percentage of his compensation in the form of short- and +long-term incentives compared to other Company executives and, +correspondingly, a smaller percentage of his compensation in the +form of salary, consistent with CEOs in the Peer Group. The +following table shows the breakdown of target compensation among +the three elements (other than perquisites and benefits) for +2008 and 2009 for each executive officer. +Target +Compensation for Elements as a Percentage of Total Target +Compensation +2008 +2009 +Base +Bonus +Equity +Base +Bonus +Equity +Name +Salary +Target +Award +Salary +Target +Award +Richard W. +McCullough (1) +29 +% +27 +% +44 +% +27 +% +27 +% +46 +% +Gysle R. +Shellum (2) +— +— +— +40 +% +20 +% +40 +% +Eric R. +Stearns (3) +33 +% +20 +% +47 +% +32 +% +20 +% +47 +% +Barton R. +Brookman. (4) +40 +% +20 +% +40 +% +39 +% +19 +% +42 +% +Daniel W. Amidon +40 +% +20 +% +40 +% +39 +% +19 +% +42 +% +Lance +Lauck (5) +— +— +— +— +— +— +(1) +Mr. McCullough was appointed CEO on June 23, 2008. +(2) +Mr. Shellum joined the Company as Chief Financial Officer +on November 11, 2008. +(3) +Mr. Stearns left employment at the Company effective +June 18, 2009. +(4) +Mr. Brookman was appointed Senior Vice President on +March 8, 2008. +(5) +Mr. Lauck was hired as Senior Vice President Business +Development on August 31, 2009. +The chart above indicates that, for the executive officers below +the CEO, on average, 62% of target total direct compensation is +variable and 42% is in the form of equity-based compensation, +and for the CEO, 73% of his compensation is variable, with 46% +in the form of equity-based compensation. +Base +Salary +Base salary is intended to provide a fixed level of income to +compensate executives for their level of responsibility, +relative expertise and experience, individual performance and in +some cases their potential for advancement. The Committee +annually reviews the base salaries of the CEO and other +executive officers relative to the Peer Group. Salaries are also +reviewed in the case of promotions or other significant changes +in responsibilities. Base salary is intended to provide a +baseline of compensation that is not contingent upon the +Company’s performance. +After reviewing the Peer Group salary levels and considering +individual performance, the Committee increased base salaries in +2009 by 32% for the CEO and between 0% and 8% for the other +named executive officers. Mr. McCullough’s increase is +related to 2009 being his first full year as CEO and to his +34 +Table of Contents +assumption of the role of Chairman in 2009. In 2009, the base +salary compensation of the executive officers approximated the +median of the Peer Group, with the exception of a few of the +officers, including the CEO, that were below the median. Annual +base salaries for the executive officers for 2008 and 2009 are +shown in the following table: +Annual Base Salaries +Name +2008 +2009 +Richard W. McCullough +$ +340,000 +$ +450,000 +Gysle R. Shellum +235,000 +235,000 +Eric R. Stearns +305,000 +320,250 +Barton R. Brookman, Jr. +250,000 +270,000 +Daniel W. Amidon +227,500 +245,700 +Lance Lauck +— +225,000 +The Company increased base salaries in 2010. See “2010 +Compensation” below for a discussion of the changes. +Short-Term +Incentives +The Company’s STI program is intended to motivate and +reward executives for achieving short-term Company goals and +objectives aligned with value creation. This program also +recognizes team and individual contributions to Company +performance. The annual STI payment is tied to the +Company’s overall performance for the fiscal year, as +measured against the objective criteria set each year by the +Committee, as well as the Committee’s subjective assessment +of Company performance and individual performance of each +executive. +Individual Target Bonus +Opportunities. Individual STI target bonus +opportunities, expressed as a percentage of base salary, are set +for each named executive officer during the first 90 days +of the fiscal year based on job level and responsibilities. In +2009, potential payouts ranged from zero to as much as 200% of +the target for the year. The following table sets forth the STI +threshold, target and maximum or “stretch” levels for +2008 and 2009 of the performance bonus portion of the STI for +the executives, expressed as a percentage of base salary. +Short-Term Incentive Compensation +2008 +2009 +% of Base Salary +% of Base Salary +Name +Threshold +Target +Stretch +Threshold +Target +Stretch +Richard W. McCullough +0% +90 +% +180 +% +0 +% +100 +% +200 +% +Eric R. Stearns +0% +62.5 +% +125 +% +0 +% +62.5 +% +125 +% +Gysle R. Shellum +— +— +— +0 +% +50 +% +100 +% +Barton R. Brookman, Jr +— +50 +% +100 +% +0 +% +50 +% +100 +% +Daniel W. Amidon +0% +50 +% +100 +% +0 +% +50 +% +100 +% +Lance +Lauck (1) +— +— +— +0 +% +50 +% +100 +% +(1) +Mr. Lauck joined the Company on August 31, 2009. In +addition to his 100% stretch bonus for 2009, he is eligible for +an additional annual bonus of up to 100% ( i.e. , 200% +total possible) based on the success of future Company +acquisitions. +STI Performance Metrics for 2009. Annually, +the Compensation Committee establishes goals for determining the +STI awards for the executive officers. In determining the award +for 2009, 60% of the award potential was based on objective +criteria and 40% was based on individual performance and other +factors at the discretion of the Committee. Historically, the +Company has focused on production and earnings per share goals +in determining the objective criteria for the STI. Because of +the financial markets and depressed gas prices at the end of +2008 and early 2009, the Committee wanted management in 2009 to +focus on two measures, adjusted cash flow and liquidity. In both +approving goals and measuring the +35 +Table of Contents +Company’s performance against those goals, the Committee +may use its discretion in determining the extent to which goals +are met and whether the results properly reflect the +Company’s achievement of its overall business objectives, +including any material changes in the Company’s operations +or business objectives during the course of the year. With +respect to the 2009 objective criteria, the Committee did not +adjust the criteria once the goals were established. The table +below reflects the threshold, target, and maximum goals for the +year, the actual performance and the weighting assigned each of +the objective goal as approved by the Committee. +Pay-for-Performance +Table for 2009 +Lower +Threshold +Target +Maximum +Percent of +Amount +Amount +Amount +Actual +Actual Results +Total +Criteria +(0% of Goal) +(100% of Goal) +(200% of Goal) +Results +(% of Target) +Bonus +Cash flow per share +$ +6.50 +$ +7.80 +$ +9.00 +$ +8.75 +179 +% +20 +% +Liquidity +$ +145.00 +$ +155.00 +$ +175.00 +$ +207.00 +200 +% +40 +% +In determining the results for the objective criteria that make +up 60% of the award, based on the actual results for 2009, the +Company met 179% of its target for adjusted cash flow per share +and exceeded the maximum target for liquidity. These results +produced a total performance for the objective criteria of 193% +of target. When the Compensation Committee considered the +results after backing out the effect of the stock offering, the +Company exceeded the maximum performance for both adjusted cash +flow per share and liquidity which would have produced a total +result of 200% of target. Although performance goals were met, +stock performance remained flat. In determining the final award, +the Compensation Committee concluded that although the stock +price performance had yet to reflect the financial position of +the Company, the actions taken by the management team to +position the Company financially for growth by raising capital +and securing liquidity in a time when markets were difficult was +critical to the future success of the Company. Examples include +the hedging steps that were taken again in late 2009 to help +sustain the bank line levels and formation of the Marcellus +joint venture to reduce risk and finance the development of that +field and creating the ability for the Company to issue equity. +Based on the assessment of all the considerations for 2009, the +Committee adjusted the rating downward slightly and awarded an +overall rating of 175% for the 60% objective portion of the +bonus. +The discretionary portion of the STI program permits the +Committee to account for individual performance and +differentiate among executives. In determining what portion of +the discretionary income to award, the Committee looks at the +overall Company performance for the objective measures, +multiplies the overall rating for the achievement of the Company +objectives (175% for 2009) times the 40% discretionary +portion and adjusts for individual performance. The Committee +assesses individual executive performance with input from the +CEO as well as other Board members and Committees. The CEO also +provides input to the Committee as to how he and the Company +have performed. In determining final awards, the Compensation +Committee considered the executive team’s performance in +achieving the Company’s results, the work performed and +results undertaken on the Company’s updated strategy and +individual performance against each executive’s specific +goals. STI bonus awards are pro-rated for partial years. The 40% +discretionary individual performance variations were fairly +small, as the Committee believes that the senior management team +must generally operate and be judged as a team, absent +individual exceptional performance or markedly +sub-standard +performance. +The actual STI awards earned and paid for 2009 performance to +each executive officer were as follows: Mr. McCullough +$788,000; Mr. Shellum $210,000; Mr. Brookman $235,000; +Mr. Amidon $215,000; and Mr. Lauck $65,000. +Mr. Lauck’s award was pro-rated to adjust for +partial-year employment in 2009. The Committee believes these +awards are justified based on the discussion above. +In addition to his STI bonus described above, Mr. Lauck is +eligible to receive a special bonus in the event of the +completion of successful acquisitions in a given year, as +determined by the Committee. The details of this program have +not been finalized by the Committee, but the maximum +Mr. Lauck could +36 +Table of Contents +receive is an amount equal to 100% of his base salary +( i.e. , 200% maximum when combined with normal STI) in +effect as of the date of the acquisition, payable over +2 years. No payouts have been made under this program. +The STI plan for the named executives was modified for 2010 +based on the Company’s review of its long term strategic +plan. The five metrics used in the new plan and the 2010 bonus +targets are outlined below in “2010 Compensation” +below. +Long-Term +Incentives +The Company’s LTI program is an integral part of the +Company’s overall executive compensation program and serves +to align the interests of executives with those of our +shareholders. The program establishes a direct relationship +between compensation and shareholder value by +(1) emphasizing long-term share ownership through the +Company’s Stock Ownership Guidelines, (2) rewarding +long-term growth in the Company’s stock value, and +(3) focusing senior executives on the achievement of +long-term performance objectives that are aligned with the +Company’s corporate strategy. The program also furthers the +goal of executive retention, since the executive officer will +forfeit any unvested awards in the event the officer voluntarily +terminates employment with the Company without “good +reason.” +In the last three years, we have implemented our LTI program +using two vehicles: +• +Restricted stock which vests over time has been used to help +attract and retain our executive team and to help ensure +delivery of a competitive pay package. +• +LTIP stock which vests over time subject to the achievement of +specified stock price goals has been used to reinforce our +commitment to shareholder value creation. +In making long-term incentive awards, the Committee uses a +market-based value approach, in which the Committee determines +competitive LTI values through the annual benchmarking work +conducted by the Consultant. The value is then allocated to each +of the LTI vehicles. In 2008, the LTI values were generally +allocated half to time-vested restricted stock (vesting pro +rata over four years) and half to performance-based LTIP +stock. In response to the economic upheaval described earlier, +and to promote stock ownership for our new management team, the +2009 LTI values were allocated 75% to time-vested restricted +stock and 25% to performance-based LTIP stock. +Half of the 2009 performance-based LTIP stock awards will vest +and be issued based upon an annual stock price increase of +approximately 12%, with the starting price based on the average +price of the stock in December preceding the award year. An +additional 25% of the awarded LTIP shares will vest and be +issued at an annualized hurdle rate of 16% and an additional 25% +at 20%. For the 2009 performance-based LTIP awards, the stock +price used to determine if the LTIP shares will vest will be the +average daily closing price for each of the three monthly +periods: December 2011, 2012, and 2013. Any shares not vested in +2011 and 2012 will remain eligible to be vested in future years; +however, any unvested shares at December 31, 2013 will +lapse. The Committee decided to use three measurement dates to +take into account the volatility of energy prices and their +impact on the stock price of the Company. +The Committee has used a consistent methodology to translate +target LTI values into share awards, namely, award values have +been converted to shares based on the average stock price in the +December preceding the award. Further, with respect to the +performance-based LTIP stock, at the Committee’s direction, +the Consultant calculated the fair value utilizing methods it +has developed for use with these types of equity valuations, +including taking into account the probability +and/or +timing of vesting under the performance criteria for the LTIP +shares and the other restricted stock. The actual values of the +2009 grants were significantly below the intended values because +the shares were granted in March when stock prices in general +were near their low, however, the valuation was based on the +prior December stock price. To address this problem for the +future, in 2010, the Committee agreed that for all types of +equity grants, it would use prices based on an average +20-day +trading price ending ten days prior to grant. This should +make future actual grant values more consistent with the +intended grant values and assist when comparing the Company with +its peers. +37 +Table of Contents +The following table summarizes recurring LTI awards for 2008 and +2009, and the second table summarizes the target prices for the +performance vesting of the LTIP awards, all of which vested +pro rata over four years from the date of issuance. +Long-Term +Incentive Awards +2008(1) +2009 +Target LTIP +Target LTIP +as % of Base +as % of Base +Name +Salary +Total Value +Salary +Total Value +Richard W. McCullough +150 +% +$ +714,613 +175 +% +$ +382,961 +Gysle R. Shellum +— +— +100 +% +$ +235,008 +Eric Stearns +145 +% +$ +619,670 +145 +% +$ +225,813 +Barton R. Brookman, Jr. +100 +% +$ +318,749 +110 +% +$ +180,568 +Daniel W. Amidon +100 +% +$ +318,749 +110 +% +$ +131,431 +Lance Lauck(2) +— +— +— +— +(1) +This chart excludes the special retention granted in 2008 to +promote share ownership and retention. +(2) +Mr. Lauck was hired in August 2009 and was not part of the +annual grant. Related to his hire, however, Mr. Lauck was +awarded 26,701 shares (10,000 of these shares were a +special signing award, and 16,701 were related to the normal +hire grant given to new employees at his level). +LTIP Target Prices(1) +Year of +Approximate +Target Price +Percent Vested if +Award +Growth Target +2010 +2011 +2012 +2013 +Target Attained(2) +2008 +12 +% +$ +80.50 +$ +90.00 +$ +101.00 +— +50 +% +16 +% +89.50 +103.50 +120.00 +— +75 +% +20 +% +99.00 +118.50 +142.50 +— +100 +% +2009 +12 +% +— +$ +30.50 +$ +34.00 +$ +38.00 +50 +% +16 +% +— +34.00 +39.00 +45.50 +75 +% +20 +% +— +37.50 +45.00 +54.00 +100 +% +(1) +Growth target percentages and target prices are based on the +average closing price of the Company’s common stock during +the preceding December for each of the years. +(2) +Performance shares will vest for a performance period only if +the target price is met or exceeded for such period. Performance +shares vested for a performance period will not be subject to +divestment if the share price subsequently decreases below the +threshold in a subsequent period. +The Compensation Committee made LTI grants under the 2004 Plan +on April 19, 2010. For a description of the 2010 equity +awards, see “2010 Compensation” below. To enable the +Committee to continue to use LTI grants as an integral part of +the compensation package for executives and other employees of +the Company, the Committee is requesting shareholders to approve +the 2010 Long-Term Equity Compensation Plan. +Retirement +Plans +The Company has a combined qualified 401(k) and profit sharing +plan for all of the Company’s employees, including the +executive officers. The purpose of the retirement plan is to +provide a competitive means for employees to build financial +security, and offers a tax-advantaged vehicle for employees to +save effectively for retirement. The plan provides for +discretionary matching contributions. Generally, the Company +matches 401(k) contributions dollar for dollar up to 10% of the +employee’s compensation and then matches 20% of employee +contributions above 10% of the employee’s compensation up +to the +38 +Table of Contents +maximum allowable limits under the Internal Revenue Code +(“IRC”). The Company’s profit sharing +contribution is discretionary and for 2009 was equal to +approximately $500,000 for all employees. +Mr. McCullough, under the terms of his Employment +Agreement, also earns the right to a future non-qualified +deferred compensation benefit following his retirement or other +termination from the Company. Under the terms of his Agreement, +Mr. McCullough earns an annual payment for the +10 years following his termination equal to $7,500 times +the number of completed years of service with the Company +(maximum 10 years). The maximum amount he could receive +from the Company is $750,000 ($75,000 for 10 years). As of +December 31, 2009, Mr. McCullough’s total +cumulative benefit, including the 2009 increment, was $225,000 +($22,500 per year for 10 years), as the benefit began in +2006, prior to his appointment as CEO, when Mr. McCullough +was first hired as Chief Financial Officer. +Other +Compensation and Benefits +In addition to the normal benefits provided to all employees, +the Company provides certain other perquisites and benefits to +its executive officers that are not tied to any formal +individual or Company performance criteria and are intended to +be part of a competitive overall compensation program. The +purpose of these plans is to enhance employee welfare and +financial security and to provide a competitive package to +attract and retain employees and executive officers. +Perquisites and executive benefits do not constitute a +significant part of executive compensation; however, each of the +executive officers, except as noted below, has (1) a +Company vehicle (or vehicle allowance) that he uses for Company +business and is allowed personal usage as well, and +(2) 13 weeks of short-term disability benefits under +his employment agreement (described below). In addition, +Messrs. McCullough and Amidon are entitled to +(1) reimbursement of medical expenses not covered by the +Company medical plan (eliminated effective April 19, +2010) and (2) the Company will provide them with or +reimburse them for the cost of a $1 million life insurance +policy and disability insurance. +2010 +Compensation +Based on the Committee’s benchmarking review, the total +direct compensation (base salary, STI and LTI) of the +Company’s executives have consistently been significantly +below the median of the peer companies. Due to the economic +climate at the end of 2008/early 2009, the Committee felt it was +inappropriate to make adjustments in such compensation to the +market, even though it felt the Company and individual +performance had been excellent. Since then, market conditions +have improved. The Committee believes that the Company has +assembled an excellent management team and wants to ensure that +the team is retained and focused on the long term growth of the +Company. +As a result, in 2010, the Compensation Committee adjusted +compensation to move executives closer to the median of the +market and also recognized differences in specific roles within +the Company with variations in STI and LTI target awards levels. +This adjustment recognizes executives for actions taken in +2008/2009 to position the Company financially for growth by +raising capital and securing liquidity in a time when markets +were difficult. Examples include: +• +hedging large portions of 2008 and 2009 production in 2008 +before gas pricing collapsed, generating more than +$100 million in realized hedging gains in 2009 alone; +• +similar well-timed hedging steps taken again in late 2009 to +help sustain the bank line borrowing base levels; +• +formation of the Marcellus joint venture to reduce the risk and +finance the accelerated development of that field and create the +ability for the Company to issue equity; and +• +significantly improving the Company’s liquidity. +The Committee also wished to compensate the executives for +renegotiating their employment agreements to replace the +“single trigger” with a “double trigger” +when determining separation benefits following a change of +control of the Company. The compensation adjustments were +conditional upon +39 +Table of Contents +the executive signing the new employment agreement. In making +its 2010 LTI equity grants, the Committee considered the level +of equity grants in recent years, including the special +retention grant of restricted stock in 2008. Prior to the 2010 +equity grants, however, the management team had relatively +little equity, which the Committee and investors believe is +critical to success. +Additional reasons for adjustment in compensation of the CEO +include: (1) The fact that the CEO has been instrumental +over the last several years in addressing some significant +accounting and reporting deficiencies of the Company that could +have had detrimental effects if not corrected; (the NASDAQ +hearing board, convened in 2007 to consider delisting of the +Company, stated that it specifically considered the confidence +it had in Mr. McCullough as a principal reason for giving +the Company an additional chance to correct its accounting +issues); (2) the CEO led an assessment of the +Company’s strategy resulting in a new vision and strategic +direction focused on growing the Company intrinsically; +(3) the CEO has brought together a strong leadership team, +both at the executive and middle management levels and united +that team to implement the strategy; (4) the CEO has +implemented a number of progressive management systems and +practices to prepare the Company for future growth; and +(5) the CEO agreed to eliminate the reimbursement of +medical expenses over and beyond those covered under the +Company’s medical plan as part of his new employment +agreement. +As part of the changes in 2010, the Committee also adjusted the +mix of compensation with more emphasis on short-term incentive +bonus and long-term incentives to align executive compensation +with the execution of the corporate strategy. For the named +executive officers excluding the CEO, variable compensation on +average now comprises 68% of total direct compensation with 50% +in the form of equity-based grant values. The CEO now receives +77% of his compensation in the form of variable pay with 54% as +equity-based compensation. Below is a table showing the new base +salaries and STI targets expressed as a percentage of base +salary, effective as of January 1, 2010. Actual award +payouts under the STI plan can range from 0% to 200% of target. +2010 +SHORT-TERM INCENTIVE COMPENSATION +Base +Bonus +Executive Officer +Salary +Target +Threshold +Target +Stretch +Richard W. McCullough +$ +550,000 +100 +% +0 +% +100 +% +200 +% +Gysle R. Shellum +$ +275,000 +60 +% +0 +% +60 +% +100 +% +Barton R. Brookman +$ +290,000 +60 +% +0 +% +60 +% +100 +% +Daniel W. Amidon +$ +260,000 +55 +% +0 +% +55 +% +100 +% +Lance Lauck +$ +235,000 +50 +% +0 +% +50 +% +100 +% +The Committee also changed LTI vehicles for 2010, allocating 75% +of the grant value to restricted stock (same percentage as in +2009) which vests over three years and granting the +remaining 25% in the form of SARs instead of LTIP shares (the +SARs vest over three years and have a term of ten years). The +Committee did not believe the LTIP shares were performing as +designed because of the volatility of oil and gas prices, and +made the change to ensure continued focus by the executives on +increasing stock value, thereby directly linking compensation to +the stock price. On April 19, 2010, the following values +were awarded as LTI grants for 2010; Mr. McCullough +$1,300,000; Mr. Shellum $435,000; Mr. Brookman +$425,000; Mr. Amidon $400,000; and Mr. Lauck $375,000. +The Committee also substantially reevaluated the corporate +performance metrics to be used for 2010 STI, increasing the +number of metrics as well as changing the type of metrics to tie +to the Company’s updated corporate strategy. The Committee +felt the following five metrics would provide better balance and +a broader picture of corporate performance: +(1) +Adjusted Cash Flow per Share — Net income plus/minus +change in operating assets and liabilities. +(2) +Capital Efficiency — Adjusted EBITDA for 2010 divided +by production divided by three years’ average finding and +development cost per unit. +40 +Table of Contents +(3) +Operating and General and Administrative Expense per +Mcfe — The sum of total lease operating expense, +exploration general and administrative expense and corporate +general and administrative expense divided by Mcfe (mcf +equivalent for gas and oil). +(4) +Reserve Replacement Ratio (3 year average) — The +sum of 2008, 2009 and 2010 extensions and discoveries, revisions +in previous estimates and purchase of reserves divided by the +sum of 2008, 2009 and 2010 production. +(5) +Production — Actual production volume for the year. +In calculating the bonus, 50% will be based on a combination of +(1) and (2) above and 50% will be based on a +combination of (3), (4) and (5) above. Such rating can +also be adjusted upward or downward at the Committee’s +discretion based on successful completion of annual +projects/goals by the executive team. +Executive +Officer and Director Share Retention and Ownership +Guidelines +In order to promote equity ownership and further align the +interests of management with the Company’s shareholders, +the Committee has adopted share retention and ownership +guidelines for senior management and non-employee Directors. +Under these guidelines in effect during 2009, executive officers +and non-employee Directors were required to achieve and continue +to maintain a significant ownership position, as follows: +Chief Executive Officer: +3 times salary +Other Executive Officers: +2 times salary +Non-Employee Directors: +1 times retainer +Compliance is measured once a year, on July 2. Shares held +by the executive officers and shares held indirectly through the +Company 401(k) plan are included in determining an executive +officer’s share ownership. +On April 19, 2010, the Board amended such guidelines +effective July 1, 2010, to increase the non-employee +Director ownership from one times the annual retainer to three +times the annual retainer. Non-employee Directors are also now +required to comply with the ownership guidelines within three +years of their election to the Board instead of five years, as +previously provided. Lastly, the Board clarified that unvested +restricted stock would be included in the calculation for +officers and Directors. +Mr. Lauck has occupied his position for less than one year, +and therefore is exempt from the guidelines. Similarly, +Mr. Trimble has been a member of the Board for less than +three years, and therefore is exempt from guidelines. +Based on this annual compliance measurement and the three-year +initial grace period, no Director or officer is anticipated to +be out of compliance with the ownership guidelines on +July 2, 2010. +The Company’s Insider Trading Policy expressly prohibits +Company officers, Directors, employees and associates from +engaging in options, puts, calls or other transactions that are +intended to hedge against the economic risk of owning the +Company shares. +EXECUTIVE +AGREEMENTS +Employment +Agreements +The Compensation Committee has entered into employment +agreements with each of the named executive officers. The +Committee believes employment agreements are necessary to +attract and help retain executive officers in a volatile and +consolidating industry and to provide transitional income +following an executive officer’s involuntary termination of +employment. The severance benefits in the event of an +involuntary termination or a termination of employment by the +employee for Good Reason following a change in control +(“double trigger”) also serve to lessen the potential +negative impact of a change in control on the executive officers +and to lessen the potential conflict between the best interests +of the shareholders and that of the executives. The Committee +believes this provision is desirable, in combination with +significant stock ownership, to encourage the executives to +consider in an unbiased manner possible change in control +situations that might benefit the Company’s shareholders. +The +41 +Table of Contents +employment agreements provide for the continued employment for a +period of two years following a “change in control” of +the Company. For this purpose, the definition of “change of +control” corresponds to the definition under IRC +Section 409A and the supporting treasury regulations, with +certain changes. These agreements are intended to retain the +executives and provide continuity of management in the event of +an actual or threatened change in the control of the Company and +ensure that the executive’s compensation and benefits +expectations would be maintained in such event. +On April 19, 2010, as a condition of the compensation +adjustments in 2010, the executive officers each entered into +amended and restated employment agreements providing for a +double trigger in place of the single trigger as well as related +changes. A “single trigger” provision permits the +executive to terminate his employment for any reason after a +change of control and receive severance. A double trigger +requires involuntary termination (or constructive termination +for Good Reason) in addition to a change of control in order to +trigger severance. In addition, in the April 2010 amendment, +Messrs. McCullough and Amidon agreed to eliminate the +contractual provision providing for reimbursement of medical +expenses over and beyond those covered under the Company’s +medical plan. +The initial term of the new employment agreements is +21 months, until December 31, 2011. The agreements are +automatically extended for an additional twelve months on +December 31, 2010 and on each successive December 31 unless +either party cancels the agreements. +The employment agreements continue to provide for (1) base +annual salary to be reviewed annually (see “Base +Salary” above); (2) an annual performance bonus as +determined by the Committee based in part upon written objective +criteria and in part upon the discretion of the Committee (see +“Short-Term Incentives” above); (3) participation +in the Company’s long term equity program (see “Long +Term Incentives” above); (4) participation in the +Company’s other cash, stock and benefit plans; (5) a +Company-owned vehicle or vehicle allowance; (6) four weeks +of vacation annually; (7) in the case of +Messrs. McCullough and Amidon, $1 million in life +insurance benefits and company-paid disability benefits; and +(8) in the case of Mr. McCullough, supplemental +retirement benefits providing that, for each complete year +worked, beginning with his employment date with the Company +(November 13, 2006) and each anniversary thereof, he +will earn and be entitled to receive an annual retirement +payment for ten years following his termination of employment +(see “Retirement Plans” above for a description of the +program). +Each employment agreement contains a non-disclosure covenant and +also provides that the executive officer is prohibited during +the term of his employment and for a period of one year +following his termination from engaging in any competing +business within any county, or adjacent county, in which the +Company is doing business. +Clawback Provisions. The employment agreements +also contain a “claw back” provision requiring the +executive to reimburse the Company for annual bonus payments +received for each affected year if the Company must restate all +or a portion of its financial statements due to material +noncompliance by the Company with any financial reporting +requirement under the securities laws. The reimbursements will +be equal to the difference between the bonus paid to the +employee for the affected years and the bonus that would have +been paid to the employee had the financial results been +properly reported. +Termination Benefits (other than for Change of +Control). The executive is entitled to severance +benefits upon certain termination events as outlined below: +When the Company terminates the executive officer without +“Just Cause” or when the executive officer terminates +employment for “Good Reason,” the severance benefits, +to be paid in a lump sum within 40 days following the +termination, are equal to two times (three times in the case of +Messrs. McCullough and Amidon) the sum of: (a) the +executive officer’s highest annual base salary during the +previous two years of employment immediately preceding the +termination date plus (b) the highest annual bonus paid to +the executive officer during the same two year period. The +executive officer is also entitled to (1) vesting of any +unvested equity compensation (excluding all performance-based +LTIP shares), (2) reimbursement for any unpaid expenses, +(3) continued coverage under the Company’s medical +plan at the Company’s cost for up to 18 months, +(4) payment of any earned, unpaid bonus amounts, and +(5) in the case of Mr. McCullough, the supplemental +retirement benefits earned under the current employment +agreement, although these benefits are +42 +Table of Contents +not increased or accelerated. In addition, a terminated +executive officer is entitled to receive any benefits that he +otherwise would have been entitled to receive under our 401(k) +and profit sharing plan, although those benefits are not +increased or accelerated. +If an executive officer voluntarily terminates his employment +with the Company for other than Good Reason, he is entitled to +receive (1) the base salary and bonus, provided, however, +that with respect to Messrs. McCullough and Amidon, there +shall be no proration of the bonus in the event such executive +officer leaves prior to March 31 in the year of his termination +and, with respect to Messrs. Brookman, Shellum and Lauck, +there shall be no bonus if such executive leaves prior to the +last day of the year (2) any incentive, deferred or other +compensation which has been earned or has become payable, but +which has not yet been paid under the schedule originally +contemplated in the agreement under which they were granted, +(3) any unpaid expense reimbursement upon presentation by +the executive officer of an accounting of such expenses in +accordance with normal Company practices, and (4) any other +payments for benefits earned under the employment agreement or +Company plans. +If the executive officer’s termination is due to his death +or by the company due to his “disability,” certain +benefits are provided to him. For this purpose, the definition +of “disability” corresponds to the definition under +IRC Section 409A and the supporting treasury regulations. +The benefit payable shall be payable in a lump sum and shall be +equal to base salary (plus bonus in the case of +Messrs. McCullough and Amidon) that would otherwise have +been paid for a six month period following the termination date +plus , in the case of disability, ongoing base salary for up to +13 weeks following the disability. +Termination Benefits Following a Change of +Control. If within two years following a change +of control of the Company, either the executive is terminated by +the Company without “Just Cause” or the executive +terminates his employment for “Good Reason,” the +executive is entitled to receive severance benefits equal to +three times the sum of: (a) the executive officer’s +highest annual base salary during the previous two years of +employment immediately preceding the termination date, plus +(b) the highest annual bonus paid to the executive officer +during the same two year period. If this occurs in the first two +years of employment, Mr. Lauck’s agreement provides +that such bonus used for such calculation shall not be less than +his target bonus percentage. The executive officer is also +entitled to (1) vesting of any unvested equity compensation +(excluding all performance-based LTIP shares), +(2) reimbursement for any unpaid expenses, +(3) continued coverage under the Company’s medical +plan at the Company’s expense for up to 18 months, and +(4) payment of any earned, unpaid bonus amounts. In +addition, a terminated executive officer is entitled to receive +any benefits that he otherwise would have been entitled to +receive under our 401(k) and profit sharing plan, although those +benefits are not increased or accelerated. The Company does not +gross up any executive in the event a “parachute tax” +is owed pursuant to Section 280G. In such circumstance, the +severance payment will be reduced if it would result in a higher +payment to the executive than paying such 280G tax. +The table below provides information regarding the amounts each +of the executive officers would have been eligible to receive if +a termination event had occurred as of December 31, 2009. +For the purpose of valuing equity compensation, the presentation +below assumes the closing price per share of the Company’s +stock on December 31, 2009 was $18.21. +Termination Benefits(1) +By Executive +By Company +Retirement +Death +or +Good +For +Without +Change +or +Name +Voluntary(2) +Reason +Cause(2) +Cause +in Control +Disability(3) +Richard W. McCullough +$ +1,017,900 +$ +5,912,503 +$ +702,400 +$ +5,912,503 +$ +5,912,503 +$ +2,080,756 +Gysle R. Shellum +214,900 +912,147 +128,275 +912,147 +1,167,147 +519,568 +Barton R. Brookman +239,900 +1,831,489 +146,650 +1,831,489 +2,249,489 +937,410 +Daniel W. Amidon +219,900 +2,064,673 +133,893 +2,064,673 +2,064,673 +792,494 +Lance A. Lauck +66,471 +1,120,305 +40,846 +1,120,305 +1,457,805 +542,726 +43 +Table of Contents +(1) +The benefits are calculated as of December 31, 2009. Please +refer to previously disclosed Executive Employment Agreements +for applicable termination provisions under the specified +scenarios. +(2) +It is currently anticipated that an accrued and earned +“performance based” and “discretionary” +bonus would be paid to an Executive who has a voluntary +termination of employment with the Company. However, it is not +anticipated that a “discretionary” bonus, even if +accrued, would be paid to an Executive who is terminated for +“Just Cause”. +(3) +In the event of death or disability, the termination benefits +would consist of (i) the base salary and bonus for the +portion of the year the executive officer is employed by the +Company, (ii) the base salary that would have been earned +for the six months after termination; (iii) immediate +vesting of all equity and option awards; (iv) the payment +of deferred retirement compensation based upon the schedule +originally contemplated in the deferred retirement compensation +agreement or in a lump-sum no later than two and one-half months +following the close of the calendar year in which the death or +disability occurred; (v) reimbursement for any unpaid +expenses; (vi) benefits earned under the 401(k) and profit +sharing plan; and (vii) continued coverage under the +Company’s medical plan for up to 18 months following +disability termination. +Effect of Change of Control on Equity +Award. In addition to the change of control +benefits discussed above, our equity plans and corresponding +agreements provide that upon a change of control of the Company: +• +outstanding options and stock appreciation rights that are not +vested and exercisable become fully vested and exercisable; +• +the restrictions on any outstanding restricted stock and +restricted stock units lapse; and +• +any outstanding performance share or unit awards or +performance-based restricted stock or restricted stock unit +awards vest on a pro rata basis and the performance goals +may be deemed to be earned based on a formula contained in the +grant agreement. +We believe this “single-trigger” treatment in our +stock plans is appropriate because it ensures that continuing +employees are treated the same as terminated employees, and is +particularly appropriate for performance — based +equity given the potential difficulty of replicating or +achieving the performance goals after the change of control. +Other +Agreements and Arrangements +Eric Stearns Separation Agreement. On +May 19, 2009, the Company entered into a Separation +Agreement with Eric Stearns, its prior Executive Vice President +(the “Stearns Separation Agreement”). The Stearns +Separation Agreement notes that Mr. Stearns resigned with +Good Reason, as provided in his Employment Agreement. +Mr. Stearns’ compensation included a payment of +$2,001,000 and acceleration of his restricted stock. +Mr. Stearns was not compensated in excess of his rights +under the Employment Agreement dated December 31, 2008, +between the Company and Mr. Stearns. +Other Agreements. No current executive +officers are investors in the Company’s partnerships for +which the Company is the general partner. Prior to 2007, +however, prior executive officers could invest in a +Board-approved executive drilling program at the Company’s +cost. Effective with the 2007 partnership, the Board eliminated +this executive officer investment program. +44 +Table of Contents +EXECUTIVE +COMPENSATION +2009 +SUMMARY COMPENSATION TABLE +The following table provides summary compensation information +for the Company’s Chief Executive Officer, the Chief +Financial Officer, and the three most highly compensated +executive officers, other than the Chief Executive Officer and +Chief Financial Officer and a former Executive Officer, whose +total compensation exceeded $100,000 in 2009 (the “named +executive officers”). +Non-Equity +Nonqualified +Stock +Incentive Plan +Deferred +All Other +Total +Name and Principal Position(1) +Year +Salary +Bonus(2) +Awards(3) +Compensation(4) +Compensation(5) +Compensation(6) +Compensation +Richard W. McCullough +2009 +$ +450,000 +$ +315,500 +$ +382,961 +$ +472,500 +$ +36,712 +$ +175,326 +1,832,999 +Chief Executive Officer, +2008 +340,000 +181,213 +1,648,741 +422,831 +32,555 +74,704 +2,700,044 +and Chairman (7) +2007 +235,000 +105,750 +— +94,000 +30,555 +59,014 +524,319 +Gysle R. Shellum +2009 +235,000 +86,625 +— +123,375 +— +85,064 +530,064 +Chief Financial Officer (8) +2008 +27,115 +20,000 +235,008 +— +— +2,911 +285,034 +Barton R. Brookman +2009 +270,000 +93,250 +180,568 +141,750 +— +30,025 +715,593 +Senior Vice President of +2008 +250,000 +71,850 +652,337 +167,650 +— +29,914 +1,171,751 +Exploration & Development +2007 +192,300 +100,000 +499,100 +— +— +37,857 +829,257 +Daniel W. Amidon +2009 +245,700 +86,008 +131,431 +128,993 +— +50,399 +642,531 +General Counsel and Secretary +2008 +227,500 +63,162 +652,337 +147,378 +— +34,567 +1,124,944 +2007 +96,922 +180,000 +205,325 +— +— +8,984 +491,231 +Lance A. Lauck +2009 +73,556 +39,375 +269,707 +25,625 +— +7,031 +415,294 +Senior Vice President of +Business Development (9) +Eric R. Stearns +2009 +164,292 +— +225,813 +— +158,152 +2,030,173 +2,578,430 +Former Executive Vice President (10) +2008 +305,000 +104,310 +1,220,143 +243,390 +24,416 +51,942 +1,949,201 +2007 +271,500 +152,719 +556,049 +135,750 +23,033 +57,833 +1,196,884 +(1) +The listed positions are those held as of December 31, 2009 +except as otherwise noted below. +(2) +Represents the discretionary based amounts paid under the +Company’s annual STI bonus plan. For a discussion of the +bonus plan, see Compensation Discussion and Analysis set forth +above. +(3) +Represents the grant date value of stock awards that vest over +time and represents the estimated grant date fair market value +of performace stock awards. Please see “Plan Based Awards +Schedule” for additional information. +(4) +Represents the performance based amounts earned under the +Company’s annual STI bonus plan. For a discussion of the +bonus plan, see Compensation Discussion and Analysis set forth +above. +(5) +Represents the present value of the current benefit earned +related to the deferred compensation retirement plan. +(6) +Amounts shown in this column are detailed in the chart below: +45 +Table of Contents +Use of +Spousal / Other +Company +Company Paid +401(k) and Profit +401(k) and Profit +Company +Airfare or +Paid Insurance +Other +Moving and +Income +Sharing Plan +Sharing Plan +Provided +Company +and Medical +Benefits & +Relocation +Tax +Matching +Profit Sharing +Name +Year +Automobile (a) +Aircraft (b) +Expenses (c) +Perquisites (d) +Assistance +Gross-up (e) +Contribution (f) +Contribution (g) +Richard McCullough +2009 +$ +15,300 +$ +— +$ +7,274 +$ +3,366 +(h) +$ +94,867 +$ +27,619 +$ +22,000 +$ +4,900 +2008 +17,307 +8,746 +9,950 +9,489 +(h) +— +2,605 +20,500 +6,107 +2007 +8,359 +— +10,657 +2,968 +— +— +15,365 +21,665 +Gysle R. Shellum +2009 +15,300 +— +— +1,775 +36,963 +4,242 +21,884 +4,900 +2008 +1,275 +— +— +— +1,636 +— +— +— +Barton R. Brookman +2009 +7,250 +— +— +1,375 +— +— +16,500 +4,900 +2008 +7,250 +1,057 +— +— +— +— +15,500 +6,107 +2007 +693 +— +— +— +— +— +15,500 +21,664 +Daniel W. Amidon +2009 +15,300 +— +162 +1,375 +11,110 +1,052 +16,500 +4,900 +2008 +11,850 +671 +— +— +— +439 +15,500 +6,107 +2007 +2,400 +— +122 +— +— +— +— +6,461 +Lance A. Lauck +2009 +5,100 +— +— +200 +1,731 +— +Eric R. Stearns +2009 +1,500 +— +5,673 +2,001,000 +(i) +— +— +22,000 +— +2008 +3,600 +2,957 +14,097 +2,880 +— +1,800 +20,500 +6,107 +2007 +3,821 +— +12,926 +3,922 +— +— +15,500 +21,664 +(a) +Includes either the monthly auto allowance paid or the +calculated personal use of a company provided auto based upon +personal use percentages and the IRS published “Auto Lease +Value” tables that are used to determine +W-2 +additional wage amounts. +(b) +Represents the cost of Company-provided airfare for spousal or +other guest travel to certain approved company business +functions. Note that a flight on the company aircraft with other +executives traveling to the same business function was estimated +using the published Standard Industry Fare Levels as all flights +were for Board approved business purposes and personal use of +the aircraft by any executive is prohibited. +(c) +Represents cost of Company-provided or reimbursed insurance and +reimbursed medical expenses. +(d) +Primarily includes entertainment expenses such as club dues and +athletic event tickets. +(e) +The tax +gross-up +payments in 2008 relate to the spousal use of Company aircraft +(column b). Since flights were for business events, +gross-up was +also permitted under the Board-approved Airplane Policy. The tax +gross-up +payments in 2009 relate to Board approved +gross-up of +the taxable portion of relocation expenses. +(f) +Annual 401(k) Company matching contributions. +(g) +Annual accrued profit sharing contributions by the Company. +(h) +Mr. McCullough’s “Other Benefits” for 2009 +and 2008 includes $3,366 and $4,214 respectively for +Company-provided lodging. This amount represents the incremental +cost of a Board-approved and Company-provided apartment in +Denver while he was transitioning to relocate from Bridgeport, +West Virginia. The 2009 amount is the three month cost of the +apartment $11,526 less the hotel savings to the Company of +$8,160 (32 days at $255/day). The 2008 amount is the three +month cost of the apartment $11,099 less estimated hotel savings +of $6,885 (27 days at $255/day). +(i) +Amount represents Mr. Stearns’ negotiated separation +payment upon his decision to leave the Company for Good Reason. +Please see Compensation Disclosure & Analysis above +for more information. +(7) +Mr. McCullough was appointed President on March 8, +2008, CEO effective June 23, 2008 and Chairman effective +November 11, 2008. He served in the following capacities: +Chief Financial Officer from November 2006 until November 2008; +Vice Chairman from December 2007 until November 2008. +(8) +Mr. Shellum was hired as Chief Financial Officer effective +November 11, 2008. +(9) +Mr Lauck was hired as Senior Vice President Business Development +effective August 31, 2009. +(10) +Mr. Stearns resigned from the company for “Good +Reason” on May 19, 2009 and the effective date of this +resignation was June 18, 2009 (“Termination +Date”). It is the Company’s position that +Mr. Stearns did not earn any 2009 Bonus or Non-Equity +Incentive Plan Compensation in 2009. Mr. Stearns received +an additional 2009 Stock Award prior to his resignation. +46 +Table of Contents +2009 +GRANTS OF PLAN-BASED AWARDS TABLE +All Other +Estimated Future Payouts +Stock +Grant Date +Estimated Future Payouts +Under Equity +Awards: +Fair Value of +Under Non-Equity +Incentive Plan Awards +Number of +Stock and +Incentive Plan Awards(1) +(Number of Shares)(2) +Shares +Option +Name +Grant Date +Threshold +Target +Maximum +Threshold +Target +Maximum +Awarded(3) +Awards +Richard W. McCullough +3/4/2009 +$ +— +$ +450,000 +$ +900,000 +— +— +— +— +$ +— +3/4/2009 +— +— +— +— +6,087 +12,175 +— +78,772 +(4) +3/4/2009 +— +— +— +— +— +— +27,306 +304,189 +(5)(6) +Gysle R. Shellum +3/4/2009 +— +117,500 +235,000 +— +— +— +— +— +Barton R. Brookman +3/4/2009 +— +135,000 +270,000 +— +— +— +— +— +3/4/2009 +— +— +— +— +2,298 +4,597 +— +29,743 +(4) +1/1/2009 +— +— +— +— +— +— +1,500 +36,105 +(5)(7) +3/4/2009 +— +— +— +— +— +— +10,298 +114,720 +(5)(6) +Daniel W. Amidon +3/4/2009 +— +122,850 +245,700 +— +— +— +— +— +3/4/2009 +— +— +— +— +2,089 +4,179 +— +27,038 +(4) +3/4/2009 +— +— +— +— +— +— +9,371 +104,393 +(5)(6) +Lance A. Lauck +8/31/2009 +— +— +— +— +— +— +19,701 +269,707 +(5)(8) +Eric R. Stearns +3/4/2009 +— +200,156 +400,312 +— +— +— +— +— +3/4/2009 +— +— +— +— +3,589 +7,179 +(9) +— +46,448 +(4) +3/4/2009 +— +— +— +— +— +— +16,101 +(9) +179,365 +(5)(6) +(1) +Represents STI compensation awards, or cash incentive awards, +computed as described above in Compensation Discussion and +Analysis — Short-Term Incentives. +(2) +Represents market-based restricted stock awards under the +Company’s 2004 Long-Term Equity Compensation Plan. For a +discussion of the Company’s Long-Term Incentive Plan, see +the Compensation Discussion and Analysis set forth above. +(3) +Represents time-based restricted stock awards under the +Company’s 2004 Long-Term Equity Compensation Plan. For a +discussion of the Company’s Long-Term Incentive Plan, see +the Compensation Discussion and Analysis set forth above. +(4) +Grant date fair value is computed by multiplying the number of +shares awarded by the grant date fair market value as computed +utilizing the Monte Carlo pricing model, which was $6.47 per +share. Weighted average assumptions used in the model include an +expected term of 3 years, a risk-free interest rate of 2% +and an expected volatility rate of 59%. +(5) +Grant date fair value is computed by multiplying the number of +shares awarded by the closing price of the Company’s common +stock, as reported on the NASDAQ Global Select Market, on the +date of grant. +(6) +25% of these shares are scheduled to vest in each of the years +2010 through 2013. +(7) +100% of these shares are scheduled to vest in 2010. +(8) +5,675 shares are scheduled to vest in each of the years +2010 and 2011, 4,175 in 2012 and 4,176 in 2013. +(9) +The Company accelerated the vesting of 16,101 time-based +restricted shares, of which 8,539 such shares were forfeited. +These shares were modified to accelerate the vesting schedule +pursuant to a separation agreement with Mr. Stearns dated +May 19, 2009; all of the shares would have vested according +to the original terms of the award. Mr. Stearns forfeited +all market-based restricted stock shares awarded in 2009 +pursuant to the separation agreement. +47 +Table of Contents +OUTSTANDING +EQUITY AWARDS AT 2009 FISCAL YEAR-END TABLE +Option Awards +Restricted Stock Awards +Equity +Equity +Incentive +Incentive +Plan Awards: +Plan Awards: +Market +Number of Securities +Number +Market Value +Number of +Value +Underlying Unexercised +of Shares +of Shares +Unearned +of Unearned +Options Held at +of Stock +That Have +Shares That +Shares That +December 31, 2009 +Exercise +Expiration +That Have +Not +Have Not +Have Not +Name +Exercisable +Unexercisable +Price +Date +Not Vested +Vested(1) +Vested(2) +Vested(1) +Richard W. McCullough +2,499 +834 +(3) +$ +43.60 +11/14/2016 +43,265 +(4) +$ +787,856 +20,465 +$ +372,668 +Gysle R. Shellum +— +— +— +— +9,180 +(5) +167,168 +— +— +Barton R. Brookman +— +— +— +— +22,046 +(6) +401,458 +8,295 +151,052 +Daniel W. Amidon +— +— +— +— +16,428 +(7) +299,154 +7,877 +143,440 +Lance A. Lauck +— +— +— +— +19,701 +(8) +358,755 +— +— +(1) +The market value of shares is based on the closing price of the +Company’s common stock, as reported on the NASDAQ Global +Select Market, on December 31, 2009. +(2) +Represents LTIP shares to be issued based upon continuous +employment and the achievement of certain market-based +performance goals for the Company’s common stock as +discussed in the Compensation Discussion and Analysis set forth +above. +(3) +100% of these options are scheduled to vest in 2010. +(4) +11,929 shares are scheduled to vest in 2010, +10,866 shares in each of the years 2011 and 2012 and +9,604 shares in 2013. +(5) +3,060 shares are scheduled to vest in each of the years +2010 through 2012. +(6) +10,220 shares are scheduled to vest in 2010, +4,129 shares in each of the years 2011 and 2012 and +3,568 shares in 2013. +(7) +4,597 shares are scheduled to vest in each of the years +2010 and 2011, 3,897 shares in 2012 and 3,337 shares +in 2013. +(8) +5,675 shares are scheduled to vest in each of the years +2010 and 2011, 4,175 shares in 2012 and 4,176 shares +in 2013. +2009 +OPTIONS EXERCISES AND STOCK VESTED TABLE +Option Awards +Stock Awards +Number of +Number of +Shares Acquired +Value Realized +Shares Acquired +Value Realized +Name +on Exercise +on Exercise +on Vesting +on Vesting(1) +Richard W. McCullough +— +— +5,103 +$ +99,108 +Gysle R. Shellum +— +— +3,060 +54,988 +Barton R. Brookman +— +— +6,645 +115,913 +Daniel W. Amidon +— +— +2,254 +39,765 +Lance A. Lauck +— +— +— +— +Eric R. Stearns +— +— +20,234 (2 +) +331,772 +(1) +Represents value of the vested shares by multiplying the number +of vesting shares by the market value of the shares on the +vesting date. +(2) +In June 2009, pursuant to a separation agreement, the Company +modified to accelerate the vesting schedule of +30,875 shares of time-based restricted stock, of which +16,375 shares were forfeited. All such shares would have +vested pursuant to the original terms of the award. +48 +Table of Contents +2009 +NONQUALIFIED DEFERRED COMPENSATION TABLE +Aggregate +Executive +Company +Aggregate +Aggregate +Balance at +Contributions in +Contributions in +Earnings in +Withdrawals/ +December 31, +Name(1) +2009 +2009(2) +2009(3) +Distributions +2009 +Richard W. McCullough +$ +— +$ +36,712 +$ +4,156 +$ +— +$ +110,135 +Eric R. Stearns +— +158,152 +(4) +12,333 +— +292,563 +(1) +Messrs. Shellum, Brookman, Amidon and Lauck were not added +to the executive deferred compensation plan as of +December 31, 2009. +(2) +Company contributions include the present value cost of +providing the deferred compensation payout over a ten year +period. Since this is a self funded deferred compensation plan, +the Company’s additional annual deferred compensation +expense, less the interest component noted as aggregate earnings +above, equals the increase in the accrued Company contributions +that are required to fund the plan. These annual amounts are a +component of the executive officers’ 2009 compensation and +included in the 2009 Summary Compensation Table. +(3) +Aggregate earnings consist of interest income earned on the +beginning of the year compensation balance at a 6% interest +rate. These earnings are not included in the 2009 Summary +Compensation Table as they are not above market rate. +(4) +Pursuant to a separation agreement with Mr. Stearns, the +present value needed to cover his deferred compensation payout +increased due to his earlier than expected termination. +Mr. Stearns will receive distributions beginning in 2010 of +$37,500 per annum for a period of ten years. +EQUITY +COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity +compensation plans under which our equity securities are +authorized for issuance as of December 31, 2009. +Number of Securities +Number of Securities to be +Weighted-Average +Remaining Available for +Issued upon Exercise of +Exercise Price of +Future Issuance Under Equity +Plan Category +Outstanding Options(1) +Outstanding Options +Compensation Plans(2) +Equity compensation plans approved by security holders: +2004 Long-Term Equity Compensation Plan +10,306 +$ +41.90 +161,513 +2005 Non-Employee Director Restricted Stock Plan +— +— +27,144 +Total equity compensation plans approved by security holders +10,306 +188,657 +Equity compensation plans not approved by security holders +— +— +— +Total +10,306 +$ +41.90 +188,657 +(1) +Excludes 79,550 shares of common stock to be issued based +upon continuous employment and the obtainment of certain +market-based performance goals over a specified period of time. +(2) +The number of securities remaining available for future +issuances have been reduced by the number of securities to be +issued upon exercise of outstanding options and restricted +shares subject to time vesting and certain market-based +performance goals over a specified period of time. +49 +Table of Contents +SHAREHOLDER +NOMINATIONS AND PROPOSALS +Advance +Notice Procedures +Under the Company’s By-Laws, no business may be brought +before an annual meeting of the Company unless it is specified +in the notice of the meeting or is otherwise brought before the +meeting by or at the direction of the Board or by a shareholder +entitled to vote who has delivered advance notice to the +Company. The notice must contain certain information specified +in the By-Laws and be delivered to the Corporate Secretary at +Petroleum Development Corporation, 1775 Sherman Street, +Suite 3000, Denver, Colorado 80203, not less than +80 days nor more than 90 days prior to the first +anniversary of the preceding year’s annual meeting. The +by-laws also provide that if the meeting is held more than +30 days before the anniversary of the prior year’s +annual meeting or 60 days after such anniversary then +notice can be given not later than the tenth day following the +day on which public announcement of the date of the annual +meeting is first made by the Company. These requirements are +separate from and in addition to the SEC’s requirements +that a shareholder must meet in order to have a shareholder +proposal included in the Company’s proxy statement pursuant +to +Rule 14a-8 +under the Exchange Act. Under federal proxy rules, if a +shareholder wishes to present such a proposal at the annual +meeting, but fails to notify the Company by the date required by +the Company’s By-Laws, the proxies solicited by the Board +will include discretionary authority to vote on the +shareholder’s proposal in the event the proposal is +properly brought before the meeting. +Shareholder +Proposals for 2011 Annual Meeting +In order to be included in the Company’s Proxy Statement +for the 2011 Annual Meeting of Shareholders, shareholder +proposals must be received by the Company at its principal +executive office on or prior to January 4, 2011. Proposals +should be addressed to: +Corporate Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +In addition, for any proposal that is not submitted for +inclusion in next year’s proxy statement, but is instead +sought to be presented directly at the 2011 Annual Meeting of +Shareholders, SEC rules permit management to vote proxies in its +discretion if the Company (1) receives written notice of +the proposal not later than March 16, 2011, nor earlier +than March 4, 2011, and advises shareholders in the 2011 +proxy statement about the nature of the matter and how +management intends to vote on the matter; or (2) does not +receive written notice of the proposal prior to the close of +business on March 16, 2011. Notices of intention to present +proposals at the 2011 annual meeting of shareholders should be +addressed to Corporate Secretary, Petroleum Development +Corporation, 1775 Sherman Street, Suite 3000, Denver, +Colorado 80203. +By Order of the Board of Directors, +Richard W. McCullough, +Chairman and Chief Executive Officer +Dated: April 30, 2010 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A +RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON +WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S +ANNUAL REPORT ON +FORM 10-K +FOR THE FISCAL YEAR +50 +Table of Contents +ENDED DECEMBER 31, 2009, INCLUDING FINANCIAL STATEMENTS AND +SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES +AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED BY WRITING TO +INVESTOR RELATIONS, PETROLEUM DEVELOPMENT CORPORATION, 1775 +SHERMAN STREET, SUITE 3000, DENVER, COLORADO. +51 +Table of Contents +EXHIBIT A +PETROLEUM +DEVELOPMENT CORPORATION +2010 LONG-TERM EQUITY COMPENSATION PLAN +APRIL 1, 2010 +Table of Contents +EXHIBIT A +TABLE +OF CONTENTS +Page +I. +ESTABLISHMENT, OBJECTIVES AND DURATION +A-1 +II. +DEFINITIONS +A-1 +III. +ADMINISTRATION +A-5 +IV. +SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS +A-5 +V. +ELIGIBILITY AND PARTICIPATION +A-7 +VI. +STOCK OPTIONS +A-7 +VII. +STOCK APPRECIATION RIGHTS +A-8 +VIII. +RESTRICTED STOCK +A-9 +IX. +RESTRICTED STOCK UNITS +A-12 +X. +PERFORMANCE UNITS AND PERFORMANCE SHARES +A-12 +XI. +PERFORMANCE MEASURES +A-13 +XII. +BENEFICIARY DESIGNATION +A-14 +XIII. +DEFERRALS +A-14 +XIV. +RIGHTS OF PARTICIPANTS +A-15 +XV. +AMENDMENT, MODIFICATION, TERMINATION AND ADJUSTMENTS +A-15 +XVI. +PAYMENT OF PLAN AWARDS AND CONDITIONS THEREON +A-15 +XVII. +CHANGE IN CONTROL +A-16 +XVIII. +TAX PROVISIONS +A-16 +XIX. +INDEMNIFICATION +A-17 +XX. +SUCCESSORS +A-17 +XXI. +LEGAL CONSTRUCTION +A-17 +A-i +Table of Contents +EXHIBIT A +PETROLEUM DEVELOPMENT CORPORATION +2010 LONG-TERM EQUITY COMPENSATION PLAN +APRIL 1, 2010 +I. ESTABLISHMENT, OBJECTIVES AND DURATION +A. ESTABLISHMENT OF THE PLAN. Petroleum +Development Corporation, a Nevada corporation (hereinafter +referred to as the “Company”), hereby adopts an +incentive compensation plan known as the “2010 Petroleum +Development Corporation Long-Term Equity Compensation Plan” +(hereinafter referred to as the “Plan”), as set forth +in this document. The Plan permits the grant of Nonqualified +Stock Options, Incentive Stock Options, Stock Appreciation +Rights, Restricted Stock, Restricted Stock Units, Performance +Shares and Performance Units. +Subject to approval by the Company’s stockholders, the Plan +shall become effective as of April 1, 2010 (the +“Effective Date”). The Plan shall remain in effect as +provided in Section I.C hereof. +B. OBJECTIVES OF THE PLAN. The objectives +of the Plan are to optimize the profitability and growth of the +Company through incentives which are consistent with the +Company’s goals and which link the personal interests of +Participants to those of the Company’s stockholders; to +provide Participants with an incentive for excellence in +individual performance; and to promote teamwork among +Participants. +It is also intended with respect to the Non-Employee Directors +of the Company that the Compensation Committee be able to choose +from among Awards of Non-Qualified Stock Options, Stock +Appreciation Rights, Restricted Stock and RSUs which will +(a) permit Non-Employee Directors to increase their +ownership and proprietary interest in the Company and enhance +their identification with the interests of the Company’s +stockholders, (b) provide a means of compensating +Non-Employee Directors that will help attract qualified +candidates to serve as Non-Employee Directors, and +(c) induce incumbent Non-Employee Directors to continue to +serve if the Board desires that they remain on the Board. +C. DURATION OF THE PLAN. The Plan shall +commence on the Effective Date, as described in Section I.A +hereof, and shall remain in effect, subject to the right of the +Board of Directors to amend or terminate the Plan at any time +pursuant to Article XV hereof, until all Shares subject to +it shall have been purchased or acquired according to the +Plan’s provisions. However, in no event may an Award be +granted under the Plan on or after April 1, 2020. +II. DEFINITIONS +Whenever used in the Plan, the following terms shall have the +meanings set forth below, and when the meaning is intended, the +initial letter of the word shall be capitalized: +A. “AFFILIATE” shall have the meaning +ascribed to such term in +Rule 12b-2 +of the General Rules and Regulations of the Exchange Act. +B. “AWARD” means, individually or +collectively, a grant under this Plan of Nonqualified Stock +Options, Incentive Stock Options, Stock Appreciation Rights, +Restricted Stock, Restricted Stock Units, Performance Shares or +Performance Units. +C. “AWARD AGREEMENT” means an agreement +entered into by the Company and each Participant setting forth +the terms and provisions applicable to Awards granted under this +Plan. +D. “BENEFICIAL OWNER” or +“BENEFICIAL OWNERSHIP” shall have the meaning +ascribed to such term in +Rule 13d-3 +of the General Rules and Regulations under the Exchange Act. +E. “BOARD” or “BOARD OF +DIRECTORS” means the Board of Directors of the Company. +A-1 +Table of Contents +F. “CHANGE IN CONTROL” shall be deemed to +have occurred as of the first day that any one or more of the +following conditions shall have been satisfied: +1. the “Beneficial Ownership” of securities as +defined in +Rule 13d-3 +under the Exchange Act representing more than thirty-three +percent (33%) of the combined voting power of the Company is +acquired by any “person” as defined in +Section 3(a)(9) of the Exchange Act (other than the +Company, any trustee or other fiduciary holding securities under +an employee benefit plan of the Company, or any corporation +owned, directly or indirectly, by the stockholders of the +Company in substantially the same proportions as their ownership +of stock of the Company); or +2. the consummation of a definitive agreement to merge or +consolidate the Company with or into another corporation or to +sell or otherwise dispose of all or substantially all of its +assets, or adopt a plan of liquidation; or +3. during any period of three consecutive years, +individuals who at the beginning of such period were members of +the Board cease for any reason to constitute at least a majority +thereof (unless the election, or the nomination for election by +the Company’s stockholders, of each new director was +approved by a vote of at least a majority of the directors then +still in office who were directors at the beginning of such +period or whose election or nomination was previously so +approved). +Notwithstanding the foregoing, with respect to any Award subject +to Code Section 409A, a “Change in Control” of +the Company is deemed to have occurred as of the first day that +any one or more of the following conditions shall have been +satisfied: +4. Change in Ownership : A change +in ownership of the Company occurs on the date that any one +person, or more than one person acting as a group, acquires +ownership of stock of the Company that, together with stock held +by such person or group, constitutes more than fifty percent +(50%) of the total fair market value or total voting power of +the stock of the Company, excluding the acquisition of +additional stock by a person or more than one person acting as a +group who is considered to own more than fifty percent (50%) of +the total fair market value or total voting power of the stock +of the Company. +5. Change in Effective Control : A +change in effective control of the Company occurs only on either +of the following dates: +a. The date any one person, or more than one person acting +as a group, acquires (or has acquired during the twelve +(12) month period ending in the date of the most recent +acquisition by such person or persons) ownership of stock of the +Company possessing 30% or more of the total voting power of the +stock of the Company; or +b. The date a majority of the members of the Board is +replaced during any (12) month period by directors whose +appointment or election is not endorsed by a majority of the +members of the board of directors before the date of the +appointment or election; provided that this paragraph +(b) shall apply only to the company for which no other +corporation is a majority shareholder. +6. Change in Ownership of Substantial +Assets : A change in the ownership of a +substantial portion of the Company’s assets occurs on the +date that any one person, or more than one person acting as a +group, acquires (or has acquired during the twelve +(12) month period ending on the date of the most recent +acquisition by such person or persons) assets from the Company +that have a total gross fair market value equal to or more than +ninety percent (90%) of the total gross fair market value of the +assets of the Company, or the value of the assets being disposed +of, determined without regard to any liabilities associated with +such assets. +A-2 +Table of Contents +It is the intent that this definition be construed to satisfy +the definition of “Change of Control” as defined under +Internal Revenue Code Section 409A and the applicable +Treasury Regulations, as amended from time to time. +G. “CODE” means the Internal Revenue Code +of 1986, as amended from time to time. +H. “COMMITTEE” means any committee +appointed by the Board to administer the Plan, as specified in +Article III herein. +I. “COMPANY” means Petroleum Development +Corporation, a Nevada corporation, including any and all +Subsidiaries, and any successor thereto as provided in +Article XX herein. +J. “COVERED EMPLOYEE” means a Participant +who, as of the date of vesting +and/or +payout of an Award, as applicable, is one of the group of +“covered employees,” as defined in Code +Section 162(m) and the regulations promulgated under Code +Section 162(m), or any successor statute. +K. “DIRECTOR” means any individual who is +a member of the Board of Directors of the Company or any +Subsidiary; provided, however, that any Director who is employed +by the Company shall be considered an Employee under the Plan. +L. “DISABILITY” with respect to any Award, +a Participant shall be considered Disabled if the +Participant — +1. is unable to engage in any substantial gainful activity +by reason of any medically determinable physical or mental +impairment which can be expected to result in death or can be +expected to last for a continuous period of not less than twelve +(12) months, or +2. is, by reason of any medically determinable physical or +mental impairment which can be expected to result in death or +can be expected to last for a continuous period of not less than +twelve (12) months, receiving income replacement benefits +for a period of not less than three (3) months under an +accident and health plan covering Employees of the Company. +M. “EFFECTIVE DATE” shall have the meaning +ascribed to such term in Section I.A hereof. +N. “EMPLOYEE” means any full-time, active +employee of the Company or its Subsidiaries. Directors who are +not employed by the Company shall not be considered Employees +under this Plan. +O. “EXCHANGE ACT” means the Securities +Exchange Act of 1934, as amended from time to time, or any +successor act thereto. +P. “FAIR MARKET VALUE” shall be determined +on the basis of the closing sale price at which Shares have been +sold regular way on the principal securities exchange on which +the Shares are traded or, if there is no such sale on the +relevant date, then on the last previous day on which there was +such a sale. +Q. “FREESTANDING SAR” means an SAR that is +granted independently of any Options, as described in +Article VII herein. +R. “INCENTIVE STOCK OPTION” or +“ISO” means an option to purchase Shares +granted under Article VI herein and which is designated as +an Incentive Stock Option and which is intended to meet the +requirements of Code Section 422. +S. “INSIDER” shall mean an individual who +is, on the relevant date, an officer, director or more than ten +percent (10%) Beneficial Owner of any class of the +Company’s equity securities that is registered pursuant to +Section 12 of the Exchange Act, all as defined under +Section 16 of the Exchange Act. +T. “NON-EMPLOYEE DIRECTOR” shall mean a +Director who is not also an Employee. +A-3 +Table of Contents +U. “NON-QUALIFIED STOCK OPTION” or +“NQSO” means an option to purchase Shares +granted under Article VI herein and which is not intended +to meet the requirements of Code Section 422. +V. “OPTION” means an Incentive Stock +Option or a Nonqualified Stock Option, as described in +Article VI herein. +W. “OPTION PRICE” means the price at which +a Share may be purchased by a Participant pursuant to an Option. +X. “PARTICIPANT” means: (1) an +Employee who has been selected to receive an Award or who has an +outstanding Award granted under the Plan; or (2) a +Non-Employee Director who has been selected to receive an Award +other than an Incentive Stock Option, Performance Share or +Performance Unit or who has an outstanding Award other than an +Incentive Stock Option, Performance Share or Performance Unit +granted under the Plan. +Y. “PERFORMANCE-BASED EXCEPTION” means the +performance-based exception from the tax deductibility +limitations of Code Section 162(m). +Z. “PERFORMANCE SHARE” means an Award +granted to a Participant (other than a Non-Employee Director), +as described in Article X herein, that shall have an +initial value equal to the Fair Market Value of a Share on the +date of grant. +AA. “PERFORMANCE UNIT” means an Award +granted to a Participant (other than a Non-Employee Director), +as described in Article X herein, that shall have an +initial value that is established by the Committee on the date +of grant. +BB. “PERIOD OF RESTRICTION” means the +period during which the transfer of Shares of Restricted Stock +or Restricted Stock Units is limited in some way (based on the +passage of time, the achievement of performance goals or upon +the occurrence of other events as determined by the Committee, +at its discretion, as specified in the Award Agreement), and the +Shares are subject to a substantial risk of forfeiture, as +provided in Article VIII and Article IX herein. +CC. “PERSON” shall have the meaning +ascribed to such term in Section 3(a)(9) of the Exchange +Act and used in Sections 13(d) and 14(d) thereof, including +a “group” as defined in Section 13(d) thereof. +DD. “RESTRICTED STOCK” means an Award +granted to a Participant pursuant to Article VIII herein. +EE. “RESTRICTED STOCK UNIT” or +“RSU” means an award granted to a Participant +pursuant to Article IX herein. +FF. “SEPARATION FROM SERVICE” means a +termination of employment or other separation from service as +described in Code Section 409A and the regulations +thereunder. +GG. “SHARES” means the shares of common +stock of the Company. +HH. “SPECIFIED EMPLOYEE” means, with +respect to the Company or any of its Subsidiaries, and +determined as of the date of an individual’s separation +from service from the Company (1) any officer during the +prior twelve (12) month period with annual compensation in +excess of $145,000 (as adjusted from time to time under the +Code), (2) a 5-percent owner of the Company’s +outstanding equity stock during the prior twelve (12) month +period or (3) a 1-percent owner of the Company’s +outstanding equity stock during the prior (12) month period +with annual compensation in excess of $150,000 (as adjusted from +time under Code), provided that the Company or any of its +Subsidiaries is publicly-traded within the meaning of Code +Section 409A on the date of determination. +II. “STOCK APPRECIATION RIGHT” or +“SAR” means an Award, granted alone or, in +connection with a related Option, designated as an SAR, pursuant +to the terms of Article VII herein. +A-4 +Table of Contents +JJ. “SUBSIDIARY” means any corporation, +partnership, joint venture or other entity in which the Company +has a majority voting interest (including all divisions, +affiliates and related entities). +KK. “TANDEM SAR” means an SAR that is +granted in connection with a related Option pursuant to +Article VII herein, the exercise of which shall require +forfeiture of the right to purchase a Share under the related +Option (and when a Share is purchased under the Option, the +Tandem SAR shall similarly be canceled). +III. ADMINISTRATION +A. THE COMMITTEE. The Plan shall be +administered by the Committee of the Board consisting of not +less than two Directors who meet the “Non-Employee +Director” requirements of +Rule 16b-3 +promulgated by the Securities and Exchange Commission under the +Exchange Act, the “Independent Director” requirements +of Nasdaq Listing Rule 5605(a), and the outside director +requirements of Code Section 162(m), or by any other +committee appointed by the Board, provided the members of such +committee meet such requirements. +B. AUTHORITY OF THE +COMMITTEE. Except as limited by law or by the +Articles of Incorporation or Bylaws of the Company, and subject +to the provisions herein, the Committee shall have full power to +select Employees and Non-Employee Directors who shall +participate in the Plan; determine the sizes and types of +Awards; determine the terms and conditions of Awards in a manner +consistent with the Plan; construe and interpret the Plan and +any agreement or instrument entered into under the Plan; +establish or amend rules and regulations for the Plan’s +administration; and (subject to the provisions of +Article XV herein) amend the terms and conditions of any +outstanding Award to the extent such terms and conditions are +within the discretion of the Committee as provided in the Plan. +Further, the Committee is empowered hereby to make all other +determinations which may be necessary or advisable for the +administration of the Plan. As permitted by law, the Committee +may delegate its authority as identified herein. +C. DECISIONS BINDING. All +determinations and decisions made by the Committee pursuant to +the provisions of the Plan and all related orders and +resolutions of the Board shall be final, conclusive and binding +on all persons, including the Company, its stockholders, +Directors, Employees, Participants and their estates and +beneficiaries. +IV. SHARES SUBJECT TO THE PLAN AND MAXIMUM +AWARDS +A. NUMBER OF SHARES AVAILABLE FOR +GRANTS. Subject to Sections IV.B and IV.C +herein, the maximum number of Shares with respect to which +Awards may be granted to Participants under the Plan shall be +One Million Four Hundred Thousand (1,400,000). Shares issued +under the Plan may be either authorized but unissued Shares, +treasury Shares or any combination thereof. +Unless and until the Committee determines that an Award to a +Covered Employee is not designed to comply with the +Performance-Based Exception, the following rules shall apply to +grants of Awards to Covered Employees under the Plan, subject to +Sections IV.B and IV.C. +1. STOCK OPTIONS: The maximum +aggregate number of Shares that may be subject to Stock Options +granted in any one fiscal year to any one Participant shall be +two hundred thousand (200,000). +2. SARs: The maximum aggregate +number of Shares that may be granted in the form of SARs granted +in any one fiscal year to any one Participant shall be two +hundred thousand (200,000). +3. RESTRICTED STOCK: The maximum +aggregate grant with respect to Awards of Restricted Stock which +are granted in any one fiscal year to any one Participant shall +be one hundred thousand (100,000) Shares. +4. RESTRICTED STOCK UNITS: The +maximum aggregate payment (determined as of the date of grant) +with respect to Awards of RSUs granted in any one fiscal year to +any one Participant shall be equal to the Fair Market Value of +one hundred thousand (100,000) Shares; provided, however, that +the maximum aggregate grant of Restricted Stock and RSUs for any +one fiscal year shall be coordinated so +A-5 +Table of Contents +that in no event shall any one Participant be awarded more than +the Fair Market Value of one hundred thousand (100,000) Shares +taking into account all such grants. +5. PERFORMANCE SHARES: The maximum +aggregate payout (determined as of the event of the applicable +performance period) with respect to Awards of Performance Shares +which are granted in any one fiscal year to any one Participant +shall be equal to the Fair Market Value of one hundred fifty +thousand (150,000) Shares. +6. PERFORMANCE UNITS: The maximum +aggregate payout (determined as of the end of the applicable +performance period) with respect to Awards of Performance Units +which are granted in any one fiscal year to any one Participant +shall be equal to one million five hundred thousand dollars +($1,500,000). +B. ADJUSTMENTS FOR AWARDS AND +PAYOUTS. Unless determined otherwise by the +Committee, the following Awards and payouts will reduce, on a +one-for-one basis, the number of Shares available for issuance +under the Plan: +1. An Award of an Option; +2. An Award of a SAR; +3. An Award of Restricted Stock; +4. A payout of a Performance Share Award in Shares; and +5. A payout of a Performance Units Award in Shares. +Unless determined otherwise by the Committee, unless a +Participant has received a benefit of ownership such as dividend +or voting rights with respect to the Award, the following +transactions will restore, on a one-for-one basis, the number of +Shares available for issuance under the Plan: +1. A payout of a SAR or a Tandem SAR in cash; +2. A cancellation, termination, expiration, forfeiture or +lapse for any reason (with the exception of the termination of a +Tandem SAR upon exercise of the related Options, or the +termination of a related Option upon exercise of the +corresponding Tandem SAR) of any Award payable in Shares; +3. Shares tendered in payment of the exercise price of an +Option; +4. Shares withheld for payment of federal, state or local +taxes; +5. Shares repurchased by the Company with proceeds +collected in connection with the exercise of outstanding +Options; and +6. The net Shares issued in connection with the +exercise of SARs (as opposed to the full number of Shares +underlying the exercised portion of the SAR). +C. ADJUSTMENTS IN AUTHORIZED +SHARES. In the event of any change in corporate +capitalization such as a stock split or stock dividend, or a +corporate transaction such as any merger, consolidation, +separation, including a spin-off, or other distribution of stock +or property of the Company, any reorganization (whether or not +such reorganization comes within the definition of such term in +Code Section 368) or any partial or complete +liquidation of the Company, such adjustment shall be made in the +number and class of Shares which are reserved and may be +delivered under Section IV.A, in the number and class of +and/or price +of Shares subject to outstanding Awards granted under the Plan, +and in the Award limits set forth in subsections IV.A.1 through +IV.A.6, inclusive as may be determined to be appropriate and +equitable by the Committee, in its sole discretion, to prevent +dilution or enlargement of rights; provided, however, that the +number of Shares subject to any Award shall always be a whole +number. +A-6 +Table of Contents +V. ELIGIBILITY AND PARTICIPATION +A. ELIGIBILITY. Persons eligible to +participate in this Plan include officers and certain key +salaried Employees of the Company with potential to contribute +to the success of the Company or its Subsidiaries, including +Employees who are members of the Board. Notwithstanding the +foregoing, Non-Employee Directors of the Company shall be +eligible to participate in the Plan with respect to Awards of +Non-Qualified Stock Options, Stock Appreciation Rights, +Restricted Stock and RSUs, as specified in Article VI, +Article VII, Article VIII and Article IX. Except +as otherwise specifically provided in this Plan, the Committee +shall determine the terms and conditions of any such Awards to +Non-Employee Directors, including the terms and conditions which +shall apply upon a termination of the Non-Employee +Director’s service as a member of the Board, and shall have +full power and authority in its discretion to administer such +Awards, subject to the terms of the Plan and applicable law. +B. ACTUAL PARTICIPATION. Subject to +the provisions of the Plan, the Committee may, from time to +time, select in its sole and broad discretion, upon or without +the recommendation of officers of the Company, from all eligible +Employees those to whom Awards shall be granted, and shall +determine the nature and amount of each Award. +VI. STOCK OPTIONS +A. GRANT OF OPTIONS. Subject to the +terms and provisions of the Plan, Options may be granted to +Participants in such number, and upon such terms, and at any +time and from time to time as shall be determined by the +Committee. For purposes of this Article VI, with respect to +NQSOs only, the term “Participant” shall include +Non-Employee Directors of the Company. +B. AWARD AGREEMENT. Each Option +grant shall be evidenced by an Award Agreement that shall +specify the Option Price, the duration of the Option, the number +of Shares to which the Option pertains, and such other +provisions as the Committee shall determine. The Award Agreement +also shall specify whether the Option is intended to be an ISO +within the meaning of Code Section 422, or an NQSO, whose +grant is intended not to fall under the provisions of Code +Section 422. +C. OPTION PRICE. The Option Price +for each grant of an Option under this Plan shall be at least +equal to one hundred percent (100%) of the Fair Market Value of +a Share on the date the Option is granted. Notwithstanding the +foregoing, no ISO shall be granted to any person who, +immediately prior to the grant, owns stock possessing more than +ten percent (10%) of the total combined voting power of all +classes of stock of the Company, unless the Option Price is at +least one hundred ten percent (110%) of the Fair Market Value of +a Share on the date of grant of the Option. +D. DURATION OF OPTIONS. Each Option +granted to a Participant shall expire at such time as the +Committee shall determine at the time of grant; provided, +however, that no Option shall be exercisable later than the +tenth (10th) anniversary following the date of its grant and +provided further that no Option that is an ISO shall be +exercisable later than the fifth (5th) anniversary following the +date of its grant to a Participant, who at the time of such +grant owns stock possessing more than ten percent (10%) of the +total combined voting power of all classes of stock of the +Company. +E. EXERCISE OF OPTIONS. Options +granted under this Article VI shall be exercisable at such +times and be subject to such restrictions and conditions as the +Committee shall in each instance approve, which need not be the +same for each grant or for each Participant. +F. PAYMENT. Options granted under +this Article VI shall be exercised by the delivery of a +written notice of exercise to the Company, setting forth the +number of Shares with respect to which the Option is to be +exercised, accompanied by full payment for the Shares. +The Option Price upon exercise of any Option shall be payable to +the Company in full either: (a) in cash or its equivalent; +or (b) by tendering previously acquired Shares having an +aggregate Fair Market Value at the time of exercise equal to the +total Option Price (provided that the Shares which are tendered +must have been held by the Participant for at least six months +prior to their tender to satisfy the Option Price); or +(c) by a combination of (a) and (b). +A-7 +Table of Contents +The Committee may also (a) allow cashless exercise as +permitted under Federal Reserve Board’s Regulation T, +subject to applicable securities law restrictions, +(b) cashless exercise by the Participant by the +Company’s withholding of Shares issuable upon exercise of +an Option, or (c) by any other means which the Committee +determines to be consistent with the Plan’s purpose and +applicable law. +Subject to any governing rules or regulations, as soon as +practicable after receipt of a written notification of exercise +and full payment, the Company shall deliver to the Participant, +in the Participant’s name, Share certificates in an +appropriate amount based upon the number of Shares purchased +under the Option(s). +G. RESTRICTIONS ON SHARE +TRANSFERABILITY. The Committee may impose such +restrictions on any Shares acquired pursuant to the exercise of +an Option granted under this Article VI as it may deem +advisable, including, without limitation, restrictions under +applicable federal securities laws, under the requirements of +any stock exchange or market upon which such Shares are then +listed +and/or +traded, and under any blue sky or state securities laws +applicable to such Shares. +H. TERMINATION OF EMPLOYMENT BY A PARTICIPANT WHO +IS AN EMPLOYEE. With respect to a Participant who +is an Employee, each Option Award Agreement shall set forth the +extent to which the Participant shall have the right to exercise +the Option following termination of the Participant’s +employment with the Company, with the exception of a termination +of employment after a Change in Control, which is controlled by +Article XVII. Such provisions shall be determined in the +sole discretion of the Committee but shall conform to the +limitations established in Section VI.D, shall be included +in the Award Agreement entered into with each Participant, need +not be uniform among all Options issued pursuant to this +Article VI, and may reflect distinctions based on the +reasons for termination of employment. +I. NONTRANSFERABILITY OF OPTIONS. +1. INCENTIVE STOCK OPTIONS. No ISO +granted under the Plan may be sold, transferred, pledged, +assigned or otherwise alienated or hypothecated, other than by +will or by the laws of descent and distribution. Further, all +ISOs granted to a Participant under the Plan shall be +exercisable during his or her lifetime only by such Participant +or the Participant’s legal representative (to the extent +permitted under Code Section 422). +2. NONQUALIFIED STOCK OPTIONS. No +NQSO granted under this Article VI may be sold, +transferred, pledged, assigned or otherwise alienated or +hypothecated, other than by will or by the laws of descent and +distribution. Further, except as otherwise provided in a +Participant’s Award Agreement, all NQSOs granted to a +Participant under this Article VI shall be exercisable +during his or her lifetime only by such Participant or the +Participant’s legal representative. +VII. STOCK APPRECIATION RIGHTS +A. GRANT OF SARS. Subject to the +terms and conditions of the Plan, SARs may be granted to +Participants at any time and from time to time as shall be +determined by the Committee. The Committee may grant +Freestanding SARs, Tandem SARs or any combination of these forms +of SAR. For purposes of this Article VII, the term +“Participant” shall include Non-Employee Directors of +the Company; provided, however, that a Tandem SAR may not be +granted to a Non-Employee Director unless the related Option is +a NQSO. +The Committee shall have complete discretion in determining the +number of SARs granted to each Participant (subject to +Article IV herein) and, consistent with the provisions of +the Plan, in determining the terms and conditions pertaining to +such SARs. +The grant price of a Freestanding SAR shall equal the Fair +Market Value of a Share on the date of grant of the SAR. The +grant price of Tandem SARs shall equal the Option Price of the +related Option. +B. EXERCISE OF TANDEM SARS. Tandem +SARs may be exercised for all or part of the Shares subject to +the related Option upon the surrender of the right to exercise +the equivalent portion of the +A-8 +Table of Contents +related Option. A Tandem SAR may be exercised only with respect +to the Shares for which its related Option is then exercisable. +Notwithstanding any other provision of this Plan to the +contrary, with respect to a Tandem SAR granted to an Employee in +connection with an ISO: (i) the Tandem SAR will expire no +later than the expiration of the underlying ISO; (ii) the +value of the payout with respect to the Tandem SAR may be for no +more than one hundred percent (100%) of the difference between +the Option Price of the underlying ISO and the Fair Market Value +of the Shares subject to the underlying ISO at the time the +Tandem SAR is exercised; and (iii) the Tandem SAR may be +exercised only when the Fair Market Value of the Shares subject +to the ISO exceeds the Option Price of the ISO. +C. EXERCISE OF FREESTANDING +SARS. Freestanding SARs may be exercised upon +whatever terms and conditions the Committee, in its sole +discretion, imposes upon them. +D. SAR AGREEMENT. Each SAR grant +shall be evidenced by an Award Agreement that shall specify the +grant price, the term of the SAR, and such other provisions as +the Committee may determine. +E. TERM OF SARS. The term of an SAR +granted under the Plan shall be determined by the Committee, in +its sole discretion; provided, however, that such term shall not +exceed ten (10) years. +F. PAYMENT OF SAR AMOUNT. Upon +exercise of an SAR, a Participant shall be entitled to receive +payment from the Company in an amount determined by multiplying: +1. the difference between the Fair Market Value of a Share +on the date of exercise over the grant price; by +2. the number of Shares with respect to which the SAR is +exercised. +At the discretion of the Committee, the payment upon SAR +exercise may be in cash, in Shares of equivalent value, or in +some combination thereof. The Committee’s determination +regarding the form of SAR payout shall be set forth in the Award +Agreement pertaining to the grant of the SAR. +G. TERMINATION OF EMPLOYMENT BY A PARTICIPANT WHO +IS AN EMPLOYEE. With respect to a Participant who +is an Employee, each SAR Award Agreement shall set forth the +extent to which the Participant shall have the right to exercise +the SAR following termination of the Participant’s +employment with the Company +and/or its +Subsidiaries, with the exception of a termination of employment +that occurs after a Change in Control, which is controlled by +Article XVII. Such provisions shall be determined in the +sole discretion of the Committee, shall be included in the Award +Agreement entered into with Participants, need not be uniform +among all SARs issued pursuant to the Plan and may reflect +distinctions based on the reasons for termination of employment. +H. NONTRANSFERABILITY OF SARS. No +SAR granted under the Plan may be sold, transferred, pledged, +assigned or otherwise alienated or hypothecated, other than by +will or by the laws of descent and distribution. Further, except +as otherwise provided in a Participant’s Award Agreement, +all SARs granted to a Participant under the Plan shall be +exercisable during his or her lifetime only by such Participant +or the Participant’s legal representative. +VIII. RESTRICTED STOCK +A. GRANT OF RESTRICTED +STOCK. Subject to the terms and provisions of the +Plan, the Committee, at any time and from time to time, may +grant Shares of Restricted Stock to Participants in such amounts +as the Committee shall determine. For purposes of this +Article VIII, the term “Participant” shall +include Non-Employee Directors of the Company. +B. RESTRICTED STOCK AGREEMENT. Each +Restricted Stock grant shall be evidenced by a Restricted Stock +Award Agreement that shall specify the Period(s) of Restriction, +the number of Shares of Restricted Stock granted and such other +provisions as the Committee shall determine. +C. NONTRANSFERABILITY. Except as +provided in this Article VIII and subject to federal +securities laws, the Shares of Restricted Stock granted under +the Plan may not be sold, transferred, pledged, +A-9 +Table of Contents +assigned or otherwise alienated or hypothecated until the end of +the applicable Period of Restriction established by the +Committee and specified in the Restricted Stock Award Agreement, +or upon earlier satisfaction of any other conditions, as +specified by the Committee in its sole discretion and as set +forth in the Restricted Stock Award Agreement. All rights with +respect to the Restricted Stock granted to a Participant under +the Plan shall be available during his or her lifetime only to +such Participant or the Participant’s legal representative +for the Period of Restriction. +D. OTHER RESTRICTIONS. Subject to +Article XI herein, the Committee may impose such other +conditions +and/or +restrictions on any Shares of Restricted Stock granted pursuant +to the Plan as it may deem advisable including, without +limitation, a requirement that Participants pay a stipulated +purchase price for each Share of Restricted Stock, restrictions +based upon the achievement of specific performance goals +(Company-wide, divisional +and/or +individual), time-based restrictions on vesting following the +attainment of the performance goals +and/or +restrictions under applicable federal or state securities laws. +The Company may retain the certificates representing Shares of +Restricted Stock in the Company’s possession until such +time as all conditions +and/or +restrictions applicable to such Shares have been satisfied. +Except as otherwise provided in this Article VIII and +subject to Federal securities laws, Shares of Restricted Stock +covered by each Restricted Stock grant made under the Plan shall +become freely transferable by the Participant after the last day +of the applicable Period of Restriction. +E. VOTING RIGHTS. Participants +holding Shares of Restricted Stock granted hereunder may be +granted the right to exercise full voting rights with respect to +those Shares during the Period of Restriction. +F. DIVIDENDS AND OTHER +DISTRIBUTIONS. During the Period of Restriction, +Participants holding Shares of Restricted Stock granted +hereunder shall be credited with regular cash dividends paid +with respect to the underlying Shares while they are so held. +The Committee may apply any restrictions to the dividends that +the Committee deems appropriate. Without limiting the generality +of the preceding sentence, if the grant or vesting of Restricted +Stock granted to a Covered Employee is designed to comply with +the requirements of the Performance-Based Exception, the +Committee may apply any restrictions it deems appropriate to the +payment of dividends declared with respect to such Restricted +Stock, such that the dividends +and/or the +Restricted Stock maintain eligibility for the Performance-Based +Exception. Notwithstanding anything to the contrary herein, +(i) dividends accrued on Restricted Stock will only be paid +if the Restricted Stock vests; and (ii) for any Award that +is governed by Code Section 409A regarding non-qualified +deferred compensation, the Committee shall establish the +schedule of any payments of dividends in accordance with the +requirements of Code Section 409A or any guidance +promulgated thereunder. +G. TERMINATION OF EMPLOYMENT BY A PARTICIPANT WHO +IS AN EMPLOYEE. With respect to a Participant who +is an Employee, each Restricted Stock Award Agreement shall set +forth the extent to which the Participant shall have the right +to receive nonvested Restricted Shares following termination of +the Participant’s employment with the Company. Such +provisions shall be determined in the sole discretion of the +Committee, shall be included in the Award Agreement entered into +with each Participant, need not be uniform among all Shares of +Restricted Stock issued pursuant to the Plan and may reflect +distinctions based on the reasons for termination of employment. +H. VESTING OF RESTRICTED STOCK +AWARDS. Unless otherwise provided in the Plan or +under an Award Agreement: (1) all Awards of Restricted +Stock that vest based on the passage of time which are granted +to a Participant shall vest no more rapidly than pro-rata over a +three (3) year period from the date of grant (the +“Time-Based Restricted Stock”); and (2) all +Awards of Restricted Stock that vest based on the achievement of +specific measures designed to satisfy the Performance-Based +Exception or other performance measures which are granted to a +Participant shall vest no more rapidly than one (1) year +from the date of grant (the “Performance-Based Restricted +Stock”); provided, however: (1) up to ten percent +(10%) of the Time-Based Restricted Stock Awards, +Performance-Based Restricted Stock Awards, +A-10 +Table of Contents +or both, may by designation of the Committee (as reflected in +the Restricted Stock Award Agreement), be subject to a more +accelerated time-based vesting schedule or performance-based +vesting schedule, as the case may be; and (2) Restricted +Stock Awards which fully vest upon certain termination events as +determined by the Committee and specified in the Employee’s +Restricted Stock Award Agreement (or as a result of termination +from the Board as a Non-Employee Director pursuant to +Section VIII.I.3.f.) or a Change in Control shall not count +as part of this ten percent (10%) pool. +I. ADDITIONAL PROVISIONS RELATED TO RESTRICTED +STOCK AWARDS TO NON-EMPLOYEE DIRECTORS. +1. AWARD DATES. Effective as of the +date specified by the Committee in its sole discretion, each +Non-Employee Director will be awarded such number of Shares of +Restricted Stock as determined by the Board, after consideration +of the recommendation of the Committee. Non-Employee Directors +may, but need not, be awarded the same number of Shares of +Restricted Stock. A Non-Employee Director who is first elected +to the Board on a date subsequent to the date specified by the +Committee in its sole discretion will be awarded such number of +Shares of Restricted Stock as of such date of election as +determined by the Board, after consideration of the +recommendation of the Committee. +2. DIVIDEND RIGHTS OF HOLDERS OF RESTRICTED +STOCK. Notwithstanding Section VIII.F., upon +issuance of a Restricted Stock Agreement, the Non-Employee +Director in whose name the Restricted Stock Agreement is +registered will, subject to the provisions of the Plan have the +right to receive cash dividends and other cash distributions +thereon. +3. PERIOD OF +RESTRICTION. Restricted Stock will be subject to +the restrictions set forth in Section VIII.I.4. and the +other provisions of the Plan during the Period of Restriction +commencing on the date as of which the Restricted Stock is +awarded (the “Award Date”) and ending on the earliest +of the first to occur of the following: +a. the retirement of the Non-Employee Director from the +Board in compliance with the Board’s retirement policy as +then in effect; +b. the termination of the Non-Employee Director’s +service on the Board as a result of the Non-Employee +Director’s not being nominated for reelection by the Board; +c. the termination of the Non-Employee Director’s +service on the Board because of the Non-Employee Director’s +resignation or failure to stand for reelection with the consent +of the Company’s Board (which means approval by at least +80% of the Directors voting, with the affected Non-Employee +Director abstaining); +d. the termination of the Non-Employee Director’s +service on the Board because the Non-Employee Director, although +nominated for reelection by the Board, is not reelected by the +stockholders; +e. the termination of the Non-Employee Director’s +service on the Board because of (i) the Non-Employee’s +Director’s resignation at the request of the Nominating and +Governance Committee of the Board (or successor committee), +(ii) the Non-Employee Director’s removal by action of +the stockholders or by the Board, or (iii) a Change in +Control of the Company; +f. the termination of the Non-Employee Director’s +service on the Board because of Disability or death; or +g. the vesting of the Restricted Stock. +Section VIII.I.3.a. through g. above are subject to the +further restrictions that a removal or resignation for +“Cause” will be deemed to not constitute completion of +the Period of Restriction and will result in a forfeiture of +Restricted Stock not previously vested under Section VIII.I.4. +For purposes of this Plan, “Cause” will be a good +faith determination by the Board that the Non-Employee Director +(i) failed to substantially perform his or her duties +(other than a failure resulting from his or her incapacity due +to physical or mental illness) after a written demand for +substantial performance has been delivered to him +A-11 +Table of Contents +or her by the Board, which demand specifically identifies the +manner in which the Board believes such Non-Employee Director +has not substantially performed his or her duties; (ii) has +engaged in conduct the consequences of which are materially +adverse to the Company, monetarily or otherwise; or +(iii) has pleaded guilty or nolo contendere to or +been convicted of a felony. The Non-Employee Director will not +be deemed to have been terminated for Cause unless there will +have been delivered to the Non-Employee Director a letter from +the Board setting forth the reasons for the Company’s +termination of the Non-Employee Director for Cause and, with +respect to (i) or (ii), stating that the Non-Employee +Director has failed to cure such reason for termination within +thirty (30) days after the Non-Employee Director’s +receipt of such notice. +4. FORFEITURE OF RESTRICTED +STOCK. As of the date (“Termination +Date”) a Non-Employee Director ceases to be a member of the +Board for any reason, including but not limited to removal or +resignation for Cause, the Non-Employee Director shall forfeit +to the Company all Restricted Stock awarded to the Non-Employee +Director for which the Period of Restriction has not ended +pursuant to Section VIII.I.3. as of or prior to the +Termination Date. +IX. RESTRICTED STOCK UNITS +A. GRANT OF RESTRICTED STOCK +UNITS. Subject to the terms of the Plan, RSUs may +be granted to Participants in such amounts and upon such terms, +and at any time and from time to time, as shall be determined by +the Committee. For purposes of this Article IX, the term +“Participant” shall include Non-Employee Directors of +the Company. +B. RESTRICTED STOCK UNIT +AGREEMENT. Each RSU grant shall be evidenced by a +Restricted Stock Unit Award Agreement that shall specify the +Period(s) of Restriction, the number of RSUs granted, and such +other provisions as the Committee may determine. +C. VALUE OF RESTRICTED STOCK +UNIT. Each RSU shall have a value that is equal +to the Fair Market Value of a Share on the date of grant. +D. FORM AND TIMING OF PAYMENT OF RESTRICTED +STOCK UNITS. Settlement of vested RSUs may be +made in the form of (i) cash, (ii) Shares or +(iii) any combination of both, as determined by the +Committee at the time of the grant of the RSUs, in its sole +discretion. Vested RSUs shall be settled in a lump sum as soon +as administratively practicable after the vesting date, but in +no event later than two and one-half +(2 1 / 2 ) +months following the vesting date. The amount of such settlement +shall be equal to the Fair Market Value of the RSUs on the +vesting date. +E. DIVIDEND EQUIVALENTS. Each RSU +shall be credited with an amount equal to the dividends paid on +a Share between the date of grant and the date such RSU is paid +to the Participant (if at all). Dividend equivalents shall vest, +if at all, upon the same terms and conditions governing the +vesting of RSUs under the Plan. Payment of the dividend +equivalent shall be made at the same time as payment of the RSU +and shall be made without interest or other adjustment. If the +RSU is forfeited, the Participant shall have no right to +dividend equivalents. +F. VOTING RIGHTS. The holders of +RSUs shall have no voting rights. +G. NONTRANSFERABILITY. RSUs may not +be sold, transferred, pledged, assigned, or otherwise alienated +or hypothecated, other than by will or by laws of descent and +distribution. +X. PERFORMANCE UNITS AND PERFORMANCE SHARES +A. GRANT OF PERFORMANCE +UNITS/SHARES. Subject to the terms of the Plan, +Performance Units +and/or +Performance Shares may be granted to Participants in such +amounts and upon such terms, and at any time and from time to +time, as shall be determined by the Committee. +B. PERFORMANCE UNIT/SHARE +AGREEMENT. Each Performance Unit or Performance +Share grant shall be evidenced by a Performance Unit or +Performance Share Award Agreement, as the case may be, that +shall specify the number of Performance Units or Performance +Shares granted and such other provisions as the Committee may +determine. +A-12 +Table of Contents +C. VALUE OF PERFORMANCE +UNITS/SHARES. Each Performance Unit shall have an +initial value that is established by the Committee at the time +of grant. Each Performance Share shall have an initial value +equal to the Fair Market Value of a Share on the date of grant. +The Committee shall set performance goals in its discretion +which, depending on the extent to which they are met, will +determine the number +and/or value +of Performance Units/Shares that will be paid out to the +Participant. For purposes of this Article X, the time +period during which the performance goals must be met shall be +called a “Performance Period.” +D. EARNING OF PERFORMANCE +UNITS/SHARES. Subject to the terms of this Plan, +after the applicable Performance Period has ended, the holder of +Performance Units/Shares shall be entitled to receive payout on +the number and value of Performance Units/Shares earned by the +Participant over the Performance Period, to be determined as a +function of the extent to which the corresponding performance +goals have been achieved. +E. FORM AND TIMING OF PAYMENT OF PERFORMANCE +UNITS/SHARES. Payment of earned Performance +Units/Shares shall be made in a single lump sum following the +close of the applicable Performance Period. Subject to the terms +of this Plan, the Committee, in its sole discretion, may pay +earned Performance Units/Shares in the form of cash or in Shares +(or in a combination thereof) which have an aggregate Fair +Market Value equal to the value of the earned Performance +Units/Shares at the close of the applicable Performance Period. +Such Shares may be granted subject to any restrictions deemed +appropriate by the Committee. The determination of the Committee +with respect to the form of payout of such Awards shall be set +forth in the Award Agreement pertaining to the grant of the +Award. Payment shall be made no later than two and one-half +(2 1 / 2 ) +months following the close of the Performance Period. +F. SEPARATION FROM SERVICE DUE TO DEATH OR +DISABILITY. In the event the Participant incurs a +Separation From Service by reason of death or Disability during +a Performance Period, the Participant shall not receive a payout +of the Performance Units/Shares, unless determined otherwise by +the Committee or set forth in the Participant’s Award +Agreement. +Payment of earned Performance Units/Shares shall be made at a +time specified by the Committee in its sole discretion and set +forth in the Participant’s Award Agreement. +G. TERMINATION OF EMPLOYMENT FOR OTHER +REASONS. In the event that a Participant’s +employment terminates for any reason other than those reasons +set forth in Section X.F. herein, all Performance +Units/Shares intended to qualify for the Performance-Based +Exception shall be forfeited by the Participant to the Company. +H. NONTRANSFERABILITY. Except as +otherwise provided in a Participant’s Award Agreement, +Performance Units/Shares may not be sold, transferred, pledged, +assigned or otherwise alienated or hypothecated, other than by +will or by the laws of descent and distribution. Further, except +as otherwise provided in a Participant’s Award Agreement, a +Participant’s rights under the Plan shall be exercisable +during the Participant’s lifetime only by the Participant +or the Participant’s legal representative. +I. NO DIVIDEND AND VOTING +RIGHTS. Participants will not be entitled to +receive any dividends declared with respect to Shares which have +been earned in connection with grants of Performance Units +and/or +Performance Shares, but not yet distributed to Participants nor +shall Participants have voting rights with respect to such +Shares. +XI. PERFORMANCE MEASURES +Unless and until the Committee proposes for stockholder vote and +the Company’s stockholders approve a change in the general +performance measures set forth in this Article XI, the +attainment of which may determine the degree of payout +and/or +vesting with respect to Awards to Covered Employees which +measures are designed to qualify for the Performance-Based +Exception, the performance measure(s) to be used for purposes of +such grants may be measured at the Company level, at a +Subsidiary or Affiliate level, or at an operating unit level and +shall be chosen from among the following: net income +A-13 +Table of Contents +either before or after taxes (including adjusted net income), +share price, earnings per share (basic or diluted), total +stockholder return, return on assets, return on equity, +operating income, return on capital or investment, cash flow or +adjusted cash flow from operations, economic value added or +adjusted cash flow per Share (net income plus or minus change in +operating assets and liabilities), debt level, cost reduction +targets, equity ratios, capital efficiency (adjusted EBITDA +divided by production and divided by average funding and +development cost per unit), operating and general and +administrative expense per Mcfe (the sum of total lease +operating expense, exploration general and administrative +expense and corporate general and administrative expense divided +by Mcfe (mcf equivalent for gas and oil)), average reserve +replacement ratio (the sum of extensions and discoveries, +revisions in previous estimates and purchase of reserves divided +by the sum of the same), production (actual production volume +for a specified period of time) (including, but not limited to, +any or all of such measures in comparison to the Company’s +competitors, the industry or some other comparator group), +amount of the oil and gas reserves, oil and gas reserve +additions, and costs of finding oil and gas reserves. +The Committee shall have the discretion to adjust the +determinations of the degree of attainment of the preestablished +performance goals; provided, however, that Awards which are +designed to qualify for the Performance-Based Exception, and +which are held by Covered Employees, may not be adjusted upward +(the Committee shall retain the discretion to adjust such Awards +downward). +In the event that applicable tax +and/or +securities laws or exchange listing standards change to permit +Committee discretion to alter the governing performance measures +without obtaining stockholder approval of such changes, the +Committee shall have sole discretion to make such changes +without obtaining stockholder approval. In addition, in the +event that the Committee determines that it is advisable to +grant Awards which shall not qualify for the Performance-Based +Exception, the Committee may make such grants without satisfying +the requirements of Code Section 162(m). +In the case of any Award which is granted subject to the +condition that a specified performance measure be achieved, no +payment under such Award shall be made prior to the time that +the Committee certifies in writing that the performance measure +has been satisfied, in accordance with Internal Revenue Service +requirements. No such certification is required, however, in the +case of an Award that is based solely on an increase in the +value of a Share from the date such Award was made. +XII. BENEFICIARY DESIGNATION +Each Participant under the Plan may, from time to time, name any +beneficiary or beneficiaries (who may be named contingently or +successively) to whom any benefit under the Plan is to be paid +in case of his or her death before he or she receives any or all +of such benefit. Each such designation shall revoke all prior +designations by the same Participant, shall be in a form +prescribed by the Company, and will be effective only when filed +by the Participant in writing with the Company during the +Participant’s lifetime. In the absence of any such +designated beneficiary, benefits remaining unpaid at the +Participant’s death shall be paid to the Participant’s +estate. +XIII. DEFERRALS +The Committee may permit or require a Participant to defer such +Participant’s receipt of the payment of cash or the +delivery of Shares that would otherwise be due to such +Participant by virtue of the exercise of an Option or SAR, the +lapse or waiver of restrictions with respect to Restricted Stock +or Restricted Stock Units, or the satisfaction of any +requirements or goals with respect to Performance Units/Shares. +If any such deferral election is required or permitted, the +Committee shall, in its sole discretion, establish rules and +procedures for such payment deferrals, provided, however, all +deferrals shall be made in accordance with all applicable +requirements of Code Section 409A or any guidance +promulgated thereunder. +A-14 +Table of Contents +XIV. RIGHTS OF EMPLOYEES +A. EMPLOYMENT. Nothing in the Plan +shall interfere with or limit in any way the right of the +Company to terminate any Participant’s employment at any +time, nor confer upon any Participant any right to continue in +the employ of the Company. +B. PARTICIPATION. No Employee shall +have the right to be selected to receive an Award under this +Plan or, having been so selected, to be selected to receive a +future Award. +XV. AMENDMENT, MODIFICATION, TERMINATION AND +ADJUSTMENTS +A. AMENDMENT, MODIFICATION, AND +TERMINATION. Subject to the terms of the Plan, +the Board, upon recommendation of the Committee, may at any time +and from time to time, alter, amend, suspend or terminate the +Plan in whole or in part for any purpose which the Committee +deems appropriate and that is otherwise consistent with Code +Section 409A; provided, however, no amendment shall, +without shareholder approval, (i) materially increase the +benefits accruing to Participants under the Plan; +(ii) materially increase the number of securities which may +be issued under the Plan; or (iii) materially modify the +requirements for participation in the Plan. +Except in connection with a corporate transaction involving the +Company (including, without limitation, any stock dividend, +stock split, extraordinary cash dividend, recapitalization, +reorganization, merger, consolidation, +split-up, +spin-off, combination, or exchange of shares), the terms of +outstanding Awards may not be amended to reduce the exercise +price of outstanding Options or SARs or cancel outstanding +Options or SARs in exchange for cash, other awards or Options or +SARs with an exercise price that is less than the exercise price +of the original Options or SARs without shareholder approval. +B. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF +CERTAIN UNUSUAL OR NONRECURRING EVENTS. The +Committee may make adjustments in the terms and conditions of, +and the criteria included in, Awards in recognition of unusual +or nonrecurring events (including, without limitation, the +events described in Section IV.C. hereof) affecting the +Company or the financial statements of the Company or of changes +in applicable laws, regulations or accounting principles, +whenever the Committee determines that such adjustments are +appropriate in order to prevent dilution or enlargement of the +benefits or potential benefits intended to be made available +under the Plan; provided that unless the Committee determines +otherwise, no such adjustment shall be authorized to the extent +that such authority would be inconsistent with the Plan or +Awards meeting the requirements of Code Sections 162(m) and +409A, as from time to time amended. +C. AWARDS PREVIOUSLY GRANTED. Notwithstanding any +other provision of the Plan to the contrary (but subject to +Section XV.B. hereof), no termination, amendment or +modification of the Plan shall adversely affect in any material +way any Award previously granted under the Plan without the +written consent of the Participant holding such Award. +D. COMPLIANCE WITH CODE +SECTION 162(m). At all times when Code +Section 162(m) is applicable, all Awards granted under this +Plan shall comply with the requirements of Code +Section 162(m); provided, however, that in the event the +Committee determines that such compliance is not desired with +respect to any Award or Awards available for grant under the +Plan, then compliance with Code Section 162(m) will not be +required. In addition, in the event that changes are made to +Code Section 162(m) to permit greater flexibility with +respect to any Award or Awards available under the Plan, the +Committee may, subject to this Article XV, make any +adjustments it deems appropriate consistent with the changes +made to Code Section 162(m). +XVI. PAYMENT OF PLAN AWARDS AND CONDITIONS +THEREON +A. EFFECT OF COMPETITIVE +ACTIVITY. Anything contained in the Plan to the +contrary notwithstanding, unless otherwise covered in an +employment agreement by and between the Company and the +Participant, with respect to any Participant who is an Employee, +if the employment of any Participant shall terminate, for any +reason other than death, while any Award to such Participant is +outstanding hereunder, and such Participant has not yet received +the Shares covered by such Award or otherwise +A-15 +Table of Contents +received the full benefit of such Award, such Participant, if +otherwise entitled thereto, shall receive such Shares or benefit +only if, during the entire period from the date of such +Participant’s termination to the date of such receipt, such +Participant shall have earned such Award by: (i) making +himself or herself available, upon request, at reasonable times +and upon a reasonable basis, to consult with, supply information +to, and otherwise cooperate with the Company or any Subsidiary +or Affiliate thereof with respect to any matter that shall have +been handled by him or her or under his or her supervision while +he or she was in the employ of the Company or of any Subsidiary +or Affiliate thereof; and (ii) refraining from engaging in +any activity within any county or parish, or adjacent to any +county or parish, in which the Company owns any oil and gas +interests that is directly or indirectly in competition with any +gas, exploration and production activities, including oil and +gas leasing or drilling activities of the Company or any +Subsidiary or Affiliate thereof for a period of one +(1) year following his or her termination of employment. +B. NONFULFILLMENT OF COMPETITIVE ACTIVITY +CONDITIONS; WAIVERS UNDER THE PLAN. In the event +of a Participant’s nonfulfillment of any condition set +forth in Section XVI.A. hereof, such Participant’s +rights under any Award shall be forfeited and canceled +forthwith; provided, however, that the nonfulfillment of such +condition may at any time (whether before, at the time of, or +subsequent to termination of employment) be waived by the +Committee upon its determination that in its sole judgment there +shall not have been and will not be any substantial adverse +effect upon the Company or any Subsidiary or Affiliate thereof +by reason of the nonfulfillment of such condition. +XVII. CHANGE IN CONTROL +A. TREATMENT OF OUTSTANDING +AWARDS. Notwithstanding any provisions in the +Participant’s Employment Agreement to the contrary, but +subject to Section XVII.B. herein or the Plan governing the +particular Award, upon the occurrence of a Change in Control: +1. any and all Options and SARs granted hereunder shall +become immediately exercisable; +2. any Periods of Restriction and restrictions imposed on +Restricted Stock or RSUs which are not intended to qualify for +the Performance-Based Exception shall lapse; and +3. any Award intended to qualify for the Performance-Based +Exception shall be earned in accordance with the applicable +Award Agreement. +B. TERMINATION, AMENDMENT AND MODIFICATIONS OF +CHANGE-IN-CONTROL +PROVISIONS. Notwithstanding any other provision of +the Plan or any Award Agreement provision, the provisions of +this Article XVII may not be terminated, amended or +modified on or after the date of an event, commencing upon +material discussions by the Board respecting a possible +transaction that would result in a Change in Control, which is +likely to give rise to a Change in Control to affect adversely +any Award theretofore granted under the Plan without the prior +written consent of the Participant with respect to said +Participant’s outstanding Awards. +XVIII. TAX PROVISIONS +A. TAX WITHHOLDING. The Company +shall have the power and the right to deduct or withhold, or +require a Participant who is an Employee to remit to the +Company, an amount sufficient to satisfy federal, state and +local taxes, domestic or foreign, required by law or regulation +to be withheld with respect to any taxable event arising as a +result of this Plan. +B. SHARE WITHHOLDING. With respect +to withholding required upon the exercise of Options or SARs, +upon the lapse of restrictions on Restricted Stock or Restricted +RSUs, upon achievement of the performance goals on Performance +Shares or Performance Units or upon any other taxable event +arising as a result of Awards granted hereunder, Participants +who are Employees may elect, subject to the approval of the +Committee, to satisfy the withholding requirement, in whole or +in part, by having the Company withhold Shares having a Fair +Market Value on the date the tax is to be determined at least +equal to the minimum, but not more than the maximum, statutory +tax which could be imposed on the transaction. All such +elections shall be irrevocable, made in writing, and signed by +the Participant, and +A-16 +Table of Contents +shall be subject to any restrictions or limitations that the +Committee, in its sole discretion, deems appropriate. +C. REQUIREMENT OF NOTIFICATION OF CODE +SECTION 83(b) ELECTION. If any Participants +shall make an election under Code Section 83(b) (to include +in gross income in the year of transfer the amounts specified in +Code Section 83(b)) or under a similar provisions of the +laws of a jurisdiction outside the United States, such +Participant shall notify the Company of such election within ten +(10) days after filing notice of the election with the +Internal Revenue Service or other government authority, in +addition to any filing and notification required pursuant to +regulations issued under Code Section 83(b) or other +applicable provision. +D. REQUIREMENT OF NOTIFICATION UPON DISQUALIFYING +DISPOSITION UNDER CODE SECTION 421(b). If +any Participant shall make any disposition of shares of stock +delivered pursuant to the exercise of an Incentive Stock Option +under the circumstances described in Code Section 421(b) +(relating to certain disqualifying dispositions), such +Participant shall notify the Company of such disposition within +ten (10) days thereof. +XIX. INDEMNIFICATION +Each person who is or shall have been a member of the Committee, +or of the Board, shall be indemnified and held harmless by the +Company against and from any loss, cost, liability or expense +that may be imposed upon or reasonably incurred by him or her in +connection with or resulting from any claim, action, suit or +proceeding to which he or she may be a party or in which he or +she may be involved by reason of any action taken or failure to +act under the Plan and against and from any and all amounts paid +by him or her in settlement thereof, with the Company’s +approval, or paid by him or her in satisfaction of any judgment +in any such action, suit or proceeding against him or her, +provided he or she shall give the Company an opportunity, at its +own expense, to handle and defend the same before he or she +undertakes to handle and defend it on his or her own behalf. The +foregoing right of indemnification shall not be exclusive of any +other rights of indemnification to which such persons may be +entitled under the Company’s Articles of Incorporation or +Bylaws, as a matter of law or otherwise, or any power that the +Company may have to indemnify them or hold them harmless. +XX. SUCCESSORS +All obligations of the Company under the Plan with respect to +Awards granted hereunder shall be binding on any successor to +the Company, whether the existence of such successor is the +result of a direct or indirect purchase, merger, consolidation +or otherwise, of all or substantially all of the business or +assets of the Company. +XXI. LEGAL CONSTRUCTION +A. GENDER AND NUMBER. Except where +otherwise indicated by the context, any masculine term used +herein also shall include the feminine, the plural shall include +the singular, and the singular shall include the plural. +B. SEVERABILITY. In the event any +provision of the Plan shall be held illegal or invalid for any +reason, the illegality or invalidity shall not affect the +remaining parts of the Plan, and the Plan shall be construed and +enforced as if the illegal or invalid provision had not been +included. +C. REQUIREMENTS OF LAW. The +granting of Awards and the issuance of Shares under the Plan +shall be subject to all applicable laws, rules and regulations, +and to such approvals by any governmental agencies or national +securities exchanges as may be required. +D. SECURITIES LAW COMPLIANCE. With +respect to Insiders, transactions under this Plan are intended +to comply with all applicable conditions of +Rule 16b-3 +or its successors under the Exchange Act. To the extent any +provision of the Plan or action by the Committee fails to so +comply, it shall be deemed null and void, to the extent +permitted by law and deemed advisable by the Committee. +A-17 +Table of Contents +E. CODE SECTION 409A +COMPLIANCE. Notwithstanding any other provision +of this Plan to the contrary, all Awards under this Plan that +are subject to Code Section 409A shall be designed and +administered in a manner that does not result in the imposition +of tax or penalties under Code Section 409A. Accordingly, +Awards under this Plan that are subject to Code +Section 409A shall comply with the following requirements, +as applicable. +1. Distribution to Specified Employees Upon +Separation from Service. To the extent that +payment under an Award which is subject to Code +Section 409A is due to a Specified Employee on account of +the Specified Employee’s Separation from Service from the +Company or its Affiliate or Subsidiary, such payment shall be +delayed until the first day of the seventh (7th) month following +such Separation from Service (or as soon as practicable +thereafter). The Committee, in its discretion, may provide in +the Award document for the payment of interest at a rate set by +the Committee for such six-month period. In the event that a +payment under an Award is exempt from Code Section 409A, +payment shall be made to a Specified Employee without any such +six-month delay. +2. No Acceleration of Payment. To +the extent that an Award is subject to Code Section 409A, +payment under such Award shall not be accelerated from the +date(s) specified in the Award documents as of the date of grant. +3. Subsequent Delay in +Payment. To the extent that an Award is +subject to Code Section 409A, payment under such Award +shall not be deferred beyond the dates specified in the Award +document as of the date of grant, unless the Committee or +Participant, as the case may be, makes the decision to delay +payment at least one year prior to the scheduled payment date, +and payment is delayed at least five (5) years. +F. GOVERNING LAW. To the extent not +preempted by federal law, the Plan, and all agreements +hereunder, shall be construed in accordance with and governed by +the laws of the State of Colorado. +A-18 +Table of Contents +Using a black ink pen, mark your votes with an X as shown in +this example. Please do not write outside the designated areas. +x +Annual Meeting Proxy Card +▼ +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +▼ +A +Proposals — The Board of Directors recommends a vote FOR +each of the nominees listed and FOR Proposals 2 and 3. +1. +Election of Directors: +For +Withhold +For +Withhold +For +Withhold ++ +01 - Larry F. Mazza +o +o +02 - James M. Trimble +o +o +03 - Richard W. McCullough +o +o +For +Against +Abstain +For +Against +Abstain +2. +To approve the Company’s 2010 Long-Term Equity +Compensation Plan. +o +o +o +3. +To ratify the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company for the year ending December 31, 2010. +o +o +o +B +Authorized +Signatures — +This section must be completed for your vote to be counted. — +Date and Sign Below +Please sign EXACTLY as your name(s) appears on this proxy. All joint holders must sign. When signing in a representative capacity, please provide your full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +n +1 U P X 0 2 5 4 1 9 2 ++ +016V0B +Table of Contents +▼ PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼ +Proxy — Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +Proxy Solicited by Board of Directors for Annual Meeting of Shareholders +The undersigned appoints GYSLE R. SHELLUM +and DANIEL W. AMIDON, and either of them, proxies, each with full power to act without the other and with full power of substitution for and in the name of the undersigned at the Annual Meeting of Shareholders of Petroleum Development Corporation (the “Company“) to be held on June 4, 2010, at 11:30 a.m. Mountain Time, and at any adjournment or postponement thereof, to vote all shares of the common +stock of the Company held by the undersigned with respect to the matters herein and on such other matters as may properly come before the meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement for such meeting dated June 4, 2010, and a copy of the Company’s 2009 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF +OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO +ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, +WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. +IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE +DIRECTORS SPECIFIED IN PROPOSAL 1, AND FOR EACH OF PROPOSAL 2 AND PROPOSAL 3. +In their discretion, the appointed +proxies are authorized to vote upon such other business as may +properly come before the meeting and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED +ON OTHER SIDE OF THIS CARD. +PLEASE READ BOTH SIDES OF THIS CARD, SIGN, DATE AND RETURN YOUR PROXY +PROMPTLY IN THE ENCLOSED ENVELOPE. +Table of Contents +Using a black +ink pen, mark your votes with an X as shown in this +example. Please do not write outside the designated areas. +x +Annual Meeting Proxy Card +▼ +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼ +A +Proposals — The Board of Directors recommends a vote FOR each of the nominees listed and FOR Proposals 2 and 3. +1. +Election of Directors: +For +Withhold +For +Withhold +For +Withhold ++ +01 - Larry F. Mazza +o +o +02 - James M. Trimble +o +o +03 - Richard W. McCullough +o +o +For +Against +Abstain +For +Against +Abstain +2. +To approve the Company’s 2010 Long-Term Equity +Compensation Plan. +o +o +o +3. +To ratify the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company for the year ending December 31, 2010. +o +o +o +B Non-Voting Items +Change of Address — +Please print new address below. +C +Authorized Signatures — This section must be +completed for your vote to be counted. — Date and Sign Below +Please sign EXACTLY as your name(s) appears on this proxy. All joint holders must sign. When signing in a representative capacity, please provide your full title. +Date (mm/dd/yyyy) — Please +print date below. +Signature 1 — Please keep signature within the +box. +Signature 2 — Please keep signature within the +box. +/ / +Table of Contents +▼ +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼ +Proxy — Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +Proxy Solicited by Board of Directors for Annual Meeting of Shareholders +The undersigned appoints GYSLE R. SHELLUM and DANIEL W. AMIDON, and either of them, proxies, each with full +power to act without the other and with full power of substitution for and in the name of the undersigned at the +Annual Meeting of Shareholders of Petroleum Development Corporation (the “Company”) to be held on June 4, 2010, at 11:30 a.m. +Mountain Time, and at any adjournment or postponement thereof, to vote all shares of the common stock of the Company held by the undersigned with respect to the matters herein and on such other matters as may properly come before the meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement for such meeting dated June 4, 2010, and a copy of the Company’s 2009 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN +PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. +IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1, AND FOR EACH OF PROPOSAL 2 AND PROPOSAL 3. +In their discretion, the appointed proxies are authorized to vote upon such other business as may properly come before the meeting and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000077877/0000950123-10-042057/proxy_rpt.txt b/raw/proxies/0000077877/0000950123-10-042057/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..c9d87680259808b6cd5db3dab148e54f25a151ac --- /dev/null +++ b/raw/proxies/0000077877/0000950123-10-042057/proxy_rpt.txt @@ -0,0 +1,130 @@ +The related party transaction policy applies to each Director +and executive officer of the Company, any nominee for election +as a Director, any security holder who is known to own more than +five percent of the Company’s voting securities, any +immediate family member of any of the foregoing persons and any +corporation, firm or association in which one or more of the +Company’s Directors are directors or officers, or have a +substantial financial interest. +Under the related party transaction policy, a related person +transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would +require disclosure in the Company’s filings with the SEC as +a transaction with a related person. +The related persons must disclose to the Audit Committee any +potential related person transactions and must disclose all +material facts with respect to such interest. All related person +transactions will be reviewed by the Audit Committee. In +determining whether to approve or ratify a transaction, the +Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such +as the relationship of the related person with the Company, the +materiality or significance of +26 +Table of Contents +the transaction to the Company and the business purpose and +reasonableness of the transaction, whether the transaction is +comparable to a transaction that could be available to the +Company on an arms-length basis, and the impact of the +transaction on the Company’s business and operations. +From January 1, 2009 to the present, there was no +transaction or series of transactions, or any currently proposed +transaction, in which the amount involved exceeds $120,000 and +in which any director, executive officer, holder of more than +five percent of the Company’s common stock or any member of +the immediate family of any of the foregoing persons had or will +have a direct or indirect material interest. +Indemnification +of Directors and Officers +The Company’s By-Laws provide that the Company shall +indemnify any Director, officer, employee, or other agent of the +Company who is or was a party, or is threatened to be made a +party, to any proceeding (other than an action by or in the +right of the Company to procure a judgment in its favor) by +reason of the fact that such person is or was an agent of the +Company, against expenses, judgments, fines, settlements, and +other amounts actually and reasonably incurred in connection +with such proceeding, if that person acted in good faith and in +a manner that person reasonably believed to be in the best +interest of the Company, and in the case of a criminal +proceeding, had no reasonable cause to believe the conduct of +that person was unlawful. +The Company has entered into separate indemnification agreements +with each of its Directors whereby the Company has agreed to +indemnify the Director against all expenses, including +attorneys’ fees, and other amounts reasonably incurred by +the director in connection with any threatened, pending or +completed civil, criminal, administrative or investigative +action or proceeding to which such person is party by reason of +the fact that he is or was a Director, as the case may be, of +the Company, if the person acted in good faith and in a manner +reasonably believed to be in or not opposed to the best +interests of the Company, and, with respect to any criminal +action or proceeding, the person had no reasonable cause to +believe such conduct to be unlawful. The agreements provide for +the advancement of expenses and that the Company has the right +to purchase and maintain insurance on behalf of the director +against any liability or liabilities asserted against such +person, whether or not the Company would have the power to +indemnify the person against such liability under any provision +of the agreement. The Company has agreed to indemnify such +person against expenses actually and reasonably incurred in +connection with any action in which the person has been +successful on the merits or otherwise. Indemnification must also +be provided by the Company (unless ordered otherwise by a court) +only as authorized in the specific case upon a determination +that the indemnification of the person is appropriate because he +or she has met the applicable standard of conduct described in +the agreement made by (1) the Board of Directors, by a +majority vote of a quorum consisting of Directors who are not +parties to such action or proceeding, (2) independent legal +counsel in a written opinion or (3) the shareholders of the +Company. +Additional +Information +The “Corporate Governance” section of the +Company’s internet site contains additional information, +including PDC’s Certificate of Incorporation and By-Laws, +written charters for each Board committee, and Board policy +statements. +The Company files annual, quarterly and current reports, proxy +statements and other information with the SEC. Copies of the +Company’s filings with the SEC are available to the public +at the SEC’s website at +http://www.sec.gov . +These documents may also be viewed at the SEC’s public +reference room located at 100 F Street, N.E., +Washington, D.C. 20549. Please call the SEC at +1-800-SEC-0330 +for further information on the public reference room. +27 +Table of Contents +EXECUTIVE +OFFICERS +The current executive officers of the Company, their principal +occupations for the past five years and additional information +is set forth below. +Name +Age +Position(s) +Richard W. McCullough +58 +Chairman, Chief Executive Officer and Director +Gysle R. Shellum +58 +Chief Financial Officer +Barton R. Brookman, Jr. +47 +Senior Vice President Exploration and Production +Daniel W. Amidon +49 +General Counsel and Secretary +Lance +Lauck (1) +47 +Senior Vice President Business Development +(1) +Mr. Lauck became Senior Vice President Business Development +on August 31, 2009. +RICHARD W. MCCULLOUGH was appointed Chief Executive +Officer of the Company in June 2008 and Chairman of PDC’s \ No newline at end of file diff --git a/raw/proxies/0000077877/0000950123-11-037440/proxy.txt b/raw/proxies/0000077877/0000950123-11-037440/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..68d3d7447b188eb5758360f344baeee188391760 --- /dev/null +++ b/raw/proxies/0000077877/0000950123-11-037440/proxy.txt @@ -0,0 +1,5805 @@ +DEF 14A +1 +d80980def14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Under Rule 14a-12 +Petroleum Development Corporation +(doing business as PDC Energy) +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange +Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and +identify the filing for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement no.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +(dba PDC Energy) +1775 +Sherman Street, Suite 3000 +Denver, Colorado 80203 +April 25, +2011 +Dear Stockholder of Petroleum Development Corporation (dba PDC +Energy): +You are cordially invited to the Petroleum Development +Corporation (dba PDC Energy) Annual Meeting of Stockholders to +be held at the Denver Financial Center, Lobby Conference Room, +1775 Sherman Street, Denver, Colorado 80203, on June 10, +2011, at 11:00 a.m. Mountain Time. +The Notice of Annual Meeting and Proxy Statement, which are +attached, provide information concerning the matters to be +considered at the Annual Meeting. The Annual Meeting will cover +the business contained in the Proxy Statement, including the +election of three directors to our Board of Directors. I +encourage you to read the enclosed Notice of Annual Meeting and +Proxy Statement, which contains information about the Board of +Directors and its committees and personal information about each +of the nominees for the Board. The Proxy Statement provides +information concerning our compensation of executive officers +and includes a proposal for an advisory vote on executive +compensation, as well as a proposal for an advisory vote on the +frequency of future advisory votes on executive compensation. +The Proxy Statement also includes a proposal to ratify the +appointment of our independent registered public accounting +firm, PricewaterhouseCoopers LLP. +We hope you can join us on June 10, 2011. Whether or not +you can attend personally, it is important that your shares are +represented at the meeting. We value your opinions and encourage +you to participate in this year’s Annual Meeting by voting +your proxy. You may vote by following the instructions on the +proxy card. You may also attend in person and vote at the Annual +Meeting. +Sincerely, +Daniel W. Amidon, +Corporate Secretary +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +(dba PDC Energy) +1775 Sherman Street, +Suite 3000 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF +STOCKHOLDERS +To Be Held June 10, 2011 +Denver +Financial Center +Lobby Conference Room +1775 Sherman Street +Denver, Colorado 80203 +To the Stockholders of Petroleum Development Corporation (dba +PDC Energy): +Notice is hereby given that the Annual Meeting of Stockholders +of Petroleum Development Corporation (dba PDC Energy) +(“PDC,” “PDC Energy” or the +“Company”) will be held at the Denver Financial +Center, Lobby Conference Room, 1775 Sherman Street, Denver, +Colorado 80203, on June 10, 2011, at +11:00 a.m. Mountain Time, for the following purposes, +all as more fully described in the accompanying Proxy Statement: +(1) To elect the three Class I Director Nominees +identified in the accompanying Proxy Statement for a three-year +term until the 2014 Annual Meeting of Stockholders and until +their successors are elected; +(2) To conduct an advisory vote on the compensation of the +Company’s Named Executive Officers; +(3) To conduct an advisory vote on the frequency (every +one, two or three years) of future advisory votes on the +compensation of the Company’s Named Executive Officers; +(4) To ratify the selection of PricewaterhouseCoopers LLP +as the Company’s independent registered public accounting +firm for the fiscal year ending December 31, 2011; and +(5) To consider such other business as may properly come +before the meeting and at any and all adjournments or +postponements thereof. +The Board of Directors has fixed the close of business on +April 15, 2011, as the record date for determining the +stockholders having the right to receive notice of, to attend +and to vote at the Annual Meeting or any adjournment or +postponement thereof. The presence in person or by proxy of the +holders of a majority of the outstanding shares of the +Company’s common stock entitled to vote is required to +constitute a quorum. +Each stockholder is cordially invited to attend and to vote at +this meeting in person. Stockholders who do not expect to attend +are requested to sign and date the accompanying proxy card and +return it promptly in the enclosed postpaid envelope. +By Order of the Board of Directors, +Daniel W. Amidon, +Corporate Secretary +Denver, Colorado +April 25, 2011 +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +(dba PDC Energy) +1775 Sherman Street, +Suite 3000 +Denver, Colorado 80203 +PROXY +STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To Be Held June 10, +2011 +Denver +Financial Center +Lobby Conference Room +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors +(“Board”) of Petroleum Development Corporation (dba +PDC Energy) (“PDC,” “PDC Energy” or the +“Company”) for use at the Annual Meeting of +Stockholders of the Company to be held on June 10, 2011, at +11:00 a.m. Mountain Time, and at any and all +adjournments or postponements of the meeting, for the purposes +set forth in this Proxy Statement and the attached Notice of +Annual Meeting of Stockholders. This Proxy Statement and the +enclosed form of proxy are first being mailed to the +stockholders of the Company on or about April 25, 2011. +The Company will bear the cost related to the solicitation of +proxies. The Company will reimburse brokerage firms and other +custodians, nominees and fiduciaries for reasonable and +appropriate expenses incurred by them in sending proxy materials +to the beneficial owners of the Company’s common stock. In +addition to solicitations by mail, Directors, officers and +employees of the Company may solicit proxies by telephone and, +to the extent necessary, other electronic communication and +personal interviews without additional compensation. The Company +entered into an agreement with Georgeson Inc. as its proxy +solicitor and anticipates paying costs of approximately $10,000 +for such services. +Table of Contents +TABLE OF +CONTENTS +GENERAL INFORMATION +4 +Who May Vote +4 +How Proxies Work +4 +Voting 401(k) and Profit Sharing Plan Shares +4 +Revoking a Proxy +4 +Quorum +5 +Votes Needed +5 +Attending in Person +5 +Conduct of the Meeting +6 +Contact Information +6 +PROPOSALS REQUIRING STOCKHOLDER VOTE +6 +Proposal No. 1 — Election of +Directors +6 +Board of Directors +7 +Name, Principal Occupation for Past Five Years +and Other Directorships +7 +Proposal No. 2 — Advisory +Vote Regarding Compensation of The Company’s Named +Executive Officers +10 +Proposal No. 3 — Frequency of +Advisory Vote Regarding Executive Compensation +11 +Proposal No. 4 — Ratification +of Selection of Independent Registered Public Accounting Firm +13 +Principal Accountant Fees and Services +13 +Audit Committee Pre-Approval Policies and +Procedures +14 +REPORT OF THE AUDIT COMMITTEE +14 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2011 +ANNUAL MEETING +15 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +16 +Section 16(a) Beneficial Ownership Reporting +Compliance +18 +CORPORATE GOVERNANCE +18 +Corporate Governance Guidelines +18 +Board of Directors +18 +Director Independence +19 +Board Meetings and Attendance +19 +STANDING COMMITTEES OF THE BOARD +20 +Audit Committee +20 +Compensation Committee +21 +Compensation Committee Interlocks and Insider +Participation +21 +Executive Committee +21 +Nominating and Governance Committee +21 +Board Leadership Structure/Presiding Independent +Director +21 +Planning and Finance Committee +22 +DIRECTOR COMPENSATION +22 +Cash Compensation +22 +Equity Compensation +23 +Deferred Compensation +23 +Ownership Requirements +23 +Director Compensation +24 +2 +Table of Contents +DIRECTOR QUALIFICATIONS AND SELECTION +24 +Diversity Consideration +25 +STOCKHOLDER RECOMMENDATIONS +25 +Stockholder Nominations +25 +THE BOARD’S ROLE IN RISK MANAGEMENT +26 +Compensation Risk Assessment +26 +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +27 +CODE OF BUSINESS CONDUCT AND ETHICS +27 +TRANSACTIONS WITH RELATED PERSONS +27 +Related Transactions +27 +Policies and Procedures With Respect to +Transactions with Related Persons +27 +ADDITIONAL INFORMATION +28 +EXECUTIVE OFFICERS +28 +COMPENSATION COMMITTEE REPORT +29 +COMPENSATION DISCUSSION AND ANALYSIS +29 +Executive Summary +29 +General Compensation Philosophy/Objectives +30 +Compensation Process — Making Executive +Compensation Decisions +33 +Components of the Company’s Compensation +Program +36 +Compensation Decisions +38 +SUMMARY COMPENSATION TABLE +46 +ALL OTHER COMPENSATION +47 +GRANTS OF PLAN-BASED AWARDS +48 +Additional Discussion of Tables Related to +Summary Compensation and 2010 Grants of Plan-Based Awards +49 +OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR +END +50 +OPTIONS EXERCISES AND STOCK VESTED +51 +PENSION BENEFITS +51 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN +CONTROL/EXECUTIVE EMPLOYMENT AGREEMENTS +52 +EQUITY COMPENSATION PLAN INFORMATION +56 +STOCKHOLDER NOMINATIONS AND PROPOSALS +56 +Stockholder Proposals for 2012 Annual Meeting +56 +Advance Notice Procedures Under the +Company’s By-Laws +56 +HOUSEHOLDING INFORMATION +57 +3 +Table of Contents +GENERAL +INFORMATION +Who May +Vote +Stockholders of PDC, as recorded in the Company’s stock +register on April 15, 2011, may vote at the meeting. The +outstanding voting securities of the Company, as of +April 15, 2011, consisted of 23,475,673 shares of +common stock. Each share of common stock is entitled to one vote +on each matter considered at the meeting. +How +Proxies Work +The Board is asking for your proxy. Giving the Board your proxy +means that you authorize the Board to vote your shares at the +meeting in the manner you direct. We will vote your shares as +you direct. You may vote for any or all Class I Director +Nominees, or you may withhold your vote from any or all of the +Director Nominees. Except regarding the vote on frequency, as +set forth in the next sentence, you may also vote for or against +the other proposals, or abstain from voting. With respect to the +vote as to how frequently the stockholders should consider and +vote upon our Named Executive Officers (as hereinafter defined) +compensation, stockholders may vote for a frequency of vote of +every one, two or three years, or stockholders may abstain from +voting. Cumulative voting is not permitted by the Company’s +By-Laws in the election of Directors. +If your shares are held in your name, you can vote by +completing, signing and dating your proxy card and returning it +in the enclosed envelope. If you give the Board your signed +proxy but do not specify how to vote, your shares will be voted +(1) in favor of the Class I Director Nominees named on +the proxy: (2) in favor of approving the Company’s +compensation of its Named Executive Officers; (3) in favor +of the Company’s recommendation that the stockholders +consider and vote upon the Company’s compensation of its +Named Executive Officers once every three years; and (4) in +favor of the ratification of PricewaterhouseCoopers LLP as the +Company’s independent registered public accounting firm for +the fiscal year ending December 31, 2011. +If you hold shares through someone else, such as a stockbroker, +you will receive material from that firm asking how you want to +vote. Check the voting form used by that firm to determine what +procedures you must follow in order for you to vote your shares. +Voting +401(k) and Profit Sharing Plan Shares +If you are a participant in PDC’s 401(k) and Profit Sharing +Plan and have shares of PDC common stock credited to your plan +account as of the record date, such shares are shown on the +enclosed proxy card and you have the right to direct the plan +trustee regarding how to vote those shares. The trustee will +vote the shares in your plan account in accordance with your +instructions. Your vote may not be counted if your proxy card is +not received by June 7, 2011, or if you have not sent +instructions by such date as provided above under “How +Proxies Work.” You cannot vote such shares at the Annual +Meeting or change your vote. +Revoking +a Proxy +You may revoke your proxy before it is voted by: +• +Submitting a new signed proxy with a later date; +• +Notifying PDC’s Corporate Secretary in writing before the +meeting that you wish to revoke your proxy; or +• +Appearing at the meeting, notifying the Inspector of the +Election that you wish to revoke your proxy, and voting in +person at the meeting. Merely attending the meeting will not +result in your revoking your proxy. +If you hold your shares through someone else, such as a +stockbroker, you will need to follow the directions they give +you to revoke a proxy or otherwise vote at the meeting. +4 +Table of Contents +Quorum +In order to carry on the business of the meeting, there must be +a quorum. This means that at least a majority of the outstanding +shares eligible to vote must be represented at the meeting, +either by proxy or in person. Treasury shares, which are shares +owned by PDC itself, are not voted and do not count for this +purpose. +Votes +Needed +The following table presents the voting requirements to elect +the three Class I Director Nominees and approve the other +proposals presented in this Proxy Statement. Brokers, banks or +other holders of record will have discretionary authority only +with respect to the ratification of the Audit Committee’s +selection of PricewaterhouseCoopers LLP as the Company’s +independent registered public accounting firm for 2011. +PROPOSAL SUMMARY +Proposal +Vote Required +Election of Class I Directors. +( Proposal No. 1 ) +The three Nominees for a term of three years to expire in 2014 +who receive the largest number of votes cast will be elected +Directors for such term. There is no cumulative voting for +directors. +Conduct an advisory vote on the compensation of the +Company’s Named Executive Officers. +( Proposal No. 2 ) +Majority of votes cast. +Conduct an advisory vote on the frequency (every one, two or +three years) of future advisory votes on the compensation of the +Company’s Named Executive Officers. +( Proposal No. 3 ) +The frequency option that receives the highest number of votes +cast is the option that will be deemed approved by the +stockholders. +Ratify the selection of PricewaterhouseCoopers LLP as the +Company’s independent registered public accounting firm for +the fiscal year ending December 31, 2011. +( Proposal No. 4 ) +Majority of votes cast. +The Class I Director Nominees who receive the most votes +will be elected to fill the available seats on the Board. There +is no provision in the Company’s By-Laws which requires +Director Nominees to receive a majority of the votes cast to be +elected. Only votes for or against a proposal count, except with +respect to Proposal No. 3. Abstentions and broker +non-votes will count for auditor ratification +(Proposal No. 4) and for quorum purposes, but not +for other voting purposes. Broker non-votes occur when a broker +returns a proxy but does not have authority from the owner of +the stock to vote on a particular proposal. +Attending +in Person +Only stockholders or their proxy holders and PDC’s guests +may attend the Annual Meeting. For safety and security reasons, +no cameras, audio or video recording equipment, large bags, +briefcases or packages will be permitted in the meeting. In +addition, each stockholder and guest may be asked to present +valid, government-issued picture identification, such as a +driver’s license, before being admitted to the meeting. +If your shares are held in the name of your broker, bank, or +other nominee, you must bring to the meeting an account +statement or letter from the nominee indicating that you +beneficially owned the shares on April 15, 2011, the record +date for receiving notice of, attending and voting at the Annual +Meeting. Stockholders who do not present such information at the +meeting will be admitted upon verification of ownership at the +admissions counter. +5 +Table of Contents +Conduct +of the Meeting +The Chairman has broad authority to conduct the Annual Meeting +in an orderly and timely manner. This authority includes +establishing rules for stockholders who wish to address the +meeting. The Chairman may also exercise broad discretion in +recognizing stockholders who wish to speak and in determining +the extent of discussion on each item of business. In light of +the need to conclude the meeting within a reasonable period of +time, there can be no assurance that every stockholder who +wishes to speak on an item of business will be able to do so. +The Chairman may also rely on applicable law regarding +disruptions or disorderly conduct to ensure that the meeting is +conducted in a manner that is fair to all stockholders. +Contact +Information +If you have questions or need more information about the Annual +Meeting, write to or call: +Corporate +Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +For information about shares registered in your name, call PDC +at +1-800-624-3821. +You are also invited to visit PDC’s website at +www.petd.com . Website materials are not incorporated by +reference into this Proxy Statement. +PROPOSALS REQUIRING +STOCKHOLDER VOTE +PROPOSAL NO. 1 — +ELECTION OF DIRECTORS +(Proposal 1 +on the Proxy Card) +As of the date of this Proxy Statement and as permitted by the +Company’s By-Laws, the Company’s Board of Directors +(“Board”) has eight members divided into three +classes. Directors are usually elected for three-year terms. The +terms for members of each class end in successive years. +The Board has nominated three continuing Class I Directors, +Joseph E. Casabona, David C. Parke and Jeffrey C. Swoveland, +whose terms expire in 2011 at the Annual Meeting, to stand for +election to the Board for a three-year term expiring in 2014. +Mr. Casabona joined the Board in 2007 and currently serves +on the Audit Committee and the Planning and Finance Committee, +which he chairs. Mr. Parke joined the Board in 2003 and +currently serves on the Nominating and Governance Committee, the +Planning and Finance Committee, and the Compensation Committee. +Mr. Swoveland joined the Board in 1991 and currently serves +as Presiding Independent Director and also serves on the Audit +Committee, the Executive Committee, the Planning and Finance +Committee and the Compensation Committee. +The appointed proxies will vote your proxy in accordance with +your instructions and for the election of the three Class I +Director Nominees unless you withhold your authority to vote for +any of them. The Board does not contemplate that any of the +Director Nominees will become unavailable for any reason; +however, if any Director is unable to stand for election, the +Board may reduce its size or choose a substitute. This proxy +cannot be voted for a greater number of persons than the number +of Director Nominees named or for a person who is not named in +this Proxy Statement as a candidate for Director. +6 +Table of Contents +Board of +Directors +The following table sets forth certain information as of +March 30, 2011, regarding the composition of the Board, +including the term of each Director. +Director +Current Term +Age +Position +Since +to Expire +Nominees +Joseph E. Casabona +67 +Director +2007 +2011 +David C. Parke +44 +Director +2003 +2011 +Jeffrey C. Swoveland +56 +Director +1991 +2011 +Other Directors +Anthony J. Crisafio +58 +Director +2006 +2012 +Kimberly Luff Wakim +53 +Director +2003 +2012 +Larry F. Mazza +50 +Director +2007 +2013 +Richard W. McCullough +59 +Chief Executive Officer and Chairman +2007 +2013 +James M. Trimble +62 +Director +2009 +2013 +First +Name, Principal Occupation for Past Five +Years +Elected +and Other Directorships +Director +NOMINEES FOR A THREE-YEAR TERM EXPIRING IN 2014 — +CLASS I +JOSEPH E. CASABONA , 67, served as Executive Vice +President and member of the Board of Directors of Denver-based +Energy Corporation of America (“ECA”), from 1985 until +his retirement in May 2007. ECA is a privately held energy +company that owns and operates assets both in the U.S. and +around the world, including approximately 5,200 wells, +5,000 miles of pipeline, and 1,000,000 acres. From +1968 until 1985, Mr. Casabona was employed at KPMG Main +Hurdman, or its predecessors, with various titles, including +audit partner in the Pittsburgh, Pennsylvania office, where he +primarily serviced public clients in the oil and gas industry. +From 2008 until the beginning of 2011, Mr. Casabona served +as Chief Executive Officer of Paramax Resources Ltd, a junior +public Canadian oil and gas company engaged in the business of +acquiring and exploration of oil and gas prospects, primarily in +Canada and Idaho. As the primary direct report to the Chief +Executive Officer of ECA, Mr. Casabona’s major +responsibilities included strategic planning/forecasting, +acquisitions, capital transactions, corporate policy, as well as +executive oversight in operational and drilling activities in +the continental U.S. and internationally. In determining +Mr. Casabona’s qualifications to serve on our Board, +the Board has considered, among other things, that +Mr. Casabona brings to the Board extensive first-hand +experience in all aspects of the oil and gas industry, including +natural gas exploration, development, acquisitions, operations +and strategic planning, as well as experience in two of the +Company’s primary areas of operations, the Rocky Mountain +Region and the Appalachian Basin. Mr. Casabona’s +educational achievements include a BSBA from the University of +Pittsburgh and a Master of Science-Mineral Economics from +Colorado School of Mines. +2007 +7 +Table of Contents +First +Name, Principal Occupation for Past Five Years +Elected +and Other Directorships +Director +DAVID C. PARKE , 44, is a Managing Director in the +investment banking group of Boenning & Scattergood, +Inc., in West Conshohocken, Pennsylvania, a full-service +investment banking firm. Prior to joining Boenning & +Scattergood in November 2006, he was a Director with investment +banking firm Mufson Howe Hunter & Company LLC, in +Philadelphia, Pennsylvania, from October 2003 to November 2006. +From 1992 through 2003, Mr. Parke was Director of Corporate +Finance of Investec, Inc. and its predecessor, Pennsylvania +Merchant Group Ltd., both investment banking companies. Prior to +joining Pennsylvania Merchant Group, Mr. Parke served in +the corporate finance departments of Wheat First +Butcher & Singer, now part of Wells Fargo, and Legg +Mason, Inc., now part of Stifel Nicolaus. In determining +Mr. Parke’s qualifications to serve on our Board, the +Board has considered, among other things, that Mr. Parke +has extensive investment banking experience, including +experience in the oil and gas area, allowing him to contribute +broad financial and investment banking expertise to the Board +and to provide guidance on capital markets and acquisition +matters. +2003 +JEFFREY C. SWOVELAND , 56, is President and Chief +Executive Officer of ReGear Life Sciences, Inc. in Pittsburgh, +Pennsylvania (previously named Coventina Healthcare +Enterprises), which develops and markets medical device +products, where he was previously Chief Operating Officer. From +2000 until 2007, Mr. Swoveland served as Chief Financial +Officer of Body Media, Inc., a life-science company specializing +in the design and development of wearable body monitoring +products and services. Prior thereto, Mr. Swoveland held +various positions including Vice President of Finance, Treasurer +and interim Chief Financial Officer with Equitable Resources, +Inc., a diversified natural gas company, from 1994 to September +2000. Mr. Swoveland also has worked as a geologist and +exploratory geophysicist for both major and independent oil and +gas companies. Mr. Swoveland serves as a member of the +Board of Directors of Linn Energy, LLC, a public independent +natural gas and oil company. In determining +Mr. Swoveland’s qualifications to serve on our Board, +the Board has considered, among other things, that +Mr. Swoveland brings to the Board extensive corporate +management, accounting and finance experience, and oil and gas +industry expertise. Additionally, his service as a director of +another public energy company provides leadership and knowledge +of best practices that benefit the Company. His guidance and +understanding of management processes of larger oil and gas +companies benefits the Company as it grows. +1991 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2012 — +CLASS II +ANTHONY J. CRISAFIO , 58, a Certified Public Accountant, +has served as an independent business consultant for more than +fifteen years, providing financial and operational advice to +businesses in a variety of industries and stages of development. +He is currently serving as interim contract Chief Financial +Officer for Empire Energy USA, LLC, which operates approximately +2,500 operating wells primarily in New York and Kansas and is +90% owned by Empire Energy Group Limited, an energy investment +company listed on the Australian Securities Exchange. He also +serves as an interim Chief Financial Officer and Advisory Board +member for a number of privately held companies and has been a +Certified Public Accountant for more than thirty years. +Mr. Crisafio served as Chief Operating Officer, Treasurer +and member of the Board of Directors of Cinema World, Inc. from +1989 until 1993. From 1975 until 1989, he was employed by +Ernst & Young and was a partner with Ernst & +Young from 1986 to 1989. He was responsible for several +Securities and Exchange Commission (“SEC”) registered +client engagements and gained significant experience with oil +and gas industry clients and mergers and acquisitions. In +determining Mr. Crisafio’s qualifications to serve on +our Board, the Board has considered, among other things, that +Mr. Crisafio brings to the Board more than thirty years of +financial accounting and management expertise, with demonstrated +business management and accounting experience. +2006 +8 +Table of Contents +First +Name, Principal Occupation for Past Five Years +Elected +and Other Directorships +Director +KIMBERLY LUFF WAKIM , 53, an attorney and a Certified +Public Accountant, is a Partner with the Pittsburgh, +Pennsylvania law firm Thorp, Reed & Armstrong LLP, +where she serves as a member of the Executive Committee and is +the Practice Group Leader for the Bankruptcy and Financial +Restructuring Practice Group. She has practiced law with Thorp, +Reed & Armstrong since 1990. Ms. Wakim was +previously an auditor with Main Hurdman (now KPMG) and was +Assistant Controller for PDC from 1982 to 1985. She has been a +member of the AICPA and the West Virginia Society of CPAs for +more than sixteen years. In determining Ms. Wakim’s +qualifications to serve on our Board, the Board has considered, +among other things, that Ms. Wakim brings to the Board a +combination of strong legal background and expertise in +accounting oversight. +2003 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2013 — +CLASS III +LARRY F. MAZZA , 50, is President and Chief Executive +Officer of MVB Bank, Inc., a bank holding company with multiple +banks in West Virginia. He has been Chief Executive Officer +since March 2005 and added the duties of President in January of +2009. He is also currently a member of the Board of Directors of +MVB Financial Corp., a public company. Prior to joining MVB to +lead its geographical expansion and growth, Mr. Mazza was +employed from June 1986 to March 2005 by BB&T and its +predecessors in West Virginia. At BB&T, he served as Senior +Vice President & Retail Banking Manager for West +Virginia North Region consisting of thirty-three financial +centers. Upon his graduation from West Virginia University with +a degree in Business Administration, he joined KPMG, a Big Four +accounting firm, with a focus on auditing. A Certified Public +Accountant for 26 years, Mr. Mazza also serves on the +West Virginia Banking Commission Board of Directors and is +active in numerous local community organizations. Mr. Mazza +brings to the Board extensive leadership and banking experience. +In determining Mr. Mazza’s qualifications to serve on +our Board, the Board has considered, among other things, that +banking relationships and experience have become particularly +important to the Company as it transitions away from the +partnership funding model, as well as the general increased +importance to the Company of banking relationships during the +last few uncertain years. The Company benefits from +Mr. Mazza’s firsthand continuing experience as a chief +executive officer, a specific attribute sought by the Board when +Mr. Mazza initially became a Director in 2007. +Mr. Mazza also provides an important link to community and +employee stakeholders, demonstrating a continuing commitment to +the Company’s largest workforce located in Bridgeport, West +Virginia. +2007 +RICHARD W. McCULLOUGH , 59, was appointed Chief Executive +Officer (“CEO”) of the Company in June 2008 and +Chairman of PDC’s Board of Directors in November 2008. From +November 2006 until November 2008, he served as Chief Financial +Officer of the Company. Prior to joining PDC, +Mr. McCullough served from July 2005 to November 2006 as an +energy consultant. From January 2004 to July 2005, he was +President and Chief Executive Officer of Gasource, LLC, a +marketer of long-term, natural gas supplies in Dallas, Texas. +From 2001 to 2003, Mr. McCullough served as an investment +banker with J.P. Morgan Securities, in Atlanta, Georgia, in +the public finance utility group supporting bankers nationally +in all natural gas matters. Additionally, Mr. McCullough +has held senior positions with Progress Energy, Deloitte and +Touche, and the Municipal Gas Authority of Georgia. He holds BS +and MS degrees from the University of Southern Mississippi and +was a practicing Certified Public Accountant for eight years. In +determining Mr. McCullough’s qualifications to serve +on our Board, the Board has considered, among other things, that +Mr. McCullough serves on the boards of several oil and gas +trade industry associations and brings to the Board extensive +and diverse oil and gas industry, public accounting and +investment banking expertise, and strong leadership and +management skills. +2007 +9 +Table of Contents +First +Name, Principal Occupation for Past Five Years +Elected +and Other Directorships +Director +JAMES M. TRIMBLE , 62, retired in November 2010 as +Managing Director of Grand Gulf Energy, Limited (ASX: GGE), a +public company traded on the Australian Securities Exchange, a +position he had held since August 2005. He remains a member of +the board of Directors of Grand Gulf Energy, Limited. In January +2005, Mr. Trimble founded and served until November 2010 as +President and Chief Executive Officer of the U.S. subsidiary +Grand Gulf Energy Company LLC, an exploration and development +company focused primarily on drilling in mature basins in Texas, +Louisiana and Oklahoma. From 2000 through 2004, Mr. Trimble +was Chief Executive Officer of Elysium Energy and then Tex-Cal +Energy LLC, both of which were privately held oil and gas +companies that he was brought in to take through troubled +workout solutions. Prior to this, he was Senior Vice President +of Exploration and Production for Cabot Oil and Gas (NYSE: COG). +Mr. Trimble was hired in July 2002 as CEO of TexCal +(formerly Tri-Union Development) to manage a distressed oil and +gas company through bankruptcy, and that company filed for +Chapter 11 reorganization within 45 days after the +date that Mr. Trimble accepted such employment. He +successfully managed the company through its exit from +bankruptcy in 2004. From November 2002 until May 2006, he also +served as a director of Blue Dolphin Energy, an independent oil +and gas company with operations in the Gulf of Mexico. In +determining Mr. Trimble’s qualifications to serve on +our Board, the Board has considered, among other things, that +Mr. Trimble is a Registered Professional Engineer who +brings many years of broad oil and gas industry executive +management experience to the Board, including experience as a +chief operating officer, and knowledge of current developments +and best practices in the industry. +2009 +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE +“FOR” EACH OF THE CLASS I NOMINEES TO THE BOARD +OF DIRECTORS SET FORTH IN THIS PROPOSAL NO. 1. PROXIES +SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS +SPECIFY A CONTRARY VOTE. THE PROXIES WILL BE VOTED IN ACCORDANCE +WITH THE STOCKHOLDERS’ SPECIFICATIONS. DIRECTORS ARE +ELECTED BY A PLURALITY OF THE VOTE. +PROPOSAL NO. 2 — +ADVISORY VOTE REGARDING COMPENSATION +OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +(Proposal 2 +on the Proxy Card) +The stockholders of the Company are entitled to cast an advisory +vote at the Annual Meeting to approve the compensation of the +Company’s Named Executive Officers, as disclosed in this +Proxy Statement. While this stockholder vote on executive +compensation is an advisory vote that is not binding on the +Company or the Board of Directors, the Company values the +opinions of its stockholders and will take into consideration +the outcome of the vote when making future compensation +decisions. +As described more fully in the “Compensation Discussion and +Analysis” section of this Proxy Statement, the +Company’s executive compensation program is designed to +attract, motivate and retain individuals with the skills +required to formulate and drive the Company’s strategic +direction and achieve annual and long-term performance necessary +to create stockholder value. The program also seeks to align +executive compensation with stockholder value on an annual and +long-term basis through a combination of base pay, annual +incentives and long-term incentives. +The Company’s practice of placing a significant portion of +each Named Executive Officer’s compensation at-risk +demonstrates its +pay-for-performance +philosophy. In 2010, at least 69% of the target 2010 +compensation level for each Named Executive Officer of the +Company was in the form of “at-risk” elements +(i.e . , incentive cash compensation, stock appreciation +rights (“SARs”) and restricted stock units). For the +Company’s CEO, Mr. McCullough, this figure was 78%. +The Company’s Named Executive Officers all have been +granted significant equity to encourage a stake in the +Company’s long-term success, and none of such officers has +ever sold any shares after receipt. The Company has also +instituted Stock Ownership Guidelines and increased the +ownership requirements under such guidelines in +10 +Table of Contents +early 2011. The Company believes that this “tone at the +top” guides the Company’s other officers and members +of management to obtain and maintain meaningful ownership stakes +in the Company. +As discussed later in this Proxy Statement, fiscal 2010 was a +very good year for the Company in many key areas, and the +Company believes that the compensation paid to the Named +Executive Officers was appropriate in light of the +Company’s achievements, including the following: +• +Significant repositioning of the Company’s assets to +increase the percentage of oil and liquids reserves and +production relative to natural gas, including two significant +acquisitions in the oil-rich Wolfberry trend in the Permian +basin; +• +Successful execution of the largest capital raise in the history +of the Company, at a common stock price equal to 83% of the +stock’s twelve-month high; +• +Exceeding the Company’s targets for production, reserve +growth and adjusted cash flow per share; and +• +The Company’s stock price growth in 2010 exceeded that of +its peers. +In light of the above, the Company believes that its +compensation of the Named Executive Officers for fiscal 2010 was +appropriate and reasonable, and that its compensation programs +and practices are sound and in the best interest of the Company +and its stockholders. +Stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s stockholders approve, on an +advisory basis, the compensation of the Company’s Named +Executive Officers, as disclosed pursuant to the compensation +disclosure rules of the Securities and Exchange Commission, +including the Compensation Discussion and Analysis, the +compensation tables, narrative disclosure and any related +material disclosed in this Proxy Statement. +This advisory vote will be approved if it receives the +affirmative vote of a majority of shares of common stock of the +Company cast at the Annual Meeting and entitled to vote with +respect to this proposal. Broker non-votes and abstentions will +not affect the outcome of this proposal. If no voting +specification is made on a properly returned or voted proxy +card, the proxies named on the proxy card will vote FOR the +above resolution. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE +“FOR” THE RESOLUTION SET FORTH IN THIS +PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD WILL BE +SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. THE +PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ +SPECIFICATIONS. +PROPOSAL NO. 3 — +FREQUENCY OF ADVISORY VOTE +REGARDING EXECUTIVE COMPENSATION +(Proposal 3 +on the Proxy Card) +The stockholders of the Company are entitled to cast an advisory +vote at the Annual Meeting to determine how frequently they +should consider and cast an advisory vote to approve the +compensation of the Company’s Named Executive Officers. The +choices are: annually, every other year, or every three years or +abstain. +The Company, the Compensation Committee and the Board of +Directors believe that it is appropriate and in the best +interests of the Company for the Company’s stockholders to +cast an advisory vote on executive compensation every three +years, for the following reasons: +• +The Company’s stock price is very volatile, so a multi-year +approach is more appropriate. This stock price volatility is +partially related to volatility of underlying oil and natural +gas commodities that are central to the Company’s business +and partially caused by the low daily trading volume experienced +by smaller companies which exaggerates stock price swings; +• +The Company’s long-term incentive grants to the Named +Executive Officers have three-year vesting. In addition, in 2011 +the Company granted performance shares to its Named Executive +Officers based on +11 +Table of Contents +three-year +total shareholder return (“TSR”) performance against +peers; we believe it is logical for a stockholder vote to take a +similar approach; +• +Three of the Company’s five largest stockholders, with +ownership totaling 27% of our outstanding stock, have stated +that they will support a triennial +say-on-pay +vote; +• +An annual stockholder vote on executive compensation runs the +risk of becoming a referendum in hindsight with respect to the +amount of executive compensation paid in a particular year and +is not likely to provide the Company or the Board with +meaningful guidance as to whether the Company’s executive +compensation programs and policies are generally appropriate and +effective. Determining whether executive compensation has been +properly calibrated to Company performance is best viewed over a +multi-year period rather than any single year, given that a +single year can be impacted by various factors (difficulty in +forecasting oil and gas commodity prices, changes in the global +or domestic economy, etc.), especially in times of highly +volatile economic conditions such as those experienced over the +last few years; +• +If the Company were to receive an advisory vote disapproving the +Company’s compensation of its Named Executive Officers, the +Company and the Board would want to understand its +stockholders’ views that led to such vote. It would take +time for the Company to understand and consider these concerns +and any potential alternatives. This is particularly true when +one considers that any changes to the Company’s +compensation programs may have implications beyond the +Company’s Named Executive Officers to a large group of +employees of the Company. These programs have proven to be +valuable in the recruitment and retention of key employees (in +addition to its Named Executive Officers), and before the +Company eliminated or materially changed these programs, it +would want to fully understand the human resources implications +of doing so. Once that assessment was made, it will take time to +institute any necessary changes and for the Company and its +stockholders to determine whether such changes were effective. +It would not be in the best interest of stockholders for the +Company or the Board to respond to a negative advisory vote on +executive compensation in a reactive or “knee-jerk” +fashion; and +• +The Company wishes to have open lines of communication with its +major stockholders and believes that it generally has an +“open door” philosophy in responding to any +stockholder who expresses a concern regarding any of the +Company’s policies and practices, including those related +to executive compensation. As a practical matter, Company +stockholders and potential investors will continue to have ample +opportunity to engage in meaningful dialogue regarding executive +compensation matters during the period of time between advisory +votes and that they will not be prejudiced or in any way +disenfranchised by our proposed three-year term. Therefore the +resources in preparing for and seeking an advisory vote on +executive compensation will be most effectively deployed every +three years as opposed to a shorter time period, without +sacrificing the ability of the stockholders’ concerns to be +heard and responded to. +In light of the above, the Company believes that its resources +in preparing for and seeking an advisory vote on executive +compensation would be most effectively deployed every three +years, as opposed to every one or two years. +Stockholders are being asked to vote on the following resolution: +RESOLVED, that a non-binding advisory vote of the Company’s +stockholders to approve, on an advisory basis, the compensation +of the Company’s Named Executive Officers, as disclosed +pursuant to the compensation disclosure rules of the Securities +and Exchange Commission, including the Compensation Discussion +and Analysis, the compensation tables, narrative disclosure and +any related material disclosed in this Proxy Statement, be held +at an Annual Meeting of the Stockholders, beginning with the +2011 Annual Meeting of the Stockholders, (1) every year, +(2) every two years, or (3) every three years. +The advisory vote on the frequency of future stockholder +advisory votes on the Company’s executive compensation is +non-binding on the Board. Stockholders will be able to specify +one of four choices for this proposal on the proxy card: one +year, two years, three years or abstain. Stockholders are not +voting to approve or disapprove the Board’s recommendation. +Although non-binding, the Board and the Compensation Committee +will carefully review the voting results. The Company values the +opinions of its stockholders and will consider the outcome of +the vote when making its determination regarding how frequently +this advisory vote will be held. +12 +Table of Contents +Notwithstanding the Board’s recommendation and the outcome +of the stockholder vote, the Board may in the future decide to +conduct advisory votes on a more or less frequent basis and may +vary its practice based on factors such as discussions with +stockholders and the adoption of material changes to +compensation programs. Shares represented by proxies that are +marked to indicate abstentions from this proposal and broker +non-votes with respect to this proposal will not affect its +outcome. If no voting specification is made on a properly +returned or voted proxy card, the proxies named on the proxy +card will vote FOR a frequency of three years for future +advisory votes regarding executive compensation. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE +“FOR” A FREQUENCY OF THREE YEARS WITH RESPECT TO THE +RESOLUTION SET FORTH IN THIS PROPOSAL NO. 3. PROXIES +SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS +SPECIFY A CONTRARY VOTE. THE PROXIES WILL BE VOTED IN ACCORDANCE +WITH THE STOCKHOLDERS’ SPECIFICATIONS. +PROPOSAL NO. 4 — +RATIFICATION OF SELECTION OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +(Proposal 4 +on the Proxy Card) +The Audit Committee and the Board have ratified the engagement +of PricewaterhouseCoopers LLP (“PwC”) as the +Company’s independent registered public accounting firm +with respect to the fiscal year ending December 31, 2011. +The Board is submitting the appointment of PwC to the +stockholders for ratification. If the appointment of PwC is not +ratified, the Board will require the Audit Committee to +reconsider its selection. A representative of PwC is expected to +be present at the meeting, will have an opportunity to make a +statement if he or she so desires, and will also be available to +respond to appropriate questions. +Principal +Accountant Fees and Services +2010 +2009 +Audit fees(1) +$ +1,852,294 +$ +2,674,000 +Audit related fees(2) +1,520,079 +1,706,384 +Tax fees(3) +213,993 +550,867 +Other fees(4) +3,272 +59,500 +Total fees +$ +3,589,638 +$ +4,990,751 +(1) +Audit fees consist of the aggregate fees billed for professional +services rendered for audit procedures performed with regard to +the Company’s annual consolidated financial statements and +the report on management’s assessment of internal control +over financial reporting and the effectiveness of the +Company’s internal control over financial reporting, +including reviews of the consolidated financial statements +included in our Quarterly Reports on +Form 10-Q, +and services that are normally provided by the independent +registered public accounting firm in connection with statutory +and regulatory filings or engagements, including amounts related +to comfort letters and consents issued in conjunction with our +debt and equity offerings. +(2) +Audit-related fees consist of the aggregate fees billed for +assurance and related services that are reasonably related to +the performance of the audit or review of the Company’s +annual consolidated financial statements and are not reported +under “Audit fees.” Fees billed primarily include our +proportionate share of amounts billed the +Company-sponsored +partnerships for the audits of their annual financial +statements. Total amounts billed for the +Company-sponsored +partnerships in 2010 and 2009 were $3,904,766 and $4,708,558, +respectively. +(3) +Tax fees consist of the aggregate fees billed for professional +services rendered for tax compliance, tax advice and tax +planning for the Company and its proportionately consolidated +entities. +(4) +All other fees consist of aggregate fees billed for products and +services other than the services reported above. +13 +Table of Contents +Audit +Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services +provided to the Company by its independent registered public +accounting firm be subject to pre-approval by the Audit +Committee or authorized Audit Committee members. The Audit +Committee has adopted policies and procedures for pre-approval +of all audit services and non-audit services to be provided by +the Company’s independent registered public accounting +firm. Services necessary to conduct the annual audit must be +pre-approved by the Audit Committee annually. Permissible +non-audit services to be performed by the independent accountant +may also be approved on an annual basis by the Audit Committee +if they are of a recurring nature. Permissible non-audit +services, which are not eligible for annual pre-approval, to be +conducted by the independent accountant must be pre-approved +individually by the full Audit Committee or by an authorized +Audit Committee member. Actual fees incurred for all services +performed by the independent accountant will be reported to the +Audit Committee after the services are fully performed. The +duties of the Committee are described in the Audit Committee +Charter, which is available at the Company’s website under +“Corporate Governance.” +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THIS +PROPOSAL NO. 4. PROXIES SOLICITED BY THE BOARD WILL BE +SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. THE +PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ +SPECIFICATIONS. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE +SHARES OF COMMON STOCK CAST AT THE MEETING REPRESENTED IN +PERSON OR BY PROXY AND ENTITLED TO VOTE AT THE MEETING IS +REQUIRED FOR APPROVAL OF THIS PROPOSAL NO. 4. +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee of the Board is composed of four Directors +and operates under a written charter adopted by the Board. Each +member of the Audit Committee meets the independence +requirements of Rule 5605(a)(2) of the NASDAQ listing +standards and other applicable standards. The duties of the +Audit Committee are summarized in this Proxy Statement under +“Committees of the Board of Directors” and are more +fully described in its charter, which is available at the +Company’s website under “Corporate Governance.” +Management is responsible for the Company’s internal +controls and preparation of the consolidated financial +statements in accordance with generally accepted accounting +principles. The Company’s independent registered public +accounting firm is responsible for performing an independent +audit of the Company’s consolidated financial statements in +accordance with the standards of the Public Company Accounting +Oversight Board (United States) (“PCAOB”) and issuing +a report thereon. The Audit Committee’s responsibilities +include monitoring and overseeing these processes. +The Audit Committee met nine times during 2010. In addition, the +Audit Committee authorized each Audit Committee member to serve +on a +sub-committee +of the Audit Committee to review and approve SEC filings and +other actions of the partnerships for which the Company serves +as general partner. The +sub-committee +met an additional ten times during 2010 to review such +partnership filings. The Audit Committee and +sub-committee +have continued to meet frequently during 2011. +The Audit Committee reviewed and discussed the Company’s +audited consolidated financial statements for the year ended +December 31, 2010 (the “audited financial +statements”) with management and the Company’s +independent registered public accounting firm, +PricewaterhouseCoopers LLP (“PwC”). The Audit +Committee also discussed with PwC the matters required to be +discussed by Statement of Auditing Standards No. 61 +(Codification of Statements of Auditing Standards AU +§ 380) as adopted by the PCAOB in +Rule 3200T, as amended, and PwC directly provided reports +on significant matters to the Audit Committee. +The Audit Committee has received the written disclosures and the +letter from PwC required by PCAOB Rule 3526 and has +discussed with PwC its independence from the Company. +The Audit Committee has discussed with management and PwC such +other matters and received such assurances from them as the +Audit Committee deemed appropriate. +14 +Table of Contents +Based on the foregoing review and discussions and relying +thereon, the Audit Committee recommended that the Board include +the audited financial statements in the Company’s Annual +Report on +Form 10-K +for the fiscal year ending December 31, 2010. +The Board approved the Audit Committee’s recommendation to +appoint PwC to serve as the Company’s independent +registered public accounting firm for the year ended +December 31, 2011. This appointment is subject to +ratification by the Company’s stockholders. +Anthony J. Crisafio, Chair +Joseph E. Casabona +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE +of the Board of Directors +ALL OTHER +BUSINESS THAT MAY COME BEFORE THE 2011 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware +of any matters to be brought before the 2011 Annual Meeting +other than the matters set forth in this Proxy Statement. +However, if other matters properly come before the meeting, it +is the intention of the proxy holders named in the enclosed form +of proxy to vote in accordance with their discretion on such +matters pursuant to such proxy. +15 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding +beneficial ownership of the Company’s common stock, par +value $0.01 per share, as of April 1, 2011, by +(1) each person known by the Company to own beneficially +more than 5% of the outstanding shares of common stock; +(2) each Director of the Company; (3) each Named +Executive Officer; and (4) all Directors and executive +officers as a group. Except as otherwise indicated, each person +has sole voting and investment power with respect to all shares +shown as beneficially owned, subject to community property laws +where applicable. Voting power is the power to vote or direct +the voting of securities, and dispositive power is the power to +dispose of or direct the disposition of securities. As of +April 1, 2011, 23,475,673 common shares of the Company were +outstanding. Except as otherwise indicated, the address for each +of the named security holders is 1775 Sherman Street, +Suite 3000, Denver, Colorado 80203. +Number +Percent +of +of +Shares +Shares +Beneficially +Beneficially +Name and Address of Beneficial Owner +Owned +Owned +BlackRock, Inc. +40 East 52nd Street +New York, NY 10022 +2,757,019 +(1) +11.7 +% +FMR LLC +82 Devonshire Street +Boston, MA 02109 +2,532,999 +(2) +10.8 +% +Wellington Management Company, LLP +280 Congress Street +Boston, MA 02210 +2,288,490 +(3) +9.7 +% +Dimensional Fund Advisors Inc. +Palisades West, Building One +6300 Bee Cave Road +Austin, Texas 78746 +1,584,514 +(4) +6.7 +% +Capital Research Global Investors +333 South Hope Street +55th Floor +Los Angeles, CA 90071 +1,275,000 +(5) +5.4 +% +Richard W. McCullough +46,154 +(6) +* +Gysle R. Shellum +11,179 +(7) +* +Barton R. Brookman, Jr. +38,466 +(8) +* +Daniel W. Amidon +15,649 +(9) +* +Lance A. Lauck +16,559 +(10) +* +Kimberly Luff Wakim +12,834 +(11) +* +David C. Parke +13,985 +(12) +* +Jeffrey C. Swoveland +16,239 +(13) +* +Anthony J. Crisafio +11,406 +* +Joseph E. Casabona +12,461 +* +Larry F. Mazza +11,919 +* +James M. Trimble +11,306 +* +All Directors and executive officers as a group (12 persons) +218,157 +(14) +* +* Represents less than 1% of the outstanding shares of common +stock. +(1) +According to the Schedule 13G/A filed by BlackRock, Inc. +with the SEC on January 10, 2011. +(2) +According to the Schedule 13G/A filed by FMR LLC with the +SEC on March 10, 2011. At the time of the filing, the +reporting person reported having sole dispositive power over +2,532,999 shares of common stock. +16 +Table of Contents +Fidelity Management & Research Company +(“Fidelity”), a wholly-owned subsidiary of FMR LLC and +an investment adviser registered under Section 203 of the +Investment Advisers Act of 1940, is the beneficial owner of +2,532,999 shares as a result of acting as investment +adviser to various investment companies registered under +Section 8 of the Investment Company Act of 1940. Edward C. +Johnson 3d and FMR LLC, through its control of Fidelity, and the +funds each has sole power to dispose of the +2,532,999 shares owned by the Funds. Neither FMR LLC nor +Edward C. Johnson 3d, Chairman of FMR LLC, has the sole power to +vote or direct the voting of the shares owned directly by the +Fidelity Funds, which power resides with the Funds’ Boards +of Trustees. Fidelity carries out the voting of the shares under +written guidelines established by the Funds’ Boards of +Trustees. +(3) +According to the Schedule 13G/A filed by Wellington +Management Company, LLP with the SEC on February 14, 2011. +At the time of the filing, the reporting person reported having +shared voting power over 2,068,490 shares and shared +dispositive power over 2,288,490 shares. Wellington +Management, in its capacity as investment adviser, may be deemed +to beneficially own 2,288,490 shares of the Company which +are held of record by clients of Wellington Management. +(4) +According to the Schedule 13G filed by Dimensional +Fund Advisors LP with the SEC on February 11, 2011. At +the time of the filing, the reporting person reported having +sole voting power over 1,533,824 shares and sole +dispositive power over 1,584,514 shares. Dimensional Fund +Advisors LP, an investment adviser registered under +Section 203 of the Investment Advisors Act of 1940, +furnishes investment advice to four investment companies +registered under the Investment Company Act of 1940, and serves +as investment manager to certain other commingled group trusts +and separate accounts (such investment companies, trusts and +accounts, collectively referred to as the “Funds”). In +certain cases, subsidiaries of Dimensional Fund Advisors LP +may act as an adviser or +sub-adviser +to certain Funds. In its role as investment advisor, +sub-adviser +and/or manager, neither Dimensional Fund Advisors LP or its +subsidiaries (collectively, “Dimensional”) possess +voting and/or investment power over the securities of the Issuer +that are owned by the Funds, and may be deemed to be the +beneficial owner of the shares of the Issuer held by the Funds. +However, all securities reported in this Schedule 13G/A are +owned by the Funds. Dimensional disclaims beneficial ownership +of such securities. +(5) +According to the Schedule 13G filed by Capital Research +Global Investors with the SEC on February 10, 2011. +(6) +Excludes 49,514 restricted shares subject to vesting greater +than 60 days after April 1, 2011; includes +3,333 shares subject to options and 8,457 shares +subject to SARs exercisable within 60 days of April 1, +2011. Each SAR entitles the executive officer the right to +receive the difference between the fair market value of a share +of our common stock on the date of exercise and $24.44, the +grant date fair value, payable in shares only. +(7) +Excludes 15,839 restricted shares subject to vesting greater +than 60 days after April 1, 2011; includes +2,830 shares subject to SARs exercisable within +60 days of April 1, 2011. Each SAR entitles the +executive officer the right to receive the difference between +the fair market value of a share of our common stock on the date +of exercise and $24.44, the grant date fair value, payable in +shares only. +(8) +Excludes 17,193 restricted shares subject to vesting greater +than 60 days after April 1, 2011; includes +2,765 shares subject to SARs exercisable within +60 days of April 1, 2011. Each SAR entitles the +executive officer the right to receive the difference between +the fair market value of a share of our common stock on the date +of exercise and $24.44, the grant date fair value, payable in +shares only. +(9) +Excludes 16,871 restricted shares subject to vesting greater +than 60 days after April 1, 2011; includes +2,602 shares subject to SARs exercisable within +60 days of April 1, 2011. Each SAR entitles the +executive officer the right to receive the difference between +the fair market value of a share of our common stock on the date +of exercise and $24.44, the grant date fair value, payable in +shares only. +(10) +Excludes 25,904 restricted shares subject to vesting greater +than 60 days after April 1, 2011; includes +2,439 shares subject to SARs exercisable within +60 days of April 1, 2011. Each SAR entitles the +executive officer the right to receive the difference between +the fair market value of a share of our common stock on the date +of exercise and $24.44, the grant date fair value, payable in +shares only. +(11) +Excludes 1,046 shares of common stock purchased pursuant to +the Non-Employee Director Deferred Compensation Plan. +17 +Table of Contents +(12) +Excludes 571 shares of common stock purchased pursuant to +the Non-Employee Director Deferred Compensation Plan. +(13) +Excludes 1,321 shares of common stock purchased pursuant to +the Non-Employee Director Deferred Compensation Plan. +(14) +Excludes 125,321 restricted shares subject to vesting greater +than 60 days after April 1, 2011, and +2,938 shares of common stock purchased pursuant to the +Non-Employee Director Deferred Compensation Plan; includes +3,333 shares subject to options and 19,093 SARs exercisable +within 60 days of April 1, 2011. Each SAR entitles the +executive officer the right to receive the difference between +the fair market value of a share of our common stock on the date +of exercise and $24.44, the grant date fair value, payable in +shares only. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +(“Exchange Act”) requires the Company’s officers +and Directors, and persons who own more than 10% of the +Company’s common stock, to file reports of ownership and +changes in ownership with the SEC. Officers, Directors and +holders of more than 10% of the common stock are required by +regulations promulgated by the SEC pursuant to the Exchange Act +to furnish the Company with copies of all Section 16(a) +forms they file. If requested, the Company assists officers and +Directors, and will assist beneficial owners, if requested, of +more than 10% of the common stock, in complying with the +reporting requirements of Section 16(a) of the Exchange Act. +Based solely on a review of the copies of such forms received by +it, the Company believes that for the year ended +December 31, 2010, all Section 16(a) filing +requirements applicable to its Directors, officers and greater +than 10% beneficial owners were met, with the exception of a +late Form 4 for Mr. Mazza related to a time-based +restricted stock grant and two late Form 4s filed by +Mr. R. Scott Meyers, an officer of the Company, also +related to grants of time-based restricted stock. +CORPORATE +GOVERNANCE +Corporate +Governance Guidelines +The Board has adopted Corporate Governance Guidelines that +govern the structure and functioning of the Board and establish +the Board’s policies on a number of corporate governance +issues. The Corporate Governance Guidelines were most recently +amended on September 11, 2010, and are posted under the +Corporate Governance section on the Company’s website, +together with the following governance documents: +By-Laws +Code of Business Conduct and Ethics +Director Nomination Procedures +Insider Trading Policy +Shareholder Communication Policy +Audit Committee Charter +Compensation Committee Charter +Nominating and Governance Committee Charter +Executive Committee Charter +Planning and Finance Committee Charter +Presiding Independent Director Charter +These documents are also available to any stockholder upon +request; see “Contact Information” above. +Board of +Directors +The Company’s By-Laws provide that the number of members of +the Board of Directors shall be designated from time to time by +a resolution of the Board. Currently, the designated number of +Directors is eight. The By-Laws provide that the Board shall be +divided into three separate classes of Directors which are +required to be as nearly equal in number as practicable. At each +Annual Meeting of Stockholders one class of Directors, whose +term has +18 +Table of Contents +expired, will be elected to a term of three years. The classes +are staggered so that the term of one class expires each year. +There is no family relationship between any Director or Named +Executive Officer of the Company. There are no arrangements or +understandings between any Director or officer and any other +person pursuant to which the person was selected as an officer. +Director +Independence +In affirmatively determining whether a Director is +“independent,” the Board analyzes and reviews the +NASDAQ listing standards, which generally provide that a +Director will not be independent if: +• +The Director is, or at any time during the past three years was, +employed by the Company; +• +The Director or a member of the Director’s immediate family +has received from the Company compensation of more than $120,000 +during any period of 12 consecutive months within the three +years preceding the determination of independence other than for +service as a Director; compensation paid to a family member who +is an employee of the Company (other than an executive officer); +or benefits under a tax-qualified retirement plan or +non-discretionary compensation; +• +The Director is a family member of an individual who is, or at +any time during the past three years was, an executive officer +of the Company; +• +The Director or a member of the Director’s immediate family +is a partner in, or a controlling person of, or an executive +officer of any organization to which PDC made, or from which PDC +received, payments for property or services in the current or +any of the past three fiscal years that exceed 5% of the +recipient’s consolidated gross revenues for that year, or +$200,000, whichever is more (with certain exceptions); +• +The Director or a member of the Director’s immediate family +is employed as an executive officer of another entity where at +any time during the past three years any of the Company’s +executive officers serves on the compensation committee of the +other entity; or +• +The Director or a member of the Director’s immediate family +is a current partner of PwC or during the past three years was a +partner or employee of PwC. +Audit Committee members are subject to additional, more +stringent NASDAQ and Exchange Act requirements. +The Board has reviewed business and charitable relationships +between the Company and each independent +(“Non-Employee”) Director to determine compliance with +the NASDAQ listing standards described above and to evaluate +whether there are any other facts or circumstances that might +impair a Director’s independence. The Board has +affirmatively determined that each of Messrs. Casabona, +Crisafio, Mazza, Parke, Swoveland, Trimble and Ms. Wakim is +independent under NASDAQ Listing Rule 5605 and the Exchange +Act. +Board +Meetings and Attendance +The Board of Directors has a standing Audit Committee, +Compensation Committee, Nominating and Governance Committee, +Planning and Finance Committee, and Executive Committee. Actions +taken by these committees are reported to the Board at the next +Board meeting. During 2010, each of the Company’s Directors +attended at least 75 percent of all meetings of the Board +of Directors and committees of which he or she was a member, +with the exception of Ms. Wakim, who was ill during the +second half of the fiscal year. As specified in the +Company’s Corporate Governance Guidelines, Directors are +strongly encouraged, but not required, to attend the Annual +Meeting of Stockholders. All of the Directors attended the 2010 +Annual Meeting of Stockholders held on June 4, 2010, except +Ms. Wakim. +19 +Table of Contents +The following table identifies the members of each committee of +the Board, the chair of each committee and the number of +meetings held in 2010. +2010 +BOARD AND COMMITTEE MEMBERSHIPS +Planning +Board +Nominating +and +of +Audit +Compensation +and Governance +Finance +Executive +Director +Directors +Committee +Committee +Committee +Committee +Committee +Joseph E. Casabona +ü +ü +ü * +Anthony J. Crisafio +ü +ü * +ü +Larry F. Mazza +ü +ü +ü * +Richard W. McCullough +ü * +ü +ü +David C. Parke +ü +ü +ü +ü +Jeffrey C. Swoveland** +ü +ü +ü +ü +James M. Trimble +ü +ü +ü +ü +ü +Kimberly Luff Wakim +ü +ü +ü * +ü +Number of Meetings in 2010 +15*** +9**** +14 +6 +11 +2 +* +Chair +** +Mr. Swoveland was appointed to the Compensation Committee +effective as of January 1, 2011, and serves as Presiding +Independent Director. +*** +Includes one joint meeting with the Planning and Finance +Committee. +**** +A +sub-committee +of the Audit Committee held ten additional meetings in 2010 +related to SEC partnership filings. +The Non-Employee Directors generally meet in “executive +sessions” without the presence of employee Directors at +their discretion, in connection with each regularly scheduled +Board meeting. Mr. Swoveland serves as Presiding +Independent Director at these sessions; however, the other +Non-Employee Directors may, in the event of his absence, select +another Director to preside over a particular executive session. +STANDING +COMMITTEES OF THE BOARD +Audit +Committee +The Audit Committee is composed entirely of persons whom the +Board has determined to be independent under NASDAQ Listing +Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act +of 2002 and Section 10A(m)(3) of the Exchange Act. +Mr. Crisafio chairs the Audit Committee; the other members +are Ms. Wakim and Messrs. Casabona and Swoveland. The +Board has determined that all four members of the Audit +Committee qualify as “financial experts” as defined by +SEC regulations and that all of the Audit Committee members are +independent of management. The Audit Committee’s purpose is +to assist the Board in monitoring the integrity of the financial +reporting process, systems of internal controls and financial +statements of the Company, and compliance by the Company with +legal and regulatory requirements. Additionally, the Audit +Committee is directly responsible for the appointment, +compensation and oversight of the independent auditors engaged +by the Company for the purpose of preparing or issuing an audit +report or related work and to assess the need for an internal +audit function and recommend its establishment when deemed +appropriate. +In performing its responsibilities, the Audit Committee monitors +the integrity of the Company’s financial reporting process +and systems of internal controls regarding finance, accounting +and legal compliance; monitors the independence of the +independent registered public accounting firm; and provides an +avenue of communications among the independent registered public +accounting firm, management and the Board. The Board has adopted +an Audit Committee Charter which is posted on the Company’s +website. The Board continues to assess the adequacy of the +Charter on an annual basis and will revise it as necessary. +20 +Table of Contents +Compensation +Committee +The Board has determined that all members of the Compensation +Committee (the “Committee”) are independent of the +Company under Rule 5605(a)(2) of the NASDAQ listing +standards. The Board has adopted a Compensation Committee +Charter which is posted on the Company’s website. The +Compensation Committee revised its charter in 2010, primarily to +clarify its duties with respect to non-senior executive officer +compensation oversight. +The purpose and functions of the Committee are to: +(1) oversee the development of a compensation strategy for +the Company’s Named Executive Officers; (2) evaluate +the performance of and set compensation for the CEO; +(3) review and approve the elements of compensation for +other senior executive officers of the Company; +(4) negotiate the terms of employment agreements with +executive officers of the Company and approve all change of +control plans; (5) review the compensation of the Directors +for Board and Committee work and recommend to the full Board +changes in such compensation levels; (6) review and approve +performance criteria and results for which bonus awards for +senior executive officers will be determined, and approve bonus +awards to senior executive officers; (7) recommend to the +Board of Directors equity-based incentive plans necessary to +implement the Company’s compensation strategy, approve all +equity grants under the plans, and administer all equity-based +incentive programs of the Company, which may include specific +delegation to management regarding awards to non-executive +officers; (8) review and approve Company contributions to +retirement plans; and (9) hire and utilize outside +consultants as necessary. +Compensation +Committee Interlocks and Insider Participation +There were no Compensation Committee interlocks during fiscal +year 2010. +Executive +Committee +The purpose and functions of the Executive Committee are to +exercise the powers and duties of the Board of Directors between +Board meetings and, while the Board is not in session, implement +the policy decisions of the Board. The Board has adopted an +Executive Committee Charter which is posted on the +Company’s website. +Nominating +and Governance Committee +The Board of Directors has determined that all members of the +Nominating and Governance Committee (the “NG +Committee”) are independent of the Company under +Rule 5605(a)(2) of the NASDAQ listing standards. The +purpose of and functions performed by the NG Committee are to: +(1) assist the Board by identifying individuals qualified +to become Board members and to recommend to the Board Nominees +for the next Annual Meeting of Stockholders or fill any +vacancies; (2) recommend to the Board corporate governance +guidelines applicable to the Company; (3) lead the Board in +its annual review of the Board’s performance; and +(4) recommend to the Board Director Nominees for each +committee. The Board has adopted a Nominating and Governance +Committee Charter which is posted on the Company’s website. +Board +Leadership Structure/Presiding Independent Director +As noted in the Corporate Governance Guidelines, the Board +believes it is appropriate and efficient to combine the offices +of Chairman and CEO, provided that a Presiding Independent +Director is in place to preside at executive sessions of the +Non-Employee Directors and otherwise provide leadership for the +Non-Employee Directors. Mr. Swoveland serves as our +Presiding Independent Director. His duties in that role include +presiding at executive sessions of the Non-Employee Directors, +reviewing agendas for Board meetings, reviewing with the CEO the +CEO’s annual goals and objectives, and consulting with the +Board regarding its evaluation of the performance of the CEO. +Particularly at a smaller business, such as the Company, the +Board believes that separation of the roles of CEO and Chairman +is not necessary or efficient, which is why the same person, +Mr. McCullough, serves as both our CEO and Chairman. In +addition, the Board currently consists of seven Non-Employee +Directors and only one management Director, further mitigating +any risks associated with combining the offices of Chairman and +CEO. The Board believes that Mr. Swoveland’s strong +leadership as Presiding Independent Director, together with its +supermajority of Non-Employee Directors and other aspects of its +governance, provides appropriate independent +21 +Table of Contents +oversight to Board decisions and act as a counterweight to +management decisions as represented by the unity of the CEO and +Chairman. The Committee reviews the Corporate Governance +Guidelines, including this matter, on an annual basis. +Planning +and Finance Committee +The purpose of the Planning and Finance Committee is to oversee +the responsibilities of the Board relating to planning and +finance, including to: (1) organize and oversee the +Board’s participation in the development of the +Company’s Strategic Plan and the risk assessment and +management process; (2) follow the progress in the +implementation of the Strategic Plan and to advise the Board of +Directors if additional Board action appears to be needed to +assure successful implementation of the plan or if a need exists +to revise the plan in the face of changing conditions or other +factors; (3) assure that management is addressing personnel +requirements for the successful implementation of the Strategic +Plan; (4) assure that a talent-rich organization is being +developed to address both current and future leadership needs; +(5) assure that robust management development and +succession planning processes are developed and implemented for +management at all levels in the Company; and (6) work with +the CFO other executive management regarding corporate financial +matters including operating and capital budgets, capital +structure, dividends, and other significant financial and +capital issues. The Board has adopted a charter for the Planning +and Finance Committee which is posted on the Company’s +website. +DIRECTOR +COMPENSATION +Compensation of our Non-Employee Directors is reviewed annually +by the Compensation Committee and approved by the Board. We use +a combination of cash and stock-based incentive compensation to +attract and retain qualified candidates to serve on our Board. +In setting Director compensation, we consider the significant +amount of time that Directors expend in fulfilling their duties +as well as the competitive market for skilled Directors. In +addition, we recognize that our Directors are also responsible +for the oversight of 29 partnerships for which PDC is the +managing general partner. No compensation is paid to employee +Directors for their service on the Board. +In 2010, the Compensation Committee engaged Towers +Watson & Co. (the “Consultant”) as the +compensation consultant used to review executive compensation +and to conduct an annual review of the total compensation of +outside Directors. Specifically, retainer fees, potential +meeting fees and stock-based long-term incentives were evaluated +using, as the competitive benchmark, levels of total +compensation paid to the directors of the energy companies which +comprise the Company’s peer group for determining 2010 +executive compensation. Below is a summary of the compensation +paid to our Non-Employee Directors. All Board and Committee +retainers are paid in quarterly installments. +Cash +Compensation +Annual +Board Retainer +The annual Board term begins on July 1 of each year. For the +2009-2010 +and +2010-2011 +Board terms, each Non-Employee Director received an annual cash +retainer of $55,000 (inclusive of all meeting fees) for service +on the Board. The Presiding Independent Director was paid an +additional cash retainer of $27,500 for each year. +Annual +Committee Retainers +Each Non-Employee Director receives an annual cash retainer for +service on each committee on which he or she serves. In +addition, the chair of each committee receives an annual +retainer for his or her services as chair of the +22 +Table of Contents +committee. The following table shows the committee and chair +retainers for the 2009 – 2010 and 2010 – +2011 Board terms. +COMMITTEE +RETAINERS +2009 – 2010 Board Term +2010 – 2011 Board Term +Additional +Additional +Committee +Committee +Committee +Chair +Committee +Chair +Committee +Retainer +Retainer +Retainer +Retainer +Audit +$ +10,000 +$ +17,500 +$ +10,000 +$ +17,500 +Compensation +5,000 +5,000 +6,000 +6,000 +Executive +5,000 +N/A +5,000 +N/A +Nominating and Governance +2,500 +5,000 +6,000 +6,000 +Planning and Finance +2,500 +5,000 +6,000 +6,000 +In addition, a Special Committee consisting of +Messrs. Crisafio, Mazza, Parke and Swoveland was created in +2008 to consider the potential repurchase of certain +partnerships for which the Company is the managing general +partner. In 2010, each Special Committee member earned a fee of +$13,200 for such service, of which $9,700 was paid in 2010. +Mr. Swoveland received an additional $2,500 for serving as +chair of the Special Committee. +Equity +Compensation +On the date of each Annual Meeting of Stockholders of the +Company, each Non-Employee Director is awarded restricted +Company stock for service on the Board. In June 2010, each +Director received 5,106 shares of restricted stock. The +shares received were granted under the Company’s 2005 +Non-Employee Director Restricted Stock Plan (the “2005 +Plan”) and the 2010 Long-Term Equity Compensation Plan, +approved by stockholders in 2010 (the “2010 LTI +Plan”). The restricted shares granted under the 2005 Plan +vest 100% in July 2011 and the shares issued under the 2010 LTI +Plan vest ratably over three years. +Grants to Directors in 2011 will be made under the 2010 LTI Plan +and will vest over a minimum of three years in accordance with +the provisions of that plan. +Deferred +Compensation +Each Non-Employee Director may choose to defer all or a portion +of his/her +annual cash compensation by participating in the Non-Employee +Director Deferred Compensation Plan. All cash deferred into this +program is invested in common stock of the Company. None of the +Directors deferred compensation in 2010. +Ownership +Requirements +During 2010, each Non-Employee Director was required to hold +shares of stock equal to three times +his/her +annual retainer. This ownership requirement was increased in +2010 from one time the annual retainer. Compliance with +ownership requirements will be measured annually. Qualifying +shareholdings include stock owned directly and unvested +restricted stock. Directors are required to comply with the +ownership guidelines within three years of their election to the +Board. Based on ownership as of December 31, 2010, all +Directors met the current guidelines. +The Company’s Insider Trading Policy expressly prohibits +independent Directors from engaging in options, puts, calls or +other transactions that are intended to hedge against the +economic risk of owning Company shares. +23 +Table of Contents +Director +Compensation +The table below summarizes the compensation paid to the +Non-Employee Directors for fiscal year 2010. +DIRECTOR +COMPENSATION +Fees Earned or +Name +Paid in Cash +Stock Awards(1) +Total +Joseph E. Casabona +$ +74,750 +$ +110,800 +$ +185,550 +Anthony J. Crisafio(2) +97,700 +110,800 +208,500 +Vincent D’Annunzio(3) +36,250 +— +36,250 +Larry F. Mazza(2) +77,450 +110,800 +188,250 +David C. Parke(2) +78,700 +110,800 +189,500 +Jeffrey C. Swoveland(2) +113,950 +110,800 +224,750 +James M. Trimble +69,000 +110,800 +179,800 +Kimberly Luff Wakim +80,250 +110,800 +191,050 +(1) +On June 4, 2010, Non-Employee Directors were awarded +$110,000 worth of restricted stock based on the average of the +15-day +closing prices ending ten days prior to the grant date, as +compensation for service from July 1, 2010 through +June 30, 2011. Based on a price of $21.54, the Company +issued 5,106 shares of restricted stock to each +Non-Employee Director. The actual amount reported in this table +reflects the grant date fair value as computed in accordance +with FASB ASC Topic 718. +(2) +A Special Committee was formed to evaluate the partnership +repurchases. This amount includes $9,700 paid in 2010 for all +Special Committee members, plus an additional $2,500 for +Mr. Swoveland, the Special Committee chair. +(3) +Mr. D’Annunzio did not stand for re-election to the +Board of Directors at the 2010 Annual Meeting of Stockholders +and therefore was not granted a stock award. +DIRECTOR +QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that +prescribe the process the NG Committee will use to select the +Company’s nominees for election to the Board. The NG +Committee evaluates each candidate based on the candidate’s +level and diversity of experience and knowledge (specifically +within the industry and relevant industries in which the Company +operates, as well as his or her overall experience and +knowledge), skills, education, reputation, integrity, +professional stature and other factors that may be relevant +depending on the particular candidate. +Additional factors considered by the NG Committee include the +size and composition of the Board at the time, and allowing the +Company to benefit from having a broad mixture of skills, +experience and perspectives on the Board. Accordingly, one or +more of these factors may be given more weight in a particular +case at a particular time, although no single factor is viewed +as determinative. The NG Committee has not specified any minimum +qualifications that it believes must be met by any particular +Nominee. The Company’s Director Nomination Procedures are +posted on the Company’s website. +The NG Committee identifies Director candidates primarily +through recommendations made by the Non-Employee Directors. +These recommendations are developed based on the Non-Employee +Directors’ knowledge and experience in a variety of fields, +and research conducted by PDC staff at the NG Committee’s +direction. The NG Committee also considers recommendations made +by the employee Director, employees, stockholders, and others, +including search firms. All recommendations, regardless of the +source, are evaluated on the same basis against the criteria +contained in the guidelines. The NG Committee has the authority +to engage consultants to help identify or evaluate potential +Director Nominees, but has not done so recently. Our most recent +new Director, Mr. Trimble, was recommended by several +Non-Employee Directors. +24 +Table of Contents +Diversity +Consideration +In addition to qualities of intellect, integrity and judgment, +the NG Committee takes into consideration diversity of +background, senior management experience, education, and an +understanding of some combination of oil and gas marketing, +finance, technology, government regulation, and public policy. +The NG Committee makes its determination in the context of an +assessment of the perceived needs of the Board at that point in +time. The NG Committee evaluates all Director Nominees, +including Nominees recommended by stockholders, using these +criteria. The Director nomination process specifically includes +disclosure of the diversity provided by each candidate, and +diversity is considered as part of the overall assessment of the +Board’s functioning and needs. +STOCKHOLDER +RECOMMENDATIONS +The NG Committee will consider Director candidates recommended +by stockholders of the Company on the same basis as those +recommended by other sources. Any stockholder who wishes to +recommend a prospective Director Nominee should notify the NG +Committee of the recommendation by writing to the NG Committee +at the Company’s headquarters or by sending the information +via email to board@petd.com . All recommendations will be +reviewed by the NG Committee. +A submission recommending a candidate should include: +• +Sufficient biographical information to allow the NG Committee to +evaluate the potential candidate in light of the Director +Nomination Procedures; +• +An indication as to whether the proposed candidate will meet the +requirements for independence under NASDAQ guidelines; +• +Information concerning any relationships between the candidate +and the stockholder recommending the candidate; and +• +An indication of the willingness of the proposed candidate to +serve if nominated and elected. +Stockholder +Nominations +Stockholders who wish to may nominate candidates for election to +the Board. The Company’s By-Laws require stockholders who +wish to submit nominations of persons for election to the Board +of Directors at the Annual Meeting of Stockholders to follow +certain procedures. The stockholder must give written notice to +the Corporate Secretary at Petroleum Development Corporation, +1775 Sherman Street, Suite 3000, Denver, Colorado 80203 or +may email notice to board@petd.com not later than +80 days nor more than 90 days prior to the first +anniversary of the preceding year’s Annual Meeting. If the +date of the Annual Meeting is more than 30 days before or +more than 60 days after that anniversary date, however, for +notice by such stockholder to be timely, it must be received not +later than 80 days before such Annual Meeting, or within +10 days following the Company’s public announcement of +the date of its Annual Meeting. The stockholder must be a +stockholder of record at the time the notice is given. The +written notice must set forth (1) as to each Nominee all +information relating to that person that is required to be +disclosed in solicitations of proxies for election of Directors +in an election contest, or is otherwise required, in each case +pursuant to Regulation 14A under the Exchange Act +(including such person’s written consent to being named in +the Proxy Statement as a Nominee and to serving as a Director if +elected); (2) as to the stockholder giving the notice and +the beneficial owner, if any, on whose behalf the nomination is +made (a) the name and address of the stockholder, as they +appear on the Company’s books, and of such beneficial owner +and (b) the class and number of shares of the +Company’s securities that are beneficially owned by such +stockholder and the beneficial owner; and (3) any material +interest of such stockholder and such beneficial owner in such +nomination. +25 +Table of Contents +THE +BOARD’S ROLE IN RISK MANAGEMENT +The Board seeks to understand and oversee critical business +risks. Risks are considered in every business decision, +including through Board oversight of the Company’s internal +Risk Management system. For instance, a special assessment of +risks (financial and otherwise) is included in every acquisition +proposal to the Board. The Board realizes, however, that it is +not possible to eliminate all risk, nor is it desirable, and +that appropriate risk-taking is essential in order to achieve +the Company’s objectives. +The Board is responsible for general oversight of the risks of +the Company. The Planning and Finance Committee leads this +effort, primarily by overseeing risks related to the +Company’s key strategic goals. Other committees, however, +are active in managing the risks related to such +committees’ oversight areas. For example, the Audit +Committee reviews many risks and related controls in areas that +it considers fundamental to the integrity and reliability of the +Company’s financial statements, such as counterparty risks +and derivative program risks. Similarly, the Compensation +Committee considers risks related to the structure and size of +the Company’s compensation plans, as noted below. +Compensation +Risk Assessment +We do not believe the Company’s executive and non-executive +compensation structure is reasonably likely to have a material +adverse effect on the Company. With respect to specific elements +of compensation and risk analysis: +Base salary . It is a fixed amount set +at market rates and does not encourage excessive risk-taking. +Annual Incentive Plan . It is designed +to reward achievement of short-term performance metrics. Through +a combination of plan design and Board and management +procedures, undue risk-taking is mitigated. +• +Annual incentive constitutes a relatively small portion of total +direct compensation for the Company’s executive officers; +• +The plan has a cap on the award for any individual; +• +Five or more corporate metrics are used to determine the +Company’s annual bonus awards. Any excessive risk taken to +achieve one metric (e.g., cash flow per share) would usually not +have a positive effect on other metrics (e.g., reserve growth); +• +The Compensation Committee retains discretion over the annual +bonus of the Named Executive Officers, so that the Committee +could adjust payout levels in the event it believes excessive +risk was taken; +• +Board and management procedures include ongoing management +review and quarterly review of business performance by the Audit +Committee and the Company’s internal disclosure +committee; and +• +The Committee has negotiated “clawbacks” in all Named +Executive Officers’ employment agreements to discourage +undue risk-taking. +Long-Term Incentives . A number of +factors mitigate risks inherent in long-term equity compensation. +• +Multiple long-term incentive vehicles are used for Named +Executive Officers with varying vesting +and/or +measurement years. In 2010, the Company granted restricted stock +and SARs awards. In 2011, restricted stock, SARs and performance +shares were awarded. The performance share awards are based on a +three-year performance measurement period; +• +The Company has stock ownership requirements for Named Executive +Officers; and +• +Executive officers must obtain permission from the +Company’s General Counsel before selling Company shares, +even during an open trading window under its Insider Trading +Policy. +Acquisition +Bonus. +• +The potential acquisition bonus for the Senior Vice President +Business Development and several of the business development +employees is related to successful results from future +acquisitions as described in the +26 +Table of Contents +Compensation Discussion and Analysis. The Company has considered +this risk and does not consider it to be inappropriate for the +following reasons: +• +The amount that can be earned under the program is capped; +• +The bonus is spread over several years to monitor longer-term +success of the acquisition; and +• +The majority of such individuals’ annual bonus is not based +on the acquisition bonus, but rather related to Company +performance and other individual objectives and responsibilities. +Hedging +• +The Company’s policies do not permit the Company to effect +transactions in oil and gas derivatives on a speculative basis. +The employees responsible for oil and gas hedging transactions +are compensated on the basis of their responsibilities to +provide sound and effective hedging advice and strategies, not +on the profitability of such hedges. +COMMUNICATION +WITH DIRECTORS BY STOCKHOLDERS +Stockholders wishing to communicate with the Board or a +committee of the Board may do so by writing to the attention of +the Board or committee at the Company’s corporate +headquarters or by emailing the Board at board@petd.com , +with “Board” or the appropriate Board committee +indicated in the subject line. +CODE OF +BUSINESS CONDUCT AND ETHICS +The Company adopted its Code of Business Conduct and Ethics, +amended and restated on April 27, 2004 (the “Code of +Conduct”), applicable to all Directors, officers, +employees, agents and representatives of the Company and +consultants. The Company’s principal executive officer, +principal financial officer and principal accounting officer are +subject to additional specific provisions under the Code of +Conduct. The Company’s Code of Conduct is posted on its +website at www.petd.com . In the event of an amendment to, +or a waiver under, including an implicit waiver, the Code of +Conduct, the Company will disclose the information on its +website. During the 2010 fiscal year, the Board approved a +waiver regarding any potential conflict related to the service +of Mr. Swoveland on the Board of Directors of Linn Energy +LLC, which is posted on the Company’s website. If the Board +becomes aware of a potential conflict in the future, it will +consider at that time whether or not to continue this waiver for +Mr. Swoveland. +TRANSACTIONS +WITH RELATED PERSONS +Related +Transactions +From January 1, 2010 to the present, there was no +transaction or series of transactions, or any currently proposed +transaction, in which the amount involved exceeds $120,000 and +in which any Director, executive officer, holder of more than +five percent of the Company’s common stock or any member of +the immediate family of any of the foregoing persons had or will +have a direct or indirect material interest. +Policies +and Procedures With Respect to Transactions with Related +Persons +The Board has adopted a written policy for the review, approval +and ratification of transactions that involve related parties +and potential conflicts of interest. The related party +transaction policy applies to each Director and executive +officer of the Company, any nominee for election as a Director, +any security holder who is known to own more than five percent +of the Company’s voting securities, any immediate family +member of any of the foregoing persons and any corporation, firm +or association in which one or more of the Company’s +Directors are Directors or officers, or have a substantial +financial interest. +Under the related party transaction policy, a related person +transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would +require disclosure in the Company’s filings with the SEC as +a transaction with a related person. The related person must +disclose to the Audit Committee +27 +Table of Contents +any potential related person transactions and must disclose all +material facts with respect to such interest. All related person +transactions will be reviewed by the Audit Committee. In +determining whether to approve or ratify a transaction, the +Audit Committee will consider the relevant facts and +circumstances of the transaction, which may include factors such +as the relationship of the related person with the Company, the +materiality or significance of the transaction to the Company +and the business purpose and reasonableness of the transaction, +whether the transaction is comparable to a transaction that +could be available to the Company on an arms-length basis, and +the impact of the transaction on the Company’s business and +operations. +ADDITIONAL +INFORMATION +The Company files annual, quarterly and current reports, proxy +statements and other information with the SEC. Copies of the +Company’s filings with the SEC are available to the public +at the SEC’s website at +http://www.sec.gov . +These documents may also be viewed at the SEC’s public +reference room located at 100 F Street, N.E., +Washington, D.C. 20549. Please call the SEC at +1-800-SEC-0330 +for further information on the public reference room. +EXECUTIVE +OFFICERS +The current Named Executive Officers of the Company, their +principal occupations for the past five years and additional +information is set forth below. +Name +Age +Position(s) +Richard W. McCullough +59 +Chairman, Chief Executive Officer (“CEO”) and Director +Gysle R. Shellum +59 +Chief Financial Officer (“CFO”) +Barton R. Brookman +48 +Senior Vice President Exploration and Production +Daniel W. Amidon +50 +General Counsel and Secretary +Lance A. Lauck +48 +Senior Vice President Business Development +Richard W. McCullough. See +“Proposal No. 1 – Election of +Directors – Continuing Directors with Term Expiring in +2013 Class III” for Mr. McCullough’s +biography. +Gysle R. Shellum , 59, was appointed CFO in 2008. Prior to +joining the Company, Mr. Shellum served as Vice President, +Finance and Special Projects of Crosstex Energy, L.P., Dallas, +Texas. Mr. Shellum served in this capacity from September +2004 through September 2008. From March 2001 until September +2004, Mr. Shellum served as a consultant to Value Capital, +a private consulting firm in Dallas, Texas, where he worked on +various projects, including corporate finance and Sarbanes-Oxley +Act compliance. Crosstex Energy, L.P. is a publicly traded +Delaware limited partnership whose securities are listed on the +NASDAQ Global Select Market and is an independent midstream +energy company engaged in the gathering, transmission, treating, +processing and marketing of natural gas and natural gas liquids. +Barton R. Brookman, Jr. , 48, was appointed Senior Vice +President Exploration and Production in March 2008. +Mr. Brookman previously served as Vice President +Exploration and Production upon joining PDC in July 2005. Prior +to joining PDC, Mr. Brookman worked for Patina Oil and Gas +and its predecessor Snyder Oil for 17 years in a series of +positions of increasing responsibility, ending his service as +Vice President of Operations of Patina. +Daniel W. Amidon , 50, was appointed General Counsel and +Secretary in July 2007. Prior to joining PDC, Mr. Amidon +was employed by Wheeling-Pittsburgh Steel Corporation beginning +in July 2004, where he served in several positions including +General Counsel and Secretary. Prior to his employment with +Wheeling-Pittsburgh Steel, Mr. Amidon was employed by +J&L Specialty Steel Inc. from 1992 through July 2004 in +positions of increasing responsibility, including General +Counsel and Secretary. Mr. Amidon practiced with the +Pittsburgh law firm of Buchanan Ingersoll PC from 1986 through +1992. +Lance A. Lauck , 48, was appointed Senior Vice President +Business Development in August 2009. Previously Mr. Lauck +served as Vice President — Acquisitions and Business +Development for Quantum Resources Management LLC from +2006 — 2009. From 1988 until 2006, he held various +management positions at Anadarko Petroleum Corporation in the +areas of acquisitions and divestitures, corporate mergers and +business development. +28 +Table of Contents +COMPENSATION +COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the +Company has reviewed and discussed the following Compensation +Discussion and Analysis with management and, based on its review +and discussions, recommends its inclusion in this Proxy +Statement. +Kimberly Luff Wakim, Chair +Anthony J. Crisafio +Larry F. Mazza +David C. Parke +James M. Trimble +Jeffrey C. Swoveland (2011) +COMPENSATION COMMITTEE +OF THE BOARD OF DIRECTORS +COMPENSATION +DISCUSSION AND ANALYSIS +Executive +Summary +At PDC, we believe that our executive compensation program: +• +Aligns the interests of our executives with the interests of our +stockholders; +• +Directly supports the Company’s strategic plan by focusing +employee performance on specific financial and operational +drivers; +• +Is market-based and premised upon informed industry +benchmarking; and +• +Results in executive compensation predominantly based upon the +Company’s actual performance. +In summary, our compensation is designed to reward executives +when the Company achieves strong financial and operational +results. We believe the 2010 compensation of our Named Executive +Officers is consistent with the strong results achieved by the +Company. +In 2010, we accomplished the following key financial and +operational results, among others: +• +Significant repositioning of the Company’s assets to +increase the percentage of oil and liquids reserves and +production relative to natural gas, including two significant +acquisitions in the oil-rich Wolfberry trend in the Permian +basin; +• +Successful execution of the largest capital raise in the history +of the Company, at a common stock price equal to 83% of the +stock’s twelve-month high; +• +Exceeded the Company’s targets for production, reserve +growth and adjusted cash flow per share; and +• +Company stock price performance in 2010 exceeded that of its +peers. +In addition to monitoring our current executive compensation +programs, the Committee accomplished the following during 2010: +• +Conducted a complete review of our total compensation package +and adjusted target compensation to move executives closer to +the median of our identified peer group; +• +Adjusted the mix of compensation and design of our programs to +place more emphasis on long-term incentives, while clarifying +our short-term incentive metrics and providing an increased +incentive for achieving them; +• +Implemented the stockholder-approved 2010 LTI Plan for employees +and Non-Employee Directors which extends the Company’s +ability to use equity as part of our incentive plans; +29 +Table of Contents +• +Renegotiated the employment contracts of our executives to +replace the “single trigger” with a “double +trigger” requirement in order for an executive to be +entitled to separation benefits following a change of control of +the Company as a result of discussions with Institutional +Shareholder Services; and +• +Eliminated the reimbursement of certain medical expenses over +and beyond those covered under the Company’s general +employee medical plan for Messrs. McCullough and Amidon. +The following Compensation Discussion and Analysis describes the +Company’s compensation philosophy and the components of the +Company’s compensation program, with a focus on the Named +Executive Officers. The Named Executive Officers are determined +in accordance with the rules of the SEC and include the +principal executive officer, the principal financial officer and +the next three most highly compensated executive officers, other +than the principal executive and financial officers, with total +compensation calculated in accordance with SEC regulations of +$100,000 or more. In 2010, our Named Executive Officers were: +Richard W. McCullough, CEO and Chairman; Gysle R. Shellum, CFO; +Barton R. Brookman, Senior Vice President Exploration and +Production; Daniel W. Amidon, General Counsel and Secretary; and +Lance A. Lauck, Senior Vice President Business Development. +General +Compensation Philosophy/Objectives +Compensation +is Designed to Achieve the Company’s +Objectives +The objectives of our compensation programs are to attract, +motivate and retain highly-talented executives who can ensure +that the Company is able to safely, efficiently and profitably +explore for and produce natural gas and oil. The Committee is +committed to a compensation package that generally establishes +target total compensation at the median level for similar +positions at comparable companies, but provides increased pay as +a reward for above-median performance and below-median pay for +performance that is less than the target. Our programs are +structured to require a commitment to performance because pay at +the market median is not guaranteed. +Compensation +is Related to Performance and is Aligned with the Company’s +Strategic Plan +The total compensation packages for Named Executive Officers are +generally weighted in favor of at-risk compensation through both +annual and long-term performance-based incentive pay. The +Committee aligns its executive compensation decisions with the +Company’s strategic plan and the financial and operational +goals it feels are necessary to drive performance. As a result, +each of our incentive programs links all or a portion of its +payout to the Company’s performance on specific performance +measures. The chart below reflects the fixed and at-risk +components, as contemplated by the Committee for 2010, for each +Named Executive Officer as a percentage of total direct +compensation. +The following charts are not a substitute for the Summary +Compensation Table. The Summary Compensation Table included in +this Proxy Statement includes amounts supplemental to total +direct compensation and calculates certain components of total +direct compensation differently from that shown below. +2010 +COMPENSATION +RS = Restricted Stock (time-based) +SAR = Stock Appreciation Rights +30 +Table of Contents +These charts indicate that 78% of total direct compensation for +the CEO is variable and 56% is in the form of equity-based +compensation, with the other Named Executive Officers having +approximately 69% of their compensation as variable and 52% of +their compensation in the form of equity-based compensation. In +2011, we implemented a performance share plan as part of our +long-term incentive program. Although total variable pay in 2011 +did not change substantially, the amount of pay tied more +directly to the performance of the Company’s stock, both in +absolute terms through the SARs and in relative terms through +the performance share program, increased from 14% to 28% for the +CEO and from 13% to 26% for the other Named Executive Officers. +While restricted stock ties compensation to Company stock price +performance, the percentage of restricted stock awarded in 2011 +was reduced in favor of these other forms of equity that +increase the executives’ at-risk compensation, including +the risk, in some circumstances, of zero value. This change is +illustrated below. +2011 +COMPENSATION +PS = +Performance Shares +Total +Compensation Should Be Competitive and Encourage Retention of +Executives +We have structured our total compensation package to be +comparable with the peer group, as described below, but we do +not generally offer above-market pay except for outstanding +performance when performance targets have been exceeded. The +Committee benchmarks each element of total direct compensation +(which includes base salary, annual and long-term incentives) +and the mix of compensation (cash versus equity) against the +comparator group. We generally target base salary and total +compensation at the median of the comparator group for median +performance in order to remain competitive for executive talent +and to retain our current executive leadership. In addition, to +encourage retention, there is a substantial risk of forfeiture +in the long-term incentives in the event an executive +voluntarily terminates employment. +Incentive +Compensation Balances Short-Term and Long-Term +Performance +Our compensation programs are designed to maintain a balance +between rewarding the achievement of strong short-term or annual +results and ensuring the Company’s long-term growth and +success. To this end, a mix of annual and long-term incentives +is allocated in a manner generally consistent with the +comparator group of companies The Committee also considers what +it believes to be the appropriate balance of risk in each +program. Participation in both the annual and long-term +incentive programs increases at higher levels of responsibility, +as executives in these leadership roles have the greatest +influence on the Company’s strategic direction and results +over time. +Peer +Groups and Survey Data Help Establish Target Total Compensation +and Define Competitive Levels of Performance +The Committee annually looks at the composition of a peer group +of companies to help establish target total direct compensation +for each executive. Each potential peer is reviewed for size, +scope, nature of business operations, ownership structure, prior +financial performance and current financial scope including +market capitalization, enterprise value, revenue, EBITDA, +capital expenditures and assets. The Committee then assesses +whether changes to the peer group are warranted based on changes +in size +and/or +operations to the peer company, changes in size and operations +of the Company, and other factors that may make a peer company +no longer +31 +Table of Contents +comparable. The Committee also uses proprietary survey +benchmarking data from a broader sample of comparably-sized oil +and gas companies in order to provide an additional market +perspective. The Committee uses both the peer and survey +benchmarking data to establish a dollar level for target total +direct compensation for each executive at approximately the +market median. +The Committee made some changes to the peer group for +determining 2010 and 2011 compensation levels as outlined below: +Company +2009 +2010 +2011 +Atlas Energy Resources +ü +ATP Oil & Gas Company +ü +ü +Berry Petroleum Corporation +ü +ü +ü +Bill Barrett Corporation +ü +ü +ü +Cabot Oil & Gas Corporation +ü +ü +ü +Callon Petroleum +ü +Carrizo Oil & Gas +ü +ü +ü +Clayton Williams Energy +ü +Comstock Resources +ü +ü +ü +Concho Resources Inc. +ü +ü +Delta Petroleum +ü +ü +Energy Partners +ü +Goodrich Petroleum Corporation +ü +ü +ü +Parallel Petroleum +ü +Petroquest Energy +ü +ü +ü +Rosetta Resources +ü +ü +ü +SM Energy +ü +ü +ü +Stone Energy Corporation +ü +ü +Swift Energy Company +ü +ü +Venoco +ü +ü +ü +The Committee also uses most of the 2011 peer group in the 2011 +performance share program under the Company’s 2010 LTI +Plan. For a detailed description of the peer group under the +performance share program, see “Long-Term +Incentives – 2011 Performance Share Program.” +Compensation +Should Be Tax Deductible to the Extent +Possible +The Committee considers the impact of the applicable tax laws +with respect to compensation paid under the Company’s +plans, arrangements and agreements. Section 162(m) of the +Internal Revenue Code of 1986, as amended (the “Code”) +disallows, with certain exceptions, a federal income tax +deduction for annual compensation over $1 million paid to +any covered employee. The covered employees are the principal +executive officer, principal financial officer and the three +most highly-compensated officers other than the principal +executive officer or principal financial officer. An exception +to the deduction limit is provided under Code +Section 162(m) for performance-based compensation paid +pursuant to stockholder-approved plans that meet certain +criteria. +Elements of the executive compensation program are +performance-based, such as stock options, SARs and +performance-based equity awards issued under the Company’s +2004 and 2010 LTI Plans. Other aspects of the executive +compensation program do not qualify as performance-based, such +as time-based restricted stock and the Company’s annual +incentive bonus program, because, in the case of time-based +restricted stock, the Committee believes a portion of +compensation should be based on the length of continued service +with the Company and, in the case of the annual incentive bonus +program, the Committee prefers to maintain the ability to +exercise discretion in evaluating a portion of the +participant’s performance. It is our intent to maximize our +income tax deductions by qualifying compensation paid to our top +executives as performance-based compensation under Code +32 +Table of Contents +Section 162(m) where practicable under our compensation +policies. The Committee nonetheless may approve compensation +that may not qualify for the compensation deduction if, in light +of all applicable circumstances, the Committee believes that it +would be in our best interest to exercise our discretion for +such compensation to be paid. The financial implications of a +potential lost deduction were not material in prior years but +may now have an impact. The Committee will continue to monitor +its position on the impact of Code Section 162(m) on the +Company’s executive compensation programs. +Section 409A of the Code provides that all amounts deferred +under a nonqualified deferred compensation plan are currently +included in gross income, to the extent not subject to a +substantial risk of forfeiture and not previously included in +gross income, unless certain requirements are met. We believe we +have designed or amended our plans and programs to either be +exempt from Code Section 409A or, if subject to Code +Section 409A, in compliance with applicable regulations to +properly allow deferral. +Executives +Are Required to Own Stock +Consistent with the goal of driving long-term value creation for +stockholders, the Company’s stock ownership guidelines +require significant executive stock ownership. In 2011, the +Company increased its ownership guidelines for our executives. +As of December 31, 2010, the Named Executive Officers’ +stock holdings relative to their 2010 and 2011 stock ownership +guidelines are as set forth below: +Number of +Number of +Shares +Shares +Required by +Required by +Number of +2010 Stock +2010 +2011 Stock +2011 +Qualifying +Ownership +Ownership +Ownership +Ownership +Shares +Name/Year of Executive Status +Guidelines +Guidelines +Guidelines +Guidelines +Owned +Richard W. McCullough (2008) +3x Base Salary +41,281 +5x Base Salary +68,802 +88,333 +Gysle R. Shellum (2008) +2x Base Salary +13,760 +3x Base Salary +20,640 +24,188 +Barton R. Brookman (2008) +2x Base Salary +14,511 +3x Base Salary +21,766 +55,199 +Daniel W. Amidon (2007) +2x Base Salary +13,010 +3x Base Salary +19,515 +31,699 +Lance A. Lauck (2009) +2x Base Salary +11,759 +3x Base Salary +17,638 +39,759 +Qualifying shareholdings include stock owned directly, shares +held in the Company’s 401(k) and profit sharing plan, and +unvested time-based restricted stock as of December 31, +2010. Stock options, SARs and performance-based awards are not +qualifying shareholdings for the purposes of the stock ownership +guidelines. However, these equity interests provide the Named +Executive Officers with significant additional exposure to the +value of the Company’s stock. +For 2011, the Committee refined its guidance concerning Company +stock ownership. Named Executive Officers are expected to +achieve compliance with the ownership guidelines within five +years of their appointment as a Named Executive Officer but are +not required to purchase stock to meet these guidelines. The net +shares acquired through incentive compensation plans (through +the exercise of stock options, SARs, the vesting of restricted +stock or performance shares) must be retained if the Named +Executive Officer has not satisfied his targeted ownership. An +executive’s failure to meet the stock ownership guidelines +may influence an executive’s mix of cash and non-cash +compensation awarded by the Committee. Executives are not +permitted to hedge their shares or otherwise invest in +derivatives involving Company stock. Ownership is reviewed at +least annually and when compensation decisions are made. +Compensation +Process — Making Executive Compensation +Decisions +Determining +Target Total Direct Compensation +The Committee establishes the target total direct compensation +for Named Executive Officers by establishing base salaries and +setting long-term and annual incentive targets. When +appropriate, the Committee also approves +33 +Table of Contents +special awards and modifies perquisites. The Committee typically +reviews target total direct compensation in the first quarter of +each year. When determining target total direct compensation, we +consider the following: +• +Market median target total direct compensation (base salaries, +bonus targets and payouts and long-term incentives) information +for the peer group and other applicable survey data; +• +Current compensation information; +• +Compensation of other executive officers; and +• +Mr. McCullough’s compensation recommendations. +The Committee’s view is that an executive’s +compensation level should reflect the current market value of +his or her services. For a Named Executive Officer who has +performed well in the prior year, the predominant factor in +determining target total direct compensation for the current +year is the market median target total direct compensation for +that position. In considering the amount and type of each +component of compensation, the Committee considers the effect on +all other elements to generally target total direct compensation +at the market median. An individual’s actual target, and +the allocation between cash and equity, may be adjusted upward +or downward when other compensation components do not reflect +the market median. +Annual +and Long-Term Incentive Programs +The Committee annually approves plan design, including +performance metrics and target payout, for annual and long-term +incentive programs. These deliberations, which usually start +with recommendations from management and involve discussions +among the Committee, management and the Committee’s +compensation consultant, usually span many meetings before a +design is approved. With respect to equity programs, the +Committee also considers cost of awards, dilution and burn +rates. For performance-based equity awards, at the end of the +performance period, the Committee certifies the level at which +the performance measures were satisfied and approves the amount +of incentive award payable to each Named Executive Officer. +Total +Compensation Summaries +The Committee is annually provided various summaries for each +Named Executive Officer designed to provide a full picture of +the executive’s compensation history, as well as all +compensation payable upon his or her termination of employment +and upon a change of control. +The total compensation summaries set forth: +• +A three-year history of base salary, annual incentive targets +and awards and perquisites; +• +A three-year history of long-term incentive awards, including +realized gains as well as potential gains on unexercised or +unvested awards; and +• +Accrued balances under any deferred compensation arrangement +(including Mr. McCullough’s supplemental retirement +benefit described below). +A separate summary reflects the value of compensation due to +each Named Executive Officer under his employment agreement in +certain termination scenarios, including: +• +Termination of the executive by the Company with and without +cause; +• +Termination by the executive for good reason; +• +Voluntary termination by the executive; +• +Termination of the executive by the Company without cause or by +the executive for good reason following a change of +control; and +• +Termination due to disability or death. +34 +Table of Contents +With regard to each scenario, the summary includes: +• +The severance amount payable to the executive; +• +The cost of benefits continuation; +• +The value of all equity awards, including the acceleration of +unvested equity awards and the value of forfeited +awards; and +• +Any other compensation payable to the executive upon termination. +Role +of the Compensation Consultant +The Committee has the sole power to hire, terminate and approve +fees for advisors, consultants and agents as it deems necessary +to assist in the fulfillment of its responsibilities. The +Consultant has been the Committee’s consultant for more +than six years. +The Consultant provides the Committee with market data and +counsel regarding executive officer compensation programs and +practices, including specifically: +• +Peer group identification and assessment; +• +Comparator group benchmarking; +• +Advice and market insight as to the design, payout alternatives +and performance measures for annual and long-term incentives; +• +Advice and market insight on other aspects of compensation +(e.g . , employment contracts, perquisites, etc.); and +• +Marketplace compensation trends in the Company’s industry +and generally. +The Consultant does not make recommendations on or approve the +amount of compensation of any Named Executive Officer. The +Committee may request information or advice directly from the +Consultant and may direct the Company to provide or solicit +information from the Consultant. The Consultant regularly +interacts with representatives of the Company and periodically +with the CEO. The Consultant attends meetings of the Committee +when requested. The Committee reviews the engagement of its +independent compensation consultant on an annual basis and as a +part of that process reviews a summary of all services provided +by the Consultant and related costs. In 2010, the Consultant did +not perform any other material services for the Company. +Role +of Management in Determining Executive +Compensation +Our CEO plays a significant role in the Committee’s +establishment of compensation levels for our other Named +Executive Officers. The most significant aspects of his role in +the process are: +• +His assessment of his own performance and evaluating the +performance of the other Named Executive Officers; +• +Recommending quantitative and qualitative performance measures +under our annual incentive program; +• +Proposed peer group changes; +• +Recommending base salary levels, annual incentive targets, +actual annual incentive awards and long-term incentive awards +for the other Named Executive Officers; and +• +His assessment of the Company’s performance for the year +with respect to achievement of performance measures under the +annual incentive program. +At the Committee’s request, our Named Executive Officers +may also assess the design of or make recommendations related to +our compensation and benefit programs. The Committee, with input +from the Consultant, determines each element of compensation for +the CEO and, with input from the Consultant and the CEO, +35 +Table of Contents +determines each element of compensation for the other Named +Executive Officers. The CEO is not present during voting or +deliberations with regard to his own compensation. +Components +of the Company’s Compensation Program +Our Named Executive Officers’ 2010 compensation consisted +principally of the following components, in addition to +retirement, health and welfare plans and programs in which all +of our full-time employees participate: +Compensation Elements +Compensation Element +Key Features +Purpose +Base Salary +• Base salaries are targeted at the median of the market. +• Adjustments are made on an annual basis based on an individual’s performance, pay relative to the market, changes in responsibility and internal equity. +• To provide a minimum, fixed level of cash +compensation upon which our executives can rely. +INCENTIVE COMPENSATION: +Cash Incentive +• Annual cash incentive payments are based on attainment of Company and individual performance goals. +• Company performance goals are based on measurable financial and operational metrics. +• Individual performance goals are linked to key business priorities and may include both financial and non-financial goals. +• To motivate and reward executives to produce strong Company financial and operational results. +• To provide a competitive reward opportunity that attracts, retains and motivates our executives. +• Mr. Lauck is also eligible for a bonus tied to achievement of specific acquisition based results on an annual basis. +• The details of our annual incentive programs are described in this Proxy Statement. +• The special acquisition bonus program for Mr. Lauck +is intended to align with the Company’s specific strategy +to grow the Company through acquisitions. +Equity Awards +• Long-term incentive values are delivered through multiple vehicles — restricted stock, stock options, SARs and performance shares. +• Long-term incentives, when added to total cash compensation, are targeted at the median of the market with the possibility to earn more or less than the median based on Company performance. +• To retain executives and align their long-term interests with those of stockholders. +• The Committee believes the mix of equity awards focuses our executives on the long-term growth of our stock price but does not encourage excessive risk-taking by our executives. +• Restricted stock is an important retention tool and ties executives to stockholders since the value of restricted stock is always equal to the current value of the stock. +• Stock options/SARs reward executives through increases in stock price and are believed to focus executives on taking reasonable actions to increase stock price over the long-term. +• Performance share awards promote both the long-term growth of our stock price and stock performance that exceeds our peers. +36 +Table of Contents +Compensation Elements +Compensation Element +Key Features +Purpose +OTHER COMPENSATION: +Retirement Plans +• Executives participate in our broad-based 401(k) and profit sharing plan under which all employees are eligible to make contributions in a tax-advantaged vehicle and receive Company contributions. +• The Company matches dollar-for-dollar up to 10% of the employee’s compensation, then matches 20% of the employee’s contributions over the 10% amount up to the IRS maximum limits. +• To provide a level of retirement income for all +employees, including executive officers, and allow employees to +build financial security for their retirement. +• Mr. McCullough has a right to an annual nonqualified +deferred supplemental retirement benefit following his +termination of employment equal to $7,500 times his number of +years of completed service. This benefit would be payable over +the ten years following his termination. As of December 31, +2010, Mr. McCullough has four years of service and +therefore has earned an annual $30,000 benefit payable for +10 years following termination. +• Mr. McCullough is the only executive to participate +in the nonqualified supplemental retirement plan. This program +was eliminated for new executives when it was determined it was +no longer needed in order for the Company to be competitive. +Health and Welfare Benefits +• Executives participate in our broad-based health and welfare programs at the same contribution amounts, percentages and plan design provisions as are applicable to all employees. +• Executives are provided up to 13 weeks of short-term disability at full pay. Messrs. McCullough and Amidon are either provided (or reimbursed for premiums they pay) for long-term disability insurance and life insurance policies up to $1 million. +• In April 2010, the Committee eliminated reimbursement of medical expenses not covered by the Company’s medical plan for Messrs. McCullough and Amidon during renegotiations of their employment contracts. +• To provide financial security to our employees and their families, including executive officers in the event of illness or death. +• Messrs. McCullough and Amidon were provided the life insurance and disability program because the Committee did not believe the Company benefit programs were adequate to cover these events. This program was eliminated for new executives when it was determined it was no longer needed in order for the Company to be competitive. +Perquisites +• The Company provides modest perquisites to +executives which include the following: Company vehicle or car +allowance for business and personal use, club dues and athletic +event tickets. In addition, in 2011, the Committee approved +reimbursement of a country club membership for +Mr. McCullough for business and personal usage. +• To provide personal benefits that are modest yet +competitive with the perquisites provided to similarly situated +executives. +37 +Table of Contents +Compensation Elements +Compensation Element +Key Features +Purpose +SEVERANCE ARRANGEMENTS: +Severance +• Executives are contractually entitled to cash severance payments upon certain termination events and a change of control of the Company. A full description of these benefits is included in this Proxy Statement. +• Employment contracts were renegotiated in April 2010 to insure executives would only be entitled to severance benefits if, within two years following a change of control, they were terminated by the Company or its successor without cause or terminated by the executive for “Good Reason” (what is referred to as a “double trigger”). +• To attract and retain executives in a volatile and consolidating industry. +• To ensure executives act in the best interests of stockholders during a change of control. +• To provide transitional income following termination of employment. +Compensation +Decisions +Based on the current and historical benchmarking reviews, we +observed that the total target compensation of our Named +Executive Officers has been significantly below the median of +the peer companies. Due to the economic climate at the end of +2008 and early 2009, we felt it was inappropriate to make +significant adjustments in compensation, even though we felt +that Company and individual executive performance had been +excellent. We believe the Company has assembled a strong +management team and want to ensure that the team is retained and +focused on the long-term growth of the Company. As a result, +beginning in 2010, we adjusted total compensation to move +executives closer to the market median and to recognize +differences in specific roles within the Company with variations +in target annual and long-term incentive levels. +We also used this opportunity to renegotiate the +executives’ employment agreements to replace the +“single trigger” with a “double trigger” +when determining separation benefits following a change of +control of the Company and to reduce certain benefits. The +compensation adjustments were conditional upon the +executive’s execution of the new employment agreement. The +following describes how the amount of each compensation element +was determined. +Base +Salary +Base salary levels are typically considered annually as part of +our performance review process as well as upon a promotion or +other change in job responsibility. During our annual review of +base salaries for Named Executive Officers, we primarily +consider: +• +Peer and survey data provided by the Consultant; +• +Internal review of the Named Executive Officer’s +compensation, both individually and relative to other Named +Executive Officers; and +• +Recommendations by our CEO with respect to Named Executive +Officers other than himself. +For 2010, after reviewing the market data and considering the +other factors mentioned above, we adjusted the base salary of +each of our Named Executive Officers to be closer to the median +of the market as outlined in the “Summary Compensation +Table.” The Committee plans to continue this approach in +2011. +Annual +Incentives +Each year, we approve a target annual incentive award for each +Named Executive Officer. These target awards are expressed as a +percentage of base salary and generally produce, when combined +with long-term incentives, total target compensation at the +median of the peer group. Actual awards can range up to 200% of +these targets based on the achievement of Company and individual +goals. +38 +Table of Contents +2010 +Bonus Targets +For 2010, we approved target incentive awards as follows: +% of Base +Named Executive Officer +Salary +Richard W. McCullough +100 +% +Gysle R. Shellum +60 +% +Barton R. Brookman +60 +% +Daniel W. Amidon +55 +% +Lance A. Lauck* +50 +% +* +This represents Mr. Lauck’s target bonus percentage +for the year that is not related to acquisitions. Mr. Lauck +is eligible for a total bonus of up to 200% of base salary +(inclusive of his annual incentive award) in the event of +successful acquisitions as described below. +2010 +Performance Measures +For 2010, we substantially changed the corporate performance +metrics to better tie to the Company’s updated corporate +strategy. In early 2010, we established targets for the +corporate performance metrics based on our 2010 budget targets +and individual goals for each of our Named Executive Officers +that align with our strategy and future vision for the Company. +To provide the Committee the flexibility it needs to adjust for +and react to economic events, such as dramatic changes in +commodity prices or volatile capital markets, we prefer not to +rely solely on a formulaic approach based on pre-established +thresholds that result in automatic payouts. The Committee +always retains discretion to adjust actual awards as it thinks +appropriate given all the circumstances at the time of award. +We used the following five quantitative financial and +operational metrics in 2010 to measure corporate performance: +Financial Metrics: +Adjusted Cash Flow per Share +Net income plus/minus change in operating assets and liabilities +per share +Capital Efficiency +Adjusted EBITDAX for the year divided by production divided by +three years’ average finding and development cost per unit +Operational Metrics: +Operating and G&A Expense +The sum of total lease operating expense, exploration general +and administrative expense and corporate general and +administrative expense divided by Mcfe (mcf equivalent for gas +and oil) +Reserve Replacement Ratio +(3-year +average) +The sum of 2008, 2009 and 2010 extensions and discoveries, +revisions in previous estimates and purchase of reserves divided +by the sum of 2008, 2009 and 2010 production +Production +Actual production volume for the year +Following the end of the 2010 fiscal year, the Committee +determined annual incentive payments as follows: +• +A corporate performance rating is determined for the annual +quantitative financial and operational metrics — 50% +is based on financial metrics and 50% is based on the +operational metrics; +• +The Committee may apply other subjective considerations into the +final determination of the corporate performance rating (e.g., +business conditions, stock price performance, etc.); +• +Individual awards are determined by multiplying the corporate +performance rating by the individual’s annual incentive +target and base salary. Generally, executives are expected to +achieve their goals; however, +39 +Table of Contents +individual awards may be adjusted in the Committee’s +discretion downward or upward; such adjustments are anticipated +to have a maximum range of 20%, based on achievement of +individual performance objectives. +2010 +Actual Results +Upon completion of the fiscal year, we reviewed (1) the +Company’s performance on the quantitative performance +measures described above; and (2) the Company’s +progress on and achievement of our qualitative goals, and made a +subjective determination with respect to the Company’s +achievement as compared to those metrics. +Actual results for 2010 were as follows: +Corporate Performance Metric +Original Budget +Actual Results +Adjusted Cash Flow per Share +$ +7.71 +$8.21 adj +* +Capital Efficiency +250 +% +210 +%** +Operating and G&A Expense per Mcfe +$ +2.98 +$3.02 adj +*** +Reserve Replacement Ratio +(3-year +average) +250 +% +287 +% +Production (Bcfe) +35.7 +36.6 adj +**** +* +See the first bullet below for adjusted cash flow per share +discussion. +** +210% capital efficiency is for a three-year average finding and +development cost; using only 2010, finding and development cost +capital efficiency was 321%. +*** +See the third bullet below for Operating and G&A expense +treatment discussion. +**** +See the fifth bullet below for adjusted production. +In evaluating the results, the Committee considered the +following: +• +The stock offering in December 2010 impacted the cash flow per +share results. The results shown above were adjusted to reflect +the pre-offering outstanding shares. Cash flow for the year was +excellent despite the lower than expected commodity prices; +• +Capital efficiency is based, in part, on a three-year average +finding and development cost. Finding and development costs in +2009 were negatively impacted by commodity pricing decreases and +the related reduction of 100 Bcf of reserves and a +reduction in drilling. The finding and development cost results +in 2010, however, were outstanding, producing a one-year capital +efficiency rating of 321%; +• +Operating and general and administrative expenses ($3.17) were +negatively impacted due to expenses that were originally +budgeted to be capitalized but were later determined to be +expensed. If these costs had been capitalized, and not expensed, +the Company would have been very close ($3.02) to meeting its +target; +• +Reserve replacement ratio results were outstanding, delivering a +three-year average of 287%, due primarily to significant reserve +replacement in 2010; +• +The Company’s decision to separately report NGLs in 2010 +favorably impacted production. The production shown above was +adjusted to exclude the increased production from reporting +NGLs. It is, however, inclusive of production from subsequently +discontinued operations; +• +Management successfully executed on its other goals, taken as a +whole for the year, such as the successful capital raise, the +completion of numerous acquisitions and the initiation of a +three-year partnership repurchase program, including the +successful repurchase of three partnerships originally issued in +2004; and +• +Management executed on several key initiatives to improve stock +price performance in 2010 and the Company stock achieved a TSR +that placed it at the top of its peer group. The Company’s +stock price performance increased from $18.21 on January 1, +2010 to $42.25 on December 31, 2010. +Overall, we determined that the Company performed well on both +the financial metrics and the operational metrics and that the +stock performed very well on both an absolute and relative +basis. As a result, after reviewing the +40 +Table of Contents +2010 results with a focus on the above-mentioned factors, the +Committee determined that an overall corporate performance +rating of 150% should be applied to each Named Executive +Officer’s annual incentive award target. +Generally, the Committee believes that Company performance is a +reflection of all Named Executive Officers’ performance in +total. The Committee does, however, look at the performance of +the individual against +his/her +personal goals and may apply discretion upward or downward to +reflect individual performance. For 2010, the Committee did not +make any significant differentiation in annual incentive awards +due to individual performance. Actual bonus amounts paid for +2010 performance reflected in the “Summary Compensation +Table” are as follows: +Named Executive Officer +Bonus Amount +Richard W. McCullough +$ +825,000 +Gysle R. Shellum +264,000 +Barton R. Brookman +270,000 +Daniel W. Amidon +229,000 +Lance A. Lauck +176,000 +* +* +This amount excludes Mr. Lauck’s acquisitions bonus +described below, which in combination totaled $330,500. +2010 +Acquisitions Bonus to Mr. Lauck +In addition to his annual incentive bonus described above, +Mr. Lauck is eligible to receive a special bonus in the +event of the completion of successful acquisitions in a given +year, as determined by the Committee. This program was put in +place to incent value-added growth through acquisitions as part +of the Company’s five-year business plan. In determining +the size of Mr. Lauck’s award, the Committee considers +asset acquisitions, asset trades, joint ventures/drill to earn +transactions and corporate mergers that achieve the following: +• +Are consistent with the Company’s five-year plan; +• +Support the majority of the Company’s five annual corporate +performance metrics; +• +Bring an inventory of new capital development opportunities that +bring value-added reserve and production growth; +• +Project to be accretive to cash flow and earnings per share at +least by the second year; and +• +Utilize the technical and financial strengths of the +organization. +The amount of Mr. Lauck’s bonus is based on a mix of +quantitative and qualitative factors, but payments made, if any, +will be discretionary. In determining Mr. Lauck’s +acquisition bonus for 2010, the Committee considered how +PDC’s 2010 acquisition program achieved the desired results +highlighted above. In 2010, we executed various purchase and +sale agreements totaling $162 million to acquire properties +containing an estimated 141 Bcfe of proved plus probable +reserves, resulting in an acquisition finding and development +cost for proved and probable reserves of only $1.15 per Mcfe. In +addition, the 2010 program acquired reserves that consisted of +66% crude oil and natural gas liquids, a key focus for the +Company in 2010. The acquisition program established a new core +area for the Company in the Wolfberry Trend in the Permian basin +which was enabled in part through a like-kind exchange that +included a trade-out of our fully developed gas assets in +Michigan. The acquired assets project value-added reserve and +production growth. +The value that acquisitions bring to the Company is based on a +number of factors, including production curves, capital costs +and drilling pace, operating costs, etc., that are not entirely +within the control of the Company at the time of acquisition. To +account for these factors, Mr. Lauck’s acquisition +bonus is paid over two years. Half of the bonus is paid in the +first quarter of the year following the year in which the +transaction occurred, based upon the initial projections in the +year of the transaction. The remaining amount is paid in year +two based on a post-transaction look-back evaluation of the +transaction updated for actual results. To avoid placing too +much emphasis on this program as a part of Mr. Lauck’s +overall compensation package, the most he can receive under the +annual incentive plan and acquisitions bonus in the aggregate +for a given year is 200% of his base salary. +In 2010, the Committee considered four acquisitions. The +Committee established an acquisition bonus pool for 2010 of +$309,000 for numerous employees based on a percentage of its +evaluation of the total economic value to the +41 +Table of Contents +Company of such acquisitions; this percentage for the +acquisition bonus pool varied from 0.1% to 0.3% of the economic +value of each acquisition. After reviewing the successful +results of the 2010 acquisition program, the Committee awarded +Mr. Lauck $154,500 (50% of the acquisition bonus pool), of +which $77,250 was paid in 2011 and the remaining $77,250 will be +paid in 2012 contingent upon the Committee’s determination +of the updated actual results from a post-transaction look-back +evaluation of revised projections. +2011 +Bonus Targets +Based on the peer and survey data, we further adjusted bonus +targets in 2011 to move total cash compensation closer to the +median, as follows: +Target +Named Executive Officer +% Base Salary +Richard W. McCullough +100 +% +Gysle R. Shellum +65 +% +Barton R. Brookman +65 +% +Daniel W. Amidon +65 +% +Lance A. Lauck +65 +%* +* +Represents Mr. Lauck’s non-acquisition target bonus +for the year. Mr. Lauck is eligible for a total bonus of up +to 200% of base salary (inclusive of his annual incentive award) +as well as any acquisition bonus as described above. +Long-Term +Incentives +The Committee uses a combination of grants of restricted stock, +stock options, SARs and performance shares in its mix of +long-term incentives. While the Committee considers long-term +incentives as primarily forward-looking, the Committee does +consider the Named Executive Officer’s performance in the +prior year in determining the size of the awards. Generally, the +Committee considers competitive market data, previous equity +awards, equity ownership levels of the Named Executive Officers +and the mix of cash/equity compensation levels that is necessary +to place our Named Executive Officers at the median of the +latest available compensation data for total direct compensation +(base salary, bonus and LTI combined). +In 2009, the Committee granted a mix of 75% time-based +restricted shares, which vest ratably over four years, and 25% +performance shares tied to specific stock price performance +thresholds over three to five years (as described below). The +Committee did not believe the outstanding performance shares +were performing as designed due to the volatility of oil and gas +prices. It is important to the Committee to provide a direct +link to growth in stock price, but it also believed that +retention of our Named Executive Officers was important during +the economic downturn. +In 2010, our stockholders approved the 2010 LTI Plan. The +Committee granted 75% as restricted stock and awarded 25% as +SARs, both vesting ratably over three years to be more +competitive with our peers. During late 2010, early 2011, the +Committee reviewed various approaches to long-term compensation +with a view toward developing a 2011 program that was more +performance-driven, market-competitive and aligned the interests +of our Named Executive Officers with the interests of +stockholders. The Committee also considered the importance of +relative stock price performance as a key measure for +stockholders. As a result of this analysis, in 2011 the mix of +long-term incentives was changed and the Committee implemented a +performance share program providing that half of an +executive’s award would be performance-based. The Committee +reduced the percentage of time-based restricted stock from 75% +to 50%, and granted 25% SARs and 25% performance shares. The +performance shares may be earned at the end of the three-year +performance period upon the achievement of specific relative +TSR. The time-based restricted shares and SARs vest ratably over +three years. +The Committee typically makes equity grants in the first quarter +of the year, but it may make equity grants to Named Executive +Officers at any time during the year. The Committee does not +coordinate the timing of equity grants with the release of +material non-public information. If in possession of such +information, the Committee does not take such information into +account when determining whether or in what amounts to make such +grants. +42 +Table of Contents +The table below shows the long-term incentive grants that were +approved for 2010 and 2011 made to each Named Executive Officer: +Long-Term Incentive Grants +2010 Grants +2011 Grants +Restricted +Restricted +Performance +Name/Year of Executive Status +Stock +SARs +Stock +SARs +Shares +Richard W. McCullough +43,566 +25,371 +14,928 +12,992 +5,571 +Gysle R. Shellum +14,578 +8,490 +5,865 +5,104 +2,189 +Barton R. Brookman +14,243 +8,295 +5,865 +5,104 +2,189 +Daniel W. Amidon +13,405 +7,807 +4,799 +4,176 +1,791 +Lance A. Lauck +12,567 +7,319 +4,799 +4,176 +1,791 +The FASB ASC Topic 718 values for the 2010 grants are reflected +in the “Summary Compensation” and “Grants of +Plan-Based Awards” tables. +2011 +Performance Share Program +Under this program, Named Executive Officers will receive shares +of stock based on the Company’s TSR over the performance +period from January 1, 2011 through December 31, 2013, +as ranked among the comparably measured TSR of the applicable +peer group. The peer companies selected by the Committee for +measuring relative TSR are identical to the compensation +benchmarking group with the following exceptions: +• +Excluded Comstock Resources because it is no longer comparable +due to its growth in size; +• +Added Penn Virginia, which as a result of the sale of its coal +operation is more similar in size and scope of operations to the +Company; and +• +Eliminated ATP, Stone and Swift because they have significant +operations in the Gulf of Mexico. +The Committee believes that the peer group appropriate for +measuring relative stock price performance may be different from +the peer group the Company is competing with for executive +talent. We do, however, try to use the same companies whenever +possible. +The TSR for the Company and each of the peer companies is +determined by dividing (1) the Company’s average share +price for the last twenty business days of the performance +period, minus (2) the Company’s average share price +for the twenty business days preceding the beginning of the +performance period, plus (3) dividends (cash or stock based +on ex-dividend date) paid per share of Company common stock over +the performance period, divided by (4) the Company’s +average share price for the twenty business days preceding the +beginning of the performance period. +At the end of the performance period, payout can range from +0% — 200% of the target award as follows: +Company TSR Ranking +Payout Levels As % of +Among Peers +Award +Top +200 +% +75 th +Percentile +150 +% +Median +100 +% +25 th +Percentile +50 +% +Below +25 th +Percentile +0 +% +If the Company has negative TSR for the performance period, the +maximum award that can be paid out under the program is 100%, +regardless of relative performance. +43 +Table of Contents +Performance shares are paid in shares of common stock at the end +of the performance period. The following outlines payment of the +performance shares in the event of termination of employment +prior to the end of the performance period: +• +All unvested awards are forfeited if a Named Executive Officer +terminates for any reason (except death or disability) prior to +a change of control of the Company. +• +A pro-rata portion of the shares may be earned upon death or +disability of the executive, as described in the performance +share agreement with the Named Executive Officer. +Upon a change of control of the Company during the performance +period, payout of the performance shares will be based on the +greater of 100% or performance through the date of change of +control. +Special +Equity Grants +From time to time, special grants are approved by the Committee. +Special grants typically take the form of restricted stock but +other types of awards may be made when appropriate. Special +grants are typically considered: +• +In connection with promotion where more stock exposure is +desired; +• +To recognize extraordinary achievement; +• +When the survey data demonstrates a significant deviation from +market total direct compensation for the comparator group; +• +When an executive is considered “at risk” and special +retention measures are necessary; and +• +As part of a new hire package for an executive. +In August 2009, the Company hired Mr. Lauck as Senior Vice +President Business Development. As part of his new hire package, +the Committee awarded Mr. Lauck 16,701 shares of +restricted stock that vest ratably over four years. In addition, +the Committee granted 10,000 shares of restricted stock, of +which 3,000 shares were granted immediately and +7,000 shares were granted coincident with his signing of +his employment agreement, which was finalized and executed in +January 2010. These additional shares vest ratably over two +years effective upon the anniversary of his date of hire. +In March 2011, the Committee also made a special retention grant +to Mr. Shellum. The compensation packages of chief +financial officers have been very competitive in recent years +and the Company has historically been behind the market. +Mr. Shellum is critical to the Company’s business plan +and, to ensure the retention of Mr. Shellum, a restricted +share grant of 7,000 shares vesting ratably over five years +was awarded. The Committee believes that the remaining officers +are adequately incented due to retention grants that were made +in 2008 to Messrs. McCullough, Brookman and Amidon and the +new hire package awarded to Mr. Lauck. +Changes +to Benefits and Perquisites +Under the terms of their prior employment agreements, +Messrs. McCullough and Amidon were entitled to +reimbursement of medical expenses over and above those covered +under the Company’s medical plan. In 2010, as part of the +renegotiation of their employment agreements, the Committee +eliminated this benefit. +Agreements +with Named Executive Officers +The Committee believes that severance protection can play a +valuable role in attracting, motivating and retaining highly +talented executives. The Committee also believes that having an +existing agreement in place is preferable to negotiating an exit +package at the time of a Named Executive Officer’s +departure. Accordingly, the Company provides such protections +for the Named Executive Officers under their employment +agreements which are described in detail under “Potential +Payments upon Termination or Change of Control.” The +Committee considers these protections to be an important part of +an executive’s compensation and consistent with competitive +practices in the oil and gas industry. +44 +Table of Contents +Termination +Prior to a Change of Control +The Committee believes that an important part of attracting and +retaining executives is offering transitional income in the +event an executive is terminated by the Company without cause, +or in the event the terms of his employment change significantly +enough to warrant a “good reason” for the executive to +terminate employment. This also gives the Company the +flexibility to make decisions regarding organizational issues +with +agreed-upon +severance terms. +Change of +Control +The Committee believes that the occurrence, or potential +occurrence, of a +change-of-control +transaction will create uncertainty regarding continued +employment. This uncertainty results from the fact that many +change-of-control +transactions result in significant organizational changes, +particularly at the senior executive level. +Change-of-control +benefits are intended to encourage executive officers to remain +employed with the Company during an important time when +prospects for continued employment are often uncertain and to +provide a measure of financial security prior to and after a +change of control. Moreover, the Committee believes that the +amounts to be paid under the +change-of-control +agreements ensure that the interests of the executives will be +materially consistent with the interests of the Company’s +stockholders when considering corporate transactions. +In 2010, the Committee reviewed the competitiveness of the +employment agreements and amended and restated these agreements. +The Committee looked at the level of severance benefits provided +in the oil and gas industry since that is our primary +competition for executive talent and determined that the level +of severance benefits provided was competitive for our industry. +The Committee also studied the necessity for excise tax +“gross-up” +on any “excess parachute payments” under Code +Section 280G and determined that it was in the best +interest of our stockholders not to provide such +“gross-up” +benefits. The agreements were renegotiated to eliminate the +ability of the executive to voluntarily terminate and receive +benefits following a change of control and to provide benefits +only in the event the executive’s employment is terminated +other than for cause or by the executive for “good +reason,” within 24 months following the +change-of-control +transaction. The Committee believes that this structure strikes +a proper balance between the incentives and the hiring, +motivating and retention effects described above, without +providing benefits to executives who voluntarily terminate or +continue to be employed by an acquiring company. This structure +may also be attractive to potential acquiring companies, which +place significant value on retaining members of the executive +team for some transition period. Potential acquirers may have an +incentive to constructively terminate the executive’s +employment to avoid paying severance; accordingly, the Committee +believes it is appropriate to provide severance benefits upon a +termination by the executive for “good reason.” +45 +Table of Contents +The following tables contain information concerning the +compensation of the Company’s Named Executive Officers. +SUMMARY +COMPENSATION TABLE +Change in +Pension +Value and +Nonqualified +Options/ +Non-Equity +Deferred +Stock +SAR +Incentive Plan +Compensation +All Other +Salary +Bonus(1) +Awards(2) +Awards(3) +Compensation(4) +Earnings(5) +Compensation(6) +Total +Name and Principal Position +Year +($) +($) +($) +($) +($) +($) +($) +($) +Richard W. McCullough +2010 +550,000 +825,000 +1,064,753 +336,419 +— +38,914 +87,793 +2,902,879 +Chief Executive Officer +2009 +450,000 +315,500 +382,961 +— +472,500 +36,712 +175,326 +1,832,999 +and Chairman +2008 +340,000 +181,213 +1,648,741 +— +422,831 +32,555 +74,704 +2,700,044 +Gysle R. Shellum +2010 +275,000 +264,000 +356,286 +112,577 +— +— +47,589 +1,055,452 +Chief Financial Officer (7) +2009 +235,000 +86,625 +— +— +123,375 +— +85,064 +530,064 +2008 +27,115 +20,000 +235,008 +— +— +— +2,911 +285,034 +Barton R. Brookman +2010 +290,000 +270,000 +348,099 +109,992 +— +— +33,262 +1,051,353 +Senior Vice President +2009 +270,000 +93,250 +180,568 +— +141,750 +— +30,025 +715,593 +Exploration and Production +2008 +250,000 +71,850 +652,337 +— +167,650 +— +29,914 +1,171,751 +Daniel W. Amidon +2010 +260,000 +229,000 +327,618 +103,521 +— +— +159,396 +1,079,535 +General Counsel and +2009 +245,700 +86,008 +131,431 +— +128,993 +— +50,399 +642,531 +Secretary +2008 +227,500 +63,162 +652,337 +— +147,378 +— +34,567 +1,124,944 +Lance A. Lauck +2010 +235,000 +330,500 +446,087 +97,050 +— +— +40,670 +1,149,307 +Senior Vice President +2009 +73,556 +39,375 +269,707 +— +25,625 +— +7,031 +415,294 +Business Development (8) +(1) +This column represents the non-formulaic based amounts paid +under the Company’s annual incentive bonus plan. For a +description of the 2010 awards, see “Annual +Incentives” under “Compensation Discussion and +Analysis.” The 2010 amount for Mr. Lauck includes +$176,000 of annual incentive bonus and $77,250, equal to half of +$154,500, for the special acquisitions bonus that was earned in +2010, of which 50% is deferred for one year and conditioned upon +confirmation of the acquisition results. For a description of +the acquisitions bonus, see “2010 Acquisitions Bonus to +Mr. Lauck” under “Compensation Discussion and +Analysis.” In 2009, annual cash bonus amounts were deemed +related to specific metrics, and so a portion of the annual cash +bonus was accrued in Column 7 titled “Non-Equity Incentive +Plans.” For 2010, the entire annual cash bonus was included +in Column 4 titled “Bonus.” +(2) +This column represents the grant date value of stock-based +compensation awards, which include time-based restricted stock +awards, performance based awards in 2008 and 2009, retention +grants to Messrs. McCullough, Brookman and Amidon in 2008 +in the amount of 13,878, 4,956 and 4,956 shares, +respectively, and the new hire restricted stock grants to +Mr. Shellum in 2008 and Mr. Lauck in 2009 and 2010. +The 2010 grants are detailed in the “Grants of Plan-Based +Awards” table. Terms of the awards and descriptions of the +2008 and 2009 performance-based awards can be found in +“Additional Discussion of Tables Related to Summary +Compensation and Grants of Plan Based Awards.” In +accordance with recent changes to the SEC rules, the amounts +reported in the above table for 2010 reflect the aggregate grant +date fair value of the stock awards in 2010, calculated in +accordance with FASB ASC Topic 718. These values have been +determined under the principles used to calculate the grant date +fair value of equity awards for purposes of the Company’s +financial statements. +(3) +This column represents the grant date value of SARs granted in +2010. These grants are detailed in the “Grants of +Plan-Based Awards” table. Terms of the awards can be found +in “Additional Discussion of Tables Related to Summary +Compensation and Grants of Plan-Based Awards.” In +accordance with recent changes to the SEC rules, the amounts +reported in the above table for 2010 reflect the aggregate grant +date fair value of the SARs awards in 2010, calculated in +accordance with FASB ASC Topic 718. These values have been +determined under the principles used to calculate the grant date +fair value of SARs awards for purposes of the Company’s +financial statements. +(4) +This column represents the grant date fair value of +performance-based formulaic amounts earned under the +Company’s annual incentive bonus plan in 2008 and 2009. +(5) +This column represents the present value of the current year +accrual for Mr. McCullough’s supplemental retirement +plan benefit payable beginning twelve months after +termination of employment. For a description of +46 +Table of Contents +this benefit, see “Components of the Company’s +Compensation Program – Other Compensation – +Retirement Plan” under “Compensation Discussion and +Analysis.” The “Pension Benefits” table outlines +how the accrual amount for 2010 was determined. +(6) +Amounts shown in this column are detailed in “All Other +Compensation” below; relocation expenses represent the +majority of this amount for Mr. McCullough in 2009 and +Amidon in 2010. +(7) +Mr. Shellum was hired as CFO effective November 11, +2008. +(8) +Mr. Lauck was hired as Senior Vice President Business +Development effective August 31, 2009. +ALL OTHER +COMPENSATION +Company- +Paid Life +Annual +and +Company +401(k) +Profit +Total +Disability +Paid Medical +Matching +Sharing +All Other +Insurance(1) +Expenses(2) +Contribution(3) +Contribution(4) +Perquisites(5) +Compensation +Name +Year +($) +($) +($) +($) +($) +($) +Richard W. McCullough +2010 +$ +18,122 +$ +439 +$ +22,000 +$ +7,626 +$ +39,606 +$ +87,793 +Gysle R. Shellum +2010 +— +— +22,000 +7,626 +17,963 +47,589 +Barton R. Brookman +2010 +— +— +16,500 +7,626 +9,136 +33,262 +Daniel W. Amidon +2010 +— +— +22,000 +7,626 +129,770 +(6) +159,396 +Lance A. Lauck +2010 +— +— +16,500 +7,626 +16,544 +40,670 +(1) +This column represents the cost of reimbursed disability and +life insurance premiums for Mr. McCullough. +(2) +This column represents the cost of Company-reimbursed medical +expenses in excess of those paid by the Company’s medical +plan for Messrs. McCullough and Amidon. The Committee +eliminated this benefit in April 2010. +(3) +This column represents the Company’s annual 401(k) matching +contribution to the Company’s 401(k) and Profit Sharing +Plan. +(4) +This column represents the Company’s annual profit sharing +contribution to the Company’s 401(k) and Profit Sharing +Plan. +(5) +This column represents the total perquisites provided by the +Company. No individual perquisite exceeded $25,000, except the +relocation expense as noted in footnote (6) below. +(6) +This figure includes $112,150 of relocation expenses related to +Mr. Amidon’s move to Denver. Of this amount, $71,188 +was paid by the Company and the remaining $40,962 was the +related tax +“gross-up” +for relocation expenses. +47 +Table of Contents +GRANTS OF +PLAN-BASED AWARDS +All Other +All Other +Option/ +Stock +Awards: +Exercise +Grant Date +Estimated Future Payouts +Estimated Future Payouts +Awards: +Number of +or Base +Fair Value of +Under Non-Equity +Under Equity +Number of +Securities +Price of +Stock and +Incentive Plan Awards(1) +Incentive Plan Awards +Shares +Underlying +Option +Option +Threshold +Target +Maximum +Threshold +Target +Maximum +of Stock(2) +Options(3) +Awards +Awards +Name +Grant Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +Richard W. McCullough +4/19/2010 +— +550,000 +1,100,000 +— +— +— +— +— +— +— +4/19/2010 +— +— +— +— +— +— +— +25,371 +24.44 +336,419 +(4)(5) +4/19/2010 +— +— +— +— +— +— +43,566 +— +— +1,064,753 +(5)(6) +Gysle R. Shellum +4/19/2010 +— +165,000 +330,000 +— +— +— +— +— +— +— +4/19/2010 +— +— +— +— +— +— +— +8,490 +24.44 +112,577 +(4)(5) +4/19/2010 +— +— +— +— +— +— +14,578 +— +— +356,286 +(5)(6) +Barton R. Brookman +4/19/2010 +— +174,000 +348,000 +— +— +— +— +— +— +— +4/19/2010 +— +— +— +— +— +— +— +8,295 +24.44 +109,992 +(4)(5) +4/19/2010 +— +— +— +— +— +— +14,243 +— +— +348,099 +(5)(6) +Daniel W. Amidon +4/19/2010 +— +143,000 +286,000 +— +— +— +— +— +— +— +4/19/2010 +— +— +— +— +— +— +— +7,807 +24.44 +103,521 +(4)(5) +4/19/2010 +— +— +— +— +— +— +13,405 +— +— +327,618 +(5)(6) +Lance A. Lauck +1/27/2010 +— +— +— +— +— +— +7,000 +— +— +138,950 +(7) +4/19/2010 +— +117,500 +(8) +435,000 +(9) +— +— +— +— +— +— +— +4/19/2010 +— +— +— +— +— +— +— +7,319 +24.44 +97,050 +(4)(5) +4/19/2010 +— +— +— +— +— +— +12,567 +— +— +307,137 +(5)(6) +(1) +These columns reflect the target and maximum awards payable +under the Company’s annual incentive plan with the +exception of Mr. Lauck as described below in footnote (8). +This amount is reflected in the Bonus column of the +“Summary Compensation Table” under applicable SEC +regulations. For a description of the 2010 awards, see +“Annual Incentives” under “Compensation +Discussion and Analysis.” +(2) +This column represents time-based restricted stock awards under +the Company’s 2004 LTI Plan. For a description of the 2010 +awards, see “Long Term Incentives” under +“Compensation Discussion and Analysis.” +(3) +This column represents SARs awarded under the Company’s +2004 LTI Plan. For a description of the 2010 awards, see +“Long-Term Incentives” under “Compensation +Discussion and Analysis.” +(4) +Grant date fair value for SARs is computed by multiplying the +number of shares awarded by the grant date fair market value as +computed utilizing the Black-Scholes pricing model, which was +$13.26 per share. +(5) +These grants are scheduled to vest ratably over three years +beginning April 19, 2011. +(6) +Grant date fair value for restricted stock is computed by +multiplying the number of shares awarded by the closing price of +the Company’s common stock, as reported on the NASDAQ +Global Select Market, on the date of grant, which was $24.44. +(7) +These shares represent part of Mr. Lauck’s new hire +package and are scheduled to vest over two years beginning +August 31, 2010. Grant date fair value for restricted stock +is computed by multiplying the number of shares awarded by the +closing price of the Company’s common stock, as reported on +the NASDAQ Global Select Market, on January 27, 2010, which +was $19.85. +(8) +This represents Mr. Lauck’s target award solely with +respect to the annual incentive plan. In addition, +Mr. Lauck was eligible for an acquisitions bonus in 2010. +For a description of the acquisitions bonus, see “2010 +Acquisitions Bonus to Mr. Lauck” under “Annual +Incentives” and footnote (9) below. +(9) +The maximum Mr. Lauck could earn under the annual incentive +plan was $235,000 (200% of $117,500) and the maximum he could +earn under the acquisitions bonus was $200,000, for a total of +$435,000. Under the terms of his employment agreement, the +maximum combined bonus Mr. Lauck can receive in any year is +200% of his base salary. +48 +Table of Contents +ADDITIONAL +DISCUSSION OF TABLES RELATED TO SUMMARY COMPENSATION +AND 2010 GRANTS OF PLAN-BASED AWARDS +The following provides additional disclosure about the 2008, +2009 and 2010 long-term incentive awards. +Terms +of Restricted Stock and SAR Grants +Restricted +Stock +• +Annual awards in 2010 vest ratably over three years. All prior +annual awards vested ratably over four years. +• +Unvested awards are forfeited by the executive if the executive +voluntarily terminates or is terminated for cause prior to the +vesting date. +Stock +Options/SARs +• +Options/SARs are awarded at the NASDAQ closing price of our +stock on the date of the grant. Grants with an exercise price +that is less than the closing price of our stock on the grant +date or which are priced on a date other than the grant date are +not permitted. +• +SAR awards in 2010 vest ratably over three years. All prior +stock option awards vested ratably over four or five years. +• +Awards expire no later than ten years after grant date. +All unvested awards are forfeited by the executive if the +executive voluntarily terminates or is terminated for cause +prior to the vesting date. +2008/2009 +Performance Shares +In 2008 and 2009, the Committee awarded performance shares that +vest upon achievement of specific stock price targets over a +three- to five-year period. The initial tranche could be earned +as of the end of year three with additional hurdles targets for +the end of years four and five. Any shares not vested would +remain eligible to be vested in future years; however, any +unvested shares at the end of the five-year performance period +would be forfeited. The Committee decided to use three +measurement dates to take into account the volatility of energy +prices and their impact on the stock price of the Company. The +following chart shows the various stock price hurdle rates and +payout levels by year. +Vested +Approximate +Target +Year of +Growth +Target Price(1) +Percent +Award +Target(1) +2010 +2011 +2012 +2013 +Attained +2008 +12 +% +$ +80.50 +$ +90.00 +$ +101.00 +— +50 +% +16 +% +89.50 +103.50 +120.00 +— +75 +% +20 +% +99.00 +118.50 +142.50 +— +100 +% +2009 +12 +% +30.50 +34.00 +$ +38.00 +50 +% +16 +% +34.00 +39.00 +45.50 +75 +% +20 +% +37.50 +45.00 +54.00 +100 +% +(1) +Growth target percentages and target prices are based on the +average closing price of the Company’s common stock during +the preceding December for each year. +Performance shares will vest for a performance period if the +target price is met or exceeded for that period. Performance +shares that vest will not be subject to divestment if the share +price subsequently falls below the threshold in a subsequent +performance period. +Performance shares do not vest upon voluntary termination by the +executive or termination by the Company for cause. +49 +Table of Contents +Effect +of Termination on Long-Term Incentive Payments +For a description of what would happen to stock options/SARs, +performance shares and restricted stock in all other termination +scenarios or upon a change of control of the Company, see +“Potential Payments Upon Termination of a Change of +Control — Impact on Long-Term Incentive Plans.” +Special +Restricted Stock Retention Grants in 2008 +In 2008, after the announcement that Mr. McCullough had +been selected as the new CEO, the Committee made special +restricted stock awards to senior executives at that time, +including Messrs. McCullough, Brookman and Amidon, to +ensure retention of these executives as the Company was building +its executive team. These shares were subject to the same terms +and conditions as all other awards of restricted stock awards +(described above), except they vested ratably over a five-year +period. +New +Hire Grants +In 2008, the Company hired Mr. Shellum and, in 2009, +Mr. Lauck. As part of their new hire packages, +Mr. Shellum was granted 12,240 shares of restricted +stock that vest ratably over four years. Mr. Lauck was +granted 26,701 shares of restricted stock, of which +16,701 shares were granted upon his hire date and vest +ratably over four years, 3,000 shares were granted on his +hire date and vest ratably over two years, and the remaining +7,000 shares were granted upon execution of his employment +agreement in January 2010 and vest ratably over two years +beginning August 31, 2010, the anniversary of his hire +date. The restricted shares granted to both executives had the +same terms and conditions as all other restricted shares +outlined above. Such grants were equal to one time their base +salary, based on the stock price at that time. +OUTSTANDING +EQUITY AWARDS AT 2010 FISCAL YEAR END +Options/SARs Awards +Stock Awards +Equity +Equity +Incentive +Incentive +Plan Awards: +Number +Plan Awards: +Market +Number of Securities +of Shares +Market Value +Number of +Value +Underlying Unexercised +Option/ +of Stock +of Shares of +Unearned +of Unearned +Options/SARs Held at +SAR +Option/ +That Have +Stock That +Shares That +Shares That +December 31, 2010 +Exercise +SAR +Not +Have Not +Have Not +Have Not +Exercisable(1) +Unexercisable(2) +Price +Expiration +Vested(3) +Vested(4) +Vested(5) +Vested(4) +Name +(#) +(#) +($) +Date +(#) +($) +(#) +($) +Richard W. McCullough +3,333 +— +43.60 +11/14/2016 +74,902 +3,164,610 +20,465 +864,646 +— +25,371 +24.44 +4/19/2020 +— +— +— +— +Gysle R. Shellum +— +8,490 +24.44 +4/19/2020 +20,698 +874,491 +— +— +Barton R. Brookman +— +8,295 +24.44 +4/19/2020 +26,069 +1,101,415 +8,295 +350,464 +Daniel W. Amidon +— +7,807 +24.44 +4/19/2020 +25,236 +1,066,221 +7,877 +332,803 +Lance A. Lauck +— +7,319 +24.44 +4/19/2020 +30,093 +1,271,429 +— +— +(1) +This column represents stock options exercisable as of +December 31, 2010. +(2) +SARs were granted in 2010 and are scheduled to vest ratably over +three years beginning in 2011 on each anniversary of the date of +grant, which was April 19. The exercise price related to +the SARs does not represent capital payable to the Company, but +simply represents the base (the “exercise price”) at +which the the stock appreciation value will be determined on the +date of exercise. +50 +Table of Contents +(3) +The restricted stock in this column is scheduled to vest in +accordance with the following table: +Shares Vesting Per Year +2011 +2012 +2013 +Total +Richard W. McCullough +25,388 +25,388 +24,126 +74,902 +Gysle R. Shellum +7,919 +7,919 +4,860 +20,698 +Barton R. Brookman +8,876 +8,876 +8,317 +26,069 +Daniel W. Amidon +9,065 +8,365 +7,806 +25,236 +Lance A. Lauck +13,364 +8,364 +8,365 +30,093 +(4) +The market value of these shares is based on the closing price +of the Company’s common stock of $42.25, as reported on the +NASDAQ Global Select Market on December 31, 2010. +(5) +This column represents performance shares granted in 2008 and +2009 to be issued contingent upon the achievement of certain +specified stock price performance goals as described in +“Additional Discussion of Tables Relating to Summary +Compensation and Grants of Plan-Based Awards.” +OPTIONS +EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Number of +Value +Number of +Value +Shares Acquired +Realized +Shares Acquired +Realized +on Exercise +on Exercise +on Vesting +on Vesting(1) +Name +(#) +($) +(#) +($) +Richard W. McCullough +— +— +11,929 +$ +273,076 +Gysle R. Shellum +— +— +3,060 +108,997 +Barton R. Brookman +— +— +10,220 +287,516 +Daniel W. Amidon +— +— +4,597 +101,218 +Lance A. Lauck +— +— +9,175 +246,808 +(1) +Represents the value of the restricted shares that vested in +2010. This value is determined by multiplying the number of +vesting shares by the market value of the shares on the vesting +date. +PENSION +BENEFITS +Number of +Present Value +Years of +of +Payments +Credited +Accumulated +During Last +Service +Benefit +Fiscal Year +Name +Plan Name(1) +(2) +(3) +(2) +Richard W. McCullough +Nonqualified Deferred +Supplemental Retirement Benefit for Mr. McCullough +4 +$ +155,657 +$ +0 +(1) +This benefit represents the supplemental retirement plan +described under “Components of the Company’s +Compensation Program — Other Compensation - Retirement +Plan” under “Compensation Discussion and +Analysis.” This benefit is only provided to +Mr. McCullough. Messrs. Shellum, Brookman, Amidon and +Lauck are not participants in this plan. +(2) +Mr. McCullough has a right to an annual nonqualified +deferred supplemental retirement benefit following his +retirement or other separation from service +(“Separation”) equal to $7,500 times his number of +years of completed service. Payments under this benefit are due +on the anniversary date of his Separation. As of +December 31, 2010, Mr. McCullough has four years of +service and therefore has earned an annual $30,000 benefit +payable for ten years following his Separation. +(3) +This column shows the present value of the total value of +Mr. McCullough’s future supplemental retirement +benefit. The amount assumes ten annual payments of $30,000 +beginning in January following Mr. McCullough’s 65th +birthday, using a 6% discount rate. +51 +Table of Contents +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL/ +EXECUTIVE EMPLOYMENT AGREEMENTS +On April 19, 2010, as a condition of the compensation +adjustments in 2010, each Named Executive Officer entered into +an amended and restated employment agreement (“Amended +Agreements”). The initial term of each employment agreement +is through December 31, 2011. The agreements are +automatically extended for an additional twelve months on +December 31, 2010 and on each successive December 31 unless +either party gives notice of non-renewal. The primary purpose of +the Amended Agreements was to provide for a “double +trigger” change of control provision in place of the +“single trigger,” and to make other amendments related +thereto. The double trigger event has to occur within two years +of the date of the change in control in order for the Named +Executive Officer to receive the severance benefits. In +addition, the Amended Agreement for each of +Messrs. McCullough and Amidon (1) eliminated the +Company’s contractual obligation to provide for +reimbursement of medical expenses that are not covered under the +Company’s medical plan; and (2) now requires a General +Release before severance benefits are paid in the event of the +termination of the Named Executive Officer by the Company +without Just Cause, termination by the Named Executive Officer +for Good Reason, or termination of the Named Executive Officer +following a change of control. See the “Potential Payments +Upon Termination Or Change in Control” table below for a +quantification and explanation of amounts payable under such +contract provisions. +Non-Compete +and Non-Disclosure +Each employment agreement contains a non-disclosure covenant and +also provides that the executive officer is prohibited during +the term of his employment and for a period of one year +following his termination from engaging in any competing +business within any county, or adjacent county, in which the +Company is doing business. In addition, the agreements also +provide that executives are prohibited from soliciting employees +from the Company for at least one year following termination. +Clawback +Provisions +The employment agreements also contain a recoupment (or +“clawback”) provision requiring the executive to +reimburse all or a portion of +his/her +annual bonus if the Company must restate all or a portion of its +financial statements due to material noncompliance by the +Company with any financial reporting requirement under +securities laws. The reimbursements are equal to the difference +between the bonus paid to the executive for the affected years +and the bonus that would have been paid to the executive had the +financial results been properly reported. +Impact +of Termination on Long-Term Incentive Plans +Under the terms of the 2004 and 2010 LTI Plans in related grant +agreements and employment agreements, all unvested restricted +stock, stock options, and SARs vest upon death, disability and +change in control. The 2008 and 2009 performance share awards +vest upon death, disability, termination by the Company without +“Just Cause” and termination by the executive for +“Good Reason” on a pro-rata basis based on the +compound annual growth rate and the period of service that has +elapsed since the grant date. Performance shares would also be +paid out upon a change in control of the Company in the event of +a sale of Company stock on a pro-rata basis and Company stock +price performance through date of the change in control. The +2011 performance shares would vest upon death and disability on +a pro-rata basis based on service completed during the +performance period. In the event of disability, or in the event +of death in the third year of the performance period, payout +would occur at the end of the performance period. In the event +death occurs in the first two years of the performance period, +the benefit would be paid based on performance through the date +of death. In the event of a change in control of the Company and +more than one-half of the performance period has elapsed, the +2011 performance shares would be paid upon change in control at +the greater of actual performance through change of control or +100% of target, whichever is greater. If less than one-half of +the performance period has lapsed, the 2011 performance shares +would be paid upon a change of control at 100% of target. +52 +Table of Contents +Change-of-Control +Excise Tax Provision +The Company currently provides for no income tax +gross-up or +for any excise tax +gross-up +pursuant to taxes that may be imposed on “excess parachute +payments” within the meaning of Section 280G and +Section 4999 of the Code. If, in connection with a change +of control of the Company, any compensation to a Named Executive +Officer is accelerated or becomes vested, that executive could, +in some cases, be considered to have received “parachute +payments” within the meaning of Section 280G and +Section 4999 of the Code. Pursuant to these tax laws, the +executive could be subject to a 20% excise tax on parachute +payments that exceed a certain amount, in which case the Company +would be denied a tax deduction for such excess parachute +payments. The employment agreements provide that if it is +determined that any payment or distribution by the Company to or +for the executive’s benefit would constitute an +“excess parachute payment,” the Company will either +(1) pay the total amount to the executive and he would be +responsible for the excise tax; or (2) reduce the executive +payment to the IRS “safe harbor amount,” whichever +amount will give the executive the greater benefit. +Termination +Benefits Table +The amount of compensation payable to each named executive +officer in each termination situation is listed in the following +table for fiscal year 2010, assuming termination had occurred on +December 31, 2010, and the closing price per share on such +date was $42.25. The actual amounts to be paid out can only be +determined at the time of such Named Executive Officer’s +termination. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +By Company Without +Cause or by Executive +for Good Reason +Voluntary +Prior to +Following +by +Change in +Change in +For +Executive +Control +Control(1) +Cause +Death +Disability +Name/Element of Compensation +($) +($) +($) +($) +($) +($) +RICHARD W. McCULLOUGH +Cash Compensation +Severance/Salary Continuation(2) +— +4,125,000 +4,125,000 +— +275,000 +412,500 +Earned but Unpaid 2010 Compensation(3) +825,000 +825,000 +825,000 +— +825,000 +825,000 +Acceleration of Unvested Equity +Restricted Stock(4) +— +3,164,610 +3,164,610 +— +3,164,610 +3,164,610 +SARs(5) +— +451,858 +451,858 +— +451,858 +451,858 +Performance Shares(6) +— +205,758 +205,758 +— +205,758 +205,758 +Earned Profit Sharing/Deferred Compensation(7) +7,626 +7,626 +7,626 +7,626 +7,626 +7,626 +Health Benefit — Continuation(8) +— +21,254 +21,254 +— +— +— +Total +832,626 +8,801,105 +8,801,105 +7,626 +4,929,851 +5,067,351 +GYSLE R. SHELLUM +Cash Compensation +Severance/Salary Continuation(2) +— +970,000 +1,455,000 +— +162,500 +243,750 +Earned but Unpaid 2010 Compensation(3) +264,000 +264,000 +264,000 +— +264,000 +264,000 +Acceleration of Unvested Equity +Restricted Stock(4) +— +874,491 +874,491 +— +874,491 +874,491 +SARs(5) +— +151,207 +151,207 +— +151,207 +151,207 +Performance Shares(6) +— +— +— +— +— +— +Earned Profit Sharing/Deferred Compensation(7) +7,626 +7,626 +7,626 +7,626 +7,626 +7,626 +Health Benefit — Continuation(8) +— +21,254 +21,254 +— +— +— +Total +271,626 +2,288,577 +2,773,577 +7,626 +1,459,823 +1,541,073 +53 +Table of Contents +By Company Without +Cause or by Executive +for Good Reason +Voluntary +Prior to +Following +by +Change in +Change in +For +Executive +Control +Control(1) +Cause +Death +Disability +Name/Element of Compensation +($) +($) +($) +($) +($) +($) +BARTON R. BROOKMAN +Cash Compensation +Severance/Salary Continuation(2) +— +1,050,000 +1,575,000 +— +162,500 +243,750 +Earned but Unpaid 2010 Compensation(3) +270,000 +270,000 +270,000 +— +270,000 +270,000 +Acceleration of Unvested Equity +Restricted Stock(4) +— +1,101,415 +1,101,415 +— +1,101,415 +1,101,415 +SARs(5) +— +147,734 +147,734 +— +147,734 +147,734 +Performance Shares(6) +— +77,605 +77,605 +— +77,605 +77,605 +Earned Profit Sharing/Deferred Compensation(7) +7,626 +7,626 +7,626 +7,626 +7,626 +7,626 +Health Benefit — Continuation(8) +— +21,254 +21,254 +— +— +— +Total +277,626 +2,675,634 +3,200,634 +7,626 +1,766,880 +1,848,130 +DANIEL W. AMIDON +Cash Compensation +Severance/Salary Continuation(2) +1,467,000 +1,467,000 +— +137,500 +206,250 +Earned but Unpaid 2010 Compensation(3) +229,000 +229,000 +229,000 +— +229,000 +229,000 +Acceleration of Unvested Equity +Restricted Stock(4) +— +1,066,221 +1,066,221 +— +1,066,221 +1,066,221 +SARs(5) +— +139,043 +139,043 +— +139,043 +139,043 +Performance Shares(6) +— +70,625 +70,625 +— +70,625 +70,625 +Earned Profit Sharing/Deferred Compensation(7) +7,626 +7,626 +7,626 +7,626 +7,626 +7,626 +Health Benefit — Continuation(8) +— +21,254 +21,254 +— +— +— +Total +236,626 +3,000,769 +3,000,769 +7,626 +1,650,015 +1,718,765 +LANCE A. LAUCK +Cash Compensation +Severance/Salary Continuation(2) +— +705,000 +1,057,500 +— +132,500 +198,750 +Earned but Unpaid 2010 Compensation(3) +253,250 +253,250 +253,250 +77,250 +253,250 +253,250 +Acceleration of Unvested Equity +Restricted Stock(4) +— +1,271,429 +1,271,429 +— +1,271,429 +1,271,429 +SARs(5) +— +130,351 +130,351 +— +130,351 +130,351 +Performance Shares(6) +— +— +— +— +— +— +Earned Profit Sharing/Deferred Compensation(7) +84,876 +84,876 +84,876 +84,876 +84,876 +84,876 +Health Benefit — Continuation(8) +— +21,254 +21,254 +— +— +— +Total +338,126 +2,466,161 +2,818,661 +162,126 +1,872,407 +1,938,657 +(1) +A benefit is only payable if, within two years following a +change in control, the executive is terminated by the Company or +its successor “without cause” or the executive +terminates for “good reason” as defined in his +employment agreement (“double trigger”). The Company +currently provides for no income tax +gross-up or +for any excise tax +gross-up +pursuant to taxes that may be imposed on “excess parachute +payments” within the meaning of Section 280G and +Section 4999 of the Code. +(2) +In determining severance amounts for Messrs. McCullough and +Amidon, because the valuation is as of December 31, 2010, +the amount shown is determined using the 2010 bonus earned. In +the case of Messrs. Shellum, Brookman and Lauck, pursuant +to their respective employment agreements, the amount +54 +Table of Contents +shown is determined using the 2009 bonus paid. Also, in the case +of Mr. Lauck, the acquisitions bonus is not included in his +calculation. Severance amounts for disability include up to +13 weeks of salary continuation in the event of short-term +disability, a lump sum payment equal to six months base salary +upon approval for long-term disability and, in the case of +Messrs. McCullough and Amidon, a pro-rata bonus for the +year if they terminate after March 31 of the year (shown in +“Earned but Unpaid 2010 Compensation”). The severance +amount for death is a lump sum payment equal to six months base +salary and, in the case of Messrs. McCullough and Amidon, a +pro-rata bonus for the year if they terminate in certain +circumstances. +(3) +This represents the annual bonus earned for 2010 performance +pursuant to the Company’s annual incentive plan. Please see +“Annual Incentives” in “Compensation Discussion +and Analysis” for discussion of the Company’s annual +incentive plan. In addition, as of December 31, 2010, +Mr. Lauck had earned an acquisitions bonus based upon +acquisitions completed under his direction in 2010. Of the +$154,500 owed Mr. Lauck, 50% is shown under “Earned +but Unpaid 2010 Compensation” above and 50% is shown as +deferred compensation under “Earned Profit Sharing/Deferred +Compensation.” For a complete description of +Mr. Lauck’s acquisitions bonus, see “2010 +Acquisitions Bonus to Mr. Lauck” under +“Compensation Discussion and Analysis.” In the case of +termination for “cause,” it is the Company’s +intent that no 2010 bonus would be earned and payable under the +annual incentive plan. Although the 2010 bonuses were based upon +specific performance metrics, due to the subjective and +discretionary elements of bonus determination regarding Company +and individual performance and the fact that the amount of bonus +earned for 2010 is not determined and finalized until after +year-end when Company performance is finalized, if an executive +had been terminated for “cause” on December 31, +2010, no bonus would be due. In some cases of termination for +“cause,” the Company may also determine that +Mr. Lauck is not due the deferred amount of his +acquisitions bonus. +(4) +All unvested shares of time-based restricted stock vest under +the employment agreements upon all termination events except +voluntary termination and termination for “cause.” The +2004 and 2010 LTI Plans and the specific award letters also +provide for full accelerated vesting of all restricted stock +upon change in control of the Company, death and disability. For +the unvested shares of restricted stock that would have +accelerated vesting, see “Outstanding Equity Awards at +Fiscal Year End.” +(5) +All unvested SARs vest under the employment agreements upon all +termination events except voluntary termination and termination +“for cause.” The 2004 and 2010 LTI Plans and the +specific award letters also provide for full accelerated vesting +of all SARs upon a change in control of the Company, death and +disability. The value of the SARs shown is calculated using the +closing price of the Company’s shares on December 31, +2010, less the exercise price of the SARs determined on grant +date. For the unvested SARs that would have accelerated vesting, +see “Outstanding Equity Awards at Fiscal Year End.” +(6) +Under the employment agreements, all performance shares granted +in 2008 and 2009 are forfeited in the event of voluntary +termination or termination for “cause.” Under the +terms of the performance share program, termination by the +Company “without cause,” by the executive for +“good reason,” termination due to death or disability +and upon a change in control in the event of the sale of Company +shares, shares are paid out pro-rata based on the length of time +from grant date to termination of employment or change in +control and are contingent on performance metrics as of the date +of termination/change in control. The value shown for the 2009 +performance shares is equal to the number of shares granted +multiplied by 40% (two of five years completed in the cycle) +multiplied by $42.25, the December 31, 2010 closing stock +price. Based upon the performance metrics, 100% of the award was +earned but only 40% was payable due to application of the time +elapsed since the beginning of the performance period. None of +the 2008 performance shares were earned or payable as of +year-end based upon the performance criteria not being met. +(7) +Amounts for all executives includes $7,626 earned 2010 profit +sharing contribution that was remitted to each executive’s +401(k) account in March 2011. Mr. Lauck’s amount +includes $77,250 of his deferred and contingent acquisition +bonus (50% of his 2010 earned amount) described in footnote +(3) above. In addition to the amounts shown in this table, +Mr. McCullough would also begin the supplemental retirement +benefit described under “Components of the Company’s +Compensation Program — Other Compensation — +Retirement Plan” under “Compensation Discussion and +Analysis” on the anniversary of his termination date. This +benefit is not enhanced or accelerated upon termination of +employment. +55 +Table of Contents +(8) +This represents the Company-subsidized COBRA premium cost to +continue family health and dental coverage for an +18-month +period. +EQUITY +COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity +compensation plans under which our equity securities are +authorized for issuance as of December 31, 2010. +Number of +Number of +Securities Remaining +Securities to be +Weighted-Average +Available for +Issued Upon Exercise of +Exercise Price of +Future Issuance +Outstanding Options +Outstanding Options +Under Equity +and Rights (1) +and Rights +Compensation Plans(2) +Plan Category +(#) +($) +(#) +Equity compensation plans approved by security holders +147,138 +$ +27.10 +1,181,288 +(3) +Equity compensation plans not approved by security holders +— +— +— +Total +147,138 +$ +27.10 +1,181,288 +(1) +Includes 79,550 shares of common stock to be issued based +upon continuous employment and the achievement of certain stock +price performance goals over a specified period of time as +described in “Additional Discussion of Tables Related to +Summary Compensation and Grants of Plan-Based Awards.” +These shares have been excluded from the weighted average. +(2) +The number of securities remaining available for future +issuances have been reduced by the number of securities to be +issued upon exercise of outstanding options, SARs and restricted +shares subject to time vesting and certain market-based +performance goals over a specified period of time. +(3) +The Company will no longer be issuing any securities under the +2004 LTI Plan. +STOCKHOLDER +NOMINATIONS AND PROPOSALS +Stockholder +Proposals for 2012 Annual Meeting +Any proposal that a stockholder wishes to include in the +Company’s Proxy Statement for the 2012 Annual Meeting of +Stockholders must be received by the Company at its principal +executive office on or prior to December 26, 2011, and must +be submitted in compliance with SEC +Rule 14a-8. +Proposals should be addressed to: +Corporate Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Advance +Notice Procedures Under the Company’s By-Laws +Any proposal or nomination for director that a stockholder +wishes to propose for consideration at the 2012 Annual Meeting +of Stockholders, but does not seek to include in our Proxy +Statement under applicable SEC rules, must be submitted in +accordance with Section 2.14(b) the Company’s By-Laws, +which provides that no business may be brought before an Annual +Meeting of Stockholders unless it is specified in the notice of +the meeting or is otherwise brought before the meeting by or at +the direction of the Board or by a stockholder entitled to vote +who has delivered advance notice to the Company. The notice must +contain certain information specified in the By-Laws and be +delivered to the Corporate Secretary at the address set forth +above, not less than 80 days nor more than 90 days +prior to the first anniversary of the preceding year’s +Annual Meeting. The By-laws also provide that if the meeting is +held more than 30 days before the anniversary of the prior +year’s Annual Meeting or 60 days after such +anniversary, +56 +Table of Contents +then notice can be given not later than the tenth day following +the day on which public announcement of the date of the Annual +Meeting is first made by the Company. +Pursuant to SEC Rule +14a-4(c)(1), +if our Secretary receives any stockholder proposal at the +address listed above after March 22, 2012 that is intended +to be presented at the 2012 annual meeting without inclusion in +the Proxy Statement for the meeting, the proxies designated by +the Board will have discretionary authority to vote on such +proposal. +HOUSEHOLDING +INFORMATION +The SEC permits companies and intermediaries (such as brokers +and banks) to satisfy delivery requirements for proxy statements +and annual reports with respect to two or more stockholders +sharing the same address by delivering a single proxy statement +and annual report to those stockholders. This process, which is +commonly referred to as “householding”, is intended to +reduce the volume of duplicate information stockholders receive +and also reduce expenses for companies. Both the Company and +some of our intermediaries may be “householding” our +proxy materials and annual report. Once you have received notice +from your broker or another intermediary that they will be +householding materials to your address, householding will +continue until you are notified otherwise or until you revoke +your consent. Should you wish to receive separate copies of our +Annual Report and Proxy Statement in the future, we will +promptly deliver a separate copy of each of these documents to +you if you send a written request to us at our address appearing +on page one of this Proxy Statement, to the attention of the +Corporate Secretary. If you hold your shares through an +intermediary that is utilizing householding and you want to +receive separate copies of our annual report and Proxy Statement +in the future, you should contact your bank, broker or other +nominee record holder. +By Order of the Board of Directors, +Richard W. McCullough, +Chairman and Chief Executive Officer +Dated: April 25, 2011 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A +RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON +WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S +ANNUAL REPORT ON +FORM 10-K +FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010, INCLUDING FINANCIAL +STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH +THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED +BY WRITING TO INVESTOR RELATIONS, PETROLEUM DEVELOPMENT +CORPORATION, 1775 SHERMAN STREET, SUITE 3000, DENVER, +COLORADO, 80203. +57 +Table of Contents +ENDORSEMENT_LINE______________ SACKPACK +MR A SAMPLE +DESIGNATION (IF ANY) +ADD 1 +ADD 2 +ADD 3 +ADD 4 +ADD 5 +ADD 6 +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +C123456789 +Using a black ink pen, mark your votes with an X as shown in +this example. Please do not write outside the designated areas. +Annual Meeting Proxy Card +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. +A Proposals — The Board recommends a vote FOR all nominees, FOR Proposals 2 and 4, and every +3 YRS for Proposal 3. +1. Election of Class I Directors: +01 — Joseph E. Casabona +For Withhold +02 — David C. Parke +For Withhold +03 — Jeffrey C. Swoveland +For Withhold +2. Advisory vote on executive compensation. 3. Advisory vote on the frequency of the advisory vote +on executive compensation. +4. To ratify the selection of PricewaterhouseCoopers LLP as +the independent registered public accounting firm for the +Company for the year ending December 31, 2011. +For Against Abstain +For Against Abstain +3 Yrs 2 Yrs 1 Yr Abstain +B Non-Voting Items +Change of Address — Please print new address below. +C Authorized Signatures — This section must be completed for your vote to be counted. — Date +and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign personally. When +signing as attorney, executor, administrator, trustee, guardian, or custodian, please give full +title +as such. If a corporation or partnership, please sign full corporate or partnership name, by an +authorized officer. +Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +C 1234567890 +J N T +1 U P X +1 1 4 7 3 0 1 +MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE +140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +1 +Table of Contents +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. _ +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +Proxy Solicited by Board of Directors for Annual Meeting of Stockholders +The undersigned appoints GYSLE R. SHELLUM and DANIEL W. AMIDON, and either of them, proxies, +each with full power to act without the other and with +full power of substitution for and in the name of the undersigned at the Annual Meeting of +Stockholders of Petroleum Development Corporation (dba PDC +Energy) (the “Company”) to be held on June 10, 2011, at 11:00 a.m. Mountain Time, and at any +adjournment or postponement thereof, to vote all shares of the +common stock of the Company held by the undersigned with respect to the matters herein and on such +other matters as may properly come before the meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and +Proxy Statement for such meeting dated June 10, 2011, +and a copy of the Company’s 2010 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS +EXERCISE. THIS PROXY, WHEN +PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF +NO DIRECTION IS +INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1, FOR EACH OF PROPOSAL +2 AND PROPOSAL 4, AND +FOR EVERY 3 YRS FOR PROPOSAL 3. +In their discretion, the appointed proxies are authorized to vote upon such other business as may +properly come before the meeting and at any and all +adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF THIS CARD, +SIGN, DATE AND +RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. +2 \ No newline at end of file diff --git a/raw/proxies/0000077877/0000950123-11-037440/proxy_rpt.txt b/raw/proxies/0000077877/0000950123-11-037440/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d75457dccfc3579c597d0e622a3666da802c4a5f --- /dev/null +++ b/raw/proxies/0000077877/0000950123-11-037440/proxy_rpt.txt @@ -0,0 +1,104 @@ +Under the related party transaction policy, a related person +transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would +require disclosure in the Company’s filings with the SEC as +a transaction with a related person. The related person must +disclose to the Audit Committee +27 +Table of Contents +any potential related person transactions and must disclose all +material facts with respect to such interest. All related person +transactions will be reviewed by the Audit Committee. In +determining whether to approve or ratify a transaction, the +Audit Committee will consider the relevant facts and +circumstances of the transaction, which may include factors such +as the relationship of the related person with the Company, the +materiality or significance of the transaction to the Company +and the business purpose and reasonableness of the transaction, +whether the transaction is comparable to a transaction that +could be available to the Company on an arms-length basis, and +the impact of the transaction on the Company’s business and +operations. +ADDITIONAL +INFORMATION +The Company files annual, quarterly and current reports, proxy +statements and other information with the SEC. Copies of the +Company’s filings with the SEC are available to the public +at the SEC’s website at +http://www.sec.gov . +These documents may also be viewed at the SEC’s public +reference room located at 100 F Street, N.E., +Washington, D.C. 20549. Please call the SEC at +1-800-SEC-0330 +for further information on the public reference room. +EXECUTIVE +OFFICERS +The current Named Executive Officers of the Company, their +principal occupations for the past five years and additional +information is set forth below. +Name +Age +Position(s) +Richard W. McCullough +59 +Chairman, Chief Executive Officer (“CEO”) and Director +Gysle R. Shellum +59 +Chief Financial Officer (“CFO”) +Barton R. Brookman +48 +Senior Vice President Exploration and Production +Daniel W. Amidon +50 +General Counsel and Secretary +Lance A. Lauck +48 +Senior Vice President Business Development +Richard W. McCullough. See +“Proposal No. 1 – Election of +Directors – Continuing Directors with Term Expiring in +2013 Class III” for Mr. McCullough’s +biography. +Gysle R. Shellum , 59, was appointed CFO in 2008. Prior to +joining the Company, Mr. Shellum served as Vice President, +Finance and Special Projects of Crosstex Energy, L.P., Dallas, +Texas. Mr. Shellum served in this capacity from September +2004 through September 2008. From March 2001 until September +2004, Mr. Shellum served as a consultant to Value Capital, +a private consulting firm in Dallas, Texas, where he worked on +various projects, including corporate finance and Sarbanes-Oxley +Act compliance. Crosstex Energy, L.P. is a publicly traded +Delaware limited partnership whose securities are listed on the +NASDAQ Global Select Market and is an independent midstream +energy company engaged in the gathering, transmission, treating, +processing and marketing of natural gas and natural gas liquids. +Barton R. Brookman, Jr. , 48, was appointed Senior Vice +President Exploration and Production in March 2008. +Mr. Brookman previously served as Vice President +Exploration and Production upon joining PDC in July 2005. Prior +to joining PDC, Mr. Brookman worked for Patina Oil and Gas +and its predecessor Snyder Oil for 17 years in a series of +positions of increasing responsibility, ending his service as +Vice President of Operations of Patina. +Daniel W. Amidon , 50, was appointed General Counsel and +Secretary in July 2007. Prior to joining PDC, Mr. Amidon +was employed by Wheeling-Pittsburgh Steel Corporation beginning +in July 2004, where he served in several positions including +General Counsel and Secretary. Prior to his employment with +Wheeling-Pittsburgh Steel, Mr. Amidon was employed by +J&L Specialty Steel Inc. from 1992 through July 2004 in +positions of increasing responsibility, including General +Counsel and Secretary. Mr. Amidon practiced with the +Pittsburgh law firm of Buchanan Ingersoll PC from 1986 through +1992. +Lance A. Lauck , 48, was appointed Senior Vice President +Business Development in August 2009. Previously Mr. Lauck +served as Vice President — Acquisitions and Business +Development for Quantum Resources Management LLC from +2006 — 2009. From 1988 until 2006, he held various +management positions at Anadarko Petroleum Corporation in the +areas of acquisitions and divestitures, corporate mergers and +business development. +28 +Table of Contents +COMPENSATION \ No newline at end of file diff --git a/raw/proxies/0000077877/0000950152-09-004472/proxy.txt b/raw/proxies/0000077877/0000950152-09-004472/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b0a11f1cbd0f34334a8bfb38f27dcc5d6d7df2d2 --- /dev/null +++ b/raw/proxies/0000077877/0000950152-09-004472/proxy.txt @@ -0,0 +1,4691 @@ +DEF 14A +1 +l36173adef14a.htm +FORM DEF 14A +FORM DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the Registrant +Filed by a Party other than the Registrant +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to §240.14a-12 +Petroleum Development Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +No fee required. +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction +applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule +0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +Fee paid previously with preliminary materials. +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +1775 +Sherman Street, Suite 3000 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +June 5, 2009 +Denver +Financial Center +Lobby Conference Room +1775 Sherman Street +Denver, Colorado 80203 +To the Shareholders: +Notice is hereby given that the Annual Meeting of Shareholders +of Petroleum Development Corporation (the “Company”) +will be held at the Denver Financial Center, Lobby Conference +Room, 1775 Sherman Street, Denver, Colorado 80203, on +June 5, 2009, at 11:30 a.m., local time, for the +following purposes, all as more fully described in the +accompanying Proxy Statement: +(1) +To elect the two Director nominees identified in the attached +proxy statement for a three-year term until the 2012 annual +meeting of shareholders and until their successors are elected; +(2) +To ratify the selection of PricewaterhouseCoopers LLP as +independent registered public accounting firm for the Company +for the year ending December 31, 2009; and +(3) +To consider such other business as may properly come before the +meeting and at any and all adjournments or postponements thereof. +The Board of Directors has fixed the close of business on +April 15, 2009, as the record date for determining the +shareholders having the right to vote at the annual meeting or +any adjournment or postponement thereof. The presence in person +or by proxy of the holders of a majority of the outstanding +shares of the Company’s common stock entitled to vote is +required to constitute a quorum. +Each shareholder is cordially invited to attend and to vote at +this meeting in person. Shareholders who do not expect to attend +are requested to sign and date the accompanying proxy card and +return it promptly in the enclosed postpaid envelope. +By Order of the Board of Directors, +Daniel W. Amidon, Corporate Secretary +Denver, Colorado +April 30, 2009 +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +1775 +Sherman Street, Suite 3000 +Denver, Colorado 80203 +PROXY +STATEMENT +ANNUAL MEETING OF SHAREHOLDERS +TO BE HELD JUNE 5, 2009 +Denver +Financial Center +Lobby Conference Room +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors +(“Board”) of Petroleum Development Corporation +(“PDC” or the “Company”) for use at the +Annual Meeting of Shareholders of the Company to be held on +June 5, 2009, at 11:30 a.m. Mountain Time, and at +any and all adjournments or postponements of the meeting, for +the purposes set forth in this Proxy Statement and the attached +Notice of Annual Meeting of Shareholders. This Proxy Statement +and the enclosed form of proxy are first being mailed to the +shareholders of the Company on or about April 30, 2009. +The Company will bear the cost related to the solicitation of +proxies. The Company will reimburse brokerage firms and other +custodians, nominees and fiduciaries for reasonable and +appropriate expenses incurred by them in sending proxy materials +to the beneficial owners of the Company’s common stock. In +addition to solicitations by mail, directors, officers and +employees of the Company may solicit proxies by telephone and, +to the extent necessary, other electronic communication, and +personal interviews without additional compensation. +TABLE OF +CONTENTS +GENERAL INFORMATION +1 +PROPOSALS REQUIRING SHAREHOLDER VOTE +3 +Proposal 1 – Election of +Directors +3 +Director Compensation +5 +Proposal 2 – Ratification of +Selection of an Independent Registered Public Accounting Firm +7 +Report of the Audit Committee +10 +All Other Business That May Come Before the 2009 +Annual Meeting +10 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +11 +Section 16(a) Beneficial Ownership Reporting +Compliance +12 +CORPORATE GOVERNANCE +12 +Board of Directors +13 +Director Independence +13 +Board Meetings and Attendance +13 +Annual Meeting Attendance +14 +Committees of the Board +14 +Communications with Directors +17 +Code of Business Conduct and Ethics +17 +Policies and Procedures with Respect to +Transactions with Related Persons +17 +Indemnification of Directors and Officers +18 +Additional Information +18 +EXECUTIVE OFFICERS +19 +COMPENSATION COMMITTEE REPORT +20 +COMPENSATION DISCUSSION AND ANALYSIS +21 +Summary +21 +COMPENSATION DESIGN +22 +Compensation Philosophy and Objectives +22 +The Role of Equity-Based Compensation +23 +Use of Consultants and Benchmarking to Help +Establish Target Compensation Levels +24 +Review of Overall Compensation +25 +Consideration of Prior Compensation +26 +ELEMENTS OF EXECUTIVE COMPENSATION +26 +Risk Assessment +26 +Overview +26 +Base Salary +27 +Short-Term Incentives +28 +Long-Term Incentives +29 +Retirement Plans +30 +Other Compensation and Benefits +30 +Termination Benefits including Change in Control +Payments +31 +Executive and Director Share Retention and +Ownership Guidelines +33 +New Employment Agreements Section 409A +33 +Other Agreements and Arrangements +34 +Internal Revenue Code Section 162(m) +34 +EXECUTIVE COMPENSATION +35 +2008 SUMMARY COMPENSATION TABLE +35 +2008 GRANTS OF PLAN-BASED AWARDS TABLE +37 +OUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR-END +TABLE +38 +2008 OPTIONS EXERCISES AND STOCK VESTED TABLE +39 +2008 NONQUALIFIED DEFERRED COMPENSATION TABLE +39 +EQUITY COMPENSATION PLAN INFORMATION +40 +SHAREHOLDER NOMINATIONS AND PROPOSALS +40 +Table of Contents +GENERAL +INFORMATION +Who May +Vote +Shareholders of Petroleum Development Corporation +(“PDC” or the “Company”), as recorded in the +Company’s stock register on April 15, 2009, may vote +at the meeting. The outstanding voting securities of the Company +as of April 15, 2009, consisted of 14,881,853 shares +of common stock. Each share is entitled to one vote on each +matter considered at the meeting. +How +Proxies Work +The Board is asking for your proxy. Giving the Board your proxy +means that you authorize the Board to vote your shares at the +meeting in the manner you direct. You may vote for either or +both Director Candidates, or you may withhold your vote from +either or both of the Director Candidates. You may also vote for +or against the other proposals, or abstain from voting. +Cumulative voting is not permitted by the Company’s By-Laws +in the election of Directors. +If your shares are held in your name, you can vote by +completing, signing and dating your proxy card and returning it +in the enclosed envelope. +If you give the Board your signed proxy but do not specify how +to vote, your shares will be voted in favor of the Director +Candidates named on the proxy and in favor of the ratification +of the outside auditors. +If you hold shares through someone else, such as a stockbroker, +you will receive material from that firm asking how you want to +vote. Check the voting form used by that firm to see what voting +options you have available and to determine what procedures you +must follow. +Revoking +a Proxy +You may revoke your proxy before it is voted by: +. +Submitting a new signed proxy with a later date; +. +Notifying PDC’s Secretary in writing before the meeting +that you wish to revoke your proxy; or +. +Appearing at the meeting, notifying the Inspector of the +Election that you wish to revoke your proxy, and voting in +person at the meeting. Merely attending the meeting will not +result in your revoking your proxy. +If you hold your shares through someone else, such as a +stockbroker, you will need to follow the directions they give +you to revoke a proxy or otherwise vote at the meeting. +Quorum +In order to carry on the business of the meeting, there must be +a quorum. This means that at least a majority of the outstanding +shares eligible to vote must be represented at the meeting, +either by proxy or in person. Treasury shares, which are shares +owned by PDC itself, are not voted and do not count for this +purpose. +Votes +Needed +The Director Candidates who receive the most votes will be +elected to fill the available seats on the Board. There is no +provision in the Company’s By-Laws which requires Director +Candidates to receive a majority of the votes cast to be +elected. Approval of the other proposal requires the favorable +vote of a majority of the votes cast. Only votes for or against +a proposal count. Abstentions and broker non-votes count for +quorum purposes but not for voting purposes. Broker non-votes +occur when a broker returns a proxy but does not have authority +from the owner of the stock to vote on a particular +1 +Table of Contents +proposal. Although there are no controlling precedents under +Nevada law regarding the treatment of broker non-votes in +certain circumstances, the Company intends to apply the +principles presented herein. +Attending +in Person +Only shareholders or their proxy holders and PDC’s guests +may attend the annual meeting. For safety and security reasons, +no cameras, audio or video recording equipment, large bags, +briefcases or packages will be permitted in the meeting. In +addition, each shareholder and guest may be asked to present +valid, government-issued picture identification, such as a +driver’s license, before being admitted to the meeting. +If your shares are held in the name of your broker, bank, or +other nominee, you must bring to the meeting an account +statement or letter from the nominee indicating that you +beneficially owned the shares on April 15, 2009, the record +date for voting. Shareholders who do not present such +information at the meeting will be admitted upon verification of +ownership at the admissions counter. +Conduct +of the Meeting +The Chairman has broad authority to conduct the annual meeting +in an orderly and timely manner. This authority includes +establishing rules for shareholders who wish to address the +meeting. The Chairman may also exercise broad discretion in +recognizing shareholders who wish to speak and in determining +the extent of discussion on each item of business. In light of +the need to conclude the meeting within a reasonable period of +time, there can be no assurance that every shareholder who +wishes to speak on an item of business will be able to do so. +The Chairman may also rely on applicable law regarding +disruptions or disorderly conduct to ensure that the meeting is +conducted in a manner that is fair to all shareholders. +Contact +Information +If you have questions or need more information about the annual +meeting, write to or call: +Corporate Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +For information about shares registered in your name, call PDC +at +1-800-624-3821. +You are also invited to visit PDC’s internet site at +www.petd.com . Internet site materials are not part of +this proxy solicitation. +Important Notice Regarding the Availability of Proxy +Materials for the Annual Meeting of Shareholders to Be Held on +June 5, 2009: The Proxy Statement and Annual Report to +Shareholders for the fiscal year ended December 31, 2008 +are available at www.edocumentview.com/PETD . +2 +Table of Contents +PROPOSALS REQUIRING +SHAREHOLDER VOTE +PROPOSAL 1 – +ELECTION OF DIRECTORS +(ITEM 1 +ON THE PROXY) +As of the date of this proxy statement and as permitted by the +Company’s By-Laws, the Company’s Board of Directors +(“Board”) has nine members divided into three classes. +Directors are usually elected for three-year terms. The terms +for members of each class end in successive years. +The Board has nominated two continuing Directors, Kimberly Luff +Wakim and Anthony J. Crisafio, whose terms expire in 2009 at the +annual meeting, to stand for election to the Board for a +three-year term expiring in 2012. Steven R. Williams, the third +continuing Director, has chosen not to stand for re-election. By +resolution, the Board of Directors has decreased the size of the +Board to eight members, effective as of the annual meeting. +Ms. Wakim has served on the Board since 2003 and currently +serves as Chair of the Compensation Committee and is a member of +the Audit Committee and Nominating and Governance Committee. +Mr. Crisafio has served on the Board since 2006 and +currently serves as Chair of the Audit Committee and is a member +of the Compensation Committee. +The appointed proxies will vote your proxy for the election of +the two nominees unless you withhold your authority to vote for +either or both of them. The Board does not contemplate that +either of the nominees will become unavailable for any reason; +however, if any Director is unable to stand for election, the +Board may reduce its size or choose a substitute. Proxies cannot +be voted for a greater number of persons than the number of +nominees named or for a person who is not named in this proxy +statement as a candidate for Director. +NOMINEES +FOR A THREE YEAR TERM EXPIRING IN 2012 +Name, +Year First +Principal Occupation for Past Five Years +Elected +and Other Directorships +Age +Director +ANTHONY J. CRISAFIO, a Certified Public Accountant, serves as an +independent business consultant providing financial and +operational advice to businesses and has done so since 1995. +Additionally, Mr. Crisafio has served as the Chief +Operating Officer of Cinema World, Inc. from 1989 until 1993 and +was a partner with Ernst & Young from 1986 until 1989. +56 +2006 +KIMBERLY LUFF WAKIM, an Attorney and a Certified Public +Accountant, is a Partner with the Pittsburgh, Pennsylvania law +firm, Thorp, Reed & Armstrong LLP, where she serves as +a member of the Executive Committee. Ms. Wakim has +practiced law with Thorp, Reed & Armstrong LLP since +1990. +51 +2003 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2010 +VINCENT F. D’ANNUNZIO has served as president of Beverage +Distributors, Inc. located in Clarksburg, West Virginia since +1985. +56 +1989 +LARRY F. MAZZA is President and Chief Executive Officer of MVB +Financial Corporation in Fairmont, West Virginia. He has been +Chief Executive Officer since March 2005, and added the duties +of President in January of 2009. Prior to such position, +Mr. Mazza served as Senior Vice President Retail Banking +Manager & President & CEO for +BB&T and its predecessors in West Virginia, where he +was employed from June 1986 to March 2005. +48 +2007 +3 +Table of Contents +RICHARD W. MCCULLOUGH was appointed Chief Executive Officer in +June 2008 and Chairman of PDC’s Board of Directors in +November 2008. From November 2006 until November 2008, he served +as the Chief Financial Officer of the Company. Prior to joining +PDC, Mr. McCullough served as an energy consultant from +July 2005 to November 2006. From January 2004 to July 2005, +Mr. McCullough served as President and Chief Executive +Officer of Gasource, LLC, Dallas, Texas, a marketer of +long-term, natural gas supplies. From 2001 to 2003, +Mr. McCullough served as an investment banker with +J.P. Morgan Securities, Atlanta, Georgia, and served in the +public finance utility group supporting bankers nationally in +all natural gas matters. Additionally, Mr. McCullough has +held senior positions with Progress Energy, Deloitte and Touche, +and the Municipal Gas Authority of Georgia. Mr. McCullough, +a Certified Public Accountant, was a practicing certified public +accountant for 8 years. +57 +2007 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2011 +DAVID C. PARKE is a Managing Director in the investment banking +group of Boenning & Scattergood, Inc., West +Conshohocken, Pennsylvania, a full-service investment banking +firm. Prior to joining Boenning & Scattergood in +November 2006, he was a Director with Mufson Howe +Hunter & Company LLC, Philadelphia, Pennsylvania, an +investment banking firm, from October 2003 to November 2006. +From 1992 through 2003, Mr. Parke was Director of Corporate +Finance of Investec, Inc. and its predecessor Pennsylvania +Merchant Group Ltd., investment banking companies. Prior to +joining Pennsylvania Merchant Group, Mr. Parke served in +the corporate finance departments of Wheat First +Butcher & Singer, now part of Wachovia Securities, and +Legg Mason, Inc., now part of Stifel Nicolaus. +42 +2003 +JEFFREY C. SWOVELAND has served as Chief Operating Officer of +ReGear, Inc. (previously named Coventina Healthcare +Enterprises), a medical device company that develops and markets +products which reduce pain and increase the rate of healing +through therapeutic, deep tissue heating, since May 2007. +Previously, Mr. Swoveland served as Chief Financial Officer +of Body Media, Inc., a life-science company specializing in the +design and development of wearable body monitoring products and +services, from September 2000 to May 2007. Prior thereto, +Mr. Swoveland held various positions, including +Vice-President of Finance, Treasurer and interim Chief Financial +Officer with Equitable Resources, Inc., a diversified natural +gas company, from 1994 to September 2000. Mr. Swoveland +serves as a member of the Board of Directors of Linn Energy, +LLC, a public, independent natural gas and oil company. +54 +1991 +JOSEPH E. CASABONA served as Executive Vice President and member +of the Board of Directors of Denver- based Energy Corporation of +America, a natural gas exploration and development company, from +1985 to his retirement in May 2007. Mr. Casabona’s +responsibilities included strategic planning as well as +executive oversight of the drilling operations in the +continental United States and internationally. In 2008 +Mr. Casabona assumed the title of Chief Executive Officer +of Paramax Resources Ltd, a junior public Canadian +oil & gas company (PMXRF) engaged in the business of +acquiring and exploration of oil and gas prospects, primarily in +Canada and Idaho. +65 +2007 +4 +Table of Contents +DIRECTOR +COMPENSATION +For the +2008-2009 +Board term, each Non-Employee Director was paid an annual fee of +$55,000 and received 2,000 shares of restricted stock of +the Company, which was awarded on the date of the 2008 annual +meeting. The Presiding Independent Director was paid an +additional fee of $27,500. Each Non-Employee Director received +for services on each committee on which he or she served the +following fees: +2008-2009 Director +Term Committee Fees +Non-Chair +Standing Committees of the Board +Chair +Member +Audit +$ +22,500 +$ +10,000 +Compensation +10,000 +5,000 +Executive +– +5,000 +Nominating and Governance +7,500 +2,500 +Planning and Finance +7,500 +2,500 +In addition, in the fall of 2008 a Special Committee, consisting +of Messrs. Crisafio, Mazza, Parke and Swoveland, was +created to consider the potential repurchase of certain of the +partnerships for which the Company is the managing general +partner. Each Special Committee member was paid a fee of $7,500 +in 2008. The Special Committee has not been active in 2009 to +date. +Pursuant to the shareholder-approved 2005 Non-Employee Director +Restricted Stock Plan, as of the date of each annual +shareholders’ meeting of the Company, each Non-Employee +Director will be awarded a specified number of shares of +restricted stock as determined by the Board. Directors receiving +restricted stock under the Restricted Stock Plan will have all +of the rights of a shareholder including the right to vote the +shares and receive cash dividends and other cash distributions. +Restricted stock will be subject to the restrictions for the +restricted period commencing on the date the stock is awarded. +Each Non-Employee Director may also choose to defer a portion or +all of +his/her +annual cash compensation by participating in the Non-Employee +Director Deferred Compensation Plan. The plan’s trustee +invests all cash deposits received exclusively in the common +stock of the Company. +On March 4, 2009, the Board of Directors approved +compensation for the +2009-2010 +Board year. Such compensation is principally the same as in the +prior Board year with the exception that the Audit Committee +Chair fee was raised from $22,500 to $27,500 and, as a result of +the decrease in price of the Company’s shares, the portion +of annual compensation received in stock was increased from +2,000 to 4,000 restricted shares. +2008 Director +Compensation +Fees Earned +or Paid +Stock +Name +in Cash (1) +Awards (2) +Total +Jeffrey C. Swoveland +$ +113,750 +$ +137,216 +$ +250,966 +Steven R. Williams +20,136 +— +20,136 +Vincent F. D’Annunzio +71,250 +136,300 +207,550 +Kimberly Luff Wakim +73,750 +160,119 +233,869 +David C. Parke +88,750 +137,216 +225,966 +Anthony J. Crisafio +82,500 +158,390 +240,890 +Joseph E. Casabona +67,500 +123,753 +191,253 +Larry F. Mazza +68,750 +123,753 +192,503 +(1) +Compensation paid to Messrs. Williams and McCullough for +their services as executive officers is shown in the Summary +Compensation Table; neither received additional compensation for +services +5 +Table of Contents +as a director while serving concurrently as an executive +officer. Pursuant to an agreement dated August 29, 2008, +Mr. Williams ceased employment at the Company on +September 30, 2008, at which time he began earning fees as +a non-employee director. +Compensation paid to each of Messrs. Swoveland, Parke, +Crisafio and Mazza include fees earned of $7,500 for services +rendered on a special committee commenced during 2008 as +described above. +Mr. D’Annunzio deferred 100% of his 2008 fees pursuant +to the stock purchase election under the Company’s Non +Employee Deferred Compensation Plan. +(2) +Awards reflect the Company’s expense recognized for +financial statement reporting purposes for the fiscal year ended +December 31, 2008, in accordance with Statement of +Financial Accounting Standards No. 123R. The Company’s +expense recognized for awards varies due to different tenure. +For 2008 grants, the grant date fair value for each non-employee +director restricted stock award of 2,000 shares is +$142,700. Mr. Williams did not receive a non-employee +director restricted stock award upon his retirement as chief +executive officer; however, on March 4, 2009, +Mr. Williams received a restricted stock award of +1,500 shares, representing the pro-rata portion of the +2008-2009 +Board term non-employee director restricted stock award. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH +OF THE NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS +PROPOSAL #1. PROXIES SOLICITED BY THE BOARD WILL BE SO +VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES +WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS’ +SPECIFICATIONS. DIRECTORS ARE ELECTED BY A PLURALITY OF THE +VOTE. +6 +Table of Contents +PROPOSAL 2 – +RATIFICATION OF SELECTION OF AN INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +The Audit Committee and the Board have ratified the engagement +of PricewaterhouseCoopers LLP (“PwC”) as the +Company’s independent registered public accounting firm +with respect to its year ending December 31, 2009. The +Board is submitting the appointment of PwC to the shareholders +for ratification. If the appointment of PwC is not ratified, the +Board will require the Audit Committee to reconsider its +selection. A representative of PwC is expected to be present at +the meeting, will have an opportunity to make a statement if he +or she so desires, and will also be available to respond to +appropriate questions. It is not expected that representatives +of KPMG LLP (“KPMG”), the Company’s independent +registered public accounting firm for 2006, will be present at +the 2009 Annual Meeting of Shareholders. +On May 24, 2007, the Audit Committee recommended, and the +Board ratified, the dismissal of KPMG as its independent +registered public accounting firm. On May 24, 2007 the +Audit Committee recommended and the Board of Directors ratified +the engagement of PwC as the Company’s independent +registered public accounting firm with respect to its fiscal +year ending December 31, 2007. +During the Company’s fiscal years ended December 31, +2006 and 2005, and through May 24, 2007, the Company did +not consult with PwC regarding either (i) the application +of accounting principles to a specified transaction, either +completed or proposed, or the type of audit opinion that might +be rendered on the Company’s financial statements, and +neither a written report was provided to the Company nor oral +advice was provided that PwC concluded was an important factor +considered by the Company in reaching a decision as to any of +the accounting, auditing or financial reporting issues; or +(ii) any matter that was either the subject of a +disagreement, as that term is defined in +paragraph 304(a)(1)(iv) of +Regulation S-K, +or a reportable event required to be reported under +paragraph 304(a)(1)(v) of +Regulation S-K. +The audit reports of KPMG on the consolidated financial +statements of the Company as of December 31, 2006, and for +the three years ended December 31, 2006, contained no +adverse opinion or disclaimer of opinion, nor were such reports +qualified or modified as to uncertainty, audit scope or +accounting principles, except as follows: +The audit report of KPMG on the Company’s consolidated +financial statements as of December 31, 2006, and for the +three years ended December 31, 2006, dated May 22, +2007, indicated that, as described in Note 1 to such +consolidated financial statements, the Company adopted the +provisions of Statement of Financial Accounting Standards +No. 123(R), Share-Based Payment, and the Company changed +its method of quantifying errors based on SEC Staff Accounting +Bulletin No. 108, Considering the Effects of Prior +Year Misstatements when Quantifying Misstatements in Current +Year Financial Statements, in 2006. +The audit reports of KPMG on management’s assessment of the +effectiveness of internal control over financial reporting and +the effectiveness of internal control over financial reporting +as of December 31, 2006, did not contain any adverse +opinion or disclaimer of opinion, nor were they qualified or +modified as to uncertainty, audit scope, or accounting +principles, except that: +(1) +KPMG’s report as of December 31, 2006, includes an +explanatory paragraph stating that “the Company acquired +Unioil on December 6, 2006, and management excluded from +its assessment of the effectiveness of the Company’s +internal control over financial reporting as of +December 31, 2006, Unioil’s internal control over +financial reporting associated with total assets of +$26.1 million and total revenues of $0.3 million +included in the consolidated financial statements of the Company +as of and for the year ended December 31, 2006. Our audit +of internal control over financial reporting of the Company also +excluded an evaluation of the internal control over financial +reporting of Unioil.” +7 +Table of Contents +(2) +KPMG’s reports indicate that the Company did not maintain +effective internal control over financial reporting as of +December 31, 2006, because of the effect of material +weaknesses on the achievement of the objectives of the control +criteria as described below: +Material Weaknesses as of December 31, 2006, +Identified in KPMG’s Report +• +The Company did not have effective policies and procedures to +ensure the timely reconciliation, review and adjustment of +significant balance sheet and income statement accounts. As a +result, material misstatements were identified during the +Company’s closing process in certain significant balance +sheet and income statement accounts of the Company’s 2006 +consolidated financial statements. This deficiency resulted in a +more than remote likelihood that a material misstatement of the +Company’s annual or interim financial statements would not +be prevented or detected. +• +The Company did not have effective policies and procedures, or +personnel with sufficient technical expertise to ensure proper +accounting for derivative instruments. Specifically, the +Company’s internal control processes did not ensure the +completeness of all derivative contracts related to oil and gas +sales, and also did not ensure the determination of the fair +value of certain derivatives. As a result, misstatements were +identified in the fair value of derivatives and related income +statement accounts of the Company’s 2006 consolidated +financial statements. This deficiency resulted in a more than +remote likelihood that a material misstatement of the +Company’s annual or interim financial statements would not +be prevented or detected. +• +The Company did not have effective policies and procedures to +ensure proper accounting for oil and gas properties. +Specifically, the Company’s review procedures were not +sufficient to ensure that the calculations of depreciation and +depletion were performed accurately and that the capitalization +of costs was performed in accordance with the applicable +authoritative accounting guidance. As a result, misstatements +were identified in 2006 in depreciation, depletion and +amortization expense of the Company’s consolidated +financial statements. This deficiency resulted in a more than +remote likelihood that a material misstatement of the +Company’s annual or interim financial statements would not +be prevented or detected. +During the two years ended December 31, 2006, and the +subsequent interim period through May 24, 2007, there were +no: 1) disagreements with KPMG on any matter of accounting +principles or practices, financial statement disclosure, or +auditing scope or procedure that, if not resolved to KPMG’s +satisfaction, would have caused KPMG to make reference to the +subject matter of the disagreement in connection with its audit +reports on the Company’s financial statements for such +years, or 2) reportable events, except for the material +weaknesses described above. +KPMG has been authorized to respond fully to the inquiries of +the successor independent registered public accounting firm +concerning the subject matter of the foregoing. +In connection with its change in independent registered public +accounting firm, the Company provided KPMG with a copy of the +foregoing statements and requested that KPMG furnish the Company +with a letter addressed to the Securities and Exchange +Commission stating whether KPMG agreed with the foregoing +statements, and, if not, stating the respects in which KPMG did +not agree. KMPG furnished the Company with such a letter, +addressed to the SEC. A copy of KPMG’s letter was filed as +an Exhibit to a Current Report on +Form 8-K +filed with the SEC on May 31, 2007. +8 +Table of Contents +Principal +Accountant Fees and Services +2008 +2007 +Audit fees (1) +$ +3,110,000 +$ +3,516,203 +Audit related fees (2) +2,192,650 +238,771 +Tax fees (3) +961,491 +1,212,035 +Other fees (4) +1,067,505 +65,416 +Total fees +$ +7,331,646 +$ +5,032,425 +(1) +Audit fees consist of the aggregate fees billed for professional +services rendered for audit procedures performed with regard to +the Company’s annual consolidated financial statements and +the report on management’s assessment of internal control +over financial reporting and the effectiveness of the +Company’s internal control over financial reporting, +including reviews of the consolidated financial statements +included in our Quarterly Reports on +Form 10-Q, +and services that are normally provided by the independent +registered public accounting firm in connection with statutory +and regulatory filings or engagements. +(2) +Audit-related fees consist of the aggregate fees billed for +assurance and related services that are reasonably related to +the performance of the audit or review of the Company’s +annual consolidated financial statements and are not reported +under “Audit fees.” Fees billed include primarily +amounts related to the audits of the annual financial statements +of the +Company-sponsored +drilling partnerships. +(3) +Tax fees consist of the aggregate fees billed for professional +services rendered for tax compliance, tax advice and tax +planning for the Company and its Company-sponsored drilling +partnerships. +(4) +All other fees consist of aggregate fees billed for products and +services other than the services reported above. Fees billed in +2008 were primarily related to potential acquisition projects +and, in 2007, fees billed were primarily related to the +investigation of the potential offering of a Master Limited +Partnership. +Audit +Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services +provided to the Company by its Independent Registered Public +Accounting Firm be subject to pre-approval by the Audit +Committee or authorized members of the Committee. The Audit +Committee has adopted policies and procedures for pre-approval +of all audit services and non-audit services to be provided by +the Company’s Independent Registered Public Accounting +Firm. Services necessary to conduct the annual audit must be +pre-approved by the Audit Committee annually. Permissible +non-audit services to be performed by the independent accountant +may also be approved on an annual basis by the Audit Committee +if they are of a recurring nature. Permissible non-audit +services, which are not eligible for annual pre-approval, to be +conducted by the independent accountant must be pre-approved +individually by the full Audit Committee or by an authorized +Audit Committee member. Actual fees incurred for all services +performed by the independent accountant will be reported to the +Audit Committee after the services are fully performed. The +duties of the Committee are described in the Audit Committee +Charter, which is available at the Company’s website under +“Corporate Governance”. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THIS +PROPOSAL #2. PROXIES SOLICITED BY THE BOARD WILL BE SO +VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES +WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS’ +SPECIFICATIONS. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES +OF COMMON STOCK CAST AT THE MEETING REPRESENTED IN PERSON OR BY +PROXY AND ENTITLED TO VOTE AT THE MEETING IS REQUIRED FOR +APPROVAL OF THIS PROPOSAL #2. +9 +Table of Contents +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee of the Board is composed of five Directors +(four prior to October 2007) and operates under a written +charter adopted by the Board of Directors. Each member of the +Committee meets the independence requirements of +Rule 5605(a)(2) of the NASDAQ’s listing standards. The +duties of the Committee are summarized in this proxy statement +under “Committees of the Board of Directors” and are +more fully described in the charter, which is available at the +Company’s website under “Corporate Governance.” +Management is responsible for the Company’s internal +controls and preparation of the consolidated financial +statements in accordance with generally accepted accounting +principles. The Company’s Independent Registered Public +Accounting Firm is responsible for performing an independent +audit of consolidated financial statements in accordance with +the standards of the Public Company Accounting Oversight Board +(United States) (“PCAOB”) and issuing a report +thereon. The Committee’s responsibilities include +monitoring and overseeing these processes. +The Committee met 12 times during 2008 and the subcommittee +related to the partnerships operated by the Company met an +additional seven times. The Committee has continued to meet +frequently during 2009. In addition to normal meetings to +accomplish the work of the Committee, the Committee also held +numerous meetings with the management of the Company and +PricewaterhouseCoopers LLP (“PwC”) to review the +progress on the implementation of improved internal controls +early in the year, and regarding the causes, impacts and +corrective measures related to the Company’s historical +accounting errors and financial statements. +In this context, the Committee reviewed and discussed the +Company’s audited consolidated financial statements for the +year ended December 31, 2008 (the “audited financial +statements”) with management and the Company’s +Independent Registered Public Accounting Firm for 2008, PwC. The +Committee also discussed with PwC the matters required to be +discussed by Statement of Auditing Standards No. 61, as +amended and PwC directly provided reports on significant matters +to the Committee. +The Committee has received the written disclosures and the +letter from PwC required by PCAOB Rule 3526 and has +discussed with PwC its independence from the Company. +The Committee has discussed with management and PwC such other +matters and received such assurances from them as the Committee +deemed appropriate. +Based on the foregoing review and discussions and relying +thereon, the Committee recommended that the Board of Directors +include the audited financial statements in the Company’s +Annual Report on +Form 10-K +for the year ended December 31, 2008. +The Board approved the Committee’s recommendation to +appoint PwC to serve as the Company’s Independent +Registered Public Accounting Firm for 2009. In connection +therewith, the Audit Committee considered whether the provision +of non-audit services by PwC prior to their engagement was +compatible with maintaining the Independent Registered Public +Accounting Firm’s independence. This appointment is subject +to ratification by the Company’s shareholders. +Anthony J. Crisafio, Chair +Joseph E. Casabona +David C. Parke +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE +of the Board of Directors +ALL OTHER +BUSINESS THAT MAY COME BEFORE THE 2009 ANNUAL MEETING +As of the date of this proxy statement, the Board is not aware +of any matters to be brought before the 2009 Annual Meeting +other than the matters set forth in this proxy statement. +However, if other matters properly come before the meeting, it +is the intention of the proxy holders named in the enclosed form +of proxy to vote in accordance with their discretion on such +matters pursuant to such proxy. +10 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND +RELATED +STOCKHOLDER MATTERS +The following table sets forth certain information regarding +ownership of the Company’s common stock as of April 1, +2009, by (a) each person known by the Company to own +beneficially more than 5% of the outstanding shares of common +stock; (b) each director of the Company; (c) each +executive officer; and (d) all directors and executive +officers as a group. As of April 1, 2009, 14,874,595 common +shares of the Company were issued and outstanding. Except as +otherwise indicated, the address for each of the named security +holders is 1775 Sherman Street, Suite 3000, Denver, +Colorado 80203. +Number of +Percent of +Shares +Shares +Beneficially +Beneficially +Name and Address of Beneficial +Owner +Owned +Owned +FMR LLC +82 Devonshire Street +Boston, MA 02109 +2,227,847 +(1) +15.0 +% +Kayne Anderson Rudnick Investment Management, LLC +1800 Avenue of the Stars, 2nd Floor +Los Angeles, CA 90067 +1,423,798 +(2) +9.6 +% +Dimensional Fund Advisors Inc. +1299 Ocean Avenue, 11th Floor +Santa Monica, CA 90401 +1,030,032 +(3) +6.9 +% +Richard W. McCullough +6,964 +(4) +* +Steven R. Williams +208,634 +(5) +1.4 +% +Gysle R. Shellum +− +(6) +* +Eric R. Stearns +70,295 +(7) +* +Barton R. Brookman, Jr. +13,758 +(8) +* +Daniel W. Amidon +3,104 +(9) +* +Vincent F. D’Annunzio +19,783 +(10) +* +Jeffrey C. Swoveland +12,993 +(11) +* +Kimberly Luff Wakim +5,528 +(12) +* +David C. Parke +6,559 +(13) +* +Anthony J. Crisafio +3,900 +* +Joseph E. Casabona +3,355 +* +Larry F. Mazza +2,813 +* +All directors and executive officers as a group (13 persons) +357,686 +(14) +2.4 +% +* +Represents less than 1% of the outstanding shares of common +stock. +11 +Table of Contents +(1) +According to the Schedule 13G filed by FMR LLC with the SEC +on February 17, 2009. +(2) +According to the Schedule 13G filed by Kayne Anderson +Rudnick Investment Management, LLC with the SEC on +February 10, 2009. +(3) +According to the Schedule 13G filed by Dimensional +Fund Advisors Inc. with the SEC on February 9, 2009. +(4) +Excludes 44,329 restricted shares subject to vesting greater +than 60 days after April 1, 2009; includes +1,666 shares subject to options exercisable within +60 days of April 1, 2009. +(5) +Excludes 13,070 restricted shares subject to vesting greater +than 60 days after April 1, 2009. +(6) +Excludes 12,240 restricted shares subject to vesting greater +than 60 days after April 1, 2009. +(7) +Excludes 30,875 restricted shares subject to vesting greater +than 60 days after April 1, 2009; includes +5,857 shares subject to options exercisable within +60 days of April 1, 2009. +(8) +Excludes 26,046 restricted shares subject to vesting greater +than 60 days after April 1, 2009. +(9) +Excludes 17,128 restricted shares subject to vesting greater +than 60 days after April 1, 2009. +(10) +Excludes 5,335 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +(11) +Excludes 339 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +(12) +Excludes 1,046 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +(13) +Excludes 571 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan. +(14) +Excludes 143,688 restricted shares subject to vesting greater +than 60 days after April 1, 2009, and 7,291 common +shares purchased pursuant to the Non-Employee Director Deferred +Compensation Plan; includes 12,734 shares subject to +options exercisable within 60 days of April 1, 2009. +Section 16(a) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires the Company’s officers and directors, and persons +who own more than 10% of the Company’s equity securities, +to file reports of ownership and changes in ownership with the +Securities and Exchange Commission. Officers, directors and +holders of more than 10% of the common stock are required by +regulations promulgated by the Commission pursuant to the +Exchange Act to furnish the Company with copies of all +Section 16(a) forms they file. The Company assists officers +and directors, and will assist beneficial owners, if any, of +more than 10% of the common stock, in complying with the +reporting requirements of Section 16(a) of the Exchange Act. +Based solely on its review of the copies of such forms received +by it, the Company believes that for the year ended +December 31, 2008, all Section 16(a) filing +requirements applicable to its directors, officers and greater +than 10% beneficial owners were met with the following +exceptions. On May 21, 2008, the broker for Steven R. +Williams entered a large series of transactions. Some of these +transactions were reported one day late due to the mechanics of +submitting each of the transactions. The SEC has since issued +guidance that such multiple transactions can be reported on one +line item of a Form 4 with a range of transaction prices. +On June 23, 2008, Kimberly Wakim, Director, entered a stock +transaction, for which the Company timely submitted a +Form 4, which was rejected on a technicality by the SEC; +proper filing was effected on the following day. +CORPORATE +GOVERNANCE +Corporate +Governance Guidelines +The Board has adopted Corporate Governance Guidelines that +govern the structure and functioning of the Board and establish +the Board’s policies on a number of corporate governance +issues. The Guidelines are posted under “Governance +Policies” in the Corporate Governance section of the +Company’s internet site at www.petd.com . They are +also available to any shareholder on request; see “Contact +Information” above. +12 +Table of Contents +Board of +Directors +The Company’s By-Laws provide that the number of members of +the Board of Directors shall be designated from time to time by +a resolution of the Board, and currently the designated number +of Directors is nine, but such number will be reduced to eight +effective on the date of the 2009 Annual Shareholders Meeting. +The By-Laws provide that the Board shall be divided into three +separate classes of directors which are required to be as nearly +equal in number as practicable. At each annual meeting of +shareholders one class of directors, whose term expires, will be +elected to a term of three years. The classes are staggered so +that the term of one class expires each year. There is no family +relationship between any director or executive officer and any +other director or executive officer of the Company. There are no +arrangements or understandings between any director or officer +and any other person pursuant to which the person was selected +as an officer. +Director +Independence +Subject to some exceptions and transition provisions, the NASDAQ +listing standards generally provide that a director will not be +independent if: +(A) +the director is, or at any time during the past three years was, +employed by the Company; +(B) +the director or a member of the director’s immediate family +has received from the Company compensation of more than $120,000 +during any period of 12 consecutive months within the three +years preceding the determination of independence other than for +service as a director; or compensation paid to a family member +who is an employee of the Company (other than an executive +officer); +(C) +the director is a family member of an individual who is, or at +any time during the past three years was, an executive officer +of the Company; +(D) +the director or a member of the director’s immediate family +is a partner in, or a controlling person of, or an executive +officer of any organization to which PDC made, or from which PDC +received, payments for property or services in the current or +any of the past three fiscal years that exceed 5% of the +recipient’s consolidated gross revenues for that year, or +$200,000, whichever is more; +(E) +the director or a member of the director’s immediate family +is employed as an executive officer of another entity where at +any time during the past three years any of the Company’s +executive officers serves on the compensation committee of the +other entity; or +(F) +the director or a member of the director’s immediate family +is a current partner of PwC, the Company’s independent +registered public accounting firm, or during the past three +years was a partner or employee of either PwC or KPMG, the +Company’s former independent registered public accounting +firm. +Audit Committee members are subject to additional, more +stringent NASDAQ and Exchange Act requirements. +The Board has reviewed business and charitable relationships +between the Company and each non-employee director to determine +compliance with the NASDAQ Listing standards described above and +to evaluate whether there are any other facts or circumstances +that might impair a director’s independence. The Board has +determined that all non-employee directors are independent under +NASDAQ Listing Rule 5605 and the Exchange Act with the +exception of Steven R. Williams, the prior Chief Executive +Officer of the Company. +Board +Meetings and Attendance +The Board met nine times in 2008. Each of PDC’s directors +attended at least 75% of the aggregate Board and committee +meetings (on which he or she served) during 2008. +13 +Table of Contents +Annual +Meeting Attendance +As specified in the Company’s Corporate Governance +Guidelines, directors are strongly encouraged to attend the +annual meeting of shareholders. All directors attended last +year’s meeting. +Committees +of the Board +The following table identifies the current membership and chair +of the five standing committees of the Board. +Nominating and +Planning and +Name +Audit +Compensation +Executive +Governance +Finance +Richard W. McCullough +– +– +Chair +– +Member +Jeffrey C. Swoveland +Member +– +Member +– +Member +Steven R. Williams +– +– +Member +– +– +Vincent F. D’Annunzio +– +Member +Member +Chair +– +Kimberly Luff Wakim +Member +Chair +– +Member +– +David C. Parke +Member +Member +– +Member +Chair +Anthony J. Crisafio +Chair +Member +– +– +– +Joseph E. Casabona +Member +– +– +– +Member +Larry F. Mazza +– +Member +– +Member +– +The non-employee directors generally meet in “executive +sessions” without the presence of employee directors at +their discretion in connection with each regularly scheduled +Board meeting. Mr. Swoveland serves as Presiding +Independent Director at these sessions; however, the other +non-employee directors may, in the event of his absence, select +another director to preside over a particular session. +Audit +Committee +The Audit Committee, which met 12 times in 2008, is composed +entirely of persons whom the Board has determined to be +independent under NASDAQ Listing Rule 5605(a)(2), +Section 301 of the Sarbanes-Oxley Act of 2002 and +Section 10A(m)(3) of the Exchange Act. Mr. Crisafio +chairs the Committee; other Audit Committee members are +Ms. Wakim and Messrs. Parke, Casabona and Swoveland. +The Board has determined that Mr. Swoveland, +Ms. Wakim, Mr. Crisafio and Mr. Casabona qualify +as audit committee financial experts as defined by SEC +regulations and that all of the Audit Committee members are +independent of management. The Audit Committee’s purpose is +to assist the Board in monitoring the integrity of the financial +reporting process, systems of internal controls and financial +statements of the Company, and compliance by the Company with +legal and regulatory requirements. Additionally, the Committee +is directly responsible for the appointment, compensation and +oversight of the independent auditors employed by the Company +for the purpose of preparing or issuing an audit report or +related work and to assess the need for an internal audit +function and recommend its establishment when deemed appropriate. +In performing its responsibilities, the Audit Committee monitors +the integrity of the Company’s financial reporting process +and systems of internal controls regarding finance, accounting +and legal compliance; monitors the independence of the +Independent Registered Public Accounting Firm; and provides an +avenue of communications among the Independent Registered Public +Accounting Firm, management and the Board of Directors. The +Board has adopted a Charter of the Audit Committee which is +posted on the Company’s website. The Board continues to +assess the adequacy of the Charter and will revise it as +necessary. +14 +Table of Contents +Compensation +Committee +The Board has determined that all members of the Compensation +Committee are independent of the Company under +Rule 5605(a)(2) of the NASDAQ’s listing standards. The +Compensation Committee met 11 times in 2008. The Board has +adopted a Compensation Committee Charter which is posted on the +Company’s website. +The purpose and functions of the Compensation Committee are to +(1) oversee the development of a compensation strategy for +the Company; (2) oversee the administration of the +Company’s compensation programs; (3) evaluate the +performance of and set compensation for the Chief Executive +Officer; (4) review and approve the elements of +compensation for other executive officers of the Company; +(5) negotiate the terms of employment agreements with +executive officers of the Company; (6) review and recommend +to the full Board compensation of the Company’s directors +and changes in compensation levels to the Board of Directors; +(7) approve equity grants and recommend equity-based +incentive plans necessary to implement the Company’s +compensation strategy; and (8) administer all equity-based +incentive programs of the Company. +Compensation +Committee Interlocks and Insider Participation. +There are no Compensation Committee interlocks. +Executive +Committee +The purpose and functions of the Executive Committee are to +exercise the powers and duties of the Board between Board +meetings and, while the Board is not in session, implement the +policy decisions of the Board. The Board has adopted an +Executive Committee Charter which is posted on the +Company’s website. +Nominating +and Governance Committee +The Board has determined that all members of the Nominating and +Governance Committee are independent of the Company under +Rule 5605(a)(2) of the NASDAQ’s listing standards. The +Nominating and Governance Committee met five times in 2008. The +purpose and functions performed by the Committee are to +(1) assist the Board by identifying individuals qualified +to become Board members and to recommend to the Board the +Director nominees for the next annual meeting of shareholders or +fill any vacancies; (2) recommend to the Board corporate +governance guidelines applicable to the Company; (3) lead +the Board in its annual review of the Board’s performance; +and (4) recommend to the Board Director nominees for each +committee. The Board has adopted a Charter for the Nominating +and Governance Committee. The Charter has been posted on the +Company’s website. +Director +Qualifications and Selection +The Board has adopted Director Nomination Procedures that +prescribe the process the Nominating and Governance Committee +will use to select the Company’s nominees for election to +the Board. The Nominating and Governance Committee evaluates +each candidate based on the candidate’s level and diversity +of experience and knowledge (specifically within the industry +and relevant industries in which the Company operates, as well +as his or her general overall experience and knowledge), skills, +education, reputation and integrity, professional stature and +other factors that may be relevant depending on the particular +candidate. +Additional factors considered by the Committee include the size +and composition of the Board at a particular time, and allowing +the Company to benefit from having a broad mixture of skills, +experience and perspectives on the Board. Accordingly, one or +more of these factors may be given more weight in a particular +case at a particular time, no single factor would be viewed as +determinative, and the Committee has not specified any minimum +qualifications that the Committee believes must be met by +15 +Table of Contents +any particular nominee. The Company’s Director Nomination +Procedures are posted on the Company’s website. +The Committee identifies Director Candidates primarily through +recommendations made by the Non-Employee Directors. These +recommendations are developed based on the directors’ own +knowledge and experience in a variety of fields, and research +conducted by PDC staff at the Committee’s direction. The +Committee also considers recommendations made by the employee +directors, employees, shareholders, and others, including search +firms. All recommendations, regardless of the source, are +evaluated on the same basis against the criteria contained in +the guidelines. The Committee has the authority to engage +consultants to help identify or evaluate potential Director +Nominees but has not done so recently. +Shareholder +Recommendations +The Company’s Nominating and Governance Committee will +consider Director Candidates recommended by shareholders of the +Company. Any shareholder who wishes to recommend a prospective +Board nominee to the Committee should notify the Nominating and +Governance Committee of the recommendation by writing to the +Committee at the Company’s headquarters, or by sending the +information via email to board@petd.com . All +recommendations will be received by the Nominating and +Governance Committee. +A submission recommending a candidate should include: +• +Sufficient biographical information to allow the Committee to +evaluate the candidate in light of the guidelines; +• +An indication as to whether the proposed candidate will meet the +requirements for independence under the NASDAQ guidelines; +• +Information concerning any relationships between the candidate +and the shareholder recommending the candidate; and +• +Material indicating the willingness of the candidate to serve if +nominated and elected. +Shareholder +Nominations +Shareholders who wish to may nominate candidates for election to +the Board. The Company’s By-Laws require shareholders who +wish to submit nominations of persons for election to the Board +of Directors at the annual meeting of shareholders to follow +certain procedures. The shareholder must give written notice to +the Corporate Secretary at Petroleum Development Corporation, +1775 Sherman Street, Suite 3000, Denver, Colorado 80203 or +may email notice to board@petd.com , not later than +80 days nor more than 90 days prior to the first +anniversary of the preceding year’s annual meeting or +within 10 days of the Company’s public announcement of +the date of its annual shareholder meeting. The shareholder +notice also must be received by the Company no earlier than +90 days prior to the annual meeting. The shareholder must +be a shareholder of record at the time the notice is given. The +written notice must set forth (a) as to each nominee all +information relating to that person that is required to be +disclosed in solicitations of proxies for election of directors +in an election contest, or is otherwise required, in each case +pursuant to Regulation 14A under the Securities Exchange +Act of 1934 (including such person’s written consent to +being named in the proxy statement as a nominee and to serving +as a Director if elected); (b) as to the shareholder giving +the notice and the beneficial owner, if any, on whose behalf the +nomination is made (1) the name and address of the +shareholder, as they appear on the Company’s books, and of +such beneficial owner and (2) the class and number of +shares of the Company’s securities that are beneficially +owned by such shareholder and the beneficial owner; and +(c) any material interest of such shareholder and such +beneficial owner in such nomination. +Planning +and Finance Committee +The purpose of the Planning and Finance Committee is to oversee +the responsibilities of the Board relating to planning and +finance, including: (1) to organize and oversee the +Board’s participation in +16 +Table of Contents +the development of the Strategic Plan and the risk assessment +and management process; (2) to follow the progress in the +implementation of the Strategic Plan and to advise the Board if +additional Board action appears to be needed to assure +successful implementation of the plan or if a need exists to +revise the plan in the face of changing conditions or other +factors; (3) to assure that management is addressing the +personnel requirements for the successful implementation of the +Strategic Plan; (4) to assure that a talent-rich +organization is being developed to address both current and +future leadership needs; (5) to assure that robust +management development and succession planning processes are +developed and implemented for management at all levels in the +Company; and (6) to work with the CFO and other executive +management regarding corporate financial matters including +operating and capital budgets, capital structure, dividends, and +other significant financial and capital issues. The Board has +adopted a charter for the Planning and Finance Committee which +is posted on the Company’s website. +CEO +Succession +During 2007, Steven R. Williams communicated to the Board his +intention to retire as CEO during 2008. The Board designated a +committee comprised of five independent Board members serving at +the time (Messrs. Swoveland (Chair), D’Annunzio, Parke +and Crisafio and Ms. Wakim) to serve as a search committee +for a new CEO and to recommend a successor to the Board. The +Search Committee developed a process, identified and evaluated +candidates, and recommended to the Board that Richard W. +McCullough, the Company’s CFO, be the next CEO. In December +2007, the full Board announced the intended succession by +Mr. McCullough, and on June 23, 2008, such appointment +was implemented. Effective November 11, 2008, +Mr. McCullough was additionally appointed as Chairman. +Communications +with Directors +Shareholders wishing to communicate with the Board or a +committee may do so by writing to the attention of the Board or +Committee at the corporate headquarters or by emailing the Board +at board@petd.com , with “Board” or the +appropriate committee in the subject line. +Code of +Business Conduct and Ethics +In January 2003, the Company adopted its Code of Business +Conduct and Ethics, as amended (the “Code of Conduct”) +applicable to all directors, officers, employees, agents and +representatives of the Company and consultants. The +Company’s principal executive officer, principal financial +officer and principal accounting officer are subject to +additional specific provisions under the Code of Conduct. The +Company’s Code of Conduct is posted on its website at +www.petd.com . In the event of an amendment to, or a +waiver of, including an implicit waiver, the Code of Conduct, +the Company will disclose the information on its internet +website. The Board approved a waiver regarding any potential +conflict related to the service of Mr. Swoveland on the +Board of Directors of Linn Energy LLC. If the Board of Directors +becomes aware of a potential conflict in the future, the Board +of Directors will consider at that time whether or not to +continue this waiver. +Policies +and Procedures with Respect to Transactions with Related +Persons +The Board has adopted a written policy for the review, approval +and ratification of transactions that involve related parties +and potential conflicts of interest. +The related party transaction policy applies to each director +and executive officer of the Company, any nominee for election +as a Director, any security holder who is known to own more than +five percent of the Company’s voting securities, any +immediate family member of any of the foregoing persons and any +corporation, firm or association in which one or more of the +Company’s directors are directors or officers, or have a +substantial financial interest. +Under the related party transaction policy, a related person +transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would +require disclosure in the Company’s filings with the SEC as +a transaction with a related person. +17 +Table of Contents +The related persons must disclose to the Audit Committee any +potential related person transactions and must disclose all +material facts with respect to such interest. All related person +transactions will be reviewed by the Audit Committee. In +determining whether to approve or ratify a transaction, the +Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such +as the relationship of the related person with the Company, the +materiality or significance of the transaction to the Company +and the business purpose and reasonableness of the transaction, +whether the transaction is comparable to a transaction that +could be available to the Company on an arms-length basis, and +the impact of the transaction on the Company’s business and +operations. +Since January 1, 2008 to the present, there was no +transaction or series of transactions, or any currently proposed +transaction, in which the amount involved exceeds $120,000 and +in which any director, executive officer, holder of more than +five percent of the Company’s common stock or any member of +the immediate family of any of the foregoing persons had or will +have a direct or indirect material interest. +Indemnification +of Directors and Officers +The Company’s By-Laws provide that the Company shall +indemnify any director, officer, employee, or other agent of the +Company who is or was a party, or is threatened to be made a +party, to any proceeding (other than an action by or in the +right of the Company to procure a judgment in its favor) by +reason of the fact that such person is or was an agent of the +Company, against expenses, judgments, fines, settlements, and +other amounts actually and reasonably incurred in connection +with such proceeding, if that person acted in good faith and in +a manner that person reasonably believed to be in the best +interest of the Company, and in the case of a criminal +proceeding, had no reasonable cause to believe the conduct of +that person was unlawful. +The Company has entered into separate indemnification agreements +with each of its Directors whereby the Company has agreed to +indemnify the Director against all expenses, including +attorneys’ fees, and other amounts reasonably incurred by +the director in connection with any threatened, pending or +completed civil, criminal, administrative or investigative +action or proceeding to which such person is party by reason of +the fact that he is or was a Director, as the case may be, of +the Company, if the person acted in good faith and in a manner +reasonably believed to be in or not opposed to the best +interests of the Company, and, with respect to any criminal +action or proceeding, the person had no reasonable cause to +believe such conduct to be unlawful. The agreements provide for +the advancement of expenses and that the Company has the right +to purchase and maintain insurance on behalf of the director +against any liability or liabilities asserted against such +person, whether or not the Company would have the power to +indemnify the person against such liability under any provision +of the agreement. The Company has agreed to indemnify such +person against expenses actually and reasonably incurred in +connection with any action in which the person has been +successful on the merits or otherwise. Indemnification must also +be provided by the Company (unless ordered otherwise by a court) +only as authorized in the specific case upon a determination +that the indemnification of the person is appropriate because he +or she has met the applicable standard of conduct described in +the agreement made by (i) the Board of Directors, by a +majority vote of a quorum consisting of Directors who are not +parties to such action or proceeding, (ii) independent +legal counsel in a written opinion or (iii) the +shareholders of the Company. +Additional +Information +The “Corporate Governance” section of the +Company’s internet site contains additional information, +including PDC’s Certificate of Incorporation and By-Laws; +written charters for each Board committee; and Board policy +statements. +The Company files annual, quarterly and current reports, proxy +statements and other information with the SEC. Copies of the +Company’s filings with the SEC are available to the public +at the SEC’s website at +http://www.sec.gov . +These documents may also be viewed at the SEC’s public +reference room located at 100 F Street, N.E., +Washington, D.C. 20549. Please call the SEC at +1-800-SEC-0330 +for further information on the public reference room. +18 +Table of Contents +EXECUTIVE +OFFICERS +The current executive officers of the Company, their principal +occupations for the past five years and additional information +is set forth below. +Directorship +Director +Term +Name +Age +Position(s) +Since +Expires +Richard W. McCullough (1) +57 +Chairman, Chief Executive Officer and Director +2007 +2010 +Eric R. Stearns +51 +Executive Vice President +– +– +Gysle R. Shellum (2) +57 +Chief Financial Officer +– +– +Barton R. Brookman, Jr. (3) +46 +Senior Vice President Exploration and Production +– +– +Daniel W. Amidon +48 +General Counsel and Secretary +– +– +R. Scott Meyers. (4) +34 +Chief Accounting Officer +– +– +(1) +Mr. Williams retired as CEO effective June 23, 2008. +Mr. McCullough was selected as his successor upon +Mr. Williams’ retirement. +(2) +Mr. Shellum became Chief Financial Officer in November 2008. +(3) +Mr. Brookman was appointed to the executive position of +Senior Vice President on March 8, 2008. +(4) +Mr. Meyers assumed the duties of Chief Accounting Officer +on April 2, 2009. During 2008 and until April 2, 2009, +Darwin L. Stump served in that position. +Richard W. McCullough was appointed Chief Executive +Officer in June 2008 and Chairman in November 2008. +Mr. McCullough also served the Company as President since +March 2008. Mr. McCullough served as Chief Financial +Officer from November 2006 until November 2008. Prior to joining +PDC, Mr. McCullough served as an energy consultant from +July 2005 to November 2006. From January 2004 to July 2005, +Mr. McCullough served as President and Chief Executive +Officer of Gasource, LLC, Dallas, Texas, a marketer of +long-term, natural gas supplies. From 2001 to 2003, +Mr. McCullough served as an investment banker with +J.P. Morgan Securities, Atlanta, Georgia, and served in the +public finance utility group supporting bankers nationally in +all natural gas matters. Additionally, Mr. McCullough has +held senior positions with Progress Energy, Deloitte and Touche, +and the Municipal Gas Authority of Georgia. Mr. McCullough, +a CPA, was a practicing certified public accountant for +8 years. +Eric R. Stearns was appointed Executive Vice President in +March 2008. Prior to his current position, Mr. Stearns +served as Executive Vice President Exploration and Production +since December 2004, Executive Vice President Exploration and +Development from November 2003 until December 2004, and Vice +President Exploration and Development from April 1995 until +November 2003. Mr. Stearns joined PDC as a geologist in +1985 after working at Hywell, Incorporated and for Petroleum +Consultants. +Gysle R. Shellum was appointed Chief Financial Officer +effective November 11, 2008. Prior to joining the Company, +Mr. Shellum served as Vice President, Finance and Special +Projects of Crosstex Energy, L.P., Dallas, Texas. +Mr. Shellum served in this capacity from September 2004 +through September 2008. Prior thereto from March 2001 until +September 2004, Mr. Shellum served as a consultant to Value +Capital, a private consulting firm in Dallas, where he worked on +various projects, including corporate finance and Sarbanes-Oxley +Act compliance. Crosstex Energy, L.P. is a publicly traded +Delaware limited partnership, whose securities are listed on the +NASDAQ Global Select Market and is an independent midstream +energy company engaged in the gathering, transmission, treating, +processing and marketing of natural gas and natural gas liquids. +Barton R. Brookman, Jr. was appointed Senior Vice +President Exploration and Production in March 2008. Previously +Mr. Brookman served as Vice President Exploration and +Production since joining PDC in July 2005. Prior to joining PDC, +Mr. Brookman worked for Patina Oil and Gas and its +predecessor Snyder Oil for 17 years in a series of +positions of increasing responsibility, ending his service as +Vice President of Operations of Patina. +19 +Table of Contents +Daniel W. Amidon was appointed General Counsel and +Secretary in July 2007. Prior to his current position, +Mr. Amidon was employed by Wheeling-Pittsburgh Steel +Corporation beginning in July 2004; he served in several +positions including General Counsel and Secretary. Prior to his +employment with Wheeling-Pittsburgh Steel, Mr. Amidon +worked for J&L Specialty Steel Inc. from 1992 through July +2004 in positions of increasing responsibility, including +General Counsel and Secretary. Mr. Amidon practiced with +the Pittsburgh law firm of Buchanan Ingersoll PC from 1986 +through 1992. +Darwin L. Stump was Chief Accounting Officer from +November 2006 until April 2, 2009. Mr. Stump has been +an officer of PDC since April 1995 and held the position of +Chief Financial Officer and Treasurer from November 2003 until +November 2006. Previously, Mr. Stump served as Corporate +Controller from 1980 until November 2003. Mr. Stump, a CPA, +was a senior accountant with Main Hurdman, Certified Public +Accountants prior to joining PDC. +R. Scott Meyers was appointed Chief Accounting +Officer on April 2, 2009. Prior to joining the Company, +Mr. Meyers served as a Senior Manager with Schneider Downs +Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania. +Mr. Meyers served in such capacity from April 2008 to March +2009. Prior thereto, from November 2002 to March 2008, +Mr. Meyers was employed by PricewaterhouseCoopers LLP, the +last two and one-half years serving as Senior Manager. +COMPENSATION +COMMITTEE REPORT +This report has been provided by the Compensation Committee of +the Board of Directors of the Company. +Kimberly Luff Wakim, Chair +Vincent F. D’Annunzio +Anthony J. Crisafio +Larry F. Mazza +David C. Parke +COMPENSATION COMMITTEE +of the Board of Directors +*** +20 +Table of Contents +COMPENSATION +DISCUSSION AND ANALYSIS +The Board has assigned to the Compensation Committee (the +“Committee”) responsibility for developing and +overseeing the Company’s compensation programs and +executive compensation. The Committee consists entirely of +independent Board members. The Committee has been authorized by +the Board to make final determinations for all elements of +compensation for the executive officers. Independent Board +members who are not part of the Committee are often consulted as +part of the Committee’s decision making process. The +Committee also negotiates terms and approves all executive +employment agreements and administers the Company’s +long-term incentive plans. +Summary +The Committee’s overall goal is to design an executive +compensation plan with the following characteristics: +• +Is fair to both the executive and the Company +• +Is competitive with compensation being paid by other oil and gas +companies of similar size and complexity +• +Is competitive with companies located in the same geographic +regions as the Company’s operations +• +Helps retain key executives +• +Avoids encouraging illegal or unethical activities +• +Rewards efforts that improve the performance of the Company +• +Is appropriate considering compensation of other employees in +the Company +The Committee, working with nationally recognized compensation +consultant Towers Perrin, (sometimes herein the +“Consultant”) has developed and annually reviews and +updates a peer group of companies to use to establish total +level of compensation and components of compensation at +competitive companies. Executive compensation includes salary, +short-term incentive (cash bonus) and long-term incentive (stock +or stock-based) compensation. In addition, executives +participate in and benefit from the qualified retirement plan +and other benefit programs available to all employees as well as +to an executive retirement plan and other perquisites. +The peer group median compensation levels are the primary basis +for salary, short-term and long-term incentive target levels. +Position, contributions to company performance, future +potential, skills and other factors are also considered. The +Committee seeks to tie a large percentage of the short-term +incentive to specific performance goals established within the +first ninety (90) days of the year. In 2008, the Committee +set a target for production growth and for earnings per share. +In making its decision about the discretionary portion of the +awards, positive factors the Committee considered included the +timely and significant increase in oil and gas price hedging and +its effectiveness in 2008, the elimination of the material +weakness in the internal control over financial reporting, +progress made in the accounting area, the installation and +start-up of +a new enterprise software system, and the very competitive level +of the Company’s finding and development costs. Areas of +concern included the high levels of G&A and operating +costs. The Committee also considered the depth of the recession +at the time of its determination and the rapid recent decline in +oil and gas prices. +For long-term incentives the Committee first sets dollar targets +based on the peer group levels and factors related to the +individual executive, and then determines the number of shares +to be awarded using valuation methods based on the average price +for the preceding December (the December 2007 average closing +price for 2008 awards) and adjusted for the type of award and +the timing and likelihood of vesting. The Consultant assists the +Company in evaluating the value of awards based on generally +accepted valuation methods consistent with the compensation +reported for SEC reporting. +The Committee also consults with the CEO regarding proposed peer +group changes and for his evaluation of performance and +suggestions for compensation of the other executive officers. +Topics discussed with the CEO include individual executive +achievement of key operating targets, participation in and +support for development and execution of the Company’s +strategic plan, management development and succession planning, +the CEO’s assessment of the executives contributions to the +Company’s +21 +Table of Contents +success, and the limitations or shortcomings in the executives +performance or potential. The NASDAQ listing rules forbid the +CEO to be present during voting or deliberations with regard to +the CEO’s compensation. +In 2008, using a similar method to establish compensation +levels, for the six highest paid executives at the Company three +were above the median total compensation and three were below +the median total compensation. +The Committee also recommended, and the Board approved, changes +to Board Compensation for 2008. As with the executive +compensation, the peer group compensation was a primary factor +used to determine competitive levels of cash and equity +compensation for Board members. +COMPENSATION +DESIGN +Compensation +Philosophy and Objectives +The Committee’s philosophy is to provide compensation +packages that will attract, motivate and retain executive talent +and deliver rewards for superior performance and consequences +for underperformance. The Committee considers many factors in +establishing the compensation packages for the executive +officers of the Company. The ultimate goal is to provide +compensation that is fair to both the Company and the executive +officers, that motivates behavior that will enhance the value of +the Company, that avoids encouraging behavior that does not +serve the best interests of the Company, and that will allow the +Company to attract and retain executive officers. +The Committee believes the following characteristics of a +compensation program contribute to the implementation of its +philosophy: +• +Offer a total compensation program that is competitive with the +compensation practices of those peer companies with which the +Company competes for talent; +• +Tie a significant portion of executive compensation to the +Company’s achievement of pre-established financial and +operating objectives and to personal objectives established for +each executive individually; +• +Provide a significant portion of overall compensation in the +form of equity-based compensation in order to align the +interests of the Company’s executives with those of the +Company’s shareholders and to avoid excess focus on +short-term results; and +• +Structure a significant proportion of total compensation in a +fashion that promotes executive retention. +The Compensation Committee has been monitoring the ongoing +global recession. No significant changes have been made in the +compensation program at this time, although the short term bonus +goals were shifted from the traditional focus on earnings and +production to a focus on liquidity and debt levels, as the +ultimate depth of the recession is still uncertain. On the other +hand, no repricing or accommodation was made for past equity +awards which are now worth a fraction of their value upon +issuance, or for options that now have no exercise value. +Pay-for-Performance +The Committee believes that a significant portion of executive +compensation should be closely linked to both the Company’s +and the individual’s performance. The Committee’s +pay-for-performance philosophy is reflected in the +Company’s compensation practices, which tie a significant +portion of executive compensation to the achievement of +financial and operating objectives of the Company and also take +into account personal objectives and performance. This +philosophy is reflected in annual incentive awards, which are +directly linked to the achievement of short-term financial and +operating objectives set by the Committee and have potential +payouts ranging from zero to as much as 180% of the target for +each of the components. During 2008, the targets were based on +production, earnings per share, and the Committee’s +assessment of other factors related to the individual’s +performance and +22 +Table of Contents +development. Factors deemed particularly important in the +Committee’s assessment of the discretionary portion of the +STI for 2008 included increased and advantageous hedging, +elimination of material weakness in internal reporting, dramatic +increases in production and the overall growth of the Company, +management’s efforts relating to the CEO transition and +management’s efforts in improving the Company’s +historical financial and accounting systems and reporting. The +following table summarizes the criteria used in determining the +2008 bonus amount. The discretionary portion of the STI program +permits the Committee to account for individual performance and +differentiate among executives. The Committee also assesses +individual executive performance with input from the CEO as well +as other Board members and Committees. When determining what +portion of the discretionary income to award, the Committee +discusses each executive individually and considers all the +available information. +Pay-for-Performance +Table +Percent of +Lower +Total +Threshold +Target +Maximum +Maximum +Criteria +Amount +Bonus +Bonus +Bonus +2008: +Production (Mmcfe) +35,000 +37,000 +39,000 +40% +Diluted earnings per share +$ +2.55 +$ +3.05 +$ +3.55 +30% +Discretionary evaluation +Compensation Committee Determination +30% +The Committee also ties compensation to performance through +equity-based LTI awards that are designed to motivate executives +to meet the Company’s long-term performance goals and to +tie their interests to those of the shareholders. In 2008, the +LTI awards are restricted stock which vest over time, and +long-term incentive performance shares (“LTIP +shares”). The LTIP shares will vest only if certain minimum +thresholds of stock price appreciation are met. One-half of the +LTIP shares will vest and be issued based upon an annual stock +price increase of approximately 12%, with the starting price +based on the average price of the stock in December preceding +the award year. An additional 25% of the awarded LTIP shares +will vest and be issued at an annualized hurdle rate of 16% and +an additional 25% at 20%. The stock price used to determine if +the LTIP shares will vest will be the average daily closing +price for each of the three monthly periods: December 2010, +2011, and 2012 for the 2008 awards. Any shares not vested in +2010 and 2011 will remain eligible to be vested in future years; +however, any unvested shares at December 31, 2012 will be +forfeited. The Committee decided to use three measurement dates +to take into account the volatility of energy prices and their +impact on the stock price of the Company. +As a result of the structure of the STI and LTI compensation, a +significant amount of variable compensation under the +Company’s compensation program is contingent on the +achievement of key financial and operating objectives of the +Company and on increasing the value of the shares of the +Company’s stock. +The Role +of Equity-Based Compensation +The Company’s LTI program is an integral part of the +Company’s overall executive compensation program. The LTI +program is intended to serve a number of objectives including +aligning the interests of executives with those of the +Company’s shareholders and focusing senior executives on +the achievement of well-defined, long-term performance +objectives that are aligned with the Company’s corporate +strategy, thereby establishing a direct relationship between +compensation and shareholder value. The program also furthers +the goal of executive retention, since the executive officer +will forfeit any unvested awards in the event the officer +voluntarily terminates employment with the Company without +“good reason.” +Historically, the primary form of equity compensation awarded by +the Company was qualified and non-qualified stock options, +although such grants were not issued on a regular basis. This +form was selected because of the favorable individual and +corporate accounting and tax treatments provided by rules at the +time, and the widespread use of stock options in executive +compensation. Beginning in +23 +Table of Contents +2006, the accounting treatment for stock options changed as a +result of the applicability of Statement of Financial Accounting +Standards No. 123(R), making the use of stock options less +attractive. As a result, the Committee assessed the desirability +of granting only shares of restricted stock to executives, and +concluded that shifting entirely to restricted stock would +provide an equally motivating form of incentive compensation, +while permitting the issuance of fewer shares, thereby reducing +potential dilution to other shareholders. The Committee tied the +value received by executives to performance for a portion of the +equity compensation, thereby providing executives with a greater +incentive to focus on the long-term appreciation of the stock. +To accomplish this, a portion of the LTI for each executive +consists of LTIP shares, which require both the passage of time +and specified increases in the stock price to become vested. +In making long-term incentive awards, the Committee uses a +pre-determined market-based value approach. The Committee +determines the dollar value of awards in the marketplace using a +valuation methodology. The Committee establishes the desired +dollar value for each executive officer relative to the market. +The corresponding number of equity instruments to be awarded is +then determined using the same valuation methodology, based on +prevailing factors in advance of the award date. The valuation +for financial statement purposes is subsequently re-calculated +based on the prevailing factors at the time of the award. +The value-based approach can cause the number of equity +instruments needed to be granted from year to year to vary, even +though the awards may have the same dollar value. This can be +caused by, among other things, fluctuations in the +Company’s common stock price at the time of grant. This +issue is further addressed in the Long-Term Incentives section. +Mr. Williams announced his planned retirement in 2008, +Mr. McCullough was named as Mr. Williams’ +successor, and Mr. Riley resigned in early 2008. As a +result, a large part of the executive team had new and expanded +responsibilities in 2008. Largely as a result of relatively +short tenure with the Company, the new executive team does not +have a significant ownership position in the Company’s +stock. As a result of these factors, and the additional and +unusual demands of a major management transition, the Committee +felt that a one-time award of Company stock, vesting over a +5-year time +frame, would both compensate the management team for their +additional efforts and provide a better link between their +interests and those of the shareholders; in the aggregate +32,711 shares of restricted common stock were issued to +Messrs. McCullough, Stearns, Brookman and Amidon in +connection with this transition grant. +Use of +Consultants and Benchmarking to Help Establish Target +Compensation Levels +The Compensation Committee utilizes the compensation consulting +services of Towers Perrin. Towers Perrin assisted the Committee +with a review and revision of the peer group and conducted a +competitive benchmarking of the Company’s executive and +Non-Employee Director compensation programs. The Committee +periodically assesses the effectiveness and competitiveness of +the Company’s executive compensation structure with the +assistance of Towers Perrin, and utilizes the assistance of +Towers Perrin in assessing the value and cost of various +proposed compensation arrangements. Towers Perrin is engaged by, +and reports directly to, the Committee. +In developing its 2008 compensation objectives, the Committee +compared the Company’s compensation levels with those of a +group of 17 companies. These groups, collectively, are +referred to as the “Peer Group.” This benchmarking is +done with respect to each of the key annual elements of the +Company’s executive compensation programs discussed above +(salary, STI and LTI compensation), as well as the compensation +of individual executives based on their position in the overall +compensation hierarchy. The Committee uses data from the Peer +Group to establish a dollar target level for each key element to +deliver compensation to each executive at approximately the +50th percentile of the Peer Group, with adjustments made +based on the executive’s individual performance. Targeting +the 50th percentile helps ensure that the Company’s +compensation practices will be competitive in terms of +attracting and retaining executive talent, while performance +based compensation provides for variations due to superior or +sub-par performance. Because compensation for the Peer Group is +for prior periods, +24 +Table of Contents +the Committee attempts to anticipate future movements in +compensation levels when it sets compensation targets. For +example, when setting compensation for 2008, the most recent +compensation information available was from the 2007 proxy +statements for compensation paid in 2006. As more up to date +information becomes available, it is reviewed by the Committee +to evaluate whether future compensation plans should be adjusted +to take unanticipated changes in actual compensation of the Peer +Group into account. +The Peer Group used when determining 2008 compensation was +comprised of the following companies: +• Unit Corporation +• Whiting Petroleum Corporation +• Cabot Oil & Gas Corporation +• Penn Virginia Corporation +• Berry Petroleum Company +• Bill Barrett Corporation +• Encore Acquisition Company +• Clayton Williams Energy +• Brigham Exploration Company +• St. Mary Land & Exploration +• Comstock Resources +• Venoco +• Rosetta Resources +• Petroquest Energy +• Parallel Petroleum +• Carrizo Oil & Gas +• Delta Petroleum +For determination of 2008 compensation, Forest Oil Corporation, +Range Resources and Quicksilver Resources were eliminated from +the prior year’s group because they had grown much larger +than our Company. Six additions were made to the group, Venoco, +Rosetta Resources, Petroquest Energy, Delta Petroleum, Parallel +Petroleum and Carrizo Oil & Gas, to help keep the +median revenue and market capitalization of the group consistent +with the Company. The Committee believes that the Peer Group +represents companies with similar operations, of similar +complexity, and with which the Company believes it competes for +executive talent. +The following chart shows the comparison by category for the +median combined compensation for the highest paid executives of +the Peer Group based on 2007 compensation adjusted for projected +inflation increases, the target compensation levels set by the +Committee for 2008. The special retention restricted stock award +is included on an annualized basis. +Review of +Overall Compensation +The Committee reviews for each of the executive officers the +total dollar value of the officer’s annual compensation, +including salary, STI, LTI compensation, perquisites, deferred +compensation accruals and other compensation. The Committee also +reviews shareholdings and accumulated unrealized gains under +prior equity-based compensation awards, and amounts payable to +the executive officer upon +25 +Table of Contents +termination of the executive’s employment under various +different circumstances, including retirement and termination in +connection with a change in control. See 2008 Summary +Compensation Table below. +Consideration +of Prior Compensation +While the Committee considers all compensation previously paid +to the executive officers, including amounts realized or +realizable under prior equity-based compensation awards, the +Committee believes that current compensation practices must be +competitive to retain the executives in light of prevailing +market practices and to motivate the future performance of the +executive officers. Accordingly, wealth accumulation did not +result in any reductions in current compensation levels. +Furthermore, few of the current executive officers have been in +such positions long enough to have made significant wealth +accumulation from the Company, so this is not a significant +current issue. +ELEMENTS +OF EXECUTIVE COMPENSATION +Risk +Assessment +The Compensation Committee evaluates risks and rewards +associated with the Company’s overall compensation +philosophy and structure. Management discusses with the Audit +Committee, the Planning and Finance Committee and the +Compensation Committee the processes that have been put in place +to identify and mitigate, as necessary, potential risks in +different areas. With respect to specific elements of +compensation and risk analysis: +. +Base salary does not encourage risk-taking as it is a fixed +amount and is set at market rates. +. +The annual incentive plan is designed to reward achievement of +short-term performance metrics. Through a combination of plan +design and Board and management procedures, undue risk-taking is +mitigated. Specifically, the plan has a cap on the award for any +individual and constitutes a relatively small portion (26% +average) of total direct compensation for executive officers. +Board and management procedures include ongoing management +review and quarterly review of business performance by the Audit +Committee and the Company’s internal disclosure committee. +. +A number of factors mitigate risks inherent in long-term equity +compensation. Specifically, the Company has stock ownership +requirements for senior executives. The Company has also used +only restricted stock, not options, in 2008; this reduces the +possible reward for risk taking as a fewer number of shares are +granted and they do not lose all value if the price declines. +Executive officers must also obtain permission from the +Company’s General Counsel before the sale of any shares, +even during a trading period. +Overview +To achieve the objectives of the executive compensation program, +the Committee uses four elements of compensation in varying +proportions for the different executive officers. These elements +are base salary, STI, LTI, and other benefits. The Committee +uses cash payments (base salary and STI), awards tied to the +Company’s stock (LTI, which we also refer to as +“equity-based compensation”) and non-cash benefits in +its overall compensation packages. The Committee balances salary +and performance-based compensation, and cash and non-cash +compensation, in a manner it believes best serves the objectives +of the Company’s compensation program. The Committee +allocates among the different elements of compensation in a +manner similar to the median allocation of the Peer Group, based +on the level of the executive’s position. Generally, it is +the policy of the Committee that, as income levels increase, a +greater proportion of the executive’s income should be in +the form of STI and LTI compensation. For example the Chief +Executive Officer (“CEO”) of the Company receives a +higher percentage of his compensation in the form of short and +long term incentives compared to other executives and, +correspondingly, a smaller percentage of his compensation in the +form of salary, as is the case of CEOs in the Peer Group. The +26 +Table of Contents +following table shows the breakdown of target compensation among +the three elements (other than benefits) for 2007 and 2008 for +each executive officer. +Target Compensation for Elements +as a Percentage of Total Target Compensation +2007 +2008 +Base +Bonus +Equity +Base +Bonus +Equity +Name +Salary +Target +Target +Salary +Target +Target +Steven R. Williams +33 +% +24 +% +43 +% +27 +% +24 +% +49 +% +Thomas E. Riley (1) +36 +% +22 +% +42 +% +– +– +– +Richard W. McCullough (2) +40 +% +20 +% +40 +% +29 +% +27 +% +44 +% +Gysle R. Shellum (3) +– +– +– +Eric R. Stearns +36 +% +23 +% +41 +% +33 +% +20 +% +47 +% +Barton R. Brookman, Jr. (4) +– +– +– +40 +% +20 +% +40 +% +Daniel W. Amidon +– +– +– +40 +% +20 +% +40 +% +(1) +Mr. Riley resigned as President of the Company effective +March 9, 2008. +(2) +Mr. McCullough was selected as successor to the CEO upon +Mr. Williams’ retirement as CEO on June 23, 2008. +Mr. Williams was employed in an advisory position from +June 23, 2008 until September 30, 2008. +(3) +Mr. Shellum joined the Company as Chief Financial Officer +on November 11, 2008. +(4) +Mr. Brookman was appointed to the executive position of +Senior Vice President on March 8, 2008. +Base +Salary +The Committee annually reviews the base salaries of the CEO and +other executive officers. Salaries are also reviewed in the case +of promotions or other significant changes in responsibilities. +In each case, the Committee takes into account the results +achieved by the executive, his or her future potential, scope of +responsibilities and experience, and competitive salary +practices of the Peer Group. Base salary is intended to provide +a baseline of compensation that is not contingent upon the +Company’s performance. +After reviewing the Peer Group salary levels and considering +individual performance, the Committee established 2008 Base +Salary increases of 8.1% for the CEO and between 3.2% and 44.7% +for other executive officers. Mr. McCullough’s base +salary was increased by 44.7% to reflect the additional +responsibilities he has assumed as President and the anticipated +further increase in responsibilities upon his assumption of the +CEO position later in the year. The increase in +Mr. Brookman’s base salary for 2008 reflects his +elevation in March 2008 to executive officer status. The total +salary compensation of the executive officers approximated the +mean of the Peer Group, although the spread between the highest +and lowest is less than the Peer Group. Annual base salaries for +the executive officers for 2007 and 2008 are shown in the +following table: +Annual Base Salaries +Name +2007 +2008 +Steven R. Williams +$ +370,000 +$ +400,000 +Thomas E. Riley +292,500 +– +Richard W. McCullough +235,000 +340,000 +Gysle R. Shellum +– +235,000 +Eric R. Stearns +271,500 +305,000 +Barton R. Brookman, Jr. +200,000 +250,000 +Daniel W. Amidon +210,000 +227,500 +27 +Table of Contents +Short-Term +Incentives +Annual STI is tied to the Company’s overall performance for +the fiscal year, as measured against objective criteria set by +the Committee, as well as the Committee’s assessment of +Company performance and individual performance of each +executive. For 2008, the STI performance based award percentage +was 70% of the total target STI; 40% tied to production and 30% +to diluted earnings per share. The Committee believes that some +discretion with respect to individual awards is desirable to +compensate for unusual and unexpected events, and as a result +did not set specific performance targets for the remaining 30% +of the target STI in 2008. For 2007, the Committee retained +discretion over 60% of the total target STI to allow some +flexibility to reflect superior or sub-par personal performance +that may not have been captured by the financial and operating +criteria. +Target STI payments, expressed as a percentage of base salary, +are set for each executive officer during the first 90 days +of the fiscal year based on job responsibilities. STI payments +for 2008 ranged from 0% (as below) up to 180% of the executive +officer’s base salary, based on the achievement of the +objective criteria for performance based payments and the +assessment by the Committee for the balance. For fiscal year +2007, target STI awards for the executive officers ranged from +50% to 75% of salary. In 2008, target STI awards for the +executive officers ranged from 50% to 90% of salary, which is +consistent with the Peer Group compensation. +With respect to the executive officers, the Committee +establishes formulae to determine the percentage of the target +annual incentive payment that may be payable for the fiscal +year. The Committee does not have the discretion to change any +objective criteria once they have been established. The +following table sets forth the STI threshold, target and maximum +levels for 2007 and 2008 of the performance bonus portion of the +STI for the executives, expressed as a percentage of base salary. +Short-Term Incentive Compensation +2007 +2008 +% of Base Salary +% of Base Salary +Name +Threshold +Target +Stretch +Threshold +Target +Stretch +Steven R. Williams +0 +% +75 +% +150 +% +0 +% +90 +% +180 +% +Thomas E. Riley +0 +% +62.5 +% +125 +% +– +– +– +Richard W. McCullough +0 +% +50 +% +100 +% +0 +% +90 +% +180 +% +Eric R. Stearns +0 +% +62.5 +% +125 +% +0 +% +62.5 +% +125 +% +Barton R. Brookman, Jr. (1) +– +– +– +0 +% +50 +% +100 +% +Daniel W. Amidon +0 +% +50 +% +75 +% +0 +% +50 +% +100 +% +(1) +Mr. Brookman was not eligible for STI compensation until +2008. +The actual STI awards for 2008 performance were as follows: +Mr. McCullough $604,044; Mr. Stearns $347,300, +Mr. Shellum $20,000; Mr. Brookman $238,500; +Mr. Amidon $210,540 and Mr. Williams $529,597. These +awards were believed to be justified because Company had +substantially met the stretch goals for 2008 production and net +income. The Committee believed the subjective portion of the +2008 award was appropriate because of the impressive performance +of the Company in 2008, with the implementation of a significant +well-timed hedge program, as well as remediating the material +weaknesses noted in prior years related to the Company’s +financial reporting. +A similar short term bonus plan for 2009 has been established +for the named executives and reported on +Form 8-K +filed with the Securities and Exchange Commission on +April 6, 2009. The objective goals were changed +significantly, in light of the recession, and relate to Company +minimum liquidity and cash flow per share targets. The potential +2009 bonus amounts again range from 0% to 180% of base salary. +28 +Table of Contents +Long-Term +Incentives +The Committee’s practice has been to determine the dollar +amount of target equity compensation and to then grant +equity-based compensation that has a fair value equal to that +amount. To provide consistency from year-to-year and to avoid +questions about timing of awards, the Committee uses a +consistent period to value the awards when determining the +number of shares in the award, that being the average daily +price of the Company’s common stock on the NASDAQ Stock +Market for all of the trading days in December of the year prior +to the award year. The 2007 awards were determined using the +fair value of the awards based on the average daily closing +price of the Company’s stock in December 2006, with average +December 2007 prices being used to determine the awards for +2008. At the Committee’s direction, the Consultant +calculated the fair value utilizing methods it has developed for +use with these types of equity valuations, including taking into +account the probability +and/or +timing of vesting under the performance criteria for the LTIP +shares and the other restricted stock. For the purpose of +recording an expense for financial reporting purposes, the +awards are valued based on the market price at the time the +award is finalized. +In 2008, a percentage of the equity-based compensation awards +were LTIP shares, and the balance of the awards were time +vesting restricted stock. All of Mr. Williams’ 2008 +equity-based compensation was LTIP awards, to encourage him to +assist in the transition to the new CEO, as these awards only +have value 3, 4 and 5 years from the 2008 award date. The +following table summarizes LTI awards for 2007 and 2008, and the +second table summarizes the target prices for the performance +vesting of the LTIP awards. +Long-Term Incentive Compensation +2007 +2008 +Percent of +Percent of +Value +Value +from +Percent of +from +Percent of +Percent +Time Vesting +Value +Percent +Time Vesting +Value +of +Restricted +from +of +Restricted +from +Name +Salary +Stock +LTIP Stock +Salary +Stock +LTIP Stock +Steven R. Williams +175 +% +50 +% +50 +% +175 +% +0 +% +100 +% +Thomas E. Riley +145 +% +60 +% +40 +% +– +– +– +Richard W. McCullough +– +– +– +150 +% +50 +% +50 +% +Eric R. Stearns +140 +% +60 +% +40 +% +145 +% +50 +% +50 +% +Barton R. Brookman, Jr. +– +– +– +100 +% +50 +% +50 +% +Daniel W. Amidon +– +– +– +100 +% +50 +% +50 +% +LTIP Target Prices (1) +Percent +Approximate +Vested if +Year of +Growth +Target +Award +Target +Target Price +Attained (2) +2007 +2009 +2010 +2011 +12% +$ +60.00 +$ +67.50 +$ +75.00 +50 +% +16% +67.50 +77.50 +90.00 +75 +% +20% +75.00 +90.00 +107.50 +100 +% +2008 +2010 +2011 +2012 +12% +$ +80.50 +$ +90.00 +$ +101.00 +50 +% +16% +89.50 +103.50 +120.00 +75 +% +20% +99.00 +118.50 +142.50 +100 +% +29 +Table of Contents +(1) +Growth target percentages and target prices are based on the +average closing price of the Company’s common stock during +the preceding December for each of the years. +(2) +Performance shares will vest for a performance period only if +the target price is met or exceeded for such period. Performance +shares vested for a performance period shall not be subject to +divestment in the event the share price subsequently decreases +below the threshold in a subsequent period. +Retirement +Plans +The Company has a combined qualified 401(k) and profit sharing +plan for all of the Company’s employees including the +executive officers. The plan provides for discretionary matching +contributions. Generally, the Company matches 401(k) +contributions dollar for dollar up to 10% of the employee’s +compensation and then matches 20% for contributions above 10% of +the employee’s compensation up to the maximum allowable +limits under the Internal Revenue Code (“IRC”). The +Company’s profit sharing contribution is discretionary and +for 2008 was equal to 1% of the Company’s consolidated net +income. Total Company contributions, to the plan, both 401(k) +and profit sharing for 2008 were $1.9 million. +Under their current employment agreements, certain of the named +executive officers also earn the right to future payments +following their retirement or other departure from the Company. +Mr. Stearns and Mr. McCullough, under their respective +employment agreements, annually earn a retirement benefit equal +to $75,000 ($7,500 per year for 10 years). Following their +termination of service with the Company, their cumulative total +annual retirement benefit will be disbursed in ten equal annual +installments. As of December 31, 2008, +Mr. McCullough’s total cumulative benefit, including +the 2008 increment, was $150,000 ($15,000 per year for +10 years). As of December 31, 2008, Mr. Stearns +had earned a total cumulative benefit, including the 2008 +increment, of $375,000 ($37,500 per year for 10 years). The +Company ceased offering this benefit to new executives in 2007, +and therefore Mr. Amidon, Mr. Brookman and +Mr. Shellum do not participate. +Mr. Williams participated in two non-qualified retirement +plans. Under the first plan he will receive $450,000 ($45,000 +per year for 10 years, beginning January 2009). Under the +second plan, he will be paid $601,930, ($60,193 per year for +10 years, beginning July 2009). In the event of change in +control the benefits due will be accelerated and due immediately. +Mr. Williams also receives a lifetime healthcare benefit +under his employment agreement; the Company has recorded an +accumulated postretirement obligation of $648,146 as of +December 31, 2008, related to this benefit. +Other +Compensation and Benefits +The Company also provides certain other benefits to its +executive officers that are not tied to any formal individual or +Company performance criteria and are intended to be part of a +competitive overall compensation program. Each of the executive +officers, except as noted below, has (1) a Company vehicle +(or vehicle allowance) that they use for Company business, and +are allowed to use for personal uses as well; (2) coverage +under the Company’s medical plan and reimbursement of +medical expenses not covered by the plan; (3) the right to +be reimbursed for one Board-approved club membership; +(4) reimbursement of the cost of a $1 million life +insurance policy; and (5) reimbursement of the cost of +disability insurance. Given the importance of the executives and +their good health to the success of the Company and the +achievement of its business goals, the Committee believes that +the medical insurance and reimbursement encourage the executives +to seek appropriate medical assistance. The other benefits are +commonly provided to executives and are necessary to create a +competitive compensation package. A new model executive contract +was initiated for new executive officers beginning with +Mr. Shellum and Mr. Brookman. This contract does not +provide for reimbursement of medical expenses not covered by the +medical plan as described in item 2 above, or for +reimbursement of life insurance or disability insurance as +described in 4 and 5 above. +30 +Table of Contents +Termination +Benefits including Change in Control Payments +The compensation provisions in the event of a change in control +serve to lessen the potential negative impact of a change in +control on the executive officers and to lessen the potential +conflict between the best interests of the shareholders and that +of the executives. The Committee believes this is desirable, in +combination with significant stock ownership, to encourage the +executives to consider possible change in control situations +that might benefit the Company’s shareholders. +The Committee also believes that severance benefits for senior +management should reflect the fact that it may be difficult for +employees to find comparable employment within a short period of +time. They also should disentangle the Company from the former +employee as soon as practicable. For instance, while it is +possible to provide salary continuation to an employee during +the job search process, which in some cases may be less +expensive than a lump-sum severance payment, the Company +believes that a lump-sum severance payment is preferable in +order to most cleanly sever the relationship as soon as +practicable. The Company has entered into employment agreements +with each of the executive officers that include change in +control provisions. Certain of these agreements (McCullough, +Stearns, and Amidon) provide for the continued employment for a +period of two years following a “change in control” of +the Company. For this purpose the definition of “change of +control” corresponds to the definition under IRC 409A and +the supporting treasury regulations. These agreements are +intended to retain the executives and provide continuity of +management in the event of an actual or threatened change in the +control of the Company and ensure that the executive’s +compensation and benefits expectations would be satisfied in +such event. +Where the termination follows a “change of control” of +the Company, or where the Company terminates the executive +officer without “cause” or where the executive officer +terminates employment for “good reason,” the severance +benefits are equal to either two times (Brookman and Shellum +(except it is three times if the event is a change of control)) +or three times (McCullough, Stearns, and Amidon) the sum of: +a) the executive officer’s highest annual base salary +during the previous two years of employment immediately +preceding the termination date, plus b) the highest annual +bonus paid to the executive officer during the same two year +period. The executive officer is also entitled to +1) vesting of any unvested equity compensation (excluding +all LTIP shares), 2) reimbursement for any unpaid expenses, +3) retirement benefits earned under the current or previous +agreements, 4) continued coverage under the Company’s +medical plan for up to 18 months, and 5) payment of +any earned, unpaid bonus amounts. In addition, a terminated +executive officer is entitled to receive any benefits that he +otherwise would have been entitled to receive under our 401(k) +and profit sharing plan, although those benefits are not +increased or accelerated. The Committee believes that these +termination benefits are comparable to the general practice +among similar companies, although it has not conducted a study +to confirm this. +The definition of “good reason” varies among the +employment agreements but generally includes all or some of the +following: 1) a material diminution in the executive’s +authority, duties and responsibilities with the Company, +2) a material decrease of the executive officer’s base +salary, 3) a material diminution in the reward +opportunities under the annual performance bonus, 4) a +material diminution in the authority, duties, and +responsibilities of the supervisor to whom the executive +reports, 5) a material reduction in the budget over which +the executive retains authority, 6) a material change in +the geographic location where the executive provides services, +or 7) any other material breach of the employment agreement +by the Company. +The Company may terminate any of the executive officers for +“just cause”, which is defined in the employment +agreements to include 1) a failure by the executive to +substantially perform his duties, 2) conduct by the +executive that results in consequences which are materially +adverse to the Company, monetarily or otherwise, 3) a +guilty plea or conviction of a felony, 4) conduct +demonstrating gross unfitness to serve in the position or +5) a material breach of the terms of the employment +agreement by the executive officer. If an executive officer is +terminated for just cause, the Company is required to pay the +executive officer his base salary through the termination date +plus any bonus (only for periods +31 +Table of Contents +completed and accrued, but not paid), incentive, deferred, +retirement or other compensation, and provide any other +benefits, which have been earned or become payable as of the +termination date but which have not yet been paid or provided. +If an executive officer voluntarily terminates his employment +with the Company for other than good reason, he is entitled to +receive 1) the base salary, bonus and incremental +retirement payment prorated for the portion of the year that the +executive officer is employed by the Company, provided, however, +that with respect to McCullough, Stearns, and Amidon, there +shall be no proration of the bonus in the event such executive +officer leaves prior to March 31 in the year of his termination +and, with respect to Brookman and Shellum, there shall be no +proration of the bonus if such executive leaves prior to the +last day of the year 2) any incentive, deferred or other +compensation which has been earned or has become payable, but +which has not yet been paid under the schedule originally +contemplated in the agreement under which they were granted or +in full without discount within 60 days of the termination +date at the discretion of the Company, 3) any unpaid +expense reimbursement upon presentation by the executive officer +of an accounting of such expenses in accordance with normal +Company practices, and 4) any other payments for benefits +earned under the employment agreement or Company plans. +If the executive officer’s termination is due to his death +or by the company due to his “disability”, certain +benefits are provided to him. For this purpose, the definition +of “disability” corresponds to the definition under +IRC 409A and the supporting treasury regulations. The benefit +payable shall be payable in a lump sum and shall be equal to the +compensation and other benefits that would otherwise have been +paid for a six month period following the termination date plus +a pro-rated portion of the performance bonus. +The table below provides information regarding the amounts each +of the executive officers would be eligible to receive if a +termination event had occurred as of December 31, 2008. For +the purpose of valuing equity compensation, the presentation +below assumes the closing price per share of the Company’s +stock on December 31, 2008 was $24.07: +Termination Benefits (1) +By Executive +By Company +Retirement +Change +Death +or +Good +For +Without +in +or +Name +Voluntary +Reason +Cause (2) +Cause +Control +Disability (3) +Richard W. McCullough +$ +760,151 +$ +4,117,051 +$ +578,938 +$ +4,117,051 +$ +4,117,051 +$ +1,492,113 +Gysle R. Shellum +20,000 +784,617 +– +784,617 +1,019,617 +432,117 +Eric R. Stearns +728,807 +2,850,641 +624,497 +2,850,641 +2,850,641 +1,382,560 +Barton R. Brookman +245,607 +1,370,028 +173,757 +1,370,028 +1,720,028 +787,222 +Daniel W. Amidon +216,647 +1,551,414 +153,485 +1,551,414 +1,551,414 +563,613 +(1) +The benefits are calculated as of December 31, 2008. Please +refer to previously disclosed Executive Employment Agreements +for applicable termination provisions under the specified +scenarios. +(2) +It is currently anticipated that an accrued “performance +based” and “discretionary” bonus would be paid to +an Executive who has a voluntary termination of employment with +the Company. However, it is not anticipated that a +“discretionary” bonus, even if accrued, would be paid +to an Executive who is terminated “For Cause”. +(3) +In the event of death or disability, the termination benefits +would consist of (i) the base salary and bonus for the +portion of the year the executive officer is employed by the +Company, (ii) the base salary that would have been earned +for the six months after termination; (iii) immediate +vesting of all equity and option awards; (iv) the payment +of deferred retirement compensation based upon the schedule +originally contemplated in the deferred retirement compensation +agreement or in a lump-sum no later than two and one-half months +following the close of the calendar year in which the death or +disability occurred; (v) reimbursement for any unpaid +expenses; (vi) benefits earned under the 401(k) and profit +sharing plan; and (vii) continued coverage under the +Company’s medical plan for up to 18 months. +32 +Table of Contents +Executive +Officer and Director Share Retention and Ownership +Guidelines +In order to promote equity ownership and further align the +interests of management with the Company’s shareholders, +the Committee has adopted share retention and ownership +guidelines for senior management and Non-Employee Directors. +Under these guidelines, Executive Officers and Non-Employee +Directors are required to achieve and continue to maintain a +significant ownership position, as follows: +Chief Executive Officer +3 times salary +Other Executive Officers +(excluding the Chief Accounting Officer) +2 times salary +Non-Employee Directors +1 times retainer +Officers and directors are provided five years from the date +they became an executive officer or director to comply with +these requirements. The Committee periodically reviews share +ownership levels of the persons subject to these guidelines. +Shares held by the executive officers and shares held indirectly +through the Company 401(k) plan are included in determining an +executive officer’s share ownership. Shares underlying +stock options, including vested options, as well as unvested +restricted stock, are not included. All executive officers other +than Mr. Stearns have occupied their positions less than +five years, and therefore are not out of compliance with the +guidelines, although they have not yet accumulated sufficient +stock to comply with the ownership guidelines. Similarly, three +directors (Messrs. Casabona, Crisafio and Mazza) have not been +members of the Board for five years, and therefore are not out +of compliance with the ownership guidelines, although they have +not yet accumulated sufficient stock to comply with the +guidelines. Due to the extreme volatility of the Company’s +stock price, on March 16, 2009 the Board clarified that +compliance would be measured once each year at the close of +business on +July 2 nd . +Based on this annual compliance measurement and the five year +initial grace period, no director or officer is currently out of +compliance with the ownership guidelines. +The Company’s insider trading policy expressly prohibits +Company officers, directors, employees and associates from +engaging in options, puts, calls or other transactions that are +intended to hedge against the economic risk of owning the +Company shares. +New +Employment Agreements: Section 409A Compliance +All current executive officers entered into a new employment +agreement on December 31, 2008. Mr. Shellum began +employment in November 2008 and this was his initial contract. +Mr. Brookman’s contract reflected his promotion in +2008 to an executive officer. For the other executive officers, +the new agreement replaced any existing agreements. In addition, +a new model executive officer employment agreement contract was +developed during 2008, and used as a basis for the employment +agreements with Mr. Brookman and Mr. Shellum. Pursuant +to the model executive officer employment agreement +(1) supplemental executive retirement benefits will no +longer be offered; (2) supplemental medical reimbursement +will no longer be offered and (3) supplemental life +insurance will no longer be offered. The new employment +agreements including those based on the new model executive +officer employment agreement also contain a “claw +back” provision requiring the employee to reimburse the +Company for annual bonus payments received for each affected +year, if the Company must restate all or a portion of its +financial statements due to the material noncompliance by the +Company with any financial reporting requirement under the +securities laws. The reimbursements will be equal to the +difference between the bonus paid to the employee for the +affected years and the bonus that would have been paid to the +employee had the financial results been properly reported. +The initial term of the agreements is for two years and they are +automatically extended for an additional 12 months +beginning on the first anniversary of the effective date and on +each successive anniversary unless either party cancels. The +employment agreements provide for the base annual salary to be +reviewed annually (see “Base Salary” discussion above). +Each employment agreement provides for an annual performance +bonus as determined by the Committee and is based in part upon +written objective criteria and in part upon the discretion of +the +33 +Table of Contents +Committee. The annual performance bonus earned is calculated as +a percentage, as determined by the Compensation Committee, of +the executive officers’ base salary. +Each employment agreement contains a standard non-disclosure +covenant and also provides that the executive officer is +prohibited during the term of his employment and for a period of +one year following his termination from engaging in any business +that is competitive with the Company’s oil and gas drilling +business. Additionally, the employment agreements state that the +executive officer must devote substantially all of his business +time, best efforts and attention to promote and advance the +business of the Company. The executive officer may not be +employed in any other business activity, other than with the +Company, during the term of the employment agreement, whether or +not such activity is pursued for gain, profit or other pecuniary +advantage without approval by the Compensation Committee. This +restriction will not prevent the executive officer from +investing his personal assets in a business which does not +compete with the Company or its affiliates, and where such +investment will not require services of any significance on the +part of the executive officer in the operation of the affairs of +the business. +On April 27, 2009 the Company’s Compensation Committee +determined that it will use its best efforts to negotiate with +the current executives in order to remove any “single +trigger” within the next 24 months with respect to +change in control provisions of their employment agreements. The +Company’s Compensation Committee has also committed to use +its best efforts in negotiations with any future Company +executives, to avoid the use of “single triggers” in +such new agreements. A “single trigger” provision +permits the executive to terminate his employment for any reason +after a change of control and receive a severance. +Other +Agreements and Arrangements +In addition to the above employment agreements, the existing +employment agreement with Mr. Williams, was amended on +August 29, 2008. The terms and conditions of +Mr. Williams’ compensation arrangements regarding his +service as an advisor to the Company following his retirement as +CEO on June 23, 2008 are reflected in the Company’s +Form 8-K +current report dated August 29, 2008, which the Company +hereby incorporates herein by reference. Most of the related +acceleration in equity grants pertains to performance shares +that have worth only if the Company achieves certain specified +increased share price targets in future years. The Compensation +Committee believed that this acceleration would help align +Mr. Williams’ interests with the transition to the new +chief executive officer and the future success of the Company. +Furthermore, the acceleration of the performance units is +contingent on approval by the Board of his retirement from the +Board; in rendering such future approval decision, the Board +would be able to consider the success of Mr. Williams in +his role in the transition of the chief executive officer and in +the future success of the Company as an Advisor and as Chairman. +Prior to 2008, the Company raised capital through the formation +of partnerships for which the Company was the general partner. +Prior to 2007, executive officers could invest in a +Board-approved executive drilling program at the Company’s +cost. Effective with the 2007 partnership the Board eliminated +this executive officer investment program, although there was +some carryover drilling from the 2006 program paid in 2007. +There was no drilling in 2008 by any partnership with executive +officer investors. +Internal +Revenue Code Section 162(m) +The Committee is aware of IRC Section 162(m) of the tax +code, which generally limits the deductibility of executive pay +in excess of one million dollars per year, and which specifies +the requirements for the “performance-based” exemption +from this limit. Elements of the executive compensation program +are indeed performance-based, such as stock options issued under +the Company’s 2004 Long-Term Equity Compensation Plan. +Other aspects of the executive compensation program do not +qualify as performance-based, such as time-based restricted +stock and the Company’s annual incentive plan because the +Committee prefers the ability to exercise discretion in +evaluating a portion of +34 +Table of Contents +participants’ performance. The financial implications of a +potential lost deduction are not expected to be material. The +Committee will continue to monitor its position on the impact of +Section 162(m) for the Company’s executive +compensation programs. +EXECUTIVE +COMPENSATION +2008 SUMMARY COMPENSATION TABLE +The following table provides summary compensation information +for the Company’s Chief Executive Officer, the Chief +Financial Officer, and the three most highly compensated +executive officers, other than the Chief Executive Officer and +Chief Financial Officer, whose total compensation exceeded +$100,000 in 2008 (the “named executive officers”). +Nonqualified +Non-Equity +Deferred +All Other +Name and Principal +Stock +Option +Incentive Plan +Compensation +Compensation +Total +Position(1) +Year +Salary +Bonus(2) +Awards(3) +Awards(4) +Compensation(5) +(6) +(7) +Compensation +Richard W. McCullough +2008 +$ +340,000 +$ +181,213 +$ +385,095 +$ +17,532 +$ +422,831 +32,555 +$ +74,704 +$ +1,453,929 +Chief Executive Officer, +2007 +235,000 +105,750 +46,390 +17,532 +94,000 +30,555 +59,014 +588,241 +President, and Chairman(8) +2006 +32,237 +83,000 +(9) +5,928 +2,289 +— +3,848 +— +127,302 +Steven R. Williams +2008 +279,173 +158,879 +1,422,167 +(10) +102,141 +370,718 +(157,164 +) +50,518 +2,226,432 +Chief Executive Officer +2007 +370,000 +249,750 +184,470 +34,609 +222,000 +140,312 +107,024 +1,308,165 +and Chairman(11) +2006 +345,000 +155,250 +163,023 +54,546 +362,250 +88,438 +85,483 +1,253,990 +Gysle R. Shellum +2008 +27,115 +20,000 +4,896 +— +— +— +2,911 +54,922 +Chief Financial Officer(12) +Eric R. Stearns +2008 +305,000 +104,310 +493,721 +25,724 +243,390 +24,416 +51,942 +1,248,503 +Executive Vice President +2007 +271,500 +152,719 +162,982 +31,723 +135,750 +23,033 +57,833 +835,540 +2006 +251,000 +175,300 +(13) +98,318 +32,806 +175,700 +21,730 +60,478 +815,332 +Barton R. Brookman +2008 +250,000 +71,850 +338,162 +— +167,650 +— +29,914 +857,576 +Senior Vice President of +2007 +192,300 +100,000 +145,381 +— +— +— +37,857 +475,538 +Exploration & Development +Daniel W. Amidon +2008 +227,500 +63,162 +206,024 +— +147,378 +— +34,567 +678,631 +General Counsel and Secretary +2007 +96,922 +180,000 +52,526 +— +— +— +8,984 +338,431 +Thomas E. Riley +2008 +72,763 +— +974,729 +(14) +82,876 +— +154,029 +46,362 +1,330,759 +President and Director(15) +2007 +292,500 +186,469 +181,371 +35,146 +124,312 +32,674 +66,827 +919,299 +2006 +272,000 +81,600 +107,580 +35,977 +190,400 +30,824 +57,062 +775,443 +(1) +The listed positions are those held +as of December 31, 2008 except as otherwise noted below. +(2) +Represents the discretionary based +amounts paid under the Company’s annual STI bonus plan. For +a discussion of the bonus plan, see Compensation Discussion and +Analysis set forth above. +(3) +Represents compensation expense +recorded by the Company pursuant to FAS 123(R) related to +outstanding restricted stock awards. For information regarding +the determination of such expense, please refer to Note 9 +to the Company’s consolidated financial statements included +in its Report on +Form 10-K +filed with the SEC on February 27, 2009. +(4) +Represents compensation expense +recorded by the Company pursuant to FAS 123(R) related to +outstanding stock options. For information regarding the +determination of such expense, please refer to Note 9 to +the Company’s consolidated financial statements included in +its Report on +Form 10-K +filed with the SEC on February 27, 2009. +(5) +Represents the performance based +amounts earned under the Company’s annual STI bonus plan. +For a discussion of the bonus plan, see Compensation Discussion +and Analysis set forth above. +(6) +Represents the present value of the +current benefit earned related to the deferred compensation +retirement plan. +35 +Table of Contents +(7) +Amounts shown in this column are +detailed in the chart below: +Use of +Spousal/Other +Company +401(k) and Profit +401(k) and Profit +Company +Airfare or +Paid Insurance +Other +Income +Sharing Plan +Sharing Plan +Provided +Company +and Medical +Benefits & +Tax +Matching +Profit Sharing +Name +Year +Automobile(a) +Aircraft(b) +Expenses(c) +Perquisites(d) +Gross-up(e) +Contribution(f) +Contribution(g) +Richard McCullough +2008 +$ +17,307 +$ +8,746 +$ +9,950 +$ +9,489 +(h) +$ +2,605 +$ +20,500 +$ +6,107 +2007 +8,359 +- +10,657 +2,968 +- +15,365 +21,665 +Steven R. Williams +2008 +9,975 +1,238 +17,873 +(i) +- +932 +20,500 +- +2007 +1,410 +- +55,622 +(i) +7,828 +- +20,500 +21,664 +2006 +2,310 +- +25,459 +(i) +10,009 +- +20,000 +27,705 +Gysle R. Shellum +2008 +1,275 +- +- +1,636(j +) +- +- +- +Eric R. Stearns +2008 +3,600 +2,957 +14,097 +2,880 +1,800 +20,500 +6,107 +2007 +3,821 +- +12,926 +3,922 +- +15,500 +21,664 +2006 +1,697 +- +12,202 +3,874 +- +15,000 +27,705 +Barton R. Brookman +2008 +7,250 +1,057 +- +- +- +15,500 +6,107 +2007 +693 +- +- +- +- +15,500 +21,664 +Daniel W. Amidon +2008 +11,850 +671 +- +- +439 +15,500 +6,107 +2007 +2,400 +- +122 +- +- +- +6,461 +Thomas E. Riley +2008 +1,542 +- +20,718 +3,603 +- +20,500 +- +2007 +4,597 +- +18,238 +1,828 +- +20,500 +21,664 +2006 +2,239 +- +2,829 +4,289 +- +20,000 +27,705 +(a) +Includes either the monthly auto +allowance paid or the calculated personal use of a company +provided auto based upon personal use percentages and the IRS +published “Auto Lease Value” tables that are used to +determine +W-2 +additional wage amounts. +(b) +Represents the cost of company +provided airfare for spousal or other guest travel to certain +approved company business functions. Note that a flight on the +company aircraft with other executives traveling to the same +business function was estimated using the published Standard +Industry Fare Levels as all flights were for Board approved +business purposes and personal use of the aircraft by any +executive is prohibited. +(c) +Represents cost of company provided +or reimbursed insurance and reimbursed medical expenses. +(d) +Primarily includes entertainment +expenses such as club dues and athletic event tickets. For +Messrs. Williams and Riley this column includes the +estimated cost of their discounted participation in Company +Sponsored Drilling Programs in 2007 and 2006. +(e) +The tax +gross-up +payments relate to the spousal use of company aircraft (column +b). Since flights were for business events, +gross-up was +also approved by the Board. +(f) +Annual 401(k) company matching +contributions. +(g) +Annual profit sharing contributions +by the Company. +(h) +Mr. McCullough’s +“Other Benefits” for 2008 includes $4,214 for company +provided lodging. This amount represents the incremental cost of +a Board approved and company provided apartment in Denver. The +amount is the three month cost of the apartment $11,099 less the +hotel savings to the Company of $6,885 (27 days at +$255/day). +(i) +Mr. William s’ insurance +and medical costs include $12,584 (2008), $37,845 +(2007) and $20,170 (2006) for the actuarial determined +Post retirement Medical Benefit provided under a self-funded +plan. +(j) +Mr. Shellum’s amount +represents “relocation expense reimbursement” pursuant +to his 2008 employment agreement. +(8) +Mr. McCullough was appointed +President on March 8, 2008, CEO effective June 23, +2008 and Chairman effective November 11, 2008. He served in +the following capacities: Chief Financial Officer from November +2006 until November 2008; Vice Chairman from December 2007 until +June 23, 2008. +(9) +The 2006 bonus amount paid to +Mr. McCullough represents a signing bonus paid at the start +of his employment with the Company. +(10) +Mr. Williams’ 2008 Stock +award amount includes $1,385,337 from modifications due to his +vesting at retirement on September 30, 2008. +(11) +Mr. Williams served as CEO +until June 23, 2008 and Chairman until November 11, +2008. He was employed as an Advisor to the Company from +June 23, 2008 until his Retirement on September 30, +2008. Mr. Williams +36 +Table of Contents +continued to be a Board Member at +the end of 2008 and the Company has approved his continued Board +Service as meeting that “Vesting Service Requirements” +for certain outstanding stock awards. +(12) +Mr. Shellum was hired as Chief +Financial Officer effective November 11, 2008. +(13) +The 2006 bonus amount for +Mr. Stearns consists of a $75,300 30% discretionary amount +and a $100,000 special bonus for his work on the sale of +undeveloped leases to Marathon. +(14) +Mr. Riley’s 2008 Stock +Award amount includes $739,144 from the modification of the +vesting of his outstanding stock awards upon his resignation +“For Good Reason” and his corresponding Termination +Date and accelerated vesting date on March 9, 2008. +(15) +Mr. Riley served as President +and Board member of the Company until March 9, 2008. +2008 +GRANTS OF PLAN-BASED AWARDS TABLE +All Other +Estimated Future Payout +Stock +Grant Date +Estimated Future Payout +Under Non-Equity +Awards: +Fair Value of +Under Non-Equity +Incentive Plan Awards +Number of +Stock and +Incentive Plan Awards (1) +(Number of Shares) (2) +Shares +Option +Name +Grant Date +Threshold +Target +Maximum +Threshold +Target +Maximum +Awarded (3) +Awards +Richard W. McCullough +2/15/2008 +$ +- +$ +306,000 +$ +612,000 +- +- +- +- +$ +- +3/7/2008 +- +- +- +- +4,145 +8,290 +- +374,294 +(4) +3/7/2008 +- +- +- +- +- +- +13,878 +934,128 +(5)(6) +3/7/2008 +- +- +- +- +- +- +5,056 +340,319 +(5)(7) +Steven R. Williams(8) +2/15/2008 +- +360,000 +720,000 +- +- +- +- +3/7/2008 +- +- +- +- +11,379 +22,757 +- +872,503 +(4) +Gysle R. Shellum +11/30/2008 +- +- +- +- +- +- +12,240 +235,008 +(5)(7) +Eric R. Stearns +2/15/2008 +- +190,625 +381,250 +- +- +- +- +- +3/7/2008 +- +- +- +- +3,595 +7,189 +- +324,583 +(4) +3/7/2008 +- +- +- +- +- +- +8,921 +600,473 +(5)(6) +3/7/2008 +- +- +- +- +- +- +4,384 +295,087 +(5)(7) +Barton R. Brookman +2/15/2008 +- +- +- +- +- +- +- +- +3/7/2008 +- +- +- +- +1,849 +3,698 +- +166,965 +(4) +3/7/2008 +- +- +- +- +- +- +4,956 +333,588 +(5)(6) +3/7/2008 +- +- +- +- +- +- +2,255 +151,784 +(5)(7) +Daniel W. Amidon +2/15/2008 +- +113,750 +227,500 +- +- +- +- +- +3/7/2008 +- +- +- +- +1,849 +3,698 +- +166,965 +(4) +3/7/2008 +- +- +- +- +- +- +4,956 +333,588 +(5)(6) +3/7/2008 +- +- +- +- +- +- +2,255 +151,784 +(5)(7) +Thomas E. Riley(8) +3/9/2008 +- +- +- +- +- +- +3,500 +235,585 +(9) +(1) +Represents STI compensations award, +or cash incentive awards, computed as described above in +Compensation Discussion and Analysis – Short-Term +Incentives. +(2) +Represents market-based restricted +stock awards under the Company’s 2004 Long-Term Equity +Compensation Plan. For a discussion of the Company’s +Long-Term Incentive Plan, see the Compensation Discussion and +Analysis set forth above. +(3) +Represents time-based restricted stock awards under the +Company’s 2004 Long-Term Equity Compensation Plan. For a +discussion of the Company’s Long-Term Incentive Plan, see +the Compensation Discussion and Analysis set forth above. +(4) +Grant date fair value is computed by multiplying the number of +shares awarded by the grant date fair market value as computed +utilizing the Monte Carlo pricing model, which was $45.15 per +share. +(5) +Grant date fair value is computed by multiplying the number of +shares awarded by the closing price of the Company’s common +stock, as reported on the NASDAQ Global Select Market, on the +date of grant. +(6) +20% of these shares are scheduled to vest in each of the years +2009 through 2013. +(7) +25% of these shares are scheduled to vest in each of the years +2009 through 2012. +(8) +Pursuant to an agreement and a separation agreement with +Messrs. Williams and Riley, respectively, the Company +modified then outstanding stock options, time- based restricted +stock and market-based restricted stock awards to accelerate the +vesting schedule, none of which would have vested pursuant to +the original terms of the award. For Mr. Williams, the +Company modified 5,227 options, 37,440 shares of +market-based restricted stock and 13,070 shares of +time-based restricted +37 +Table of Contents +stock, resulting in an incremental decrease in grant date fair +value of $6,200 and $36,483 and an incremental increase in grant +date fair value of $181,451, respectively; the 5,227 options +vested on September 30, 2008, and the remaining +50,510 shares of restricted stock are scheduled to vest +upon Mr. Williams’ retirement from the Board of +Directors, pursuant to the terms of his agreement. For +Mr. Riley, the Company modified 4,678 options, +10,954 shares of time-based restricted stock and +1,539 shares of market-based restricted stock, resulting in +an incremental increase in grant date fair value of $13,641, +$229,579 and $49,017, respectively; 100% of these awards vested +on March 9, 2008. +(9) +Shares were awarded pursuant to a separation agreement effective +March 9, 2008. Grant date fair value is computed by +multiplying the number of shares awarded by the closing price of +the Company’s common stock, as reported on the NASDAQ +Global Select Market, on the date of grant. +OUTSTANDING +EQUITY AWARDS AT 2008 FISCAL YEAR-END TABLE +Option Awards +Restricted Stock Awards +Equity +Equity +Incentive +Incentive +Plan Awards: +Plan Awards: +Market +Number of Securities +Number +Market Value +Number of +Value +Underlying Unexercised +of Shares +of Shares +Unearned +of Unearned +Options Held at +of Stock +That Have +Shares That +Shares That +December 31, 2008 +Exercise +Expiration +That Have +Not +Have Not +Have Not +Name +Exercisable +Unexercisable +Price +Date +Not Vested +Vested(1) +Vested (2) +Vested(1) +Richard W. McCullough +1,666 +1,667 +(3) +$ +43.60 +11/14/2016 +21,062 +(4) +$ +506,962 +8,290 +$ +199,540 +Steven R. Williams +- +- +- +- +13,070 +(5) +314,595 +37,440 +901,181 +Gysle R. Shellum +- +- +- +- +12,240 +(6) +294,617 +- +- +Eric R. Stearns +3,670 +- +37.15 +12/13/2014 +20,508 +(7) +493,628 +14,084 +339,002 +2,187 +2,188 +(3) +44.95 +3/16/2016 +- +- +- +- +Barton R. Brookman +- +- +- +- +16,893 +(8) +406,615 +3,698 +89,011 +Daniel W. Amidon +- +- +- +- +9,311 +(9) +224,116 +3,698 +89,011 +(1) +The market value of shares is based on the closing price of the +Company’s common stock, as reported on the NASDAQ Global +Select Market, on December 31, 2008. +(2) +Represents LTIP shares to be issued based upon continuous +employment and the achievement of certain market-based +performance goals for the Company’s common stock as +discussed in the Compensation Discussion and Analysis set forth +above. +(3) +50% of these options are scheduled to vest in each of the years +2009 through 2010. +(4) +5,103 shares are scheduled to vest in each of the years +2009 and 2010, 4,040 shares in 2011 and 2012 and +2,776 shares in 2013. +(5) +100% of these shares are scheduled to vest upon +Mr. Williams’ retirement from the Company’s Board +of Directors, if the Board approves such retirement, pursuant to +the terms of his agreement dated August 29, 2008. +(6) +3,060 shares are scheduled to vest in each of the years +2009 through 2012. +(7) +5,734 shares are scheduled to vest in 2009, +5,735 shares in 2010, 4,374 shares in 2011, +2,880 shares in 2012 and 1,785 shares in 2013. +(8) +6,645 shares are scheduled to vest in 2009, +6,146 shares in 2010, 1,555 shares in each of the +years 2011 and 2012 and 992 shares in 2013. +(9) +2,254 shares are scheduled to vest in 2009, +2,255 shares in each of the years 2010 and 2011, +1,555 shares in 2012 and 992 shares in 2013. +38 +Table of Contents +2008 +OPTIONS EXERCISES AND STOCK VESTED TABLE +Option Awards +Stock Awards +Number of +Number of +Shares Acquired +Value Realized +Shares Acquired +Valu e Realized +Name +on Exercise +on Exercise +on Vesting +on Vesting(1) +Richard W. McCullough +- +$ +- +1,064 +$ +16,747 +Steven R. Williams +5,870 +(2) +42,381 +34,458 +1,640,585 +Eric R. Stearns +- +- +4 ,124 +231,477 +Barton R. Brookman +- +- +4 ,091 +194,331 +Daniel W. Amidon +- +- +2 ,200 +144,430 +Thomas E. Riley +8,829 +(3) +227,758 +19,200 +(3) +1,299,758 +(1) +Represents value of the vested shares by multiplying the number +of vesting shares by the market value of the shares on the +vesting date. +(2) +On September 30, 2008, the Company vested 5,227 options, +which were modified to accelerate the vesting schedule pursuant +to an agreement with Mr. Williams dated August 29, +2008; none of these shares would have vested pursuant to the +original terms of the award. +(3) +On March 9, 2008, the Company vested 4,678 options, +10,954 shares of time-based restricted stock and +1,539 shares of market-based restricted stock, which were +modified to accelerate the vesting schedule pursuant to a +separation agreement with Mr. Riley dated February 8, +2008; none of these shares would have vested pursuant to the +original terms of the award. +2008 +NONQUALIFIED DEFERRED COMPENSATION TABLE +Executive +Company +Aggregate +Aggregate +Aggregate +Contributions in +Contributions in +Earnings in +Withdrawals/ +Balance at +Name +2008 +2008(1) +2008(2) +Distributions +December 31, 2008 +Richard W. McCullough +$ +- +$ +32,555 +$ +2,078 +$ +- +$ +69,267 +Steven R. Williams +- +(157,164 +)(3) +56,425 +- +839,683 +Gysle R. Shellum +- +- +(4) +- +- +- +Eric R. Stearns +- +2 4,416 +5,528 +- +122,077 +Barton R. Brookman +- +- +(4) +- +- +- +Daniel W. Amidon +- +- +(4) +- +- +- +Thomas E. Riley +- +154,029 +7,842 +- +292,564 +(1) +Company contributions include the present value cost of +providing the deferred compensation payout over a ten year +period. Since this is a self funded deferred compensation plan, +the Company’s additional annual deferred compensation +expense, less the interest component noted as aggregate earnings +above, equals the increase in the accrued Company contributions +that are required to fund the plan. These annual amounts are a +component of the executive officers’ 2008 compensation and +included in the 2008 Summary Compensation Table. +(2) +Aggregate earnings consist of interest income earned on the +beginning of the year compensation balance at a 6% interest +rate. These earnings are not included in the 2008 Summary +Compensation Table as they are not above market rate. +(3) +Mr. Williams received deferred compensation benefits from +two deferred compensation plans. Due to Mr. Williams’ +changed retirement date and his changed deferral election under +the prior retirement plan, the present value needed to cover his +deferred compensation payout decreased in 2008 and there was a +recovery of prior contributions. +(4) +These 2008 newly named executive officers were not added to the +executive deferred compensation plan as of December 31, +2008. +39 +Table of Contents +EQUITY +COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity +compensation plans under which our equity securities are +authorized for issuance as of December 31, 2008. +Number of securities +Number of securities to be +remaining available for +issued upon exercise of +Weighted-average exercise +future issuance under equity +Plan category +outstanding options(1) +price of outstanding options +compensation plans(2) +Equity compensation plans approved by security holders: +2004 Long-Term Equity Compensation Plan +18,351 +$ +41.68 +312,418 +2005 Non-Employee Director Restricted Stock Plan +- +- +59,844 +Total equity compensation plans approved by security holders +18,351 +372,262 +Equity compensation plans not approved by security holders +- +- +- +Total +18,351 +$ +41.68 +372,262 +(1) +Excludes 72,683 shares of common stock to be issued based +upon continuous employment and the obtainment of certain +market-based performance goals over a specified period of time. +(2) +The number of securities remaining available for future +issuances have been reduced by the number of securities to be +issued upon exercise of outstanding options and shares subject +to certain market-based performance goals over a specified +period of time. +SHAREHOLDER +NOMINATIONS AND PROPOSALS +Advance +Notice Procedures +Under the Company’s By-Laws, no business may be brought +before an annual meeting of the Company unless it is specified +in the notice of the meeting or is otherwise brought before the +meeting by or at the direction of the Board or by a shareholder +entitled to vote who has delivered advance notice to the +Company. The notice must contain certain information specified +in the By-Laws and be delivered to the Corporate Secretary at +Petroleum Development Corporation, 1775 Sherman Street, +Suite 3000, Denver, Colorado 80203, not less than +80 days nor more than 90 days prior to the first +anniversary of the preceding year’s annual meeting. The +by-laws also provide that if the meeting is held more than +30 days before the anniversary of the prior year’s +annual meeting or 60 days after such anniversary then +notice can be given not later than the tenth day following the +day on which public announcement of the date of the annual +meeting is first made by the Company. These requirements are +separate from and in addition to the SEC’s requirements +that a shareholder must meet in order to have a shareholder +proposal included in the Company’s proxy statement pursuant +to +Rule 14a-8 +under the Securities Exchange Act of 1934. Under federal proxy +rules, if a shareholder wishes to present such a proposal at the +annual meeting, but fails to notify the Company by the date +required by the Company’s By-Laws, the proxies solicited by +the Board will include discretionary authority to vote on the +shareholder’s proposal in the event the proposal is +properly brought before the meeting. +40 +Table of Contents +Shareholder +Proposals for 2010 Annual Meeting +In order to be included in the Company’s Proxy Statement +for the 2010 Annual Meeting of Shareholders, shareholder +proposals must be received by the Company at its principal +executive office on or prior to January 5, 2010. Proposals +should be addressed to: +Corporate +Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +In addition, for any proposal that is not submitted for +inclusion in next year’s proxy statement, but is instead +sought to be presented directly at the 2010 Annual Meeting of +Shareholders, SEC rules permit management to vote proxies in its +discretion if the Company (1) receives written notice of +the proposal not later than March 16, 2010, nor earlier +than March 6, 2010, and advises shareholders in the 2010 +proxy statement about the nature of the matter and how +management intends to vote on the matter; or (2) does not +receive written notice of the proposal prior to the close of +business on March 16, 2010. Notices of intention to present +proposals at the 2010 annual meeting of shareholders should be +addressed to Corporate Secretary, Petroleum Development +Corporation, 1775 Sherman Street, Suite 3000, Denver, +Colorado 80203. +By Order of the Board of Directors, +Richard W. McCullough, Chairman +41 +Table of Contents +Using a black ink pen, mark your votes with an X as shown in +this example. Please do not write +outside the designated areas. +x +Annual Meeting Proxy Card +▼ +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +▼ +A +Proposals — The Board of Directors recommends a vote +FOR all the nominees listed and FOR Proposal 2. +1. +Election of Directors: +For +Withhold +For +Withhold ++ +01 - Anthony J. Crisafio +o +o +02 - Kimberly Luff Wakim +o +o +For +Against +Abstain +2. +To ratify the selection of PricewaterhouseCoopers LLP as +independent registered public accounting firm for the +Company for the year ending December 31, 2009. +o +o +o +B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign in the above box EXACTLY as your name(s) appears on this proxy. All joint holders must sign. When signing in a representative capacity, please provide your full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / + +011YSC +Table of Contents +▼ +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +▼ +Proxy — Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Proxy Solicited by Board of Directors for Annual Meeting of Shareholders +The undersigned appoints RICHARD W. MCCULLOUGH and DANIEL W. AMIDON, and either of them, proxies, each with full power to act without the other and with full power +of substitution for and in the name of the undersigned at the Annual Meeting of Shareholders of Petroleum Development Corporation (the “Company”) to be held on June 5, 2009, at 11:30 a.m. Mountain Time, and at any adjournment or postponement thereof to vote all shares of the common stock of the Company, held by the undersigned with respect to the matters herein and on such other matters as may properly come before the meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement for such meeting dated June 5, 2009, and a copy of the Company’s 2008 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1 AND FOR PROPOSAL 2. +In their discretion, the appointed proxies are authorized to vote upon such other business as may properly come before the meeting and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD, PLEASE READ BOTH SIDES OF THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. +Table of Contents +Using a black ink pen, mark your votes +with an X as shown in +this example. Please +do not write outside the designated areas. +x +Annual Meeting Proxy Card +▼ +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +▼ +A +Proposals — The Board of Directors recommends a vote +FOR all the nominees listed and FOR Proposal 2. +1. +Election of Directors: +For +Withhold +For +Withhold ++ +01 - Anthony J. Crisafio +o +o +02 - Kimberly Luff Wakim +o +o +For +Against +Abstain +2. +To ratify the selection of +PricewaterhouseCoopers LLP as +independent registered public +accounting firm for the Company for +the year ending December 31, 2009. +o +o +o +B Non-Voting +Items +Change of Address — +Please print new address below. +C +Authorized +Signatures — +This section must be completed for your vote to be counted. — +Date and Sign Below +Please sign in the above box EXACTLY as your name(s) appears on this proxy. All joint holders must sign. When signing in a representative capacity, please provide your full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +n + +011YSC +Table of Contents +6 PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6 +Proxy — Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Proxy Solicited by Board of Directors for Annual Meeting of Shareholders +The undersigned appoints RICHARD W. MCCULLOUGH and DANIEL W. AMIDON, and either of them, proxies, +each with full power to act without the other and with full power of substitution for and in the +name of the undersigned at the Annual Meeting of Shareholders of Petroleum Development Corporation +(the “Company”) to be held on June 5, 2009, at 11:30 a.m. Mountain Time, and at any adjournment or +postponement thereof to vote all shares of the common stock of the Company, held by the undersigned +with respect to the matters herein and on such other matters as may properly come before the +meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and +Proxy Statement for such meeting dated June 5, 2009, and a copy of the Company’s 2008 Annual +Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS +EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE +UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS +SPECIFIED IN PROPOSAL 1 AND FOR PROPOSAL 2. +In their discretion, the appointed proxies are authorized to vote upon such other business as may +properly come before the meeting and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD, PLEASE READ BOTH SIDES OF THIS CARD, +SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000077877/0000950152-09-004472/proxy_rpt.txt b/raw/proxies/0000077877/0000950152-09-004472/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f81326eee46479fbc9a932e6c2831ba5c9370709 --- /dev/null +++ b/raw/proxies/0000077877/0000950152-09-004472/proxy_rpt.txt @@ -0,0 +1,236 @@ +The related party transaction policy applies to each director +and executive officer of the Company, any nominee for election +as a Director, any security holder who is known to own more than +five percent of the Company’s voting securities, any +immediate family member of any of the foregoing persons and any +corporation, firm or association in which one or more of the +Company’s directors are directors or officers, or have a +substantial financial interest. +Under the related party transaction policy, a related person +transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would +require disclosure in the Company’s filings with the SEC as +a transaction with a related person. +17 +Table of Contents +The related persons must disclose to the Audit Committee any +potential related person transactions and must disclose all +material facts with respect to such interest. All related person +transactions will be reviewed by the Audit Committee. In +determining whether to approve or ratify a transaction, the +Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such +as the relationship of the related person with the Company, the +materiality or significance of the transaction to the Company +and the business purpose and reasonableness of the transaction, +whether the transaction is comparable to a transaction that +could be available to the Company on an arms-length basis, and +the impact of the transaction on the Company’s business and +operations. +Since January 1, 2008 to the present, there was no +transaction or series of transactions, or any currently proposed +transaction, in which the amount involved exceeds $120,000 and +in which any director, executive officer, holder of more than +five percent of the Company’s common stock or any member of +the immediate family of any of the foregoing persons had or will +have a direct or indirect material interest. +Indemnification +of Directors and Officers +The Company’s By-Laws provide that the Company shall +indemnify any director, officer, employee, or other agent of the +Company who is or was a party, or is threatened to be made a +party, to any proceeding (other than an action by or in the +right of the Company to procure a judgment in its favor) by +reason of the fact that such person is or was an agent of the +Company, against expenses, judgments, fines, settlements, and +other amounts actually and reasonably incurred in connection +with such proceeding, if that person acted in good faith and in +a manner that person reasonably believed to be in the best +interest of the Company, and in the case of a criminal +proceeding, had no reasonable cause to believe the conduct of +that person was unlawful. +The Company has entered into separate indemnification agreements +with each of its Directors whereby the Company has agreed to +indemnify the Director against all expenses, including +attorneys’ fees, and other amounts reasonably incurred by +the director in connection with any threatened, pending or +completed civil, criminal, administrative or investigative +action or proceeding to which such person is party by reason of +the fact that he is or was a Director, as the case may be, of +the Company, if the person acted in good faith and in a manner +reasonably believed to be in or not opposed to the best +interests of the Company, and, with respect to any criminal +action or proceeding, the person had no reasonable cause to +believe such conduct to be unlawful. The agreements provide for +the advancement of expenses and that the Company has the right +to purchase and maintain insurance on behalf of the director +against any liability or liabilities asserted against such +person, whether or not the Company would have the power to +indemnify the person against such liability under any provision +of the agreement. The Company has agreed to indemnify such +person against expenses actually and reasonably incurred in +connection with any action in which the person has been +successful on the merits or otherwise. Indemnification must also +be provided by the Company (unless ordered otherwise by a court) +only as authorized in the specific case upon a determination +that the indemnification of the person is appropriate because he +or she has met the applicable standard of conduct described in +the agreement made by (i) the Board of Directors, by a +majority vote of a quorum consisting of Directors who are not +parties to such action or proceeding, (ii) independent +legal counsel in a written opinion or (iii) the +shareholders of the Company. +Additional +Information +The “Corporate Governance” section of the +Company’s internet site contains additional information, +including PDC’s Certificate of Incorporation and By-Laws; +written charters for each Board committee; and Board policy +statements. +The Company files annual, quarterly and current reports, proxy +statements and other information with the SEC. Copies of the +Company’s filings with the SEC are available to the public +at the SEC’s website at +http://www.sec.gov . +These documents may also be viewed at the SEC’s public +reference room located at 100 F Street, N.E., +Washington, D.C. 20549. Please call the SEC at +1-800-SEC-0330 +for further information on the public reference room. +18 +Table of Contents +EXECUTIVE +OFFICERS +The current executive officers of the Company, their principal +occupations for the past five years and additional information +is set forth below. +Directorship +Director +Term +Name +Age +Position(s) +Since +Expires +Richard W. McCullough (1) +57 +Chairman, Chief Executive Officer and Director +2007 +2010 +Eric R. Stearns +51 +Executive Vice President +– +– +Gysle R. Shellum (2) +57 +Chief Financial Officer +– +– +Barton R. Brookman, Jr. (3) +46 +Senior Vice President Exploration and Production +– +– +Daniel W. Amidon +48 +General Counsel and Secretary +– +– +R. Scott Meyers. (4) +34 +Chief Accounting Officer +– +– +(1) +Mr. Williams retired as CEO effective June 23, 2008. +Mr. McCullough was selected as his successor upon +Mr. Williams’ retirement. +(2) +Mr. Shellum became Chief Financial Officer in November 2008. +(3) +Mr. Brookman was appointed to the executive position of +Senior Vice President on March 8, 2008. +(4) +Mr. Meyers assumed the duties of Chief Accounting Officer +on April 2, 2009. During 2008 and until April 2, 2009, +Darwin L. Stump served in that position. +Richard W. McCullough was appointed Chief Executive +Officer in June 2008 and Chairman in November 2008. +Mr. McCullough also served the Company as President since +March 2008. Mr. McCullough served as Chief Financial +Officer from November 2006 until November 2008. Prior to joining +PDC, Mr. McCullough served as an energy consultant from +July 2005 to November 2006. From January 2004 to July 2005, +Mr. McCullough served as President and Chief Executive +Officer of Gasource, LLC, Dallas, Texas, a marketer of +long-term, natural gas supplies. From 2001 to 2003, +Mr. McCullough served as an investment banker with +J.P. Morgan Securities, Atlanta, Georgia, and served in the +public finance utility group supporting bankers nationally in +all natural gas matters. Additionally, Mr. McCullough has +held senior positions with Progress Energy, Deloitte and Touche, +and the Municipal Gas Authority of Georgia. Mr. McCullough, +a CPA, was a practicing certified public accountant for +8 years. +Eric R. Stearns was appointed Executive Vice President in +March 2008. Prior to his current position, Mr. Stearns +served as Executive Vice President Exploration and Production +since December 2004, Executive Vice President Exploration and +Development from November 2003 until December 2004, and Vice +President Exploration and Development from April 1995 until +November 2003. Mr. Stearns joined PDC as a geologist in +1985 after working at Hywell, Incorporated and for Petroleum +Consultants. +Gysle R. Shellum was appointed Chief Financial Officer +effective November 11, 2008. Prior to joining the Company, +Mr. Shellum served as Vice President, Finance and Special +Projects of Crosstex Energy, L.P., Dallas, Texas. +Mr. Shellum served in this capacity from September 2004 +through September 2008. Prior thereto from March 2001 until +September 2004, Mr. Shellum served as a consultant to Value +Capital, a private consulting firm in Dallas, where he worked on +various projects, including corporate finance and Sarbanes-Oxley +Act compliance. Crosstex Energy, L.P. is a publicly traded +Delaware limited partnership, whose securities are listed on the +NASDAQ Global Select Market and is an independent midstream +energy company engaged in the gathering, transmission, treating, +processing and marketing of natural gas and natural gas liquids. +Barton R. Brookman, Jr. was appointed Senior Vice +President Exploration and Production in March 2008. Previously +Mr. Brookman served as Vice President Exploration and +Production since joining PDC in July 2005. Prior to joining PDC, +Mr. Brookman worked for Patina Oil and Gas and its +predecessor Snyder Oil for 17 years in a series of +positions of increasing responsibility, ending his service as +Vice President of Operations of Patina. +19 +Table of Contents +Daniel W. Amidon was appointed General Counsel and +Secretary in July 2007. Prior to his current position, +Mr. Amidon was employed by Wheeling-Pittsburgh Steel +Corporation beginning in July 2004; he served in several +positions including General Counsel and Secretary. Prior to his +employment with Wheeling-Pittsburgh Steel, Mr. Amidon +worked for J&L Specialty Steel Inc. from 1992 through July +2004 in positions of increasing responsibility, including +General Counsel and Secretary. Mr. Amidon practiced with +the Pittsburgh law firm of Buchanan Ingersoll PC from 1986 +through 1992. +Darwin L. Stump was Chief Accounting Officer from +November 2006 until April 2, 2009. Mr. Stump has been +an officer of PDC since April 1995 and held the position of +Chief Financial Officer and Treasurer from November 2003 until +November 2006. Previously, Mr. Stump served as Corporate +Controller from 1980 until November 2003. Mr. Stump, a CPA, +was a senior accountant with Main Hurdman, Certified Public +Accountants prior to joining PDC. +R. Scott Meyers was appointed Chief Accounting +Officer on April 2, 2009. Prior to joining the Company, +Mr. Meyers served as a Senior Manager with Schneider Downs +Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania. +Mr. Meyers served in such capacity from April 2008 to March +2009. Prior thereto, from November 2002 to March 2008, +Mr. Meyers was employed by PricewaterhouseCoopers LLP, the +last two and one-half years serving as Senior Manager. +COMPENSATION \ No newline at end of file diff --git a/raw/proxies/0000077877/0001140361-08-013529/proxy.txt b/raw/proxies/0000077877/0001140361-08-013529/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..2f7eb073ec644f4d8a6dc6bcdff72c021406ab64 --- /dev/null +++ b/raw/proxies/0000077877/0001140361-08-013529/proxy.txt @@ -0,0 +1,5989 @@ +DEF 14A +1 +formdef14a.htm +PETROLEUM DEVELOPMENT CORP DEF 14A 6-23-2008 +formdef14a.htm +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE +14A +INFORMATION +REQUIRED IN PROXY STATEMENT +SCHEDULE +14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of the Securities +Definative +Filed by +the Registrant þ +Filed by +a Party other than the Registrant o +Check the +appropriate box: +o Preliminary +Proxy Statement +o Confidential, for Use of the +Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive +Proxy Statement +o Definitive +Additional Materials +o Soliciting +Material Pursuant to §240.14a-12 +Petroleum +Development Corporation +(Name +of Registrant as Specified In Its +Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment +of Filing Fee (Check the appropriate box): +þ No fee +required. +o Fee +computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +1) Title +of each class of securities to which transaction +applies: +2) Aggregate +number of securities to which transaction applies: +3) Per +unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee +is calculated and state how it was +determined): +4) Proposed +maximum aggregate value of transaction: +5) Total +fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its +filing. +1) Amount +Previously Paid: +2) Form, +Schedule or Registration Statement No.: +3) Filing +Party: +4) Date +Filed: +PETROLEUM +DEVELOPMENT CORPORATION +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330 +__________________________ +NOTICE +OF ANNUAL MEETING OF SHAREHOLDERS +June +23, 2008 +__________________________ +Waterfront +Place Hotel +Two +Waterfront Place +Morgantown, +WV 26501 +To the +Shareholders: +Notice is +hereby given that the Annual Meeting of Shareholders of Petroleum Development +Corporation (the "Company") will be held at the Waterfront Place Hotel, Two +Waterfront Place, Morgantown, West Virginia 26501, on June 23, 2008, at 10:00 +a.m., local time, for the following purposes, all as more fully described in the +accompanying Proxy Statement: +(1) +To +elect directors; +(2) +To +amend and restate the Company’s Articles of Incorporation to: (1) increase +the number of authorized shares of common stock, par value $0.01, of the +Company from 50,000,000 shares to 100,000,000 shares, and (2) authorize +50,000,000 shares of preferred stock, par value $0.01, of the Company, +which may be issued in one or more series, with such rights, preferences, +privileges and restrictions as shall be fixed by the Company’s Board of +Directors from time to time; +(3) +To +amend and restate the Company’s 2005 Non-Employee Director Restricted +Stock Plan to, as material, increase the number of shares authorized under +the plan from 40,000 to 100,000 and change the vesting +provisions; +(4) +To +ratify the selection of PricewaterhouseCoopers LLP as independent +registered public accounting firm for the Company for the year ending +December 31, 2008; +(5) +To +consider such other business as may properly come before the meeting and +at any and all adjournments or postponements +thereof. +The Board +of Directors has fixed the close of business on May 19, 2008, as the record date +for determining the shareholders having the right to vote at the annual meeting +or any adjournment or postponement thereof. The presence in person or +by proxy of the holders of a majority of the outstanding shares of the Company's +common stock entitled to vote is required to constitute a quorum. +Each +shareholder is cordially invited to attend and to vote at this meeting in +person. Shareholders who do not expect to attend are requested to +sign and date the accompanying proxy card and return it promptly in the enclosed +postpaid envelope. +By +Order of the Board of Directors, +Steven +R. Williams, Chairman +Bridgeport, +West Virginia +May +23, 2008 +PETROLEUM +DEVELOPMENT CORPORATION +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330 +__________________________ +PROXY +STATEMENT +ANNUAL +MEETING OF SHAREHOLDERS +TO +BE HELD JUNE 23, 2008 +__________________________ +Waterfront +Place Hotel +Two +Waterfront Place +Morgantown, +WV 26501 +The +accompanying proxy is solicited by the Board of Directors ("Board") of Petroleum +Development Corporation ("PDC" or the "Company") for use at the Annual Meeting +of Shareholders of the Company to be held on June 23, 2008, at 10:00 a.m., and +at any and all adjournments or postponements of the meeting, for the purposes +set forth in this Proxy Statement and the attached Notice of Annual Meeting of +Shareholders. This Proxy Statement and the enclosed form of proxy are +first being mailed to the shareholders of the Company on or about May 23, +2008. +The +Company will bear the cost related to the solicitation of +proxies. The Company will reimburse brokerage firms and other +custodians, nominees and fiduciaries for reasonable and appropriate expenses +incurred by them in sending proxy materials to the beneficial owners of the +Company's common stock. In addition to solicitations by mail, +directors, officers and employees of the Company may solicit proxies by +telephone and, to the extent necessary, or other electronic communication, and +personal interviews without additional compensation. +TABLE OF CONTENTS +GENERAL INFORMATION +2 +PROPOSALS REQUIRING SHAREHOLDER +VOTE +4 +Proposal 1 - Election of Directors +4 +Director Compensation +6 +Proposal 2 – Amend and Restate Articles of +Incorporation +7 +Proposal 3 – Amend and Restate 2005 Non-Employee +Director Restricted Stock Plan +9 +Proposal 4 - Ratification of Selection of an Independent +Registered Public Accounting Firm +16 +Report of the Audit +Committee +20 +All Other Business That May Come Before the 2008 +Annual Meeting +21 +SECURITY OWNERSHIP OF CERTAIN +BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER +MATTERS +22 +Section 16(a) Beneficial Ownership Reporting +Compliance +23 +CORPORATE GOVERNANCE +23 +Board of Directors +24 +Director Independence +24 +Board Meetings and Attendance +25 +Committees of the Board +25 +Communications with +Directors +28 +Code of Business Conduct and +Ethics +28 +Policies and Procedures with Respect to +Transactions with Related Persons +28 +Indemnification of Directors and +Officers +29 +Additional Information +30 +EXECUTIVE OFFICERS +30 +COMPENSATION COMMITTEE +REPORT +31 +COMPENSATION DISCUSSION AND ANALYSIS +32 +Summary +32 +COMPENSATION DESIGN +33 +Compensation +Philosophy and +Objectives +33 +The Role of Equity-Base +Compensation +35 +Use of Consultants and Benchmarking to Help +Establish Target Compensation Levels +36 +Review of +Overall Compensation +37 +Consideration of Prior +Compensation +37 +ELEMENTS OF EXECUTIVE +COMPENSATION +38 +Base Salary +38 +Short-Term Incentives +39 +Long-Term Incentives +40 +Retirement Plans +41 +Other Compensation and +Benefits +42 +Termination Benefits including Change in +Control Payments +42 +Executive and Director Share Retention and +Ownership Guidelines +44 +Employment Agreements +45 +Other Agreements and +Arrangements +45 +Internal Revenue Code Section +162(m) +45 +EXECUTIVE COMPENSATION +46 +2007 SUMMARY COMPENSATION +TABLE +46 +2007 GRANTS OF PLAN-BASED AWARDS +TABLE +47 +OUTSTANDING EQUITY AWARDS AT 2007 FISCAL +YEAR-END TABLE +48 +2007 OPTIONS EXERCISES AND STOCK VESTED +TABLE +49 +2007 NONQUALIFIED DEFERRED COMPENSATION +TABLE +49 +EQUITY COMPENSATION PLAN +INFORMATION +50 +SHAREHOLDER NOMINATIONS AND +PROPOSALS +50 +Exhibit A +A-1 +Second Amended and Restated Articles of +Incorporation +A-1 +Exhibit B +B-1 +2005 Non-Employee Director Restricted Stock Plan, As +Amended and Restated as of March 8, 2008 +B-1 +Table of Contents +GENERAL INFORMATION +Who +May Vote +Shareholders +of Petroleum Development Corporation ("PDC" or the "Company"), as recorded in +the Company's stock register on May 19, 2008, may vote at the +meeting. The outstanding voting securities of the Company as of May +1, 2008, consisted of 14,848,954 shares of common stock. Each share +is entitled to one vote on each matter considered at the meeting. +How +to Vote +You may +vote in person at the meeting or by proxy. The Board recommends you +vote by proxy even if you plan to attend the meeting. You can always +change your vote at the meeting. +How +Proxies Work +The Board +is asking for your proxy. Giving the Board your proxy means you +authorize the Board to vote your shares at the meeting in the manner you +direct. You may vote for all, or some of the director candidates, or +you may withhold your vote from any or all of the director +candidates. You may also vote for or against the other proposals, or +abstain from voting. Cumulative voting is not permitted by the +Company's By-Laws in the election of directors. +If your +shares are held in your name, you can vote by completing, signing and dating +your proxy card and returning it in the enclosed envelope. +If you +give the Board your signed proxy but do not specify how to vote, your shares +will be voted in favor of their director candidates and in favor of the other +three proposals. +If you +hold shares through someone else, such as a stockbroker, you will receive +material from that firm asking how you want to vote. Check the voting +form used by that firm to see what voting options you have +available. +Revoking +a Proxy +You may +revoke your proxy before it is voted by: +· +Submitting +a new signed proxy with a later +date; +· +Notifying +PDC's Secretary in writing before the meeting that you wish to revoke your +proxy; or +· +Appearing +at the meeting, notifying the Inspectors of the Election that you wish to +revoke your proxy, and voting in person at the meeting. Merely +attending the meeting will not result in your revoking your +proxy. +If you +hold your shares through someone else, such as a stockbroker, you will need to +follow the directions they give you to revoke a proxy or otherwise vote at the +meeting. +Quorum +In order +to carry on the business of the meeting, there must be a quorum. This +means at least a majority of the outstanding shares eligible to vote must be +represented at the meeting, either by proxy or in person. Treasury +shares, which are shares owned by PDC itself, are not voted and do not count for +this purpose. +2 +Table of Contents +Votes +Needed +The +director candidates who receive the most votes will be elected to fill the +available seats on the Board. There is no provision in the Company's +By-Laws which requires director candidates to receive a majority of the votes +cast to be elected. Approval of the proposal to amend the Company's Articles of +Incorporation requires the favorable vote of a majority of the Company's +outstanding shares of common stock. Approval of the other proposals requires the +favorable vote of a majority of the votes cast. Only votes for or +against a proposal count. Abstentions and broker non-votes count for +quorum purposes but not for voting purposes. Broker non-votes occur +when a broker returns a proxy but does not have authority from the owner of the +stock to vote on a particular proposal. Although there are no +controlling precedents under Nevada law regarding the treatment of broker +non-votes in certain circumstances, the Company intends to apply the principles +presented herein. +Attending +in Person +Only +shareholders or their proxy holders and PDC's guests may attend the annual +meeting. For safety and security reasons, no cameras, audio or video +recording equipment, large bags, briefcases or packages will be permitted in the +meeting. In addition, each shareholder and guest may be asked to +present valid, government-issued picture identification, such as a driver's +license, before being admitted to the meeting. +If your +shares are held in the name of your broker, bank, or other nominee, you must +bring to the meeting an account statement or letter from the nominee indicating +that you beneficially owned the shares on May 19, 2008, the record date for +voting. Shareholders who do not present such information at the +meeting will be admitted upon verification of ownership at the admissions +counter. +Conduct +of the Meeting +The +Chairman has broad authority to conduct the annual meeting in an orderly and +timely manner. This authority includes establishing rules for +shareholders who wish to address the meeting. Copies of these rules +will be available at the meeting. The Chairman may also exercise +broad discretion in recognizing shareholders who wish to speak and in +determining the extent of discussion on each item of business. In +light of the need to conclude the meeting within a reasonable period of time, +there can be no assurance that every shareholder who wishes to speak on an item +of business will be able to do so. The Chairman may also rely on +applicable law regarding disruptions or disorderly conduct to ensure that the +meeting is conducted in a manner that is fair to all shareholders. +Contact +Information +If you +have questions or need more information about the annual meeting, write to or +call: +Corporate +Secretary +Petroleum +Development Corporation +120 +Genesis Boulevard +P.O. +Box 26 +Bridgeport, +WV 26330 +(304) +842-3597 +For +information about shares registered in your name, call PDC at +1-800-624-3821. You are also invited to visit PDC's internet site at +www.petd.com . Internet +site materials are not part of this proxy solicitation. +3 +Table of Contents +PROPOSALS REQUIRING SHAREHOLDER +VOTE +PROPOSAL 1 – ELECTION OF DIRECTORS +(ITEM +1 ON THE PROXY) +As of the +date of this proxy statement and as permitted by the Company's By-Laws, the +Company's Board of Directors ("Board") has nine members divided into three +classes. Directors are usually elected for three-year +terms. The terms for members of each class end in successive +years. In 2007, however, the following three new directors were +appointed by the Board, all to serve only until the 2008 Annual Meeting of +Shareholder: Joseph E. Casabona, Larry F. Mazza and Richard W. +McCullough. Therefore, five members of the Board are nominated for +election at this 2008 meeting. +The Board +of Directors has nominated three continuing directors, David C. Parke, Jeffrey +C. Swoveland and Joseph E. Casabona, whose terms expire in 2008, to stand for +election to the Board for a three-year term expiring in 2011. Mr. +Parke has served on the Board since 2003 and currently serves as Chair of the +Compensation and the Planning and Finance Committees as well as a member of the +Audit and the Nominating and Governance Committees. Mr. Swoveland has +served on the Board since 1991 and currently serves as the Presiding Independent +Director, Chair of the Audit Committee, and member of the Planning and Finance +and the Executive Committees. Mr. Casabona has served on the Board +since October 2007 and is a member of the Audit and the Planning and Finance +Committees. +The Board +of Directors has nominated two continuing directors, Richard W. McCullough and +Larry F. Mazza, whose terms expire in 2008, to stand for election to the Board +for a two year term expiring in 2010. Mr. McCullough has served on +the Board since December 2007 and serves on the Executive and the Planning and +Finance Committees. Mr. Mazza has served on the Board since October +2007 and serves on the Nominating and Governance and the Compensation +Committees. +The +appointed proxies will vote your proxy for the election of the five nominees +unless you withhold your authority to vote for any or all of +them. The Board does not contemplate that any of the nominees will +become unavailable for any reason; however, if any director is unable to stand +for election, the Board may reduce its size or choose a +substitute. Proxies cannot be voted for a greater number of persons +than the number of nominees named. +NOMINEES +FOR A THREE YEAR TERM EXPIRING IN 2011 +Name, +Principal +Occupation for Past Five Years +and Other Directorships +Age +Year +First +Elected +Director +DAVID +C. PARKE is a Managing Director in the investment banking group of +Boenning & Scattergood, Inc., West Conshohocken, PA, a full-service +investment banking firm. Prior to joining Boenning & Scattergood +in November 2006, he was a Director with Mufson Howe Hunter & Company +LLC, Philadelphia, Pennsylvania, an investment banking firm, from October +2003 to November 2006. From 1992 through 2003, Mr. Parke was +Director of Corporate Finance of Investec, Inc. and its predecessor +Pennsylvania Merchant Group Ltd., investment banking companies. +Prior to joining Pennsylvania Merchant Group, Mr. Parke served in +the corporate finance departments of Wheat First Butcher & Singer, now +part of Wachovia Securities, and Legg Mason, Inc., now part of Stifel +Nicolaus. +41 +2003 +4 +Table of Contents +JEFFREY +C. SWOVELAND is the Chief Operating Officer of Coventina Healthcare +Enterprises, a medical device company specializing in therapeutic warming +and multi-modal treatment systems used in the treatment, rehabilitation +and management of pain since May 2007. Previously, Mr. +Swoveland served as Chief Financial Officer of Body Media, Inc., a +life-science company specializing in the design and development of +wearable body monitoring products and services, from September 2000 to May +2007. Prior thereto, Mr. Swoveland held various positions, +including Vice-President of Finance, Treasurer and interim Chief Financial +Officer with Equitable Resources, Inc., a diversified natural gas company +from 1997 to September 2000. Mr. Swoveland serves as a member +of the Board of Directors of Linn Energy, LLC, a public, independent +natural gas and oil company. +53 +1991 +JOSEPH +E. CASABONA served as Executive Vice President and member of the Board of +Directors of Denver based Energy Corporation of America, a natural gas +exploration and development company, from 1985 to his +retirement in May 2007. Mr. Casabona's responsibilities +included strategic planning as well as executive oversight of the drilling +operations in the continental United States and +internationally. +64 +2007 +NOMINEES +FOR A TWO YEAR TERM EXPIRING IN 2010 +RICHARD +W. MCCULLOUGH +was appointed President in March 2008, elected Vice Chairman +of PDC's Board of Directors in December 2007, was appointed Chief +Financial Officer in November 2006 and also served as PDC’s Treasurer from +November 2006 until October 2007. Prior to joining PDC, Mr. +McCullough served as an energy consultant from July 2005 to November +2006. From January 2004 to July 2005, Mr. McCullough served as +president and chief executive officer of Gasource, LLC, Dallas, Texas, a +marketer of long-term, natural gas supplies. From 2001 to 2003, +Mr. McCullough served as an investment banker with J.P. Morgan Securities, +Atlanta, Georgia, and served in the public finance utility group +supporting bankers nationally in all natural gas +matters. Additionally, Mr. McCullough has held senior positions +with Progress Energy, Deloitte and Touche, and the Municipal Gas Authority +of Georgia. Mr. McCullough, a Certified Public Accountant, was +a practicing certified public accountant for 8 years. +56 +2007 +LARRY +F. MAZZA has served as Chief Executive Officer of MVB Bank +Harrison, Inc., in Bridgeport, West Virginia since March +2005. Prior to the formation of MVB Bank Harrison, Mr. Mazza +served as Senior Vice President Retail Banking Manager for BB&T in +West Virginia, where he was employed from June 1986 to March +2005. +47 +2007 +Continuing +Directors with Terms Expiring in 2009 +KIMBERLY +LUFF WAKIM, an Attorney and a Certified Public Accountant, is a Partner +with the Pittsburgh, Pennsylvania law firm, Thorp, Reed & Armstrong +LLP, where she serves as a member of the Executive +Committee. Ms. Wakim has practiced law with Thorp, Reed & +Armstrong LLP since 1990. +49 +2003 +STEVEN +R. WILLIAMS was elected Chairman and Chief Executive Officer in January +2004. Mr. Williams served as President from March 1983 until +December 2004. +57 +1983 +5 +Table of Contents +ANTHONY +J. CRISAFIO , a Certified Public Accountant, serves as an +independent business consultant, providing financial and operational +advice to businesses and has done so since 1995. Additionally, +Mr. Crisafio has served as the Chief Operating Officer of Cinema World, +Inc. from 1989 until 1993 and was a partner with Ernst & Young from +1986 until 1989. +55 +2006 +Continuing +Directors with Term Expiring in 2010 +VINCENT +F. D'ANNUNZIO has served as president of Beverage Distributors, Inc. +located in Clarksburg, West Virginia since 1985. +55 +1989 +DIRECTOR COMPENSATION +For the 2007-2008 Board term, each +non-employee director was paid an annual fee of $55,000 and received 2,000 +shares of restricted stock, which was awarded on the date of the 2007 annual +meeting. The Presiding Independent Director was paid an additional +fee of $27,500. Each non-employee director received for services on +each committee on which he or she served the following fees: +Committees +of the Board +Chair +Non-Chair +Member +Audit +$ +22,500 +$ +10,000 +Compensation +7,500 +2,500 +Executive +- +5,000 +Nominating +and Governance +7,500 +2,500 +Planning +and Finance +7,500 +2,500 +Pursuant +to the shareholder-approved 2005 Non-Employee Director Restricted Stock Plan, as +of the date of each annual shareholders' meeting of the Company, each +non-employee director will be awarded a specified number of shares of restricted +stock as determined by the Board. Directors receiving restricted +stock under the Restricted Stock Plan will have all of the rights of a +shareholder including the right to vote the shares and receive cash dividends +and other cash distributions. Restricted stock will be subject to the +restrictions for the restricted period commencing on the date the stock is +awarded. +Each +non-employee director may also choose to defer a portion or all of their annual +cash compensation by participating in the Non-Employee Director Deferred +Compensation Plan. The plan's trustee invests all cash +deposits received exclusively in the common stock of the Company. +On March +8, 2008, the Board of Directors approved compensation for the 2008-2009 Board +year. Such compensation is principally the same to the prior Board year with the +exceptions that (1) the annual retainers for the Compensation Committee Chairman +and members were increased to $10,000 and $5,000 from $7,500 and $2,500, +respectively, and (2) subject to shareholder approval, the vesting of prior and +future restricted stock awards would be changed as described in Proposal #3 in +this proxy. +6 +Table of Contents +2007 +Director Compensation Table +Fees +Earned +or +Paid +Stock +Name +(1) +in +Cash +Awards +(2) +Total +Kimberly Luff +Wakim +$ +59,000 +$ +72,280 +$ +131,280 +Vincent F. D'Annunzio +56,250 +(3) +72,280 +128,530 +David C. Parke +67,125 +72,280 +139,405 +Jeffrey C. Swoveland +94,781 +72,280 +167,061 +Anthony J. Crisafio +57,750 +72,280 +130,030 +Joseph E. Casabona +11,542 +64,037 +(4) +75,579 +Larry F. Mazza +10,625 +64,037 +(4) +74,662 +_______________ +(1) +Compensation +paid to Messrs. Williams and McCullough for their services as executive +officers is shown in the Summary Compensation Table; neither receives +additional compensation for services as a +Director. +(2) +For +all Directors, excluding Messrs. Casabona and Mazza, the amounts represent +the grant date fair value of the 2007-2008 term restricted stock +award. The grant date fair value was computed in accordance +with FAS 123(R) by multiplying the number of shares awarded (2,000 shares) +by the closing price of the Company's common stock on the date of grant +($36.14 on August 28, 2007). +(3) +Includes +amounts deferred (100%) pursuant to stock purchase election under the +Non-Employee Deferred Compensation +Plan. +(4) +Messrs. +Casabona and Mazza were appointed to serve on the Company's Board +effective October 26, 2007. The amount represents the grant +date fair value of a pro rata portion of the 2007-2008 term restricted +stock award. The grant date fair value was computed in +accordance with FAS 123(R) by multiplying the number of shares awarded +(1,355 shares) by the closing price of the Company's common stock on the +dated of grant ($47.26 on November 12, +2007). +THE +BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES TO THE BOARD OF +DIRECTORS SET FORTH IN THIS PROPOSAL #1. PROXIES SOLICITED BY THE +BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE. DIRECTORS +ARE ELECTED BY A PLURALITY OF THE VOTE. +7 +Table of Contents +PROPOSAL 2 : TO CONSIDER AND VOTE UPON A PROPOSAL TO AMEND AND +RESTATE THE COMPANY’S ARTICLES OF INCORPORATION TO: (1) INCREASE THE NUMBER OF +AUTHORIZED SHARES OF COMMON STOCK FROM 50,000,000 SHARES TO 100,000,000 SHARES, +AND (2) AUTHORIZE 50,000,000 SHARES OF PREFERRED STOCK, WHICH MAY BE ISSUED IN +ONE OR MORE SERIES, WITH SUCH RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS +AS SHALL BE FIXED BY THE COMPANY’S BOARD OF DIRECTORS FROM TIME TO +TIME. +(ITEM +2 ON THE PROXY) +On March +8, 2008, the Board of Directors, believing it to be in the best interests of the +Company and its shareholders, authorized, subject to approval of the +shareholders, an amendment and restatement of the Company’s Articles of +Incorporation to: (1) increase the number of authorized shares of Common Stock +from 50,000,000 shares to 100,000,000 shares and (2) authorize 50,000,000 shares +of Preferred Stock, which may be issued in one or more series, with such rights, +preferences, privileges and restrictions as shall be fixed by the Company’s +Board of Directors from time to time. As provided in the Nevada +General Corporation Law and the Company's Articles of Incorporation, the +Company's shareholders are not entitled to pre-emptive rights at such times when +the Board issues shares of the Company's Common Stock or Preferred Stock. This +summary is qualified in its entirety by reference to the full text of the +Articles of Incorporation, as Amended and Restated, which appear in +Exhibit A to this document. +Increase in Authorized +Common Stock of the Company . As of May 1, 2008, a total +of 14,848,954 shares of the Company’s currently authorized 50,000,000 +shares of Common Stock are issued and outstanding. Furthermore, under the +Company's Shareholder Rights Plan, implemented on September 13, 2007, the +Company must have at least two shares authorized for every share outstanding. +The increase in the number of authorized but unissued shares of Common Stock +would enable the Company, without further shareholder approval, to issue shares +from time to time as may be required for proper business purposes, such as +raising additional capital for ongoing operations, business and asset +acquisitions, stock splits and dividends, present and future employee benefit +programs and other corporate purposes. The number of authorized, non-designated +shares of Common Stock available for issuance by the Company in the future has +been reduced, and the Company’s flexibility with respect to possible future +stock splits, equity financings, stock-for-stock acquisitions, stock dividends +or other transactions that involve the issuance of Common Stock has been +severely diminished. +Authorization +of “ Blank +Check” Preferred Sto ck . +The term “blank check” preferred stock refers to stock for which the +designations, preferences, conversion rights, cumulative, relative, +participating, optional or other rights, including voting rights, +qualifications, limitations or restrictions thereof are determined by the Board +of Directors of a company. Upon the effectiveness of the Articles of +Incorporation amendment and restatement, the Board of Directors of the Company +will be able to authorize the designation and issuance of up to 50,000,000 +shares of Preferred Stock in one or more series with such limitations and +restrictions as may be determined in the sole discretion of the Company’s Board +of Directors, with no further authorization by shareholders required for the +creation and issuance thereof. When required by law and in accordance +with the Nevada Revised Statutes of the State of Nevada, the Board of Directors +of the Company will have the express authority to execute, acknowledge and file +a certificate of designations setting forth, any and all powers, designations, +preferences, rights, qualifications, limitations or restrictions on the +Preferred Stock. The Board of Directors believes that having such blank check +preferred stock available for, among other things, proposed financing +transactions, as well as possible issuances in connection with such activities +as public or private offerings of shares for cash, dividends payable in stock of +the Company, acquisitions of other companies or businesses, and otherwise, is in +the best interest of the Company and its shareholders. +Rights and Preferences with +respect to Common Stock . It is not +possible to state the actual effects of the proposed Preferred Stock upon the +rights of holders of Common Stock unless and until the Company’s Board of +Directors determines the respective rights of the holders of one or more series +of Preferred Stock. The issuance of shares of Preferred Stock may, however, +adversely affect the rights of the holders of Common Stock. If the +Company issues Preferred Stock, such Preferred Stock will include certain +designations, preferences, conversion rights, cumulative, relative, +participating, optional or other rights, including voting rights, +qualifications, limitations or restrictions, any of which may dilute the voting +power and economic interest of the holders of the Common +Stock. For +example, in the absence of a proportionate increase in the Company’s earnings +and book value, an increase in the aggregate number of outstanding shares caused +by the issuance of Preferred Stock would dilute the earnings per share and book +value per share of all outstanding shares of Common Stock. In addition, +in a liquidation, the holders of the Preferred Stock may be entitled to receive +a certain amount per share of Preferred Stock before the holders of the Common +Stock receive any distribution. The holders of Preferred Stock may also be +entitled to a certain number of votes per share of Preferred Stock and such +votes may dilute the voting rights of the holders of Common Stock when the +Company seeks to take corporate action. A series +of Preferred Stock also may be convertible into shares of Common Stock. +Furthermore, Preferred Stock could be issued with certain preferences +over the holders of Common Stock with respect to dividends or the power to +approve the declaration of a dividend. The aforementioned are only examples of +how shares of Preferred Stock, if issued, could result +in: +· +reduction +of the amount of funds otherwise available for payment of dividends on +Common Stock, +· +restrictions +on dividends on Common Stock, +· +dilution +of the voting power of Common Stock, +and +· +restrictions +on the rights of holders of Common Stock to share in the Company’s assets +on liquidation until satisfaction of any liquidation preference granted to +the holders of Preferred Stock. +8 +Table of Contents +Possible Anti-Takeover +Effect . As previously disclosed, +effective September 11, 2007, the Company adopted a shareholders rights +agreement. The proposed article amendments are not needed to implement the +shareholders' rights agreement. The increased shares could, however, +permit the Company to also issue shares of Common Stock or +Preferred Stock that may, depending on the terms of such series, make more +difficult or discourage an attempt to obtain control of the Company by +means of a merger, tender offer, proxy contest or other means. When, in the +judgment of the Board of Directors, this action would be in the best interest of +the shareholders and the Company, such shares could be used to create voting or +other impediments or to discourage persons seeking to gain control of the +Company. Such shares also could be privately placed with purchasers favorable to +the Board of Directors in opposing such action. In addition, the Board of +Directors could authorize holders of a series of Common or Preferred Stock to +vote either separately as a class or with the holders of the Company’s Common +Stock, on any merger, sale or exchange of assets by the Company or any other +extraordinary corporate transaction. The existence of the additional authorized +shares could have the effect of discouraging unsolicited takeover attempts. The +issuance of new shares also could be used to dilute the stock ownership of a +person or entity seeking to obtain control of the Company should the Board of +Directors consider the action of such entity or person not to be in the best +interest of the shareholders of the Company. The issuance of new shares also +could be used to entrench current management or deter an attempt to replace the +Board of Directors by diluting the number or rights of shares held by +individuals seeking to control the Company by obtaining a certain number of +seats on the Board of Directors. +Except +for shares to be reserved under the Amended and Restated 2005 Non-Employee +Director Restricted Stock Plan, there are currently no plans, arrangements, +commitments or understandings for the issuance of the additional shares of +Common Stock or Preferred Stock which are to be authorized. +THE +BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THIS PROPOSAL #2 TO +AMEND THE ARTICLES OF INCORPORATION TO: (1) INCREASE THE NUMBER OF AUTHORIZED +SHARES OF COMMON STOCK FROM 50,000,000 SHARES TO 100,000,000 SHARES AND (2) +AUTHORIZE 50,000,000 SHARES OF PREFERRED STOCK, WHICH MAY BE ISSUED IN ONE OR +MORE SERIES, WITH SUCH RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS AS SHALL +BE FIXED BY THE COMPANY’S BOARD OF DIRECTORS FROM TIME TO TIME, AS IN EXHIBIT A. +PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A +CONTRARY VOTE. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE COMPANY'S OUTSTANDING +SHARES OF COMMON STOCK IS REQUIRED FOR APPROVAL OF THIS PROPOSAL #2 +PROPOSAL 3 – AMEND AND RESTATE 2005 NON-EMPLOYEE +DIRECTOR RESTRICTED STOCK PLAN +(ITEM +3 ON THE PROXY) +Purpose +of this Proposal +The +purpose of this proposal is to seek shareholder approval of amendments to the +Company's 2005 Non-Employee Director Restricted Stock Plan, as amended and +restated on March 8, 2008. We refer to this plan as the Director Stock Plan. The +Plan increases the number of shares authorized under the Plan from 40,000 to +100,000, and changes the permitted vesting periods. +Our Board +of Directors proposes that you approve this amendment and restatement of the +2005 Non-Employee Director Restricted Stock Plan. The following is a fair and +complete summary of the Plan as proposed to be amended and restated. This +summary is qualified in its entirety by reference to the full text of the Plan +which appears as Exhibit B to this +document. +9 +Table of Contents +Description +of the Restricted Stock Plan +The Board +of Directors of the Company plays a key role in setting the direction of the +Company and representing the shareholders’ interests. Ongoing changes +in rules and regulations governing public corporations and in the general +business environment have greatly increased the time and effort required of all +directors of publicly traded companies, including the Company’s non-employee +Directors. The Board of Directors annually reviews the compensation +package for its non-employee Directors to insure that such compensation package +remains competitive and that it (i) compensates its non-employee Directors in a +manner that will help attract qualified candidates to serve as non-employee +Directors, and (ii) induces incumbent non-employee Directors to continue to +serve if the Board of Directors desires that they remain on the +Board. +As part +of accomplishing these objectives, the Board of +Directors adopted and the shareholders approved in 2005 the Petroleum +Development Corporation 2005 Non-Employee Director Restricted Stock +Plan, which is referred to as the “Director Stock Plan”, to provide the +Company’s non-employee Directors with awards of shares of Common Stock, subject +to the restrictions and other provisions of the Director Stock Plan. We refer to +this director stock as “ Restricted +Stock. ” +The +Director Stock Plan reserved 40,000 shares of the Company’s common stock, par +value $0.01 per share for issuance . To date, 26,156 shares of +Restricted Stock have been issued to the Company’s non-employee +Directors. The Board of Directors has additionally approved a total +of 14,000 restricted shares for the 2008-2009 plan year to the Non-Employee +Directors. In order to insure an adequate reserve of shares of the Company’s +common stock under the Director Stock Plan for the next several years, +which is impacted by the addition of two non-employee Directors to the Board of +Directors, the Board of Directors seeks to increase the reserve of shares of the +Company's common stock from 40,000 to 100,000. +The Director Stock +Plan has also been amended to change the definition as to what constitutes +a “Change in Control” of the Company. As amended, the definition is +compliant with the definition used for a “Change of Control” for purposes +of Section 409A of the Internal Revenue Code . The amended definition +is intended to be consistent with the definition of “Change in Control” +generally used or intended to be used in other Company agreements, including its +employment agreements with its executives. +After +discussions with its compensation consultant, the Board of Directors also has +amended the vesting schedule for the Restricted Stock under the Director Stock +Plan to be consistent with what it believes is industry +standard. Currently, the Director Stock Plan provides that the +awarded shares of restricted stock will vest upon termination of that director's +directorship, whether by retirement from the Board of Directors or by +non-election. Beginning with awards of Restricted Stock issued to non-employee +Directors at the 2008 Annual Meeting, an award of Restricted Stock will vest +100% on July 1 of the calendar year following the award of the Restricted Stock, +if such non-employee Director provides continued service on the Board through +such date. All awards of Restricted Stock made prior to the 2009 plan +year to non-employee directors will vest 100% on July 1, +2008. +The +following table presents the benefits or amounts that will be received by the +various PDC non-employee directors if the shareholders approve the amendments to +the Director Stock Plan as proposed. Because one of the amendments of +the Director Stock Plan that the Board of Directors is proposing the Company +shareholders to approve is the acceleration of vesting, including shares of +Restricted Stock that were awarded in previous years, the table below reflects +the current fair market value as of May 1, 2008, of the shares of Restricted +Stock held by the named directors and assumes that the respective shares were +fully vested as of that date. If the amendments to the Director Stock +Plan are approved by the Company shareholders at the 2008 Annual Meeting, the +shares referenced in the table will vest as of July 1, 2008. On May +1, 2008, the closing price per share of the Company's common stock on the NASDAQ +Stock Exchange was $74.75. +10 +Table of Contents +New +Plan Benefits +2005 +Non-Employee Director Restricted Stock Plan +Date +of +Number +of +Restricted +Shares +Grant +Date Fair +Value +of +Market +Value of Shares +That +Have +Not +Vested (2) +Name +of Non-Employee Director +Grant +Awarded +Award +(1) +12/31/2007 +5/1/2008 +Vincent +F. D'Annunzio +6/10/2005 +1,379 +$ +39,991 +$ +81,540 +$ +103,080 +9/15/2006 +1,379 +53,753 +81,540 +103,080 +8/28/2007 +2,000 +72,280 +118,260 +149,500 +4,758 +166,024 +281,340 +355,660 +Jeffrey +C. Swoveland +6/10/2005 +1,379 +39,991 +81,540 +103,080 +9/15/2006 +1,379 +53,753 +81,540 +103,080 +8/28/2007 +2,000 +72,280 +118,260 +149,500 +4,758 +166,024 +281,340 +355,660 +Kimberly +Luff Wakim +6/10/2005 +1,379 +39,991 +81,540 +103,080 +9/15/2006 +1,379 +53,753 +81,540 +103,080 +8/28/2007 +2,000 +72,280 +118,260 +149,500 +4,758 +166,024 +281,340 +355,660 +David +C. Parke +6/10/2005 +1,379 +39,991 +81,540 +103,080 +9/15/2006 +1,379 +53,753 +81,540 +103,080 +8/28/2007 +2,000 +72,280 +118,260 +149,500 +4,758 +166,024 +281,340 +355,660 +Anthony +J. Crisafio +10/25/2006 +1,035 +47,517 +61,200 +77,366 +8/28/2007 +2,000 +72,280 +118,260 +149,500 +3,035 +119,797 +179,460 +226,866 +Joseph +E. Casabona +11/12/2007 +1,355 +64,037 +80,121 +101,286 +Larry +F. Mazza +11/12/2007 +1,355 +64,037 +80,121 +101,286 +All +non-employee directors as a group +24,777 +$ +911,967 +$ +1,465,062 +$ +1,852,078 +(1) +Grant +date fair value is computed by multiplying the number of shares awarded by +the closing price of the Company's common stock on the date of grant, +which was $29.00 on June 10, 2005, $38.98 on September 15, 2006, $45.91 on +October 25, 2006, $36.14 on August 28, 2007, and $47.26 on November 12, +2007. +(2) +The +market value of shares is based on the closing price of the Company's +common stock on the respective dates, which was $59.13 on December 31, +2007, and $74.75 on May 1, +2008. +11 +Table of Contents +The +Director Stock Plan has also been amended to clarify that a non-employee +Director may satisfy his or her withholding obligations, with respect to +Restricted Stock which has vested and become taxable, by a net exercise which +means that the Company may withhold a certain number of shares equal in market +value to the amount of the withholding tax. +The +Director Stock Plan is being presented to the shareholders for your approval as +required by the Director Stock Plan and listing standards of the NASDAQ Stock +Market. +Vote +Required +The +affirmative vote of a majority of the shares of Common Stock cast at the Annual +Meeting represented in person or by proxy and entitled to vote at the Annual +Meeting is required for approval of the Director Stock Plan, as +amended. +Summary +Description of the Director Stock Plan +The +following summary of the terms of the Director Stock Plan is qualified in its +entirety by reference to the text of the Director Stock Plan, which is attached +as Exhibit B to this Proxy Statement. The amendments to the Director +Stock Plan were adopted by the Board of Directors effective as of March 8, 2008, +subject to your approval. +Administration +The +Director Stock Plan is administered by the Compensation Committee of the Board +of Directors or such other committee of Directors as may be designated by the +Board (the “Committee”). +Eligibility +Only +Directors who are not employees of the Company or its subsidiaries are eligible +to participate in the Director Stock Plan. Currently seven Directors +of the Company are eligible to participate. However, because the size +of the Board could change or other non-employee Directors could be elected, the +total number of persons who will be eligible to participate in the future and +the respective benefits to be accorded to them cannot be determined at this +time. +Stock +Available for Issuance through the Director Stock Plan +Up to +100,000 shares of the Company’s common stock, par value $0.01 per share, are +authorized for issuance through the Director Stock Plan. The Board +has approved 2,000 shares to be issued to each non-employee Director +for the plan year ending on June 30, 2009. If the shareholders +approve the amendments proposed in this proxy statement, there will be 59,844 +shares available for future issuance under the Director Stock Plan (after the +2008 awards referenced in this paragraph). Shares issued under the +Director Stock Plan may be either authorized but unissued shares, previously +issued shares of stock reacquired by the Company, including shares purchased in +the open market, or any combination thereof. On May 1, 2008 the +closing price for a share of the Company’s common stock on the NASDAQ National +Market was $74.75. +The +Director Stock Plan provides for appropriate adjustment in the number of shares +of common stock subject to awards and available for future awards in the event +of changes in outstanding common stock by reason of a recapitalization, +reorganization, merger, stock split, or certain other events. +12 +Table of Contents +Description +of Awards under the Plan +As of the +date of each annual meeting of shareholders (“Annual Meeting”), each +non-employee Director will be awarded that number of shares of Restricted Stock +as determined by the Board, after consideration of the recommendations of the +Committee. A non-employee Director who is elected to the Board on a date other +than the date of an Annual Meeting will be awarded that number of shares of +Restricted Stock as determined by the Board, after consideration of the +recommendations of the Committee. The amount of the award for the upcoming plan +year will be disclosed in the Company's proxy statement for the Company's Annual +Meeting of Shareholders. For 2008, the Board has determined to award +each non-employee Director 2,000 shares of Restricted Stock on the date of the +Annual Meeting. Non-employee Directors receiving Restricted Stock +will have, subject to the provisions of Director Stock Plan, all of the rights +of a shareholder with respect to the shares of Restricted Stock including the +right to vote the shares and receive cash dividends and other cash distributions +thereon. +Restricted +Stock will be subject to the restrictions for a period (the “Restricted Period”) +commencing on the date as of which the Restricted Stock is awarded and ending on +the earliest of the first to occur of the following: +· +the +retirement of the non-employee Director from the Board in compliance with +the Board's retirement policy as then in +effect; +· +the +termination of the non-employee Director's service on the Board as a +result of the non-employee Director's not being nominated for reelection +by the Board. +· +the +termination of the non-employee Director's service on the Board because of +the non-employee Director's resignation or failure to stand for reelection +with the consent of the Board (which means approval by at least 80% of the +directors voting, with the affected non-employee Director +abstaining); +· +the +termination of the non-employee Director's service on the Board because +the non-employee Director, although nominated for reelection by the Board, +is not reelected by the +shareholders; +· +the +termination of the non-employee Director's service on the Board because of +(i) the non-employee Director's resignation at the request of the +Nominating and Governance Committee of the Board, (ii) the +non-employee Director's removal by action of the shareholders or by the +Board, or (iii) a Change in Control of the +Company; +· +the +termination of the non-employee Director's service on the Board because of +disability or death. “Disability” will have the meaning +ascribed to such term in the Company's governing long-term disability +plan, or if no such plan exists, at the discretion of the Committee; +or +· +continued +service on the Board through July 1 of the calendar year following the +year of the award of the Restricted +Stock; +A “Change +in Control” of the Company is deemed to have occurred as of the first day that +any one or more of the following conditions will have been +satisfied: +1. +Change in +Ownership : A change in ownership of the Company occurs on the date +that any one person, or more than one person acting as a group, acquires +ownership of stock of the Company that, together with stock held by such +person or group, constitutes more than 50% of the total fair market value +or total voting power of the stock of the Company, excluding the +acquisition of additional stock by a person or more than one person acting +as a group who is considered to own more than 50% of the total fair market +value or total voting power of the stock of the +Company. +13 +Table of Contents +2. +Change in Effective +Control : A change in effective control of the Company occurs on the +date that either: +(A) Any +one person, or more than one person acting as a group, acquires (or has acquired +during the l2-month period ending on the date of the most recent acquisition by +such person or persons) ownership of stock of the Company possessing 30% or more +of the total voting power of the stock of the Company; or +(B) A +majority of the members of the Board is replaced during any l2-month period by +directors whose appointment or election is not endorsed by a majority of the +members of the board of directors prior to the date of the appointment or +election; provided, that this paragraph (B) will apply only to the Company if no +other corporation is a majority shareholder. +3. +Change in Ownership of +Substantial Assets : A change the ownership of a substantial portion +of the Company's assets occurs on the date that any one person, or more +than one person acting as a group, acquires (or has acquired during the +l2-month period ending on the date of the most recent acquisition by such +person or persons) assets from the Company that have a total gross fair +market value equal to or more than 40% of the total gross fair market +value of the assets of the Company immediately prior to such acquisition +or acquisitions. For this purpose, “gross fair market value” means the +value of the assets of the Company, or the value of the assets being +disposed of, determined without regard to any liabilities associated with +such assets. +If a +non-employee Director ceases to be a member of the Board for any other reason, +including but not limited to removal or resignation for “Cause,” the +non-employee Director will forfeit to the Company all Restricted Stock awarded +to the non-employee Director for which the Restricted Period has not +ended. For purposes of the Director Stock Plan, “Cause” will be a +good faith determination by the Board that the non-employee Director (i) failed +to substantially perform his or her duties (other than a failure resulting from +his or her incapacity due to physical or mental illness) after a written demand +for substantial performance has been delivered to the non-Employee Director by +the Board, which demand specifically identifies the manner in which the Board +believes he or she has not substantially performed his or her duties; (ii) has +engaged in conduct the consequences of which are materially adverse to the +Company, monetarily or otherwise; or (iii) has pleaded guilty to or been +convicted of a felony. The non-employee Director will not be deemed +to have been terminated for Cause unless there shall have been delivered to the +non-employee Director a letter setting forth the reasons for the Company's +termination of the non-employee Director for Cause and the Director has failed +to cure that reason for termination within thirty days after the receipt of the +notice. +Following +satisfaction of the Restricted Period, the Restricted Stock will be released to +the non-employee Director, free and clear of all restrictions and other +provisions of the Director Stock Plan. The non-employee Director will +continue to be subject to the restrictions imposed by the federal securities +laws, including resale limitations under the Securities Act of 1933 and the +ownership reporting requirements of Section 16(a) under the Securities Exchange +Act and the short-swing profits provisions of Section 16(b) of the Exchange +Act. +14 +Table of Contents +Any +additional Company stock or other securities or property (other than cash) that +may be issued with respect to Restricted Stock as a result of any stock +dividend, stock split, business combination or other event, will be subject to +the restrictions and other provisions of the Director Stock Plan. The +Company will have the right to withhold from any settlement of stock made under +the Director Stock Plan any federal, state, or local taxes of any kind +subsequently required by law to be withheld or paid by the Company on behalf of +a non-employee Director with respect to the settlement. If any such +taxes are imposed, the subject non-employee Director will be required to make +arrangements satisfactory to the Company for the satisfaction of any such +withholding tax obligation, including satisfaction of such withholding tax +obligation through a net exercise. The Company will not be required +to deliver stock under the Director Stock Plan until any such obligation is +satisfied. Neither the establishment of the Director Stock Plan nor +the awarding of Restricted Stock to a non-employee Director will be considered +to give the non-employee Director any right to be retained on, or nominated for +reelection to, the Board, or to any benefits or awards not specifically provided +for by the Director Stock Plan. +Nontransferability +The +Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated +or otherwise disposed of, and neither the right to receive Restricted Stock nor +any interest under the Director Stock Plan may be assigned by a non-employee +Director, until such time as the restriction has lapsed in accordance with the +terms of the Director Stock Plan. +Amendment +and Termination of the Director Stock Plan +The Board +may at any time amend or terminate the Director Stock Plan provided that no +amendment or termination may, without the written consent of the affected +non-employee Director, adversely affect the non-employee Director's rights under +outstanding awards of Restricted Stock. Shareholder approval of any +such amendment will be required if it is required under law or any exchange on +which any of the Company's equity securities are listed. +Tax +Treatment of the Director Stock Plan +The +federal income tax consequences of the issuance of awards under the Director +Stock Plan are described below. The following information is only a +summary of the tax consequences of the awards, and recipients should consult +with their own tax advisors with respect to the tax consequences inherent in the +ownership of the awards. +A +recipient will not be taxed at the date of an award of shares of Restricted +Stock under the Director Stock Plan, but will be taxed at ordinary income rates +on the fair market value of any Restricted Stock as of the date that the +restrictions lapse, unless the recipient, within 30 days after transfer of such +Restricted Stock to the recipient, elects under Section 83(b) of the Code to +include in income the fair market value of the Restricted Stock as of the date +of such transfer. The Company will be entitled to a corresponding +deduction. Any disposition of shares after restrictions lapse will be +subject to the regular rules governing long-term and short-term capital gains +and losses, with the basis for this purpose equal to the fair market value of +the shares at the end of the Restricted Period (or on the date of the transfer +of the Restricted Stock, if the non-employee Director elects to be taxed on the +fair market value upon such transfer). Dividends received by a +recipient during the Restricted Period will be taxable to the recipient at +ordinary income tax rates and will be deductible by the Company unless the +recipient has elected to be taxed on the fair market value of the Restricted +Stock upon transfer, in which case they will thereafter be taxable to the +non-employee Director as dividends and will not be deductible by the +Company. +THE +BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL #3 TO AMEND AND RESTATE +THE 2005 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN. PROXIES SOLICITED BY THE +BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY +VOTE. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON +STOCK CAST AT THE MEETING REPRESENTED IN PERSON OR BY PROXY AND ENTITLED TO VOTE +AT THE MEETING IS REQUIRED FOR APPROVAL OF THIS PROPOSAL #3. +15 +Table of Contents +PROPOSAL 4 - RATIFICATION OF SELECTION OF AN INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +The Audit +Committee has the authority to appoint and discharge the independent registered +public accounting firm. On March 8, 2008, the Audit Committee +recommended and the Board ratified, upon the recommendation of the audit +committee, the engagement of PricewaterhouseCoopers LLP ("PwC") as the Company’s +independent registered public accounting firm with respect to its year ending +December 31, 2008. The Board is submitting the appointment of PwC to +the shareholders for ratification. If the appointment of PwC is not +ratified, the Board will require the Audit Committee to reconsider its +selection. A representative of PwC is expected to be present at the +meeting, will have an opportunity to make a statement if he or she so desires, +and will also be available to respond to appropriate questions. It is +not expected that representatives of KPMG LLP ("KPMG"), the Company’s +independent registered public accounting firm for 2006, will be present at the +2008 Annual Meeting of Shareholders. +During +the Company’s fiscal years ended December 31, 2006 and 2005, and through May 24, +2007, the Company did not consult with PwC regarding either (i) the application +of accounting principles to a specified transaction, either completed or +proposed, or the type of audit opinion that might be rendered on the Company’s +financial statements, and neither a written report was provided to the Company +nor oral advice was provided that PwC concluded was an important factor +considered by the Company in reaching a decision as to any of the accounting, +auditing or financial reporting issues; or (ii) any matter that was either the +subject of a disagreement, as that term is defined in paragraph 304(a)(1)(iv) of +Regulation S-K, or a reportable event required to be reported under paragraph +304(a)(1)(v) of Regulation S-K. +On May +24, 2007, the Audit Committee recommended, and the Board ratified, the dismissal +of KPMG as its independent registered public accounting firm. The +audit reports of KPMG on the consolidated financial statements of the Company as +of December 31, 2006 and 2005, and for the three years ended December 31, 2006, +contained no adverse opinion or disclaimer of opinion, nor were such reports +qualified or modified as to uncertainty, audit scope or accounting principles, +except as follows: +The audit +report of KPMG on the Company’s consolidated financial statements as of December +31, 2006 and 2005, and for the three years ended December 31, 2006, dated May +22, 2007, indicated that, as described in Note 1 to such consolidated financial +statements, the Company adopted the provisions of Statement of Financial +Accounting Standards No. 123(R), Share-Based Payment, and the Company changed +its method of quantifying errors based on SEC Staff Accounting Bulletin No. 108, +Considering the Effects of Prior Year Misstatements when Quantifying +Misstatements in Current Year Financial Statements, in 2006. +The audit +reports of KPMG on management's assessment of the effectiveness of internal +control over financial reporting and the effectiveness of internal control over +financial reporting as of December 31, 2006 and 2005, did not contain any +adverse opinion or disclaimer of opinion, nor were they qualified or modified as +to uncertainty, audit scope, or accounting principles, except that: +(1) +KPMG's +report as of December 31, 2006, includes an explanatory paragraph stating +that “the Company acquired Unioil on December 6, 2006, and management +excluded from its assessment of the effectiveness of the Company's +internal control over financial reporting as of December 31, 2006, +Unioil’s internal control over financial reporting associated with total +assets of $26.1 million and total revenues of $0.3 million included in the +consolidated financial statements of the Company as of and for the year +ended December 31, 2006. Our audit of internal control over +financial reporting of the Company also excluded an evaluation of the +internal control over financial reporting of +Unioil.” +(2) +KPMG’s +reports indicate that the Company did not maintain effective internal +control over financial reporting as of December 31, 2006 and 2005, because +of the effect of material weaknesses on the achievement of the objectives +of the control criteria as described +below: +16 +Table of Contents +Material Weaknesses as of +December 31, 2006, Identified in KPMG’s Report +· +The +Company did not have effective policies and procedures to ensure the +timely reconciliation, review and adjustment of significant balance sheet +and income statement accounts. As a result, material +misstatements were identified during the Company's closing process in +certain significant balance sheet and income statement accounts of the +Company’s 2006 consolidated financial statements. This +deficiency resulted in a more than remote likelihood that a material +misstatement of the Company’s annual or interim financial statements would +not be prevented or detected. +· +The +Company did not have effective policies and procedures, or personnel with +sufficient technical expertise to ensure proper accounting for derivative +instruments. Specifically, the Company’s internal control +processes did not ensure the completeness of all derivative contracts +related to oil and gas sales, and also did not ensure the determination of +the fair value of certain derivatives. As a result, +misstatements were identified in the fair value of derivatives and related +income statement accounts of the Company’s 2006 consolidated financial +statements. This deficiency resulted in a more than remote +likelihood that a material misstatement of the Company’s annual or interim +financial statements would not be prevented or +detected. +· +The +Company did not have effective policies and procedures to ensure proper +accounting for oil and gas properties. Specifically, the +Company’s review procedures were not sufficient to ensure that the +calculations of depreciation and depletion were performed accurately and +that the capitalization of costs was performed in accordance with the +applicable authoritative accounting guidance. As a result, +misstatements were identified in 2006 in depreciation, depletion and +amortization expense of the Company’s consolidated financial +statements. This deficiency resulted in a more than remote +likelihood that a material misstatement of the Company’s annual or interim +financial statements would not be prevented or +detected. +Material Weaknesses as of +December 31, 2005, Identified in KPMG’s Report +The +Company did not have effective policies and procedures, and was not adequately +staffed with accounting personnel possessing an appropriate level of technical +expertise in U.S. generally accepted accounting principles, as further described +below: +· +The +Company did not have effective policies and procedures, or personnel with +sufficient technical expertise, to properly account for derivative +transactions in accordance with generally accepted accounting +principles. Specifically, the Company's policies and procedures +relating to derivatives transactions were not designed effectively to +ensure that each of the requirements for hedge accounting was evaluated +appropriately with respect to the Company's commodity based +derivatives. Additionally, the Company's policies and +procedures relating to the derivative transactions entered into on behalf +of affiliated partnerships were not adequate to ensure these transactions +were recorded properly in the financial statements. As a +result, a misstatement was identified in the fair value of derivatives and +the oil and gas price risk management loss accounts that was corrected +prior to the issuance of the Company's 2005 consolidated financial +statements. This deficiency results in more than a remote +likelihood that a material misstatement of the Company's annual or interim +consolidated financial statements would not be prevented or +detected. +17 +Table of Contents +· +The +Company did not have effective policies and procedures, or personnel with +sufficient technical expertise, to ensure compliance with appropriate +accounting principles for its oil and gas +properties. Specifically, the Company's policies and procedures +were not designed effectively to ensure that the calculation of +depreciation and depletion and the determination of impairments were +performed in accordance with the applicable authoritative accounting +guidance. As a result, misstatements were identified in the +accumulated depreciation, depletion and amortization and the depreciation, +depletion and amortization expense accounts that was corrected prior to +the issuance of the Company's 2005 consolidated financial +statements. This deficiency results in more than a remote +likelihood that a material misstatement of the Company's annual or interim +consolidated financial statements would not be prevented or +detected. +· +The +Company did not have effective policies and procedures, or personnel with +sufficient technical expertise, to ensure proper accounting and disclosure +for income taxes. Specifically, the Company's policies and +procedures did not provide for appropriate control documentation or +supervisory review of permanent and temporary differences, or assessment +of tax reserves to ensure that they were properly reflected and disclosed +in the Company's financial statements. As a result, +misstatements were identified in the deferred income tax liability and +income tax expense accounts in the Company's preliminary 2005 consolidated +financial statements. This deficiency results in more than a +remote likelihood that a material misstatement of the Company's annual or +interim consolidated financial statements would not be prevented or +detected. +· +The +Company did not have effective policies and procedures, or personnel with +sufficient technical expertise, to ensure that its accounting for asset +retirement obligations complied with generally accepted accounting +principles. Specifically, the Company's policies and procedures +regarding the estimate of the fair value of the asset retirement +obligations were not designed effectively to ensure that it was estimated +in accordance with FAS No. 143, Asset Retirement +Obligations . This deficiency results in more than a +remote likelihood that a material misstatement of the Company's annual or +interim consolidated financial statements would not be prevented or +detected. +· +The +Company did not have effective policies and procedures, or personnel with +sufficient technical expertise, to provide for adequate monitoring and +assessment of the application of accounting principles, standards or rules +as it relates to proportionate consolidation in a timely +manner. As a result of this control deficiency, the Company did +not appropriately eliminate its proportionate share of transactions with +the Company sponsored limited partnerships, which resulted in the +restatement of the Company's financial statements for the first three +quarters of 2005, the years ended December 31, 2004, 2003, 2002, and 2001 +and each of the quarters in 2004 and +2003. +During +the two years ended December 31, 2006, and the subsequent interim period through +May 24, 2007, there were no: 1) disagreements with KPMG on any matter of +accounting principles or practices, financial statement disclosure, or auditing +scope or procedure that, if not resolved to KPMG’s satisfaction, would have +caused KPMG to make reference to the subject matter of the disagreement in +connection with its audit reports on the Company’s financial statements for such +years, or 2) reportable events, except for the material weaknesses described +above. +KPMG has +been authorized to respond fully to the inquiries of the successor independent +registered public accounting firm concerning the subject matter of the +foregoing. +In +connection with its change in independent registered public accounting firm, the +Company provided KPMG with a copy of the foregoing statements and requested that +KPMG furnish the Company with a letter addressed to the Securities and Exchange +Commission stating whether KPMG agreed with the foregoing statements, and, if +not, stating the respects in which KPMG did not agree. KMPG furnished +the Company with such a letter, addressed to the SEC. A copy of +KPMG's letter was filed as an Exhibit to a Current Report on Form 8-K filed with +the SEC on May 31, 2007. +18 +Table of Contents +Principal +Accountant Fees and Services +The +following table presents the aggregate fees billed to the Company by PwC and +KPMG for services. +PwC +KPMG +2007 +2006 +2007 +2006 +Audit +fees +(1) +$ +3,516,203 +$ +- +$ +640,659 +$ +3,261,822 +Audit +related fees +(2) +238,771 +- +205,234 +983,701 +Tax +fees +(3) +1,212,035 +346,743 +- +- +Other +fees +(4) +65,416 +- +99,013 +- +Total +fees +$ +5,032,425 +$ +346,743 +$ +944,906 +$ +4,245,523 +_______________ +(1) +Audit +fees consist of the aggregate fees billed for professional services +rendered for audit procedures performed with regard to the Company's of +our annual consolidated financial statements and the report on +management's assessment of internal control over fianncial reporting and +the effectiveness of the Company's internal control over financial +reporting, including reviews of the consolidated financial statements +included in our Quarterly Reports on Form 10-Q, and services that are +normally provided by the independent registered public accounting firm in +connection with statutory and regulatory filings or +engagements. +(2) +Audit-related +fees consist of the aggregate fees billed for assurance and related +services that are reasonably related to the performance of the audit or +review of the Company's consolidated financial statements and are not +reported under “Audit fees.” Fees billed by PwC include +primarily amounts related to the offering of the Company's 12% Senior +Notes. Fees billed by KPMG include amounts related to the audit +of the annual financial statements of the Company-sponsored drilling +partnerships. +(3) +Tax +fees consist of the aggregate fees billed for professional services +rendered for tax compliance, tax advice and tax planning for the Company +and its Company-sponsored drilling +partnerships. +(4) +All +other fees consist of aggregate fees billed for products and services +other than the services reported above. Fees billed by PwC were +for services related to the investigation of the potential offering of a +MLP. Fees billed by KPMG were for services related to the +Company's 12% Senior Notes Offering +Memorandum. +Audit +Committee Pre-Approval Policies and Procedures +The +Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by +its Independent Registered Public Accounting Firm be subject to pre-approval by +the Audit Committee or authorized members of the Committee. The Audit +Committee has adopted policies and procedures for pre-approval of all audit +services and non-audit services to be provided by the Company's Independent +Registered Public Accounting Firm. Services necessary to conduct the +annual audit must be pre-approved by the Audit Committee annually at a +meeting. Permissible non-audit services to be performed by the +independent accountant may also be approved on an annual basis by the Audit +Committee if they are of a recurring nature. Permissible non-audit +services, which are not eligible for annual pre-approval, to be conducted by the +independent accountant must be pre-approved individually by the full Audit +Committee or by an authorized Audit Committee member. Actual fees +incurred for all services performed by the independent accountant will be +reported to the Audit Committee after the services are fully +performed. The duties of the Committee are described in the Audit +Committee Charter, which is available at the Company's website under Corporate +Governance. +19 +Table of Contents +THE +BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL #4. PROXIES +SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY +VOTE. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON +STOCK CAST AT THE MEETING REPRESENTED IN PERSON OR BY PROXY AND ENTITLED TO VOTE +AT THE MEETING IS REQUIRED FOR APPROVAL OF THIS PROPOSAL #4. +REPORT OF THE AUDIT COMMITTEE +The Audit +Committee of the Board is composed of five directors (four prior to October +2007) and operates under a written charter adopted by the Board of +Directors. Each member of the committee meets the independence +requirements of Rule 4200(a)(15) of the NASDAQ's listing +standards. The duties of the Committee are summarized in this proxy +statement under "Committees of the Board of Directors" and are more fully +described in the charter, which is available at the Company’s website under +“Corporate Governance.” +Management +is responsible for the Company's internal controls and preparation of the +consolidated financial statements in accordance with generally accepted +accounting principles. The Company's Independent Registered Public +Accounting Firm is responsible for performing an independent audit of +consolidated financial statements in accordance with the standards of the Public +Company Accounting Oversight Board (United States) and issuing a report +thereon. The Committee's responsibilities include monitoring and +overseeing these processes. +The +Committee met nine times during 2007, and has continued to meet frequently +during 2008. In addition to normal meetings to accomplish the work of +the Committee, the Committee also held numerous meetings with the management of +the Company and PricewaterhouseCoopers LLP ("PwC") to review the progress on the +implementation of improved internal controls early in the year, and regarding +the causes, impacts and corrective measures related to the Company's historical +accounting errors and financial statements at various times throughout 2007 and +into early 2008. +In this +context, the Committee reviewed and discussed the Company's audited consolidated +financial statements for the year ended December 31, 2007 (the "audited +financial statements") with management and the Company's Independent Registered +Public Accounting Firm for 2007, PwC. The Committee also discussed +with PwC the matters required to be discussed by Statement of Auditing Standards +No. 61, as amended ( Communication with Audit +Committees ), and PwC directly provided reports on significant matters to +the Committee. +The +Committee has received the written disclosures and the letter from PwC required +by Independence Standards Board Standard No. 1 ( Independence Discussion with Audit +Committees ), and has discussed with PwC its independence from the +Company. +The +Committee has discussed with management and PwC such other matters and received +such assurances from them as the Committee deemed appropriate. +Based on +the foregoing review and discussions and relying thereon, the Committee +recommended that the Board of Directors include the audited financial statements +in the Company's Annual Report on Form 10-K for the year ended December 31, +2007. +20 +Table of Contents +On March +8, 2008, the Board approved the Committee's recommendation to appoint PwC to +serve as the Company's Independent Registered Public Accounting Firm for +2008. In connection therewith, the Audit Committee considered whether +the provision of non-audit services by PwC prior to their engagement was +compatible with maintaining the Independent Registered Public Accounting Firm’s +independence. This appointment is subject to ratification by the +Company's shareholders. +Jeffrey +C. Swoveland, Chair +Kimberly +Luff Wakim +David C. +Parke +Anthony +J. Crisafio +Joseph E. +Casabona +AUDIT +COMMITTEE +of +the Board of Directors +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2008 +ANNUAL MEETING +As of the +date of this proxy statement, the Board is not aware of any matters to be +brought before the 2008 Annual Meeting other than the matters set forth in this +proxy statement. However, if other matters properly come before the +meeting, it is the intention of the proxy holders named in the enclosed form of +proxy to vote in accordance with their discretion on such matters pursuant to +such proxy. +21 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The +following table sets forth certain information regarding ownership of the +Company's common stock as of May 1, 2008, by (a) each person known by the +Company to own beneficially more than 5% of the outstanding shares of common +stock; (b) each director of the Company; (c) each executive officer; and (d) all +directors and executive officers as a group. As of May 1, 2008, +14,848,954 common shares of the Company were issued and outstanding. Except as +otherwise indicated, the address for each of the named security holders is 120 +Genesis Boulevard, Bridgeport, West Virginia 26330. +Name +and Address of Beneficial Owner +Number +of +Shares +Beneficially +Owned +Percent +of +Shares +Beneficially +Owned +Steinberg +Asset Management, LLC +12 +East 49th Street +New +York, NY 10017 +1,531,255 +(1) +10.3 +% +FMR +LLC +82 +Devonshire Street +Boston, +MA 02109 +1,243,080 +(2) +8.4 +% +Dimensional +Fund Advisors LP +1299 +Ocean Avenue +Santa +Monica, CA 90401 +1,238,580 +(3) +8.3 +% +Kayne +Anderson Rudnick Investment Management, LLC +1800 +Avenue of the Stars, 2nd Floor +Los +Angeles, CA 90067 +917,857 +(4) +6.2 +% +Barclays +Global Investors, NA. +45 +Fremont Street +San +Francisco, CA 94105 +842,151 +(5) +5.7 +% +Steven +R. Williams +295,984 +(6) +2.0 +% +Eric +R. Stearns +65,573 +(7) +* +Richard +W. McCullough +2,364 +(8) +* +Darwin +L. Stump +22,546 +(9) +* +Daniel +W. Amidon +- +(10) +* +Barton +R. Brookman, Jr. +7,182 +(11) +* +Vincent +F. D'Annunzio +19,758 +(12) +* +Jeffrey +C. Swoveland +14,802 +(13) +* +Kimberly +Luff Wakim +5,432 +(14) +* +David +C. Parke +5,558 +(15) +* +Anthony +J. Crisafio +3,035 +* +Joseph +E. Casabona +1,355 +* +Larry +F. Mazza +1,355 +* +All +directors and executive officers as a group (13 persons) +444,944 +(16) +3.0 +% +_______________ +* +Represents less than 1% of the outstanding shares of common stock. +22 +Table of Contents +(1) +According +to the Schedule 13G filed by Steinberg Asset Management, LLC with the SEC +on Februrary 11, 2008. +(2) +According +to the Schedule 13G filed by FMR LLC with the SEC on May 12, +2008. +(3) +According +to the Schedule 13G filed by Dimensional Fund Advisors LP with the SEC on +February 6, 2008. +(4) +According +to the Schedule 13G filed by Kayne Anderson Rudnick Investment Management, +LLC with the SEC on February 8, +2008. +(5) +According +to the Schedule 13G filed by Barclays Global Investors, NA. with the SEC +on February 6, 2008. +(6) +Excludes +43,070 restricted shares subject to vesting greater than 60 days after May +1, 2008; includes 8,160 shares subject to options exercisable within 60 +days of May 1, 2008. +(7) +Excludes +21,778 restricted shares subject to vesting greater than 60 days after May +1, 2008; includes 4,939 shares subject to options exercisable within 60 +days of May 1, 2008. +(8) +Excludes +22,126 restricted shares subject to vesting greater than 60 +days after May 1, 2008; includes 833 shares subject to options +exercisable within 60 days of May 1, +2008. +(9) +Excludes +7,807 restricted shares subject to vesting greater than 60 days after May +1, 2008; includes 4,348 shares subject to options exercisable within 60 +days of May 1, 2008. +(10) +Excludes +11,511 restricted shares subject to vesting greater than 60 days after May +1, 2008. +(11) +Excludes +19,893 restricted shares subject to vesting greater than 60 days after May +1, 2008. +(12) +Excludes +4,559 Common shares purchased pursuant to the Non-Employee Director +Deferred Compensation Plan. +(13) +Excludes +114 Common shares purchased pursuant to the Non-Employee Director Deferred +Compensation Plan. +(14) +Excludes +1,046 Common shares purchased pursuant to the Non-Employee Director +Deferred Compensation Plan. +(15) +Excludes +571 Common shares purchased pursuant to the Non-Employee Director Deferred +Compensation Plan. +(16) +Excludes +126,185 restricted shares subject to vesting greater than 60 days after +May 1, 2008, and 6,290 common shares purchased pursuant to the +Non-Employee Director Deferred Compensation Plan; includes 18,280 shares +subject to options exercisable within 60 days of May 1, +2008. +Section 16 (a) Beneficial Ownership Reporting +Compliance +Section +16(a) of the Exchange Act requires the Company's officers and directors, and +persons who own more than 10% of the Company's equity securities, to file +reports of ownership and changes in ownership with the Securities and Exchange +Commission. Officers, directors and holders of more than 10% of the +common stock are required by regulations promulgated by the Commission pursuant +to the Exchange Act to furnish the Company with copies of all Section 16(a) +forms they file. The Company assists officers and directors, and will +assist beneficial owners, if any, of more than 10% of the common stock, in +complying with the reporting requirements of Section 16(a) of the Exchange +Act. +Based +solely on its review of the copies of such forms received by it, the Company +believes that since January 1, 2007, all Section 16(a) filing requirements +applicable to its directors, officers and greater than 10% beneficial owners +were met with the following exception. On December 13, 2007, +restricted stock vested for the following persons: Steven R. Williams, Thomas E. +Riley, Richard W. McCullough, Eric R. Stearns and Darwin L. Stump, and such +officers elected to receive the restricted stock net of stock sufficient to pay +taxes, which was withheld to pay taxes. This stock withholding was +reportable, and was not reported until December 21, 2007. +CORPORATE GOVERNANCE +Corporate +Governance Guidelines +The Board +has adopted Corporate Governance Guidelines that govern the structure and +functioning of the Board and establish the Board's policies on a number of +corporate governance issues. The Guidelines are posted under +“Governance Policies” in the Corporate Governance section of the Company's +internet site at www.petd.com . They +are also available to any shareholder on request; see "Contact Information" +above. +23 +Table of Contents +Board of Directors +The +Company's By-Laws provide that the number of members of the Board of Directors +shall be designated from time to time by a resolution of the Board; and the +Board has currently designated the number of directors as nine. The +By-Laws provide that the Board shall be divided into three separate classes of +directors which are required to be as nearly equal in number as +practicable. At each annual meeting of shareholders one class of +directors, whose term expires, will be elected to a term of three +years. The classes are staggered so that the term of one class +expires each year. There is no family relationship between any +director or executive officer and any other director or executive officer of the +Company. There are no arrangements or understandings between any +director or officer and any other person pursuant to which the person was +selected as an officer. +Director Independence +Subject +to some exceptions and transition provisions, the NASDAQ Listing standards +generally provide that a director will not be independent if: +(A) +the +director is, or at any time during the past three years was, employed by +the Company; +(B) +the +director or a member of the director's immediate family has received from +the Company compensation of more than $100,000 during any period of 12 +consecutive months within the three years preceding the determination of +independence other than for service as a director; or compensation paid to +a family member who is an employee of the Company (other than an executive +officer); +(C) +the +director is a family member of an individual who is, or at any time during +the past three years was, an executive officer of the +Company; +(D) +the +director or a member of the director's immediate family is a partner in, +or a controlling person of, or an executive officer of any organization to +which PDC made, or from which PDC received, payments for property or +services in the current or any of the three past fiscal years that exceed +5% of the recipient’s consolidated gross revenues for that year, or +$200,000, whichever is more; +(E) +the +director or a member of the director's immediate family is employed as an +executive officer of another entity where at any time during the past +three years any of the Company’s executive officers serves on the +compensation committee of the other entity; +or +(F) +the +director or a member of the director's immediate family is a current +partner of PwC, the Company's independent registered public accounting +firm, or during the past three years was a partner or employee of either +PwC or KPMG, the Company's former independent registered public accounting +firm. +Audit +Committee members are subject to additional, more stringent NASDAQ and Exchange +Act requirements. +The Board +has reviewed business and charitable relationships between the Company and each +non-employee director to determine compliance with the NASDAQ Listing standards +described above and to evaluate whether there are any other facts or +circumstances that might impair a director's independence. The Board +has determined that all non-employee directors are independent under NASDAQ +Marketplace Rule 4200 and the Exchange Act. +24 +Table of Contents +Board +Meetings and Attendance +The Board +met 15 times in 2007. Each of PDC's directors attended at least 75% +of the aggregate Board and committee meetings (on which he or she served) during +2007. +Annual +Meeting Attendance +As +specified in the Company's Corporate Governance Guidelines, directors are +strongly encouraged to attend the annual meeting of shareholders. All +directors attended last year's meeting. +Committees of the Board +The +following table identifies the current membership and chair of the five standing +committees of the Board. +Name +Audit +Compensation +Executive +Nominating +and Governance +Planning +and +Finance +Jeffrey +C. Swoveland +Chair +– +Member +– +Member +Kimberly +Luff Wakim +Member +Member +– +Member +– +Vincent +F. D'Annunzio +– +Member +Member +Chair +– +David +C. Parke +Member +Chair +– +Member +Chair +Anthony +J. Crisafio +Member +Member +– +– +– +Larry +F. Mazza +– +Member +– +Member +– +Joseph +E. Casabona +Member +– +– +– +Member +Richard +W. McCullough +– +– +Member +– +Member +Steven +R. Williams +– +– +Chair +– +– +The +non-employee directors generally meet in "executive sessions" without the +presence of employee directors at their discretion in connection with each +regularly scheduled board meeting. Mr. Swoveland serves as Presiding +Independent Director at these sessions; however, the other non-employee +directors may, in the event of his absence, select another director to preside +over a particular session. +Audit +Committee +The Audit +Committee, which met nine times in 2007, is composed entirely of persons whom +the Board has determined to be independent under NASDAQ Marketplace Rule +4200(a)(15), Section 301 of the Sarbanes-Oxley Act of 2002 and Section 10A(m)(3) +of the Exchange Act. Mr. Swoveland chairs the committee; other audit +committee members are Ms. Wakim and Messrs. Parke, Crisafio and +Casabona. The Board +has determined that Mr. Swoveland, Ms. Wakim, Mr. Crisafio and Mr. Casabona +qualify as audit committee financial experts as defined by SEC regulations and +that all the audit committee members are independent of +management. The Audit Committee’s purpose is to assist the +Board in monitoring the integrity of the financial reporting process, systems of +internal controls and financial statements of the Company, and compliance by the +Company with legal and regulatory requirements. Additionally, the +committee is directly responsible for the appointment, compensation and +oversight of the independent auditors employed by the Company for the purpose of +preparing or issuing an audit report or related work and to assess the need for +an internal audit function and recommend its establishment when deemed +appropriate. +25 +Table of Contents +In +performing its responsibilities, the Audit Committee monitors the integrity of +the Company's financial reporting process and systems of internal controls +regarding finance, accounting and legal compliance; monitors the independence of +the Independent Registered Public Accounting Firm; and provides an avenue of +communications among the Independent Registered Public Accounting Firm, +management and the Board of Directors. The Board has adopted a +Charter of the Audit Committee which is posted on the Company's +website. The Board continues to assess the adequacy of the Charter +and will revise it as necessary. +Compensation +Committee +The Board +has determined that all members of the Compensation Committee are independent of +the Company under Rule 4200(a)(15) of the NASDAQ's listing +standards. The Compensation Committee met 10 times in +2007. The Board has adopted a Compensation Committee Charter which is +posted on the Company's website. +The +purpose and functions of the Compensation Committee are to (1) oversee the +development of a compensation strategy for the Company, (2) oversee the +administration of the Company's compensation programs, (3) evaluate the +performance of and set compensation for the Chief Executive Officer, (4) review +and approve the elements of compensation for other executive officers of the +Company, (5) negotiate the terms of employment agreements with executive +officers of the Company, (6) review and recommend to the full Board compensation +of the Company's Directors and changes in compensation levels to the Board of +Directors, (7) approve equity grants and recommend equity-based incentive plans +necessary to implement the Company's compensation strategy, and (8) administer +all equity-based incentive programs of the Company. +Compensation +Committee Interlocks and Insider Participation. +There are +no Compensation Committee interlocks. +Executive +Committee +The +purpose and functions of the Executive Committee are to exercise the powers and +duties of the Board between Board meetings and, while the Board is not in +session, implement the policy decisions of the Board. The Board has +adopted an Executive Committee Charter which is posted on the Company's +website. +Nominating +and Governance Committee +The Board +has determined that all members of the Nominating and Governance Committee are +independent of the Company under Rule 4200(a)(15) of the NASDAQ's listing +standards. The Nominating and Governance Committee met five times in +2007. The purpose and functions performed by the Committee are to (1) +assist the Board by identifying individuals qualified to become Board members +and to recommend to the Board the director nominees for the next annual meeting +of shareholders or fill any vacancies; (2) recommend to the Board corporate +governance guidelines applicable to the Company; (3) lead the Board in its +annual review of the Board's performance and (4) recommend to the Board director +nominees for each committee. The Board has adopted a Charter for the +Nominating and Governance Committee. The Charter has been posted on +the Company's website. +Director +Qualifications and Selection +The Board +has adopted Director Nomination Procedures that prescribe the process the +Nominating and Governance Committee will use to select the Company’s nominees +for election to the Board. The Nominating and Governance Committee +evaluates each candidate based on the candidate's level and diversity of +experience and knowledge (specifically within the industry and relevant +industries in which the Company operates, as well as his or her general overall +experience and knowledge), skills, education, reputation and integrity, +professional stature and other factors that may be relevant depending on the +particular candidate. +26 +Table of Contents +Additional +factors considered by the Committee include the size and composition of the +Board at a particular time, and allowing the Company to benefit from having a +broad mixture of skills, experience and perspectives on the +Board. Accordingly, one or more of these factors may be given more +weight in a particular case at a particular time, no single factor would be +viewed as determinative, and the Committee has not specified any minimum +qualifications that the Committee believes must be met by any particular +nominee. The Company's Director Nomination Procedures are posted on +the Company's website. +The +Committee identifies director candidates primarily through recommendations made +by the non-employee directors. These recommendations are developed +based on the directors' own knowledge and experience in a variety of fields, and +research conducted by PDC staff at the Committee's direction. The +Committee also considers recommendations made by the employee directors, +employees, shareholders, and others, including search firms. All +recommendations, regardless of the source, are evaluated on the same basis +against the criteria contained in the guidelines. The Committee has +the authority to engage consultants to help identify or evaluate potential +director nominees but has not done so recently. +Shareholder +Recommendations +The +Company's Nominating and Governance Committee will consider director candidates +recommended by shareholders of the Company. Any shareholder who +wishes to recommend a prospective Board nominee to the Committee should notify +the Nominating and Governance Committee of their recommendation by writing to +the Committee at the Company's headquarters, or by sending the information via +email to board@petd.com . All +recommendations will be received by the Nominating and Governance +Committee. +A +submission recommending a candidate should include: +· +Sufficient +biographical information to allow the Committee to evaluate the candidate +in light of the guidelines; +· +An +indication as to whether the proposed candidate will meet the requirements +for independence under the NASDAQ +guidelines; +· +Information +concerning any relationships between the candidate and the shareholder +recommending the candidate; and +· +Material +indicating the willingness of the candidate to serve if nominated and +elected. +Shareholder +Nominations +Shareholders +who wish to may nominate candidates for election to the Board. The +Company's By-Laws require shareholders who wish to submit nominations of persons +for election to the Board of Directors at the annual meeting of shareholders to +follow certain procedures. The shareholder must give written notice +to the Corporate Secretary at Petroleum Development Corporation, 120 Genesis +Boulevard, Bridgeport, West Virginia 26330 or may email notice to board@petd.com , not +later than 80 days prior to the first anniversary of the preceding year's annual +meeting or within 10 days of the Company's public announcement of the date of +its annual shareholder meeting. The shareholder notice also must be +received by the Company no earlier than 90 days prior to the annual meeting. The +shareholder must be a shareholder of record at the time the notice is +given. The written notice must set forth (a) as to each nominee all +information relating to that person that is required to be disclosed in +solicitations of proxies for election of directors in an election contest, or is +otherwise required, in each case pursuant to Regulation 14A under the Securities +Exchange Act of 1934 (including such person's written consent to being named in +the proxy statement as a nominee and to serving as a director if elected); (b) +as to the shareholder giving the notice and the beneficial owner, if any, on +whose behalf the nomination is made (1) the name and address of the shareholder, +as they appear on the Company's books, and of such beneficial owner and (2) the +class and number of shares of the Company's securities that are beneficially +owned by such shareholder and the beneficial owner; and (c) any material +interest of such shareholder and such beneficial owner in such +nomination. +27 +Table of Contents +Planning +and Finance Committee +The +purpose of the Planning and Finance Committee is to oversee the responsibilities +of the Board relating to planning and finance, including: (1) to organize and +oversee the Board’s participation in the development of the Strategic Plan and +the risk assessment and management process; (2) to follow the progress in the +implementation of the Strategic Plan and to advise the Board if additional Board +action appears to be needed to assure successful implementation of the plan or +if a need exists to revise the plan in the face of changing conditions or other +factors; (3) to assure that management is addressing the personnel requirements +for the successful implementation of the Strategic Plan; (4) to assure that a +talent-rich organization is being developed to address both current and future +leadership needs; (5) to assure that robust management development and +succession planning processes are developed and implemented for management at +all levels in the Company; and (6) work with the CFO and other executive +management regarding corporate financial matters including operating and capital +budgets, capital structure, dividends, and other significant financial and +capital issues. The Board has adopted a charter for the Planning and +Finance Committee which is posted on the Company’s website. +CEO +Succession +During +2007 the current CEO communicated to the Board his intention to retire during +2008. The Board designated a committee comprised of five independent Board +members serving at the time (Swoveland (Chair), Wakim, D'Annunzio, Parke and +Crisafio) to serve as a search committee for a new CEO and to recommend a successor to the Board. +The Search Committee developed a process, identified and evaluated candidates, +and recommended to the Board that Richard W. McCullough, the Company's CFO be the next CEO. +In December 2007, the full Board approved the +recommendation. +Communications with Directors +Shareholders +wishing to communicate with the Board or a committee may do so by writing to the +attention of the Board or Committee at the corporate headquarters or by emailing +the Board at board@petd.com , with +"Board" or appropriate committee in the subject line. +Code of Business Conduct and Ethics +In +January 2003, the Company adopted its Code of Business Conduct and Ethics, as +amended (the “Code of Conduct”) applicable to all directors, officers, +employees, agents and representatives of the Company and +consultants. The Company's principal executive officer, principal +financial officer and principal accounting officer are subject to additional +specific provisions under the Code of Conduct. The Company's Code of +Conduct is posted on its website at www.petd.com . In +the event of an amendment to, or a waiver of, including an implicit waiver, the +Code of Conduct, the Company will disclose the information on its internet +website. On November 17, 2007, the Board approved a waiver of regarding any +potential conflict related to the service of Mr. Swoveland on the Board of +Directors of Linn Energy LLC. If the Board of Directors becomes aware +of a potential conflict in the future, the Board of Directors will consider at +that time whether or not to continue this waiver. +Policies and Procedures with Respect to +Transactions with Related Persons +The Board +has adopted a written policy for the review, approval and ratification of +transactions that involve related parties and potential conflicts of +interest. +The +related party transaction policy applies to each director and executive officer +of the Company, any nominee for election as a director, any security holder who +is known to own more than five percent of the Company's voting securities, any +immediate family member of any of the foregoing persons and any corporation, +firm or association in which one or more of the Company's directors are +directors or officers, or have a substantial financial +interest. +28 +Table of Contents +Under the +related party transaction policy a related person transaction is a transaction +or arrangement involving a related person in which the Company is a participant +or that would require disclosure in the Company's filings with the SEC as a +transaction with a related person. +The +related persons must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such +interest. All related person transactions will be reviewed by the +Audit Committee. In determining whether to approve or ratify a +transaction, the Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such as the +relationship of the related person with the Company, the materiality or +significance of the transaction to the Company and the business purpose and +reasonableness of the transaction, whether the transaction is comparable to a +transaction that could be available to the Company on an arms-length basis, and +the impact of the transaction on the Company's business and +operations. +During +the year ended December 31, 2007, there was no transaction or series of +transactions, or any currently proposed transaction, in which the amount +involved exceeds $120,000 and in which any director, executive officer, holder +of more than 5% of the Company's common stock or any member of the immediate +family of any of the foregoing persons had or will have a direct or indirect +material interest. +Indemnification of Directors and +Officers +The +Company's By-Laws provide that the Company shall indemnify any director, +officer, employee, or other agent of the Company who is or was a party, or is +threatened to be made a party, to any proceeding (other than an action by or in +the right of the Company to procure a judgment in its favor) by reason of the +fact that such person is or was an agent of the Company, against expenses, +judgments, fines, settlements, and other amounts actually and reasonably +incurred in connection with such proceeding, if that person acted in good faith +and in a manner that person reasonably believed to be in the best interest of +the Company, and in the case of a criminal proceeding, had no reasonable cause +to believe the conduct of that person was unlawful. +The +Company has entered into separate indemnification agreements with each of its +directors and officers whereby the Company has agreed to indemnify the director +or officer against all expenses, including attorneys' fees, and other amounts +reasonably incurred by the officer or director in connection with any +threatened, pending or completed civil, criminal, administrative or +investigative action or proceeding to which such person is party by reason of +the fact that he is or was a director or officer, as the case may be, of the +Company, if the person acted in good faith and in a manner reasonably believed +to be in or not opposed to the best interests of the Company, and, with respect +to any criminal action or proceeding, the person had no reasonable cause to +believe such conduct to be unlawful. The agreements provide for the +advancement of expenses and that the Company has the right to purchase and +maintain insurance on behalf of the director or officer against any liability or +liabilities asserted against him, whether or not the Company would have the +power to indemnify the person against such liability under any provision of the +agreement. The Company has agreed to indemnify such person against +expenses actually and reasonably incurred in connection with any action in which +the person has been successful on the merits or +otherwise. Indemnification must also be provided by the Company +(unless ordered otherwise by a court) only as authorized in the specific case +upon a determination that the indemnification of the person is appropriate +because he has met the applicable standard of conduct described in the agreement +made by (i) the Board of Directors, by a majority vote of a quorum consisting of +directors who are not parties to such action or proceeding, (ii) independent +legal counsel in a written opinion or (iii) the shareholders of the +Company. +29 +Table of Contents +Additional Information +The +Corporate Governance section of the Company's internet site contains additional +information, including PDC's Certificate of Incorporation and By-Laws; written +charters for each Board committee; and Board policy statements. +The +Company files annual, quarterly and current reports, proxy statements and other +information with the SEC. A copy of the Company's filings with +the SEC are available to the public at the SEC’s website at http://www.sec.gov . These +documents may also be viewed at the SEC’s public reference room located at 100 F +Street, N.E., Washington, D.C. 20549. Please call the SEC at +1-800-SEC-0330 for further information on the public reference +room. +EXECUTIVE OFFICERS +The +executive officers of the Company, their principal occupations for the past five +years and additional information is set forth below. +Name +Age +Position(s) +Director +Since +Directorship +Term +Expires +Steven +R. Williams +(1) +57 +Chairman, +Chief Executive Officer and Director +1983 +2009 +Richard +W. McCullough +(1) +56 +Vice +Chairman, President +(2) , Chief Financial Officer and +Director +2007 +2008 +Eric +R. Stearns +50 +Executive +Vice President +– +– +Barton +R. Brookman, Jr. +(3) +45 +Senior +Vice President Exploration and Production +– +– +Daniel +W. Amidon +47 +General +Counsel and Secretary +– +– +Darwin +L. Stump +53 +Chief Accounting Officer +– +– +_______________ +(1) +Mr. +Williams has announced his intent to retire as CEO, which is anticipated +to be in August 2008. Mr. McCullough was selected as his +successor upon Mr. Williams' retirement. The Company has not +yet identified Mr. McCullough's successor as +CFO. +(2) +Thomas +E. Riley resigned as President of the Company effective March 9, +2008. +(3) +Mr. +Brookman was appointed to the executive position of Senior Vice President +on March 8, 2008. +Steven R. Williams was elected +Chairman and Chief Executive Officer in January 2004. Mr. Williams served as +President from March 1983 until December 2004 and has been a Director of PDC +since 1983. +Richard W. McCullough was +appointed President in March 2008, elected Vice Chairman of PDC's Board of +Directors in December 2007, was appointed Chief Financial Officer in November +2006 and also served as PDC’s Treasurer from November 2006 until October +2007. Prior to joining PDC, Mr. McCullough served as an energy +consultant from July 2005 to November 2006. From January 2004 to July +2005, Mr. McCullough served as president and chief executive officer of +Gasource, LLC, Dallas, Texas, a marketer of long-term, natural gas +supplies. From 2001 to 2003, Mr. McCullough served as an investment +banker with J.P. Morgan Securities, Atlanta, Georgia, and served in the public +finance utility group supporting bankers nationally in all natural gas +matters. Additionally, Mr. McCullough has held senior positions with +Progress Energy, Deloitte and Touche, and the Municipal Gas Authority of +Georgia. Mr. McCullough, a CPA, was a practicing certified public +accountant for 8 years. +30 +Table of Contents +Eric R. Stearns was appointed +Executive Vice President in March 2008. Prior to his current +position, Mr. Stearns served as Executive Vice President Exploration and +Production since December 2004, Executive Vice President Exploration and +Development from November 2003 until December 2004, and Vice President +Exploration and Development from April 1995 until November 2003. Mr. +Stearns joined PDC as a geologist in 1985 after working at Hywell, Incorporated +and for Petroleum Consultants. +Barton R. Brookman, Jr. was +appointed Senior Vice President Exploration and Production in March +2008. Previously Mr. Brookman served as Vice President Exploration +and Production since joining PDC in July 2005. Prior to joining the +PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil +for 17 years in a series of positions of increasing responsibility ending his +service as Vice President of Operations of Patina. +Daniel W. Amidon was appointed +General Counsel and Secretary in July 2007. Prior to his current +position, Mr. Amidon was employed by Wheeling-Pittsburgh Steel Corporation +beginning in July 2004; he served in several positions including General Counsel +and Secretary. Prior to his employment with Wheeling-Pittsburgh +Steel, Mr. Amidon worked for J&L Specialty Steel Inc. from 1992 through July +2004 in positions of increasing responsibility, including General Counsel and +Secretary. Mr. Amidon practiced with the Pittsburgh law firm of +Buchanan Ingersoll PC from 1986 through 1992. +Darwin L. Stump was appointed +Chief Accounting Officer in November 2006. Mr. Stump has been an +officer of PDC since April 1995 and held the position of Chief Financial Officer +and Treasurer from November 2003 until November 2006. Previously, Mr. +Stump served as Corporate Controller from 1980 until November +2003. Mr. Stump, a CPA, was a senior accountant with Main Hurdman, +Certified Public Accountants prior to joining PDC. +COMPENSATION COMMITTEE REPORT +The +Compensation Committee has met to review and discuss with the Company’s +management the specific disclosure contained under the heading “Compensation +Discussion and Analysis.” Based on its review and discussions with +management, the Compensation Committee has recommended to the Board of Directors +that the Compensation Discussion and Analysis be included in this proxy +statement. +This +report has been provided by the Compensation Committee of the Board of Directors +of the Company. +David C. +Parke, Chair +Vincent +F. D'Annunzio +Kimberly +Luff Wakim +Anthony +J. Crisafio +Larry F. +Mazza +COMPENSATION +COMMITTEE +of +the Board of Directors +*** +31 +Table of Contents +COMPE NS ATION DISCUSSION AND ANALYSIS +The Board +has assigned to the Compensation Committee (the “Committee”) responsibility for +developing and overseeing the Company’s compensation programs and executive +compensation. The Committee consists entirely of independent Board +members. The Committee has been authorized by the Board to make final +determinations for all elements of compensation for the executive +officers. Independent board members who are not part of the Committee +are often consulted as part of the Committee’s decision process. The Committee +also negotiates terms and approves all executive employment agreements and +administers the Company’s long-term incentive plans. +Su mm ary +The +Committee’s overall goal is to design an executive compensation plan with the +following characteristics: +· +Is +fair to both the executive and the +Company +· +Is +competitive with compensation being paid by other oil and gas companies of +similar size and complexity +· +Is +competitive with companies located in the same geographic regions as the +Company’s operations +· +Helps +retain key executives +· +Avoids +encouraging illegal or unethical +activities +· +Rewards +efforts that improve the performance of the +Company +· +Is +appropriate considering compensation of other employees in the +Company +The +Committee, working with nationally recognized compensation consultant Towers +Perrin, has developed and annually reviews and updates a peer group of companies +to use to establish total level of compensation and components of compensation +at competitive companies. Executive compensation includes salary, +short-term incentive (cash bonus) and long-term incentive (stock or stock-based) +compensation. In addition executives participate in and benefit from +the qualified benefit programs available to all employees as well as to an +executive retirement plan and other perquisites. +The peer +group median compensation levels are the primary basis for salary, short-term +and long-term incentive target levels. Position, contributions to company +performance, future potential, skills and other factors are also +considered. The Committee seeks to tie a large percentage of the +short-term incentive to specific performance goals established at the beginning +of the year. In 2007, the Committee set a target for production +growth and intended to set a target for earnings per share but did not do so due +to the delay in the filing of the financial statements for 2006 and significant +operational changes at the Company due primarily to several large acquisitions +which were completed at the beginning of 2007. As a result 60% of the +short-term incentive in 2007 was determined by the Committee following the end +of the year, although financial performance of the Company compared to estimates +made by the Company during the year was considered. In making its +decision about the discretionary portion of the awards positive factors the +Committee considered included the significant increase in the value of the +Company’s stock, progress made in the accounting area, the +installation and start-up of a new enterprise software system, and the very +competitive level of the Company’s finding and development +costs. Areas of concern included the high levels of G&A and +operating costs and the material weaknesses in the internal control over +financial reporting. +32 +Table of Contents +For +long-term incentives the Committee first sets dollar targets based on the peer +group levels and factors related to the individual executive, and then +determines the number of shares using valuation methods based on the average +price for the preceding December (the December 2006 average closing price for +2007 awards and the December 2007 average closing price for 2008 awards) and +adjusted for the type of award and the timing and likelihood of +vesting. The compensation consultant assists the Company in +evaluating the value of awards based on generally accepted valuation methods +consistent with the compensation reported for SEC reporting. +The +Compensation Committee also consults with the CEO regarding proposed peer group +changes and for his evaluation of performance and suggestions for compensation +of the other executive officers. Topics discussed with the CEO include +individual executive achievement of key operating targets, participation in and +support for development and execution of the Company's strategic plan, +management development and succession planning, the CEO's assessment of the +executives' contributions to the Company's success, and the limitations or +shortcomings in the executives' performance or potential. +In 2006, +using a similar method to establish compensation levels, the compensation of +each of the five named executives at the Company ranged from the 38 th +percentile to 60 th +percentile of the comparable peer group executives (41 st +percentile for the CEO). While final numbers for peer group compensation for +2007 are not available the Committee anticipates that the Company’s compensation +for executives in 2007 will be modestly higher than the median of the peer group +in total. These final compensation levels in excess of the median of the peer +group were justified by the impressive performance of the Company in 2007, with +production increase of 65%, reserve increase of 112% and a significant increase +in the Company's stock price, which performance was remarkable by general market +and by industry standards. +The +Committee also recommended and the Board approved changes to Board Compensation +for 2007 and 2008. As with the executive compensation, the peer group +compensation was a primary factor used to determine competitive levels of cash +and equity compensation for Board members. +COMP EN SATION DESIGN +Compe nsation Philosophy and Objectives +The +Committee’s philosophy is to provide compensation packages that will attract, +motivate and retain executive talent and deliver rewards for superior +performance and consequences for underperformance. The Committee considers many +factors in establishing the compensation packages for the executive officers of +the Company. The ultimate goal is to provide compensation that is fair to both +the Company and the executive officers, that motivates behavior that will +enhance the value of the Company that avoids encouraging behavior that does not +serve the best interests of the Company and that will allow the Company to +attract and retain executive officers. +The +Committee believes the following characteristics of a compensation program +contribute to the implementation of its philosophy: +· +Offer +a total compensation program that is competitive with the compensation +practices of those peer companies with which the Company competes for +talent; +· +Tie +a significant portion of executive compensation to the Company’s +achievement of pre-established financial and operating objectives and to +personal objectives established for each executive +individually; +· +Provide +a significant portion of overall compensation in the form of equity-based +compensation in order to align the interests of the Company’s executives +with those of the Company’s shareholders and to avoid excess focus on +short-term results; and +· +Structure +a significant proportion of total compensation in a fashion that promotes +executive retention. +33 +Table of Contents +Pay-for-Performance +The +Committee believes that a significant portion of executive compensation should +be closely linked to both the Company’s and the individual’s performance. The +Committee’s pay-for-performance philosophy is reflected in the Company’s +compensation practices, which tie a significant portion of executive +compensation to the achievement of financial and operating objectives of the +Company and also to take into account personal objectives and performance. This +philosophy is reflected in annual incentive awards, which are directly linked to +the achievement of short-term financial and operating objectives set by the +Committee and have potential payouts ranging from zero to as much as 180% of the +target for each of the components. During 2007, the targets were increases in +production, and the Committee’s assessment of other factors related to the +individual’s performance and development. Factors deemed particularly important +in the Committee's assessment of the discretionary portion of the STI for 2007 +included dramatic increases in reserves and production and the overall growth of +the Company, management's efforts relating to the impending retirement of the +CEO and mangement's efforts in improving the Company's historical financial and +accounting systems and reporting. The following table summarizes the +criteria used in determining the 2007 bonus amount. Earnings per +share, which the Committee had planned to include as a factor, was ultimately +not used in determining any formula-based short-term incentive in 2007 due to +the delay in filing the 2006 Form 10-K and major operational changes at the +Company due to several large acquisition in early 2007. As a result, +the Committee included financial performance as one of the criteria in its +discretionary evaluation for 2007, which was increased from 30% to 60% of the +overall bonus calculation. This discretionary portion of the STI program permits +the Committee to account for individual performance and differentiate among +executives. In addition, half of the discretionary annual bonus was +based on 2007 earnings performance compared to internal estimates made by +management during the year. The Committee also assesses individual executive +performance with input from the CEO as well as other Board members and +Committees. When determining what portion of the discretionary income to award, +the Committee discusses each executive individually and considers all the +available information. In 2008, the Committee established performance targets +for 70% of the STI, with the balance determined at the discretion of the +Committee. In 2007 and 2008, 100% of Mr. Stump's STI is determined by the +Committee at its discretion. +Pay-for-Performance +Table +Criteria +Lower +Threshold Amount +Target +Bonus +Maximum +Bonus +Percent +of Total Maximum Bonus +2007: +Production +(Mmcfe) +24,000 +26,000 +28,000 +40 +% +Discretionary +evaluation +Compensation +Committee Determination +60 +% +2008: +Production +(Mmcfe) +35,000 +37,000 +39,000 +40 +% +Diluted +earnigns per share +$ +2.55 +$ +3.05 +$ +3.55 +30 +% +Discretionary +evaluation +Compensation +Committee Determination +30 +% +The +Committee also ties compensation to performance through equity-based LTI awards +that are designed to motivate executives to meet the Company’s long-term +performance goals and to tie their interests to those of the shareholders. In +2007 and for 2008, the LTI awards are restricted stock which vest over time, and +long-term incentive performance shares (“LTIP shares”). The LTIP shares will +vest only if certain minimum thresholds of stock price appreciation are met. +One-half of the LTIP shares will vest and be issued based upon an annual stock +price increase of approximately 12%, with the starting price based on the +average price of the stock in December proceeding the award year. An additional +25% of the awarded LTIP shares will vest and be issued at annualized hurdle rate +of 16% and an additional 25% at 20%. The stock price used to determine if the +LTIP shares will vest will be the average daily closing price for each of the +three monthly periods: December 2009, 2010 and 2011 for the 2007 awards, and +2010, 2011, and 2012 for the 2008 awards. Any shares not vested in 2009 or 2010 +(or 2010 and 2011 for the 2008 awards) will remain eligible to be vested in +future years; however, any unvested shares at December 31, 2011 for the 2007 +awards or December 31, 2012 for the 2008 awards will be forfeited. The Committee +decided to use three measurement dates to take into account the volatility of +energy prices and their impact on the stock price of the Company. +As a +result of the structure of the STI and LTI compensation, a significant amount of +variable compensation under the Company’s compensation program is contingent on +the achievement of key financial and operating objectives of the Company and on +increasing the value of the shares of the Company’s stock. +34 +Table of Contents +The Role of Equity-Based Compensation +The +Company’s LTI program is an integral part of the Company’s overall executive +compensation program. The LTI program is intended to serve a number of +objectives including aligning the interests of executives with those of the +Company’s shareholders and focusing senior executives on the achievement of +well-defined, long-term performance objectives that are aligned with the +Company’s corporate strategy, thereby establishing a direct relationship between +compensation and shareholder value. The program also furthers the goal of +executive retention, since the executive officer will forfeit any unvested +awards in the event the officer voluntarily terminates employment with the +Company without "good reason." +Historically, +the primary form of equity compensation awarded by the Company was qualified and +non-qualified stock options, although such grants were not issued on a regular +basis. This form was selected because of the favorable individual and corporate +accounting and tax treatments provided by rules at the time, and the widespread +use of stock options in executive compensation. In 2004, the Committee began +utilizing a combination of restricted stock and options for executive +compensation, believing that the restricted stock was better appreciated by +employees and resulted in less dilution for the Shareholders. Beginning in 2006, +the accounting treatment for stock options changed as a result of the +applicability of Statement of Financial Accounting Standards No. 123(R), making +the use of stock options less attractive. As a result, the Committee assessed +the desirability of granting only shares of restricted stock to executives, and +concluded that shifting entirely to restricted stock would provide an equally +motivating form of incentive compensation, while permitting the issuance of +fewer shares, thereby reducing potential dilution to other shareholders. The +Committee did want to tie the value received by executives to performance for a +portion of the equity compensation, thereby providing executives with a greater +incentive to focus on the long-term appreciation of the stock. To accomplish +this, a portion of the LTI for each executive consists of LTI performance shares +(“LTIP shares”), which require both the passage of time and specified increases +in the stock price to become vested. +In making +long-term incentive awards, the Committee uses a pre-determined market-based +value approach. The Committee determines the dollar value of awards in the +marketplace using a valuation methodology. The Committee establishes the desired +dollar value for each executive officer relative to the market. The +corresponding number of equity instruments to be awarded is then determined +using the same valuation methodology, based on prevailing factors in advance of +the award date. The valuation for financial statement purposes is subsequently +re-calculated based on the prevailing factors at the time of the +award. +The +value-based approach can cause the number of equity instruments needed to be +granted from year to year to vary, even though the awards may have the same +dollar value. This can be caused by, among other things, fluctuations in the +Company’s common stock price at the time of grant. This issue is further +addressed in the Long-Term Incentives section. +Mr. +Williams has announced his planned retirement in 2008, Mr. +McCullough was named as Mr. Williams' successor, and Mr. +Riley resigned in early 2008. As a result a large part of the +executive team will have new and expanded responsibilities in +2008. Largely as a result of relatively short tenure with the +Company the new executive team does not have a significant ownership position in +the Company's stock. As a result of these factors, and the additional +and unusual demands of a major management transition, the Committee felt that a +one time award of Company stock, vesting over a 5-year time frame, would both +compensate the management team for their additional efforts and provide a better +link between their interests and those of the +shareholders; 32,711 shares of restricted common stock were issued to +Messrs. McCullough, Stearns, Brookman and Amidon in connection with this +issuance. +35 +Table of Contents +Use of Consultants and Benchmarking to Help Establish +Target Compensation Levels +The +compensation committee utilizes the compensation consulting services of Towers +Perrin. Over the past 18 months, Towers Perrin: assisted the Committee with a +review and revision of the peer group, conducted a competitive benchmarking of +the Company's executive and non-employee director compensation programs, helped +the Committee in its redesign of the LTI program in 2007 as described below, and +led an educational session focused on new SEC pay disclosure rules. The +Committee periodically assesses the effectiveness and competitiveness of the +Company’s executive compensation structure with the assistance of Towers Perrin, +and utilizes the assistance of Towers Perrin in assessing the value and cost of +various proposed compensation arrangements. Towers Perrin is engaged +by, and reports directly to, the Committee. +In +developing its compensation objectives, the committee compared the Company’s +compensation levels with those of a group of 14 companies for 2007, and 17 +companies for 2008. These groups, collectively, are referred to as the “Peer +Group.” This benchmarking is done with respect to each of the key annual +elements of the Company’s executive compensation programs discussed above +(salary, STI and LTI compensation), as well as the compensation of individual +executives based on their position in the overall compensation hierarchy. The +committee uses data from the Peer Group to establish a dollar target level for +each key element to deliver compensation to each executive at approximately the +50th percentile of the Peer Group, with adjustments made based on the +executive’s individual performance. Targeting the 50th percentile helps ensure +that the Company’s compensation practices will be competitive in terms of +attracting and retaining executive talent, while performance based compensation +provides for variations due to superior or sub-par performance. Because +compensation for the Peer Group is for prior periods, the committee attempts to +anticipate future movements in compensation levels when it sets compensation +targets. For example, when setting compensation for 2007, the most recent +compensation information available was from the 2006 proxy statements for +compensation paid in 2005. As more up to date information becomes available, it +is reviewed by the Committee to evaluate whether future compensation plans +should be adjusted to take unanticipated changes in actual compensation of the +Peer Group into account. +The 2007 +Peer Group was comprised of the following companies: +• +Unit +Corporation +• +St. +Mary Land & Exploration +• +Cabot +Oil & Gas Corporation +• +Penn +Virginia Corporation +• +Whiting +Petroleum Corporation +• +Range +Resources Corporation +• +Encore +Acquisition Company +• +Berry +Petroleum Company +• +Bill +Barrett Corporation +• +Quicksilver +Resources +• +Clayton +Williams Energy +• +Brigham +Exploration Company +• +Forest +Oil Corporation +• +Comstock +Resources +For +determination of 2008 compensation, Forest Oil Corporation, Range Resources and +Quicksilver Resources were eliminated from the group because they had grown much +larger than our company. Six additions were made to the group, +Venoco, Rosetta Resources, Petroquest Energy, Delta Petroleum, Parallel +Petroleum and Carrizo Oil & Gas, to help keep the median revenue and market +capitalization of the group consistent with our company. The +committee believes that the Peer Group represents companies with similar +operations, of similar complexity, and with which the Company believes it +competes for executive talent. +The +following chart shows the comparison by category for the median compensation for +the five highest paid executives combined of the peer group based on 2006 +compensation adjusted for projected inflation increases, the target compensation +levels set by the Committee for 2007, and the actual compensation paid in +2007. The compensation above the Target level reflects the +achievement of the maximum target for production growth and the committee’s +assessment of performance for the discretionary portion of the STI, and the +increase in stock price between the average stock price in December 2006 (which +is used to determine the number of shares awarded for the LTI compensation) and +the stock price on the date the awards were finalized. +36 +Table of Contents +* Source: Towers Perrin, +based on 2006 public documents. +Review of Overall Compensation +The +Committee reviews for each of the executive officers the total dollar value of +the officer’s annual compensation, including salary, STI, LTI compensation, +perquisites, deferred compensation accruals and other compensation. The +Committee also reviews shareholdings and accumulated unrealized gains under +prior equity-based compensation awards, and amounts payable to the executive +officer upon termination of the executive’s employment under various different +circumstances, including retirement and termination in connection with a change +in control. See 2007 Summary Compensation Table below. +Consideration of Prior Compensation +While the +Committee considers all compensation previously paid to the executive officers, +including amounts realized or realizable under prior equity-based compensation +awards, the Committee believes that current compensation practices must be +competitive to retain the executives in light of prevailing market practices and +to motivate the future performance of the executive officers. Accordingly, +wealth accumulation through superior past performance of the Company is not +punished through reductions in current compensation levels. +37 +Table of Contents +ELEMENTS OF EXECUTIVE COMPENSATION +Overview +To +achieve the objectives of the executive compensation program, the Committee uses +four elements of compensation in varying proportions for the different executive +officers. These elements are base salary, STI, LTI, and other benefits. The +Committee uses cash payments (base salary and STI), awards tied to the Company's +stock (LTI, which we also refer to as “equity-based compensation”) and non-cash +benefits in its overall compensation packages. The Committee balances salary and +performance-based compensation, and cash and non-cash compensation, in a manner +it believes best serves the objectives of the Company’s compensation program. +The Committee allocates among the different elements of compensation in a manner +similar to the median allocation of the Peer Group, based on the level of the +executive's position. Generally, it is the policy of the Committee that, as +income levels increase, a greater proportion of the executive’s income should be +in the form of STI and LTI compensation. For example the Chief Executive Officer +("CEO") of the Company receives a higher percentage of his compensation in the +form of short and long term incentives compared to other executives, as is the +case of CEOs in the Peer Group. The following table shows the breakdown of +target compensation among the three elements for 2007 and 2008 for each +executive officer. +Target +Compensation for Elements +as +a Percentage of Total Target Compensation +2007 +2008 +Name +Base +Salary +Bonus +Target +Equity +Target +Base +Salary +Bonus +Target +Equity +Target +Steven +R. Williams +33 +% +24 +% +43 +% +27 +% +24 +% +49 +% +Thomas +E. Riley +(1) +36 +% +22 +% +42 +% +– +– +– +Richard +W. McCullough (2) +40 +% +20 +% +40 +% +29 +% +27 +% +44 +% +Eric +R. Stearns +36 +% +23 +% +41 +% +33 +% +20 +% +47 +% +Barton +R. Brookman, Jr. +(3) +– +– +– +40 +% +20 +% +40 +% +Daniel +W. Amidon +(4) +– +– +– +40 +% +20 +% +40 +% +Darwin +L. Stump +44 +% +22 +% +34 +% +40 +% +20 +% +40 +% +__________ +(1) +Mr. +Riley resigned as President of the Company effective March 9, +2008. +(2) +Mr. +McCullough was selected as successor to the CEO upon Mr. Williams' +retirement, anticipated to be in August +2008. +(3) +Mr. +Brookman was appointed to the executive position of Senior Vice President +on March 8, 2008. +(4) +Mr. +Amidon joined the Company in July 2007 as General +Counsel. +Base Salary +The +Committee annually reviews the base salaries of the CEO and other executive +officers. Salaries are also reviewed in the case of promotions or other +significant changes in responsibilities. In each case, the Committee takes into +account the results achieved by the executive, his or her future potential, +scope of responsibilities and experience, and competitive salary practices of +the Peer Group. Base salary is intended to provide a baseline of compensation +that is not contingent upon the Company’s performance. +After +reviewing the Peer Group salary levels and considering individual performance, +the Committee established Base Salary increases for 2007 of 7.2% for the CEO and +between 0% and 8.2% for the other executive officers. The total +salary compensation of the executive officers approximated the mean of the Peer +Group, although the spread between the highest and lowest is less than the Peer +Group. For 2008, the Committee established Base Salary increases of 8.1% for the +CEO and between 3.2% and 44.7% for other executive officers. Mr. McCullough’s +base salary was increased by 44.7% to reflect the additional responsibilities he +has assumed as President and the anticipated further increase in +responsibilities upon his assumption of the CEO position later in the year. +Annual base salaries for the executive officers for 2007 and 2008 are shown in +the following table: +38 +Table of Contents +Annual +Base Salaries +Name +2007 +2008 +Steven +R. Williams +$ +370,000 +$ +400,000 +Thomas +E. Riley +292,500 +– +Richard +W. McCullough +235,000 +340,000 +Eric +R. Stearns +271,500 +305,000 +Barton +R. Brookman, Jr. +200,000 +250,000 +Daniel +W. Amidon +210,000 +227,500 +Darwin +L. Stump +220,500 +227,500 +Short-Term Incentives +Annual +STI are tied to the Company’s overall performance for the fiscal year, as +measured against objective criteria set by the Committee, as well as the +Committee’s assessment of company performance and individual performance of each +executive. For 2007, at least 40% of the target STI payments are performance +based awards measured against objective criteria established early in the fiscal +year for all named executives except Mr. Stump. The remainder was awarded at the +discretion of the Committee based on its assessment of Company and executive +performance. For 2007 and 2008, 100% of Mr. Stump's STI is discretionary and for +the other executive officers, STI performance based award percentages will be +70% of the total target STI. The Compensation Committee has decided to maintain +discretion over STI bonus amounts for Mr. Stump to emphasize the focus of his +role in 2007 and 2008 on the continued development of the accounting functions +of the Company rather than on production targets and overall financial +performance. The Committee, comprised entirely of independent directors, +believes that some discretion with respect to individual awards is desirable to +compensate for unusual and unexpected events, and as a result does not set +specific performance targets for 30% of the target STI in 2008. +Target +STI payments, expressed as a percentage of base salary, are set for each +executive officer prior to the beginning of the fiscal year based on job +responsibilities. STI payments for the year may range from zero up to 180% of +the executive officer’s base salary, based on the achievement of the objective +criteria for performance based payments and the assessment by the Committee for +the balance. For fiscal year 2007 target STI awards for the executive officers +ranged from 50% to 75% of salary. In 2008 target STI awards for the executive +officers range from 50% to 90% of salary, which is in line with the Peer group +compensation. +With +respect to the executive officers, the Committee establishes formulae to +determine the percentage of the target annual incentive payment that may be +payable for the fiscal year. The Committee does not have the discretion to +change any objective criteria once they have been established. However, the +Committee does retain discretion over 60% (100% for Mr. Stump) of the total +target STI in 2007 to allow some flexibility to award superior, or reflect the +effect of sub-par, personal performance that may not be captured by the +financial and operating criteria. In 2008 the Committee established objective +criteria for 70% of the total STI for all executives except Mr. Stump, where it +will continue to maintain discretion over 100% of the STI award. In addition, +the Committee has the authority to recommend to the Board compensation for +unusual circumstances. In July of 2007 the Company hired Dan Amidon as General +Counsel under an employment agreement that called for STI of up to 75% of his +annual salary, prorated for the term of service. As a result of Mr. +Amidon’s outstanding performance and contributions the Committee awarded Mr. +Amidon total STI compensation equal to 100% of his salary (reduced pro rata for +the partial year worked). The following table sets forth the STI +threshold, target and maximum levels for 2007 and 2008 for the executives +expressed as a percentage of base salary. +39 +Table of Contents +Short-Term +Incentive Compensation +(1) +2007 +2008 +% +of Base Salary +% +of Base Salary +Name +Threshold +Target +Stretch +Threshold +Target +Stretch +Steven +R. Williams +0 +% +75 +% +150 +% +0 +% +90 +% +180 +% +Thomas +E. Riley +0 +% +62.5 +% +125 +% +– +– +– +Richard +W. McCullough +0 +% +50 +% +100 +% +0 +% +90 +% +180 +% +Eric +R. Stearns +0 +% +62.5 +% +125 +% +0 +% +62.5 +% +125 +% +Barton +R. Brookman, Jr. +– +– +– +0 +% +50 +% +100 +% +Daniel +W. Amidon +0 +% +50 +% +75 +% +0 +% +50 +% +100 +% +Darwin +L. Stump +– +– +– +– +– +– +_______________ +(1) +Percentages +apply to all executive officers with the exception of Mr. Stump, 100% of +his STI was and is discretionary. Additionally, Mr. Brookman +was not eligible to for STI compensation until March +2008. +Long-Term Incentives +The +Committee’s practice has been to determine the dollar amount of target equity +compensation and to then grant equity-based compensation that has a fair value +equal to that amount. To provide consistency from year-to-year and to +avoid questions about timing of awards, the Committee uses a consistent period +to value the awards when determining the number of shares in the award, the +average daily price in December of the year prior to the award year. The 2007 +awards were determined using the fair value of the awards based on the average +daily closing price of the Company's stock in December 2006, with average +December 2007 prices being used to determine the awards for 2008. At +the Committee’s direction the Consultant calculated the fair value utilizing +methods they have developed for use with these types of equity valuations, +including taking into account the probability and/or timing of vesting under the +performance criteria for the LTIP shares and the other restricted stock. For the +purpose of recording an expense for financial reporting purposes, the awards are +valued based on the market price at the time the award is +finalized. +In April +2007, the Company corrected an administrative error in the stock option exercise +price of shares awarded the executive officers in March 2006, none of which were +exercised at the time. The administrative error related to the use of the +closing price of the Company's common stock on the day prior to the award, +rather than the closing price on the day of the award in accordance with the +Company's 2004 Long-Term Equity Compensation Plan. The need for the correction +was identified by the Company and the effect of the correction was not material +to the fair value of the awards, either at the time of the award or the time of +the correction. +In 2007, +a percentage of the equity-based compensation awards are LTIP shares with the +percentage increasing for more highly compensated executives, and the balance of +the awards are time vesting restricted stock. For example, 50% of the CEO’s +equity-based compensation in 2007 was LTIP shares, in contrast to 40% for the +President and 30% for the CAO. The following table summarizes LTI awards for +2007 and 2008, and the second table summarizes the target prices for the +performance vesting of the LTIP awards. +40 +Table of Contents +Long-Term +Incentive Compensation +2007 +2008 +Name +Percent +of +Salary +Percent +of +Value +from +Time +Vesting +Restricted +Stock +Percent +of +Value +from +LTIP +Stock +Percent +of +Salary +Percent +of +Value +from +Time +Vesting +Restricted +Stock +Percent +of +Value +from +LTIP +Stock +Steven +R. Williams +175 +% +50 +% +50 +% +175 +% +0 +% +100 +% +Thomas +E. Riley +145 +% +60 +% +40 +% +– +– +– +Richard +W. McCullough +– +– +– +150 +% +50 +% +50 +% +Eric +R. Stearns +140 +% +60 +% +40 +% +145 +% +50 +% +50 +% +Barton +R. Brookman, Jr. +– +– +– +100 +% +50 +% +50 +% +Daniel +W. Amidon +– +– +– +100 +% +50 +% +50 +% +Darwin +L. Stump +90 +% +70 +% +30 +% +75 +% +50 +% +50 +% +LTIP +Target Prices (1) +Year +of +Award +Approximate +Growth +Target +Target +Price +Percent +Vested +if +Target +Attained (2) +2007 +2009 +2010 +2011 +12 +% +$ +60.00 +$ +67.50 +$ +75.00 +50 +% +16 +% +67.50 +77.50 +90.00 +75 +% +20 +% +75.00 +90.00 +107.50 +100 +% +2008 +2010 +2011 +2012 +12 +% +$ +80.50 +$ +90.00 +$ +101.00 +50 +% +16 +% +89.50 +103.50 +120.00 +75 +% +20 +% +99.00 +118.50 +142.50 +100 +% +_______________ +(1) +Growth +target percentages and target prices are based on the average closing +price of the Company's common stock during the preceding December for each +of the years. +(2) +Performance +shares will vest for a performance period only if the target price is met +or exceeded for such period. Performance shares vested for a +performance period shall not be subject to divestment in the event the +share price subsequently decreases below the threshold in a subsequent +period. +Retirement Plans +The +Company has a combined 401(k) and qualified profit sharing plan for all of the +Company’s employees including the executive officers. The plan provides for +discretionary matching contributions. Generally, the Company matches employee +401(k) contributions dollar for dollar up to 10% of the employee’s compensation +and then matches 20% for contributions above 10% of the employees' compensation +up to the maximum allowable limits under the Internal Revenue Code ("IRC"). The +Company's profit sharing contribution is discretionary and for 2007 was equal to +1% of the Company's +consolidated net income. In addition, there was a carryover contribution earned +in 2006 of $1.1 million. Total Company contributions, to both 401(k) and profit +sharing, to the plan for 2007 were $2.5 million. +41 +Table of Contents +Under +their current employment agreements, each of the named executive officers also +earns the right to future payments following their retirement or other departure +from the Company. For each year worked under his current agreement, the CEO +earns an annual retirement benefit equal to $500 times the number of his full +years of service times 10 ($500 per year of service for 10 years). Following the +termination of his service with the Company, the cumulative total of the +calculated annual retirement benefits is disbursed in ten equal annual +installments. For 2007, the retirement benefit was $120,000 ($12,000 per year +for 10 years) and for 2008, the retirement benefit will be $125,000 ($12,500 per +year for 10 years) if the CEO is employed by the Company for the full year, but +no additional benefit will be earned if +the CEO retires before the end of the year as planned. The CEO's total +cumulative retirement benefit, under this plan, at December 31, 2007, was +$450,000 ($45,000 per year for 10 years). The CEO also receives a lifetime +healthcare benefit under his employment agreement; the Company has recorded an +accumulated postretirement obligation of $296,819 as of December 31, 2007, +related to this benefit. Each of the other executive officers, under +their respective employment agreements, annually earns a retirement benefit +equal to $75,000 ($7,500 per year for 10 years). Following their termination of +service with the Company, their cumulative total annual retirement benefit will +be disbursed in ten equal annual installments. As of December 31, 2007, for Mr. +Stearns and Mr. Stump, the total cumulative benefit, including the 2007 +increment, was $300,000 ($30,000 per year for 10 years). As of December 31, +2007, Mr. McCullough’s total cumulative benefit, including the 2007 increment, +was $75,000 ($7,500 per year for 10 years). +Additionally, +under his previous employment agreement, Mr. Williams earned supplemental +retirement benefits. The prior agreement requires the Company to pay Mr. +Williams an annual sum of $40,000 per year for the ten year period following his +retirement from the Company (an aggregate of $400,000). This benefit was fully +vested on December 31, 2003. The amount of the annual benefit is increased by +10.75% compounded annually for the period after December 31, 2003. Under +provisions of his previous employment agreement, Mr. Williams may elect to defer +payment up to five years following his retirement. In the event of deferral of +payment following retirement the amount of the annual benefit will be increased +by 10.75% compounded annually. As of December 31, 2007, the amount of this +benefit is $601,893(or $60,189 per year for 10 years). In the event of change in +control the benefits due under this agreement will be accelerated and due +immediately. +Other Compensation and Benefits +The +Company also provides certain other benefits to its executive officers that are +not tied to any formal individual or Company performance criteria and are +intended to be part of a competitive overall compensation program. Each of the +executive officers has 1) a Company vehicle (or vehicle allowance) that they use +for Company business, and are allowed to use for personal uses as well, 2) +coverage under the Company’s medical plan and reimbursement of medical expenses +not covered by the plan, 3) the right to be reimbursed for one Board-approved +club membership, 4) reimbursement of the cost of a $1 million life insurance +policy, and 5) reimbursement of the cost of disability insurance. Given the +importance of the executives and their good health to the success of the Company +and the achievement of its business goals, the Committee believes that the +medical insurance and reimbursement encourage the executives to seek appropriate +medical assistance. The other benefits are commonly provided to executives and +are necessary to create a competitive compensation package. +Termination Benefits including Change in Control +Payments +The +compensation provisions in the event of a change in control serve to lessen the +potential negative impact of a change in control on the executive officers and +to lessen the potential conflict between the best interest of the shareholders +and that of the executives. The Committee believes this is desirable, in +combination with significant stock ownership, to encourage the executives to +consider possible change in control situations that might benefit the Company’s +shareholders. +42 +Table of Contents +The +Committee also believes that severance benefits for senior management should +reflect the fact that it may be difficult for employees to find comparable +employment within a short period of time. They also should disentangle the +Company from the former employee as soon as practicable. For instance, while it +is possible to provide salary continuation to an employee during the job search +process, which in some cases may be less expensive than a lump-sum severance +payment, a lump-sum severance payment is preferable in order to most cleanly +sever the relationship as soon as practicable. The Company has entered into +employment agreements with each of the executive officers that include change in +control provisions. These agreements provide for the continued employment of the +executives for a period of two years following a change in control of the +Company. These agreements are intended to retain the executives and provide +continuity of management in the event of an actual or threatened change in the +control of the Company and ensure that the executive’s compensation and benefits +expectations would be satisfied in such event. +Where the +termination is without “cause” or the executive officer terminates employment +for “good reason,” the severance plan provides for benefits equal to three times +the sum of: a) the executive officer’s highest base salary during the previous +two years of employment immediately preceding the termination date, plus b) the +highest bonus paid to the executive officer during the same two year period. The +executive officer is also entitled to 1) vesting of any unvested equity +compensation, 2) reimbursement for any unpaid expenses, 3) retirement benefits +earned under the current or previous agreements, 4) continued coverage under the +Company’s medical plan for up to 18 months, and 5) payment of any earned, unpaid +bonus amounts. In addition, a terminated executive officer is entitled to +receive any benefits that he otherwise would have been entitled to receive under +our 401(k) and profit sharing plan, although those benefits are not increased or +accelerated. The Committee believes that these termination benefits are +comparable to the general practice among similar companies, although it has not +conducted a study to confirm this. +Good +reason includes 1) assignment to the executive of duties materially and +adversely inconsistent with his position, duties, responsibilities and status +with the Company, 2) an adverse change in the executive’s position with the +Company, 3) a change in control of the Company, 4) a decrease of the executive +officer’s base salary, 5) a material reduction in the benefits provided by the +Company, 6) the requirement by the Company for the executive officer to be based +anywhere outside of Bridgeport, West Virginia, 7) the failure by the Company to +obtain a satisfactory agreement from any successor or assignee of the Company to +assume and agree to the Company’s obligations under the employment agreement, or +8) any other material breach of the employment agreement by the +Company. +The +Company may terminate any of the executive officers for just cause, which is +defined in the employment agreements to include 1) a failure by the executive to +perform his duties, 2) conduct by the executive that results in consequences +which are materially adverse to the Company, monetarily or otherwise, 3) a +guilty plea or conviction of a felony, or 4) a material breach of the terms of +the employment agreement by the executive officer. If an executive officer is +terminated for just cause, the Company is required to pay the executive officer +his base salary through the termination date plus any bonus (only for periods +completed and accrued, but not paid), incentive, deferred, retirement or other +compensation, and provide any other benefits, which have been earned or become +payable as of the termination date but which have not yet been paid or +provided. +If an +executive officer voluntarily terminates his employment with the Company for +other than good reason, he is entitled to receive 1) the base salary, bonus and +incremental retirement payment prorated for the portion of the year that the +executive officer is employed by the Company, 2) any incentive, deferred or +other compensation which has been earned or has become payable, but which has +not yet been paid under the schedule originally contemplated in the agreement +under which they were granted or in full without discount within 60 days of the +termination date at the discretion of the Company, 3) any unpaid expense +reimbursement upon presentation by the executive officer of an accounting of +such expenses in accordance with normal Company practices, and 4) any other +payments for benefits earned under the employment agreement or Company +plans. +The table +below provides information regarding the amounts each of the executive officers +would be eligible to receive if a termination event had occurred as of December +31, 2007: +43 +Table of Contents +Termination +Benefits +Name +Retirement +or +Voluntary +Termination +by +Executive +Termination +For +Cause +by +Company +Change +in Control or +Termination +Without +Cause or +Good +Reason +by +Executive +Death +or +Disability (1) +Steven +R. Williams (2) +$ +4,117,113 +$ +3,867,363 +$ +8,101,899 +$ +5,449,275 +Thomas +E. Riley +647,637 +461,168 +3,252,448 +(3) +1,705,198 +Richard +W. McCullough +311,606 +205,856 +1,493,174 +656,674 +Eric +R. Stearns +625,325 +472,606 +3,010,848 +1,579,098 +Darwin +L. Stump +502,231 +336,856 +2,294,578 +1,181,053 +_______________ +(1) +In +the event of death or disability, the termination benefits would consist +of (i) the base salary and bonus for the portion of the year the executive +officer is employed by the Company; (ii) the base salary that would have +been earned for six months after termination; (iii) immediate vesting of +all equity and option awards; (iv) the payment of deferred retirement +compensation based upon the schedule originally contemplated in the +deferred retirement compensation agreement or in a lump-sum no later than +two and one-half months following the close of the calendar year in which +the death or disability occurred; (v) reimbursement for any unpaid +expenses; (vi) and benefits earned under the 401(k) and profit sharing +plan; and (vii) continued coverage under the Company's medical plan, life +time coverage for Mr. Williams and for up to 18 months for all other named +executive officers. +(2) +Includes +(i) the estimated lifetime value of medical benefits for Mr. Williams +and/or his spouse; and (ii) a deferred retirement compensation benefit +related to a prior employment +agreement. +(3) +This +benefit is calculated as of December 31, 2007. The value of Mr. Riley's +actual severance benefit upon termination for good reason effective March +9, 2008, was higher than this amount was primarily because the actual +severance was based on 2008 salary, $315,000, and on a higher +annual bonus. +Executive and Director Share Retention and +Ownership Guidelines +In order +to promote equity ownership and further align the interests of management with +the Company’s shareholders, the Committee has adopted share retention and +ownership guidelines for senior management and non-employee directors. Under +these guidelines, executive officers and non-employee directors are required to +achieve and continue to maintain a significant ownership position, as +follows: +Chief +Executive Officer +3 +times salary +Other +Executive Officers +2 +times salary +Non-Employee +Directors +1 +times retainer +The +Committee periodically reviews share ownership levels of the persons subject to +these guidelines. Shares held by the executive officers and shares held +indirectly through the Company 401(k) plan are included in determining an +executive officer’s share ownership. Shares underlying stock options, including +vested options, as well as unvested restricted stock, are not included. Mr. +McCullough who was hired in November 2006, Mr. Amidon who was hired in July +2007, and Mr. Brookman, who was named as an Executive officer in March 2008, +have not yet met the holding requirement. In addition the two new +directors appointed in 2007, have not yet met the requirement. All +other executive officers and non-employee directors have achieved shareholdings +in excess of the applicable multiple set forth above. +The +Company’s insider trading policy expressly prohibits Company officers, +directors, employees and associates from engaging in options, puts, calls or +other transactions that are intended to hedge against the economic risk of +owning the Company shares. +44 +Table of Contents +Employment Agreements +The Company entered into +employment agreements with Messrs. Williams, Riley, Stearns and Stump effective +January 1, 2004, Mr. McCullough effective November 13, 2006, Mr. Amidon on July +2, 2007, and Mr. Brookman on July 11, 2007. The initial term of the agreements +is for two years and they are automatically extended for an additional 12 months +beginning on the first anniversary of the effective date and on each successive +anniversary unless either party cancels. The employment agreements provide for +the base annual salary to be reviewed annually (see "Base Salary" discussion +above). +Each +employment agreement provides for an annual performance bonus as determined by +the Compensation Committee and is based in part upon written objective criteria +and in part upon the discretion of the Compensation Committee. The annual +performance bonus earned is calculated as a percentage, as determined by the +Compensation Committee, of the executive officers' base salary. +Each +employment agreement contains a standard non-disclosure covenant and, also, +provides that the executive officer is prohibited during the term of his +employment and for a period of one year following his termination from engaging +in any business that is competitive with the Company's oil and gas drilling +business. Additionally, the employment agreements state that the executive +officer must devote substantially all of his business time, best efforts and +attention to promote and advance the business of the Company. The executive +officer may not be employed in any other business activity, other than with the +Company, during the term of the employment agreement, whether or not such +activity is pursued for gain, profit or other pecuniary advantage without +approval by the Compensation Committee of the Board. This restriction will not +prevent the executive officer from investing his personal assets in a business +which does not compete with the Company or its affiliates, and where such +investment will not require services of any significance on the part of the +executive officer in the operation of the affairs of the business. +Other Agreements and Arrangements +Prior to +2007 Executive officers could invest in a Board-approved executive drilling +program at the Company's cost. Effective with the 2007 partnership +the Board eliminated this executive officer investment program, although there +were some carryover drilling from the 2006 program paid in 2007. +During 2007, Messrs. Williams and Riley invested approximately $20,000, and +$7,000, respectively. Other investors participating in drilling with +the Company are generally charged a profit or markup above the cost of the +wells; for example, the markup on Company-sponsored partnerships is +approximately 15% of the cost of the wells. As a result, the +executive officers realize a benefit not generally available to other +investors. The Board believes that having the executive officers +invest in wells with the Company and other investors helps to create a +commonality of interests much like share ownership creates a commonality of +interests between the shareholders and executive officers. +Internal Revenue Code Section 162(m) +The +Committee is aware of IRC Section 162(m) of the tax code, which generally limits +the deductibility of executive pay in excess of one million dollars, and which +specifies the requirements for the “performance-based” exemption from this +limit. Elements of the executive compensation program are indeed +performance-based, and vehicles such as stock options are believed to qualify as +performance-based under Section 162(m). Other aspects of the +executive compensation program may not qualify as performance-based, such as +time-based restricted stock and the Company's annual incentive plan because the +Committee prefers the ability to exercise discretion in evaluating a portion of +participants' performance. The financial implications of a potential +lost deduction are not expected to be material. The Committee will +continue to monitor its position on the impact of Section 162(m) for the +Company's executive compensation programs. +45 +Table of Contents +EXECUTIVE COMPENSATION +2007 SUMMARY COMPENSATION TABLE +The +following table provides summary compensation information for the Company's +Chief Executive Officer, the Chief Financial Officer, and the three most highly +compensated executive officers, other than the Chief Executive Officer and Chief +Financial Officer, whose total compensation exceeded $100,000 in 2007 (the +"named executive officers"). +Name +and Principal Position (1) +Year +Salary +Bonus (2) +Stock +Awards (3) +Option +Awards (4) +Non-Equity +Incentive +Plan +Compensation (5) +Nonqualified +Deferred +Compensation ( 6) +All +Other +Compensation (7) +Total +Compensation +Steven +R. Williams +2007 +$ +370,000 +$ +249,750 +$ +184,470 +$ +34,609 +$ +222,000 +$ +140,312 +$ +64,860 +(8) +$ +1,266,001 +Chairman, +Chief +2006 +345,000 +155,250 +163,023 +54,546 +362,250 +88,438 +37,778 +1,206,285 +Executive +Officer +and +Director +Thomas +E. Riley +2007 +292,500 +186,469 +255,255 +35,146 +124,312 +32,674 +24,663 +951,019 +President +2006 +272,000 +81,600 +107,580 +35,977 +190,400 +30,824 +9,357 +727,738 +and +Director +Richard W. McCullough +2007 +235,000 +105,750 +46,390 +17,532 +94,000 +30,555 +13,625 +542,852 +Vice +Chairman, Chief +2006 +32,237 +83,000 +5,928 +2,289 +- +3,848 +- +127,302 +Financial +Officer +and +Director +Eric +R. Stearns +2007 +271,500 +152,719 +229,360 +31,723 +135,750 +23,033 +20,669 +864,754 +Executive +Vice +2006 +251,000 +175,300 +98,318 +32,806 +175,700 +21,730 +17,773 +772,627 +President, +Exploration +and Development +Darwin +L. Stump +2007 +220,500 +165,375 +144,275 +26,843 +- +27,433 +11,413 +595,839 +Chief +Accounting +2006 +220,500 +33,075 +85,963 +28,484 +154,350 +25,880 +17,610 +565,862 +Officer +______________ +(1) +The +listed positions are those held as of December 31, +2007. +(2) +Represents +the discretionary based amounts paid under the Company's annual STI bonus +plan. For a discussion of the bonus plan, see the Compensation +Discussion and Analysis set forth +above. +(3) +Represents +compensation expense recorded by the Company pursuant to FAS 123(R) +related to outstanding restricted stock awards. For information +regarding the determination of such expense, please refer to Note 9 to the +Company's consolidated financial statements included in its Report on Form +10-K filed with the SEC on March 20, +2008. +(4) +Represents +compensation expense recorded by the Company pursuant to FAS 123(R) +related to outstanding stock options. For information regarding +the determination of such expense, please refer to Note 9 to the Company's +consolidated financial statements included in its Report on Form 10-K +filed with the SEC on March 20, +2008. +(5) +Represents +the performance based amounts earned under the Company's annual STI bonus +plan. For a discussion of the bonus plan, see the Compensation +Discussion and Analysis set forth +above. +(6) +Represents +the present value of the current year benefit earned related to the +deferred compensation retirement +plan. +(7) +All +other compensation includes insurance and medical reimbursements, social +fringe benefits such as club dues and athletic event tickets, the value +for the personal use of Company automobiles and discounts related to +Company-sponsored drilling +programs. +(8) +Includes, +in addition to other compensation items discussed in (7) above, $37,845 +for post retirement medical +benefits. +46 +Table of Contents +2007 GRANTS OF PLAN -BASED AWARDS TABLE +Estimated +Future Payouts +All +Other +Estimated +Future Payouts +Under +Equity +Stock +Grant +Date +Under +Non-Equity +Incentive +Plan Awards +Awards: +Fair +Value of +Incentive +Plan Awards +(1) +(Number +of Shares) +(2) +Number +of +Stock +and +Shares +Option +Name +Grant +Date +Threshold +Target +Maximum +Threshold +Target +Maximum +Awarded +(3) +Awards +Steven +R. Williams +2/20/2007 +$ +- +$ +- +$ +- +- +- +- +8,484 +$ +436,332 +(4) +2/20/2007 +- +- +- +- +7,341 +14,683 +- +529,616 +(5) +3/29/2007 +- +277,500 +555,000 +- +- +- +- +- +Thomas +E. Riley +2/20/2007 +- +- +- +- +- +- +6,669 +342,987 +(4) +2/20/2007 +- +- +- +- +3,847 +7,694 +- +277,523 +(5) +3/29/2007 +- +182,812 +365,625 +- +- +- +- +- +Richard W. McCullough +2/20/2007 +- +- +- +- +- +- +- +- +(4) +2/20/2007 +- +- +- +- +- +- +- +- +(5) +3/29/2007 +117,500 +235,000 +- +- +- +- +- +Eric +R. Stearns +2/20/2007 +- +- +- +- +- +- +5,976 +307,346 +(4) +2/20/2007 +- +- +- +- +3,447 +6,895 +- +248,703 +(5) +3/29/2007 +- +169,688 +339,375 +- +- +- +- +- +Darwin +L. Stump +2/20/2007 +- +- +- +- +- +- +3,640 +187,205 +(4) +2/20/2007 +- +- +- +- +1,350 +2,700 +- +97,389 +(5) +_______________ +(1) +Represents +STI compensations award, or cash incentive awards, computed as described +above in Compensation Discussion and Analysis - Short-Term +Incentives. +(2) +Represents +market-based restricted stock awards under the Company's 2004 Long-Term +Equity Compensation Plan. For a discussion of the Company's +Long-Term Incentive Plan, see the Compensation Discussion and Analysis set +forth above. +(3) +Represents +time-based restricted stock awards under the Company's 2004 Long-Term +Equity Compensation Plan. For a discussion of the Company's +Long-Term Incentive Plan, see the Compensation Discussion and Analysis set +forth above. +(4) +Grant +date fair value is computed by multiplying the number of shares awarded by +the closing price of the Company's stock on the date of grant, which was +$51.43. Mr. McCullough was first employed by the Company in +November 2006, at which time he received a time based stock award for his +initial year of employment and therefore was not awarded shares in +2007. +(5) +Grant +date fair value is computed by multiplying the number of shares awarded by +the grant date fair market value as computed utilizing the Monte Carlo +pricing model, which was $36.07 per share. Mr. McCullough was +first employed by the Company in November 2006, at which time he was not +eligible to receive market based stock awards until he completed his +initial year of employment. +47 +Table of Contents +OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END +TABLE +Option +Awards +Restricted +Stock Awards +Equity +Equity +Incentive +Incentive +Plan +Awards: +Plan +Awards: +Market +Number +of Securities +Number +Market +Value +Number +of +Value +Underlying +Unexercised +of +Shares +of +Shares +Unearned +of +Unearned +Options +Held at +of +Stock +That +Have +Shares +That +Shares +That +December +31, 2007 +Exercise +Expiration +That +Have +Not +Have +Not +Have +Not +Name +Exercisable +Unexercisable +Price +Date +Not +Vested +Vested +(1) +Vested +(2) +Vested +(1) +Steven +R. Williams +4,402 +1,468 +(3) +$ +37.15 +12/13/2014 +47,528 +(4) +$ +2,810,331 +14,683 +$ +868,206 +1,879 +5,638 +(5) +44.95 +3/16/2016 +- +- +- +- +Thomas +E. Riley +2,917 +973 +(6) +37.15 +12/13/2014 +12,623 +(7) +746,398 +7,694 +(8) +454,946 +1,234 +3,705 +(6) +44.95 +3/16/2016 +- +- +- +- +Richard +W. McCullough +833 +2,500 +(5) +43.60 +11/14/2016 +3,192 +(5) +188,743 +- +- +Eric +R. Stearns +2,752 +918 +(3) +37.15 +12/13/2014 +11,327 +(9) +669,766 +6,895 +407,701 +1,093 +3,282 +(5) +44.95 +3/16/2016 +- +- +- +- +Darwin +L. Stump +2,587 +863 +(3) +37.15 +12/13/2014 +8,121 +(10) +480,195 +2,700 +159,651 +880 +2,643 +(5) +44.95 +3/16/2016 +- +- +- +- +_______________ +(1) +The +market value of shares is based on the closing price of the Company's +common stock on December 31, 2007, which was $59.13 per +share. +(2) +Represents +LTIP shares that will vest based on the achievement of certain price +appreciation targets for the Company's common stock as discussed in the +Compensation Discussion and Analysis set forth +above. +(3) +100% +of these options are scheduled to vest in +2008. +(4) +36,491 +shares are scheduled to vest in 2008, including 30,000 shares expected to +vest in August upon Mr. Williams' retirement as CEO, 4,458 shares in each +of the years 2009 and 2010, and 2,121 shares in +2011. +(5) +Approximately +33% of these options will vest in each of the years 2008 through +2010. +(6) +100% +of these options vested in March 2008 pursuant to Mr. Riley's separation +agreement. +(7) +100% +of these shares vested in March 2008 pursuant to Mr. Riley's separation +agreement. +(8) +3,078 +shares vested in March 2008 pursuant to Mr. Riley's separation agreement; +the remaining 4,616 shares were +forfeited. +(9) +4,124 +shares are scheduled to vest in 2008, 2,854 shares in 2009, 2,855 shares +in 2010 and 1,494 shares in +2011. +(10) +3,200 +shares are scheduled to vest in 2008, 2,005 shares in 2009, 2,006 shares +in 2010 and 910 shares in 2011. +48 +Table of Contents +2007 OPTIONS EXERCISES AND STOCK VESTED +TABLE +Option +Awards +Stock +Awards +Number +of +Number +of +Shares +Acquired +Value +Realized +Shares +Acquired +Value +Realized +Name +on +Exercise +on +Exercise +on +Vesting +on +Vesting (1) +Steven +R. Williams +- +$ +- +4,369 +(2) +$ +235,009 +Thomas +E. Riley +- +- +2,882 +(3) +155,079 +Richard +W. McCullough +- +- +1,064 +(4) +56,115 +Eric +R. Stearns +- +- +2,630 +(5) +141,863 +Darwin +L. Stump +- +- +2,290 +(6) +124,277 +_______________ +(1) +Based +on the closing price of the Company's common stock on the date of vesting, +March 16, 2007 of $49.86 per share, November 14, 2007 of $52.74 per share, +and December 13, 2007, of $58.31 per +share. +(2) +Includes +2,337 shares vesting on March 16, 2007 and 2,032 shares vesting on +December 13, 2007. +(3) +Includes +1,535 shares vesting on March 16, 2007 and 1,347 shares vesting on +December 13, 2007. +(4) +Includes +1,064 shares vesting on November 14, +2007. +(5) +Includes +1,360 shares vesting on March 16, 2007 and 1,270 shares vesting on +December 13, 2007. +(6) +Includes +1,095 shares vesting on March 16, 2007 and 1,195 shares vesting on +December 13, 2007. +2007 NONQUALIFIED DEFERRED COMPENSATION +TABLE +Executive +Company +Aggregate +Aggregate +Aggregate +Contributions +in +Contributions +in +Earnings +in +Withdrawals/ +Balance +at +Name +2007 +2007 +(1) +2007 +(2) +Distributions +December 31, +2007 +Steven +R. Williams +$ +- +$ +140,312 +(3) +$ +45,289 +$ +- +$ +940,422 +Thomas +E. Riley +- +32,674 +5,548 +- +130,693 +Richard +W. McCullough +- +30,555 +231 +- +34,634 +Eric +R. Stearns +- +23,033 +3,911 +- +92,133 +Darwin +L. Stump +- +27,433 +4,658 +- +109,732 +_______________ +(1) +Company +contributions include the present value cost of providing the defined +compensation payout over a ten year period. Since this is a +self funded deferred compensation plan, the Company's additional annual +deferred compensation expense, less the interest component noted as +aggregate earnings above, equals the increase in the accrued Company +contributions that are required to fund the plan. These annual +amounts are a component of the executive officers' 2007 compensation and +are included in the 2007 Summary Compensation +Table. +(2) +Aggregate +earnings consist of interest income earned on the beginning of the year +compensation balance at a 6% interest rate. These earnings are +not included in the 2007 Summary Compensation Table as they are not above +market rate. +(3) +Mr. +Williams received deferred compensation benefits from both the current +deferred compensation plan for all named executive officers, as well as a +prior retirement plan. +49 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The +following table summarizes information related to our equity compensation +plans under which our equity securities are authorized for issuance as of +December 31, 2007. +Plan +category +Number +of +securities to be +issued upon exercise +of +outstanding option (1) +Weighted-average +exercise +price of outstanding +options +Number +of securities +remaining +available for +future issuance +under equity +compensation +plans (2) +Equity +compensation plans approved by security holders: +1999 +Incentive Stock Option and Non-Qualified Stock Option Plan +11,000 +$ +3.88 +- +2004 +Long-Term Equity Compensation Plan +40,567 +41.59 +473,600 +2005 +Non-Employee Director Restricted Stock Plan +- +- +13,844 +Total +equity compensation plans approved by security holders +51,567 +487,444 +Equity +compensation plans not approved by security holders +- +- +- +Total +51,567 +32.72 +487,444 +_______________ +(1) +Excludes +31,972 shares of common stock to be issued upon the obtainment of +specified performance goals over a specified period of +time. +(2) +Excludes +the number of securities to be issued upon exercise of outstanding options +and performance shares subject to certain performance goals over a +specified period of time. +SHAREHOLDER NOMINATIONS AND +PROPOSALS +Advance +Notice Procedures +Under the +Company's By-Laws, no business may be brought before an annual meeting of the +Company unless it is specified in the notice of the meeting or is otherwise +brought before the meeting by or at the direction of the Board or by a +shareholder entitled to vote who has delivered advance notice to the +Company. The notice must contain certain information specified in the +By-Laws and be delivered to the Corporate Secretary at Petroleum Development +Corporation, 120 Genesis Boulevard, Bridgeport, West Virginia 26330, not less +than 80 days nor more than 90 days prior to the first anniversary of the +preceding year's annual meeting. The by-laws also provide that notice +can be given not later than the tenth day following the day on which public +announcement of the date of the annual meeting is first made by the Company. +These requirements are separate from and in addition to the SEC's requirements +that a shareholder must meet in order to have a shareholder proposal included in +the Company's proxy statement pursuant to Rule 14a-8 under the Securities +Exchange Act of 1934. Under federal proxy rules, if a shareholder +wishes to present such a proposal at the annual meeting, but fails to notify the +Company by the date required by the Company's By-Laws, the proxies solicited by +the Board will include discretionary authority to vote on the shareholder's +proposal in the event the proposal is properly brought before the +meeting. +50 +Table of Contents +Shareholder +Proposals for 2009 Annual Meeting +In order +to be included in the Company's Proxy Statement for the 2009 Annual Meeting of +Shareholders, shareholder proposals must be received by the Company at its +principal executive office on or prior to January 23, 2009. Proposals +should be addressed to: +Corporate +Secretary +Petroleum +Development Corporation +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330. +In +addition, for any proposal that is not submitted for inclusion in next year's +proxy statement, but is instead sought to be presented directly at the 2009 +Annual Meeting of Shareholders, SEC rules permit management to vote proxies in +its discretion if the Company (1) receives written notice of the proposal not +later than April 3, 2009, nor earlier than March 24, 2009, and advises +shareholders in the 2009 proxy statement about the nature of the matter and how +management intends to vote on the matter; or (2) does not receive written notice +of the proposal prior to the close of business on April 3, +2009. Notices of intention to present proposals at the 2009 +annual meeting of shareholders should be addressed to Corporate Secretary, +Petroleum Development Corporation, 120 Genesis Boulevard, Bridgeport, West +Virginia 26330. +By +Order of the Board of Directors, +Steven +R. Williams, Chairman +51 +Table of Contents +Dated: May +23, 2008 +THE +COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL +HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY +OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER +31, 2007, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE +COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY +BE OBTAINED BY WRITING TO CORPORATE COMMUNICATIONS DEPARTMENT, PETROLEUM +DEVELOPMENT CORPORATION, 120 GENESIS BOULEVARD, BRIDGEPORT, WEST VIRGINIA +26330. +Petroleum +Development Corporation +120 +Genesis Boulevard +Bridgeport, +West Virginia 26330 +Proxy +Solicited by the Board of Directors for the Annual Meeting of +Shareholders +The +undersigned hereby appoints STEVEN R. WILLIAMS and DARWIN L. STUMP, and either +of them, proxies, each with full power to act without the other and with full +power of substitution for and in the name of the undersigned at the Annual +Meeting of Shareholders of Petroleum Development Corporation (the "Company") to +be held on June 23, 2008, at 10:00 a.m. and at any adjournment or postponement +thereof to vote all shares of the common stock of the Company, held by the +undersigned with respect to the following matters or postponement and on such +other matters as may properly come before the meeting. +(1) +ELECTION +OF DIRECTORS +o FOR +ALL +o WITHHOLD +ALL +o FOR ALL +EXCEPT +(See +Instructions Below) +Joseph +E. Casabona +David +C. Parke +Richard +W. McCullough +Jeffrey +C. Swoveland +Larry +F. Mazza +Instructions: To +withhold authority to vote for any nominee, mark "FOR ALL EXCEPT" and circle the +nominee's name above. +(2) +To +amend and restate the Company’s Articles of Incorporation to: (1) increase +the number of authorized shares of common stock, par value $0.01, of the +Company from 50,000,000 shares to 100,000,000 shares, and (2) authorize +50,000,000 shares of preferred stock, par value $0.01, of the Company, +which may be issued in one or more series, with such rights, preferences, +privileges and restrictions as shall be fixed by the Company’s Board of +Directors from time to time the amended and restated Articles of +Incorporation are presented in Exhibit A to the Company's +Proxy. +o FOR +o AGAINST +o ABSTAIN +52 +Table of Contents +(3) +To +amend and restate the Company’s 2005 Non-Employee Director Restricted +Stock Plan to increase the number of shares authorized under the plan +from 40,000 to 100,000 and change the vesting. The amended and restated +plan is presented in Exhibit B to the Company's +Proxy. +o FOR +o AGAINST +o ABSTAIN +(4) +To +ratify the selection of PricewaterhouseCoopers LLP as independent +registered public accounting firm for the Company for the year ending +December 31, 2008. +o FOR +o AGAINST +o ABSTAIN +In their +discretion, the appointed proxies are authorized to vote upon such other +business as may properly come before the meeting and at any and all adjournments +or postponements thereof. +(CONTINUED +AND TO BE SIGNED ON THE OTHER SIDE) +53 +Table of Contents +The +undersigned hereby acknowledges receipt of the Notice of Annual Meeting of +Shareholders and Proxy Statement for such meeting dated June 23, 2008, and a +copy of the Company's 2007 Annual Report. +THIS +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR +TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, +WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF +NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED +IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4. +Date: +__________________, 2008 +Signature +(Please +sign in the above box EXACTLY as your name(s) appears on this +proxy. All joint holders must sign. When signing in +a representative capacity, please provide your full +title.) +IMPORTANT +INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD, PLEASE READ BOTH SIDES OF +THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED +ENVELOPE. +54 +Table of Contents +EXHIBIT +A +SECOND +AMENDED AND RESTATED ARTICLES OF INCORPORATION +OF +PETROLEUM +DEVELOPMENT CORPORATION +Pursuant +to the provisions of Section 78.403 of the Nevada Revised Statues, the +undersigned Corporation adopts the following Amended and Restated Articles of +Incorporation; +FIRST: +The +name of the Corporation is PETROLEUM DEVELOPMENT +CORPORATION. +SECOND +The +Articles of Incorporation of the Corporation were filed with the Secretary +of State of Nevada on the 25 th +day of March, 1955, and were amended by Certificate of Amendment to +Articles of Incorporation on the 21 st +day of November 1969 and by Certificate of Amendment of Articles of +Incorporation on the 22 nd +day of September 1997, and were amended and restated on the 16th day +of September 1998. +THIRD +The +Articles of Incorporation, as amended to the date of this certificate, are +hereby amended and restated as +follows: +FIRST. +The +name of the Corporation is PETROLEUM DEVELOPMENT +CORPORATION. +SECOND. +The +Corporation's registered office in the State of Nevada is located at One +East First Street, Reno, Nevada 89501. The name of the Corporation's +resident agent at such address is The Corporation Trust Company of +Nevada. +THIRD. +The +number of shares of capital stock the Corporation is authorized to issue +is 150,000,000 shares, consisting solely +of: +(a) +100,000,000 +shares of common stock, par value $0.01 per share (“ Common Stock ”); +and +(b) +50,000,000 +shares of preferred stock, par value $0.01 per share (“ Preferred +Stock ”). +The +Preferred Stock may be issued by the Corporation from time to time in one or +more series and in such amounts as may be determined by the Board of Directors +thereof. The designations, voting rights, amounts of preference upon +distribution of assets, rates of dividends, premiums of redemption, conversion +rights and other variations, if any, the qualifications, limitations or +restrictions thereof, if any, of the Preferred Stock, and of each series +thereof, shall be such as are fixed by the Board of Directors, the authority so +to do being hereby expressly granted, and as are stated and expressed in a +resolution or resolutions adopted by the Board of Directors providing for the +issue of such series of Preferred Stock (hereinafter called +the “ Directors’ +Resolution ”). The Directors’ Resolution as to any series shall state (a) +the number of shares constituting that series and the distinctive designation of +that series, or any increase or decrease (but not below the number of shares +thereof then outstanding) in such number; (b) the dividend rate on the shares of +that series, whether such dividends, if any, shall be cumulative, and, if so, +the date or dates from which dividends payable on such shares shall accumulate, +and the relative rights of priority, if any, of payment of dividends on shares +of that series; (c) whether that series shall have voting rights, in addition to +the voting rights provided by law, and, if so, the terms of such voting rights; +(d) whether that series shall have conversion privileges with respect to shares +of any other class or classes of stock or of any other series of any class of +stock, and, if so, the terms and conditions of such conversion, including +provision for adjustment of the conversion rate upon occurrence of such events +as the Board of Directors shall determine; (e) whether the shares of that series +shall be redeemable, and, if so, the terms and conditions of such redemption, +including their relative rights of priority, if any, of redemption, the date or +dates upon or after which they shall be redeemable, provisions regarding +redemption notices, and the amount per share payable in case of redemption, +which amount may vary under different conditions and at different redemption +dates; (f) whether that series shall have a sinking fund for the redemption or +purchase of shares of that series, and, if so, the terms and amount of such +sinking fund; (g) the rights of the shares of that series in the event of +voluntary or involuntary liquidation, dissolution, or winding up of the +Corporation, and the relative rights of priority, if any, of payment of shares +of that series; (h) the conditions or restrictions upon the creation of +indebtedness of the Corporation or upon the issuance of additional Preferred +Stock or other capital stock ranking on a parity therewith, or prior thereto, +with respect to dividends or distribution of assets upon liquidation; (i) the +conditions or restrictions with respect to the issuance of, payment of dividends +upon, or the making of other distributions to, or the acquisition or redemption +of, shares ranking junior to the Preferred Stock or to any series thereof with +respect to dividends or distribution of assets upon liquidation; and (j) any +other designations, powers, preferences, and rights, including, without +limitation, any qualifications, limitations, or restrictions +thereof. +A-1 +Table of Contents +FOURTH. +The +governing board of the Corporation shall be known as directors, and the +number of directors shall not be less than three (3) nor more than nine +(9). +FIFTH. +The +purpose of the Corporation is to engage any lawful activity permitted +under the Nevada Revised Statutes. +SIXTH. +The +stock of the Corporation shall be fully paid and nonassessable. No +stockholder of the Corporation shall by reason of his holding shares of +any class have any preemptive or preferential right to purchase or +subscribe to any shares of any class of the Corporation, now or hereafter +to be authorized, or any shares or other securities convertible into or +carrying options or warrants to purchase shares of any class, now or +hereafter to be authorized, whether or not the issuance of any such shares +or other securities would adversely affect the dividend or voting rights +of such holders, other than such rights, if any, as the Board of +Directors, in its discretion from time to time may grant, and at such +price as the Board of Directors in its discretion may fix; and the Board +of Directors may issue shares of any class of the Corporation or other +securities convertible into or carrying options or warrants to purchase +shares of any class without offering any such shares of any class, either +in whole or in part, to the existing stockholders of any +class. +SEVENTH. +The +Corporation may from time to time determine whether and to what extent, +and the times and places and upon what conditions, the books, records and +assets of the Corporation, or any of them (other than the stock ledger), +shall be open to inspection by the stockholders, and no stockholder shall +have any right to inspect any account, book or document of the +Corporation, except as conferred by law or by resolution of the Board of +Directors or stockholders. +EIGHTH. +The +Corporation shall have perpetual +existence. +NINTH. +No +director or officer of the Corporation shall be personally liable to the +Corporation or any of its stockholders for monetary damages for breach of +fiduciary duty as a director or officer, except that this Article does not +eliminate or limit the liability of a director or officer for: (i) an act +or omission that involves intentional misconduct, fraud or a knowing +violation of the law; (ii) an act or omission for which the liability of a +director or officer is expressly provided for by an applicable statute, +including the liability for payment of distributions in violation of +Section 78.300 of the Nevada Revised Statutes; or (iii) any other act, +omission, transaction or breach of duty as to which any applicable +statute, rule or regulation provides that the liability of directors or +officers may not be eliminated or limited. If the Nevada Revised Statutes +or other applicable laws (collectively, "Laws") hereafter are amended to +authorize the further elimination of limitation of the liability of +directors or officers, then the liability of a director or officer of the +Corporation, in addition to the limitation on personal liability provided +herein, shall be limited to the limitation on personal liability provided +herein, shall be limited to the fullest extent permitted by the amended +Laws. No amendment to or repeal of this Article shall apply to or have any +effect on the liability or alleged liability of any director or officer of +the Corporation for or with respect to any acts or omissions of such +director or officer occurring prior to such amendment or +repeal. +A-2 +Table of Contents +The +number of shares of the Corporation outstanding and entitled to vote on an +amendment and restatement of the Articles of Incorporation was [__________] on +May 19, 2008, and the said changes, amendment and restatement have been +consented and approved by a majority vote of the stockholders holding at lease a +majority of each class of stock outstanding and entitled to vote +thereon. +Steven +R. Williams, Chief Executive +Officer +Daniel +W. Amidon, Secretary +State +of West Virginia +) +) +ss. +County +of Harrison +On +_____________, 2008, personally appeared before me, a Notary Public, Steven R. +Williams, Chief Executive Officer and Daniel W. Amidon, Secretary, who +acknowledged that they executed the above instrument. +Signature +of Notary +Notary +Seal. +A-3 +Table of Contents +EXHIBIT +B +Petroleum +Development Corporation +2005 +Non-Employee Director Restricted Stock Plan +Amended +and Restated as of March 8, 2008 +Section +1. +Introduction +1.1 +The Plan; Effective Date; +Duration Petroleum Development Corporation, a +Nevada corporation (the “Corporation”), amends and restates the Petroleum +Development Corporation 2005 Non-Employee Director Restricted Stock Plan +(the “Plan”), originally effective as of June 10, 2005 (“Effective +Date”). Subject to the approval by the Corporation’s +stockholders, the Plan, as amended and restated, will become effective as +of March 8, 2008 (the “Restatement Effective Date”). The +Plan will continue in effect until all awards have been granted covering +all available shares of Stock (as hereinafter defined) or until the +termination of the Plan. For purposes of the Plan, a +“non-employee director” means any director of the Corporation (as +hereinafter defined) who is not an employee of the Corporation or any of +its affiliates or subsidiaries. +1.2 +Purpose . The +purpose of the Plan is to provide each non-employee member (“Director”) of +the Board of Directors (the “Board”) of the Corporation with awards of +shares of common stock, par value $.01 per share or other successor +security (“Stock”) of the Corporation, subject to the restrictions and +other provisions of the Plan (“Restricted Stock”). It is +intended that the Plan will (a) permit Directors to increase their stock +ownership and proprietary interest in the Corporation and enhance their +identification with the interests of the Corporation's stockholders +(“Stockholders”), (b) provide a means of compensating Directors that will +help attract qualified candidates to serve as Directors, and (c) induce +incumbent Directors to continue to serve if the Board desires that they +remain on the Board. +1.3 +Shares +of Stock Available Under the Plan. +a. +Subject +to any adjustments made pursuant to Section 1.3(c), the aggregate number +of shares of Stock that may be issued under the Plan shall be +100,000. No fractional shares of Stock will be issued under the +Plan. +b. +Shares +of Stock awarded under the Plan may be (i) authorized but unissued shares +of Stock, (ii) previously issued shares of Stock reacquired by the +Corporation, including shares purchased in the open market, or (iii) a +combination thereof. +c. +As +determined by the Compensation Committee of the Board or such other +committee of directors (the “Committee”) as may be designated by the +Board, in their best judgment, appropriate and equitable adjustment may be +made in the number of shares of Stock available under the Plan and covered +by Plan awards in the event of any recapitalization, reorganization, +merger, consolidation, spin-off, combination, repurchase, exchange of +shares or other securities of the Corporation, stock split, reverse stock +split, stock dividend, extraordinary dividend, liquidation, dissolution, +or other similar corporate transaction or event affecting the +Corporation. +B-1 +Table of Contents +Section +2. +Restricted +Stock Awards +2.1 +Award +Dates +a. +As +of the date of each annual meeting of Stockholders (“Annual Meeting”), +commencing with the 2005 Annual Meeting, each Director will be awarded +such number of shares of Restricted Stock as determined by the Board, +after consideration of the recommendation of the +Committee. Directors may, but need not, be awarded the same +number of shares of Restricted +Stock. +b. +A +Director who is elected to the Board on a date other than the date of an +Annual Meeting will be awarded such number of shares of Restricted Stock +as of such date of election as determined by the Board, after +consideration of the recommendation of the +Committee. +c. +The +Board shall cause the amount of the award for the plan year commencing +upon the next Annual Meeting to be disclosed in the Corporation’s proxy +statement for that Annual Meeting. +2.2 +Issuance of +Stock . Subject to Section 2.7(c), as promptly as +practical after the date as of which an award is made, the Corporation +shall issue a certificate (“Certificate”), registered in the name of the +Director receiving an award, representing the number of shares of +Restricted Stock covered by the Director's +award. +2.3 +Rights of Holders of +Restricted Stock . Upon issuance of a Certificate, the +Director in whose name the Certificate is registered will, subject to the +provisions of the Plan including Section 2.7(b), have all of the rights of +a Stockholder with respect to the shares of Restricted Stock represented +by the Certificate, including the right to vote the shares and receive +cash dividends and other cash distributions +thereon. +2.4 +Restricted +Period . Restricted Stock will be subject to the +restrictions set forth in Sections 2.5 and 2.7 of the Plan and the other +provisions of the Plan for a period (the “Restricted Period”) commencing +on the date as of which the Restricted Stock is awarded (the “Award Date”) +and ending on the earliest of the first to occur of the +following: +a. +the +retirement of the Director from the Board in compliance with the Board’s +retirement policy as then in +effect; +b. +the +termination of the Director’s service on the Board as a result of the +Director’s not being nominated for reelection by the +Board; +c. +the +termination of the Director’s service on the Board because of the +Director’s resignation or failure to stand for reelection with the consent +of the Corporation’s Board (which means approval by at least 80% of the +directors voting, with the affected Director +abstaining); +d. +the +termination of the Director’s service on the Board because the Director, +although nominated for reelection by the Board, is not reelected by the +Stockholders; +e. +the +termination of the Director’s service on the Board because of (i) the +Director’s resignation at the request of the Nominating and Governance +Committee of the Board (or successor committee), (ii) the Director’s +removal by action of the Stockholders or by the Board, or (iii) a Change +in Control of the Corporation. A “Change in Control” of the +Corporation is deemed to have occurred as of the first day that any one or +more of the following conditions shall have been +satisfied: +B-2 +Table of Contents +(i) +Change in +Ownership : A change in ownership of the Corporation occurs on the +date that any one person, or more than one person acting as a group, +acquires ownership of stock of the Corporation that, together with stock +held by such person or group, constitutes more than 50% of the total fair +market value or total voting power of the stock of the Corporation, +excluding the acquisition of additional stock by a person or more than one +person acting as a group who is considered to own more than 50% of the +total fair market value or total voting power of the stock of the +Corporation. +(ii) +Change in Effective +Control : A change in effective control of the Corporation occurs on +the date that either: +(A) +Any +one person, or more than one person acting as a group, acquires (or has +acquired during the l2-month period ending on the date of the most recent +acquisition by such person or persons) ownership of stock of the +Corporation possessing 30% or more of the total voting power of the stock +of the Corporation; or +(B) +A +majority of the members of the Board is replaced during any l2-month +period by directors whose appointment or election is not endorsed by a +majority of the members of the board of directors prior to the date of the +appointment or election; provided, that this paragraph (B) will apply only +to the Corporation if no other corporation is a majority +shareholder. +(iii) +Change in Ownership of +Substantial Assets : A change the ownership of a substantial portion +of the Corporation's assets occurs on the date that any one person, or +more than one person acting as a group, acquires (or has acquired during +the l2-month period ending on the date of the most recent acquisition by +such person or persons) assets from the Corporation that have a total +gross fair market value equal to or more than 40% of the total gross fair +market value of the assets of the Corporation immediately prior to such +acquisition or acquisitions. For this purpose, “gross fair market value” +means the value of the assets of the Corporation, or the value of the +assets being disposed of, determined without regard to any liabilities +associated with such assets. +f. +the +termination of the Director’s service on the Board because of Disability +or death. “Disability” will have the meaning ascribed to such term in the +Corporation’s governing long-term disability plan, or if no such plan +exists, at the discretion of the Committee, as hereinafter defined; +or +g. +the +vesting of the Restricted Stock. For this purpose, beginning +with awards of Restricted Stock issued to Directors at the 2008 Annual +Meeting, an award of Restricted Stock will vest on July 1 of the calendar +year following the year of the award of the Restricted Stock, if such +non-employee Director provides continued service on the Board through such +date. All awards of Restricted Stock made prior to the 2008 +Annual Meeting to non-employee Directors who continue to serve on the +Board through July 1, 2008 will vest on July 1, +2008. +B-3 +Table of Contents +Section +2.4(a) through (g) above are subject to the further restriction that a removal +or resignation for “Cause” will not be deemed to constitute completion of the +Restricted Period, but will result in a forfeiture of Restricted Stock not +previously vested under Section 2.5. For purposes of this Plan, +“Cause” will be a good faith determination by the Board that the Director (i) +failed to substantially perform his duties (other than a failure resulting from +his incapacity due to physical or mental illness) after a written demand for +substantial performance has been delivered to him by the Board, which demand +specifically identifies the manner in which the Board believes he has not +substantially performed his duties; (ii) has engaged in conduct the consequences +of which are materially adverse to the Corporation, monetarily or otherwise; or +(iii) has pleaded guilty to or been convicted of a felony. The +Director will not be deemed to have been terminated for Cause unless there will +have been delivered to the Director a letter setting forth the reasons for the +Corporation’s termination of the Director for Cause and the Director has failed +to cure such reason for termination within thirty (30) days of the receipt of +such notice. +2.5 +Forfeiture of Restricted +Stock . As of the date (“Termination Date”) a Director +ceases to be a member of the Board for any reason, including but not +limited to removal or resignation for Cause, the Director will forfeit to +the Corporation all Restricted Stock awarded to the Director for which the +Restricted Period has not ended pursuant to Section 2.4 as of or prior to +the Termination Date. +2.6 +Release of Restricted +Stock . Upon completion of the Restricted Period, as +provided in Section 2.4, the Corporation will release the Restricted Stock +to the Director, free and clear of all restrictions and other provisions +of the Plan, on the first business day immediately following the last day +of the Restricted Period with respect to such Restricted +Stock. +2.7 +Restrictions . Restricted +Stock will be subject to the following restrictions during the Restricted +Period: +a. +The +Restricted Stock will be subject to forfeiture to the Corporation as +provided in Section 2.5 of the +Plan. +b. +The +Restricted Stock may not be sold, assigned, transferred, pledged, +hypothecated or otherwise disposed of, and neither the right to receive +Restricted Stock nor any interest under the Plan may be assigned by a +Director, and any attempted assignment shall be +void. +c. +Each +Certificate representing shares of Restricted Stock will be held by the +Corporation and will, at the option of the Corporation, bear an +appropriate restrictive legend and be subject to appropriate “stop +transfer” orders. The Director shall deliver to the Corporation +a stock power endorsed in blank to the +Corporation. +d. +Any +additional Stock or other securities or property (other than cash) that +may be issued with respect to Restricted Stock as a result of any stock +dividend, stock split, business combination or other event, will be +subject to the restrictions and other provisions of the +Plan. +B-4 +Table of Contents +e. +The +issuance of any Restricted Stock award will be subject to and contingent +upon (i) completion of any registration or qualification of the Stock +under any federal or state law or governmental rule or regulation that the +Corporation, in its sole discretion, determines to be necessary or +advisable; and (ii) the execution by the Director and delivery to the +Corporation of (A) any agreement reasonably required by the +Corporation, and (B) the stock power referred to in Section +2.7(c). +2.8 +Tax +Withholding . The Corporation will have the right to +withhold from any settlement of Stock made under the Plan (or deemed +settlement due to an Internal Revenue Code (“Code”) Section 83(b) +election) any federal, state, or local taxes of any kind subsequently +required by law to be withheld or paid by the Corporation on behalf of a +Director with respect to such settlement. If any such taxes are +imposed, the subject Director will be required to make arrangements +satisfactory to the Corporation for the satisfaction of any such +withholding tax obligation, including by electing to have stock withheld +up to an amount that does not exceed such withholding tax +obligation. The Corporation will not be required to deliver +Stock under the Plan until any such obligation is +satisfied. +2.9 +Effect of Tax +Election . If any Director makes a timely election under +Code Section 83(b) with respect to any award, the Stock will be deemed +(for income tax purposes) to be transferred to the Director effective as +of the Award Date (and any obligation for withholding tax liability +imposed by subsequent changes in tax laws that would be due as of the +Award Date). However, such an election will not affect the +restrictions or terminate the Restriction Period for such +award. +Section +3. +General +Provisions +3.1 +Administration . The +Plan will be administered by the Committee. The Committee will +have full power, discretion and authority to interpret and administer the +Plan, except that the Committee will have no power to (a) determine the +eligibility for awards of Restricted Stock or the number of shares of +Restricted Stock to be awarded or the timing or value of awards of +Restricted Stock to be awarded to any Director, or (b) take any action +specifically delegated to the Board under the Plan. The +Committee’s interpretations and actions will, except as otherwise +determined by the Board, be final, conclusive and binding upon all persons +for all purposes. The Committee may employ such legal counsel, +consultants and agents as it may deem desirable for the administration of +the Plan, and may rely upon any advice or opinion received from any such +counsel or consultant and any computation received from any such +consultant or agent. Expenses incurred by the Committee in the +engagement of such counsel, consultant or agent will be paid by the +Corporation. +3.2 +No Retention +Rights . Neither the establishment of the Plan or the +awarding of Restricted Stock to a Director will be considered to give the +Director the right to be retained on, or nominated for reelection to, the +Board, or to any benefits or awards not specifically provided for by the +Plan. +3.3 +Interests Not +Transferable . Except as to withholding of any tax +required under the laws of the United States or any state or locality, no +benefit payable at any time under the Plan will be subject in any manner +to alienation, sale, transfer, assignment, pledge, attachment, or other +legal process, or encumbrance of any kind. Any attempt to +alienate, sell, transfer, assign, pledge, attach or otherwise encumber any +such benefits whether currently or thereafter payable, will be +void. No benefit will, in any manner, be liable for or subject +to the debts or liabilities of any person entitled to such +benefits. If any person attempts to, or alienates, sells, +transfers, assigns, pledges or otherwise encumbers such person’s benefits +under the Plan, or if by reason of such person's bankruptcy or any other +event, such benefits would devolve upon any other person or would not be +enjoyed by the person entitled thereto under the Plan, then the Committee, +in its discretion, may terminate the interest in any such benefits of the +person entitled thereto under the Plan and hold or apply them to or for +the benefit of such person entitled thereto under the Plan or such +person's spouse, children or other dependents, or any of them, in such +manner as the Committee may deem +proper. +B-5 +Table of Contents +3.4 +Amendment and +Termination . The Board may at any time amend or +terminate the Plan; provided that: +a. +no +amendment or termination will, without the written consent of a Director, +adversely affect the Director’s rights under outstanding awards of +Restricted Stock; and +b. +Stockholder +approval of any amendment will be required if Stockholder approval is +required under applicable law or the listing requirements of any national +securities exchange or other exchange on which are listed any of the +Corporation’s equity securities. +3.5 +Severability . If +all or any part of the Plan is declared by any court or governmental +authority to be unlawful or invalid, such unlawfulness or invalidity will +not serve to invalidate any portion of the Plan not declared to be +unlawful or invalid. Any Section or part hereof so declared to +be unlawful or invalid will, if possible, be construed in a manner which +will give effect to the terms of such Section or part thereof to the +fullest extent possible while remaining lawful and +valid. +3.6 +Controlling +Law . The law of West Virginia, except with reference to +the Code or Federal securities law, will be controlling in all matters +relating to the Plan. +3.7 +Stockholder +Approval . The Plan as amended and restated will be +submitted for approval by Corporation’s Stockholders at the Corporation’s +2008 annual meeting of stockholders and, if not so approved, will be +deemed terminated immediately following the +meeting. +B-6 +Table of Contents +PETROLEUM +DEVELOPMENT CORPORATION +2005 +NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN +DESIGNATION +OF BENEFICIARY +(Please +type or print) +Name +of Director: +Marital +Status: +Single: +Social +Security No.: +Married: +I hereby +revoke any previous designation(s) of beneficiary made by me with respect to +amounts payable by Petroleum Development Corporation (the “Corporation”) under +the Corporation’s 2005 Non-Employee Director Restricted Stock Plan in the event +of my death; and I hereby designate the following person(s) or entity to +receive, upon my death, any such amounts: +Primary Beneficiary or +Beneficiaries : +Name: +Share: +% +Relationship: +Birth +Date: +Address: +SS +# +Name: +Share: +% +Relationship: +Birth +Date: +Address: +SS +# +Contingent Beneficiary or +Beneficiaries (if your Primary Beneficiary(ies) all predecease +you): +Name: +Share: +% +Relationship: +Birth +Date: +Address: +SS +# +Name: +Share: +% +Relationship: +Birth +Date: +Address: +SS +# +Date: +Director’s +Signature +* * * * * +B-7 \ No newline at end of file diff --git a/raw/proxies/0000077877/0001140361-08-013529/proxy_rpt.txt b/raw/proxies/0000077877/0001140361-08-013529/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..afd2d623b5ccd07d253525c60c1be8d86ab6b10a --- /dev/null +++ b/raw/proxies/0000077877/0001140361-08-013529/proxy_rpt.txt @@ -0,0 +1,84 @@ +Transactions with Related Persons +The Board +has adopted a written policy for the review, approval and ratification of +transactions that involve related parties and potential conflicts of +interest. +The +related party transaction policy applies to each director and executive officer +of the Company, any nominee for election as a director, any security holder who +is known to own more than five percent of the Company's voting securities, any +immediate family member of any of the foregoing persons and any corporation, +firm or association in which one or more of the Company's directors are +directors or officers, or have a substantial financial +interest. +28 +Table of Contents +Under the +related party transaction policy a related person transaction is a transaction +or arrangement involving a related person in which the Company is a participant +or that would require disclosure in the Company's filings with the SEC as a +transaction with a related person. +The +related persons must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such +interest. All related person transactions will be reviewed by the +Audit Committee. In determining whether to approve or ratify a +transaction, the Audit Committee will consider the relevant facts and +circumstances of the transaction which may include factors such as the +relationship of the related person with the Company, the materiality or +significance of the transaction to the Company and the business purpose and +reasonableness of the transaction, whether the transaction is comparable to a +transaction that could be available to the Company on an arms-length basis, and +the impact of the transaction on the Company's business and +operations. +During +the year ended December 31, 2007, there was no transaction or series of +transactions, or any currently proposed transaction, in which the amount +involved exceeds $120,000 and in which any director, executive officer, holder +of more than 5% of the Company's common stock or any member of the immediate +family of any of the foregoing persons had or will have a direct or indirect +material interest. +Indemnification of Directors and +Officers +The +Company's By-Laws provide that the Company shall indemnify any director, +officer, employee, or other agent of the Company who is or was a party, or is +threatened to be made a party, to any proceeding (other than an action by or in +the right of the Company to procure a judgment in its favor) by reason of the +fact that such person is or was an agent of the Company, against expenses, +judgments, fines, settlements, and other amounts actually and reasonably +incurred in connection with such proceeding, if that person acted in good faith +and in a manner that person reasonably believed to be in the best interest of +the Company, and in the case of a criminal proceeding, had no reasonable cause +to believe the conduct of that person was unlawful. +The +Company has entered into separate indemnification agreements with each of its +directors and officers whereby the Company has agreed to indemnify the director +or officer against all expenses, including attorneys' fees, and other amounts +reasonably incurred by the officer or director in connection with any +threatened, pending or completed civil, criminal, administrative or +investigative action or proceeding to which such person is party by reason of +the fact that he is or was a director or officer, as the case may be, of the +Company, if the person acted in good faith and in a manner reasonably believed +to be in or not opposed to the best interests of the Company, and, with respect +to any criminal action or proceeding, the person had no reasonable cause to +believe such conduct to be unlawful. The agreements provide for the +advancement of expenses and that the Company has the right to purchase and +maintain insurance on behalf of the director or officer against any liability or +liabilities asserted against him, whether or not the Company would have the +power to indemnify the person against such liability under any provision of the +agreement. The Company has agreed to indemnify such person against +expenses actually and reasonably incurred in connection with any action in which +the person has been successful on the merits or +otherwise. Indemnification must also be provided by the Company +(unless ordered otherwise by a court) only as authorized in the specific case +upon a determination that the indemnification of the person is appropriate +because he has met the applicable standard of conduct described in the agreement +made by (i) the Board of Directors, by a majority vote of a quorum consisting of +directors who are not parties to such action or proceeding, (ii) independent +legal counsel in a written opinion or (iii) the shareholders of the +Company. +29 +Table of Contents +Additional Information +The \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-12-183630/proxy.txt b/raw/proxies/0000077877/0001193125-12-183630/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b0b5768b68e4a31e8e3175fbb3bb4acecd5ac215 --- /dev/null +++ b/raw/proxies/0000077877/0001193125-12-183630/proxy.txt @@ -0,0 +1,3839 @@ +DEF 14A +1 +d327932ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant þ Filed by a +Party other than the Registrant ¨ +Check the +appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Under Rule 14a-12 +Petroleum Development Corporation +(doing business as PDC Energy) +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement no.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PETROLEUM DEVELOPMENT CORPORATION +(dba PDC Energy) +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 26, 2012 +Dear Stockholder of Petroleum Development Corporation (dba +PDC Energy): +You are cordially invited to attend the 2012 Annual Meeting of Stockholders of Petroleum +Development Corporation (dba PDC Energy) (the “Company”) to be held on June 7, 2012, at 11:30 a.m. Mountain Time at the Denver Financial Center, Lobby Conference Room, 1775 Sherman Street, Denver, Colorado, 80203. +At the Annual Meeting, you and the other stockholders of record on April 10, 2012, will vote on: +• +The election of two Class II members of our Board of Directors; +• +An advisory vote on executive compensation; +• +A proposal to amend our Second Amended and Restated Articles of Incorporation to legally change the name of the Company to PDC Energy, Inc.; and +• +The ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending +December 31, 2012. +The accompanying Notice of Annual Meeting of Stockholders and Proxy +Statement provide information concerning the matters to be considered at the meeting. +Pursuant to the U.S. +Securities and Exchange Commission rules, we may provide you with access to our proxy materials via the Internet. As a result, many beneficial owners of our common stock will receive a Notice of Internet Availability of Proxy Materials (the +“Notice”) instead of paper copies of the proxy materials. The Notice contains instructions on how to access those documents via the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, +including the Proxy Statement, our 2011 Annual Report, and a form of proxy card. We will mail printed proxy materials to all stockholders of record. +We hope you will join us on June 7, 2012. Whether or not you plan to attend personally, it is important that your shares be represented at the Annual Meeting. We value your opinions and encourage you +to participate in the Annual Meeting by voting your proxy. You may vote your shares by using the telephone or Internet voting systems described in the Notice or the proxy card. If you receive a proxy card by mail, you may submit your proxy card by +completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot attend. +Sincerely, +Daniel W. Amidon +Corporate Secretary +Table of Contents +PETROLEUM DEVELOPMENT CORPORATION +(dba PDC Energy) +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +THURSDAY, JUNE 7, 2012 +To the +Stockholders of Petroleum Development Corporation (dba PDC Energy): +The 2012 Annual Meeting of Stockholders of +Petroleum Development Corporation (dba PDC Energy) (the “Company”) will be held at the Denver Financial Center, Lobby Conference Room, 1775 Sherman Street, Denver, Colorado, 80203, on June 7, 2012, at 11:30 a.m. Mountain Time. The +purposes of the Annual Meeting are to: +• +Elect the two nominees named in the accompanying Proxy Statement as Class II Directors, each for a term of three years; +• +Hold an advisory vote regarding the compensation of our named executive officers; +• +Approve an amendment to the Company’s Second Amended and Restated Articles of Incorporation to legally change the name of the Company to PDC +Energy, Inc.; +• +Ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2012; and +• +Transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board of Directors has fixed the close of business on April 10, 2012, as the +record date for determining the stockholders having the right to receive notice of, to attend and to vote at the Annual Meeting, or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the +outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of +Proxy Materials or, if the attached Proxy Statement and a proxy card were mailed to you, please sign, date and return the proxy card in the enclosed envelope as soon as possible. +By Order of the Board of Directors, +Daniel W. Amidon +Corporate Secretary +April 26, 2012 +Table of Contents +PETROLEUM DEVELOPMENT CORPORATION +(dba PDC Energy) +PROXY +STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To Be Held June 7, 2012 +Denver Financial Center, Lobby Conference Room +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors (“Board”) of Petroleum Development Corporation (dba PDC Energy) (“PDC,” “PDC Energy” or the “Company”) +for use at the Annual Meeting of Stockholders of the Company to be held on June 7, 2012, at 11:30 a.m. Mountain Time, and at any and all adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the +accompanying Notice of Annual Meeting of Stockholders. On or about April 26, 2012, we began mailing a notice containing instructions on how to access this proxy statement and our annual report online, and we began mailing a full set of the +proxy materials to stockholders who had previously requested delivery of the materials in paper copy. For information on how to vote your shares, see the instructions included on the proxy card or instruction form under “Information About +Voting and the Meeting” herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING +TO BE HELD ON JUNE 7, 2012 +The Notice of Annual +Meeting of Stockholders, the Proxy Statement for the 2012 Annual Meeting of Stockholders, and the 2011 Annual Report to Stockholders, which includes the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, are available at +www.edocumentview.com/PETD. +Table of Contents +TABLE OF CONTENTS +GENERAL INFORMATION +1 +Who May Vote +1 +How Proxies Work +1 +Voting 401(k) and Profit Sharing Plan Shares +1 +Revoking a Proxy +1 +Quorum +2 +Votes Needed +2 +Attending in Person +2 +Conduct of the Meeting +3 +Solicitation of Proxies +3 +Appraisal Rights +3 +Contact Information +3 +PROPOSALS REQUIRING STOCKHOLDER VOTE +3 +Proposal No. 1 — Election of Two Class II Directors +3 +Board of Directors +4 +Name, Principal Occupation for Past Five Years and Other Directorships +4 +Proposal No. 2 — Advisory Vote Regarding Compensation of the Company’s Named Executive +Officers +7 +Proposal No. 3 — Name Change Amendment +9 +Reason for the Name Change +9 +Effects of the Name Change +9 +Proposal No. 4 — Ratification of Selection of Independent Registered Public Accounting +Firm +10 +Principal Accountant Fees and Services +10 +Audit Committee Pre-Approval Policies and Procedures +10 +REPORT OF THE AUDIT COMMITTEE +11 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2012 ANNUAL MEETING +12 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER +MATTERS +13 +Section 16(a) Beneficial Ownership Reporting Compliance +15 +CORPORATE GOVERNANCE +15 +Corporate Governance Guidelines +15 +Board of Directors +15 +Director Independence +15 +Board Meetings and Attendance +16 +2011 Board and Committee Memberships +16 +STANDING COMMITTEES OF THE BOARD +17 +Audit Committee +17 +Compensation Committee +17 +Compensation Committee Interlocks and Insider Participation +17 +Nominating and Governance Committee +18 +Planning and Finance Committee +18 +Executive Committee +18 +Board Leadership Structure +18 +DIRECTOR COMPENSATION +19 +Cash Compensation +19 +Equity Compensation +20 +Deferred Compensation +20 +Company Stock Ownership Requirements +20 +Director Compensation +20 +DIRECTOR QUALIFICATIONS AND SELECTION +21 +Diversity Consideration +21 +Table of Contents +STOCKHOLDER RECOMMENDATIONS +21 +Stockholder Nominations +22 +THE BOARD’S ROLE IN RISK MANAGEMENT +22 +Compensation Risk Assessment +23 +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +23 +CODE OF BUSINESS CONDUCT AND ETHICS +23 +TRANSACTIONS WITH RELATED PERSONS +23 +Related Transactions +23 +Policies and Procedures With Respect to Transactions with Related Persons +23 +ADDITIONAL INFORMATION +24 +NAMED EXECUTIVE OFFICERS +24 +COMPENSATION COMMITTEE REPORT +25 +COMPENSATION DISCUSSION AND ANALYSIS +25 +Executive Summary +25 +General Compensation Philosophy/Objectives +26 +Compensation Process — Making Executive Compensation Decisions +30 +Components of the Company’s Compensation Program +32 +2011 Compensation Decisions +33 +Agreements with Named Executive Officers +39 +SUMMARY COMPENSATION TABLE +41 +ALL OTHER COMPENSATION +42 +GRANTS OF PLAN-BASED AWARDS +43 +ADDITIONAL DISCUSSION OF TABLES RELATED TO SUMMARY COMPENSATION AND 2011 GRANTS OF PLAN-BASED +AWARDS +44 +OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END +45 +OPTION EXERCISES AND STOCK VESTED +46 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL/EXECUTIVE EMPLOYMENT +AGREEMENTS +46 +EQUITY COMPENSATION PLAN INFORMATION +50 +STOCKHOLDER NOMINATIONS AND PROPOSALS +51 +Stockholder Proposals for 2013 Annual Meeting +51 +Advance Notice Procedures Under the Company’s By-Laws +51 +HOUSEHOLDING INFORMATION +52 +APPENDIX A — Proposed Third Amended and Restated Articles of Incorporation +A-1 +Table of Contents +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +Stockholders of PDC, as recorded in the Company’s stock register on the record date of April 10, 2012, may vote at the meeting. The outstanding voting securities of the Company as of +April 10, 2012, consisted of 23,652,262 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the meeting. +How Proxies Work +The Board is +asking for your proxy. Giving the Board your proxy means that you authorize the Board to vote your shares at the meeting in the manner you direct. We will vote your shares as you direct. You may vote for one or both Class II Director Nominees, or +you may withhold your vote from one or both of the Director Nominees. You may also vote for or against the other proposals, or abstain from voting. If your shares are held in your name, you can vote by completing, signing and dating your proxy card +and returning it in the enclosed envelope. If you give the Board your signed proxy but do not specify how to vote, your shares will be voted (1) in favor of the Class II Director Nominees named in the proxy; (2) in favor of approving the +Company’s compensation of its named executive officers; (3) in favor of amending the Company’s Second Amended and Restated Articles of Incorporation (“Articles”) to legally change the Company’s name to PDC Energy, Inc.; +and (4) in favor of the ratification of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012. +If you hold shares through someone else, such as a stockbroker, you will receive material from that firm asking how you +want to vote. Review the voting form used by that firm to determine what procedures you must follow in order for you to vote your shares. If the broker does not receive voting instructions from you, the broker may only vote on a proposal that is not +considered a “significant” matter under the NASDAQ rules. At this year’s Annual Meeting, your broker may vote without your instructions only on the ratification of the appointment of PwC as our independent registered public accounting +firm for 2012. A broker’s failure to vote because it lacks discretionary authority to do so is commonly referred to as a “broker non-vote.” The effect of broker none-votes differs between the various proposals to be voted upon at the +2012 Annual Meeting. For a description of the effect of broker non-votes on each proposal, see “Votes Needed” below. +Voting 401(k) and Profit Sharing Plan Shares +If you are a participant in PDC’s 401(k) and Profit +Sharing Plan and have shares of PDC common stock credited to your plan account as of the record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with +your instructions. Your vote may not be counted if your proxy card is not received by June 1, 2012, or if you have not sent instructions by such date as provided above under “How Proxies Work.” You cannot vote such shares at the +Annual Meeting or change your vote. +Revoking a Proxy +You may revoke your proxy before it is voted by: +• +Submitting a new signed proxy with a later date; +• +Notifying PDC’s Corporate Secretary in writing before the meeting that you wish to revoke your proxy; or +• +Appearing at the meeting, notifying the Inspector of the Election that you wish to revoke your proxy, and voting in person at the meeting. Merely +attending the meeting will not result in revocation of your proxy. +1 +Table of Contents +If you hold your shares through someone else, such as a stockbroker, you +will need to follow the directions they give you to revoke a proxy or otherwise vote at the meeting. +Quorum +In order to carry on the business of the meeting, there must be a quorum. This means that at least a +majority of the outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker +non-votes will count for quorum purposes. +Votes Needed +The following table presents the voting requirements to elect the two Class II Director Nominees and approve the other +proposals presented in this Proxy Statement. +PROPOSAL SUMMARY +Proposal No. 1 +Vote Required +Election of two Class II Directors. +The two nominees for a term of three years expiring in 2015 who receive the greatest number of votes cast (plurality) will be elected Directors for such term. There is no +cumulative voting for Directors. Abstentions and broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Advisory vote on the compensation of the Company’s Named Executive Officers. +Majority of votes cast. Abstentions and broker non-votes will not be counted as votes cast or shares voting on Proposal No. 2 and will have no effect on the +vote. +Proposal No. 3 +Approve an amendment to the Company’s Second Amended and Restated Articles of Incorporation to legally change the name of the Company to PDC Energy, Inc. +Majority of outstanding shares. Abstentions and broker non-votes will have the effect of negative votes on Proposal No. 3. +Proposal No. 4 +Ratify the selection of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012. +Majority of votes cast. Abstentions and broker non-votes will not be counted as votes cast or shares voting on Proposal No. 4 and will have no effect on the +vote. +The Class II Director Nominees who receive the greatest number of votes will be elected +to fill the two available seats on the Board. Only votes for or against a proposal count. +Attending in Person +Only stockholders or their proxy holders and PDC’s guests may attend the Annual Meeting. For safety +and security reasons, no cameras, audio or video recording equipment, large bags, briefcases or packages will be permitted in the meeting. In addition, each stockholder and guest may be asked to present valid, government-issued picture +identification, such as a driver’s license, before being admitted to the meeting. +2 +Table of Contents +If your shares are held in the name of your broker, bank, or other nominee, +you must bring to the meeting an account statement or letter from the nominee indicating that you beneficially owned the shares on April 10, 2012, the record date for receiving notice of, attending and voting at the Annual Meeting. Stockholders +who do not present such information at the meeting may be admitted upon verification of ownership at the admissions table. +Conduct of the Meeting +The Chairman has broad authority to conduct the Annual Meeting in an orderly +and timely manner. This authority includes establishing rules for stockholders who wish to address the meeting. The Chairman may also exercise broad discretion in recognizing stockholders who wish to speak and in determining the extent of discussion +on each item of business. In light of the need to conclude the meeting within a reasonable period of time, there can be no assurance that every stockholder who wishes to speak on an item of business will be able to do so. The Chairman may also rely +on applicable law regarding disruptions or disorderly conduct to ensure that the meeting is conducted in a manner that is fair to all stockholders. +Solicitation of Proxies +The +Company will bear the cost related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the Notice of Internet +Availability of Proxy Materials to the beneficial owners of the Company’s common stock. In addition to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other +electronic communication and personal interviews, without additional compensation. The Company has entered into an agreement with Alliance Advisors LLC as its proxy solicitor and anticipates paying costs of approximately $8,500 for such services. +Appraisal Rights +No action is proposed at the Annual Meeting for which the laws of the State of Nevada or our By-Laws provide a right of our stockholders to dissent and obtain appraisal of or payment for such +stockholders’ common stock. +Contact Information +If you have questions or need more information about the Annual Meeting, you may write to or call: +Corporate Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +For information about shares registered in your name, call PDC at 1-800-624-3821. You are also invited to visit PDC’s website at www.petd.com . Website materials are not incorporated by +reference into this Proxy Statement. +PROPOSALS REQUIRING STOCKHOLDER VOTE +PROPOSAL NO. 1 — ELECTION OF TWO CLASS II DIRECTORS +(Proposal 1 on the Proxy Card) +As of the date of this Proxy Statement and as permitted by the Company’s By-Laws, the Board consists of seven members divided into three classes. Directors are usually elected for three-year terms. +The terms for members of each class end in successive years. +3 +Table of Contents +The Board has nominated two continuing Class II Directors, Anthony J. +Crisafio and Kimberly Luff Wakim, whose terms expire in 2012 at the Annual Meeting, to stand for election to the Board for a three-year term expiring in 2015. Mr. Crisafio joined the Board in 2006 and currently serves on the Compensation +Committee and the Audit Committee, which he chairs. Ms. Wakim joined the Board in 2003 and currently serves on the Audit Committee, the Nominating and Governance Committee, and the Compensation Committee, which she chairs. +The appointed proxies will vote your shares in accordance with your instructions and for the election of the two Class II +Director Nominees unless you withhold your authority to vote for either of them. The Board does not contemplate that either of the Director nominees will become unavailable for any reason; however, if any Director is unable to stand for election, +the Board may reduce its size or select a substitute. Your proxy cannot be otherwise voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees +named. +Board of Directors +The following table sets forth certain information as of March 30, 2012, regarding the composition of the Board, +including the term of each Director. +Nominee +First Elected +Director +Current Term +Expires +CLASS II: +Anthony J. Crisafio +2006 +2012 +Kimberly Luff Wakim +2003 +2012 +CLASS III: +Larry F. Mazza +2007 +2013 +James M. Trimble +2009 +2013 +CLASS I: +Joseph E. Casabona +2007 +2014 +David C. Parke +2003 +2014 +Jeffrey C. Swoveland +1991 +2014 +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +NOMINEES FOR TERM EXPIRING IN 2015 — CLASS II +ANTHONY J. CRISAFIO, 59, a Certified Public Accountant, has served as an independent business consultant for more than fifteen years, providing financial and +operational advice to businesses in a variety of industries and stages of development. He is currently serving as part-time contract Chief Financial Officer for Empire Energy USA, LLC, which operates approximately 2,500 wells primarily in New York +and Kansas and is 90% owned by Empire Energy Group Limited, an energy investment company listed on the Australian Securities Exchange. He also serves as an interim Chief Financial Officer and Advisory Board member for a number of privately held +companies and has been a Certified Public Accountant for more than thirty years. Mr. Crisafio served as Chief Operating Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from 1989 until 1993. From 1975 until 1989, he was +employed by Ernst & Young and was a partner with Ernst & Young from 1986 to 1989. He was responsible for several Securities and Exchange Commission (“SEC”) registered client engagements and gained significant experience with oil +and gas industry clients and mergers and acquisitions. In determining Mr. Crisafio’s qualifications to serve on our Board, the Board has considered, among other things, that Mr. Crisafio brings to the Board more than thirty years of financial +accounting and management expertise, with demonstrated business management and accounting experience. +2006 +4 +Table of Contents +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +KIMBERLY LUFF WAKIM, 54, an attorney and a Certified Public Accountant, is a Partner with the Pittsburgh, Pennsylvania law firm Thorp, Reed & Armstrong LLP, +where she is the Practice Group Leader for the Bankruptcy and Financial Restructuring Practice Group. She has practiced law with Thorp, Reed & Armstrong since 1990. Ms. Wakim has been on a leave of absence from the firm since June 2010, for +health reasons, but expects to return in mid-2012. Ms. Wakim was previously an auditor with Main Hurdman (now KPMG) and was Assistant Controller for PDC from 1982 to 1985. She has been a member of the American Institute of Certified Public +Accountants and the West Virginia Society of CPAs for more than eighteen years. In determining Ms. Wakim’s qualifications to serve on our Board, the Board has considered, among other things, that Ms. Wakim brings to the Board a combination of +strong legal background and expertise in accounting oversight. +2003 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2013 — CLASS III +LARRY F. MAZZA, 51, is Chief Executive Officer of MVB Financial Corp., the parent of multiple banks in West Virginia. He is a recognized name in West +Virginia banking with more than 25 years of experience in both large banks and small community banks. Mr. Mazza is one of seven members of the West Virginia Board of Banking and Financial Institutions. This Board oversees the operation of +financial institutions throughout West Virginia, and advises the state Commissioner of Banking on banking matters. Mr. Mazza is also an entrepreneur, and is co-owner of nationally-recognized sports media business Football Talk, LLC, which is one of +the fastest growing pro football websites and a content provider for NBC SportsTalk. Prior to joining MVB in 2005 to lead its geographic expansion and growth, Mr. Mazza was Senior Vice President & Retail Banking Manager for BB&T Bank’s +#1 ranked retail region West Virginia North, consisting of 33 financial centers and more than 300 employees. Mr. Mazza was employed by BB&T and its predecessors from 1986 to 2005. Previous to this, Mr. Mazza was President of Empire National +Bank at the age of 29, and later served as Regional President of One Valley Bank, a state-wide financial institution. Upon graduation from West Virginia University in Business Administration, he joined KPMG, a Big Four accounting firm, as a CPA with +a focus on auditing. In addition to his business acumen, Mr. Mazza brings to the Board extensive leadership and banking experience. Banking relationships and experience have become particularly important to the Company in the recent years. The +Company benefits from Mr. Mazza’s first-hand continuing experience as a chief executive officer, a specific attribute sought by the Board when he initially become a Director in 2007. Mr. Mazza also provides an important link to community and +employee stakeholders, demonstrating a continuing commitment to our largest workforce, located in Bridgeport, West Virginia. +2007 +5 +Table of Contents +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +JAMES M. TRIMBLE, 63, was appointed President and Chief Executive Officer of the Company in June 2011, having served on the Board since 2009. From August 2005 +until November 2010, Mr. Trimble served as Managing Director of Grand Gulf Energy, Limited (ASX: GGE), a public company traded on the Australian Securities Exchange, and retired from the Board of Directors of Grand Gulf Energy, Limited in November +2011. In January 2005, Mr. Trimble founded and served until November 2010 as President and Chief Executive Officer of the U.S. subsidiary Grand Gulf Energy Company LLC, an exploration and development company focused primarily on drilling in mature +basins in Texas, Louisiana and Oklahoma. From 2000 through 2004, Mr. Trimble was Chief Executive Officer of Elysium Energy and then Tex-Cal Energy LLC, both of which were privately held oil and gas companies that he managed through troubled workout +solutions. Prior to this, he was Senior Vice President of Exploration and Production for Cabot Oil and Gas (NYSE: COG). Mr. Trimble was hired in July 2002 as CEO of TexCal (formerly Tri-Union Development) to manage a distressed oil and gas company +through bankruptcy, and that company filed for Chapter 11 reorganization within 45 days after the date that Mr. Trimble accepted such employment. He successfully managed the company through its exit from bankruptcy in 2004. From November 2002 until +May 2006, he also served as a director of Blue Dolphin Energy, an independent oil and gas company with operations in the Gulf of Mexico. Mr. Trimble currently serves on the Board of Directors of Seisgen Exploration LLC, a small private exploration +and production company operating in southern Texas. In determining Mr. Trimble’s qualifications to serve on our Board, in addition to his status as CEO of the Company, the Board has considered, among other things, that Mr. Trimble is a +Registered Professional Engineer who brings many years of broad oil and gas industry executive management experience to the Board, including experience as a chief operating officer, and knowledge of current developments and best practices in the +industry. +2009 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2014 — CLASS I +JOSEPH E. CASABONA, 68, served as Executive Vice President and member of the Board of Directors of Denver-based Energy Corporation of America (“ECA”) +from 1985 until his retirement in May 2007. ECA is a privately-held energy company that owns and operates assets both in the U.S. and around the world, including approximately 5,200 wells, 5,000 miles of pipeline, and 1,000,000 acres. As the primary +direct report to the Chief Executive Officer of ECA, Mr. Casabona’s major responsibilities included strategic planning/forecasting, acquisitions, capital transactions, corporate policy, as well as executive oversight in operational and drilling +activities in the continental U.S. and internationally. From 1968 until 1985, Mr. Casabona was employed at KPMG Main Hurdman, or its predecessors, with various titles, including audit partner in the Pittsburgh, Pennsylvania office, where he +primarily serviced public clients in the oil and gas industry. From 2008 until the beginning of 2011, Mr. Casabona served as Chief Executive Officer of Paramax Resources Ltd, a junior public Canadian oil and gas company engaged in the business of +acquiring and exploration of oil and gas prospects, primarily in Canada and Idaho. In determining Mr. Casabona’s qualifications to serve on our Board, the Board has considered, among other things, that Mr. Casabona brings to the Board extensive +first-hand experience in all aspects of the oil and gas industry, including natural gas exploration, development, acquisitions, operations and strategic planning, as well as experience in the Company’s primary areas of operations, the Rocky +Mountain Region and the Appalachian Basin. +2007 +6 +Table of Contents +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +DAVID C. PARKE, 45, has served as Managing Director in the merchant banking group of Burrill & Company since June 2011. From 2006 until 2011, he was Managing +Director in the investment banking group of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, he was a Director with investment banking firm Mufson Howe Hunter & Company LLC, from October +2003 to November 2006. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant Group, Mr. +Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. Mr. Parke seved on the board of directors of Zunicom, Inc., a public company, from +2006 until December 2007. In determining Mr. Parke’s qualifications to serve on our Board, the Board has considered, among other things, that Mr. Parke has extensive investment banking experience, including experience in the oil and gas area, +allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition matters. +2003 +JEFFREY C. SWOVELAND, 57, was elected Non-Executive Chairman of the Board, a newly created position, in June 2011, having served on the Board since 1991. He is +President and Chief Executive Officer of ReGear Life Sciences, Inc. in Pittsburgh, Pennsylvania (previously named Coventina Healthcare Enterprises), which develops and markets medical device products, where he was previously Chief Operating Officer. +From 2000 until 2007, Mr. Swoveland served as Chief Financial Officer of Body Media, Inc., a life-science company specializing in the design and development of wearable body monitoring products and services. Prior thereto, Mr. Swoveland held various +positions including Vice President of Finance, Treasurer and interim Chief Financial Officer with Equitable Resources, Inc., a diversified natural gas company, from 1994 to September 2000. Mr. Swoveland also has worked as a geologist and exploratory +geophysicist for both major and independent oil and gas companies. Mr. Swoveland serves as a member of the Board of Directors of Linn Energy, LLC, a public independent natural gas and oil company. In determining Mr. Swoveland’s qualifications +to serve on our Board, the Board has considered, among other things, that Mr. Swoveland brings to the Board extensive corporate management, accounting and finance experience, and oil and gas industry expertise. Additionally, his service as a +director of another public energy company provides leadership and knowledge of best practices that benefit the Company. His guidance and understanding of management processes of larger oil and gas companies benefits the Company as it +grows. +1991 +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE CLASS +II NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL NO. 1. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ SPECIFICATIONS. +DIRECTORS ARE ELECTED BY A PLURALITY OF THE VOTE. +PROPOSAL NO. 2 — ADVISORY VOTE +REGARDING COMPENSATION +OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +(Proposal 2 on the Proxy Card) +The stockholders of the Company are entitled to cast an advisory non-binding vote at the Annual Meeting to approve the compensation of the Company’s named executive officers, as disclosed in this +Proxy Statement (“Named Executive Officers” as identified on page 24). While this vote is non-binding, the Board of Directors +7 +Table of Contents +and the Compensation Committee value the opinions of our stockholders and will take into consideration the outcome of the vote in connection with their ongoing evaluation of the Company’s +compensation program. In 2011, based on the stockholder vote at the 2011 Annual Meeting, including attempted or actual engagement with the Company’s twenty top stockholders, the Company determined to hold a “say-on-pay” vote annually, +consistent with the majority of votes cast in favor of an annual advisory vote. The next non-binding advisory vote regarding such frequency will be held no later than the Company’s 2017 Annual Meeting of Stockholders. +As described more fully in the “Compensation Discussion and Analysis” section of this Proxy Statement, the +Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve annual and long-term performance necessary to +create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term incentives. +The Company’s practice of placing a significant portion of each Named Executive Officer’s compensation at risk +demonstrates its pay-for-performance philosophy. In 2011, at least 70% of the target 2011 compensation level for each Named Executive Officer (non-CEO) was in the form of variable compensation which is “at-risk” (i.e., incentive cash +compensation, performance-based equity stock appreciation rights (“SARs”) and restricted stock). For the Company’s CEO prior to June 2011, this figure was 78%, a structure expected to continue for our current CEO Mr. Trimble in +future years. +Each of the Named Executive Officers has been granted significant equity to encourage a stake +in the Company’s long-term success, and none of those officers has ever sold any shares after receipt. The Company also has stock ownership guidelines and increased the ownership requirements under such guidelines in early 2011. The Company +believes that this “tone at the top” guides the Company’s other officers and members of management to obtain and maintain meaningful ownership stakes in the Company. +In light of the above, the Company believes that the compensation of its Named Executive Officers for fiscal 2011 was +appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to +Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative disclosure in the Proxy Statement for the Company’s 2012 Annual Meeting of Stockholders is hereby approved. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the +Company cast at the Annual Meeting and entitled to vote with respect to this proposal. Broker non-votes and abstentions will not affect the outcome of this proposal. If no voting specification is made on a properly returned or voted proxy card, the +proxies named on the proxy card will vote FOR the above resolution. +The Board is committed to excellence in +governance and recognizes the stockholders’ interest in the Company’s compensation program. As part of that commitment, and in recognition of the outcome of the 2011 stockholder vote on the frequency of say-on-pay voting, the Board +resolved to provide our stockholders with the opportunity to cast a non-binding advisory vote on our executive compensation program each year until the next frequency of say-on-pay vote to be held no later than our 2017 Annual Meeting of +Stockholders. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET +FORTH IN THIS PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ SPECIFICATIONS. +8 +Table of Contents +PROPOSAL NO. 3 — NAME CHANGE AMENDMENT +(Proposal 3 on the Proxy Card) +On March 29, 2012, the Board adopted a resolution approving an amendment to the Company’s Second Amended and Restated Articles of Incorporation (the “Articles”) to legally change the +name of the Company from Petroleum Development Corporation to PDC Energy, Inc. and recommending that the name change amendment be submitted to the Company’s stockholders for approval. The Board believes that the name change is in the best +interests of the Company and recommends approval of an amendment to the Articles. +Reason for the Name Change +In recent years, the Company has transitioned from a partnership-based company to a more traditional +exploration and production company. This change has refocused the Company’s objectives. The Board believes that the name “PDC Energy, Inc.” will further promote awareness of the Company in the minds of its stockholders and potential +investors. In addition, the Company believes that the name PDC Energy, Inc. will enhance our name recognition. +Effects of the Name Change +If the amendment to the Articles is approved by the stockholders, the change of the Company’s name will become effective when the Third Amended and Restated Articles of Incorporation are filed with +the Secretary of State of the State of Nevada. The rights of stockholders holding certificated shares under currently outstanding stock certificates, and the number of shares represented by those certificates, will remain unchanged. The name change +will not affect the validity or transferability of any currently outstanding stock certificates that bear the name Petroleum Development Corporation, nor will it be necessary for stockholders with certificated shares to surrender or exchange any +stock certificates they currently hold. Uncertificated shares currently held in direct registration accounts and any new stock certificates issued after the name change becomes effective will bear the name PDC Energy, Inc. +The Company’s common stock is currently listed for trading on the NASDAQ Global Select Market under the symbol +“PETD.” If the amendment is approved, the Company’s common stock will continue to be listed on the NASDAQ Global Select Market, and the Company expects that its common stock will continue to be traded under the current NASDAQ symbol. +For the above reasons, our stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s Third Amended and Restated Articles of Incorporation attached hereto as Appendix A, +which include a change in the name of the Company to PDC Energy, Inc., are hereby approved. +THE BOARD OF +DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO PDC ENERGY, INC. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED +UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ SPECIFICATIONS. +In July 2010, we changed our registered agent in the State of Nevada by filing a change of registered form with the Nevada Secretary of State in accordance with the provisions of the Nevada Revised +Statutes. Under Nevada law, a change in registered agent does not require stockholder approval. If our stockholders approve the name change amendment described in this Proposal No. 3, the Third Amended and Restated Articles of Incorporation +will also include a revision to remove the specific reference to our previous registered agent and +9 +Table of Contents +replace it with an affirmation that we will maintain a registered agent in the State of Nevada. The name and address of our registered agent in the State of Nevada is publicly available at the +website hosted by the Nevada Secretary of State. +PROPOSAL NO. 4 — RATIFICATION OF SELECTION +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +(Proposal 4 on the Proxy Card) +The Audit Committee and the Board have selected PwC as the Company’s independent registered public accounting firm +for the fiscal year ending December 31, 2012, and the Company is submitting the selection of PwC to the stockholders for ratification. If the selection of PwC is not ratified, the Board will require the Audit Committee to reconsider its +selection. A representative of PwC is expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions. +Principal Accountant Fees and Services +2011 +2010 +Audit Fees (1) +$ +1,534,500 +$ +1,852,294 +Audit-Related Fees (2) +476,645 +1,520,079 +Tax Fees (3) +141,665 +213,993 +Other Fees (4) +— +3,272 +Total Fees +$ +2,152,810 +$ +3,589,638 +(1) +Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s +annual consolidated financial statements and the report on management’s assessment of internal control over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the +consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, +including amounts related to comfort letters and consents issued in conjunction with our debt and equity offerings. +(2) +Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the +audit or review of the Company’s annual consolidated financial statements and are not reported under “Audit Fees.” Fees billed primarily include our proportionate share of amounts billed to the Company-sponsored partnerships for the +audits of their annual financial statements. Total amounts billed for the Company-sponsored partnerships in 2011 and 2010 were $978,500 and $3,904,766, respectively. +(3) +Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and +its proportionately consolidated entities. +(4) +Other Fees consist of aggregate fees billed for products and services other than the services reported above. +Audit Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public +accounting firm be subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit services to be provided by the +Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also +be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services, which are not eligible for annual pre-approval, to be conducted by the independent accountant must be pre-approved individually +by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are fully performed. The duties of the +Audit Committee are described in the Audit Committee Charter, which is available at the Company’s website under “Corporate Governance.” While we recommend that you view our website, the information available on our website is not part +of this report and is not incorporated by reference into this Proxy Statement. +10 +Table of Contents +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS +PROPOSAL NO. 4. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ SPECIFICATIONS. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is composed of four Directors and operates under a written charter adopted by the Board. +Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under “Standing +Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website under “Corporate Governance.” +Management is responsible for the Company’s internal controls and preparation of the consolidated financial +statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in +accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee met nine times during 2011. In addition, the Audit Committee authorized Audit Committee +members Anthony J. Crisafio and Joseph E. Casabona, together or individually, to serve as a sub-committee of the Audit Committee to review and approve SEC filings and other actions of the partnerships for which the Company serves as managing general +partner. The sub-committee met an additional nine times during 2011 to review such partnership filings. +The +Audit Committee reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2011 (the “Audited Financial Statements”) with the Company’s management and PwC, the +Company’s independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed by Statement of Auditing Standards No. 61 (Codification of Statements of Auditing Standards AU § +380) as adopted by the PCAOB in Rule 3200T, as amended. PwC directly provided reports on significant matters to the Audit Committee. The Audit Committee has received the written disclosures and the letter from PwC required by PCAOB Rule 3526 and has +discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based on the foregoing review and discussions and relying thereon, the Audit Committee recommended that the Board include +the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. +The Board has approved the Audit Committee’s recommendation to appoint PwC to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2012, +subject to ratification by the Company’s stockholders. +Anthony J. Crisafio, Chair +Joseph E. Casabona +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE +OF THE BOARD OF DIRECTORS +11 +Table of Contents +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2012 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the +2012 Annual Meeting other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our By-Laws and the rules of the SEC, it is the intention of the proxy holders named in the +enclosed form of proxy to vote in accordance with their discretion on such matters pursuant to such proxy. +12 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock, par +value $0.01 per share, as of March 31 , 2012, by (1) each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive +Officer; and (4) all Directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where +applicable. Voting power is the power to vote or direct the voting of securities, and dispositive power is the power to dispose of or direct the disposition of securities. As of April 10, 2012, 23,652,262 shares of common stock of the +Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Name and Address of Beneficial Owner +Number of +Shares +Beneficially +Owned +Percentage of +Shares +Beneficially +Owned +BlackRock, Inc. +40 East 52nd Street +New York, NY 10022 +2,506,811 +(1) +10.6 +% +Wellington Management Company, LLP +280 Congress Street +Boston, MA 02210 +2,395,064 +(2) +10.1 +% +Dimensional Fund Advisors Inc. +Palisades West, Building One +6300 Bee Cave Road +Austin, Texas 78746 +1,615,590 +(3) +6.8 +% +FMR, LLC +82 Devonshire Street +Boston, MA 02109 +1,461,630 +(4) +6.2 +% +The Vanguard Group +100 Vanguard Blvd. +Malvern, PA 19355 +1,296,107 +(5) +5.5 +% +James M. Trimble +13,306 +(6) +* +Gysle R. Shellum +23,722 +(7) +* +Barton R. Brookman, Jr. +55,157 +(8) +* +Daniel W. Amidon +27,632 +(9) +* +Lance A. Lauck +35,778 +(10) +* +Kimberly Luff Wakim +12,738 +(11) +* +David C. Parke +14,676 +(12) +* +Jeffrey C. Swoveland +18,371 +(13) +* +Anthony J. Crisafio +14,105 +* +Joseph E. Casabona +17,592 +* +Larry F. Mazza +13,037 +* +All Directors and executive officers as a group (11 persons) +246,114 +(14) +* +* Represents less than 1% of the outstanding shares of common stock. +(1) +According to the Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 10, 2012. +(2) +According to the Schedule 13G/A filed by Wellington Management Company, LLP with the SEC on February 14, 2012. At the time of the filing, the +reporting person reported having shared voting power over 2,012,150 shares and shared dispositive power over 2,395,064 shares. Wellington Management, in its capacity as investment adviser, may be deemed to beneficially own 2,395,064 shares of the +Company which are held of record by clients of Wellington Management. +13 +Table of Contents +(3) +According to the Schedule 13G filed by Dimensional Fund Advisors LP with the SEC on February 14, 2012. At the time of the filing, the reporting +person reported having sole voting power over 1,564,661 shares and sole dispositive power over 1,615,590 shares. Dimensional Fund Advisors LP, an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, furnishes +investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts (such investment companies, trusts and accounts, +collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional Fund Advisors LP may act as an adviser or sub-adviser to certain Funds. In its role as investment adviser, sub-adviser and/or manager, neither +Dimensional Fund Advisors LP or its subsidiaries (collectively, “Dimensional”) possess voting and/or investment power over the securities of the Issuer that are owned by the Funds, and may be deemed to be the beneficial owner of the shares +of the Issuer held by the Funds. However, all securities reported in this Schedule 13G/A are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. +(4) +According to the Schedule 13G/A filed by FMR LLC with the SEC on March 12, 2012. At the time of the filing, the reporting person reported +having sole dispositive power over 1,461,630 shares of common stock. Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the +Investment Advisers Act of 1940, is the beneficial owner of 1,461,630 shares as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. Edward C. Johnson 3d and +FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 1,461,630 shares owned by the Funds. Neither FMR LLC nor Edward C. Johnson 3d, Chairman of FMR LLC, has the sole power to vote or direct the voting of the +shares owned directly by the Fidelity Funds, which power resides with the Funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds’ Boards of Trustees. +(5) +According to the Schedule 13G filed by The Vanguard Group with the SEC on February 9, 2012. At the time of the filing, the reporting person +reported having sole voting power over 33,915 shares and sole dispositive power over 1,262,192 shares. +(6) +Excludes 96,639 restricted shares subject to vesting greater than 60 days after March 31, 2012. +(7) +Excludes 28,843 restricted shares subject to vesting greater than 60 days after March 31, 2012; includes 7,361 shares subject to SARs +exercisable within 60 days of March 31, 2012. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. +(8) +Excludes 23,640 restricted shares subject to vesting greater than 60 days after March 31, 2012; includes 7,231 shares subject to SARs +exercisable within 60 days of March 31, 2012. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. +(9) +Excludes 20,279 restricted shares subject to vesting greater than 60 days after March 31, 2012; includes 6,596 shares subject to SARs +exercisable within 60 days of March 31, 2012. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. +(10) +Excludes 25,013 restricted shares subject to vesting greater than 60 days after March 31, 2012; includes 6,271 shares subject to SARs +exercisable within 60 days of March 31, 2012. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. Mr. Lauck shares voting and dispositive power with his wife held in joint account. +(11) +Excludes 1,046 shares of common stock purchased pursuant to the Non-Employee Director Deferred Compensation Plan. +(12) +Excludes 571 shares of common stock purchased pursuant to the Non-Employee Director Deferred Compensation Plan. +(13) +Excludes 1,454 shares of common stock purchased pursuant to the Non-Employee Director Deferred Compensation Plan. +(14) +Excludes 194,414 restricted shares subject to vesting greater than 60 days after March 31, 2012, and 3,071 shares of common stock purchased +pursuant to the Non-Employee Director Deferred Compensation Plan; includes 27,459 SARs exercisable within 60 days of March 31, 2012. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a +share of our common stock on the date of exercise and the grant date fair value, payable in shares only. +14 +Table of Contents +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) requires the Company’s officers +and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, Directors and holders of more than 10% of the common stock +are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists officers and Directors in complying with the reporting requirements of Section 16(a) of the Exchange +Act. +Based solely on a review of the reports furnished to the Company, or written representations from +reporting persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2011, the Company’s officers, Directors and owners of more than 10% of the Company’s common stock +timely filed all reports they were required to file under Section 16(a), except that one report, covering a single transaction, was filed late by R. Scott Meyers, Chief Accounting Officer. +CORPORATE GOVERNANCE +Corporate Governance Guidelines +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish +the Board’s policies on a number of corporate governance issues. The Corporate Governance Guidelines were most recently amended on September 9, 2011, and are posted under the Corporate Governance section on the Company’s website, +together with the following governance documents: +By-Laws +Code of Business Conduct and Ethics +Director Nomination Procedures +Insider Trading Policy +Shareholder Communication Policy +Audit Committee Charter +Compensation Committee Charter +Nominating and Governance Committee Charter +Planning and Finance +Committee Charter +Non-Executive Chairman Charter +Director Stock Ownership Guidelines +Board of Directors +The +Company’s By-Laws provide that the number of members of the Board of Directors shall be designated from time to time by a resolution of the Board. Currently, the designated number of Directors is seven. The By-Laws provide that the Board shall +be divided into three separate classes of Directors which are required to be as nearly equal in number as practicable. At each Annual Meeting of Stockholders, one class of Directors, whose term has expired, is elected to a new term of three years. +The classes are staggered so that the term of one class expires each year. +There is no family relationship +between any Director or Named Executive Officer of the Company. There are no arrangements or understandings between any Director or officer and any other person pursuant to which the person was selected as an officer of the Company. +Director Independence +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews the NASDAQ listing standards, which set forth certain circumstances under which a director is not +considered +15 +Table of Contents +independent. As President and Chief Executive Officer (“CEO”) of the Company, Mr. Trimble is not independent under such standards. Audit Committee members are subject to +additional, more stringent NASDAQ and Exchange Act requirements. +The Board has reviewed the business and +charitable relationships between the Company and each non-employee Director (“Non-Employee Director”) to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might +impair a Non-Employee Director’s independence. The Board has affirmatively determined that each of the Non-Employee Directors, including Messrs. Casabona, Crisafio, Mazza, Parke, Swoveland and Ms. Wakim, is independent under NASDAQ Listing +Rule 5605 and the Exchange Act. +Board Meetings and Attendance +The Board has a standing Audit Committee, Compensation Committee, Nominating and Governance Committee, and Planning and +Finance Committee. Actions taken by these committees are reported to the Board at its next meeting. During 2011, each of the Company’s Directors attended at least 75% of all meetings of the Board and committees of which he or she was a member. +As specified in the Company’s Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting of Stockholders. All of the Directors attended the 2011 Annual Meeting on June 10, 2011, +except for Messrs. Crisafio, Mazza, Swoveland and Trimble, who experienced travel difficulties en route to the meeting and were unable to attend. +The following table identifies the members of each committee of the Board, the chair of each committee, and the number of meetings held in 2011. +2011 BOARD AND COMMITTEE MEMBERSHIPS +Director +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and +Governance +Committee +Planning +and +Finance +Committee +Executive +Committee (4) +Joseph E. Casabona +x +x +x (1) +Anthony J. Crisafio +x +x (1) +x +Larry F. Mazza +x +x +x (1) +David C. Parke +x +x +x +x +Jeffrey C. Swoveland (2) +x +x +x +x +x +James M. Trimble +x +x (3) +x (3) +x +x +Kimberly Luff Wakim +x +x +x (1) +x +Number of Meetings in 2011 +8 +9 (5) +8 +4 +6 +1 +(1) +Chair +(2) +Mr. Swoveland was appointed Chairman of the Board on June 10, 2011. +(3) +Mr. Trimble served on these committees until his appointment as President and CEO on June 10, 2011. +(4) +The Board terminated the Executive Committee on December 9, 2011. +(5) +A sub-committee of the Audit Committee held nine additional meetings in 2011 related to partnership SEC filings. +The Non-Employee Directors generally meet in “executive session” without the presence of employee Directors in +connection with each regularly scheduled Board meeting. Mr. Swoveland chairs these sessions; however, the other Non-Employee Directors may, in the event of his absence, select another Director to preside over the executive session. +16 +Table of Contents +STANDING COMMITTEES OF THE BOARD +Audit Committee +The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, +Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted an Audit Committee Charter which is posted on the Company’s website. The Board assesses the adequacy of the Audit +Committee Charter on an annual basis and revises it as necessary. The Board has determined that all four members of the Audit Committee qualify as “financial experts” as defined by SEC regulations. The Audit Committee’s primary +purpose is to assist the Board in monitoring the integrity of the financial reporting process, systems of internal controls and financial statements of the Company, and compliance by the Company with legal and regulatory requirements. Additionally, +the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent auditors engaged by the Company for the purpose of preparing or issuing an audit report or related work and to assess the need for an +internal audit function and recommend its establishment when deemed appropriate. In performing its responsibilities, the Audit Committee: +• +Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal +compliance; +• +Monitors the independence of the independent registered public accounting firm; and +• +Provides an avenue of communications among the independent registered public accounting firm, management and the Board. +Compensation Committee +The Board has determined that all members of the Compensation Committee (the “Committee”) are independent of the +Company under Rule 5605(a)(2) of the NASDAQ listing standards. The Board has adopted a Compensation Committee Charter which is posted on the Company’s website at www.petd.com . The Committee revised its charter in 2011 primarily to +reflect the June 2011 changes in the Board’s leadership structure. The purpose and functions of the Committee are primarily to: +• +Oversee the development of a compensation strategy for the Company’s Named Executive Officers; +• +Evaluate the performance of and set compensation for the CEO; +• +Review and approve the elements of compensation for other senior executive officers of the Company; +• +Negotiate the terms of employment agreements with executive officers of the Company and approve all change of control plans; +• +Review the compensation of the Directors for Board and committee work and recommend to the Board changes in such compensation levels; +• +Review and approve performance criteria and results for which bonus awards for senior executive officers will be determined, and approve bonus +awards to senior executive officers; +• +Recommend to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approve all equity grants under +the plans, and administer all equity-based incentive programs of the Company, which may include specific delegation to management regarding awards to non-executive officers; and +• +Review and approve Company contributions to retirement plans. +Compensation Committee Interlocks and Insider Participation +There were no Compensation Committee interlocks during fiscal year 2011. +17 +Table of Contents +Nominating and Governance Committee +The Board has determined that all members of the Nominating and Governance Committee (the “N&G Committee”) +are independent of the Company under Rule 5605(a)(2) of the NASDAQ listing standards. The Board has adopted a Nominating and Governance Committee Charter which is posted on the Company’s website www.petd.com . The N&G Committee +revised its charter in 2011, primarily to reflect the June 2011 changes in the Board’s leadership structure. The purpose and functions of the N&G Committee are primarily to: +• +Assist the Board by identifying individuals qualified to become Board members, recommend nominees for election at the next Annual Meeting of +Stockholders, or fill any vacancies; +• +Recommend to the Board corporate governance guidelines applicable to the Company; +• +Lead the Board in its annual review of the Board’s performance; and +• +Recommend to the Board the nominees for membership on each committee. +Planning and Finance Committee +The Planning and Finance Committee (the “P&F Committee”) is comprised of three Non-Employee Directors, the +CEO, and two non-voting members of executive management. The Board has adopted a charter for the P&F Committee which is posted on the Company’s website. The primary purpose of the P&F Committee is to oversee the responsibilities of the +Board relating to planning and finance, including to: +• +Organize and oversee the Board’s participation in the development of the Company’s strategic plan and the risk assessment and management +processes; +• +Follow the progress of the implementation of the Company’s strategic plan and advise the Board if additional Board action appears to be needed +to assure successful implementation of the plan or if a need exists to revise the plan in the face of changing conditions or other factors; +• +Work with the Chief Financial Officer (“CFO”) and other executive management regarding corporate financial matters including operating and +capital budgets, capital structure, dividends, and other significant financial and capital issues. +Executive Committee +The Board eliminated the Executive Committee, which formerly consisted of Messrs. +Swoveland, Trimble and former CEO Richard W. McCullough, on December 9, 2011. +Board Leadership Structure +On June 10, 2011, Richard W. McCullough resigned from his position as CEO and Chairman of the Board. +On that date, Mr.Trimble, then an independent Director, was appointed President and CEO and Mr. Swoveland was appointed Non-Executive Chairman of the Board. Mr. Swoveland has served on the Board since 1991 and previously served as the +Company’s Presiding Independent Director. In connection with the appointment of Mr. Trimble as President and CEO, and as part of the Company’s ongoing effort to engender sound corporate governance best practices, the Company +separated the CEO and Chairman positions. Separating these positions allows Mr. Trimble to focus on developing and implementing the Company’s business plans and supervising its day-to-day business operations, and allows Mr. Swoveland +to lead the Board in its oversight and advisory roles. The Company believes that, due to the many responsibilities of the Board and the significant time and effort required by the Chairman and the CEO to perform their respective duties, having +separate persons in these roles enhances the ability of each to discharge those duties effectively. In light of this leadership transition, the Board determined for the foregoing reasons that separating these positions and implementing this +leadership structure is appropriate and in the best interests of the Company’s stockholders. The Company will continue to evaluate whether this leadership structure best serves the Company and its stockholders in connection with the annual +election of the Chairman or as circumstances warrant. +18 +Table of Contents +In his former role as Presiding Independent Director and currently as +Non-Executive Chairman, Mr. Swoveland has chaired the meetings of executive sessions of our independent Directors. The Non-Executive Chairman, in consultation with the CEO, establishes the agenda for each Board meeting. +DIRECTOR COMPENSATION +Compensation of our Non-Employee Directors is reviewed annually by the Committee and approved by the Board. We use a +combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board. In setting Director compensation, we consider the significant amount of time the Directors spend fulfilling their duties as +well as the competitive market for skilled Directors. In addition, we recognize that our Directors are also responsible for the oversight of sixteen partnerships for which PDC is the managing general partner. No compensation is paid to employee +Directors for their service on the Board. +In 2011, the Committee directly engaged Towers Watson & +Co. (the “Consultant”) as the compensation consultant to review executive compensation and to conduct an annual review of the total compensation of Non-Employee Directors. Specifically, retainer fees, potential meeting fees and stock-based +long-term incentives were evaluated using, as the competitive benchmark, levels of total compensation paid to the directors of the energy companies which comprise the Company’s peer group for determining 2011 executive compensation. Below is a +summary of the compensation paid to our Non-Employee Directors. All Board and committee retainers are paid in quarterly installments. +Cash Compensation +Annual Board Retainer +The annual Board term begins on July 1 of each year. For the 2010-2011 and 2011-2012 Board terms, each Non-Employee +Director received an annual cash retainer of $55,000 for service on the Board and for attendance at all Board meetings. The Non-Executive Chairman, whose position was created in June 2011, receives an additional cash retainer of $100,000 per year. +Prior to June 2011, Mr. Swoveland received a fee as Presiding Independent Director, as noted below. +Annual +Committee Retainers +Each Non-Employee Director receives an annual cash retainer for service on +each committee on which he or she serves and for attendance of all meetings of each such committee. The chair of each committee receives an additional annual retainer for his or her services as chair of that committee. The following table shows the +committee and additional chair retainers for the 2010-2011 and 2011-2012 Board terms. +COMMITTEE RETAINERS +2010 – 2011 Board Term +2011 – 2012 Board Term +Committee +Committee +Retainer +Additional +Committee +Chair +Retainer +Committee +Retainer +Additional +Committee +Chair +Retainer +Audit +$ +10,000 +$ +17,500 +$ +10,000 +$ +17,500 +Compensation +6,000 +6,000 +10,000 +10,000 +Executive +5,000 +N/A +N/A +N/A +Nominating and Governance +6,000 +6,000 +6,000 +7,500 +Planning and Finance +6,000 +6,000 +10,000 +10,000 +In addition: +• +A Special Committee consisting of Messrs. Crisafio, Mazza, Parke and Swoveland was created in 2008 to consider the potential repurchase of certain +partnerships for which the Company is the managing general partner. In 2011, each Special Committee member was paid a fee of $1,500 for such service. +19 +Table of Contents +• +A sub-committee of the Audit Committee consisting of Messrs. Casabona and Crisafio, acting together or individually, reviews and approves SEC +filings for the partnerships for which the Company is managing general partner. For the 2011-2012 Board term, a fee of $30,000 was paid in cash to the members of the Audit sub-committee and a stock grant equal to $25,000, vesting pro-rata over three +years, was awarded to each member. +Equity Compensation +On the date of each Annual Meeting, each Non-Employee Director is awarded restricted Company stock for service on the +Board. In June 2011, each Non-Employee Director received the equivalent of $125,000 (3,633 shares) in restricted stock. These shares were granted under the Company’s 2010 Long-Term Equity Compensation Plan approved by stockholders in 2010 (the +“2010 LTI Plan”) and vest ratably over three years. Additionally, Mr. Crisafio and Mr. Casabona each received a one-time grant of $25,000 (781 shares) of restricted stock in July 2011, vesting ratably over three years, in +recognition of their service on the sub-committee of the Audit Committee for partnership-related services. +Deferred Compensation +Each Non-Employee Director may choose to defer all or a portion of his/her annual cash compensation by participating in the Non-Employee Director Deferred Compensation Plan. All cash deferred into this +program is credited with hypothetical earnings and losses as if invested in common stock of the Company. None of the Non-Employee Directors deferred cash compensation in 2011. +Company Stock Ownership Requirements +In June 2011, the Board amended its Director Stock Ownership Guidelines by increasing the Non-Employee Directors’ requirement to hold shares of stock to an amount equal to at least five times his/her +annual Board retainer (previously three times annual retainer). Compliance with ownership requirements is measured annually. Qualifying shareholdings include stock owned directly and unvested restricted stock. Directors are required to comply with +the ownership guidelines within five years of their election to the Board. As of December 31, 2011, all of the Directors met the current requirements under the guidelines. +The Company’s Insider Trading Policy expressly prohibits Non-Employee Directors from engaging in options, puts, +calls or other transactions that are intended to hedge against the economic risk of owning Company stock. +Director Compensation +The table below summarizes the compensation paid to the Non-Employee Directors for fiscal year 2011. +DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in Cash (1) +($) +Stock +Awards (2) +($) +Total ($) +Joseph E. Casabona (3) +96,000 +148,455 +244,455 +Anthony J. Crisafio (3)(4) +107,000 +148,455 +255,455 +Larry F. Mazza (4) +77,250 +118,981 +196,231 +David C. Parke (4) +78,500 +118,981 +197,481 +Jeffrey C. Swoveland (4)(5) +147,250 +118,981 +266,231 +James M. Trimble (6) +39,000 +— +39,000 +Kimberly Luff Wakim +87,000 +118,981 +205,981 +(1) +Includes annual Board retainer, regular committee and committee chair retainers, Audit sub-committee retainers, cash compensation paid for +participation on the Special Committee and retainers for Presiding Independent Director and Chairman of the Board. In June 2011, the Board replaced the Presiding Independent Director position with the Non-Executive Chairman position. +20 +Table of Contents +(2) +As compensation for services rendered from July 1, 2011 through June 30, 2012, Non-Employee Directors were awarded $125,000 in the form of +restricted stock (3,633 shares each) and the Audit sub-committee members received $25,000 worth of restricted stock (781 shares each) based on the average closing price of our common stock over the 15-day period ending ten days prior to each grant +date. The actual amount reported in this table reflects the grant date fair value as computed in accordance with FASB ASC Topic 718, based on a $32.75 price per share for the June 10, 2011 grant of 3,633 shares of restricted stock to each +Non-Employee Director, and a $37.74 price per share for the July 27, 2011 grant of 781 shares of restricted stock to each member of the Audit sub-committee. +(3) +Messrs. Casabona’s and Crisafio’s compensation for 2011 includes $15,000 for their participation on the Audit sub-committee and the stock +grant as outlined in footnote (2) above. +(4) +Messrs. Crisafio, Mazza, Parke and Swoveland each received $1,500 in 2011 for his services on the Special Committee that evaluated partnership +repurchases. +(5) +Mr. Swoveland received $13,750 for services from January through June 2011 as Presiding Independent Director and $50,000 for his services as +Non-Executive Chairman of the Board from June through December 2011. +(6) +Mr. Trimble served as a Non-Employee Director until June 2011. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that prescribe the process the N&G Committee will use to +recommend nominees for election to the Board. The Director Nomination Procedures are posted on the Company’s website. The N&G Committee evaluates each candidate based on the candidate’s level and diversity of experience and knowledge +(specifically within the industry and relevant industries in which the Company operates, as well as his or her overall experience and knowledge), skills, education, reputation, integrity, professional stature and other factors that may be relevant +depending on the particular candidate. +Additional factors considered by the N&G Committee include the +size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. Accordingly, one or more of these factors may be given more weight in a particular case at a +particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +The N&G Committee identifies Director candidates primarily through recommendations made by the Non-Employee +Directors. These recommendations are developed based on the Non-Employee Directors’ knowledge and experience in a variety of fields and on research conducted by PDC staff at the N&G Committee’s direction. The N&G Committee also +considers recommendations made by an employee Director, employees, stockholders, and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the guidelines. The +N&G Committee has the authority to engage consultants to help identify or evaluate potential Director Nominees, but has not done so recently. +Diversity Consideration +In +addition to qualities of intellect, integrity and judgment, the N&G Committee takes into consideration diversity of background, senior management experience, education, and an understanding of some combination of oil and gas marketing, finance, +technology, government regulation, and public policy. The N&G Committee makes its determination in the context of an assessment of the perceived needs of the Board at that point in time. The N&G Committee evaluates all Director nominees, +including nominees recommended by stockholders, using these criteria. The Director nomination process specifically includes disclosure of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the +Board’s functioning and needs. +STOCKHOLDER RECOMMENDATIONS +The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as +those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the +21 +Table of Contents +Company’s headquarters or by sending the information via email to board@petd.com . All recommendations will be reviewed by the N&G Committee. A submission recommending a candidate +should include: +• +Sufficient biographical information to allow the N&G Committee to evaluate the potential candidate in light of the Director Nomination +Procedures; +• +An indication as to whether the proposed candidate will meet the requirements for independence under NASDAQ guidelines; +• +Information concerning any relationships between the candidate and the stockholder recommending the candidate; and +• +An indication of the willingness of the proposed candidate to serve if nominated and elected. +Stockholder Nominations +Stockholders who wish to may nominate candidates for election to the Board. The Company’s By-Laws require that stockholders who wish to submit nominations of persons for election to the Board of +Directors at the Annual Meeting of Stockholders follow certain procedures. The stockholder must give written notice to the Corporate Secretary at Petroleum Development Corporation, 1775 Sherman Street, Suite 3000, Denver, Colorado 80203 or may email +notice to board@petd.com not later than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s Annual Meeting. If the date of the Annual Meeting is more than 30 days before or more than 60 days after that +anniversary date, however, for notice by such stockholder to be timely, it must be received not later than 80 days before the Annual Meeting, or within 10 days following the Company’s public announcement of the date of its Annual Meeting. The +stockholder must be a stockholder of record at the time the notice is given. The written notice must set forth (1) as to each nominee, all information relating to that person that is required to be disclosed in solicitations of proxies for +election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the Proxy Statement as a nominee and to serving as +a Director if elected); (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made (a) the name and address of the stockholder, as they appear on the Company’s books, and of +such beneficial owner, and (b) the class and number of shares of the Company’s securities that are beneficially owned by such stockholder and the beneficial owner; and (3) any material interest of such stockholder and such beneficial +owner in such nomination. +THE BOARD’S ROLE IN RISK MANAGEMENT +The Board seeks to understand and oversee critical business risks. Risks are considered in every business decision, +including through Board oversight of the Company’s internal risk management system. For instance, a special assessment of risks (financial and otherwise) is included in every acquisition proposal to the Board. The Board realizes, however, that +it is not possible or desirable to eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company. The P&F Committee leads this effort, primarily by overseeing risks related to the Company’s key strategic goals. Other +committees, however, are active in managing the risks related to such committees’ oversight areas. For example, the Audit Committee reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of +the Company’s financial statements, such as counterparty risks and derivative program risks. Similarly, the Committee considers risks related to the structure and size of the Company’s compensation plans, as set out below. +We believe our Board leadership structure supports the risk oversight function. In addition to having an independent +Non-Executive Chairman, an independent Director chairs each of our Board committees involved with risk oversight. There is open and continuous communication between management and our Directors, and all of our Directors are actively involved in the +risk oversight function. +22 +Table of Contents +Compensation Risk Assessment +We do not believe the Company’s executive and non-executive compensation structure is reasonably likely to have a +material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: +• +A balance of short-term and long-term programs to ensure focus on both elements of Company performance; +• +Caps on awards payable to any individual under our bonus and performance share programs along with Committee discretion to decrease bonus payouts in +the event it believes excessive risk was taken; +• +Certain bonus awards are payable over multiple years and are subject to reduction or forfeiture following a re-evaluation of performance in prior +years; +• +“Clawback” provisions are included in all Named Executive Officers’ employment agreements; +• +Significant stock ownership requirements for Named Executive Officers and Non-Employee Directors; +• +A robust trading policy that prohibits executive officers from selling Company shares without first obtaining permission from the Company’s +General Counsel, even during open trading windows under our Insider Trading Policy; and +• +A hedging policy that does not permit the Company to effect transactions in oil and gas derivatives on a speculative basis. +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +Stockholders wishing to communicate with the Board or a committee of the Board may do so by writing to the attention of +the Board or committee at the Company’s corporate headquarters or by emailing the Board at board@petd.com , with “Board Communication” or the appropriate Board committee indicated in the subject line. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company adopted a Code of Business Conduct and Ethics, amended and restated on April 27, 2004 and +December 9, 2011 (the “Code of Conduct”), applicable to all Directors, officers, employees, agents, consultants and representatives of the Company. The Company’s principal executive officer, principal financial officer and +principal accounting officer are subject to additional specific provisions under the Code of Conduct. The Company’s Code of Conduct is posted on its website at www.petd.com . In the event the Board approves an amendment to or a waiver of +the provisions of the Code of Conduct, the Company will disclose the information on its website. During 2011, the Board approved a waiver regarding any potential conflict related to the service of Mr. Swoveland on the Board of Directors of Linn +Energy LLC, which is posted on the Company’s website at www.petd.com . If the Board becomes aware of a potential conflict in the future, it will consider at that time whether or not to continue this waiver for Mr. Swoveland. +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From +January 1, 2011 to the present, there was no transaction or series of transactions, nor any currently proposed transaction, in which the amount involved exceeds $120,000 and in which any Director, executive officer, known holder of more than +five percent of the Company’s common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related party transaction policy +applies to each Director and +23 +Table of Contents +executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate +family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial interest. +Under our related party transaction policy, a related person transaction is a transaction or arrangement involving a +related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such interest. All related person transactions will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will +consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction to the Company and the business purpose +and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis, and the impact of the transaction on the Company’s business and operations. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of +the Company’s SEC filings are available to the public at http://www.sec.gov and through a link from the Company’s website at www.petd@petd.com . These documents may also be viewed at the SEC’s public reference room +located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. +NAMED EXECUTIVE OFFICERS +The +current Named Executive Officers of the Company, their principal occupations for the past five years and additional information is set forth below. +JAMES M. TRIMBLE, 63, President, CEO and Director. See “Proposal No. 1 — Election of Directors — Continuing Directors with Term Expiring in 2013 Class III” for +Mr. Trimble’s biography. +GYSLE R. SHELLUM, 60, was appointed CFO in 2008. Prior to joining the +Company, Mr. Shellum served from September 2004 through September 2008 as Vice President, Finance and Special Projects of Crosstex Energy, L.P. in Dallas, Texas. Crosstex Energy, L.P. is a publicly traded Delaware limited partnership whose +securities are listed on the NASDAQ Global Select Market and is an independent midstream energy company engaged in the gathering, transmission, treating, processing and marketing of natural gas and natural gas liquids. Mr. Shellum holds a BBA +in Accounting from the University of Texas, Arlington. +BARTON R. BROOKMAN, JR., 49, Senior Vice President +Exploration and Production, joined PDC in July 2005. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing +responsibility, ending his service as Vice President of Operations for Patina. Mr. Brookman holds a B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado. +DANIEL W. AMIDON, 51, General Counsel and Secretary, was appointed General Counsel and Secretary in July 2007. Prior to +joining PDC, Mr. Amidon was employed by Wheeling-Pittsburgh Steel Corporation beginning in July 2004, where he served in several positions including General Counsel and Secretary. Prior to his employment with Wheeling-Pittsburgh Steel, +Mr. Amidon was employed by J&L Specialty Steel Inc. from 1992 through July 2004 in positions of increasing responsibility, including General Counsel and Secretary. Mr. Amidon practiced with the Pittsburgh law firm of Buchanan Ingersoll +PC from 1986 through 1992. Mr. Amidon graduated from University of Virginia, with honors, majoring in economics. He received his J.D. from the Dickinson School of Law (currently named Penn State Law). +24 +Table of Contents +LANCE A. LAUCK, 49, Senior Vice President of Corporate Development since +January 1, 2012, joined PDC in August 2009 as Senior Vice President Business Development. Previously, he served as Vice President — Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 +until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management -level positions in the areas of acquisitions and +divestitures, corporate mergers and business development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri-Rolla in 1984 with a bachelor of science +degree in Petroleum Engineering. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation +Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +Kimberly Luff Wakim, Chair +Anthony J. Crisafio +Larry F. Mazza +David C. Parke +Jeffrey C. Swoveland +COMPENSATION COMMITTEE +OF THE BOARD OF DIRECTORS +COMPENSATION DISCUSSION AND ANALYSIS +This Compensation Discussion and Analysis describes the Company’s compensation philosophy and the components of the Company’s compensation program, with a focus on the Named Executive Officers +described above under “Named Executive Officers.” +Executive Summary +At PDC, we believe that our executive compensation program: +• +Aligns the interests of our executives with the interests of our stockholders; +• +Directly supports the Company’s strategic plan by focusing employee performance on specific financial and operational drivers; +• +Is market competitive and premised upon informed industry benchmarking; and +• +Results in executive compensation predominantly based upon the Company’s actual performance, thereby rewarding performance with pay. +In summary, our compensation program is designed to reward executives when the Company +achieves its financial and operational objectives. In 2011, we experienced a change in leadership with the resignation of Mr. McCullough as CEO and Chairman and the appointment of Mr. Trimble as President and CEO. We believe that, even +with these changes, we maintained the Company’s focus on core strategy and delivered on the key financial and operational results expected by our stockholders: +• +Proved reserves for year end 2011 grew by 18% to 1 trillion cubic feet equivalent (Tcfe) while the SEC discounted value (PV10) almost doubled; +• +Increased crude oil and liquids percentage to 34% of proved reserves for year-end 2011; +25 +Table of Contents +• +Successfully de-risked a major portion of the Company’s Niobrara acreage position in the Wattenberg Field with the drilling of multiple +Horizontal Niobrara wells; +• +Executed a successful acquisitions program including the Seneca-Upshur acquisition, which brought our joint venture, PDC Mountaineer, 90,000 acres +prospective for the Marcellus Shale in West Virginia, as well as other smaller acquisitions; +• +Entered the emerging Utica Shale play in southeast Ohio by acquiring rights for up to 40,000 net acres; +• +Entered into an agreement to divest our Permian Basin assets and miscellaneous properties for approximately $198 million to help fund the 2012 +capital program focused in the liquid-rich Niobrara and Utica shale plays; +• +Exceeded the Company’s targets for production, reserve growth, and adjusted cash flow per share; and +• +Had stock price performance comparable to similarly-sized oil and gas companies even though stock price performance was influenced by low natural +gas prices. +Key compensation outcomes and changes for 2011 included: +• +A new CEO was hired in 2011 and was provided a competitive compensation package per the terms of his employment agreement; +• +For the other Named Executive Officers, adjustments were made to their compensation to get individuals closer to market median: +• +Increased salaries by about 10% on average; +• +Increased annual incentive target bonuses moderately; and +• +Increased standard equity grants by approximately 6% on average; +• +The 2011 annual incentive plan earned 125% of target; +• +We allocated a portion of the equity grants to performance-based restricted stock; and +• +We increased the stock ownership guidelines to align with market changes, and instituted a stock retention policy until the ownership requirement is +met. +General Compensation Philosophy/Objectives +Compensation is Designed to Help Achieve the Company’s Objectives +The objectives of our compensation programs are to attract, motivate and retain highly-talented executives who can ensure +that the Company is able to efficiently and profitably explore for and produce natural gas and oil in a safe and environmentally conscious way. The Committee is committed to establishing a compensation package that generally establishes target total +compensation at the median level for similar positions at comparable companies, but provides increased pay as a reward for above-target performance and below-median pay for performance that does not meet the target. Our programs are structured to +require a commitment to performance because total compensation at the market median is not guaranteed. +Compensation +is Related to Performance and is Aligned with the Company’s Strategic Plan +The total +compensation packages for our Named Executive Officers are generally weighted in favor of at-risk compensation through both annual and long-term performance-based incentive pay. The Committee aligns its executive compensation decisions with the +Company’s strategic plan and the financial and operational goals it believes are necessary to drive performance. As a result, each of our incentive programs links all or a portion of +26 +Table of Contents +its payout to the Company’s performance and specific performance measures. The chart below reflects the fixed and at-risk components, as contemplated by the Committee for 2011, for each +Named Executive Officer as a percentage of total direct compensation. +The following charts are not a +substitute for the “Summary Compensation Table” included in this Proxy Statement, which includes amounts supplemental to total direct compensation and calculates certain components of total direct compensation differently from that shown +below. +These charts demonstrate that, for 2011, the Committee targeted 78% of total direct +compensation for Mr. McCullough as variable and 56% in the form of equity-based compensation, with the other Named Executive Officers having approximately 70% of their compensation as variable and 51% of their compensation in the form of +equity-based compensation. This excludes the value of any acquisitions bonus for Mr. Lauck or any special awards during the year. Mr. Trimble’s total direct compensation for 2011 is not accounted for above because he was hired as +President and CEO in June 2011 after total direct compensation was determined for the other Named Executive Officers and because his compensation was determined through the negotiation of his employment agreement. In 2012, we expect that his total +direct compensation structure will be more similar to that set forth above. +Total Compensation Should Be Competitive +and Encourage Retention of Executives +We have structured our total compensation package to be +comparable with the peer group, as described below, but we do not generally offer above-market pay except when performance targets have been exceeded. The Committee benchmarks each element of total direct compensation (which includes base salary, +annual and long-term incentives) and the mix of compensation (cash versus equity) as compared with the peer group. We generally target base salary and total compensation at the median of the peer group for median performance in order to remain +competitive for executive talent and to retain our current executive leadership. In addition, to encourage retention, long-term incentives may be forfeited in the event an executive voluntarily terminates employment. +Incentive Compensation Balances Short-Term and Long-Term Performance +Our compensation programs are designed to maintain a balance between rewarding the achievement of short-term or annual +results and ensuring the Company’s long-term growth and success. To this end, a mix of annual and long-term incentives is allocated in a manner generally consistent with the peer group of companies. The Committee also considers what it believes +to be the appropriate balance of risk in each program. Participation in both the annual and long-term incentive programs increases at higher levels of responsibility, as executives in these leadership roles have the greatest influence on the +Company’s strategic direction and results over time. +27 +Table of Contents +Peer Groups and Survey Data Help Establish Target Total Compensation and Define +Competitive Levels of Performance +Each year the Committee reviews the composition of a peer group +of companies to help establish target total direct compensation for each executive. In its review, the Committee considers with respect to each potential peer company its size, scope and nature of business operations, ownership structure, prior +financial performance and current financial scope including market capitalization, enterprise value, revenue, EBITDA, capital expenditures and assets. The Committee then assesses whether changes to the peer group are warranted based on changes in +size and/or operations of the peer company, changes in size and operations of the Company, and other factors that may make a peer company no longer comparable. The Committee refined the composition of the peer group for determining compensation +levels in 2011 as shown below. +COMPANY +2010 +2011 +ATP Oil & Gas Corporation +x +Berry Petroleum Company +x +x +Bill Barrett Corporation +x +x +Brigham Exploration Company +x +Cabot Oil & Gas Corporation +x +Carrizo Oil & Gas +x +x +Comstock Resources +x +x +Concho Resources Inc. +x +Exco Resources, Inc. +x +Forest Oil Corporation +x +Goodrich Petroleum Corporation +x +x +Penn Virginia Corporation +x +Petroquest Energy, Inc. +x +x +Quicksilver Resources Inc. +x +Resolute Energy Corporation +x +Rosetta Resources Inc. +x +x +SM Energy Company +x +Stone Energy Corporation +x +x +Swift Energy Company +x +x +Venoco Inc. +x +x +The Committee also uses proprietary survey benchmarking data from a broader sample of +comparably-sized oil and gas companies in order to provide an additional market perspective. The Committee uses both the peer and survey benchmarking data to establish a dollar level for target total direct compensation for each executive at +approximately the market median. +Compensation Should Be Tax-Deductible to the Extent Possible +The Committee considers the impact of the applicable tax laws with respect to compensation +paid under the Company’s plans, arrangements and agreements. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) disallows, with certain exceptions, a federal income tax deduction for annual compensation +over $1 million paid to any covered employee. The covered employees are the principal executive officer and the three most highly-compensated named executive officers other than the principal executive officer and principal financial officer. An +exception to the deduction limit is provided under Code Section 162(m) for performance-based compensation paid pursuant to stockholder-approved plans that meet certain criteria. +Elements of our executive compensation program are designed to be performance-based, such as stock options, SARs and +performance-based equity awards issued under the Company’s 2004 and 2010 Long-Term Incentive (“LTI”) Plans. Other aspects of our executive compensation program do not qualify as +performance- +28 +Table of Contents +based, such as time-based restricted stock and the Company’s annual incentive bonus program. It is our intent to maximize our income tax deductions by qualifying compensation paid to our top +executives as performance-based compensation under Code Section 162(m) where practicable under our compensation policies. The Committee nonetheless may approve compensation that may not qualify for the compensation deduction if, in light of all +applicable circumstances, the Committee believes that it would be in our best interests to exercise our discretion for such compensation to be paid. For example, in the case of the annual incentive bonus program, the Committee prefers to maintain +the ability to exercise discretion in evaluating Company and participant performance. The Committee will continue to monitor its position on the impact of Code Section 162(m) on the Company’s executive compensation programs. +Section 409A of the Code provides that all amounts deferred under a nonqualified deferred compensation plan are +currently included in gross income and are subject to an additional 20% income tax, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. We have designed or +amended our plans and programs with the intent that they either be exempt from or comply with Code Section 409A. +Executives and Directors Are Required to Own Stock +Consistent with the goal of driving long-term value creation for stockholders, and in order to discourage undue +risk-taking, the Company’s stock ownership guidelines require significant stock ownership by the Named Executive Officers and Directors. In 2011, the Company increased its ownership guidelines for our executives from three times base salary to +five times base salary for the CEO and from two times base salary to three times base salary for all other Named Executive Officers. Named Executive Officers are expected to achieve compliance with the ownership guidelines within five years of their +appointment as a Named Executive Officer but are not required to purchase stock to meet these guidelines. The net shares acquired through incentive compensation plans (through the exercise of stock options, SARs, the vesting of restricted stock or +performance shares) must be retained if the Named Executive Officer has not satisfied his targeted ownership. An executive’s failure to meet the stock ownership guidelines may influence an executive’s future mix of cash and non-cash +compensation awarded by the Committee. Executives are not permitted to pledge their shares or invest in derivatives involving Company stock. Ownership is reviewed at least annually when compensation decisions are made. +As of December 31, 2011, all of the Named Executive Officers met the guidelines requirements except +Mr. Trimble, who was new to the position of CEO. The stock holdings relative to their 2011 stock ownership guidelines requirements are set forth below. +STOCK OWNERSHIP GUIDELINES +Name/Year of Executive Status +Stock +Ownership +Guidelines +Number of +Shares +Required +To Own* +Number of +Qualifying +Shares +Owned* +James M. Trimble (2011) +5x Base Salary +88,302 +71,428 +Gysle R. Shellum (2008) +3x Base Salary +26,702 +35,104 +Barton R. Brookman (2008) +3x Base Salary +26,702 +61,672 +Daniel W. Amidon (2007) +3x Base Salary +23,312 +34,343 +Lance A. Lauck (2009) +3x Base Salary +22,464 +44,833 +* +Using the average closing stock prices for the month of December 2011 of $35.39. +Qualifying stockholdings include stock owned directly, shares held in the Company’s 401(k) and Profit Sharing Plan, +and unvested time-based restricted stock as of December 31, 2011. Stock options, SARs and performance-based awards are not qualifying stockholdings for purposes of the stock ownership guidelines. For a description of the stock ownership +guidelines applicable to our Non-Employee Directors, please see “Director Compensation — Company Stock Ownership Requirements.” +29 +Table of Contents +Compensation Process — Making Executive Compensation Decisions +Determining Target Total Direct Compensation +The Committee determines the target total direct compensation for Named Executive Officers by establishing base salaries +and setting long-term and annual incentive compensation targets. When appropriate, the Committee also approves special awards and modifies perquisites. The Committee typically establishes target total direct compensation in the first quarter of each +year. When determining target total direct compensation, the Committee considers the following: +• +Market median target total direct compensation (base salaries, bonus targets and payouts and long-term incentives) information for the peer group, +as disclosed in peer proxies, and other applicable survey data; +• +Individual performance and areas of responsibility relative to the market data; +• +Compensation of other executive officers in the Company; and +• +The CEO’s compensation recommendations with respect to his direct reports. +The Committee’s view is that an executive’s target compensation should reflect the current market value of his +or her services. For a Named Executive Officer who has performed well in the prior year, the predominant factor in determining target total direct compensation for the current year is the market median target total direct compensation for that +position. In considering the mix of cash and long-term incentives, the Committee may adjust the amount and type of each component to generally target total direct compensation at the market median. When recruiting a new executive, the Company may be +required to pay above market median to attract an individual. Over time, performance will determine actual pay and target pay will be adjusted toward the median. +Annual and Long-Term Incentive Programs +The +Committee annually approves plan design, including performance metrics and target payout, for annual and long-term incentive programs. These deliberations, which usually start with recommendations from management and involve discussions among the +Committee, management and the Consultant, usually span numerous meetings before a design is approved. With respect to equity programs, the Committee also considers cost of awards, dilution and burn rates. For performance-based equity awards, at the +end of the performance period, the Committee certifies the level at which the performance measures were satisfied and approves the amount of incentive award payable to each Named Executive Officer. +Total Compensation Summaries +The Committee is annually provided various summaries for each Named Executive Officer designed to provide a full picture +of the executive’s compensation history, as well as all compensation payable upon his or her termination of employment and upon a change of control. These summaries, some of which are outlined in this Proxy Statement, include: +• +Three-year or longer history of base salary, annual incentive targets and awards and perquisites; +• +Three-year or longer history of long-term incentive awards, including realized gains and potential gains on unexercised or unvested awards for the +most recent fiscal year; and +• +A summary showing the value of compensation and other severance benefits due to each Named Executive Officer under his employment agreement under +various termination scenarios, both before and after a change of control of the Company. +Role of +the Compensation Consultant +The Committee has the sole power to hire, terminate and approve fees +for advisors, consultants and agents as it deems necessary to assist it n the fulfillment of its responsibilities. The Consultant has been directly engaged +30 +Table of Contents +by the Committee for approximately seven years. The Consultant provides the Committee with market data and observations regarding executive officer compensation programs and practices, including +specifically: +• +Peer group identification and assessment; +• +Compensation benchmarking; +• +Advice and market insight as to the design, payout alternatives and performance measures for annual and long-term incentives; +• +Advice and market insight on other aspects of compensation (e.g., employment contracts, perquisites, etc.); and +• +Marketplace compensation trends in the Company’s industry and generally. +The Consultant does not make recommendations on or approve the amount of compensation of any Named Executive Officer. The +Committee may request information or advice directly from the Consultant and may direct the Company to provide or solicit information from the Consultant. The Consultant regularly interacts with representatives of the Company and periodically with +the CEO. The Consultant attends meetings of the Committee when requested. The Committee reviews the engagement of its independent compensation consultant on an annual basis and as a part of that process reviews a summary of all services provided by +the Consultant and related costs. In 2011, the Consultant did not perform any other material services for the Company, did not have any business or personal relationships with the Committee members, and maintained policies and procedures designed to +avoid conflicts of interest. +Role of Management in Determining Executive Compensation +Our CEO plays a significant role in the Committee’s establishment of compensation levels for our other Named +Executive Officers. The most significant aspects of his role in the process are: +• +Assessment of his own performance and evaluating the performance of the other Named Executive Officers; +• +Recommending quantitative and qualitative performance measures under our annual incentive program; +• +Providing feedback on proposed peer group changes; +• +Recommending base salary levels, annual incentive targets, actual annual incentive awards and long-term incentive awards for the other Named +Executive Officers; and +• +His assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual incentive +program. +The Company also employs an individual as a consultant to support us in managing +our compensation process and coordinating the preparation of certain materials for Committee meetings. +At the +Committee’s request, our Named Executive Officers may also assess the design of or make recommendations related to our compensation and benefit programs. The Committee, with input from the Consultant, determines each element of compensation for +the CEO and, with input from the Consultant and the CEO, determines each element of compensation for the other Named Executive Officers. The CEO is not present during voting or deliberations concerning his own compensation. +The Committee considers the results of the non-binding “say-on-pay” vote of our stockholders concerning the +compensation of our Named Executive Officers. At our 2011 Annual Meeting of Stockholders, an overwhelming majority of the votes cast approved the compensation of our Named Executive Officers. Accordingly, the Committee concluded that our executive +compensation programs are generally in line with the expectations of our stockholders, and did not make any material changes to our executive compensation programs for 2011 in response to the “say-on-pay” results. +31 +Table of Contents +Components of the Company’s Compensation Program +Our Named Executive Officers’ 2011 compensation consisted principally of the following components, in addition to +plans and programs in which all of our full-time employees participate, such as health and welfare benefit plans: +COMPENSATION +ELEMENTS +Compensation Element +Key Features +Purpose +Base Salary +• Base salaries are targeted at the median of the market. +• Adjustments are made on an +annual basis based on an individual’s performance, pay relative to the market, changes in responsibility and internal equity. +• To provide a minimum, fixed level of cash compensation upon which our executives can rely. +INCENTIVE COMPENSATION +Cash Incentive +• Annual cash incentive payments are based on attainment of Company and individual +performance goals. +• Company performance goals are based on measurable financial and operational metrics. +• Individual performance goals are +linked to key business priorities and may include both financial and non-financial goals. +• Committee maintains discretion to adjust awards as appropriate. +• Mr. Lauck is also eligible for a +bonus tied to achievement of specific acquisition based results on an annual basis. +• To motivate and reward executives to produce strong financial and operational +results. +• To provide a +competitive reward opportunity that attracts, retains and motivates our executives. +• The special acquisition bonus program for Mr. Lauck is intended to align with the Company’s specific strategy to grow the Company through acquisitions. This program was eliminated for +2012. +Equity Awards +• Long-term incentive values are delivered through multiple vehicles — +restricted stock, stock options, SARs and performance shares. +• Long-term incentives, when added to total cash compensation, are targeted at the median of the market with the possibility to earn more or less than the median based on Company +performance. +• To retain executives and align their long-term interests with those of +stockholders. +• To +provide a mix of equity awards that focuses executives on the long-term growth of our stock price but does not encourage excessive risk-taking. +• Restricted stock is an important retention tool and ties executives to stockholders as the value of +restricted stock is always equal to the current value of the stock. +• Stock options/SARs reward executives through increases in stock price and are believed to focus executives on taking reasonable actions to increase stock price over the +long-term. +• Performance share awards promote both the long-term growth of our stock price and stock performance that exceeds our +peers. +32 +Table of Contents +COMPENSATION +ELEMENTS +Compensation Element +Key Features +Purpose +OTHER COMPENSATION +Retirement Plans +• Executives participate in our broad-based 401(k) and profit sharing plan under +which all employees are eligible to make contributions in a tax-deferred vehicle and receive Company contributions. +• To provide a level of retirement income for all employees, including executive officers, and allow employees to build +financial security for their retirement. +• The Company matches dollar-for-dollar up to 10% of the employee’s +compensation, then matches 20% of the employee’s contributions over the 10% amount up to the IRS maximum limits. +• The Company does not provide any supplemental retirement benefit to any current executives. Mr. +McCullough received a contractual benefit as outlined in the description of his termination package below. +Health and Welfare +Benefits +• Executives participate in our broad-based health and welfare benefit programs at +the same contribution amounts, percentages and plan design provisions as are applicable to all employees. +• Executives are provided up to 13 weeks of short-term disability at full pay. Under the terms of their +Employment Agreements, Messrs. McCullough and Amidon are entitled to annual premium payments for long-term disability insurance and life insurance policies up to $1 million. +• Neither Mr. McCullough nor Mr. Amidon sought reimbursement for additional life insurance or disability benefits in +2011. They were provided these benefits at the time of their initial employment because the Committee did not believe that the Company’s benefit programs were adequate to cover these events at the time. Mr. McCullough resigned in June +2011. +Perquisites +• The Company provides modest perquisites to executives which include the following: car allowance for business and +personal use and club dues. +• To provide personal benefits that are modest yet competitive with the perquisites provided to similarly situated +executives. +Severance +• Executives are contractually entitled to cash severance payments upon certain termination events and a change of +control of the Company. A full description of these benefits is included in this Proxy Statement. +• To attract and retain executives in a volatile and consolidating +industry. +• To ensure +executives act in the best interests of stockholders during a change of control. +• To provide transitional income following termination of employment. +2011 Compensation Decisions +Base Salary +After reviewing the market data provided by the Consultant and considering the other factors +discussed above, we adjusted the base salary of each of our Named Executive Officers for 2011 to approximate the median of the market. See details in the “Summary Compensation Table.” +33 +Table of Contents +Annual Cash Incentives +Each year, we approve a target annual cash incentive award for each Named Executive Officer. These target awards are +expressed as a percentage of base salary and generally produce, when combined with long-term incentives, total target compensation near the median of the peer group. Actual awards can range up to 200% of these targets based on the achievement of +Company and individual goals. For 2011, we approved target incentive awards as follows: +Named Executive Officer +% of Base +Salary +James M. Trimble / Richard W. McCullough +100% +Gysle R. Shellum +65% +Barton R. Brookman +65% +Daniel W. Amidon +65% +Lance A. Lauck* +65% +* +This represents the target bonus percentage for the year that is not related to acquisitions. Mr. Lauck is eligible for a total bonus of up to +200% of his base salary (inclusive of his annual incentive award) in the event of successful acquisitions as described below. +2011 Performance Metrics +In 2011, we established targets +for the corporate performance metrics based on our 2011 budget targets and individual goals for each of our Named Executive Officers that align with our strategy for the Company. To provide the Committee the flexibility to adjust for and react to +economic events such as dramatic changes in commodity prices or volatile capital markets, we prefer not to rely solely on a formulaic approach based on pre-established thresholds that result in automatic payouts. The Committee always retains +discretion to adjust actual awards as it views appropriate given circumstances at the time of award. We used the following five quantitative financial and operational metrics in 2011 to measure corporate performance. +Financial Metrics (50%)* +Adjusted Cash Flow per Share +Net income plus/minus change in operating assets and liabilities per share. +Capital Efficiency +Adjusted EBITDAX for the year divided by production divided by three years’ average finding and development cost per unit. +Operational Metrics (50%)* +Operating and G&A Expense +The sum of total lease operating expense, exploration general and administrative expense and corporate general and administrative expense (G&A) divided by Mcfe (mcf +equivalent for gas and oil). +Reserve Replacement Ratio (3-year average) +The sum of 2009, 2010 and 2011 extensions and discoveries, revisions in previous estimates and purchase of reserves divided by the sum of 2009, 2010 and 2011 +production. +Production +Actual production volume for the year. +* +A reconciliation of the items above to Generally Accepted Accounting Principals (“GAAP”) can be found in our quarterly investor relations +material posted on our website at http://investor.petd.com/presentations.cfm . +34 +Table of Contents +Following the end of the fiscal year, the Committee determines annual +incentive payments as follows: +• +An overall corporate performance rating is determined for the annual quantitative financial and operational metrics; 50% is based on financial +metrics and 50% is based on the operational metrics; +• +The Committee may apply other subjective considerations in the final determination of the corporate performance rating (e.g., business conditions, +stock price performance, etc.); and +• +Individual awards are determined by multiplying the overall corporate performance rating by the individual’s annual incentive target and base +salary. Generally, executives are expected to achieve their individual performance goals; however, individual awards may be adjusted downward or upward at the Committee’s discretion. Such adjustments are anticipated to have a maximum range of +20%, based on achievement of individual performance objectives. +2011 Actual Results +Upon completion of the fiscal year, we reviewed the Company’s performance on the quantitative financial and +operational measures described above. The Company established two targets, one assuming the Company was successful in making acquisitions (Revised Target) and one assuming the Company was not successful (Original Target). Because the Company was +successful, the Committee used the Revised Target for determining the bonus award level. Actual results for 2011 were approved by the Committee as follows: +Corporate Performance Metric +Original Target +Revised Target +Results +Performance +Financial Metrics (50%) +Adjusted Cash Flow per Share +$ +6.72 +$ +7.08 +$7.42 adj +($7.09) +Above Target +Capital Efficiency +220% +228% +209% adj +(199%) +Below Target +Operational Metrics (50%) +Operating and G&A Expense per Mcfe +$ +2.90 +$ +2.80 +$2.80 adj +($3.02) +Target +Reserve Replacement Ratio (3-year average) +280% +315% +342% adj +(349%) +Above Target +Production (Bcfe) +44.9 +46.4 +47.5* +Above Target +* +Production includes 2011 production for Permian production, the sale of which was announced in December 2011, and closed in 2012. +In evaluating the results, the Committee adjusted the above Revised Targets to remove the +G&A effect of unanticipated employee severance costs, litigation settlements, and certain acquisition costs. In determining its final performance metric evaluation, the Committee considered the following: +• +Adjusted Cash Flow (as adjusted) was well above target as a result of higher than targeted production and higher oil prices, offset somewhat by +lower than expected natural gas prices; +• +Capital Efficiency (as adjusted), on a three-year average, was below target primarily due to the high cost of finding in 2009, the increased cost of +completions in 2011, and the Seneca-Upshur acreage acquisition. 2011 finding and development cost was exceptionally good at $2.27 per Mcfe for the year; +• +Operating and G&A expense (as adjusted) was at target for the year, with G&A expenses above target and operating expenses below target; +• +Reserve Replacement Ratio (as adjusted) was above target, primarily due to drilling and workover success exceeding projections in both the +Wattenberg and Marcellus programs; and +• +Production was above target primarily because of better than expected results in the Niobrara and Marcellus plays. +35 +Table of Contents +The Committee also considered that management successfully executed on its +other goals, taken as a whole for the year, such as divestitures of the Company’s Permian Basin assets and other miscellaneous properties, successful acquisitions, including the Seneca-Upshur Marcellus acquisition, building and enhancing the +Company’s leadership team and improving its environmental, health and safety function. +Overall, we +determined that the Company performed well on the financial metrics and the operational metrics and that the management team executed well on its other goals. As a result, after reviewing the 2011 results with a focus on the above-mentioned factors, +the Committee determined that an overall corporate performance rating of 125% should be applied to each Named Executive Officer’s annual incentive award target. The Committee also considered the strong performance of Mr. Trimble as well as +his employment agreement in awarding his bonus for the year. No bonus was paid to Mr. McCullough since he was no longer employed at the time of payment. Actual bonus amounts paid for 2011 performance reflected in the “Summary Compensation +Table” are as follows: +Named Executive Officer +2011 Annual +Bonus Amount +James M. Trimble +$ +782,000 +Gysle R. Shellum +256,000 +Barton R. Brookman +256,000 +Daniel W. Amidon +224,000 +Lance A. Lauck +215,000 +* +* +Excludes Mr. Lauck’s acquisitions bonus described below. +2011 Acquisitions Bonus to Mr. Lauck +In addition to his annual incentive bonus described above, Mr. Lauck was eligible to receive a special bonus in the event of the completion of successful acquisitions in a given year, as determined +by the Committee. This program was put in place to incent value-added growth through acquisitions as part of the Company’s five-year business plan. In determining the amount of Mr. Lauck’s award, the Committee considered asset +acquisitions, asset trades, joint ventures/drill to earn transactions and corporate mergers that achieve the following: +• +Are consistent with the Company’s five-year plan; +• +Support the majority of the Company’s five annual corporate performance metrics described above; +• +Bring an inventory of new capital development opportunities for reserve and production growth; +• +Project to be accretive to cash flow and earnings per share at least by the second year; and +• +Utilize the technical and financial strengths of the organization. +The amount of Mr. Lauck’s bonus is based on a mix of quantitative and qualitative factors, but payments made, +if any, are discretionary. In determining his acquisition bonus for 2011, the Committee considered how PDC’s 2011 acquisition program achieved the desired results outlined above. The value that acquisitions bring to the Company is based on a +number of factors, including reserve cost/Mcfe, accuracy of anticipated production curves, capital costs and drilling pace, operating costs, etc., that are not entirely known by the Company at the time of acquisition. To account for these factors, +Mr. Lauck’s acquisition bonus is paid over two years. Half of the bonus is paid in the first quarter of the year following the year in which the transaction occurred, based upon the initial projections in the year of the transaction. The +remaining amount is paid in the first quarter of the following year based on a post-transaction look-back evaluation of the transaction, updated for actual results. To avoid placing too much emphasis on this program as a part of +Mr. Lauck’s overall compensation package, the most he can receive under the annual incentive plan and acquisitions bonus in the aggregate for a given year is 200% of his base salary. +36 +Table of Contents +For 2011 target compensation, the Committee established an acquisition bonus +pool of $530,000 based on a percentage of the total economic value to the Company of the Seneca-Upshur acquisition, as determined by the Committee. This bonus pool was determined using 0.1% to 0.3% of the economic value added from the acquisition. +After reviewing the successful results of this acquisition, the Committee awarded Mr. Lauck $265,000 (50% of the acquisition bonus pool), of which $132,500 was paid in the beginning 2012 and the remaining $132,500 will be paid in 2013 +contingent upon the Committee’s review of the post-transaction look-back evaluation of the transaction. +In 2012, the Committee elected to eliminate the acquisitions bonus and treat Mr. Lauck’s compensation +comparably to that of the other Named Executive Officers. The Committee did this to recognize Mr. Lauck’s broader corporate responsibilities over the past year and to de-emphasize his focus on acquisitions. His compensation package was +accordingly adjusted to compensate him similarly to other Named Executive Officers. +Long-Term Incentives +The Committee uses a combination of grants of restricted stock, stock options, stock appreciation +rights (“SARs”) and performance shares in its mix of long-term incentives. While the Committee considers long-term incentives as primarily forward-looking, the Committee does consider the Named Executive Officer’s performance in the +prior year in determining the size of the awards. Generally, the Committee considers competitive market data, previous equity awards, equity ownership levels of the Named Executive Officers and the mix of cash/equity compensation levels that is +necessary to place our Named Executive Officers at the median of the latest available compensation data for total direct compensation (base salary, bonus and LTI combined). +Over the past three years, the Committee has modified the mix of long-term incentives to be more competitive with our +peers and to create a more performance-driven approach that better aligns the interests of our Named Executive Officers with the interests of our stockholders. In 2011, the Committee implemented a performance share program ensuring that, when +combined with the SAR grant, half of an executive’s long-term incentive award would be performance-based. For 2011, the Committee granted a mix of 50% time-based restricted stock, 25% SARs and 25% performance shares. The performance shares may +be earned at the end of a three-year performance period upon the achievement of specific total shareholder return (“TSR”) levels relative to a group of peers. The time-based restricted shares and SARs vest ratably over three years. +The Committee typically makes equity grants in the first quarter of the year, but it may make equity grants +to Named Executive Officers at any time during the year. The Committee does not coordinate the timing of equity grants with the release of material non-public information. If in possession of such information, the Committee does not take such +information into account when determining whether or in what amounts to make such grants. +The table below +shows the long-term incentive grants approved for 2011 for each Named Executive Officer. +Long-Term Incentive +Grants +2011 Grants** +Name +Restricted +Stock +SARs +Performance +Shares +Richard W. McCullough +14,928 +12,992 +5,571 +Gysle R. Shellum * +5,865 +5,104 +2,189 +Barton R. Brookman +5,865 +5,104 +2,189 +Daniel W. Amidon +4,799 +4,176 +1,791 +Lance A. Lauck +4,799 +4,176 +1,791 +* +In addition, Mr. Shellum received a special restricted stock grant of 7,000 shares as described below under “Special Equity Grants.” +** +Mr. Trimble was hired in June of 2011 and received one-time grant of 58,122 shares of restricted stock as part of his employment package as +described below under “Special Equity Grants.” +37 +Table of Contents +The FASB ASC Topic 718 values for the 2011 grants are reflected in the +“Summary Compensation” and “Grants of Plan-Based Awards” tables. +2011 Performance Share Program +Under this program, Named Executive Officers will receive shares of stock based on the Company’s TSR +over the performance period from January 1, 2011 through December 31, 2013, as ranked among the comparably-measured TSR of the applicable peer group. The peer companies selected by the Committee for measuring relative TSR are identical to +the compensation benchmarking group for 2011, with the following exceptions: +• +Concho Resources Inc. was excluded because it is no longer comparable due to its growth in size; +• +Penn Virginia Corporation was added, as the sale of its coal operation makes it more similar in size and scope of operations to the Company; and +• +ATP Oil & Gas Corporation, Stone Energy Corporation and Swift Energy Company were eliminated because, unlike PDC, they have significant +operations in the Gulf of Mexico. +The Committee believes that the peer group appropriate +for measuring relative stock price performance may be different from the peer group the Company is competing with for executive talent. We do, however, try to use the same companies whenever possible. +The TSR for the Company and each of the peer companies is determined by dividing (1) the Company’s average +share price for the last twenty business days of the performance period, minus (2) the Company’s average share price for the twenty business days preceding the beginning of the performance period, plus (3) dividends (cash or stock +based on ex-dividend date) paid per share of Company common stock over the performance period, divided by (4) the Company’s average share price for the twenty business days preceding the beginning of the performance period. +At the end of the performance period, payout can range from 0% — 200% of the target award as follows: +Company TSR Ranking +Among Peers +Payout Levels as % of +Award +Top +200 +% +75 th Percentile +150 +% +Median +100 +% +25 th Percentile +50 +% +Below 25 th Percentile +0 +% +If performance falls between the percentiles, payout levels are adjusted accordingly. In +addition, if the Company has negative TSR for the performance period, the maximum award that can be paid out under the program is 100%, regardless of relative performance. +For a description of what happens in the event of termination of the executive or a change in control of the company prior +to the end of the performance periods, see “Potential Payments Upon Termination or Change in Control” below. +Special Equity Grants +From time to time, the Committee approves special grants which typically take the form of restricted stock, although other types of awards may be made when appropriate. Special grants are typically +considered: +• +In connection with promotion where more stock exposure is desired; +• +To recognize extraordinary achievement; +38 +Table of Contents +• +When the survey data demonstrates a significant deviation from market total direct compensation for the comparator group; +• +When an executive is considered “at risk” and special retention measures are necessary; or +• +As part of a new hire package for an executive. +In March 2011, the Committee awarded a special retention grant to Mr. Shellum. The compensation packages of chief +financial officers have typically been more generous than the Company’s in recent years. As CFO, Mr. Shellum is critical to the Company’s business plan and, to ensure the retention of Mr. Shellum as CFO, a restricted share grant +of 7,000 shares vesting ratably over five years was awarded. +In addition, Mr. Trimble received a grant +of 58,122 restricted shares as part of his employment package as described below. These shares vest ratably over three years. +Agreements +with Named Executive Officers +Employment Agreements with Named Executive Officers +The Committee believes that severance protection can play a valuable role in attracting, motivating and retaining highly +talented executives. The Committee also believes that having an existing agreement in place is preferable to negotiating an exit package at the time of a Named Executive Officer’s departure. Accordingly, the Company provides such protections +for the Named Executive Officers under their employment agreements which are described in detail under “Potential Payments Upon Termination or Change in Control.” The Committee considers these protections to be an important part of an +executive’s compensation and consistent with competitive practices in the oil and gas industry. +Termination Prior to +a Change of Control +The Committee believes that an important part of attracting and retaining executives +is offering transitional income in the event an executive is terminated by the Company without cause, or in the event the terms of his employment change significantly enough to warrant a “good reason” for the executive to terminate +employment. This also gives the Company the flexibility to make decisions regarding organizational issues with agreed-upon severance terms. +Change of Control +The Committee believes that the +occurrence, or potential occurrence, of a change-of-control transaction may create uncertainty regarding continued employment. This uncertainty results from the fact that many change-of-control transactions result in significant organizational +changes, particularly at the senior executive level. Change-of-control benefits are intended to encourage executive officers to remain employed with the Company during an important time when prospects for continued employment are often uncertain and +to provide a measure of financial security prior to and after a change of control. Moreover, the Committee believes that the amounts to be paid under the change-of-control agreements ensure that the interests of the executives will be materially +consistent with the interests of the Company’s stockholders when considering corporate transactions. The current contracts only provide benefits in the event an executive is terminated by the acquiring Company “without cause” or by +the executive for “good reason.” The agreements do not provide tax gross-up benefits for any excise taxes as a result of the change of control. The Committee believes that this structure strikes a proper balance between the incentives and +the hiring, motivating and retention effects described above, without providing excessive benefits to executives upon a change of control. This structure may also be attractive to potential acquiring companies, which place significant value on +retaining members of the executive team for some transition period. +39 +Table of Contents +Employment Agreement with Mr. Trimble +In 2011, the Company entered into an employment agreement with Mr. Trimble to serve as President and CEO of the +Company. The initial term of his agreement is through June 30, 2013 and can be extended if mutually agreeable to both parties. Under his employment agreement, Mr. Trimble received an initial annual base salary of $625,000, the opportunity +to earn an annual performance bonus each year, which for 2011 was targeted at 100% of his base salary, and a $225,000 signing/relocation bonus to cover all hiring and relocation expenses (subject to applicable federal/state taxes). In addition, +Mr. Trimble was awarded 58,122 restricted shares that vest ratably over three years, provided that he remain an employee or Director of the Company. In the event that Mr. Trimble should leave the Company’s service after June 2013, the +unvested portion of the restricted stock award will immediately vest. Mr. Trimble did not receive any supplemental executive retirement plan (SERP) or similar arrangement. All provisions of the employment agreement are similar to those of the +other Named Executive Officers’ employment agreements, including one-year non-compete and non-solicitation provisions and no supplemental executive retirement benefits except for the following: +• +In the event Mr. Trimble’s employment is terminated by the Company without cause or for “good reason,” as defined in his +employment agreement, the payment to Mr. Trimble will be equal to his base salary and target bonus through the remainder of the contract term, plus up to eighteen months of health care insurance coverage; and +• +In the event Mr. Trimble is terminated without cause or for “good reason” following a change of control of the Company, as defined in +his employment agreement, the payment to Mr. Trimble will be equal to his base salary and target bonus through the remainder of the contract term or a minimum of one year’s base and target bonus, whichever is greater, plus up to eighteen +months of health care insurance continuation coverage. +Termination Agreement with Mr. McCullough +On June 10, 2011, Mr. McCullough resigned from his position as CEO and Chairman of the +Board of Directors. In connection with his resignation, Mr. McCullough received those benefits set forth under his employment agreement, which included: +• +Separation compensation in the amount of $4,125,000, less required withholdings; +• +Any accrued and unpaid compensation for periods on or prior to the termination date, including earned but unused vacation pay through date of +termination; +• +Expense reimbursement for periods on or prior to the termination date; +• +His vested account balance under the Company’s 401(k) and Profit Sharing Plan; +• +Medical and dental insurance continuation coverage for three years; +• +Immediate vesting of any unvested Company stock options, stock appreciation rights and restricted stock; and +• +Shares representing the vested portion of his 2008 and 2009 performance share awards, as determined by the Committee. Under the 2008 Plan, no shares +had been earned. Under the 2009 Plan, 40% of the shares had been earned. +In addition, under +the terms of his employment contract, Mr. McCullough was eligible for a non-qualified supplemental retirement benefit upon termination equal to $300,000 (undiscounted), paid over ten years at $30,000 per year beginning in June 2012. +Mr. McCullough was credited with years of service only for time actually worked at the Company. His employment agreement also included a one-year non-compete and non- solicitation provision and standard confidentiality and nondisparagement +provisions. +40 +Table of Contents +The following tables contain information concerning the compensation of the +Company’s Named Executive Officers. +SUMMARY COMPENSATION TABLE +Name and Principal +Position +Year +Salary +($) +Bonus (1) +($) +Stock +Awards (2) +($) +Options +/ +SAR +Awards (3) +($) +Non-Equity +Incentive Plan +Compensation (4) +($) +Nonqualified +Deferred +Compensation (5) +($) +All +Other +Compensation (6) +($) +Total +Compensation +($) +James M. Trimble +2011 +336,539 +1,007,000 +1,903,496 +— +— +— +40,384 +3,287,419 +President and CEO (7) +Richard W. McCullough +2011 +253,844 +— +982,157 +327,658 +— +67,687 +4,197,233 +5,828,579 +Former CEO and Chairman (8) +2010 +550,000 +825,000 +1,064,753 +336,419 +— +38,914 +87,793 +2,902,879 +2009 +450,000 +315,500 +382,961 +— +472,500 +36,712 +175,326 +1,832,999 +Gysle R. Shellum +2011 +315,000 +256,000 +693,539 +128,723 +— +— +48,015 +1,441,277 +CFO +2010 +275,000 +264,000 +356,286 +112,577 +— +— +47,589 +1,055,452 +2009 +235,000 +86,625 +— +— +123,375 +— +85,064 +530,064 +Barton R. Brookman +2011 +315,000 +256,000 +385,889 +128,723 +— +— +40,739 +1,126,351 +Senior Vice President +Exploration and Production +2010 +290,000 +270,000 +348,099 +109,992 +— +— +33,262 +1,051,353 +2009 +270,000 +93,250 +180,568 +— +141,750 +— +30,025 +715,593 +Daniel W. Amidon +2011 +275,000 +224,000 +315,743 +105,319 +— +— +57,434 +977,496 +General Counsel and Secretary +2010 +260,000 +229,000 +327,618 +103,521 +— +— +159,396 +1,079,535 +2009 +245,700 +86,008 +131,431 +— +128,993 +— +50,399 +642,531 +Lance A. Lauck +2011 +265,000 +480,000 +315,743 +105,319 +— +— +40,762 +1,206,824 +Senior Vice President Business +Development (9) +2010 +235,000 +330,500 +446,087 +97,050 +— +— +40,670 +1,149,307 +2009 +73,556 +39,375 +269,707 +— +25,625 +— +7,031 +415,294 +(1) +This column represents the non-formulaic based amounts paid under the Company’s annual incentive bonus plan with the following exceptions: +(a) +2011 amount for Mr. Trimble includes $782,000 annual incentive bonus and a $225,000 hiring bonus; +(b) +2011 and 2010 amounts for Mr. Lauck include $282,000 and $176,000, respectively, of annual incentive bonus, and $265,000 and $154,500, for the +special acquisitions bonus that was earned in 2011 and 2010, of which 50% was paid immediately and 50% was deferred for one year and conditioned upon confirmation of the acquisition results by the Committee in its sole discretion. For a description +of the acquisitions bonus, see “2011 Acquisitions Bonus to Mr. Lauck” under “Compensation Discussion and Analysis;” and +(c) +In 2009, a portion of the bonus was based on a formula and was therefore accrued in Column 7 titled “Non-Equity Incentive Plans.” For 2011 +and 2010, the entire annual cash bonus was included in the column entitled “Bonus.” +For a description of the 2011 awards, see “Annual Incentives” under “Compensation Discussion and +Analysis.” +(2) +This column represents the grant date value of stock-based compensation awards, which include the following: +(a) +Time-based restricted stock awards; +(b) +Performance-based awards in 2011 and 2009; +(c) +New hire restricted grants to Mr. Trimble in 2011 and Mr. Lauck in 2009 and 2010; and +(d) +Special restricted stock grant to Mr. Shellum in 2011. +The 2011 grants are detailed in the “Grants of Plan-Based Awards” table. Terms of the awards and descriptions of +the 2009 performance-based awards can be found in “Additional Discussion of Tables Related to Summary Compensation and Grants of Plan-Based Awards.” +41 +Table of Contents +In accordance with recent changes to the SEC rules, the amounts reported in the above table for 2011 and 2010 reflect the aggregate grant date fair value of the stock awards in 2011 and 2010, +calculated in accordance with FASB ASC Topic 718. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements, as set forth in Note 3 to +Form 10-K filed on March 1, 2012. +(3) +This column represents the grant date value of SARs granted in 2011 and 2010. These grants are detailed in the “Grants of Plan-Based +Awards” table. Terms of the awards can be found in “Additional Discussion of Tables Related to Summary Compensation and Grants of Plan-Based Awards.” In accordance with recent changes to the SEC rules, the amounts reported in the +above table for 2011 and 2010 reflect the aggregate grant date fair value of the SARs awards in 2011 and 2010, calculated in accordance with FASB ASC Topic 718. These values have been determined under the principles used to calculate the grant date +fair value of SARs awards for purposes of the Company’s financial statements, as set forth in Note 3 to Form 10-K filed on March 1, 2012. +(4) +This column represents the grant date fair value of performance-based formulaic amounts earned under the Company’s annual incentive bonus plan +in 2009. +(5) +This column represents the present value of the accrual for Mr. McCullough’s supplemental retirement plan benefit through his termination +date. This benefit is payable beginning twelve months after termination of employment. For a description of this benefit, see “Termination Agreement with Mr. McCullough” under “Agreements with Named Executive Officers.” +(6) +Amounts shown in this column are detailed in “All Other Compensation” below; relocation expenses represent the majority of this amount for +Mr. McCullough in 2009 and Mr. Amidon in 2010. Termination benefits represent the majority of the amount for Mr. McCullough in 2011. +(7) +Mr. Trimble was hired as President and CEO on June 10, 2011. +(8) +Mr. McCullough resigned from the Company on June 10, 2011. +(9) +Mr. Lauck was hired by the Company on August 31, 2009. +ALL OTHER COMPENSATION +Name +Year +401(k) +Matching +Contribution (1) +($) +Annual +Profit +Sharing +Contribution (2) +($) +Perquisites (3) +($) +Cash +Separation +Payments +($) +Total +All Other +Compensation +($) +James M. Trimble +2011 +22,000 +7,595 +10,789 +— +40,384 +Richard W. McCullough +2011 +22,000 +— +18,503 +4,156,730 +(4) +4,197,233 +Gysle R. Shellum +2011 +22,000 +7,595 +18,420 +— +48,015 +Barton R. Brookman +2011 +16,500 +7,595 +16,644 +— +40,739 +Daniel W. Amidon +2011 +22,000 +7,595 +27,839 +— +57,434 +Lance A. Lauck +2011 +16,500 +7,595 +16,667 +— +40,762 +(1) +This column represents the Company’s annual 401(k) matching contribution to the Company’s 401(k) and Profit Sharing Plan. +(2) +This column represents the Company’s annual profit sharing contribution to the Company’s 401(k) and Profit Sharing Plan. +(3) +This column represents the total value of perquisites provided by the Company. No individual perquisite exceeded $25,000. +(4) +This amount includes $4,125,000 of termination benefits for Mr. McCullough and $31,730 for earned but unused vacation through date of +termination. Please refer to “Termination Agreement with Mr. McCullough” for additional discussion of Mr. McCullough’s termination benefits. +42 +Table of Contents +GRANTS OF PLAN-BASED AWARDS +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards (1) +Estimated Future Payouts +Under Equity +Incentive Plan Awards (2) +All Other +Stock +Awards: +Number of +Shares +of Stock (3) +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options (4) +(#) +Exercise +or Base +Price of +Option +Awards +($) +Grant Date +Fair Value +of Stock and +Option +Awards +($) +Name +Grant Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +James M. Trimble +1/1/2011 +— +625,000 +1,250,000 +— +— +— +— +— +— +— +6/10/2011 +— +— +— +— +— +— +58,122 +— +— +1,903,496 +(5)(6) +Richard W. McCullough +1/1/2011 +— +550,000 +1,100,000 +— +— +— +— +— +— +— +3/12/2011 +— +— +— +— +5,571 +11,142 +— +— +— +326,071 +3/12/2011 +— +— +— +— +— +— +— +12,992 +43.95 +327,658 +3/12/2011 +— +— +— +— +— +— +14,928 +— +— +656,086 +Gysle R. Shellum +1/1/2011 +— +204,800 +409,600 +— +— +— +— +— +— +— +3/12/2011 +— +— +— +— +2,189 +4,378 +— +— +— +128,122 +(7) +3/12/2011 +— +— +— +— +— +— +— +5,104 +43.95 +128,723 +(5)(8) +3/12/2011 +— +— +— +— +— +— +12,865 +— +— +565,417 +(5)(6) +Barton R. Brookman +1/1/2011 +— +204,800 +409,600 +— +— +— +— +— +— +— +3/12/2011 +— +— +— +— +2,189 +4,378 +— +— +— +128,122 +(7) +3/12/2011 +— +— +— +— +— +— +— +5,104 +43.95 +128,723 +(5)(8) +3/12/2011 +— +— +— +— +— +— +5,865 +— +— +257,767 +(5)(6) +Daniel W. Amidon +1/1/2011 +— +178,800 +356,600 +— +— +— +— +— +— +— +3/12/2011 +— +— +— +— +1,791 +3,582 +— +— +— +104,827 +(7) +3/12/2011 +— +— +— +— +— +— +— +4,176 +43.95 +105,319 +(5)(8) +3/12/2011 +— +— +— +— +— +— +4,799 +— +— +210,916 +(5)(6) +Lance A. Lauck +1/1/2011 +— +172,300 +(9) +530,000 +(10) +— +— +— +— +— +— +— +3/12/2011 +— +— +— +— +1,791 +3,582 +— +— +— +104,827 +(7) +3/12/2011 +— +— +— +— +— +— +— +4,176 +43.95 +105,319 +(5)(8) +3/12/2011 +— +— +— +— +— +— +4,799 +— +— +210,916 +(5)(6) +(1) +These columns reflect the target and maximum awards payable under the Company’s annual incentive plan. For a description of the 2011 awards, +see “Annual Incentives” under “Compensation Discussion and Analysis” with the exception of Mr. Lauck as described in footnote (9). +(2) +This column represents performance share awards under the 2010 LTI Plan. For a description of the awards see “Long-Term Incentives — 2011 +Performance Share Program” under “Compensation Discussion and Analysis.” +(3) +This column represents the annual time-based restricted stock awards and the special restricted stock grants to Mr. Shellum and +Mr. Trimble under the 2010 LTI Plan. For a description of the 2011 awards, see “Long-Term Incentives” under “Compensation Discussion and Analysis.” +(4) +This column represents SARs awarded under the Company’s 2010 LTI Plan. For a description of the 2011 awards, see “Long-Term +Incentives” under “Compensation Discussion and Analysis.” +(5) +These grants are scheduled to vest ratably over three years. +(6) +Grant date fair value for restricted stock is computed by multiplying the number of shares awarded by the closing price of the Company’s common +stock, as reported on the NASDAQ Global Select Market on the date of grant, which was $43.95 for March 12, 2011 and $32.75 on June 10, 2011. +(7) +Grant date fair value is computed by multiplying the number of shares awarded by the grant date fair market value as computed utilizing the Monte +Carlo pricing model, which was $58.53 per share. +(8) +Grant date fair value for SARs is computed by multiplying the number of shares awarded by the grant date fair market value as computed utilizing the +Black-Scholes pricing model, which was $25.22 per share. +(9) +Represents Mr. Lauck’s target award solely with respect to the annual incentive plan. In addition, Mr. Lauck was eligible for an +acquisitions bonus in 2011. For a description of the acquisitions bonus, see “2011 Acquisitions Bonus to Mr. Lauck” under “Annual Incentives” and footnote (10) below. +(10) +The maximum Mr. Lauck could earn under the annual incentive plan was $344,600 (200% of $172,300) and the maximum he could earn under the +combination of the acquisitions bonus and incentive bonus was 200% of his base salary. +43 +Table of Contents +ADDITIONAL DISCUSSION OF TABLES RELATED TO SUMMARY COMPENSATION +AND 2011 GRANTS OF PLAN-BASED AWARDS +The following provides additional disclosure about the 2009, 2010 and 2011 long-term incentive awards. +Terms of Restricted Stock and SAR Grants +Restricted Stock +• +Annual awards to Named Executive Officers in 2010 and 2011 vest ratably over three years. The 2009 award vests ratably over four years; +• +Mr. Lauck’s 2009 new hire grant vests ratably over four years. In 2010, Mr. Lauck was granted an additional 10,000 shares coincident +with the signing of his employment agreement. A portion of that 2010 award vested immediately and the remaining vests over the next two years on the anniversary of his hire date; +• +Mr. Shellum’s special 2011 grant vests ratably over five years; and +• +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the vesting date. +SARs +• +SARs are awarded at the NASDAQ closing price of our stock on the date of the grant and vest ratably over three years; +• +Awards expire no later than ten years after grant date; and +• +All unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the vesting date. +2008 and 2009 Performance Shares +In 2008 and 2009, the Committee awarded performance shares that vest upon achievement of specific stock price targets over +a three- to five-year period. The initial tranche could be earned as of the end of year three with additional hurdle targets for the end of years four and five. Any shares not vested remain eligible to vest in future years; however, any unvested +shares at the end of the five-year performance period would be forfeited. The Committee determined to use three measurement dates to take into account the volatility of energy prices and their impact on the stock price of the Company. The following +chart shows the various stock price hurdle rates and payout levels by year. +Year of +Award +Approximate +Growth +Target(1) +Target Price(1) +Vested +Target +Percent +Attained +2011 +2012 +2013 +2008 +12 +% +$ +90.00 +$ +101.00 +— +50 +% +16 +% +103.50 +120.00 +— +75 +% +20 +% +118.50 +142.50 +— +100 +% +2009 +12 +% +30.50 +(2) +(2) +50 +% +16 +% +34.00 +(2) +(2) +75 +% +20 +% +37.50 +45.00 +54.00 +100 +% +(1) +Growth target percentages and target prices are based on the average closing price of the Company’s common stock during the preceding December +for each year. Under the program, none of the 2008 performance shares have vested to date. They will only vest if one of the stock price performance targets is achieved at the end of 2012. +44 +Table of Contents +(2) +Under the 2009 program, 75% of the shares vested as of December 31, 2011 because the $34.00 stock price performance metric was achieved. The +remaining 25% of the shares may vest at at either the end of 2012 or 2013 if the 100% stock price performance metric shown above is achieved; therefore there are no targets for 2012 and 2013. Performance shares do not vest upon voluntary termination +by the executive or termination by the Company for cause. +2011 Performance Shares +For a discussion of the provisions of the 2011 Performance shares, see “Long-Term Incentives — 2011 Performance +Shares.” +Effect of Termination and Change of Control on Long-Term Incentive Payments +For a description of what would happen to stock options/SARs, performance shares and restricted stock in all other +termination scenarios or upon a change of control of the Company, see “Potential Payments Upon Termination or Change in Control — Impact on Long-Term Incentive Plans.” +OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END +Options/SARs Awards +Stock Awards +Number of Securities +Underlying +Unexercised +Options/SARs Held at +December 31, 2011 +Option/ +SAR +Exercise +Price +($) +Option/ +SAR +Expiration +Date +Number +of Shares +of Stock +That Have +Not +Vested (3) +(#) +Market Value +of Shares of +Stock That +Have Not +Vested (4) +($) +Equity +Incentive +Plan Awards: +Number of +Unearned +Shares That +Have +Not +Vested (5) +(#) +Equity +Incentive +Plan Awards: +Market +Value +of Unearned +Shares +That +Have Not +Vested (4) +($) +Name +Exercisable (1) +(#) +Unexercisable (2) +(#) +James M. Trimble +— +— +— +58,941 +2,069,419 +— +— +Gysle R. Shellum +2,830 +5,660 +24.44 +4/19/2020 +25,644 +900,361 +2,189 +76,856 +— +5,104 +43.95 +3/12/2021 +— +— +— +— +Barton R. Brookman +2,765 +5,530 +24.44 +4/19/2020 +23,058 +809,566 +7,037 +247,069 +— +5,104 +43.95 +3/12/2021 +— +— +— +— +Daniel W. Amidon +2,602 +5,205 +24.44 +4/19/2020 +20,970 +736,257 +6,534 +229,409 +— +4,176 +43.95 +3/12/2021 +— +— +— +— +Lance A. Lauck +2,439 +4,880 +24.44 +4/19/2020 +21,528 +755,848 +1,791 +62,882 +— +4,176 +43.95 +3/12/2021 +— +— +— +— +(1) +Stock options/SARs exercisable as of December 31, 2011. +(2) +SARs granted in 2010 and 2011 are scheduled to vest ratably over three years on each anniversary of the date of grant. The exercise price related to +the SARs does not represent capital payable to the Company, but rather represents the base at which the the stock appreciation value will be determined on the date of exercise. +(3) +The restricted stock in this column is scheduled to vest in accordance with the following table: +Shares Vesting Per Year +2012 +2013 +2014 +2015 +2016 +Total +James M. Trimble +19,784 +19,783 +19,374 +— +— +58,941 +Gysle R. Shellum +11,274 +8,215 +3,355 +1,400 +1,400 +25,644 +Barton R. Brookman +10,831 +10,272 +1,955 +— +— +23,058 +Daniel W. Amidon +9,964 +9,405 +1,601 +— +— +20,970 +Lance A. Lauck +9,963 +9,964 +1,601 +— +— +21,528 +(4) +The market value of these shares is based on the closing price of the Company’s common stock of $35.11, as reported on the NASDAQ Global Select +Market on December 31, 2011. +(5) +Performance shares granted in 2008, 2009 and 2011 to be issued contingent upon the achievement of certain specified stock price performance goals as +described in “Additional Discussion of Tables Relating to Summary Compensation and Grants of Plan-Based Awards.” +45 +Table of Contents +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of +Shares Acquired +on Exercise +(#) +Value +Realized +on Exercise +($) +Number of +Shares Acquired +on Vesting +(#) +Value +Realized +on +Vesting (1) +($) +James M. Trimble +— +— +4,287 +130,282 +Richard W. McCullough +25,371 +77,382 +93,939 +3,330,437 +Gysle R. Shellum +— +— +7,919 +298,238 +Barton R. Brookman +— +— +12,323 +502,745 +Daniel W. Amidon +— +— +12,199 +490,795 +Lance A. Lauck +— +— +13,364 +387,064 +(1) +Value of the restricted shares that vested in 2011, determined by multiplying the number of shares vesting by the market value of the shares on the +vesting date. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL/ +EXECUTIVE EMPLOYMENT AGREEMENTS +Each Named Executive Officer other than the CEO has an employment agreement (“Employment Agreement”) that +automatically extends for twelve months on December 31 of each year prior to the last year of the Agreement (or any extensions) unless either party gives notice of non-renewal. The primary purpose of the Employment Agreement is to provide +severance benefits in the event of the termination of the Named Executive Officer by the Company without Just Cause, termination by the Named Executive Officer for Good Reason, or termination of the Named Executive Officer following a change of +control. See the “Potential Payments Upon Termination or Change in Control” table below for a quantification and explanation of amounts payable under such contract provisions. +Non-Compete and Non-Disclosure +Each Employment +Agreement contains a non-disclosure covenant and provides that the executive officer is prohibited during the term of his employment and for a period of one year following his termination from engaging in any competing business within any county, or +adjacent county, in which the Company is doing business. In addition, the agreements also provide that executives are prohibited from soliciting employees from the Company for at least one year following termination. +Clawback Provisions +The Employment Agreements also contain a clawback provision requiring the executive to reimburse all or a portion of his/her annual bonus if the Company must restate all or a portion of its financial +statements due to material noncompliance by the Company with any financial reporting requirement under securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected years and the bonus that +would have been paid to the executive had the financial results been properly reported. These clawback provisions are in addition to the clawback provisions in the Dodd-Frank Act. +Impact of Termination and Change of Control on Long-Term Incentive Plans +Under the terms of the 2004 and 2010 LTI Plans and related grant agreements and employment agreements, all unvested restricted stock, stock options, and SARs vest upon death, disability and change of +control. The following table outlines the effect on outstanding long-term incentive awards under various termination scenarios and upon a change of control of the Company based on the terms of the 2004 and 2010 LTI Plans and related grant and +employment agreements. +46 +Table of Contents +Termination Scenario/ +Change of Control +Restricted Stock/ +SARs/Options +2008/2009 Performance +Shares +2011 Performance +Shares +Voluntary Termination +Forfeited +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Forfeited +Termination by Company +without Cause or Executive for Good Reason Prior to Change of Control +Vests +Forfeited +Forfeited +Death +Vests +Earned pro-rata based on performance through date of death +Earned pro-rata based on performance through either date of death or end of performance period.(1) +Disability +Vests +Earned pro-rata based on performance through date of disability +Earned pro-rata based on performance at end of performance period. +Change of Control +Vests +Partially earned, based on performance reached through change of control pro-rated for time passed (as of 60 months since issuance). +If less than 50% of the performance period has elapsed, earn 100% of performance shares. If 50% or more of the performance period has elapsed, earn greater of actual performance +through change of control or 100% of performance shares. +(1) +If death occurs within the first two years of the performance period, based on performance through date of death. If death occurs in third year of +the performance period, based on performance through the end of the performance period. +Change of Control Excise Tax +Provision +The Company currently provides for no income tax gross-up or for any excise tax gross-up +pursuant to taxes that may be imposed on “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. If, in connection with a change of control of the Company, any compensation to a Named +Executive Officer is accelerated or becomes vested, that executive could, in some cases, be considered to have received “parachute payments” within the meaning of Section 280G and Section 4999 of the Code. Pursuant to these tax +laws, the executive could be subject to a 20% excise tax on parachute payments that exceed a certain amount, in which case the Company would be denied a tax deduction for such excess parachute payments. The employment agreements provide that if it +is determined that any payment or distribution by the Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be +responsible for the excise tax; or (2) reduce the executive payment to the IRS “safe harbor amount,” whichever amount will give the executive the greater benefit on a net, after-tax basis. +Termination Benefits Table +The amount of compensation payable to each Named Executive Officer in each termination situation is listed in the following table for fiscal year 2011, assuming termination had occurred on +December 31, 2011, and the closing price per share on such date was $35.11. The actual amounts to be paid can only be determined at the time of such Named Executive Officer’s termination. +47 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN +CONTROL +By Company Without +Cause or By +Executive +for Good Reason +Name/Element of Compensation +Voluntary +by +Executive +Prior to +Change in +Control +Following +Change +in +Control (1) +For +Cause +Death +Disability +James M. Trimble +Cash Compensation +Earned but unpaid 2011 compensation (2) +$ +782,000 +$ +782,000 +$ +782,000 +— +$ +782,000 +$ +782,000 +Severance / Salary Continuation (3) +— +1,875,000 +1,875,000 +— +— +487,500 +Acceleration of unvested equity +Restricted Stock (4) +— +2,069,419 +2,069,419 +— +2,069,419 +2,069,419 +SARs (5) +— +— +— +— +— +— +Performance Shares (6) +— +— +— +— +— +— +Earned Profit Sharing / Deferred Compensation (7) +7,595 +7,595 +7,595 +7,595 +7,595 +7,595 +Health Benefit — Continuation (8) +— +20,827 +20,827 +— +— +— +Total +$ +789,595 +$ +4,754,841 +$ +4,754,841 +$ +7,595 +$ +2,859,014 +$ +3,346,514 +Gysle R. Shellum +Cash Compensation +Earned but unpaid 2011 compensation (2) +256,000 +256,000 +256,000 +— +256,000 +256,000 +Severance / Salary Continuation (3) +— +1,158,000 +1,737,000 +— +162,500 +243,750 +Acceleration of unvested equity +Restricted Stock (4) +— +900,361 +900,361 +— +900,361 +900,361 +SARs (5) +— +90,588 +90,588 +— +90,588 +90,588 +Performance Shares (6) +— +— +76,856 +— +32,536 +32,536 +Earned Profit Sharing / Deferred Compensation (7) +7,595 +7,595 +7,595 +7,595 +7,595 +7,595 +Health Benefit — Continuation (8) +— +20,827 +20,827 +— +— +— +Total +$ +263,595 +$ +2,433,371 +$ +3,089,227 +$ +7,595 +$ +1,449,580 +$ +1,530,830 +Barton R. Brookman +Cash Compensation +Earned but unpaid 2011 compensation (2) +256,000 +256,000 +256,000 +— +256,000 +256,000 +Severance / Salary Continuation (3) +— +1,170,000 +1,755,000 +— +162,500 +243,750 +Acceleration of unvested equity +Restricted Stock (4) +— +809,566 +809,566 +— +809,566 +809,566 +SARs (5) +— +88,508 +88,508 +— +88,508 +88,508 +Performance Shares (6) +— +— +76,856 +— +32,536 +32,536 +Earned Profit Sharing / Deferred Compensation (7) +7,595 +7,595 +7,595 +7,595 +7,595 +7,595 +Health Benefit — Continuation (8) +— +20,827 +20,827 +— +— +— +Total +$ +263,595 +$ +2,352,496 +$ +3,014,352 +$ +7,595 +$ +1,356,705 +$ +1,437,955 +48 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN +CONTROL +By Company Without +Cause or By +Executive +for Good Reason +Name/Element of Compensation +Voluntary +by +Executive +Prior to +Change in +Control +Following +Change +in +Control (1) +For Cause +Death +Disability +Daniel W. Amidon +Cash Compensation +Earned but unpaid 2011 compensation (2) +$ +224,000 +$ +224,000 +$ +224,000 +— +$ +224,000 +$ +224,000 +Severance / Salary Continuation (3) +— +1,512,000 +1,512,000 +— +142,500 +213,750 +Acceleration of unvested equity +Restricted Stock (4) +— +736,257 +736,257 +— +736,257 +736,257 +SARs (5) +— +83,301 +83,301 +— +83,301 +83,301 +Performance Shares (6) +— +— +62,882 +— +26,620 +26,620 +Earned Profit Sharing / Deferred Compensation (7) +7,595 +7,595 +7,595 +7,595 +7,595 +7,595 +Health Benefit — Continuation (8) +— +20,827 +20,827 +— +— +— +Total +$ +231,595 +$ +2,583,980 +$ +2,646,862 +$ +7,595 +$ +1,220,273 +$ +1,291,523 +Lance A. Lauck +Cash Compensation +Earned but unpaid 2011 compensation (2) +$ +347,500 +$ +347,500 +$ +347,500 +$ +132,500 +$ +347,500 +$ +347,500 +Severance / Salary Continuation (3) +— +882,000 +1,323,000 +— +150,000 +225,000 +Acceleration of unvested equity +Restricted Stock (4) +— +755,848 +755,848 +— +755,848 +755,848 +SARs (5) +— +78,094 +78,094 +— +78,094 +78,094 +Performance Shares (6) +— +— +62,882 +— +26,620 +26,620 +Earned Profit Sharing / Deferred Compensation (7) +217,345 +217,345 +217,345 +217,345 +217,345 +217,345 +Health Benefit — Continuation (8) +— +20,827 +20,827 +— +— +— +Total +$ +564,845 +$ +2,301,614 +$ +2,805,496 +$ +349,845 +$ +1,575,407 +$ +1,650,407 +(1) +A benefit is only payable if, within two years following a change in control, the executive is terminated by the Company or its successor +“without cause” or the executive terminates for “good reason” as defined in his employment agreement (“double trigger”). The Company currently provides for no tax gross-ups in respect of “excess parachute +payments” within the meaning of Section 280G and Section 4999 of the Code. +(2) +This represents the annual bonus earned for 2011 performance pursuant to the Company’s annual incentive plan, with the following exceptions +(see “Annual Incentives” under “Compensation Discussion and Analysis” for discussion of the Company’s annual incentive plan): +(a) +As of December 31, 2011, Mr. Lauck earned an acquisitions bonus based upon acquisitions completed under his direction in 2011. Of the +$265,000 owed Mr. Lauck for 2011, 50% is shown under “Earned but Unpaid 2011 Compensation” above and 50% is shown as deferred compensation under “Earned Profit Sharing/Deferred Compensation.” For the remaining $77,250 due +for 2010 acquisitions, this amount is shown under “Earned Profit Sharing/Deferred Compensation.” For a complete description of Mr. Lauck’s acquisitions bonus, see “2011 Acquisitions Bonus to Mr. Lauck” under +“Compensation Discussion and Analysis.” +(b) +In the case of termination for “cause,” it is the Company’s intent that no 2011 bonus would be earned and payable under the annual +incentive plan. Although the 2011 bonuses were based upon specific performance metrics, due to the subjective and discretionary elements of bonus determination regarding Company and individual performance and the fact that the amount of bonus earned +for 2011 is not determined and finalized by the Committee until after year-end when Company performance is finalized, if an executive had been terminated for “cause” on December 31, 2011, no bonus would be due. +(c) +In some cases of termination for “cause,” the Company may also determine that Mr. Lauck is not due the earned amount of his 2011 +acquisitions bonus or the deferred amount of his 2010 acquisitions bonus. +(3) +In determining severance amounts for each Named Executive Officer, the following bonus amounts were used: +49 +Table of Contents +(a) +The amount shown for Messrs. Shellum, Brookman, Amidon and Lauck, pursuant to their respective employment agreements, is determined using the 2010 +bonus paid (Mr. Amidon receives the greater of his 2010 bonus paid or his 2011 bonus earned); +(b) +The amount shown for Mr. Trimble, assumes target bonus; +(c) +In the determination of Mr. Lauck’s amount, his contractual acquisitions bonus is not included in his severance calculation. +(d) +Severance amounts for disability include up to thirteen weeks of salary continuation in the event of short-term disability, a lump sum payment equal +to six months base salary upon approval for long-term disability and, in the case of Mr. Amidon’s death or disability, a pro-rata bonus for the year if he terminates after March 31 of the year (shown in “Earned but Unpaid 2011 +Compensation”); and +(e) +The severance amount for death (except CEO) is a lump sum payment equal to six months’ base salary. +(4) +All unvested shares of time-based restricted stock will vest under the employment agreements upon all termination events except voluntary +termination and termination for “cause.” The 2004 and 2010 LTI Plans and the specific award letters also provide for full accelerated vesting of all restricted stock upon change in control of the Company, death and disability. For the +unvested shares of restricted stock that would have accelerated vesting, see “Outstanding Equity Awards at Fiscal Year End.” +(5) +All unvested SARs vest under the employment agreements upon all termination events except voluntary termination and termination “for +cause.” The 2004 and 2010 LTI Plans and the specific award letters also provide for full accelerated vesting of all SARs upon a change in control of the Company, death and disability. The value of the SARs shown is calculated using the closing +price of the Company’s shares on December 31, 2011, less the exercise price of the SARs determined on grant date. For the unvested SARs that would have accelerated vesting, see “Outstanding Equity Awards at Fiscal Year End.” +(6) +As of December 31, 2011, the only shares that accelerate under any termination scenario are the 2011 performance shares as follows: +(a) +In the case of death and disability, one-third of the 2011 performance shares could be earned; therefore the value of the shares shown is determined +by multiplying the number of shares granted times 127% (using actual performance of the plan through December 31, 2011). +(b) +For change of control, the value of the 2011 performance shares is determined by multiplying the number of shares granted times 100 since 50% of the +performance period had not expired. +Based on the stock price as of December 31, 2011, +the 2009 performance shares were earned at 75% and therefore no additional vesting is accelerated upon termination and the 2008 performance shares had no acceleration vesting value. +(7) +Amount for each executive includes a $7,595 profit sharing contribution for 2011 that was remitted to each executive’s 401(k) account in March +2012. Mr. Lauck’s amount includes $209,758 of his deferred and contingent acquisition bonus (50% of his 2011 earned amount) described in footnote (3) above, of which $132,500 is related to 2011 acquisitions and $77,250 is related to +2010 acquisitions. +(8) +This represents the Company-subsidized COBRA premium cost to continue family health and dental coverage for an 18-month period. +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for +issuance as of December 31, 2011. +Plan Category +Number of +Securities to be +Issued Upon Exercise of +Outstanding +Options +and Rights (1) +(#) +Weighted-Average +Exercise Price of +Outstanding Options +and Rights +($) +Number of +Securities Remaining +Available for +Future Issuance +Under Equity +Compensation Plans (2) +(#) +Equity compensation plans approved by security holders +100,525 +32.76 +895,663 +(3) +Equity compensation plans not approved by security holders +— +— +— +Total +100,525 +32.76 +895,663 +(1) +Includes 43,081 shares of common stock to be issued based upon continuous employment and the achievement of certain performance goals over a +specified period of time as described in “Additional Discussion of Tables Related to Summary Compensation and Grants of Plan-Based Awards.” These shares have been excluded from the weighted average. +50 +Table of Contents +(2) +The number of securities remaining available for future issuances have been reduced by the number of securities to be issued upon exercise of +outstanding options, SARs and restricted shares subject to time vesting and certain market-based performance goals over a specified period of time. +(3) +The Company longer issues securities under the 2004 LTI Plan. +STOCKHOLDER NOMINATIONS AND PROPOSALS +Stockholder Proposals for 2013 Annual Meeting +Any proposal that a stockholder wishes to include in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders must be received by the Company at its principal executive office on or +prior to December 27, 2012, and must be submitted in compliance with SEC Rule 14a-8 and the provisions of our By-Laws. Proposals should be addressed to: +Corporate Secretary +Petroleum Development Corporation +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Advance Notice Procedures Under the +Company’s By-Laws +Any proposal or nomination for Director that a stockholder wishes to propose for +consideration at the 2013 Annual Meeting of Stockholders, but does not seek to include in our Proxy Statement under applicable SEC rules, must be submitted in accordance with Section 2.14(b) the Company’s By-Laws, which provides that no +business may be brought before an Annual Meeting of Stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has +delivered advance notice to the Company. The notice must contain certain information specified in the By-Laws and be delivered to the Corporate Secretary at the address set forth above, not less than 80 days nor more than 90 days prior to the first +anniversary of the preceding year’s Annual Meeting. The By-Laws also provide that if the meeting is held more than 30 days before the anniversary of the prior year’s Annual Meeting or 60 days after such anniversary, notice can then be +given not later than the tenth day following the day on which public announcement of the date of the Annual Meeting is first made by the Company. +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any stockholder proposal at the address listed above after March 11, 2013 that is intended to be presented at the 2013 Annual +Meeting of Stockholders without inclusion in the Proxy Statement for the meeting, the proxies designated by the Board will have discretionary authority to vote on such proposal. +51 +Table of Contents +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy +statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” +is intended to reduce the volume of duplicate information stockholders receive and also reduce expenses for companies. Both the Company and some of our intermediaries may be “householding” our proxy materials and annual report. Once you +have received notice from your broker or another intermediary that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate +copies of our Annual Report and Proxy Statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written request to us at our address appearing on the cover of this Proxy Statement, to the +attention of the Corporate Secretary. If you hold your shares through an intermediary that is utilizing householding and you want to receive separate copies of our Annual Report and Proxy Statement in the future, you should contact your bank, broker +or other nominee record holder. +By Order of the Board of Directors, +James M. Trimble +President and Chief Executive Officer +Dated: April 26, 2012 +THE COMPANY WILL PROVIDE WITHOUT +CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011, INCLUDING FINANCIAL +STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED BY WRITING TO INVESTOR RELATIONS, PETROLEUM DEVELOPMENT CORPORATION, 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO, +80203. +52 +Table of Contents +APPENDIX A +THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION +OF +PETROLEUM DEVELOPMENT CORPORATION +Pursuant to the provisions of Section 78.403 of the Nevada Revised Statues, the undersigned Corporation adopts the following Amended +and Restated Articles of Incorporation; +FIRST: +The Articles of Incorporation of the Corporation were filed with the Secretary of State of Nevada on the 25 th day of March, 1955, and were amended by Certificate of Amendment to +Articles of Incorporation on the 21 st day of November 1969 +and by Certificate of Amendment of Articles of Incorporation on the 22 nd day of September 1997, and were amended and restated on the 16th day of September 1998, and were further amended and restated on the 17 th of July 2008. +SECOND: +The Articles of Incorporation, as amended and restated to the date of this certificate, are hereby amended and restated to read in their entirety as +follows: +FIRST. +The name of the Corporation is PDC ENERGY, INC. +SECOND. +The Corporation will maintain a registered agent and registered office in the State of Nevada +THIRD. +The number of shares of capital stock the Corporation is authorized to issue is 150,000,000 shares, consisting solely of: +100,000,000 shares of common stock, par value $0.01 per share +(“ Common Stock ”); and +50,000,000 shares of preferred stock, par value $0.01 per share +(“ Preferred Stock ”). +The Preferred Stock may be issued by the Corporation from time to time in one or more series and in such amounts as may be determined by the Board of +Directors thereof. The designations, voting rights, amounts of preference upon distribution of assets, rates of dividends, premiums of redemption, conversion rights and other variations, if any, the qualifications, limitations or restrictions +thereof, if any, of the Preferred Stock, and of each series thereof, shall be such as are fixed by the Board of Directors, the authority so to do being hereby expressly granted, and as are stated and expressed in a resolution or resolutions adopted +by the Board of Directors providing for the issue of such series of Preferred Stock (hereinafter called the “ Directors’ Resolution ”). The Directors’ Resolution as to any series shall state (a) the number of shares +constituting that series and the distinctive designation of that series, or any increase or decrease (but not below the number of shares thereof then outstanding) in such number; (b) the dividend rate on the shares of that series, whether such +dividends, if any, shall be cumulative, and, if so, the date or dates from which dividends payable on such shares shall accumulate, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) whether that +series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) whether that series shall have conversion privileges with respect to shares of any other class or classes of +stock or of any +A-1 +Table of Contents +other series of any class of stock, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate upon +occurrence of such events as the Board of Directors shall determine; (e) whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including their relative rights of priority, if any, of +redemption, the date or dates upon or after which they shall be redeemable, provisions regarding redemption notices, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption +dates; (f) whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) the rights of the shares of that series in the event of voluntary +or involuntary liquidation, dissolution, or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; (h) the conditions or restrictions upon the creation of indebtedness of the Corporation +or upon the issuance of additional Preferred Stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation; (i) the conditions or restrictions with respect to +the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, shares ranking junior to the Preferred Stock or to any series thereof with respect to dividends or distribution of assets upon +liquidation; and (j) any other designations, powers, preferences, and rights, including, without limitation, any qualifications, limitations, or restrictions thereof. +FOURTH. +The governing board of the Corporation shall be known as directors, and the number of directors shall not be less than three (3) nor more than +nine (9). +FIFTH. +The purpose of the Corporation is to engage any lawful activity permitted under the Nevada Revised Statutes. +SIXTH. +The stock of the Corporation shall be fully paid and nonassessable. No stockholder of the Corporation shall by reason of his holding shares of any class have any +preemptive or preferential right to purchase or subscribe to any shares of any class of the Corporation, now or hereafter to be authorized, or any shares or other securities convertible into or carrying options or warrants to purchase shares of any +class, now or hereafter to be authorized, whether or not the issuance of any such shares or other securities would adversely affect the dividend or voting rights of such holders, other than such rights, if any, as the Board of Directors, in its +discretion from time to time may grant, and at such price as the Board of Directors in its discretion may fix; and the Board of Directors may issue shares of any class of the Corporation or other securities convertible into or carrying options or +warrants to purchase shares of any class without offering any such shares of any class, either in whole or in part, to the existing stockholders of any class. +SEVENTH. +The Corporation may from time to time determine whether and to what extent, and the times and places and upon what conditions, the books, records and assets of +the Corporation, or any of them (other than the stock ledger), shall be open to inspection by the stockholders, and no stockholder shall have any right to inspect any account, book or document of the Corporation, except as conferred by law or by +resolution of the Board of Directors or stockholders. +EIGHTH. +The Corporation shall have perpetual existence. +A-2 +Table of Contents +NINTH. +No director or officers of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary +duty as a director or officer, except that this Article does not eliminate or limit the liability of a director or officer for: (i) an act or omission that involves intentional misconduct, fraud or a knowing violation of the law; (ii) an +act or omission for which the liability of a director or officer is expressly provided for by an applicable statute, including the liability for payment of distributions in violation of Section 78.300 of the Nevada Revised Statutes; or +(iii) any other act, omission, transaction or breach of duty as to which any applicable statute, rule or regulation provides that the liability of directors or officers may not be eliminated or limited. If the Nevada Revised Statutes or other +applicable laws (collectively, “Laws”) hereafter are amended to authorize the further elimination of limitation of the liability of directors or officers, then the liability of a director or officer of the Corporation, in addition to the +limitation on personal liability provided herein, shall be limited to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Laws. No amendment to or repeal of this Article shall apply +to or have any effect on the liability or alleged liability of any director or officer of the Corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. +The number of shares of the Corporation outstanding and entitled to vote on an amendment and +restatement of the Articles of Incorporation was 23,652,262 on April 10, 2012 , and the said changes, amendment and restatement have been consented and approved by a majority vote of the stockholders holding at lease a majority of each +class of stock outstanding and entitled to vote thereon. +James M. Trimble, Chief Executive Officer +Daniel W. Amidon, Secretary +A-3 +Table of Contents +PDC ENERGY +IMPORTANT ANNUAL MEETING INFORMATION +000004 +ENDORSEMENT LINE SACKPACK +C123456789 +MR A SAMPLE +DESIGNATION (IF ANY) +ADD 1 +ADD 2 +ADD 3 +ADD 4 +ADD 5 +ADD 6 +000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext +Electronic Voting Instructions +Available 24 hours +a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below +to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 1:00 am Eastern Time on June 7, 2012. +Vote by Internet +Go to www.envisionreports.com/PETD +Or scan the QR +code with your smartphone +Follow the steps outlined on the secure website +Vote by telephone +Call toll free 1-800-652-VOTE (8683) within the USA, US territories & +Canada on a touch tone telephone +Follow the +instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in +this example. Please do not write outside the designated areas. X +Annual Meeting Proxy Card 1234 5678 9012 345 +IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +A Proposals - The Board recommends a vote FOR both nominees and FOR Proposals 2, 3 and 4. +1. Election of Two Class II Directors: For Withhold For Withhold +01 - Anthony J. Crisafio 02 - Kimberly Luff Wakim + +For Against Abstain +2. To approve, on an advisory basis, the compensation of the Company’s named executive officers. +3. To approve an amendment to the Company’s Second Amended and Restated Articles of Incorporation to change the name of the Company to PDC Energy, Inc. +4. To ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the +Company for the year ending December 31, 2012. +B Non-Voting Items Change of Address - Please print new +address below. +C Authorized Signatures - This section must be completed for your vote to be counted. - Date +and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign personally. When +signing as attorney, executor, administrator, trustee, guardian, or custodian, please give full title as such. If a corporation or partnership, please sign full corporate or partnership name, by an authorized officer or an authorized person, +respectively. +Date (mm/dd/yyyy) - Please print date below. +Signature 1 - Please keep signature within the box. +Signature 2 (if needed) - Please keep signature within the box. +C1234567890 JNT 1 U P X 1351921 +MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE +140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +01GICF +Table of Contents +IF YOU +HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +Proxy — Petroleum Development Corporation (dba PDC Energy) +1775 Sherman Street, Suite 3000 +Denver, Colorado +80203 +Proxy Solicited by Board of Directors for 2012 Annual Meeting of Stockholders +The undersigned appoints GYSLE R. SHELLUM and DANIEL W. AMIDON, and either of them, proxies, each with full power to act +without the other and with full power of substitution for and in the name of the undersigned at the 2012 Annual Meeting of Stockholders of Petroleum Development Corporation (dba PDC Energy) (the “Company”) to be held on June 7, 2012, +at 11:30 a.m. Mountain Time, and at any adjournment or postponement thereof, to vote all shares of the common stock of the Company held by the undersigned with respect to the matters herein and on such other matters as may properly come before the +meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy +Statement for such meeting to be held on June 7, 2012, and a copy of the Company’s 2011 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN +PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1 AND FOR EACH OF PROPOSAL 2, PROPOSAL 3 AND PROPOSAL 4. +In their discretion, the appointed proxies are authorized to vote upon such other business as may properly +come before the meeting and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS +CONTAINED ON OTHER SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-12-183630/proxy_rpt.txt b/raw/proxies/0000077877/0001193125-12-183630/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..59be88cd4a90fd6b3843e2a484c508a3a8dcd07e --- /dev/null +++ b/raw/proxies/0000077877/0001193125-12-183630/proxy_rpt.txt @@ -0,0 +1,17 @@ +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From +January 1, 2011 to the present, there was no transaction or series of transactions, nor any currently proposed transaction, in which the amount involved exceeds $120,000 and in which any Director, executive officer, known holder of more than +five percent of the Company’s common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related party transaction policy +applies to each Director and +23 +Table of Contents +executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate +family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial interest. +Under our related party transaction policy, a related person transaction is a transaction or arrangement involving a +related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such interest. All related person transactions will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will +consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction to the Company and the business purpose +and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis, and the impact of the transaction on the Company’s business and operations. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-13-168327/proxy.txt b/raw/proxies/0000077877/0001193125-13-168327/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..3b68ea5cff635c45a6b95e758e7fb8abf849b137 --- /dev/null +++ b/raw/proxies/0000077877/0001193125-13-168327/proxy.txt @@ -0,0 +1,4437 @@ +DEF 14A +1 +d512375ddef14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the Registrant þ Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Under Rule 14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement no.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 23, 2013 +Dear Stockholder of PDC Energy, Inc.: +You are cordially invited to attend the 2013 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) to be held on +June 6, 2013, at 11:30 a.m. Central Time at the Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024. +The +accompanying Notice of Annual Meeting of Stockholders and Proxy Statement provide information concerning the matters to be considered at the meeting. +We hope you will join us at the Annual Meeting on June 6, 2013. Whether or not you plan to attend personally, it is important that your shares be represented at the Annual Meeting. We value your +opinions and encourage you to participate in the Annual Meeting by voting your proxy. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a +proxy card by mail, you may submit your proxy card by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot attend in person. +Sincerely, +James M. Trimble +Chief Executive Officer and President +Table of Contents +PDC ENERGY, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +THURSDAY, JUNE 6, 2013 +To the Stockholders of PDC Energy, Inc.: +The 2013 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) will be held on June 6, 2013, at 11:30 a.m. Central Time at the Houstonian Hotel, 111 North Post Oak Lane, +Houston, Texas 77024. The purposes of the Annual Meeting are to: +• +Elect the two nominees named in the accompanying Proxy Statement as Class III Directors of the Company, each for a term of three years; +• +Ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2013; +• +Hold an advisory vote regarding the compensation of our named executive officers; +• +Approve the Company’s Amended and Restated 2010 Long-Term Equity Compensation Plan; and +• +Transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board of Directors has fixed the close of business on April 17, 2013, as the +record date for determining the stockholders having the right to receive notice of, to attend and to vote at the Annual Meeting or any adjournments or postponements thereof. The presence in person or by proxy of the holders of a majority of the +outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum. +Please vote by using the telephone or Internet voting systems described in the accompanying Notice of Internet +Availability of Proxy Materials or, if the attached Proxy Statement and a proxy card were mailed to you, please sign, date and return the proxy card in the enclosed envelope as soon as possible. +By Order of the Board of Directors, +Daniel W. Amidon +Senior Vice President, General Counsel and Secretary +April 23, 2013 +Table of Contents +PDC ENERGY, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To Be Held on +June 6, 2013 +The Houstonian Hotel +111 North Post Oak Lane +Houston, Texas 77024 +The accompanying proxy is solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC” or +the “Company”) for use at the Annual Meeting of Stockholders of the Company to be held on June 6, 2013, at 11:30 a.m. Central Time, and at any and all adjournments or postponements of the meeting, for the purposes set forth in this +Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders. On or about April 23, 2013 we began mailing a notice containing instructions on how to access this proxy statement and our annual report online, and we began mailing +a full set of the proxy materials to stockholders who had previously requested delivery of the materials in paper form. For information on how to vote your shares, see the instructions included on the proxy card or instruction form under +“Information About Voting and the Meeting” herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 6, 2013 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2013 Annual Meeting of Stockholders, and the 2012 Annual Report to Stockholders, which includes the Company’s Annual +Report on Form 10-K for the fiscal year ended December 31, 2012, are available at www.envisionreports.com/PDCE . +Table of Contents +TABLE OF CONTENTS +INFORMATION ABOUT VOTING AND THE MEETING +3 +Who May Vote +3 +How Proxies Work +3 +Voting 401(k) and Profit Sharing Plan Shares +3 +Revoking a Proxy +3 +Quorum +4 +Votes Needed +4 +Attending in Person +4 +Conduct of the Meeting +5 +Solicitation of Proxies +5 +Appraisal Rights +5 +Contact Information +5 +PROPOSALS REQUIRING STOCKHOLDER VOTE +5 +Proposal No. 1 — Election of Two Class III Directors +5 +REPORT OF THE AUDIT COMMITTEE +9 +Proposal No. 2 — Ratification of Selection of Independent Registered Public Accounting +Firm +10 +Proposal No. +3 — Advisory Vote Regarding Compensation of the Company’s Named Executive Officers +11 +Proposal No. 4 — Approval of Amended and Restated 2010 Long-Term Equity Compensation +Plan +12 +Summary of the Amended Plan +13 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2013 ANNUAL MEETING +21 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER +MATTERS +22 +CORPORATE GOVERNANCE +23 +STANDING COMMITTEES OF THE BOARD +25 +DIRECTOR COMPENSATION +27 +DIRECTOR QUALIFICATIONS AND SELECTION +29 +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +30 +THE BOARD’S ROLE IN RISK MANAGEMENT +30 +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +31 +CODE OF BUSINESS CONDUCT AND ETHICS +31 +TRANSACTIONS WITH RELATED PERSONS +32 +ADDITIONAL INFORMATION +32 +NAMED EXECUTIVE OFFICERS +32 +COMPENSATION COMMITTEE REPORT +33 +COMPENSATION DISCUSSION AND ANALYSIS +33 +SUMMARY COMPENSATION TABLE +49 +2012 ALL OTHER COMPENSATION +50 +2012 GRANTS OF PLAN-BASED AWARDS +50 +ADDITIONAL DISCUSSION OF TABLES RELATED TO SUMMARY COMPENSATION AND 2012 GRANTS OF PLAN-BASED +AWARDS +51 +OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END +52 +2012 OPTION EXERCISES AND STOCK VESTED +53 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +53 +EQUITY COMPENSATION PLAN INFORMATION +58 +STOCKHOLDER NOMINATIONS AND PROPOSALS +58 +HOUSEHOLDING INFORMATION +59 +APPENDIX A — Proposed Amended and Restated 2010 Long-Term Equity Compensation +Plan +A-1 +Table of Contents +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +Stockholders of PDC, as recorded in the Company’s stock register on the record date of April 17, 2013, may vote at the meeting (the “Annual Meeting”). The outstanding voting securities +of the Company as of April 17, 2013 consisted of 30,332,652 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the meeting. +How Proxies Work +The Board is +asking for your proxy. Giving the Board your proxy means that you authorize the Board to vote your shares at the meeting in the manner you direct. We will vote your shares as you direct. You may vote for one or both Class III Director Nominees, or +you may withhold your vote from one or both of the Director Nominees. You may also vote for or against the other proposals, or abstain from voting. If your shares are held in your name, you can vote by completing, signing and dating your proxy card +and returning it in the enclosed envelope. If you give the Board your signed proxy but do not specify how to vote, your shares will be voted (1) in favor of approval of both of the Class III Director Nominees named in the proxy; (2) in +favor of the ratification of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013; (3) in favor of approving the Company’s +compensation of its named executive officers; and (4) in favor of the Company’s Amended and Restated 2010 Long-Term Equity Compensation Plan. +If you hold shares through someone else, such as a stockbroker, you will receive material from that firm asking how you want to vote. Review the voting form used by that firm to determine what procedures +you must follow in order for you to vote your shares. If the broker does not receive voting instructions from you, the broker may only vote on a proposal that is not considered a “significant” matter under the applicable rules. At the +Annual Meeting, your broker may vote without your instructions only on the ratification of the appointment of PwC as our independent registered public accounting firm for 2013. A broker’s failure to vote because it lacks discretionary authority +to do so is commonly referred to as a “broker non-vote.” The effect of broker non-votes differs between the various proposals to be voted upon at the Annual Meeting. For a description of the effect of broker non-votes on each proposal, see +“Votes Needed” below. +Voting 401(k) and Profit Sharing Plan Shares +If you are a participant in PDC’s 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to your +plan account as of the record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not be counted if your proxy card +is not received by June 1, 2013. You cannot vote such shares at the Annual Meeting or change your vote. +Revoking a Proxy +You may revoke your proxy before it is voted by: +• +Submitting a new signed proxy with a later date; +• +Notifying PDC’s Corporate Secretary in writing before the meeting that you wish to revoke your proxy; or +• +Appearing at the meeting, notifying the Inspector of the Election that you wish to revoke your proxy, and voting in person at the meeting. Merely +attending the meeting will not result in revocation of your proxy. +If you hold your shares +through someone else, such as a stockbroker, you will need to follow the directions they give you to revoke a proxy or otherwise vote at the meeting. +3 +Table of Contents +Quorum +In order to carry on the business of the meeting, there must be a quorum. This means that at least a majority of the +outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non-votes will count +for quorum purposes. +Votes Needed +The following table presents the voting requirements to elect the two Class III Director Nominees and approve the other +proposals presented in this Proxy Statement. Under the Majority Voting Policy contained in Section 3(e) of our Corporate Governance Guidelines, any nominee who receives a greater number of “withheld” votes than “for” votes +is required to tender his or her resignation for consideration by the Nominating and Corporate Governance Committee of the Board. We have provided more information about our Majority Voting Policy under the heading “Corporate Governance — +Majority Voting Policy.” +PROPOSAL +VOTE REQUIRED +Proposal No. 1 +Election of two Class III Directors. +The two nominees for a term of three years expiring in 2016 who receive the greatest number of votes cast (plurality) will be elected Directors for such term. There is no +cumulative voting for Directors. Abstentions and broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Ratify the selection of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013. +A majority of votes cast is required for ratification. Abstentions and broker non-votes will not be counted as votes cast or shares voting on Proposal No. 2 and will have no +effect on the vote. +Proposal No. 3 +Advisory vote on the compensation of the Company’s Named Executive Officers. +A majority of votes cast is required for approval. Abstentions and broker non-votes will not be counted as votes cast or shares voting on Proposal No. 3 and will have no effect +on the vote. +Proposal No. 4 +Approve Amended and Restated 2010 Long-Term Equity Compensation Plan. +A majority of votes cast is required for approval. Abstentions and broker non-votes will not be counted as votes cast or shares voting on Proposal No. 4 and will have no +effect on the vote. +Attending in Person +Only stockholders or their proxy holders and PDC’s guests may attend the Annual Meeting. For safety and security +reasons, no cameras, audio or video recording equipment, large bags, briefcases or packages will be permitted in the meeting. In addition, each stockholder and guest may be asked to present valid, government-issued picture identification, such as a +driver’s license, before being admitted to the meeting. +4 +Table of Contents +If your shares are held in the name of your broker, bank, or other nominee, +you must bring to the meeting an account statement or letter from the nominee indicating that you beneficially owned the shares on April 17, 2013, the record date for receiving notice of, attending and voting at the Annual Meeting. Stockholders +who do not present such information at the meeting may be admitted upon verification of ownership at the admissions table. +Conduct of the Meeting +The Chairman has broad authority to conduct the Annual Meeting in an orderly +and timely manner. This authority includes establishing rules for stockholders who wish to address the meeting. The Chairman may also exercise broad discretion in recognizing stockholders who wish to speak and in determining the extent of discussion +on each item of business. In light of the need to conclude the meeting within a reasonable period of time, there can be no assurance that every stockholder who wishes to speak on an item of business will be able to do so. The Chairman may also rely +on applicable law regarding disruptions or disorderly conduct to ensure that the meeting is conducted in a manner that is fair to all stockholders. +Solicitation of Proxies +The +Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the Notice of Internet +Availability of Proxy Materials to the beneficial owners of the Company’s common stock. In addition to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other +electronic communication and personal interviews, without additional compensation. The Company has entered into an agreement with Morrow & Co., LLC as its proxy solicitor and anticipates paying approximately $8,500 for such services. +Appraisal Rights +No action is proposed at the Annual Meeting for which the laws of the State of Nevada or our By-Laws provide a right of our stockholders to dissent and obtain appraisal of or payment for such +stockholders’ common stock. +Contact Information +If you have questions or need more information about the Annual Meeting, you may write to or call: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at 1-800-624-3821. You are also invited to visit PDC’s website at www.pdce.com . The Company’s website materials are not +incorporated by reference into this Proxy Statement. +PROPOSALS REQUIRING STOCKHOLDER VOTE +PROPOSAL NO. 1 — ELECTION OF TWO CLASS III DIRECTORS +(Proposal 1 on the Proxy Card) +As of the date of this Proxy Statement and as permitted by the Company’s By-Laws, the Board consists of seven members divided into three classes (“Directors”). Directors are usually elected +for three-year terms. The terms for members of each class end in successive years. +5 +Table of Contents +The Board has nominated two continuing Class III Directors, Larry F. Mazza +and James M. Trimble, whose terms expire in 2013 at the Annual Meeting, to stand for election to the Board for a three-year term expiring in 2016. Mr. Mazza joined the Board in 2007 and currently serves on the Compensation Committee and the +Nominating and Governance Committee, which he chairs. Mr. Trimble joined the Board in 2009 and, since June 2011, has also served as Chief Executive Officer (“CEO”) and President. +The appointed proxies will vote your shares in accordance with your instructions and for the election of the two Class +III Director Nominees unless you withhold your authority to vote for either of them. The Board does not contemplate that either of the Director Nominees will become unavailable for any reason; however, if any Director is unable to stand for +election, the Board may reduce its size or select a substitute. Your proxy cannot be otherwise voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director +nominees named. +Board of Directors +As of March 30, 2013, the composition of the Board and the term of each Director was as shown below. +NOMINEES +FIRST ELECTED +DIRECTOR +EXPIRATION OF +CURRENT TERM +CLASS III: +Larry F. Mazza +2007 +2013 +James M. Trimble +2009 +2013 +CLASS I: +Joseph E. Casabona +2007 +2014 +David C. Parke +2003 +2014 +Jeffrey C. Swoveland +1991 +2014 +CLASS II: +Anthony J. Crisafio +2006 +2015 +Kimberly Luff Wakim +2003 +2015 +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +NOMINEES FOR TERM EXPIRING IN 2016 — CLASS III +LARRY F. MAZZA, 52, is Chief Executive Officer of MVB Financial Corp, the parent of multiple banks in West Virginia. He has more than 25 years of experience +in both large banks and small community banks. Mr. Mazza is one of seven members of the West Virginia Board of Banking and Financial Institutions. This Board oversees the operation of financial institutions throughout West Virginia, and advises +the state Commissioner of Banking on banking matters. Mr. Mazza is also an entrepreneur, and is co-owner of a nationally-recognized sports media business named Football Talk, LLC, a pro football website as well as content provider for NBC +SportsTalk. Prior to joining MVB in 2005 to lead its geographic expansion and growth, Mr. Mazza was Senior Vice President & Retail Banking Manager for BB&T Bank’s West Virginia North region, consisting of 33 financial centers and more +than 300 employees. Mr. Mazza was employed by BB&T and its predecessors from 1986 to 2005. Previous to that, Mr. Mazza was President of Empire National Bank, and later served as Regional President of One Valley Bank, a state-wide financial +institution. Upon graduation from West Virginia University in Business Administration, he worked for KPMG (or its predecessors) as a CPA with a focus on auditing. In determining Mr. Mazza’s qualifications to serve on our Board, the Board has +considered Mr. Mazza’s extensive leadership and banking experience. Banking relationships and experience have become particularly important to the Company in the recent years. The Company benefits from Mr. Mazza’s first-hand continuing +experience as a chief executive officer, a specific attribute sought by the Board when he initially became a Director in 2007. Mr. Mazza also provides an important link to community and employee stakeholders, demonstrating a continuing commitment to +our large workforce located in Bridgeport, West Virginia. +2007 +6 +Table of Contents +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +JAMES M. TRIMBLE, 64, was appointed Chief Executive Officer and President of the Company in June 2011, having served on the Board since 2009. From August 2005 +until November 2010, Mr. Trimble served as Managing Director of Grand Gulf Energy, Limited (ASX: GGE) (“Grand Gulf”), a public company traded on the Australian Securities Exchange, and retired from the Board of Directors of Grand Gulf +in November 2011. In January 2005, Mr. Trimble founded and served until November 2010 as President and Chief Executive Officer of Grand Gulf’s U.S. subsidiary Grand Gulf Energy Company LLC, an exploration and development company focused +primarily on drilling in mature basins in Texas, Louisiana and Oklahoma. From 2000 through 2004, Mr. Trimble was Chief Executive Officer of Elysium Energy and then TexCal Energy LLC, both of which were privately held oil and gas companies that he +managed through troubled workout solutions. Prior to this, he was Senior Vice President of Exploration and Production for Cabot Oil and Gas (NYSE: COG). Mr. Trimble was hired in July 2002 as CEO of TexCal (formerly Tri-Union Development) to manage a +distressed oil and gas company through bankruptcy, and that company filed for Chapter 11 reorganization within 45 days after the date that Mr. Trimble accepted such employment. He successfully managed the company through its exit from bankruptcy in +2004. From November 2002 until May 2006, he also served as a director of Blue Dolphin Energy, an independent oil and gas company with operations in the Gulf of Mexico. Mr. Trimble currently serves on the Board of Directors of Seisgen Exploration +LLC, a small private exploration and production company operating in southern Texas. In determining Mr. Trimble’s qualifications to serve on our Board, in addition to his status as CEO of the Company, the Board has considered, among other +things, that Mr. Trimble is a Registered Professional Engineer who brings many years of broad oil and gas industry executive management experience to the Board, including experience as a chief operating officer, and knowledge of current developments +and best practices in the industry. +2009 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2014 — CLASS I +JOSEPH E. CASABONA, 69, served as Executive Vice President and member of the Board of Directors of Denver-based Energy Corporation of America (“ECA”), +from 1985 until his retirement in May 2007. ECA is a privately-held energy company that owns and operates assets both in the U.S. and around the world, including approximately 4,600 wells, 5,000 miles of pipeline, and 1,000,000 acres in North +America. As the primary direct report to the Chief Executive Officer of ECA, Mr. Casabona’s major responsibilities included strategic planning/forecasting, acquisitions, capital transactions, corporate policy, and executive oversight in +operational and drilling activities in the continental U.S. and internationally. From 1968 until 1985, Mr. Casabona was employed at KPMG or its predecessors, with various titles, including audit partner in the Pittsburgh, Pennsylvania office, where +he primarily serviced public clients in the oil and gas industry. From 2008 until the beginning of 2011, Mr. Casabona served as Chief Executive Officer of Paramax Resources Ltd., a junior public Canadian oil and gas company engaged in the +business of acquiring and exploring oil and gas prospects, primarily in Canada and Idaho. In determining Mr. Casabona’s qualifications to serve on our Board, the Board has considered, among other things, that Mr. Casabona brings to the Board +extensive first-hand experience in all aspects of the oil and gas industry, including natural gas exploration, development, acquisitions, operations and strategic planning, as well as experience in the Company’s primary areas of operations, the +Rocky Mountain Region and the Appalachian Basin. Mr. Casabona’s educational achievements include a B.S.B.A. from the University of Pittsburgh and a Master of Science-Mineral Economics from Colorado School of Mines. +2007 +7 +Table of Contents +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +DAVID C. PARKE, 46, has served as Managing Director in the investment banking group of Burrill & Company since June 2011. From 2006 until 2011, he was +Managing Director in the investment banking group of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, he was a Director with investment banking firm Mufson Howe Hunter & Company LLC, from +October 2003 to November 2006. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant +Group, Mr. Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. In determining Mr. Parke’s qualifications to serve on our Board, the +Board has considered, among other things, that Mr. Parke has extensive investment banking experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to +provide guidance on capital markets and acquisition matters. +2003 +JEFFREY C. SWOVELAND, 58, was elected Non-Executive Chairman of the Board, a newly created position, in June 2011, having served on the Board since 1991. He is +President and Chief Executive Officer of ReGear Life Sciences, Inc. in Pittsburgh, Pennsylvania (previously named Coventina Healthcare Enterprises), which develops and markets medical device products, where he was previously Chief Operating Officer. +From 2000 until 2007, Mr. Swoveland served as Chief Financial Officer of Body Media, Inc., a life-science company specializing in the design and development of wearable body monitoring products and services. Prior thereto, Mr. Swoveland held various +positions including Vice President of Finance, Treasurer and interim Chief Financial Officer with Equitable Resources, Inc., a diversified natural gas company, from 1994 to September 2000. Mr. Swoveland also has worked as a geologist and exploratory +geophysicist for both major and independent oil and gas companies. Mr. Swoveland serves as a member of the Board of Directors of Linn Energy, LLC, a public independent natural gas and oil company. In determining Mr. Swoveland’s qualifications +to serve on our Board, the Board has considered, among other things, that Mr. Swoveland brings to the Board extensive corporate management, accounting and finance experience, and oil and gas industry expertise. Additionally, his service as a +director of another public energy company provides leadership and knowledge of best practices that benefit the Company. His guidance and understanding of management processes of larger oil and gas companies benefits the Company as it +grows. +1991 +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2015 — CLASS II +ANTHONY J. CRISAFIO, 60, a Certified Public Accountant, has served as an independent business consultant for more than sixteen years, providing financial and +operational advice to businesses in a variety of industries and stages of development. He is currently serving as part-time contract Chief Financial Officer for Empire Energy USA, LLC, which operates approximately 2,500 wells primarily in New York, +Kansas, North Dakota and Pennsylvania and is approximately 95% owned by Empire Energy Group Limited, an energy investment company listed on the Australian Securities Exchange. He also serves as an interim Chief Financial Officer and Advisory Board +member for a number of privately held companies and has been a Certified Public Accountant for more than thirty years. Mr. Crisafio served as Chief Operating Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from +1989 until 1993. From 1975 until 1989, he was employed by Ernst & Young and was a partner with Ernst & Young from 1986 to 1989. He was responsible for several SEC registered client engagements and gained significant experience with oil and +gas industry clients and mergers and acquisitions. In determining Mr. Crisafio’s qualifications to serve on our Board, the Board has considered, among other things, that Mr. Crisafio brings to the Board more than thirty years of financial +accounting and management expertise, with demonstrated business management and accounting experience. +2006 +8 +Table of Contents +Name, Principal Occupation for Past Five Years +and Other Directorships +First +Elected +Director +KIMBERLY LUFF WAKIM, 55, an attorney and a Certified Public Accountant, is a Partner with the Pittsburgh, Pennsylvania law firm Thorp, Reed & Armstrong LLP, +where she is the Practice Group Leader for the Bankruptcy and Financial Restructuring Practice Group. She has practiced law with Thorp, Reed & Armstrong since 1990. Ms. Wakim was previously an auditor with Main Hurdman (now KPMG) and was +Assistant Controller for PDC from 1982 to 1985. She has been a member of the American Institute of Certified Public Accountants and the West Virginia Society of CPAs for more than nineteen years. In determining Ms. Wakim’s qualifications to +serve on our Board, the Board has considered, among other things, that Ms. Wakim brings to the Board a combination of strong legal background and expertise in accounting oversight. +2003 +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE CLASS +III NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL NO. 1. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ SPECIFICATIONS. +DIRECTORS ARE ELECTED BY A PLURALITY OF THE VOTE. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is composed of three Directors and operates under a written charter +adopted by the Board. Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement +under “Standing Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website under “Corporate Governance.” +Management is responsible for the Company’s internal controls and preparation of the consolidated financial +statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in +accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee met eight times during 2012. In addition, the Audit Committee previously authorized Audit +Committee members Joseph E. Casabona and Anthony J. Crisafio, together or individually, to serve as a sub-committee of the Audit Committee to review and approve U.S. Securities and Exchange Commission (“SEC”) filings and other actions of +the partnerships for which the Company serves as managing general partner. The sub-committee met an additional five times during 2012 to review such partnership filings. +The Audit Committee reviewed and discussed the Company’s audited consolidated financial statements for the year +ended December 31, 2012 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s independent registered public accounting firm. The Audit Committee also discussed with PwC the matters +required to be discussed by Statement of Auditing Standards No. 61 (Codification of Statements of Auditing Standards AU § 380) as adopted by the PCAOB in Rule 3200T, as amended. PwC directly provided reports on significant matters to the +Audit Committee. The Audit Committee has received the written disclosures and the letter from PwC required by PCAOB Rule 3526 and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC +such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based on +the foregoing review and discussions and relying thereon, the Audit Committee recommended that the Board include the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. +9 +Table of Contents +The Board has approved the Audit Committee’s recommendation to appoint +PwC to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2013, subject to ratification by the Company’s stockholders. +Joseph E. Casabona, Chair +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +PROPOSAL NO. 2 — RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +(Proposal 2 on the Proxy Card) +The Audit Committee and the +Board have selected PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013, and the Company is submitting the selection of PwC to the stockholders for ratification. If the selection +of PwC is not ratified, the Board will require the Audit Committee to reconsider its selection. A representative of PwC is expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available +to respond to appropriate questions. +PRINCIPAL ACCOUNTANT FEES AND SERVICES +2012 +2011 +Audit Fees (1) +$ +1,807,000 +$ +1,534,500 +Audit-Related Fees (2) +169,872 +476,645 +Tax Fees (3) +189,692 +141,665 +Other Fees (4) +5,794 +— +Total Fees +$ +2,172,358 +$ +2,152,810 +(1) +Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s +annual consolidated financial statements and the report on management’s assessment of internal control over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the +consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, +including amounts related to comfort letters and consents issued in conjunction with our debt and equity offerings. +(2) +Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the +audit or review of the Company’s annual consolidated financial statements and are not reported under “Audit Fees.” Fees billed primarily include our proportionate share of amounts billed to the Company-sponsored partnerships for the +audits of their annual financial statements. Total amounts billed for the Company-sponsored partnerships in 2012 and 2011 were $340,000 and $978,500, respectively. +(3) +Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and +its proportionately consolidated entities. +(4) +Other Fees consist of aggregate fees billed for products and services other than the services reported above. +Audit Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public accounting firm be subject to pre-approval by the Audit Committee or authorized Audit +Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit services to be provided by the Company’s independent registered public accounting firm. Services necessary to +conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also be approved on an +10 +Table of Contents +annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services which are not eligible for annual pre-approval to be conducted by the independent accountant +must be pre-approved individually by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are +fully performed. All of the services described in “Principal Accountant Fees and Services” were approved by the Audit Committee pursuant to its pre-approval policies as in effect at the relevant time. The duties of the Audit Committee are +described in the Audit Committee Charter, which is available at the Company’s website under “Corporate Governance.” While we recommend that you visit our website, the information available on our website is not part of this report and +is not incorporated by reference into this Proxy Statement. +This proposal will be approved if it receives the +affirmative vote of a majority of shares of common stock of the Company cast at the Annual Meeting and entitled to vote with respect to this proposal. Broker non-votes and abstentions will not affect the outcome of this proposal. If no voting +specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote FOR this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. PROXIES WILL BE +VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ SPECIFICATIONS. +PROPOSAL NO. 3 — +ADVISORY VOTE REGARDING COMPENSATION +OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +(Proposal 3 on the Proxy Card) +The stockholders of the Company are entitled to cast an advisory non-binding vote at the Annual Meeting to approve the compensation of the Company’s Named Executive Officers (see “Named +Executive Officers” identified on pages 32-33). While this vote is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and will take into consideration the outcome of the vote in connection with their +ongoing evaluation of the Company’s compensation program. In 2011, based on the stockholder vote at the 2011 Annual Meeting of Stockholders and attempted or actual engagement with the Company’s twenty largest stockholders, the Company +determined to hold a “say-on-pay” vote annually, consistent with the majority of votes cast in favor of an annual advisory vote. The next non-binding advisory vote regarding such frequency will be held no later than the Company’s 2017 +Annual Meeting of Stockholders. +As described more fully in the “Compensation Discussion and +Analysis” section of this Proxy Statement, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and +achieve the annual and long-term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives +and long-term incentives. +The Company’s practice of targeting the median in compensation and placing a +significant portion of each Named Executive Officer’s compensation at risk demonstrates its pay-for-performance philosophy. In 2012, approximately 75% of the target 2012 compensation for our Named Executive Officers other than the CEO was in +the form of variable compensation which was “at-risk” (i.e., incentive cash compensation, performance-based equity, stock appreciation rights (“SARs”) and restricted stock). For the Company’s CEO, this figure was 84%. +Each of the Named Executive Officers has been granted significant equity to encourage a stake in the +Company’s long-term success. The Company also has significant stock ownership guidelines applicable to the Company’s senior executives. The Company believes that this “tone at the top” guides the Company’s other officers and +management personnel to obtain and maintain meaningful ownership stakes in the Company. +11 +Table of Contents +The Committee considers the results of the non-binding +“say-on-pay” vote of our stockholders concerning the compensation of our Named Executive Officers. At our 2012 Annual Meeting of Stockholders, an overwhelming majority (89%) of the votes cast approved the compensation of our Named +Executive Officers. Accordingly, the Committee concluded that our executive compensation programs generally meet the expectations of our stockholders, and thus we did not make any material changes to our executive compensation programs in 2012 in +response to the “say-on-pay” results. +In light of the above, the Company believes that the +compensation of its Named Executive Officers for 2012 was appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on +the following resolution: +RESOLVED, that the compensation paid to the Company’s Named Executive Officers, +as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative disclosure in the Proxy Statement for the Company’s 2013 Annual Meeting of Stockholders, is hereby +APPROVED. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares of +common stock of the Company cast at the Annual Meeting and entitled to vote with respect to this proposal. Broker non-votes and abstentions will not affect the outcome of this proposal. If no voting specification is made on a properly returned or +voted proxy card, the proxies named on the proxy card will vote FOR the above resolution. +THE BOARD OF +DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 3. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES WILL BE VOTED IN ACCORDANCE WITH THE +STOCKHOLDERS’ SPECIFICATIONS. +PROPOSAL NO. 4 — APPROVAL OF AMENDED AND RESTATED +2010 LONG-TERM EQUITY COMPENSATION PLAN +(Proposal 4 on the Proxy Card) +On April 10, 2013, the Board approved an Amended and Restated 2010 Long-Term Equity Compensation Plan of PDC Energy, +Inc. (the “Amended Plan”) to be effective upon stockholder approval at the Annual Meeting, and recommended that the Company’s stockholders approve and adopt the Amended Plan. The Board has elected to propose this Amended Plan to: +• +Authorize an additional 1,600,000 shares for issuance under the Amended Plan; +• +Require minimum vesting schedules for all Amended Plan awards (with certain limited exceptions); +• +Eliminate the automatic vesting of Amended Plan awards upon a change in control; +• +Expand the types of performance goals that may be used for Amended Plan awards that are intended to qualify as “performance-based +compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”); +• +Increase the individual limits for awards that are intended to qualify as “performance-based compensation” under Code Section 162(m), +thereby allowing for greater use of such awards prospectively; and +• +Extend the termination date of the Amended Plan from April 1, 2020 to June 5, 2023. +The Company considers long-term equity compensation to be an essential element of total compensation and believes the +Amended Plan promotes its interests and the interests of its stockholders by attracting and retaining the services of officers, key employees, and Directors; by optimizing the profitability and growth of the Company through incentives which are +consistent with the Company’s goals and which link the personal interests of participants to those of the Company’s stockholders; by providing participants with an incentive for excellence in individual performance; and by promoting +teamwork among participants. +12 +Table of Contents +Our Equity Plans +The Amended Plan is the sole active plan pursuant to which we may grant equity incentive awards to eligible employees and +Directors. There are, however, still certain outstanding awards that were made under our 2004 Plan. Below is information concerning our equity compensation plans and the grants made thereunder as of April 19, 2013. +As of April 19, 2013, there were 163,945 shares available for grant under the 2010 Plan. Additionally, as of +April 19, 2013, there were 212,883 stock options/SARs outstanding under the Company’s equity compensation plans with a weighted average exercise price of $33.74 and weighted average remaining term of 8.6 years. In addition, as of +April 19, 2013, there were 906,847 full-value awards outstanding under the Company’s equity compensation plans. Other than the foregoing, no other awards under the Company’s equity compensation plans were outstanding or available +for grant as of April 19, 2013. +If the stockholders approve the Amended Plan, the number of shares of +common stock reserved for issuance under the Amended Plan will be increased by 1,600,000, as follows (share counts are as of April 19, 2013): +Shares originally reserved for issuance under the existing 2010 plan +1,400,000 +Shares no longer available for issuance under the 2010 plan as a result of vesting, payment, exercise of awards, +etc. +- +165,140 +Shares subject to outstanding awards under the existing 2010 plan +- +1,070,915 +Remaining shares available for issuance pursuant to new awards under the existing 2010 plan += +163,945 +Additional shares approved for issuance under the Amended Plan ++ +1,600,000 +Total shares available for issuance pursuant to new awards under the Amended Plan += +1,763,945 +Summary of the Amended Plan +A description of the Amended Plan appears below. Because the description of the Amended Plan in this Proxy Statement is a +summary, it may not contain all the information that may be important to you. You should carefully read the Amended Plan. A copy of the form of the Amended Plan is attached hereto as Appendix A. If approved by the stockholders at the Annual Meeting, +a copy of the Amended Plan will be filed with the SEC with the Company’s next periodic filing. +Administration +The Amended Plan is administered by the Compensation Committee of the Board of Directors (for purposes of this section, +the “Committee”). As permitted by law, the Committee may delegate its authority. +Eligibility +Officers, key employees, and members of the Board who are also employees of the Company and its subsidiaries are eligible +to participate in all forms of awards in the Amended Plan. Approximately 200 employees of the Company and its subsidiaries are presently eligible to participate. However, because the Amended Plan provides for broad discretion by the Committee +in selecting participants and in making awards, the total number of persons who will participate and the respective benefits to be accorded to them cannot be determined at this time. +Directors who are not employees of the Company or its subsidiaries are eligible to participate in all forms of award in +the Amended Plan, except for incentive stock options, performance shares and performance units. Currently, six non-employee Directors of the Company are eligible to participate. However, because the size of the Board could change or other +non-employee Directors could be elected, the total number of persons who will be eligible to participate in the future and the respective benefits to be accorded to them likewise cannot be determined at this time. +13 +Table of Contents +Stock Available for Issuance Through the Amended Plan +The number of shares issuable under the amended plan will be equal to (1) 1,400,000, which is the number originally +reserved for issuance upon adoption of the 2010 plan on April 1, 2010, less (2) shares no longer available for issuance under the 2010 plan as of June 6, 2013 as a result of the vesting, payment, or exercise of awards, +plus (3) 1,600,000 shares. Shares issued under the Amended Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the Amended Plan permit the reuse or reissuance by the Amended Plan +of shares of common stock for numerous reasons, including the reuse of shares of common stock underlying canceled, expired, or forfeited awards of stock-based compensation and shares underlying awards paid out in the form of cash. On April 19, +2013, the closing price of a share of the Company’s common stock on the NASDAQ Stock Market was $40.64. Stock-based compensation will typically be awarded in consideration for the future performance of services to the Company. +Description of Awards Under the Amended Plan +Awards to Company Employees +The Committee may award +to eligible employees incentive and nonqualified stock options, SARs, restricted stock, restricted stock units, performance units and performance shares. +Awards to Non-Employee Directors +The Committee may +award to non-employee Directors non-qualified stock options, SARs, restricted stock and restricted stock units. +Minimum Vesting Schedule +of Awards under the Amended Plan +Awards under the Amended Plan that vest based on the passage of time +generally may vest no more rapidly than pro-rata over a three-year period from the date the award was granted, and awards under the Amended Plan that vest based on the achievement of specific performance measures generally vest no more rapidly than +one year from the date the award was granted. The Amended Plan contains a limited exception that allows up to 10% of the reserved shares to be issued pursuant to awards with more accelerated vesting schedules than those described above. +Stock Options +The Committee has discretion to award incentive stock options (“ISOs”), which are intended to comply with Section 422 of the Code, or nonqualified stock options (“NQSOs”), which +are not intended to comply with Section 422 of the Code. The exercise price of an option may not be less than the fair market value of the underlying shares of common stock on the date of grant. If an award of stock options is intended to +qualify as performance-based compensation under Section 162(m) of the Code, the maximum number of shares which may be subject to stock options granted in any calendar year to any one participant is 800,000. Options granted to participants under +the Amended Plan will expire at such times as the Committee determines at the time of the grant; provided, however, that no option will be exercisable later than ten years after the date of grant. Subject to the specific terms of the Amended Plan, +the Committee will have discretion to set such additional limitations on such grants as it deems appropriate; the award agreement will reflect these limitations. +Each option award agreement will set forth the extent to which the participant will have the right to exercise the option +following termination of the participant’s employment with the Company. The termination provisions will be determined at the discretion of the Committee, might not be uniform among all participants, and might reflect distinctions based on the +reasons for termination of employment. +Upon the exercise of an option granted under the Amended Plan, the +option price is payable in full to the Company, either: (1) in cash or its equivalent; (2) if permitted in the award agreement, by tendering shares having a fair market value at the time of exercise equal to the total option price +(provided that such shares have +14 +Table of Contents +been held by the optionee for at least six months prior to their tender); or (3) by any combination of the foregoing methods of payment. The Committee may also allow options granted under +the Amended Plan to be exercised by a cashless exercise through a broker, as permitted under Federal Reserve Board Regulation T, or any other means the Committee determines to be consistent with the Amended Plan’s purpose and applicable +law. +SARs +The Committee may award SARs under the Amended Plan upon such terms and conditions as it may establish. The Committee may award either freestanding SARs or SARs in tandem with stock options (a +“tandem SAR”). The exercise price of a freestanding SAR will equal the fair market value of a share of common stock on the date of grant, whereas the exercise price of a tandem SAR issued in connection with a stock option will equal the +option price of the related option. If an award of SARs is intended to qualify as performance-based compensation under Section 162(m) of the Code, the maximum number of shares which may be subject to SARs awarded in any calendar year to any one +participant is 800,000. At the discretion of the Committee, the payment upon SAR exercise may be in cash, in shares of Company common stock of equivalent value, or in some combination thereof. +In the case of a freestanding SAR, the Committee will determine the number of shares of common stock covered by the SAR +and the exercise period thereof. Upon exercise of a freestanding SAR, the participant will receive an amount equal to the excess of the fair market value of one share of common stock on the date of exercise over the grant price, multiplied by the +number of shares of stock exercised under the SAR. In the case of a tandem SAR, the Committee may determine the exercise period of the SAR except that the exercise period may not exceed that of the related option. The participant may exercise the +tandem SAR when the option is exercisable, surrender the option and receive on exercise an amount equal to the excess of the fair market value of one share of common stock on the date of exercise over the option purchase price, multiplied by the +number of shares of stock covered by the surrendered option. Each award agreement will set forth the extent to which the participant will have the right to exercise the SAR following termination of the participant’s employment with the Company. +The termination provisions will be determined by the Committee in its sole discretion, need not be uniform among all participants, and may reflect distinctions based on the reasons for termination of employment. +Restricted Stock +Awards to Key Employees +The Committee may choose to award shares of restricted common stock under the Amended Plan to employees in such amounts and upon such terms and conditions as it may determine. If an award of restricted +stock is intended to qualify as performance-based compensation under Section 162(m) of the Code, the maximum number of shares which may be granted in the form of restricted stock in any one calendar year to any one participant is 400,000. The +award agreement will specify the vesting schedule (which may be time-based or based upon the achievement of specific performance objectives), the number of shares of restricted stock granted, any requirement that a participant pay a stipulated +purchase price for each share, and any other terms and conditions of the restricted stock award. Recipients may have the right to vote these shares from the date of grant, as determined by the Committee. Participants shall receive dividends on their +shares of restricted stock, which will be paid only if and when the restricted stock vests. +Each award +agreement for restricted stock will set forth the extent to which the participant will have the right, if any, to retain unvested restricted stock following termination of the participant’s employment with the Company. These provisions need not +be uniform among all shares of restricted stock issued under the Amended Plan, and may reflect distinctions based on reasons for termination of employment. +15 +Table of Contents +Awards to Non-Employee Directors +Restricted stock awards may be granted to non-employee Directors in such amounts and subject to such conditions as are +determined by the Board. Restricted stock will be subject to forfeiture for the period (the “Restricted Period”) commencing upon the date when the restricted stock is awarded and ending on the earliest to occur of the following: +• +The retirement of the non-employee Director from the Board in compliance with the Board’s retirement policy as then in effect; +• +The termination of the non-employee Director’s service on the Board as a result of the non-employee Director’s not being nominated for +re-election by the Board; +• +The termination of the non-employee Director’s service on the Board because of the non-employee Director’s resignation or failure to stand +for re-election with the consent of the Board (which means approval by at least 80% of the Directors voting, with the affected non-employee Director abstaining); +• +The termination of the non-employee Director’s service on the Board because the non-employee Director, although nominated for reelection by the +Board, is not re-elected by the stockholders; +• +The termination of the non-employee Director’s service on the Board because of (1) the non-employee Director’s resignation at the +request of the Nominating and Governance Committee of the Board; (2) the non-employee Director’s removal by action of the stockholders or by the Board; or (3) a change in control of the Company, as defined in the Amended Plan; +• +The termination of the non-employee Director’s service on the Board because of disability or death; or +• +The vesting of the award. +If a non-employee Director ceases to be a member of the Board for any other reason, including non-approved resignation or removal for “cause,” as defined in the Amended Plan, the non-employee +Director will forfeit to the Company all restricted stock awarded to him or her for which the Restricted Period has not ended. +The Amended Plan provides that non-employee Directors receiving restricted stock may have the right to vote the shares from the date of grant, as determined by the Committee, and will have the right to +receive cash dividends and other cash distributions in respect of their restricted stock. +Restricted Stock Units +The Committee may award restricted stock units (“RSUs”) to key employees and non-employee Directors upon such +terms and conditions as the Committee determines. Each RSU will have a value equal to the fair market value of a share of the Company’s common stock on the date of grant. If an award of RSUs is intended to qualify as performance-based +compensation under Section 162(m) of the Code, the maximum aggregate award of RSUs to any one participant during any one fiscal year will cover no more than 400,000 shares; provided, further, that the maximum aggregate award of restricted +stock and RSUs for any one fiscal year will be coordinated so that in no event will any one participant be granted awards covering more than 400,000 shares taking into account all such awards. In its discretion, the Committee may impose vesting +conditions on RSUs, as specified in the RSU award agreement, including vesting based upon the passage of time, the achievement of specific performance goals, or both. As determined by the Committee at the time of the award, settlement of vested RSUs +may be made in the form of cash, shares of Company stock, or a combination of cash and Company stock. Settlement of vested RSUs will occur in a lump sum as soon as practicable after the vesting date. Each RSU will be credited with an amount equal to +the dividends paid on a share of Company stock between the date of award and the date the RSU is paid to the participant, if at all. Dividend equivalents will vest, if at all, upon the same terms and conditions governing the vesting of the RSU under +the Amended Plan. Payment of the dividend equivalent will be paid at the same time as payment of the RSU. The holders of RSUs will have no voting rights. Each RSU award agreement will set forth the extent to which the participant will have the +right, if any, to retain or receive payment for unvested RSUs following termination of the participant’s employment with the Company. These provisions need not be uniform among all RSU awards issued under the Amended Plan, and may reflect +distinctions based on reasons for termination of employment. +16 +Table of Contents +Performance Units/Performance Shares +The Committee has the discretion to award performance units and performance shares under the Amended Plan upon such terms +and conditions as it may establish. If an award of performance units or performance shares is intended to qualify as performance-based compensation under Section 162(m) of the Code, the maximum aggregate payout for awards of performance shares +which may be granted in any one calendar year to any one participant will be 400,000 shares, and the maximum aggregate payout for awards of performance units which may be granted in any one calendar year to any one participant will be +$5,000,000. Performance units will have an initial value as determined by the Committee, whereas performance shares will have an initial value equal to one share of common stock on the date of award. The payout on the number and value of the +performance units and performance shares will be a function of the extent to which corresponding performance goals are met. Payment of performance shares and performance units will be made in a single lump sum following the close of the applicable +performance period. In its discretion, the Committee may pay earned performance shares or performance units in cash, in shares of Company stock or in a combination of cash and stock, which will have an aggregate fair market value equal to the value +of the earned performance share or performance unit at the close of the applicable performance period. Participants will not be entitled to dividend or voting rights with respect to any performance shares or performance units earned but not yet +distributed to a participant. Unless otherwise determined by the Committee, in the case of death or disability during the performance period, the participant, or his or her estate, will not be entitled to receive any payout of the performance shares +or performance units. In the case of any other termination of the participant’s employment during the performance period, all performance shares and performance units intended to qualify as performance-based compensation will be forfeited by +the participant. +Performance Measures +The Committee shall have the authority to structure awards under the Amended Plan to be “performance-based compensation” under Code Section 162(m). The vesting of, or amount payable under, +any such award will be determined solely based upon the achievement of certain pre-established objective performance goals established by the Committee in writing no later than 90 days after the beginning of the performance period for which the +performance goals are measured. Under the Amended Plan, the Committee may utilize any of the following measures of performance in establishing the objective performance goals for such awards: net income either before or after taxes (including +adjusted net income), share price, earnings per share (basic or diluted), total stockholder return, return on assets, return on equity, operating income, return on capital or investment, cash flow or adjusted cash flow, economic value added, debt +level, cost reduction targets, equity ratios, capital efficiency (adjusted EBITDA divided by production and divided by average finding and development cost), coverage ratio (adjusted EBITDAX/interest), EBITDA or EBIDTA margin, operating and general +and administrative expense (the sum of total lease operating expense, exploration general and administrative expense and corporate general and administrative expense), average reserve replacement ratio (the sum of extensions and discoveries, +revisions in previous estimates and purchase of reserves divided by the sum of the same), production or production growth, oil and gas reserves or growth in reserves, oil and gas reserve additions, and costs of finding oil and gas reserves. The +objective performance goals may be measured (1) on a total basis, on a per Mcf or BOE equivalent basis, on a per share basis, or on such other basis as may be determined by the Committee; (2) at the Company level, at a subsidiary or +affiliate level, or at an operating unit level; and (3) on an absolute or comparative basis as determined in the Committee’s discretion (including, but not limited to, on a comparative basis against the Company’s internal targets, the +Company’s competitors, the industry or some other comparative group). +Following the end of a performance +period, the Committee will certify in writing the degree of attainment of the pre-established objective performance goals and the corresponding level of vesting or amount earned under the performance-based awards for the performance period. The +Committee will also have discretion to reduce (but not to increase) the value of a performance-based award. +Conditions to Award Vesting +With respect to participants who are employees, if such participant terminates employment with the Company +for any reason other than death while any award under the Amended Plan remains outstanding, that +17 +Table of Contents +participant will receive such shares or benefit only if, during the entire period from his or her date of termination to the date of such receipt, the participant (1) consults and cooperates +with the Company on matters under his or her supervision during the participant’s employment; and (2) refrains from engaging in any activity that is directly or indirectly in competition with any activity of the Company for a one-year +period. If a participant fails to comply with this requirement, the participant’s rights under any outstanding award will be forfeited unless otherwise waived by the Committee. +Adjustment and Amendments +The Amended Plan provides for +appropriate adjustments to outstanding awards and to the number of shares of Company stock available for future awards (and to related plan limits) in the event of changes in outstanding common stock by reason of a merger, stock split, stock +dividend, or certain other events. +The Amended Plan may be modified or amended by the Board at any time and +for any purpose which the Board deems appropriate. However, no such amendment may adversely affect any outstanding awards without the affected holder’s consent. NASDAQ listing standards require stockholder approval for all material amendments +of the Amended Plan. +Change in Control +Existing Awards +Unless otherwise provided in an +applicable award agreement, the provisions of the plan as in effect prior to June 6, 2013 shall govern the treatment of awards existing as of such date upon a change in control. +New Awards +Unless otherwise provided in an applicable award agreement, upon a change in control (as defined in the Amended Plan), the Board or the Committee (as applicable) shall have full discretion to take +whatever actions it deems necessary or appropriate with respect to awards granted after June 6, 2013, including but not limited to the following actions: (1) provide for full or partial accelerated vesting of any award or portion thereof, +either immediately prior to the change in control or on such terms and conditions following the change in control (such as a termination without cause) as the Board or the Committee determine in their sole and absolute discretion; (2) provide +for the assumption of such awards (or portions thereof) or the substitution of such awards (or portions thereof) with similar awards of the surviving or acquiring Company; (3) provide for the cash-out and cancellation of any award (or portion +thereof); and (4) take any other actions as the Board or Committee deem necessary or advisable in connection with such change in control transaction. If the surviving or acquiring company does not assume the outstanding awards (or portions +thereof) or substitute similar stock awards for those outstanding under the Amended Plan as of the change in control, then the vesting and exercisability (if applicable) of all awards (or portions thereof) shall be accelerated in full immediately +prior to such change in control, and such outstanding awards (or portions thereof) shall terminate and/or be payable upon the occurrence of the change in control. The Board or the Committee, as applicable, may take different actions with respect to +different participants under the Amended Plan, different awards under the Amended Plan, and different portions of awards granted under the Amended Plan. +Nontransferability +No award under the Amended Plan may be +sold, assigned or otherwise transferred in any manner by a participant except by will or by the laws of descent and distribution; and any award will be exercisable during a participant’s lifetime only by the participant or by the +participant’s guardian or legal representative. +Duration of the Plan +The Amended Plan will remain in effect until all shares subject to the Amended Plan have been purchased or acquired under +the terms of the Amended Plan, and all performance periods for performance-based awards granted under the Amended Plan have been completed. However, in no event will an award be granted under the Amended Plan on or after June 5, 2023. +18 +Table of Contents +Certain Federal Income Tax Consequences +The following description of the material federal income tax consequences of awards under the Amended Plan is a general +summary. State, local, and other taxes may also be imposed in connection with awards. This discussion is intended for the information of stockholders considering how to vote at the Annual Meeting and not as tax guidance to individuals who +participate in the Amended Plan. +Incentive Stock Options +A participant who is granted an ISO recognizes no taxable income when the ISO is granted. A participant will not recognize +taxable income upon exercise of an ISO for regular income tax purposes but generally will recognize taxable income upon the exercise of an ISO for alternative minimum tax (“AMT”) purposes (see below). A participant who exercises an ISO +will recognize taxable gain or loss upon the sale of the shares underlying the option. Any gain or loss recognized on the sale of shares acquired upon exercise of an ISO is taxed as capital gain or loss if the shares have been held for more than one +year after the option was exercised and for more than two years after the option was granted. If the participant disposes of the shares before the required holding periods have elapsed (a “disqualifying disposition”), the participant is +subject to income tax (but not FICA taxes) as though he or she had exercised a non-qualified stock option, except that the ordinary income on exercise of the option is recognized in the year of the disqualifying disposition and generally is the +lesser of (1) the excess of the fair market value of the shares acquired on the date of its exercise over the option price; or (2) the excess of the amount realized on the sale of the stock over the original option price. The Company will +not be entitled to a deduction with respect to the grant or exercise of the ISO or the sale of the ISO shares, except in the case of a disqualifying disposition of the ISO shares, upon which event the amount of the Company’s deduction is equal +to the amount of the compensation income recognized by the participant. +Alternative Minimum Tax +The exercise of an ISO may result in tax liability under the AMT. The AMT provides for additional tax equal to the excess, +if any, of (a) 26% or 28% of “alternative minimum taxable income” in excess of an applicable exemption amount, over (b) regular income tax for the taxable year. For purposes of calculating alternative minimum taxable income, an +ISO is treated as if it were a non-qualified stock option (as described below under “Non-Qualified Stock Options”), so the difference between the fair market value of the shares received on exercise and the option price will be deemed to +be income for this purpose and the taxpayer will hold the shares with a tax basis equal to such fair market value for subsequent AMT purposes. Application of the AMT to any exercise of an ISO and to a disqualifying disposition of shares is complex +and will vary depending upon each person’s circumstances. +Non-Qualified Stock Options +The tax treatment of NQSOs differs significantly from the tax treatment of ISOs. In general, no taxable income is +recognized when an NQSO is granted, but upon exercise, the difference between the fair market value of the shares received and the exercise price is taxable as ordinary compensation income to the recipient and is generally deductible by the Company. +If the recipient is an employee of the Company, the income will constitute wages, subject to FICA taxes and withholding. +SARs +A participant will generally not recognize taxable income upon receipt of a SAR. Upon exercise of the SAR, the participant will recognize ordinary income in an amount equal to the amount of cash +received and/or the fair market value of any shares of the Company’s common stock received at the time of exercise. The Company is generally entitled to a deduction equal to the amount of ordinary income recognized by a participant upon +exercise of an SAR. If the recipient is an employee of the Company, the income will constitute wages, subject to FICA taxes and withholding. +19 +Table of Contents +Restricted Stock +A participant receiving restricted stock ordinarily does not recognize income at the time of the grant of the restricted +stock award. When the shares of restricted stock vest, the participant will generally recognize ordinary compensation income in an amount equal to the fair market value of the shares on the vesting date. Alternatively, the participant may +elect under Section 83(b) of the Code to recognize ordinary compensation income upon the grant of the restricted shares (in an amount equal to the fair market value of the shares on the grant date). Any dividends paid on or with respect to +unvested restricted stock are generally taxable upon receipt as ordinary compensation income. If the participant is an employee of the Company, any compensation income will constitute additional wages, subject to FICA taxes and withholding. The +Company generally is entitled to deduct an amount equal to the income recognized by the participant at the time the participant recognizes the income. +RSUs +A participant will generally recognize +ordinary compensation income equal to the amount of cash received and the fair market value of any shares of the Company’s common stock received at the time payment is made under the restricted stock unit. The Company generally should be +entitled to a deduction equal to the amount of ordinary income recognized by the participant. If the recipient is an employee of the Company, the income will constitute wages, subject to FICA taxes and withholding. +Performance Units and Performance Shares +A participant will generally recognize ordinary compensation income equal to the amount of cash received and the fair +market value of any shares of the Company’s common stock received at the time payment is made under the performance unit or performance share award. The Company generally should be entitled to a deduction equal to the amount of ordinary +income recognized by the participant. If the recipient is an employee of the Company, the income will constitute wages, subject to FICA taxes and withholding. +Section 409A +Notwithstanding any contrary +provision in the Amended Plan, each provision in the Amended Plan that otherwise relates to nonqualified deferred compensation benefits will be interpreted to permit the deferral of compensation and the payment of deferred amounts in accordance with +Section 409A of the Code, to the extent applicable. +Section 162(m) +Under Section 162(m) of the Code, compensation paid by the Company in excess of $1 million for any taxable year +to a “Covered Employee” generally is not deductible by the Company or its affiliates for federal income tax purposes unless an exemption from such limitation exists. Generally, a “Covered Employee” under Section 162(m) +includes the chief executive officer and the three other highest paid executive officers of the Company other than the chief executive officer or chief financial officer as of the last day of the taxable year. The Amended Plan permits, but does not +require, the grant or payment of “performance-based compensation” that is exempt from the deduction limitations of Code Section 162(m). However, the Committee will at all times consist of “outside directors” as required for +purposes of Section 162(m), and the Committee will take the effect of Section 162(m) into consideration in structuring Amended Plan awards. +Prospective awards of equity compensation under the Amended Plan, if approved by the stockholders, are not currently determinable. +Board Recommendation and Vote Requirement +The Board +believes that the Amended Plan is in the best interest of the Company and its stockholders and therefore recommends a vote for approval of the Amended Plan. Proxies not marked to the contrary will be voted in favor of the Amended Plan. Because +approval of the Amended Plan will increase the number of shares +20 +Table of Contents +available for issuance to all Directors and executive officers of the Company, each of the Directors and executive officers of the Company has an interest in and may benefit from the Amended +Plan. Approval of the Amended Plan will require the affirmative vote of a majority of the votes cast at the Annual Meeting. Accordingly, abstentions and broker non-votes will not be included in the tabulation of votes cast on this matter. +For the above reasons, our stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s Amended and Restated 2010 Long-Term Equity Compensation Plan is hereby approved and +adopted. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE +COMPANY’S AMENDED AND RESTATED 2010 LONG-TERM EQUITY COMPENSATION PLAN. +ALL OTHER +BUSINESS THAT MAY COME BEFORE THE 2013 ANNUAL MEETING +As of the date of this Proxy Statement, the Board +is not aware of any matters to be brought before the Annual Meeting other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our By-Laws and the rules of the SEC, it is +the intention of the proxy holders named in the enclosed form of proxy to vote in accordance with their discretion on such matters pursuant to such proxy. +21 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock, par +value $0.01 per share, as of April 17, 2013, by (1) each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive Officer; +and (4) all Directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where +applicable. Voting power is the power to vote or direct the voting of securities, and dispositive power is the power to dispose of or direct the disposition of securities. As of April 17, 2013, 30,332,652 shares of common stock of the Company +were outstanding. Except as otherwise indicated, the address for each of the named security holders is 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Name and Address of Beneficial Owner +Number of +Shares +Beneficially +Owned +Percentage of +Shares +Beneficially +Owned +BlackRock, Inc. +40 East 52nd Street +New York, NY 10022 +2,744,216 +(1) +9.1 +% +T. Rowe Price Associates, Inc. +100 East Pratt St. +Baltimore, MD 21202 +2,743,932 +(2) +9.1 +% +Dimensional Fund Advisors Inc. +Palisades West, Building One +6300 Bee Cave Road +Austin, Texas 78746 +2,169,502 +(3) +7.2 +% +The Vanguard Group +100 Vanguard Blvd. +Malvern, PA 19355 +1,835,764 +(4) +6.1 +% +Citadel Advisors LLC +131 S. Dearborn St., 32nd Floor +Chicago, IL 60603 +1,782,555 +(5) +5.9 +% +James M. Trimble +75,879 +(6) +* +Gysle R. Shellum +40,106 +(7) +* +Barton R. Brookman, Jr. +72,257 +(8) +* +Lance A. Lauck +53,558 +(9) +* +Daniel W. Amidon +35,124 +(10) +* +Kimberly Luff Wakim +13,055 +(11) +* +David C. Parke +18,143 +(12) +* +Jeffrey C. Swoveland +22,839 +(13) +* +Anthony J. Crisafio +16,623 +* +Joseph E. Casabona +22,060 +* +Larry F. Mazza +16,855 +* +All Directors and executive officers as a group (11 persons) +386,499 +(14) +* Represents less than 1% of the outstanding shares of common stock. +(1) +According to the Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 31, 2013. +(2) +According to the Schedule 13G filed by T. Rowe Price Associates, Inc. with the SEC on February 13, 2013. At the time of the filing, the +reporting person reported having sole voting power over 597,499 shares and sole dispositive power over 2,743,932 shares. These securities are owned by various individual and institutional investors which T. Rowe Price Associates, Inc. (Price +Associates) serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For the purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a +beneficial owner of such securities; however, Price Associates expressly disclaims that is is, in fact, the beneficial owner of such securities. +22 +Table of Contents +(3) +According to the Schedule 13G filed by Dimensional Fund Advisors LP with the SEC on February 11, 2013. At the time of the filing, the reporting +person reported having sole voting power over 2,134,448 shares and sole dispositive power over 2,169,502 shares. +(4) +According to the Schedule 13G filed by The Vanguard Group with the SEC on February 11, 2013. At the time of the filing, the reporting person +reported having sole voting power over 46,637 shares and sole dispositive power over 1,790,327 shares. +(5) +According to Schedule 13G filed by Citadel Advisors LLC with the SEC on April 8, 2013. +(6) +Excludes 94,336 restricted shares subject to vesting greater than 60 days after April 17, 2013; includes 10,986 shares subject to SARs +exercisable within 60 days of April 17, 2013. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. +(7) +Excludes 28,699 restricted shares subject to vesting greater than 60 days after April 17, 2013; includes 15,147 shares subject to SARs +exercisable within 60 days of April 17, 2013. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. +(8) +Excludes 24,499 restricted shares subject to vesting greater than 60 days after April 17, 2013; includes 14,952 shares subject to SARs +exercisable within 60 days of April 17, 2013. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. +(9) +Excludes 23,907 restricted shares subject to vesting greater than 60 days after April 17, 2013; includes 12,748 shares subject to SARs +exercisable within 60 days of April 17, 2013. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. Mr. Lauck shares voting and dispositive power with his wife held in joint account. +(10) +Excludes 19,731 restricted shares subject to vesting greater than 60 days after April 17, 2013; includes 13,236 shares subject to SARs +exercisable within 60 days of April 17, 2013. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a share of our common stock on the date of exercise and the grant date fair value, +payable in shares only. +(11) +Excludes 1,046 shares of deferred common stock units granted pursuant to the Non-Employee Director Deferred Compensation Plan. +(12) +Excludes 571 shares of deferred common stock units granted pursuant to the Non-Employee Director Deferred Compensation Plan. +(13) +Excludes 2,156 shares of deferred common stock units granted pursuant to the Non-Employee Director Deferred Compensation Plan. +(14) +Excludes 191,172 restricted shares subject to vesting greater than 60 days after April 17, 2013, and 3,773 shares of common stock purchased +pursuant to the Non-Employee Director Deferred Compensation Plan; includes 67,069 SARs exercisable within 60 days of April 17, 2013. Each SAR entitles the executive officer the right to receive the difference between the fair market value of a +share of our common stock on the date of exercise and the grant date fair value, payable in shares only. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s +officers and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, Directors and holders of more than 10% of the +common stock are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its officers and Directors in complying with the reporting requirements of Section 16(a) of +the Exchange Act. +Based solely on a review of the reports furnished to the Company, or written +representations from reporting persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2012, the Company’s officers, Directors and owners of more than 10% of the +Company’s common stock timely filed all reports they were required to file under Section 16(a) of the Exchange Act. +CORPORATE GOVERNANCE +Corporate Governance Guidelines +The Board has adopted +Corporate Governance Guidelines that govern the structure and functioning of the Board and establish the Board’s policies on a number of corporate governance issues. The Corporate Governance Guidelines were most recently amended on +March 14, 2013. +23 +Table of Contents +Majority Voting Policy +The Board amended its Corporate Governance Guidelines on March 14, 2013 to include a Majority Voting Policy. Under our +Majority Voting Policy, any nominee for Director in an uncontested election who receives a greater number of “withheld” votes than “for” votes will promptly tender his or her resignation. The Nominating and Governance Committee +will promptly consider the tendered resignation and will recommend to the Board whether to accept the tendered resignation or to take some other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the +“withheld” votes. +In making this recommendation, the Nominating and Governance Committee will +consider all factors deemed relevant by its members. These factors may include the underlying reasons why stockholders “withheld” votes for election from such Director (if ascertainable), the length of service and qualifications of the +Director whose resignation has been tendered, the Director’s contributions to the Company, whether by accepting the resignation the Company will no longer be in compliance with any applicable law, rule, regulation or governing document, and +whether or not accepting the resignation is in the best interest of the Company and our stockholders. In considering the Nominating and Governance’s recommendation, the Board will consider the factors considered by the Nominating and Governance +Committee and such additional information and factors that the Board believes to be relevant. If this were to occur, we would promptly and publicly disclose the Board’s decision and process in a report filed with the SEC. +Other Corporate Governance Documents +The Corporate Governance section on the Company’s website includes the Corporate Governance Guidelines and the +following governance documents: +Director Nomination Procedures +Director Stock Ownership Guidelines +Insider Trading Policy +Stockholder Communication Policy +Audit Committee Charter +Compensation Committee Charter +Nominating and Governance Committee Charter +Non-Executive Chairman Charter +Code of Business Conduct and Ethics +Waiver of Potential Conflicts +of Interest +Board of Directors +The Company’s By-Laws provide that the number of members of the Board of Directors shall be designated from time to time by a resolution of the Board. Currently, the designated number of Directors is +seven. The By-Laws provide that the Board shall be divided into three separate classes of Directors which are required to be as nearly equal in number as practicable. At each Annual Meeting of Stockholders, one class of Directors, whose term has +expired, is elected to a new term of three years. The classes are staggered so that the term of one class expires each year. +There is no family relationship between any Director or executive officer or the Company. There are no arrangements or understandings between any Director or officer and any other person pursuant to which +the person was selected as an officer of the Company. +Director Independence +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews the NASDAQ +listing standards, which set forth certain circumstances under which a director is not considered independent. As CEO and President of the Company, Mr. Trimble is not independent under such standards. Audit Committee members are subject to +additional, more stringent NASDAQ and Exchange Act requirements. +24 +Table of Contents +The Board has reviewed the business and charitable relationships between the +Company and each non-employee Director (“Non-Employee Director”) to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non-Employee Director’s +independence. The Board has affirmatively determined that each of the Non-Employee Directors (i.e., Messrs. Casabona, Crisafio, Mazza, Parke, and Swoveland, and Ms. Wakim) is independent under NASDAQ Listing Rule 5605 and the Exchange +Act and our committee charter requirements. +Board Meetings and Attendance +The Board has a standing Audit Committee, Compensation Committee and Nominating and Governance Committee. The Planning and +Finance Committee was disbanded on September 14, 2012. Actions taken by these committees are reported to the Board at its next meeting. During 2012, each of the Company’s Directors attended at least 75% of all meetings of the Board and +committees of which he or she was a member. As specified in the Company’s Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting of Stockholders. All of the Directors attended the 2012 +Annual Meeting on June 10, 2012. +The following table identifies the members of each committee of the +Board, the chair of each committee, and the number of meetings held in 2012. +2012 BOARD AND COMMITTEE MEMBERSHIPS +Director +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and +Governance +Committee +Planning +and +Finance +Committee (3) +Joseph E. Casabona +x +x (1) (2) +x (1) +Anthony J. Crisafio +x +x (2) +x +Larry F. Mazza +x +x +x (1) +David C. Parke +x +x +x +x +Jeffrey C. Swoveland +x +x +x +x +James M. Trimble +x +x +Kimberly Luff Wakim +x +x +x (1) +x +Number of Meetings in 2012 +6 +8 (4) +7 +4 +2 +(1) +Chair +(2) +Mr. Crisafio stepped down from the Audit Committee in September 2012, at which time Mr. Casabona succeeded him as Chair of the Audit +Committee. +(3) +The Planning and Finance Committee was disbanded in September 2012. +(4) +A sub-committee of the Audit Committee held five additional meetings in 2012 related to partnership SEC filings. +The Non-Employee Directors generally meet in “executive session” in connection with each regularly scheduled +Board meeting without the employee Director (the CEO) present. Mr. Swoveland chairs these sessions; however, the other Non-Employee Directors may, in the event of his absence, select another Director to preside over the executive session. +STANDING COMMITTEES OF THE BOARD +Audit Committee +The Audit Committee is composed entirely +of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee +Charter. The Board has adopted an Audit Committee Charter which is posted on the Company’s website. The Board assesses the adequacy of the Audit Committee Charter on an annual basis and revises it as necessary. The Audit Committee Charter was +most +25 +Table of Contents +recently amended on March 15, 2013 primarily to clarify such committee’s responsibility for oversight of risk management. The Board has determined that all members of the Audit +Committee qualify as “financial experts” as defined by SEC regulations. The Audit Committee’s primary purpose is to assist the Board in monitoring the integrity of the financial reporting process, systems of internal controls and +financial statements of the Company, and compliance by the Company with legal and regulatory requirements. Additionally, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent auditors engaged +by the Company for the purpose of preparing or issuing an audit report or related work and to assess the need for an internal audit function and recommend its establishment when deemed appropriate. In performing its responsibilities, the Audit +Committee: +• +Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal +compliance; +• +Monitors the independence of the independent registered public accounting firm; and +• +Provides an avenue of communication among the independent registered public accounting firm, management and the Board. +Compensation Committee +The Board has determined that all members of the Compensation Committee (the “Committee”) are independent of the Company under Rule 5605(a)(2) of the NASDAQ listing standards. The Board has +adopted a Compensation Committee Charter which is posted on the Company’s website. The purposes and functions of the Committee are primarily to: +• +Oversee the development of a compensation strategy for the Company’s Named Executive Officers; +• +Evaluate the performance of and set compensation for the CEO; +• +Review and approve the elements of compensation for other senior executive officers of the Company; +• +Negotiate the terms of employment agreements with executive officers of the Company and approve all change in control plans; +• +Review the compensation of the Directors for Board and committee work and recommend to the Board changes in such compensation levels; +• +Review and approve performance criteria and results for which bonus awards for senior executive officers will be determined, and approve bonus +awards to senior executive officers; +• +Recommend to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approve all equity grants under +the plans, and administer all equity-based incentive programs of the Company, which may include specific delegation to management regarding awards to non-executive officers; and +• +Review and approve Company contributions to retirement plans. +Compensation Committee Interlocks and Insider Participation +There were no Compensation Committee interlocks during fiscal year 2012. +Nominating and Governance Committee +The Board has determined that all members of the Nominating and Governance Committee (the “N&G Committee”) are independent of the Company under Rule 5605(a)(2) of the NASDAQ listing +standards. The Board has adopted a Nominating and Governance Committee Charter which is posted on the Company’s website. The purposes and functions of the N&G Committee are primarily to: +• +Assist the Board by identifying individuals qualified to become Board members, recommend nominees for election at the next Annual Meeting of +Stockholders, or fill any vacancies; +26 +Table of Contents +• +Recommend to the Board corporate governance guidelines applicable to the Company; +• +Lead the Board in its annual review of the Board’s performance; and +• +Recommend to the Board the nominees for membership on each committee. +Planning and Finance Committee +The Board disbanded the +Planning and Finance Committee, which was formerly comprised of three Non-Employee Directors, the CEO, and two non-voting members of executive management, on September 14, 2012. +Board Leadership Structure +Although the Board has no +specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes our Company’s current leadership structure, under which Mr. Trimble serves as CEO and President and Mr. Swoveland serves as +Non-Executive Chairman of the Board, is the optimal structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We believe that as directors continue to have more oversight +responsibilities than ever before, it is beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus his energy on leading the Company. We believe our CEO and Chairman have an +excellent working relationship which, with the separation of their positions, provides strong leadership for the Board while positioning our CEO as the leader of the Company in the eyes of our employees and other stockholders. The Board reconsiders +this issue annually as it elects its Chairman or as circumstances arise that may require such determination. +As Non-Executive Chairman, Mr. Swoveland generally chairs the meetings of executive sessions of our Non-Employee +Directors. The Non-Executive Chairman, in consultation with the CEO, establishes the agenda for each Board meeting. +DIRECTOR COMPENSATION +Compensation of our Non-Employee Directors is reviewed annually by the +Committee and approved by the Board. We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board. In setting Director compensation, we consider the significant amount of time +the Directors spend fulfilling their duties as well as the competitive market for skilled Directors. In addition, we recognize that our Directors are also responsible for the oversight of four partnerships for which PDC is the managing general +partner. No compensation is paid to our CEO for his service on the Board. +In 2012, the Committee directly +engaged Towers Watson & Co. (the “Consultant”) as the compensation consultant to review executive compensation and to conduct an annual review of the total compensation of Non-Employee Directors. Specifically, the Consultant +evaluated retainer fees, potential meeting fees and stock-based long-term incentives using, as the competitive benchmark, levels of total compensation paid to the directors of the energy companies which comprise the Company’s peer group for +determining 2012 executive compensation. Below is a summary of the compensation paid to our Non-Employee Directors. All Board and committee retainers are paid in quarterly installments. +Cash Compensation +Annual Board Retainer +The annual Board term begins on July 1 of each year. For the 2011-2012 and 2012-2013 Board terms, each Non-Employee +Director received an annual cash retainer of $55,000 and $60,000, respectively, for service on the Board and for attendance at all Board meetings. The Non-Executive Chairman receives an additional cash retainer of $100,000 per year. +27 +Table of Contents +Annual Committee Retainers +Each Non-Employee Director receives an annual cash retainer for service on each committee on which he or she serves. The +chair of each committee receives an additional annual retainer for his or her services as chair of that committee. The following table shows the committee and additional chair retainers for the 2011 – 2012 and 2012 – 2013 Board terms. +COMMITTEE RETAINERS +2011 – 2012 Board Term +2012 – 2013 Board Term +Committee +Committee +Retainer +Additional +Committee +Chair +Retainer +Committee +Retainer +Additional +Committee +Chair +Retainer +Audit +$ +10,000 +$ +17,500 +$ +15,000 +$ +17,500 +Compensation +10,000 +10,000 +10,000 +10,000 +Nominating and Governance +6,000 +7,500 +6,000 +7,500 +Planning and Finance* +10,000 +10,000 +10,000 +10,000 +* +The Planning and Finance Committee was disbanded in September 2012. +In addition: +• +A Special Committee consisting of Messrs. Crisafio, Mazza, Parke and Swoveland was created in 2008 to consider the potential repurchase of certain +partnerships for which the Company is the managing general partner (each a “Partnership”). Special Committee members Parke, Crisafio and Mazza each received a fee of $1,350 and Mr. Swoveland received a fee of $1,650, paid in 2012 for +attendance at meetings held in 2011. +• +A sub-committee of the Audit Committee consisting of Mr. Casabona and, until September 2012, Mr. Crisafio, acting together or +individually, reviews and approves SEC filings for the Partnerships. For the Board year 2012-2013, the Audit sub-committee retainer is $10,000. This was reduced from $30,000 for the 2011-2012 Board year following the sale of a majority of the +Partnerships. +Equity Compensation +On the date of each Annual Meeting, each Non-Employee Director is awarded restricted Company stock for service on the +Board. In June 2012, each Non-Employee Director received the equivalent of $125,000 (4,468 shares) in restricted stock of the Company. These shares were granted under the Company’s 2010 Long-Term Equity Compensation Plan approved by +stockholders in 2010 (the “2010 LTI Plan”) and vest ratably over three years. +Deferred Compensation +Each Non-Employee Director may choose to defer all or a portion of his/her annual cash compensation by participating in +the Non-Employee Director Deferred Compensation Plan. All compensation deferred into this program is credited with hypothetical earnings and losses as if invested in common stock of the Company. Except for Mr. Swoveland, none of the +Non-Employee Directors deferred compensation in 2012. +Company Stock Ownership Requirements +The Company’s Director Stock Ownership Guidelines require the Non-Employee Directors to hold shares of Company stock +in an amount equal to at least five times his/her annual Board retainer. Compliance with ownership requirements is measured annually. Qualifying shareholdings include Company stock owned directly and unvested restricted stock. Directors are required +to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2012, all of the Directors met the requirements under the guidelines. +28 +Table of Contents +The Company’s Insider Trading Policy expressly prohibits independent +Directors from purchasing options, puts or calls or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +Director Compensation +The table below summarizes the +compensation paid to the Non-Employee Directors for fiscal year 2012. +2012 DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in Cash +(1) +($) +Stock +Awards +(2) +($) +Total ($) +Joseph E. Casabona (3) +109,395 +102,317 +211,712 +Anthony J. Crisafio (3)(4) +106,975 +102,317 +209,292 +Larry F. Mazza (4) +82,350 +102,317 +184,667 +David C. Parke (4) +82,350 +102,317 +184,667 +Jeffrey C. Swoveland (4)(5) +189,150 +102,317 +291,467 +Kimberly Luff Wakim +96,000 +102,317 +198,317 +(1) +Includes annual Board retainer, regular committee and committee chair retainers, audit sub-committee retainers, cash compensation paid for +participation on the Special Committee and retainers for the Non-Executive Chairman of the Board. No per-meeting fees are paid. +(2) +As compensation for services rendered from July 1, 2012 through June 30, 2013, Non-Employee Directors were awarded $125,000 in the form of +restricted stock based on the average of the 15-day closing prices ending ten days prior to the grant date. Based on a price of $27.98 as of June 7, 2012, the Company awarded 4,468 shares of restricted stock to each Non-Employee Director. The +amount reported in this table reflects the grant date fair value as computed in accordance with FASB ASC Topic 718. +(3) +Mr. Casabona’s compensation for 2012 includes $20,000 and Mr. Crisafio’s compensation for 2012 includes $17,500 for their +service on the Audit sub-committee. +(4) +Messrs. Crisafio, Mazza and Parke each received $1,350 and Mr. Swoveland received $1,650 in 2012 for their attendance at Special Committee +meetings held in 2011. +(5) +Mr. Swoveland received $100,000 for his service in 2012 as Non-Executive Chairman of the Board. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that prescribe the process the N&G Committee will use to +recommend nominees for election to the Board. The Director Nomination Procedures are posted on the Company’s website. The N&G Committee evaluates each candidate based on the candidate’s level and diversity of experience and knowledge +(specifically within the industry and relevant industries in which the Company operates, as well as his or her overall experience and knowledge), skills, education, reputation, integrity, professional stature and other factors that may be relevant +depending on the particular candidate. +Additional factors considered by the N&G Committee include the +size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. Accordingly, one or more of these factors may be given more weight in a particular case at a +particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +The N&G Committee identifies Director candidates primarily through recommendations made by the Non-Employee +Directors. These recommendations are developed based on the Non-Employee Directors’ knowledge and experience in a variety of fields and on research conducted by PDC staff at the N&G Committee’s direction. The N&G Committee also +considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the guidelines. The N&G +Committee has the authority to engage consultants to help identify or evaluate potential Director Nominees, but did not do so in 2012. +29 +Table of Contents +Diversity Consideration +In addition to qualities of intellect, integrity and judgment, the N&G Committee takes into consideration diversity of +background, senior management experience, education, and an understanding of some combination of oil and gas marketing, finance, technology, government regulation, and public policy. The N&G Committee makes its determination in the context of an +assessment of the perceived needs of the Board at that point in time. The N&G Committee evaluates all Director nominees, including nominees recommended by stockholders, using these criteria. The Director nomination process specifically includes +disclosure of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +Stockholder +Recommendations +The N&G Committee will consider Director candidates recommended by stockholders of the +Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the Company’s headquarters or by +sending the information via email to board@pdce.com . All recommendations will be reviewed by the N&G Committee. A submission recommending a candidate should include: +• +Sufficient biographical information to allow the N&G Committee to evaluate the potential candidate in light of the Director Nomination +Procedures; +• +An indication as to whether the proposed candidate will meet the requirements for independence under NASDAQ guidelines; +• +Information concerning any relationships between the candidate and the stockholder recommending the candidate; and +• +An indication of the willingness of the proposed candidate to serve if nominated and elected. +Stockholder Nominations +Stockholders who wish to may nominate candidates for election to the Board. The Company’s By-Laws require that stockholders who wish to submit nominations of persons for election to the Board at the +Annual Meeting of Stockholders follow certain procedures. The stockholder must give written notice to the Corporate Secretary at PDC Energy, Inc., 1775 Sherman Street, Suite 3000, Denver, Colorado 80203 or may email notice to board@pdce.com +not later than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s Annual Meeting. If the date of the Annual Meeting is more than 30 days before or more than 60 days after that anniversary date, however, for +notice by such stockholder to be timely, it must be received not later than 80 days before the Annual Meeting, or within 10 days following the Company’s public announcement of the date of its Annual Meeting. The stockholder must be a +stockholder of record at the time the notice is given. The written notice must set forth (1) as to each nominee, all information relating to that person that is required to be disclosed in solicitations of proxies for election of Directors in +an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the Proxy Statement as a nominee and to serving as a Director if elected); +(2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made (a) the name and address of the stockholder, as they appear on the Company’s books, and of such beneficial owner, and +(b) the class and number of shares of the Company’s securities that are beneficially owned by such stockholder and the beneficial owner; and (3) any material interest of such stockholder and such beneficial owner in such nomination. +THE BOARD’S ROLE IN RISK MANAGEMENT +The Board seeks to understand and oversee critical business risks. Risks are considered in every business decision, +including through Board oversight of the Company’s internal risk management system. For instance, a +30 +Table of Contents +special assessment of risks (financial and otherwise) is included in every acquisition proposal to the Board. The Board realizes, however, that it is not possible or desirable to eliminate all +risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The +Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key strategic goals. The Audit Committee is the primary committee overseeing risk and specifically reviews risks and +related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements, such as counterparty risks and derivative program risks. Similarly, the Compensation Committee considers risks +related to the structure and size of the Company’s compensation plans, as set out below. +We believe our +Board leadership structure supports the risk oversight function. In addition to having an independent Non-Executive Chairman of the Board, an independent Director chairs each of our Board committees involved with risk oversight. There is open and +continuous communication between management and our Directors. +Compensation Risk Assessment +We do not believe the Company’s executive and non-executive compensation structure is reasonably likely to have a +material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: +• +A balance of short-term and long-term programs to ensure focus on both elements of Company performance; +• +Caps on awards payable to any individual under our bonus and performance share programs along with Committee discretion to decrease bonus payouts in +the event it believes excessive risk was taken; +• +Certain bonus awards are subject to reduction or forfeiture following a re-evaluation of performance in prior years; +• +“Clawback” provisions are included in all Named Executive Officers’ (as defined below) employment agreements; +• +Significant stock ownership requirements for Named Executive Officers and Non-Employee Directors; +• +A robust trading policy that prohibits executive officers from selling Company shares without first obtaining permission from the Company’s +General Counsel, even during open trading windows under our Insider Trading Policy; and +• +A hedging policy that does not permit the Company to effect transactions in oil and gas derivatives on a speculative basis. +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +Stockholders wishing to communicate with the Board or a committee of the Board may do so by writing to the attention of +the Board or committee at the Company’s corporate headquarters or by emailing the Board at board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, +officers, employees, agents, consultants and representatives of the Company, which is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer +are subject to additional specific provisions under the Code of Conduct. The +31 +Table of Contents +Company’s Code of Conduct is posted on its website at www.pdce.com . In the event the Board approves an amendment to or a waiver of any provisions of the Code of Conduct, the Company +will disclose the information on its website. During 2012, the Board approved waivers regarding any potential conflict related to (1) the service of Mr. Swoveland on the Board of Directors of Linn Energy, LLC; and (2) the +Company’s dealings with KeyBanc Capital Markets, KeyBank N.A., or any of its affiliate banks (collectively, “KeyBank”), including, but not limited to, its participation in the Company’s revolving bank loan group, to the extent +that a conflict of interest exists as a result of the employment of Mr. Trimble’s spouse, a senior investment banker at KeyBank. These waivers are found on the Company’s website at www.pdce.com . If the Board becomes aware of a +potential conflict in the future, it will consider at that time whether or not to continue these waivers. +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From January 1, 2012 to the present, there was no transaction or series of transactions, nor is there any currently +proposed transaction, in which the amount involved exceeds $120,000, in which the Company is participant and in which any Director, executive officer, known holder of more than five percent of the Company’s common stock or any member of the +immediate family of any of the foregoing persons had or will have a direct or indirect material interest for which disclosure is required under SEC Rule S-K 404. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related party transaction policy +applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the +foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial interest. +Under our related party transaction policy, a related person transaction is a transaction or arrangement involving a +related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit +Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction to the Company and the +business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis, and the impact of the transaction on the Company’s business and +operations. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of +the Company’s SEC filings are available to the public at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . These documents may also be viewed at the SEC’s public reference room located at +100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. +NAMED EXECUTIVE OFFICERS +The +current Named Executive Officers of the Company, their principal occupations for the past five years and additional information is set forth below. +James M. Trimble , 64. See “Nominees for Term Expiring in 2016—Class III” on page 7 for Mr. Trimble’s information. +32 +Table of Contents +Gysle R. Shellum , 61, was appointed Chief Financial Officer in 2008. +Prior to joining the Company, Mr. Shellum served from September 2004 through September 2008 as Vice President, Finance and Special Projects of Crosstex Energy, L.P. in Dallas, Texas. Crosstex Energy, L.P. is a publicly traded Delaware limited +partnership whose securities are listed on the NASDAQ Global Select Market and is an independent midstream energy company engaged in the gathering, transmission, treating, processing and marketing of natural gas and natural gas liquids. +Mr. Shellum holds a B.B.A. in Accounting from the University of Texas, Arlington. +Barton R. Brookman, +Jr. , 50, Senior Vice President—Exploration and Production, joined PDC in July 2005. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and +technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. Mr. Brookman holds a B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of +Colorado. +Lance A. Lauck , 50, Senior Vice President—Corporate Development since January 1, +2012, joined PDC in August 2009 as Senior Vice President—Business Development. Mr. Lauck has overall responsibility for PDC’s business development, strategic planning, corporate reserves, and midstream and marketing. Previously, he +served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir +and acquisition engineering positions before assuming various management-level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as +a production engineer for Tenneco Oil Company. Mr. Lauck holds a B.S. in Petroleum Engineering from the University of Missouri-Rolla. +Daniel W. Amidon , 52, Senior Vice President—General Counsel and Secretary, was appointed General Counsel and Secretary in July 2007 and Senior Vice President in 2012. Prior to joining PDC, +Mr. Amidon was employed by Wheeling-Pittsburgh Steel Corporation beginning in July 2004, where he served in several positions including General Counsel and Secretary. Prior to his employment with Wheeling-Pittsburgh Steel, Mr. Amidon was +employed by J&L Specialty Steel Inc. from 1992 through July 2004 in positions of increasing responsibility, including General Counsel and Secretary. Mr. Amidon practiced with the Pittsburgh law firm of Buchanan Ingersoll PC from 1986 +through 1992. Mr. Amidon graduated from University of Virginia, with honors, majoring in economics. He received his J.D. from the Dickinson School of Law (currently named Penn State Law). +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation +Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +Kimberly Luff Wakim, Chair +Anthony J. Crisafio +Larry F. Mazza +David C. Parke +Jeffrey C. Swoveland +COMPENSATION COMMITTEE +OF THE BOARD OF DIRECTORS +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary and +2012 Highlights +At PDC, we believe that our executive compensation program is designed to reward +executives when the Company achieves its financial and operational objectives. Our program: +• +Aligns the interests of our executives with the interests of our stockholders; +33 +Table of Contents +• +Directly supports the Company’s strategic plan by focusing performance on specific financial and operational metrics; +• +Is market-competitive and premised upon informed industry benchmarking; and +• +Results in executive compensation that is focused on the Company’s actual performance, thereby rewarding performance with compensation, with a +significant portion of target compensation delivered through equity or performance-based annual bonus. +We believe that in 2012 we exceeded our performance expectations for the year, delivering key financial and operational results to our stockholders and positioning the Company for the future, having: +• +Achieved a reserve replacement of 513%, giving the Company a three-year average of 512%, enhancing the Company’s percentage of liquids compared +to natural gas reserves: +• +Increased proved reserves by 14% to 1.2 TCFe; +• +Increased proved, probable and possible (3P) reserves to 3.6 TCFe, a 70% increase; and +• +Increased crude oil and liquids to 48% of proved reserves. +• +Executed our horizontal drilling program with a 100% success rate: +• +Expanded the Wattenberg Niobrara with pad drilling and advanced the de-risking of the horizontal Codell formation potential; and +• +Drilled two successful horizontal Utica wells. +• +Conducted a successful acquisitions and divestiture program to strategically focus the Company’s assets for the future: +• +Divested our Permian assets for approximately $200 million to finance future operations; +• +Acquired additional Wattenberg liquid-rich assets for approximately $300 million; and +• +Acquired additional acreage in the Utica formation to extend the Company’s holdings to approximately 45,000 net acres. +• +Successfully executed several transactions to finance the Company’s long-term strategy: +• +Completed an equity offering in May of 6.5 million shares with proceeds to the Company of $164 million; +• +Completed a $500 million high-yield debt offering in October at an interest rate of 7 3/4%, enabling us to retire $200 million of outstanding 12% +notes; and +• +Expanded the Company’s revolving credit facility to $525 million (subsequent modest reduction due to a bond issuance); +• +Exceeded the Company’s targets for reserve replacement and capital efficiency; and +• +Ranked second in 2012 stock price performance among our sixteen peers. +Our key compensation changes for 2012 included: +• +Elimination of the acquisitions bonus for Mr. Lauck to recognize his expanded corporate development role, and adjusted his compensation +accordingly. +• +Adjustment of target compensation to the market median placing more emphasis on variable and equity compensation, including: +• +Moderate increases to base salaries and annual incentive target bonuses; and +• +Awards of annual equity grants to approximate the median of the market in total target compensation. +• +Implementation of a new Executive Severance and Change in Control Plan for the CEO (whose employment agreement expires in 2013) and any future +senior executives hired by the Company, eliminating the need for future individual employment agreements, as had been the Company’s practice historically. +34 +Table of Contents +General Compensation Philosophy/Objectives +Compensation Objectives +The objectives of our compensation programs are to attract, motivate and retain highly-talented executives who can lead the Company in efficiently and profitably exploring for and producing natural gas +and oil in a safe and environmentally conscious way. The Compensation Committee (for purposes of this section, the “Committee”) is committed to establishing a compensation package that generally establishes target total compensation at the +median level for similar positions at comparable companies, but provides increased pay as a reward for above-target performance and below-median pay for performance that does not meet the target. Our programs are structured to require a commitment +to performance because total compensation at the market median is not guaranteed. +Compensation is Related to +Performance and is Aligned with the Company’s Strategic Plan +The total compensation packages +for our Named Executive Officers are generally weighted in favor of at-risk compensation through both annual and long-term performance-based incentive pay. The Committee aligns its executive compensation decisions with the Company’s strategic +plan and the financial and operational goals it believes are necessary to drive performance. As a result, each of our incentive programs links all or a portion of its payout to the Company’s performance and, or to individual-specific +performance measures. The charts below reflect the targeted fixed and at-risk components, as contemplated by the Committee for 2012, for the Named Executive Officers as a percentage of target total direct compensation. +The following charts are not a substitute for the “Summary Compensation Table” included in this Proxy +Statement, which includes amounts supplemental to total direct compensation and calculates certain components of total direct compensation differently from that shown below. +These charts demonstrate that, for 2012, the Committee established a target of 84% of +total direct compensation for Mr. Trimble as variable and 68% in the form of equity-based compensation, with the other Named Executive Officers having approximately 75% of their compensation as variable and 57% of their compensation in the form +of equity-based compensation. This excludes the value of any residual acquisitions bonus for Mr. Lauck. +Total +Compensation Should Be Competitive and Encourage Retention of Executives +We have structured our +total compensation package to be comparable with the peer group, as described below, but we do not generally offer above-market pay except when performance targets have been exceeded. The Committee benchmarks each element of total direct +compensation (which includes base salary, annual and long-term incentives) and the mix of compensation (cash versus equity) as compared with the peer group. We generally +35 +Table of Contents +target base salary and total compensation at the median of the peer group for median performance in order to remain competitive for executive talent and to retain our current executive +leadership. In addition, to encourage retention, long-term incentives are generally forfeited in the event an executive voluntarily terminates employment. +Incentive Compensation Balances Short-Term and Long-Term Performance +Our compensation programs are designed to maintain a balance between rewarding the achievement of short-term or annual results and ensuring the Company’s long-term growth and success. To this end, a +mix of annual and long-term incentives is allocated in a manner generally consistent with the peer group of companies. The Committee also considers what it believes to be the appropriate balance of risk in each program. Participation in both the +annual and long-term incentive programs increases at higher levels of responsibility, as executives in these leadership roles have the greatest influence on the Company’s strategic direction and results over time. +Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Performance +Each fall, the Committee reviews the composition of a peer group of companies in establishing +target compensation for each executive for the coming year. In its review, the Committee considers with respect to each potential peer company its size, scope and nature of business operations, ownership structure, prior financial performance and +current financial scope, including market capitalization, enterprise value, revenue, EBITDA, capital expenditures and assets. In comparing the size of potential peers to PDC, the Committee uses only PDC’s oil and gas sales, and excludes any +other revenues/income. The Committee then assesses whether changes to the peer group are warranted based on changes in size and/or operations of PDC and/or the peer company, and other factors that may render a peer company no longer comparable. The +2012 column in the chart below shows the peer group that was selected in September of the prior year that was used in the Committee’s analysis to determine 2012 compensation and the changes to that peer group from the previous year. +COMPANY +2011 +2012 +ATP Oil & Gas Corporation +x +Berry Petroleum Company (1) +x +x +Bill Barrett Corporation +x +x +Brigham Exploration Company (2) +x +Cabot Oil & Gas Corporation +x +Carrizo Oil & Gas, Inc. +x +x +Comstock Resources, Inc. +x +x +Concho Resources Inc. +x +EXCO Resources, Inc. +x +Forest Oil Corporation +x +Goodrich Petroleum Corporation +x +x +Penn Virginia Corporation +x +PetroQuest Energy, Inc. +x +x +Quicksilver Resources Inc. +x +Resolute Energy Corporation +x +Rosetta Resources Inc. +x +x +SM Energy Company +x +Stone Energy Corporation +x +x +Swift Energy Company +x +x +Venoco, Inc. (2) +x +x +(1) +Berry Petroleum Company is being acquired by Linn Energy, LLC. +(2) +Brigham Exploration Company was purchased at the end of 2011 and Venoco, Inc. became privately owned in 2012. +36 +Table of Contents +The Committee also uses several proprietary benchmarking surveys from a +broader sample of comparably-sized oil and gas companies for additional market perspective including Effective Compensation, Incorporated’s Oil and Gas Exploration and Production Industry Survey (ECI) and survey data compiled by the Consultant. +The Committee uses both the peer and survey benchmarking data to establish a dollar level for target total direct compensation for each executive at approximately the market median. +Compensation Should Be Tax-Deductible to the Extent Practicable +The Committee considers the impact of the applicable tax laws with respect to compensation paid under the Company’s +plans, arrangements and agreements. Section 162(m) of the Code disallows, with certain exceptions, a federal income tax deduction for annual compensation over $1 million paid to any covered employee. The covered employees are the principal +executive officer, the principal accounting officer, and the three other most highly-compensated named executive officers. An exception to the deduction limit is provided under Code Section 162(m) for performance-based compensation paid +pursuant to stockholder-approved plans that meet certain criteria. +Elements of our executive compensation +program are designed to be performance-based, such as stock options, stock appreciation rights (“SARs”) and performance-based equity awards issued under the Company’s 2004 and 2010 Long-Term Incentive (“LTI”) Plans. Other +aspects of our executive compensation program do not qualify as performance-based, such as time-based restricted stock and the Company’s annual incentive bonus program. It is our intent to preserve our income tax deductions by qualifying +certain compensation paid to our top executives as performance-based compensation under Code Section 162(m) where practicable under our compensation policies. The Committee nonetheless may approve compensation that may not qualify for the +compensation deduction if, in light of all applicable circumstances, the Committee believes that it would be in our best interests to exercise our discretion to pay such compensation. For example, in the case of the annual incentive bonus program, +the Committee prefers to maintain the ability to exercise discretion in evaluating Company and participant performance. The Committee will continue to monitor the impact of Code Section 162(m) on the Company’s executive compensation +programs. +Section 409A of the Code provides that all amounts deferred under a nonqualified deferred +compensation plan are currently included in gross income and are subject to an additional 20% income tax, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. +We have designed or amended our plans and programs with the intent that they either be exempt from or comply with Code Section 409A. +Executives and Directors Are Required to Own Stock +Consistent with the goal of driving long-term value creation for our stockholders, and in order to discourage undue risk-taking, the Company’s stock ownership guidelines require significant stock +ownership by the Named Executive Officers and Directors. Each Named Executive Officer is expected to achieve compliance with the ownership guidelines within five years of his or her appointment as a Named Executive Officer but is not required to +purchase stock to meet these guidelines. The net shares acquired through incentive compensation plans (through the exercise of stock options, SARs, or the vesting of restricted stock or performance shares) must be retained if the Named Executive +Officer has not satisfied his or her targeted ownership. An executive’s failure to meet the stock ownership guidelines may influence an executive’s future mix of cash and non-cash compensation awarded by the Committee. Executives are not +permitted to pledge their shares or invest in derivatives involving Company stock. Ownership is reviewed at least annually when compensation decisions are made. +37 +Table of Contents +As of December 31, 2012, all of the Named Executive Officers met the +stock ownership requirements as set forth below. +STOCK OWNERSHIP REQUIREMENT +Name/Year of Executive Status +Stock +Ownership +Guidelines +Number of +Shares +Required +To Own* +Number of +Qualifying +Shares +Owned* +James M. Trimble (2011) +5x Base Salary +96,726 +109,945 +Gysle R. Shellum (2008) +3x Base Salary +29,018 +42,192 +Barton R. Brookman (2008) +3x Base Salary +29,018 +70,090 +Lance A. Lauck (2009) +3x Base Salary +26,786 +54,520 +Daniel W. Amidon (2007) +3x Base Salary +25,446 +39,479 +* +Using December 2012 average closing stock price of $33.60. +Qualifying shareholdings include stock owned directly, shares held in the Company’s 401(k) and Profit Sharing Plan, +and unvested time-based restricted stock as of December 31, 2012. Not included are stock options, SARs and performance-based awards. For a description of the stock ownership requirements applicable to our Non-Employee Directors, please see +“Director Compensation, Company Stock Ownership Requirements.” +Compensation Process — Making Executive Compensation +Decisions +Determining Target Total Direct Compensation +The Committee determines target total direct compensation for Named Executive Officers by establishing base salaries and +setting long-term and annual incentive compensation targets. When appropriate, the Committee also approves special awards and modifies perquisites. The Committee typically establishes target total direct compensation in the first quarter of each +year. When determining target total direct compensation, the Committee considers the following: +• +Market median for the target total direct compensation (base salaries, bonus targets and long-term incentives) for the peer group, based on +disclosure in peer proxies and other applicable survey data; +• +Individual performance and areas of responsibility relative to the market data; +• +Compensation of other executive officers in the Company; and +• +The CEO’s recommendations with respect to the compensation of the executives who report directly to him, including each of the Named Executive +Officers. +The Committee’s view is that an executive’s target compensation should +reflect the current market value of his or her services. For a Named Executive Officer who has performed well in the prior year, the predominant factor in determining target total direct compensation for the current year is the market median for the +target total direct compensation for that position. In considering the mix of cash and long-term incentives, the Committee may adjust the amount and type of each component to generally target total direct compensation at the market median. When +recruiting a new executive, the Company may be required to pay above market median to attract an individual. Over time, performance will determine actual pay and target pay will be adjusted toward the median. +Annual and Long-Term Incentive Programs +The Committee annually approves grant design, including performance metrics and target payout, for annual and long-term +incentive programs. These deliberations, which usually begin with recommendations from management and involve discussions among the Committee, management and the Consultant, usually span numerous meetings before a design is approved. With respect to +equity programs, the Committee also considers +38 +Table of Contents +the accounting effect of the awards to the Company, dilution and burn rates. For performance-based equity awards, at the end of the performance period, the Committee certifies the level at which +the performance measures were satisfied and approves the amount of incentive award payable to each Named Executive Officer. +Historical Compensation Review +Each year the Committee is provided various summaries for each Named Executive Officer of his or her compensation history, +as well as all compensation payable upon his or her termination of employment and upon a change in control of the Company. These summaries, some of which are included in this Proxy Statement, include the following: +• +Three-year or longer history of base salary, annual incentive targets and awards, long-term incentive grants and payouts and perquisites; +• +Realized gains for the current year and potential gains on unexercised or unvested awards; and +• +The value of compensation and other severance benefits due to each Named Executive Officer under various termination scenarios, both before and +after a change in control of the Company. +In addition to reviewing PDC’s historical +compensation and comparing current compensation to the peers, the Committee reviews both realizable and earned pay over the past three years relative to the Company’s peers to help determine whether the Company’s compensation plan is +paying for performance as designed. The Committee looks at pay-for-performance using the performance measures used by ISS and Glass Lewis (although they use different peer groups) as well as a group of company-level performance measures relevant to +the oil and gas industry. Those measures include production growth, revenue growth, operating cash flow growth, EBITDA/interest expense and total stockholder return. The Committee considers the results of this analysis in making adjustments to the +compensation program each year. +Role of the Compensation Consultant +The Committee has the sole power to hire, terminate and approve fees for advisors, consultants and agents as it deems +necessary to assist in the fulfillment of its responsibilities. The Consultant has been engaged directly by the Committee for approximately seven years. The Consultant provides the Committee with market data and observations regarding executive +officer compensation programs and practices, including specifically: +• +Peer group identification and assessment; +• +Compensation benchmarking; +• +Advice and market insight as to the design, payout alternatives and performance measures for annual and long-term incentives; +• +Advice and market insight on other aspects of compensation (e.g., employment agreements, perquisites, etc.); and +• +Marketplace compensation trends in the Company’s industry and generally. +The Consultant does not make recommendations on or approve the amount of compensation of any Named Executive Officer. The +Committee may request information or advice directly from the Consultant and may direct the Company to provide or solicit information from the Consultant. The Consultant regularly interacts with representatives of the Company and periodically with +the CEO. The Consultant attends meetings of the Committee when requested. The Committee reviews the engagement of its independent compensation consultant on an annual basis and as a part of that process reviews a summary of all services provided by +the Consultant and related costs, including the amount of fees paid as a percentage of the Consultant’s total revenue. In 2012, the Consultant did not perform any other material services for the Company, did not have any business or personal +relationships with the Committee members or executive officers of the Company, did not own any stock of the Company, and maintained policies and procedures designed to avoid conflicts of interest. +39 +Table of Contents +Role of Management in Determining Executive Compensation +Our CEO plays a significant role in the Committee’s establishment of compensation levels for our other Named +Executive Officers. Significant aspects of his role in the process are: +• +Assessing his own performance and evaluation of the performance of the other Named Executive Officers; +• +Recommending quantitative and qualitative performance measures under our annual incentive program; +• +Providing feedback on proposed peer group companies; +• +Recommending base salary levels, annual incentive targets, actual annual incentive awards and long-term incentive awards for the other Named +Executive Officers; and +• +Providing his assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual +incentive program. +Management also retains an individual as a consultant in our +compensation process to coordinate the preparation of certain materials for Committee meetings. This individual is retained by and reports to management, while the Consultant reports directly to the Committee. +At the Committee’s request, our Named Executive Officers may also assess the design of or make recommendations +related to our compensation and benefit programs. The Committee, with input from the Consultant, determines each element of compensation for the CEO. With input from the Consultant and the CEO, the Committee determines each element of compensation +for the other Named Executive Officers. The CEO is not present during voting or deliberations concerning his own compensation. +Consideration of Say-on-Pay Vote +The Committee considers the results of the non-binding “say-on-pay” vote of our stockholders concerning the +compensation of our Named Executive Officers. At our 2012 Annual Meeting, an overwhelming majority (89%) of the votes cast approved the compensation of our Named Executive Officers. Accordingly, the Committee concluded that our executive +compensation programs generally meet the expectations of our stockholders, and we did not make any material changes to our executive compensation programs in 2012 in response to the “say-on-pay” results. +40 +Table of Contents +Components of the Company’s Compensation Program +Our Named Executive Officers’ 2012 compensation consisted principally of the following components, in addition to +plans and programs in which all of our full-time employees participate, such as health and welfare benefit plans: +COMPONENTS OF COMPENSATION +ELEMENT +KEY FEATURES +PURPOSE +BASE SALARY +• Base salaries are targeted at the median of the market. +• Adjustments are made on an +annual basis based on an individual’s performance, pay relative to the market, changes in responsibility, and internal equity. +• To provide a minimum, fixed level of cash compensation upon which our executives can rely. +INCENTIVE COMPENSATION +Cash Incentive +• Annual cash incentive payments are based on attainment of Company and individual +performance goals. +• Company performance goals are based on measurable financial and operational metrics. +• Individual performance goals are +linked to key business priorities and may include both financial and non-financial goals. +• The Committee maintains discretion to adjust awards as appropriate. +• Mr. Lauck also received a +residual payout in 2012 relating to the special acquisition bonus program based on acquisitions made in 2011. +• To motivate and reward executives to produce strong financial and operational +results. +• To provide a +competitive reward opportunity that attracts, retains and motivates our executives. +• This program was eliminated for 2012 as Mr. Lauck’s role in the Company +expanded. +Equity Awards +• Long-term incentive values are delivered through multiple vehicles — +restricted stock, SARs and performance shares. +• Long-term incentives, when added to total cash compensation, are targeted at the median of the market with the possibility to earn more or less than the median based on Company +performance. +• To retain executives and align their long-term interests with those of +stockholders. +• To +provide a mix of equity awards that focuses executives on the long-term growth of our stock price but does not encourage excessive risk-taking. +• Restricted stock is an important retention tool and ties executives to stockholders as the value of +restricted stock is always equal to the current value of the stock. +• SARs reward executives through increases in stock price and are believed to focus executives on taking reasonable actions to increase stock price over the long-term. +• Performance share awards promote +both the long-term growth of our stock price and stock performance that exceeds our peers. +41 +Table of Contents +COMPONENTS OF COMPENSATION +ELEMENT +KEY FEATURES +PURPOSE +OTHER COMPENSATION +Retirement Plans +• Executives participate in our broad-based 401(k) and profit sharing plan under +which all employees are eligible to make contributions in a tax-deferred vehicle and receive Company contributions. +• The Company matches dollar-for-dollar up to 10% of the employee’s compensation, then matches 20% +of the employee’s contributions over the 10% amount up to the IRS maximum limits. +• The Company does not provide any supplemental retirement benefit to any current +executives. +• To provide a level of retirement income for all employees, including executive officers, and allow employees to build +financial security for their retirement. +Health and Welfare Benefits +• Executives participate in our broad-based health and welfare benefit programs on +the same terms and conditions (including contribution rates) as other employees. +• Executives are provided up to thirteen weeks of short-term disability at full pay. Under the terms of his employment agreement, Mr. Amidon is entitled to annual premium payments for long-term +disability insurance and life insurance up to $1 million. +• Mr. Amidon has never sought reimbursement for additional life insurance or disability benefits. He was provided these +benefits at the time of his initial employment because the Committee did not believe that the Company’s benefit programs were adequate to cover these events at the time. Company benefit plan coverage has improved since that +time. +Perquisites +• The Company provides modest perquisites to executives which include car allowance for business and personal use, +and club dues. +• To provide personal benefits that are modest yet competitive with the perquisites provided to similarly situated +executives. +Severance +• Executives are contractually entitled to cash severance payments upon certain termination events and a change in +control of the Company. A description of these benefits is included in this Proxy Statement. +• To attract and retain executives in a volatile and consolidating industry by providing transitional income +following loss of employment and to ensure executives act in the best interest of stockholders during a change in control. +2012 Compensation Decisions +Base Salary +After reviewing the market data +provided by the Consultant, outside survey data and considering the other factors discussed above, we adjusted base salaries for 2012 on average 3.6% (excluding Mr. Lauck). Mr. Lauck’s base salary was increased 13% because of his +expanded role in the Company and for relinquishing his contractual right to the special acquisitions bonus described below. Base salary increases for each Named Executive Officer are detailed in the “Summary Compensation Table.” +42 +Table of Contents +Annual Cash Incentives +Each year, we approve a target annual cash incentive award for each Named Executive Officer. These target awards are +expressed as a percentage of base salary and generally produce, when combined with long-term incentives, total target compensation near the median of the peer group. Actual awards can range up to 200% of these targets based on the achievement of +Company and individual goals. For 2012, we approved target annual cash incentive awards as follows: +NAMED EXECUTIVE OFFICER +TARGET ANNUAL CASH +INCENTIVE AS % OF BASE +SALARY +James M. Trimble +100 +% +Gysle R. Shellum +75 +% +Barton R. Brookman +75 +% +Lance A. Lauck* +75 +% +Daniel W. Amidon +70 +% +* +In addition, Mr. Lauck was eligible for a residual bonus related to acquisitions in 2011. This bonus was eliminated for 2012 (see below). +2012 Performance Metrics +In 2012, we established targets for the corporate performance metrics based on our 2012 public financial guidance, and the +CEO established individual goals for each of our Named Executive Officers that align with the Company’s strategy. To provide the Committee the flexibility to adjust for and react to economic events such as dramatic changes in commodity prices +or volatile capital markets, we prefer not to rely solely on a formulaic approach based on pre-established thresholds that result in automatic payouts. The Committee always retains discretion to adjust actual awards as it views appropriate given +circumstances at the time of award. We used the following five quantitative financial and operational metrics in 2012 to measure corporate performance. +FINANCIAL METRICS (50%)* +Adjusted Cash Flow per Share +Net income plus/minus change in operating assets and liabilities per share. +Capital Efficiency (3-year) +Adjusted EBITDAX divided by production, divided by three years’ average finding and development cost per unit. +OPERATIONAL METRICS (50%)* +Production, Exploration and G&A Expense per Mcfe +The sum of total production, exploration, general and administrative expense and corporate general and administrative expense (G&A) divided by Mcfe (mcf +equivalent for gas and oil). +Reserve Replacement Ratio (3-year average) +The sum of 2010, 2011 and 2012 extensions and discoveries, revisions in previous estimates and purchase of reserves, divided by the sum of 2010, 2011 and 2012 +production. +Production (Bcfe) +Actual production volume for the year. +* +A reconciliation of the items above to the most closely related amounts calculated in accordance with Generally Accepted Accounting Principles +(“GAAP”) can be found in our quarterly investor relations material posted on our website at http://investor.pdce.com/presentations.cfm . +Throughout the year, the Committee reviews the Company’s progress toward meeting the bonus goals for the year. +Following the end of the fiscal year, the Committee determines annual incentive payments as follows: +• +An overall corporate performance rating is determined for the annual quantitative financial and operational metrics; 50% is based on financial +metrics and 50% is based on operational metrics; +43 +Table of Contents +• +The Committee may apply other subjective considerations in the final determination of the corporate performance rating (e.g., business conditions, +stock price performance, etc.); and +• +Individual awards are determined by multiplying the overall corporate performance rating by the individual’s annual incentive target and +multiplying the result by the individual’s base salary. Individual awards may be adjusted downward or upward at the Committee’s discretion based on individual performance. Such adjustments are anticipated to have a maximum range of +/-20%. +2012 Actual Results +Upon completion of the fiscal year, the Committee reviewed the Company’s performance based on the quantitative +financial and operational measures described above. Results for 2012 were determined by the Committee as follows: +CORPORATE PERFORMANCE METRIC +TARGET +ACTUAL +RESULTS +ADJUSTED +RESULTS +PERFORMANCE +Financial Metrics (50%) +Adjusted Cash Flow per Share +$ +7.86 +$ +5.92 +$ +7.75 +* +Near Target +Capital Efficiency (3-year) +124% +211% +217% +Above Target +Operational Metrics (50%) +Production, Exploration and G&A Expense per Mcfe +$ +2.65 +$ +2.82 +$ +2.69 +Near Target +Reserve Replacement Ratio (3-year average) +226% +512% +500% +Above Target +Production (Bcfe) +53.0 +49.6 +52.3 +Near Target +* +Adjusted using the number of shares outstanding prior to the May equity offering. +In evaluating the results, the Committee reviewed both the Actual Results and results adjusted for the following (the +“Adjusted Results”): +• +Sale of the Permian production; +• +The effects of reducing capital for the Marcellus; +• +Timing of certain permitting issues with the EPA; +• +The costs associated with the Utica joint venture; +• +An extended pipeline curtailment issue affecting production; +• +The equity offering in May of three million shares; and +• +The effect on G&A expenses of third-party expenses associated with the acquisition of additional properties in the Wattenberg Field. +The Committee believed the adjustments to the five metrics for the factors noted above were +appropriate because they were either: +• +The result of actions beyond the control of management, such as third-party midstream issues, and, to a lesser extent, governmental permit delays; +or +• +Caused by the impressive success of the Wattenberg Field horizontal drilling program by the Company as well as some of its peers, which resulted in +a significant long-term value increase for the Company’s stockholders but caused short-term midstream difficulties in 2012 which negatively impacted several of the five metrics. +In determining performance, the Committee considered the following: +• +Adjusted Cash Flow per Share: Actual results were below target but when adjusted to remove the impact of the above items, especially the equity +offering in May, the results were close to target. Lower production and lower oil prices contributed to these results, offset somewhat by higher than expected realized natural gas prices (most of the Company’s natural gas was hedged); +44 +Table of Contents +• +Capital Efficiency (3-year): The Company’s three-year average was above target. These results are very good considering industry-wide increases +in completion costs; +• +Production, Exploration and G&A Expense per Mcfe: Operating costs were down for the year. Although the Company did not meet target for the year, +when adjusted for the impact of the above items, results were close to target; +• +Reserve Replacement Ratio (3-year average): Results on a three-year basis were significantly above target. The Company executed its drilling program +with a 100% success rate and significantly increased reserves due to the drilling and operations success in both the Wattenberg and Marcellus programs. These results were even more significant considering the Company wrote off almost all of its +non-producing gas reserves in the Piceance, NECO and Devonian fields as a result of low natural gas prices in 2012; and +• +Production (Bcfe): Actual Results were below target due to a combination of curtailments in the Wattenberg Field by our third-party gatherer and a +delay in the EPA permitting process affecting one of our pipelines. Adjusting for these two items, production would have been only slightly below target. +When the Committee considered the Adjusted Results, the Company generally was near or exceeded targets. In addition, the +Committee took into account the following: +• +The Company successfully conducted its acquisitions and divestiture program to strategically focus the Company for the future with the sale of the +Permian assets, the acquisition of the additional Wattenberg assets and the acquisition of the additional acreage in the Utica formation to extend our holdings, especially in light of the two successful horizontal wells in that formation; +• +The Company executed several transactions to finance its long-term strategy by completing an equity offering, a high-yield offering which resulted +in the Company calling in $200 million in high-interest notes, and expanding the Company’s liquidity under its revolving credit agreement to $525 million (subsequently reduced modestly due to a bond issuance); +• +The Company had a successful environmental and safety record for the year; and +• +The Company ranked second amongst its peers in total stockholder return in 2012 and on a three-year basis. +When determining the 2012 management bonus percentage above 100% of target, however, the Committee ultimately did not +focus as much on such adjustments to the five metrics, but rather weighed more heavily the strategic repositioning of the Company in 2012, especially management’s vision and execution of asset restructuring as well as drilling success, which +resulted in a significantly higher percentage of high-margin oil and liquids production and reserves by year end. The resulting drilling opportunity portfolio was coupled with a re-focusing of the Company on fewer basins, concentrating on areas +where management believed the Company had a competitive advantage. Moreover, the Committee believed that the importance of these strategic changes was understood and appreciated by investors, as reflected in the Company’s excellent stock +performance for 2012. +Taking into account all of the foregoing, the Committee determined that the Company +performed well on both the financial and operational metrics and that the management team exceeded expectations with the achievement of its other accomplishments. As a result, after reviewing the 2012 results with a focus on the above-mentioned +factors, the Committee determined that an overall corporate performance rating of 125% should be applied to each Named Executive Officer’s annual incentive award target. No individual adjustments were made. Actual bonus amounts paid for 2012 +performance and reflected in the “Summary Compensation Table” are as follows: +NAMED EXECUTIVE OFFICER +2012 ANNUAL +BONUS +James M. Trimble +$ +815,000 +Gysle R. Shellum +305,000 +Barton R. Brookman +305,000 +Lance A. Lauck +282,000 +* +Daniel W. Amidon +250,000 +* +Excludes Mr. Lauck’s residual 2011 acquisitions bonus described below. +45 +Table of Contents +Residual 2011 Acquisitions Bonus to Mr. Lauck +For 2011, in addition to his annual incentive bonus, Mr. Lauck was eligible to receive a special bonus in the event +of the completion of successful acquisitions, as determined by the Committee. This program was put in place to incent value-added growth through acquisitions as part of the Company’s five-year business plan. Mr. Lauck was awarded a total +special acquisition bonus of $265,000 in 2011, payable over two years. Half of the bonus was paid in the first quarter of 2012, based upon the initial projections of the transactions. The remaining amount was paid in the first quarter of 2013 based +upon a post-transaction look-back evaluation of the transactions, updated for actual results. +In 2012, the +Committee elected to eliminate the acquisitions bonus and treat Mr. Lauck’s compensation comparably to that of the other Named Executive Officers. The Committee did this to recognize Mr. Lauck’s broader corporate responsibilities +over the past year and to de-emphasize his focus on acquisitions. His compensation package was adjusted accordingly to compensate him similarly to other Named Executive Officers. +Long-Term Incentives +The Committee uses a combination of grants of restricted stock, SARs and performance shares in its mix of long-term incentives. While the Committee considers long-term incentives as primarily +forward-looking, the Committee also considers the Named Executive Officers’ performance in the prior year in determining the size of the awards. Generally, the Committee considers competitive market data, previous equity awards, equity +ownership levels and the mix of cash and equity compensation that is necessary to place our Named Executive Officers at the median of the latest available compensation data for total direct compensation (base salary, bonus and LTI combined). The +Committee typically awards equity grants in the first quarter of the year. +Over the past several years, the +Committee has modified the mix of long-term incentives to be more competitive with our peers and to create a more performance-driven approach that better aligns the interests of our Named Executive Officers with the interests of our stockholders. In +2011, the Committee implemented a performance share award program ensuring that, when combined with the SAR grant, half of an executive’s long-term incentive award would be performance-based. For 2012, the Committee continued that program and +granted a mix of 50% time-based restricted stock, 25% SARs and 25% performance shares. The performance shares may be earned at the end of a three-year performance period upon the achievement of specific total stockholder return (“TSR”) +levels relative to a group of peers. The time-based restricted shares and SARs vest ratably over three years. +Annually, the Committee determines the target value of the long-term incentives it wants to deliver to the executive to +place total target compensation at approximately the median of the market. Once determined, the Committee typically uses an average of the closing share price of the fifteen trading days ending ten days prior to the scheduled grant date to determine +the number of shares to be granted. The dollar value reflected in the “Summary Compensation Table” is the accounting value for the grant. This amount will generally vary from the targeted amount since the target amount is based on a +fifteen-day average and the accounting value of those shares is based solely on the price of the Company stock on the date of grant. Based on the volatility of PDC’s stock, this price difference can be significant. +The table below shows the actual grants approved for 2012 for each Named Executive Officer. +2012 LONG-TERM INCENTIVE GRANTS +NAME +TARGETED +VALUE +RESTRICTED +STOCK +SARs +PERFORMANCE +SHARES +James M. Trimble +$ +2,700,000 +38,517 +32,959 +14,725 +Gysle R. Shellum +$ +800,000 +11,413 +9,766 +4,363 +Barton R. Brookman +$ +800,000 +11,413 +9,766 +4,363 +Lance A. Lauck +$ +650,000 +9,273 +7,935 +3,545 +Daniel W. Amidon +$ +650,000 +9,273 +7,935 +3,545 +Grant date accounting values for the 2012 grants are reflected in the “Summary +Compensation Table” and “Grants of Plan-Based Awards.” +46 +Table of Contents +2012 Performance Share Program +Under this program, Named Executive Officers will receive shares of stock based on the Company’s TSR over the +performance period from January 1, 2012 through December 31, 2014, as ranked among the comparably-measured TSR of the applicable peer group. The Committee believes that the peer group appropriate for measuring relative stock price +performance may be different from the peer group the Company is competing with for executive talent. However, the Committee generally uses the same companies whenever possible. For 2012, the peer companies selected by the Committee for measuring +relative TSR are identical to the compensation benchmarking group for 2012 with the exception of Brigham Exploration Company, which was acquired by Venoco, Inc. at the end of 2011, prior to the grant of the performance share awards. +The TSR for the Company and each of the peer companies is determined by dividing (1) the average share price for the +last twenty business days of the performance period, minus the average share price for the twenty business days preceding the beginning of the performance period, plus dividends (cash or stock based on the ex-dividend date) paid per +share of common stock over the performance period, by (2) the average share price for the twenty business days preceding the beginning of the performance period. +At the end of the performance period, payout can range from 0% - 200% of the target award as follows: +COMPANY TSR RANKING +AMONG PEERS +PAYOUT LEVELS AS % OF +AWARD +Top +200 +% +75th Percentile +150 +% +Median +100 +% +25th Percentile +50 +% +Below 25th Percentile +0 +% +If performance falls between the percentiles, payout levels are adjusted accordingly. In +addition, if the Company has negative TSR for the performance period, the maximum award that can be paid out under the program is 100%, regardless of relative performance. +For a description of what happens in the event of termination of the Named Executive Officer or a change in control of +the Company prior to the end of the performance periods, see “Potential Payments Upon Termination or Change in Control.” +Special Equity Grants +From time to time, the Committee +approves special grants which typically take the form of restricted stock, although other types of awards may be made when appropriate. Special grants are typically considered: +• +In connection with promotion where more stock exposure is desired; +• +To recognize extraordinary achievement; +• +When the survey data demonstrates a significant deviation from market total direct compensation for the comparator group; +• +When the Committee deems special retention measures are necessary for a particular executive; or +• +As part of a new hire package for an executive. +No special grants were awarded in 2012. +47 +Table of Contents +Agreements with Named Executive Officers +Severance Plan and Employment Agreements with Named Executive Officers +The Committee believes that severance protection plays a valuable role in attracting, motivating and retaining highly +talented executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of a Named Executive Officer’s departure. Severance provisions give the Company the flexibility to make decisions +regarding organizational issues with agreed-upon severance terms. In the event that the Company faces a change in control, severance benefits encourage executive officers to remain with the Company during an important time when prospects for +continued employment are often uncertain and provide a measure of financial security to the executive officer. The Committee believes that the severance amounts that may be paid upon a change in control of the Company ensure that the interests of +the executive officers will be materially consistent with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, without providing excessive benefits to +executives. +Accordingly, in 2012, the Company decided to move away from employment agreements and adopted the +PDC Energy Severance and Change in Control Plan (the “Severance Plan”) for the CEO, whose employment agreement will expire on June 30, 2013, and any senior executive officer hired in the future. The Company grandfathered the existing +employment agreements in effect with the current senior executives and agreed to give Mr. Trimble the greater of the Severance Plan benefit or the severance benefit provided under his employment agreement until its expiration in June 2013. The +Severance Plan and individual employment agreements provide termination benefits both prior to and upon a change in control the Company and are described in detail under “Potential Payments Upon Termination or Change in Control.” The +Committee considers these protections to be an important part of an executive’s compensation and consistent with competitive practices in the oil and gas industry. +48 +Table of Contents +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary +($) +Bonus (1) +($) +Stock +Awards (2) +($) +Options +/ +SAR +Awards (3) +($) +All +Other +Compensation (4) +($) +Total +Compensation +($) +James M. Trimble +2012 +650,000 +815,000 +1,700,880 +580,408 +54,444 +3,800,732 +CEO and President +(5) +2011 +336,539 +1,007,000 +1,903,496 +— +40,384 +3,287,419 +Gysle R. Shellum +2012 +325,000 +305,000 +503,983 +171,979 +50,573 +1,356,535 +CFO +2011 +315,000 +256,000 +693,539 +128,723 +48,015 +1,441,277 +2010 +275,000 +264,000 +356,286 +112,577 +47,589 +1,055,452 +Barton R. Brookman +2012 +325,000 +305,000 +503,983 +171,979 +50,218 +1,356,180 +Senior Vice President +2011 +315,000 +256,000 +385,889 +128,723 +40,739 +1,126,351 +Exploration and Production +2010 +290,000 +270,000 +348,099 +109,992 +33,262 +1,051,353 +Lance A. Lauck +2012 +300,000 +282,000 +409,486 +139,735 +48,146 +1,179,367 +Senior Vice President +2011 +265,000 +480,000 +315,743 +105,319 +40,762 +1,206,824 +Corporate Development +2010 +235,000 +330,500 +446,087 +97,050 +40,670 +1,149,307 +Daniel W. Amidon +2012 +285,000 +250,000 +409,486 +139,735 +50,384 +1,134,605 +Senior Vice President +2011 +275,000 +224,000 +315,743 +105,319 +57,434 +977,496 +General Counsel and Secretary +2010 +260,000 +229,000 +327,618 +103,521 +159,396 +1,079,535 +(1) +This column represents the amounts paid under the Company’s annual incentive bonus plan with the following exceptions: +(a) +2011 amount for Mr. Trimble includes a $782,000 annual incentive bonus and a $225,000 hiring bonus; and +(b) +2011 and 2010 amounts for Mr. Lauck include $282,000 and $176,000, respectively, of annual incentive bonus, and $265,000 and $154,500, +respectively, for the special acquisitions bonuses that were earned in 2011 and 2010; 50% of those bonuses was paid immediately and 50% was deferred for one year and conditioned upon confirmation of the acquisition results by the Committee in its +sole discretion. For a description of the acquisitions bonus, see “Residual 2011 Acquisitions Bonus to Mr. Lauck” under “Compensation Discussion and Analysis.” +For a description of the 2012 awards, see “Annual Incentives” under “Compensation Discussion and +Analysis.” +(2) +This column represents the grant date value of stock-based compensation awards, which include the following: +(a) +Time-based restricted stock awards; +(b) +Performance based awards in 2012 and 2011; +(c) +New hire restricted stock grants to Mr. Trimble in 2011 and Mr. Lauck in 2010; and +(d) +Special restricted stock grant to Mr. Shellum in 2011. +The 2012 grants are detailed in the “2012 Grants of Plan-Based Awards” table. Terms of the awards and +descriptions of the performance-based awards can be found in “Additional Discussion of Tables Related to Summary Compensation and 2012 Grants of Plan-Based Awards.” In accordance with SEC rules, the amounts reported in the above table +reflect the aggregate grant date fair value of the stock awards, calculated in accordance with FASB ASC Topic 718 disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles +used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements, as set forth in Note 12 to Form 10-K filed with the SEC on February 27, 2013. +(3) +This column represents the grant date value of SARs granted in each year. These grants are detailed in the “2012 Grants of Plan-Based +Awards” table. Terms of the awards can be found in “Additional Discussion of Tables Related to Summary Compensation and 2012 Grants of Plan-Based Awards.” In accordance with SEC rules, the amounts reported in the above table reflect +the aggregate grant date fair value of the SAR awards calculated in accordance with FASB ASC Topic 718 disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to +calculate the grant date fair value of SAR awards for purposes of the Company’s financial statements, as set forth in Note 12 to Form 10-K filed with the SEC on February 27, 2013. +(4) +Amounts shown in this column for 2012 are detailed in “2012 All Other Compensation” below. +(5) +Mr. Trimble was hired as CEO and President on June 10, 2011. His annualized 2011 base salary was $625,000. +49 +Table of Contents +2012 ALL OTHER COMPENSATION +Name +Year +401(k) +Matching +Contribution (1) +($) +Annual +Profit +Sharing +Contribution (2) +($) +Perquisites (3) +($) +Total +All +Other +Compensation +($) +James M. Trimble +2012 +22,500 +8,125 +23,819 +54,444 +Gysle R. Shellum +2012 +22,500 +8,125 +19,948 +50,573 +Barton R. Brookman +2012 +22,500 +8,125 +19,593 +50,218 +Lance A. Lauck +2012 +22,500 +8,125 +17,521 +48,146 +Daniel W. Amidon +2012 +22,500 +8,125 +19,759 +50,384 +(1) +This column represents the Company’s annual matching contribution to the Company’s 401(k) and Profit Sharing Plan. +(2) +This column represents the Company’s annual profit sharing contribution to the Company’s 401(k) and Profit Sharing Plan. +(3) +This column represents the total value of perquisites provided by the Company. No individual perquisite exceeded $25,000. Types of perquisites +included are primarily monthly automobile allowances and health club dues. +2012 +GRANTS OF PLAN-BASED AWARDS +Grant Date +Estimated Future Payouts +Under +Non-Equity +Incentive Plan Awards (1) +Estimated Future Payouts +Under +Equity +Incentive Plan Awards (2) +All Other +Stock +Awards: +Number of +Shares +of Stock (3) +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options (4) +(#) +Exercise +or Base +Price of +Option +Awards +($) +Grant Date +Fair Value +of Stock and +Option +Awards +($) +Name +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +James M. Trimble +1/1/2012 +— +650,000 +1,300,000 +— +— +— +— +— +— +— +1/16/2012 +— +— +— +7,362 +14,725 +29,450 +— +— +— +538,052 +(7) +1/16/2012 +— +— +— +— +— +— +— +32,959 +30.19 +580,408 +(5)(8) +1/16/2012 +— +— +— +— +— +— +38,517 +— +— +1,162,828 +(5)(6) +Gysle R. Shellum +1/1/2012 +— +243,750 +487,500 +— +— +— +— +— +— +— +1/16/2012 +— +— +— +2,181 +4,363 +8,726 +— +— +— +159,424 +(7) +1/16/2012 +— +— +— +— +— +— +— +9,766 +30.19 +171,979 +(5)(8) +1/16/2012 +— +— +— +— +— +— +11,413 +— +— +344,559 +(5)(6) +Barton R. Brookman +1/1/2012 +— +243,750 +487,500 +— +— +— +— +— +— +— +1/16/2012 +— +— +— +2,181 +4,363 +8,726 +— +— +— +159,424 +(7) +1/16/2012 +— +— +— +— +— +— +— +9,766 +30.19 +171,979 +(5)(8) +1/16/2012 +— +— +— +— +— +— +11,413 +— +— +344,559 +(5)(6) +Lance A. Lauck +1/1/2012 +— +225,000 +450,000 +— +— +— +— +— +— +— +1/16/2012 +— +— +— +1,772 +3,545 +7,090 +— +— +— +129,534 +(7) +1/16/2012 +— +— +— +— +— +— +— +7,935 +30.19 +139,735 +(5)(8) +1/16/2012 +— +— +— +— +— +— +9,273 +— +— +279,952 +(5)(6) +Daniel W. Amidon +1/1/2012 +— +199,500 +399,000 +— +— +— +— +— +— +— +1/16/2012 +— +— +— +1,772 +3,545 +7,090 +— +— +— +129,534 +(7) +1/16/2012 +— +— +— +— +— +— +— +7,935 +30.19 +139,735 +(5)(8) +1/16/2012 +— +— +— +— +— +— +9,273 +— +— +279,952 +(5)(6) +(1) +These columns reflect the target and maximum cash awards payable under the Company’s annual incentive plan. For a description of the 2012 +awards, see “Annual Incentives” under “Compensation Discussion and Analysis.” +(2) +This column represents performance share awards under the 2010 LTI Plan. For a description of the awards see “Long-Term Incentives—2011 +Performance Share Program” under “Compensation Discussion and Analysis.” +(3) +This column represents the annual time-based restricted stock awards under the 2010 LTI Plan. For a description of the 2012 awards, see +“Long-Term Incentives” under “Compensation Discussion and Analysis.” +(4) +This column represents SARs awarded under the Company’s 2010 LTI Plan. For a description of the 2012 awards, see “Long-Term +Incentives” under “Compensation Discussion and Analysis.” +(5) +These grants are scheduled to vest ratably over three years. +(6) +Grant date fair value for restricted stock is computed by multiplying the number of shares awarded by the closing price of the Company’s common +stock, as reported on the NASDAQ Global Select Market on the date of grants. The closing price was $30.19 on January 13, 2012, the trade date immediately preceding the grant date. +(7) +Grant date fair value is computed by multiplying the number of shares awarded by the grant date fair value as computed utilizing the Monte Carlo +pricing model, which was $36.54 per share. +(8) +Grant date fair value for SARs is computed by multiplying the number of shares awarded by the grant date fair value as computed utilizing the +Black-Scholes pricing model, which was $17.61 per share. +50 +Table of Contents +ADDITIONAL DISCUSSION OF TABLES RELATED TO SUMMARY COMPENSATION +AND 2012 GRANTS OF PLAN-BASED AWARDS +The following provides additional disclosure about the Company’s long-term incentive awards. +Terms of Restricted Stock and SAR Grants +Restricted Stock +Restricted stock awards to Named +Executive Officers vest ratably over three years except for the following: +• +Mr. Lauck’s 2010 award includes 7,000 shares that were granted coincident with the signing of his employment agreement in January 2010 +that vested 50% per year beginning in August 2010, coincident with the anniversary of his hire date; +• +Mr. Shellum’s 2011 award includes a special award of 7,000 shares that vests ratably over five years; and +• +Unvested awards are forfeited by the executive if, prior to the vesting date, the executive either voluntarily terminates without cause or is +terminated for cause. +SARs +• +SARs are awarded at the NASDAQ closing price of PDC stock on the date of the grant and vest ratably over three years; +• +Awards expire no later than ten years after grant date; and +• +All unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the vesting date. +Terms of the Performance Share Programs +2012 Program +For a discussion of the provisions of the 2012 Performance Share Program, see “Long-Term Incentives—2012 Performance Shares.” +2011 Program +The provisions of the 2011 Performance Share Program are identical to those of the 2012 Program except for the peer group used to measure relative TSR over the 2011—2013 performance period. The +eleven companies used in the 2011 program as peers were: Berry Petroleum Company, Bill Barrett Corporation, Cabot Oil & Gas Corporation, Carrizo Oil & Gas, Comstock Resources, Goodrich Petroleum Corporation, Penn Virginia +Corporation, PetroQuest Energy Inc., Rosetta Resources Inc., SM Energy Company and Venoco, Inc. +2008 and 2009 Programs +In 2008 and 2009, the Committee awarded performance shares that vest upon achievement of specific +stock price targets over a three- to five-year period. The initial tranche could be earned as of the end of year three with additional hurdle targets for the end of years four and five. Any shares not vested remain eligible to vest in future years; +however, any unvested shares at the end of the five-year performance period would be forfeited. The Committee used three measurement dates to take into account the volatility of energy prices and their impact on the stock price of the Company. The +following chart shows the various stock price hurdle rates and payout levels by year for the 2009 Program. The 2008 performance shares were forfeited on December 31, 2012, as the threshold performance criteria was not met. +YEAR OF +AWARD +APPROXIMATE +GROWTH +TARGET (1) +TARGET +PRICE (1) +($) +VESTED +TARGET +PERCENT +ATTAINED +2011 +2012 +2013 +2009 +12 +% +30.50 +— +— +50 +% +16 +% +34.00 +— +— +75 +% +20 +% +37.50 +45.00 +54.00 +100 +% +(1) +Growth target percentages and target prices are based on the average closing price of the Company’s common stock during the preceding December +for each year. +51 +Table of Contents +Effect of Termination and Change in Control on Long-Term Incentive Payments +For a description of what would happen to stock options/SARs, performance shares and restricted stock +in various termination scenarios or upon a change in control of the Company, see “Potential Payments Upon Termination or a Change in Control—Impact of Termination and Change in Control on Long-Term Incentive Plans.” +OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END +Options/SARs Awards +Stock Awards +Number of Securities +Underlying Unexercised +Options/SARs Held at +December 31, 2012 +Option/ +SAR +Exercise +Price +($) +Option/ +SAR +Expiration +Date +Number of +Shares of +Stock +That Have +Not +Vested (3) +(#) +Market +Value of +Shares +of +Stock +That +Have +Not +Vested (4) +($) +Equity +Incentive +Plan Awards: +Number of +Unearned +Shares That +Have +Not +Vested (5) +(#) +Equity +Incentive +Plan Awards: +Market +Value +of Unearned +Shares +That +Have +Not +Vested (4) +($) +Exercisable (1) +(#) +Unexercisable (2) +(#) +Name +James M. Trimble +— +32,959 +30.19 +1/16/2022 +77,674 +2,579,554 +14,725 +489,017 +Gysle R. Shellum +5,660 +2,830 +24.44 +4/19/2020 +25,783 +856,253 +6,552 +217,592 +1,701 +3,403 +43.95 +3/12/2021 +— +— +— +— +— +9,766 +30.19 +1/16/2022 +— +— +— +— +Barton R. Brookman +5,530 +2,765 +24.44 +4/19/2020 +23,640 +785,084 +7,702 +255,783 +1,701 +3,403 +43.95 +3/12/2021 +— +— +— +— +— +9,766 +30.19 +1/16/2022 +— +— +— +— +Lance A. Lauck +4,878 +2,441 +24.44 +4/19/2020 +20,838 +692,030 +5,336 +177,209 +1,392 +2,784 +43.95 +3/12/2021 +— +— +— +— +— +7,935 +30.19 +1/16/2022 +— +— +— +— +Daniel W. Amidon +5,204 +2,603 +24.44 +4/19/2020 +20,279 +673,466 +6,381 +211,913 +1,392 +2,784 +43.95 +3/12/2021 +— +— +— +— +— +7,935 +30.19 +1/16/2022 +— +— +— +— +(1) +Stock options/SARs exercisable as of December 31, 2012. +(2) +SARs granted in 2010, 2011 and 2012 are scheduled to vest ratably over three years on each anniversary of the date of grant. The exercise price +related to the SARs does not represent capital payable to the Company, but rather represents the base from which the stock appreciation value will be determined on the date of exercise. +(3) +The restricted stock in this column is scheduled to vest in accordance with the following table: +Shares Vesting Per Year +2013 +2014 +2015 +2016 +Total +James M. Trimble +32,622 +32,213 +12,839 +— +77,674 +Gysle R. Shellum +12,019 +7,159 +5,205 +1,400 +25,783 +Barton R. Brookman +14,076 +5,759 +3,805 +— +23,640 +Lance A. Lauck +13,055 +4,692 +3,091 +— +20,838 +Daniel W. Amidon +12,496 +4,692 +3,091 +— +20,279 +(4) +The market value of these shares is based on the closing price of the Company’s common stock of $33.21, as reported on NASDAQ Global Select +Market on December 31, 2012. +(5) +Performance shares granted in 2009, 2011 and 2012 to be issued contingent upon the achievement of certain specified stock performance goals as +described in “Additional Discussion of Tables Relating to Summary Compensation and 2012 Grants of Plan-Based Awards,” at target levels. +52 +Table of Contents +2012 OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of +Shares Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number of +Shares Acquired +on Vesting +(#) +Value +Realized +on Vesting (1) +($) +James M. Trimble +— +— +19,784 +456,430 +Gysle R. Shellum +— +— +11,274 +395,368 +Barton R. Brookman +— +— +10,831 +375,700 +Lance A. Lauck +— +— +9,963 +312,631 +Daniel W. Amidon +— +— +9,964 +344,664 +(1) +Value of the restricted shares that vested in 2012 is determined by multiplying the number of shares vesting by the market value of the shares on +the vesting date. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +In 2012, the Company adopted the Severance Plan which covers the CEO and the Named Executive Officers. +The Severance Plan was adopted to replace Mr. Trimble’s employment agreement, which expires in June 2013, and to provide severance benefits to any future senior executives of the Company. The Company grandfathered the employment agreements +in effect with the other current Named Executive Officers. +The primary purpose of the Severance Plan and +similar provisions of the employment agreements is to provide severance benefits in the event of the termination of the Named Executive Officer by the Company without “just cause,” termination by the Named Executive Officer for “good +reason,” or termination of the Named Executive Officer following a change in control of the Company. Upon a change in control, the Severance Plan and individual employment agreements provide benefits only in the event that an executive is +terminated by the acquiring company “without cause” or by the executive for “good reason”— i.e., they are “double-trigger” in nature. +Under the terms of the Severance Plan, in the event of termination by the Company without “just cause” or +termination by the executive for “good reason,” any Tier One executive (currently the Company anticipates that the CEO would be the only Tier One executive) receives two times the sum of his base salary and target bonus for the year and +Tier Two executives (any remaining covered executives) would receive one and one-half times the sum of his base salary and target bonus for the year. In the event of termination related to a change in control of the Company, a Tier One Executive +(the CEO) would receive three times the sum of his base salary and target bonus for the year and each Tier Two executive would receive two and one-half times the sum of his base salary and target bonus for the year. In addition, if termination is +due to a change in control of the Company, the executive would receive a pro-rata bonus at target for the year at the time of termination. The Severance Plan provides a benefit “offset” so that cash benefits paid upon severance would be +reduced by any other severance benefits that the executive is entitled to receive under a Company (or successor company) plan. Currently, the Committee has elected to cover only Mr. Trimble under the Severance Plan and to maintain the +grandfathered agreements for the other Named Executive Officers. The following table summarizes the cash payout under certain termination scenarios for each Named Executive Officer. +TERMINATION WITHOUT CAUSE +OR FOR GOOD +REASON +TERMINATION DUE TO CHANGE +IN +CONTROL +CONTROLLING PLAN +OR +AGREEMENT +James M. Trimble +2x base plus target bonus +3x base plus target bonus plus pro-rata bonus for the year of termination +Severance Plan +Barton R. Brookman +2x base plus bonus* +3x base plus bonus* +Employment Agreement +Gysle R. Shellum +2x base plus bonus* +3x base plus bonus* +Employment Agreement +Lance A. Lauck +2x base plus bonus* +3x base plus bonus* +Employment Agreement +Daniel W. Amidon +3x base plus bonus* +3x base plus bonus* +Employment Agreement +* +Highest bonus of last two years +53 +Table of Contents +The “Potential Payments Upon Termination or Change in Control” +table below outlines any additional benefits that may be paid in the event of any termination, including termination for cause, death or disability under either the Severance Plan or the individual’s employment agreement. +As a condition to receiving severance benefits under the Severance Plan and under the terms of the grandfathered +employment agreements, there is a non-disclosure covenant and the executive officer is prohibited for a period of one year following his termination from engaging in any competing business within any county or in any adjacent county in which the +Company is doing business. In addition, the executive is prohibited from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to a +change in control of the Company, the Severance Plan pays the severance benefits over twelve months. +In +addition, each grandfathered employment agreement contains a clawback provision requiring the executive to reimburse all or a portion of his annual bonus if the Company must restate all or a portion of its financial statements due to material +noncompliance by the Company with any financial reporting requirement under securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected years and the bonus that would have been paid to the +executive had the financial results been properly reported. These clawback provisions are in addition to the clawback provisions of the Dodd-Frank Act. The grandfathered employment agreements automatically extend for twelve months on +December 31 of each year prior to the last year of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal. However, each executive officer with an employment agreement serves at the discretion of +the Board, as the agreements allow for termination at any time with thirty days’ written notice. +Impact of Termination and Change +in Control on Long-Term Incentive Plans +Under the terms of the 2004 and 2010 LTI Plans and related +grant agreements and employment agreements, all unvested restricted stock, stock options and SARs vest upon death, disability and change in control. The following table outlines the effect on outstanding LTI awards under various termination +scenarios and upon a change in control of the Company based on the terms of the 2004 and 2010 LTI Plans and related grant agreements and the executive employment agreements. +TERMINATION SCENARIO/ +CHANGE IN CONTROL +RESTRICTED +STOCK/SARs/ +OPTIONS +2009 PERFORMANCE SHARES +2011/2012 PERFORMANCE +SHARES +Voluntary Termination +Forfeited +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change in Control +Vests +Forfeited +Forfeited +Death +Vests +Earned pro-rata based on performance through date of death. +Earned pro-rata based on performance through either date of death or end of performance period. +Disability +Vests +Earned pro-rata based on performance through date of disability. +Earned pro-rata based on performance at end of performance period. +Change in Control +Vests under terms of the Plan. +Partially earned, based on performance through change in control pro-rated for time passed (based on 60 months). +If less than 50% of the performance period has elapsed, earns 100% of performance shares. If 50% or more of the performance period has elapsed, earns greater of actual performance +through change in control or 100% of performance shares. +54 +Table of Contents +Change in Control Excise Tax Provision +The Company currently provides no income tax gross-up or excise tax gross-up pursuant to taxes that may be imposed on +“excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. If, in connection with a change in control of the Company, any compensation to a Named Executive Officer is accelerated or becomes +vested, that executive could, in some cases, be considered to have received “parachute payments” within the meaning of Section 280G and Section 4999 of the Code. Pursuant to these tax laws, the executive could be subject to a 20% +excise tax on parachute payments that exceed a certain amount, in which case the Company would be denied a tax deduction for such excess parachute payments. The Severance Plan and the grandfathered employment agreements provide that if it is +determined that any payment or distribution by the Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be +responsible for the excise tax; or (2) reduce the executive payment to the IRS “safe harbor amount,” whichever amount would give the executive the greater benefit on a net, after-tax basis. +Termination Benefits Table +The table below and the discussion that follows reflect the maximum amount of compensation payable to each Named Executive Officer upon death, permanent disability, change in control of the Company, or +other termination under the Severance Plan, each Named Executive Officer’s employment agreement, and/or the equity compensation plans. The amounts shown assume that termination occurred on December 31, 2012, that the closing price per +share on such date was $33.21, and, in the event of termination due to change in control, the executive’s benefit is not reduced as a result of Section 280G and Section 4999 of the Code (as described above). The actual amounts to be +paid can only be determined at the time of such executive’s separation from the Company. +POTENTIAL PAYMENTS UPON +TERMINATION OR CHANGE IN CONTROL +By Company Without +Cause or By Executive for +Good Reason +Name/Element of Compensation +Voluntary +by +Executive +Prior to +Change in +Control +Following +Change in +Control +(1) +For +Cause +Death +Disability +James M. Trimble +Cash Compensation +Earned but unpaid 2012 compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +— +2,600,000 +4,550,000 +— +650,000 +487,500 +Acceleration of unvested equity +Restricted Stock (4) +— +2,579,554 +2,579,554 +— +2,579,554 +2,579,554 +SARs (5) +— +99,536 +99,536 +— +99,536 +99,536 +Performance Shares (6) +— +— +489,017 +— +163,006 +163,006 +Earned Profit Sharing / Deferred Compensation (7) +8,125 +8,125 +8,125 +8,125 +8,125 +8,125 +Health Benefit — Continuation (8) +— +24,840 +24,840 +— +— +— +Total +$ +8,125 +$ +5,312,055 +$ +7,751,072 +$ +8,125 +$ +3,500,221 +$ +3,337,721 +Gysle R. Shellum +Cash Compensation +Earned but unpaid 2012 compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +— +1,162,000 +1,743,000 +243,750 +162,500 +243,750 +Acceleration of unvested equity +Restricted Stock (4) +— +856,253 +856,253 +— +856,253 +856,253 +SARs (5) +— +54,312 +54,312 +— +54,312 +54,312 +Performance Shares (6) +— +— +217,592 +— +96,763 +96,763 +Earned Profit Sharing / Deferred Compensation (7) +8,125 +8,125 +8,125 +8,125 +8,125 +8,125 +Health Benefit — Continuation (8) +— +24,840 +24,840 +— +— +— +Total +$ +8,125 +$ +2,105,530 +$ +2,904,122 +$ +251,875 +$ +1,177,953 +$ +1,259,203 +55 +Table of Contents +By Company Without +Cause or By Executive for +Good Reason +Name/Element of Compensation +Voluntary +by +Executive +Prior to +Change in +Control +Following +Change in +Control +(1) +For +Cause +Death +Disability +Barton R. Brookman +Cash Compensation +Earned but unpaid 2012 compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +— +1,162,000 +1,743,000 +243,750 +162,500 +243,750 +Acceleration of unvested equity +Restricted Stock (4) +— +785,084 +785,084 +— +785,084 +785,084 +SARs (5) +— +53,742 +53,742 +— +53,742 +53,742 +Performance Shares (6) +— +— +217,592 +— +96,763 +96,763 +Earned Profit Sharing / Deferred Compensation (7) +8,125 +8,125 +8,125 +8,125 +8,125 +8,125 +Health Benefit — Continuation (8) +— +24,840 +24,840 +— +— +— +Total +$ +8,125 +$ +2,033,791 +$ +2,832,383 +$ +251,875 +$ +1,106,214 +$ +1,187,464 +Lance A. Lauck +Cash Compensation +Earned but unpaid 2012 compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +— +1,030,000 +1,545,000 +225,000 +150,000 +225,000 +Acceleration of unvested equity +Restricted Stock (4) +— +692,030 +692,030 +— +692,030 +692,030 +SARs (5) +— +45,371 +45,371 +— +45,371 +45,371 +Performance Shares (6) +— +— +177,209 +— +78,896 +78,896 +Earned Profit Sharing / Deferred Compensation (7) +140,625 +140,625 +140,625 +140,625 +140,625 +140,625 +Health Benefit — Continuation (8) +— +24,840 +24,840 +— +— +— +Total +$ +140,625 +$ +1,932,866 +$ +2,625,075 +$ +365,625 +$ +1,106,922 +$ +1,181,922 +Daniel W. Amidon +Cash Compensation +Earned but unpaid 2012 compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +199,500 +1,527,000 +1,527,000 +— +342,000 +413,250 +Acceleration of unvested equity +Restricted Stock (4) +— +673,466 +673,466 +— +673,466 +673,466 +SARs (5) +— +46,792 +46,792 +— +46,792 +46,792 +Performance Shares (6) +— +— +177,209 +— +78,896 +78,896 +Earned Profit Sharing / Deferred Compensation (7) +8,125 +8,125 +8,125 +8,125 +8,125 +8,125 +Health Benefit — Continuation (8) +— +24,840 +24,840 +— +— +— +Total +$ +207,625 +$ +2,280,223 +$ +2,457,432 +$ +8,125 +$ +1,149,279 +$ +1,220,529 +(1) +A cash benefit is only payable if, within two years following a change in control, the executive is terminated by the Company or its successor +“without cause” or the executive terminates for “good reason” (“double trigger”) as defined in either his employment agreement or the severance plan, whichever is applicable. The Company currently provides for no tax +gross-ups in respect of “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. +(2) +There are no amounts shown for “earned but unpaid compensation for 2012;” however, the Compensation Committee in its sole discretion could +award a bonus for 2012 performance. This amount is not known on December 31 since it is typically not determined until sometime in February. The cash bonus amounts paid in March 2013 for 2012 performance are reflected in the “Summary +Compensation Table.” +(3) +In determining severance amounts for each Named Executive Officer, the following factors were considered: +(a) +The amount of severance shown for Mr. Trimble upon change in control includes a $650,000 target bonus for 2012 in accordance with the Severance +Plan; +56 +Table of Contents +(b) +The amount of severance upon termination “By Company Without Cause or By Executive for Good Reason” for Messrs. Shellum, Brookman, Lauck +and Amidon is determined using the 2011 bonus paid, pursuant to their respective employment agreements. (Mr. Amidon receives the greater of his 2011 bonus paid in 2012 or his 2012 bonus earned but not yet paid; however, as of December 31, this +amount had not yet been determined); +(c) +The amount of severance shown for Messrs. Shellum, Brookman and Lauck upon termination for “cause” and for Mr. Amidon upon voluntary +termination by the executive is a pro-rata bonus for the year pursuant to their respective employment agreements. For purposes of this table, the pro-rata bonus was assumed to be the target bonus, since the 2012 bonus had not yet been determined. +Upon termination, the Committee would determine bonuses based on the Company’s actual performance; +(d) +In the determination of Mr. Lauck’s severance amounts, his contractual acquisitions bonus is not included in any of his severance +calculations pursuant to the terms of his employment agreement; +(e) +Upon disability, under the terms of their respective employment agreements, each of the executives would receive up to thirteen weeks of salary +continuation in the event of short-term disability and a lump sum payment equal to six months’ base salary upon qualifying for long-term disability. Mr. Amidon would also receive a pro-rata bonus for the year, if he terminates after +March 31 of the year, which is included in the severance amount shown. For purposes of this table, the bonus was assumed to be the target bonus amount of $199,500, since the 2012 bonus had not yet been determined. Upon disability, the Committee +would determine bonuses based on the Company’s actual performance; and +(f) +In the event of death, Messrs. Shellum, Brookman, Lauck and Amidon would receive a lump sum cash payment equal to six months’ base salary +pursuant to their respective employment agreements. Mr. Trimble would receive no death benefit pursuant to either his employment agreement or the Severance Plan. In addition, Messrs. Trimble and Amidon would be entitled to receive a pro-rata +bonus for the year which is included in the severance shown. For purposes of this table, the bonus was assumed to be the target bonus since the 2012 bonus had not yet been determined ($650,000 for Mr. Trimble and $199,500 for Mr. Amidon, +respectively). Upon death, the Committee would determine bonuses based on the Company’s actual performance. +(4) +The 2004 and 2010 LTI Plans or the specific award letters provide for full accelerated vesting of all restricted stock upon a change in control of +the Company, death and disability. In addition, all unvested shares of time-based restricted stock would vest under the individual employment agreements upon all termination events except voluntary termination and termination for “cause.” +For the unvested shares of restricted stock subject to accelerated vesting, see “Outstanding Equity Awards at 2012 Fiscal Year-End.” +(5) +The 2004 and 2010 LTI Plans or the specific award letters provide for full accelerated vesting of all SARs upon change in control of the Company, +death and disability. In addition, all unvested SARs would vest under the individual employment agreements upon all termination events except voluntary termination and termination for “cause.” The value of the SARs shown is calculated +using the closing price of the Company’s shares on December 31, 2012, less the exercise price of the SARs determined on grant date. For the unvested SARs that would have accelerated vesting, see “Outstanding Equity Awards at 2012 +Fiscal Year-End.” +(6) +As of December 31, 2012, the unearned 2009 performance shares would be forfeited under every termination scenario and the 2011 and 2012 +performance shares would vest as follows: +(a) +Performance shares would be forfeited except in the case of disability, death and a change in control of the Company; +(b) +In the case of disability, in accordance with the performance share agreements, one-third of the 2012 and two-thirds of the 2011 performance shares +would be earned. Although payment would not occur until the end of the performance period, for purposes of this illustration, the price is assumed to be the price on December 31, 2012, which would result in target payout. The value shown is +determined by using the target number of shares awarded times 100% times the pro-rata amount earned for the performance period (based upon completed months of performance period divided by total months of performance period) times the stock price on +December 31, 2012; +(c) +In the case of death, in accordance with the performance share agreements, one-third of the 2012 and two-thirds of the 2011 performance shares would +be earned. Assuming death had occurred on December 31, 2012, which is during the first two years of the performance period, the amount earned would be based on the performance results through December 31, 2012, which would result in target +payout. The value shown is determined by using the target number of shares awarded times 100% times the pro-rata amount earned for the performance period (based upon completed months of performance period divided by total months of performance +period) times the stock price on December 31, 2012; and +(d) +In the event of a change in control of the Company, the value of the 2012 performance shares is determined by multiplying the number of shares +granted times 100%, since 50% of the performance period had not expired. The value of the 2011 performance shares is based on the Company’s performance through December 31, 2012 or 100%, whichever is higher. Assuming the change in control +occurred on December 31, 2012, based on the performance of the Company, the 2011 performance shares would have paid out at target. In the case of both the 2011 and 2012 performance shares, the value shown is determined by using the target +number of shares awarded times 100% times the stock price on December 31, 2012. +(7) +Amount for each executive includes a profit sharing contribution of $8,125 for 2012 that was remitted to each executive’s 401(k) account in +March 2013. Mr. Lauck’s amount includes $132,500 of his residual acquisitions bonus related to acquisitions in 2011. In some cases of termination for “cause,” the Committee may determine that Mr. Lauck is not entitled to +this deferred bonus amount. +(8) +Amount represents the Company-subsidized COBRA premium cost to continue family health, vision and dental coverage for an 18-month period. +57 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for +issuance as of December 31, 2012. For the most recent information available regarding awards and shares remaining available for issuance under our equity compensation plans (updated through April 19, 2013), please see “Our Equity +Plans” on page 13. +Plan Category +Number of +Securities to be +Issued Upon Exercise of +Outstanding +Options +and Rights (1) +(#) +Weighted-Average +Exercise Price of +Outstanding Options +and Rights +($) +Number of +Securities Remaining +Available for +Future Issuance +Under Equity +Compensation Plans (2) +(#) +Equity compensation plans approved by security holders +166,501 +31.36 +490,412 +Equity compensation plans not approved by security holders +— +— +— +Total +166,501 +31.36 +490,412 +(1) +Includes 40,696 shares of common stock to be issued based upon continuous employment and the maximum achievement of certain performance goals over a +specified period of time as described in “Additional Discussion of Tables Related to Summary Compensation and 2012 Grants of Plan-Based Awards.” These shares have been excluded from the weighted average. +(2) +The number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of +outstanding options, SARs and restricted shares subject to time vesting and certain market-based performance goals over a specified period of time. The Company no longer issues new grants under the 2004 Plan. +STOCKHOLDER NOMINATIONS AND PROPOSALS +Stockholder Proposals for 2014 Annual Meeting +Any proposal +that a stockholder wishes to include in the Company’s Proxy Statement for the 2014 Annual Meeting of Stockholders must be received by the Company at its principal office on or prior to December 23, 2013, and must be submitted in compliance +with SEC Rule 14a-8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Advance Notice Procedures Under the Company’s By-Laws +Any proposal or nomination for Director that a stockholder wishes to propose for consideration at the 2014 Annual Meeting +of Stockholders, but does not seek to include in our Proxy Statement under applicable SEC rules, must be submitted in accordance with Section 2.14(b) of the Company’s By-Laws, which provides that no business may be brought before an Annual +Meeting of Stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has delivered advance notice to the Company. The +notice must contain certain information specified in the By-Laws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s +Annual Meeting. The By-Laws also provide that if the meeting is held more than 30 days before the anniversary of the prior year’s Annual Meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day +following the day on which public announcement of the date of the Annual Meeting is first made by the Company. +58 +Table of Contents +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any +stockholder proposal at the address listed above after March 10, 2014 that is intended to be presented at the 2014 Annual Meeting of Stockholders without inclusion in the Proxy Statement for the meeting, the proxies designated by the Board will +have discretionary authority to vote on such proposal. +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy +statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” +is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be “householding” our proxy materials and annual report. Once you have +received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate +copies of our Annual Report and Proxy Statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written request to us at our address appearing on the cover of this Proxy Statement, to the +attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our Annual Report and Proxy Statement in the future, you should contact your bank, broker or other +nominee record holder. +By Order of the Board of Directors, +James M. Trimble +Chief Executive Officer and President +Dated: April 23, 2013 +THE COMPANY WILL PROVIDE WITHOUT +CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012, INCLUDING FINANCIAL +STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO, 80203. +59 +Table of Contents +APPENDIX A +Petroleum Development Corporation PDC Energy, Inc. +Amended and Restated +2010 Long-Term Equity Compensation Plan +APRIL 1, +2010 June 6, 2013 +I. ESTABLISHMENT, OBJECTIVES AND +DURATION +A. ESTABLISHMENT OF THE PLAN. Petroleum Development Corporation, PDC +Energy, Inc., a Nevada corporation (hereinafter referred to as the “Company”), hereby adopts an amends, restates and renames the incentive compensation plan previously known as the “2010 Petroleum +Development Corporation Long-Term Equity Compensation Plan ” (hereinafter referred to as the “Plan”), ”, as set forth in this document . (the “Plan”). The Plan permits the +grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units. +Subject to approval The 2010 Petroleum Development Corporation Long-Term Equity Compensation Plan was +originally adopted effective April 1, 2010 and was approved by the Company’s stockholders , on June 4, 2010. This amended and restated version of the Plan shall become effective as of April 1, +2010 June 6, 2013 upon approval of the Company’s stockholders (the “Effective Date”). The Plan shall remain in effect as provided in Section I.C hereof. +B. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the profitability and growth of the Company +through incentives which are consistent with the Company’s goals and which link the personal interests of Participants to those of the Company’s stockholders; to provide Participants with an incentive for excellence in individual +performance; and to promote teamwork among Participants. +It is also intended with respect to the Non-Employee +Directors of the Company that the Compensation Committee be able to choose from among Awards of Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock and RSUs Restricted Stock Units which will +(a) permit Non-Employee Directors to increase their ownership and proprietary interest in the Company and enhance their identification with the interests of the Company’s stockholders, (b) provide a means of compensating Non-Employee +Directors that will help attract qualified candidates to serve as Non-Employee Directors, and (c) induce incumbent Non-Employee Directors to continue to serve if the Board desires that they remain on the Board. +C. DURATION OF THE PLAN. The This amended and restated version of the Plan shall +commence be effective on the Effective Date, as described in Section I.A hereof, and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to +Article XV hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions. However, in no event may an Award be granted under the Plan on or after April 1, 2020 June +5, 2023 . +II. DEFINITIONS +Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, +the initial letter of the word shall be capitalized: +A. “AFFILIATE” shall have the meaning +ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the Exchange Act. +B. “AWARD” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, +Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units. +C. “AWARD AGREEMENT” means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan. +A-1 +Table of Contents +D. “BENEFICIAL OWNER” or “BENEFICIAL OWNERSHIP” +shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. +E. “BOARD” or “BOARD OF DIRECTORS” means the Board of Directors of the Company. +F. “CHANGE IN CONTROL” shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: +1. the “Beneficial Ownership” of securities as defined in Rule 13d-3 under the Exchange Act +representing more than thirty-three percent (33%) of the combined voting power of the Company is acquired by any “person” as defined in Section 3(a)(9) of the Exchange Act (other than the Company, any trustee or other fiduciary +holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company); or +2. the consummation of the transactions contemplated by a definitive agreement to merge or consolidate the +Company with or into another corporation or to sell or otherwise dispose of all or substantially all of its assets, or adopt the approval by the stockholders of a plan of liquidation; or +3. during any period of three consecutive years, individuals who at the beginning of such period were members of the +Board cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Company’s stockholders, of each new director was approved by a vote of at least a majority of the directors then +still in office who were directors at the beginning of such period or whose election or nomination was previously so approved). +Notwithstanding the foregoing, with respect to any Award subject to Code Section 409A, a “Change in Control” of the Company is deemed to have occurred as of the first day that any one or +more of the following conditions shall have been satisfied: +4. Change in Ownership: A change in +ownership of the Company occurs on the date that any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent +(50%) of the total fair market value or total voting power of the stock of the Company, excluding the acquisition of additional stock by a person or more than one person acting as a group who is considered to own more than fifty percent +(50%) of the total fair market value or total voting power of the stock of the Company. +5. Change +in Effective Control: A change in effective control of the Company occurs only on either of the following dates: +a. The date any one person, or more than one person acting as a group, acquires (or has acquired during the twelve (12) month period ending in the date of the most recent acquisition by such +person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; or +b. The date a majority of the members of the Board is replaced during any (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the board +of directors before the date of the appointment or election; provided that this paragraph (b) shall apply only to the company for which no other corporation is a majority shareholder. +6. Change in Ownership of Substantial Assets: A change in the ownership of a substantial portion of the +Company’s assets occurs on the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) +assets from the Company that have a total gross fair market value equal to or more than ninety percent (90%) of the total gross fair market value of the assets of the Company, or the value of the assets being disposed of, determined without +regard to any liabilities associated with such assets. +A-2 +Table of Contents +It is the intent that this definition be construed to satisfy the definition +of “Change of Control” as defined under Internal Revenue Code Section 409A and the applicable Treasury Regulations, as amended from time to time. +G. “CODE” means the Internal Revenue Code of 1986, as amended from time to time. +H. “COMMITTEE” means any committee appointed by the Board to administer the Plan, as specified in +Article III herein. +I. “COMPANY” means Petroleum Development +Corporation, PDC Energy, Inc., a Nevada corporation, including any and all Subsidiaries, and any successor thereto as provided in Article XX herein. +J. “COVERED EMPLOYEE” means a Participant who, as of the date of vesting and/or payout of an Award, as +applicable, is one of the group of “covered employees,” as defined in Code Section 162(m) and the regulations promulgated under Code Section 162(m), or any successor statute. +K. “DIRECTOR” means any individual who is a member of the Board of Directors of the Company or any +Subsidiary; provided, however, that any Director who is employed by the Company shall be considered an Employee under the Plan. +L. “DISABILITY” with respect to any Award, a Participant shall be considered Disabled if the Participant — +1. is unable to engage in any substantial gainful activity by reason of any medically determinable physical or +mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or +2. is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve +(12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering Employees of the Company. +M. “EFFECTIVE DATE” shall have the meaning ascribed to such term in Section I.A hereof. +N. “EMPLOYEE” means any full-time, active employee of the Company or its Subsidiaries. Directors who are +not employed by the Company shall not be considered Employees under this Plan. +O. “EXCHANGE +ACT” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. +P. “FAIR MARKET VALUE” shall be determined on the basis of the officially reported closing sale price at which of +Shares have been sold regular way on the principal securities exchange on which the Shares are traded or, if there is no such sale on the relevant date, then on the last previous day on which there was such a sale. +Q. “FREESTANDING SAR” means an SAR that is granted independently of any Options, as described in +Article VII herein. +R. “INCENTIVE STOCK OPTION” or “ISO” means an option to +purchase Shares granted under Article VI herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422. +S. “INSIDER” shall mean an individual who is, on the relevant date, an officer, director or more than ten +percent (10%) Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act. +A-3 +Table of Contents +T. “NON-EMPLOYEE DIRECTOR” shall mean a Director who is not +also an Employee. +U. “NON-QUALIFIED STOCK OPTION” or “NQSO” means an option to +purchase Shares granted under Article VI herein and which is not intended to meet the requirements of Code Section 422. +V. “OPTION” means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article VI herein. +W. “OPTION PRICE” means the price at which a Share may be purchased by a Participant pursuant to an +Option. +X. “PARTICIPANT” means : (1) an Employee who has been +selected to receive an Award or who has an outstanding Award granted under the Plan; or (2) a or Non-Employee Director who has been selected to receive an Award other than an Incentive Stock Option, Performance +Share or a current or Performance Unit former Employee or Non-Employee Director who has an outstanding Award other than an Incentive Stock Option, Performance Share or Performance Unit +granted under the Plan. +Y. “PERFORMANCE-BASED EXCEPTION” means the performance-based exception +from the tax deductibility limitations of Code Section 162(m). +Z. “PERFORMANCE SHARE” +means an Award granted to a Participant (other than a Non-Employee Director), as described in Article X herein, that shall have an initial value equal to the Fair Market Value of a Share on the date of grant. +AA. “PERFORMANCE UNIT” means an Award granted to a Participant (other than a Non-Employee Director), as +described in Article X herein, that shall have an initial value that is established by the Committee on the date of grant. +BB. “PERIOD OF RESTRICTION” means the period during which the transfer of Shares of Restricted Stock or Restricted Stock Units is limited in some way (based on the passage of time, the +achievement of performance goals or upon the occurrence of other events as determined by the Committee, at its discretion, as specified in the Award Agreement), and the Shares are subject to a substantial risk of forfeiture, as provided in +Article VIII and Article IX herein. +CC. “PERSON” shall have the meaning ascribed to +such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof. +DD. “RESTRICTED STOCK” means an Award granted to a Participant pursuant to Article VIII herein. +EE. “RESTRICTED STOCK UNIT” or “RSU” means an award granted to a Participant +pursuant to Article IX herein. +FF. “SEPARATION FROM SERVICE” means a termination of +employment or other separation from service as described in Code Section 409A and the regulations thereunder. +GG. “SHARES” means the shares of common stock of the Company. +HH. “SPECIFIED EMPLOYEE” means, with respect to the Company or any of its Subsidiaries, and determined as of the date of an individual’s separation from service from the Company +(1) any officer during the prior twelve (12) month period with annual compensation in excess of $145,000 (as adjusted from time to time under the Code), (2) a 5-percent owner of the Company’s outstanding equity stock during the +prior twelve (12) month period or (3) a 1-percent owner of the Company’s outstanding equity stock during the prior +A-4 +Table of Contents +(12) month period with annual compensation in excess of $150,000 (as adjusted from time under Code), provided that the Company or any of its Subsidiaries is publicly-traded within the +meaning of Code Section 409A on the date of determination. +II. “STOCK APPRECIATION RIGHT” +or “SAR” means an Award, granted alone or, in connection with a related Option, designated as an SAR, pursuant to the terms of Article VII herein. +JJ. “SUBSIDIARY” means any corporation, partnership, joint venture or other entity in which the Company +has a majority voting interest (including all divisions, affiliates and related entities). +KK. “TANDEM SAR” means an SAR that is granted in connection with a related Option pursuant to +Article VII herein, the exercise of which shall require forfeiture of the right to purchase a Share an equal number of Shares under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall +similarly be canceled as to the same number of Shares ). +III. ADMINISTRATION +A. THE COMMITTEE. The Plan shall be administered by the Board or a Committee of the Board +consisting of not less than two Directors who meet the “Non-Employee Director” requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, the “Independent Director” requirements +of Nasdaq Listing Rule 5605(a), and the outside director requirements of Code Section 162(m), or by any other committee appointed by the Board, provided the members of such committee meet such requirements. +B. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Articles of Incorporation or Bylaws of the +Company, and subject to the provisions herein, the Board or the Committee shall have full power to select Employees and Non-Employee Directors who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and +conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish or amend rules and regulations for the Plan’s administration; and (subject to the +provisions of Article XV herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Board or the Committee as provided in the Plan. Further, the Board +or the Committee is empowered hereby to make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Board or the Committee may delegate its authority as identified herein. +C. DECISIONS BINDING. All determinations and decisions made by the Board or the Committee +pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Directors, Employees, Participants and their estates and +beneficiaries. +IV. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS +A. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to the continued application of Sections IV.B and IV.C +herein, the maximum number of Shares with respect to which Awards may be granted to Participants under the Plan shall be One Million Four Hundred Thousand (1,400,000). : (i) 1,400,000, which is the number of Shares originally +approved under the Plan as of June 4, 2010, minus (ii) the number of such Shares that are permanently unavailable for issuance under the Plan as of the Effective Date by virtue of application of Section IV.B prior to the Effective Date, +plus (iii) an additional 1, 600,000 Shares. Shares issued under the Plan may be either authorized but unissued Shares, treasury Shares or any combination thereof. +Unless and until the Committee determines that an Award to a Covered Employee is not designed to comply with the +Performance-Based Exception, the following rules shall apply to grants of Awards to Covered Employees under the Plan, subject to Sections IV.B and IV.C. +A-5 +Table of Contents +1. STOCK OPTIONS: The maximum aggregate number of Shares that may be +subject to Stock Options granted in any one fiscal year to any one Participant shall be two eight hundred thousand ( 200 800 ,000). +2. SARs: The maximum aggregate number of shares that may be granted in the form of SARs granted in any one +F fiscal year to any one Participant shall be two eight hundred thousand ( 200 800 ,000). +3. RESTRICTED STOCK: The maximum aggregate grant with respect to Awards of Restricted Stock which are granted in any one fiscal year to any one Participant shall be one four +hundred thousand ( 100 400 ,000) Shares. +4. RESTRICTED STOCK UNITS: The +maximum aggregate payment (determined as number of the date of grant) with respect to Awards of RSUs granted Shares that may be covered by grants of Restricted Stock Units in any one fiscal year to any +one Participant shall be equal to the Fair Market Value of one four hundred thousand ( 100 400 ,000) Shares; provided, however, that the maximum aggregate grant of Restricted Stock and +RSUs Restricted Stock Units for any one fiscal year shall be coordinated so that in no event shall any one Participant be awarded receive Awards covering more than the Fair Market Value of +one four hundred thousand ( 100 400 ,000) Shares taking into account all such grants. +5. PERFORMANCE SHARES: The maximum aggregate payout (determined as of the event of the applicable performance period) with respect to Awards of Performance Shares which are granted in any one fiscal +year to any one Participant shall be equal to the Fair Market Value of one four hundred fifty thousand ( 150 400 ,000) Shares. +6. PERFORMANCE UNITS: The maximum aggregate payout (determined as of the end of the applicable performance period) +with respect to Awards of Performance Units which are granted in any one fiscal year to any one Participant shall be equal to one five million five hundred thousand dollars +($ 1,500 5,000 ,000). +B. ADJUSTMENTS FOR AWARDS AND PAYOUTS. Unless determined +otherwise by the Committee, the following Awards and payouts will reduce, on a one-for-one basis, the number of Shares available for issuance under the Plan: +1. An Award of an Option; +2. An Award of a SAR that +may be settled in Shares ; +3. An Award of Restricted Stock; +4. A payout An Award of a Restricted Stock Unit that may be settled in Shares; +5. A Performance Share Award that may be settled in Shares; and +5. 6. A payout of a Performance Units Unit Award +that may be settled in Shares. +Unless determined otherwise by the Committee , unless a Participant +has received a benefit of ownership such as dividend or voting rights with respect to the Award , the following transactions will restore, on a one-for-one basis, the number of Shares available for issuance under the Plan: +1. A payout of a SAR or a Tandem SAR , or any other Award, in cash; +2. A cancellation, termination, expiration, forfeiture or lapse for any reason (with the exception of the +termination of a Tandem SAR upon exercise of the related Options, or the termination of a related Option upon exercise of the corresponding Tandem SAR) of any Award payable in Shares; +A-6 +Table of Contents +3. Shares tendered in payment of the exercise price of an Option; +4. Shares withheld for payment of federal, state or local taxes; +5. Shares repurchased by the Company with proceeds collected in connection with the exercise of outstanding Options; +and +6. The net Shares issued withheld or retained in connection +with the exercise of SARs ( i.e. only the net Shares issued, as opposed to the full number of Shares underlying the exercised portion of the SAR , shall count against and reduce the number of Shares available for issuance under the +Plan ). +C. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in corporate capitalization +such as a stock split or stock dividend, or a corporate transaction such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such +reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares which are reserved and may be delivered under +Section IV.A, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and in the Award limits set forth in subsections IV.A.1 through IV.A.6, inclusive as may be determined to be appropriate and +equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number. +V. ELIGIBILITY AND PARTICIPATION +A. ELIGIBILITY. Persons eligible to participate in this Plan include officers and certain key salaried Employees of +the Company with potential to contribute to the success of the Company or its Subsidiaries, including Employees who are members of the Board. Notwithstanding the foregoing, Non-Employee Directors of the Company shall be eligible to participate in +the Plan with respect to Awards of Non-Qualified Stock Options, Stock Appreciation Rights SARs , Restricted Stock and RSUs Restricted Stock Units , as specified in Article VI, Article VII, +Article VIII and Article IX. Except as otherwise specifically provided in this Plan, the Committee shall determine the terms and conditions of any such Awards to Non-Employee Directors, including the terms and conditions which shall apply +upon a termination of the Non-Employee Director’s service as a member of the Board, and shall have full power and authority in its discretion to administer such Awards, subject to the terms of the Plan and applicable law. +B. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select in its +sole and broad discretion, upon or without the recommendation of officers of the Company, from all eligible Employees those to whom Awards shall be granted, and shall determine the nature and amount of each Award. +C. MINIMUM VESTING SCHEDULE. Except as provided below: (1) all Awards granted under this Plan that vest based on +the passage of time shall vest no more rapidly than pro-rata over a three (3) year period from the date of grant (excluding any accelerated vesting as a result of a Participant’s termination of employment, a Change in Control, or similar +items); and (2) all Awards granted under this Plan that vest based on the achievement of specific performance measures shall vest no more rapidly than one (1) year from the date of grant (excluding any accelerated vesting as a result of a +Participant’s termination of employment, a Change in Control, or similar items) . Notwithstanding the foregoing, up to ten percent (10%) of the total number of Shares authorized by the Board and the stockholders for issuance under the Plan +since its inception on April 1, 2010 may be granted pursuant to Awards (including Awards granted prior to June 6, 2013) with more accelerated time-based or performance-based vesting schedules, as applicable, than those described above. The +Committee may adopt reasonable counting procedures similar to those in Section IV.B., above, to determine whether the ten percent (10%) limit in the preceding sentence has been attained. +A-7 +Table of Contents +VI. STOCK OPTIONS +A. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such +number, and upon such terms, and at any time and from time to time as shall be determined by the Committee. For purposes of this Article VI, with respect to NQSOs only, the term “Participant” shall include Non-Employee Directors of +the Company. +B. AWARD AGREEMENT. Each Subject to Section V.C, each Option grant +shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall +specify whether the Option is intended to be an ISO within the meaning of Code Section 422, or an NQSO, whose grant is intended not to fall under the provisions of Code Section 422. +C. OPTION PRICE. The Option Price for each grant of an Option under this Plan shall be at least equal to one hundred +percent (100%) of the Fair Market Value of a Share on the date the Option is granted. Notwithstanding the foregoing, no ISO shall be granted to any person who, immediately prior to the grant, owns stock possessing more than ten percent +(10%) of the total combined voting power of all classes of stock of the Company, unless the Option Price is at least one hundred ten percent (110%) of the Fair Market Value of a Share on the date of grant of the Option. +D. DURATION OF OPTIONS. Each Option granted to a Participant shall expire at such time as the Committee shall +determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary following the date of its grant and provided further that no Option that is an ISO shall be exercisable later than +the fifth (5th) anniversary following the date of its grant to a Participant, who at the time of such grant owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. +E. EXERCISE OF OPTIONS. Options granted under this Article VI shall be exercisable at such times +and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. +F. PAYMENT. Options granted under this Article VI shall be exercised by the delivery of a written notice of +exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. +The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; or (b) by tendering previously acquired Shares having an aggregate +Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Participant for at least six months prior to their tender to satisfy the Option Price); or (c) by +a combination of (a) and (b). +The Committee may also (a) allow cashless exercise as permitted under +Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, (b) cashless exercise by the Participant by the Company’s withholding of Shares issuable upon exercise of an Option, or (c) by any +other means which the Committee determines to be consistent with the Plan’s purpose and applicable law. +Subject to any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise +and full payment, the Company shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s). +G. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant +to the exercise of an Option granted under this Article VI as it may deem advisable, +A-8 +Table of Contents +including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, +and under any blue sky or state securities laws applicable to such Shares. +H. TERMINATION OF EMPLOYMENT +BY A PARTICIPANT WHO IS AN EMPLOYEE. With respect to a Participant who is an Employee, each Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the +Participant’s employment with the Company , with the exception of a termination of employment after a Change in Control, which is controlled by Article XVII . Such provisions shall be determined in the sole discretion +of the Committee but shall conform to the limitations established in Section VI.D, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article VI, and +may reflect distinctions based on the reasons for termination of employment. +I. NONTRANSFERABILITY OF +OPTIONS. +1. INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold, transferred, pledged, +assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or the +Participant’s legal representative (to the extent permitted under Code Section 422). +2. NONQUALIFIED STOCK OPTIONS. No NQSO granted under this Article VI may be sold, transferred, pledged, +assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement Further , all NQSOs granted to a +Participant under this Article VI shall be exercisable during his or her lifetime only by such Participant or the Participant’s legal representative. +VII. STOCK APPRECIATION RIGHTS SARs +A. GRANT OF SARS. SARs. Subject to the terms and conditions of the Plan, SARs may be granted +to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs or any combination of these forms of SAR. For purposes of this Article VII, the term +“Participant” shall include Non-Employee Directors of the Company; provided, however, that a Tandem SAR may not be granted to a Non-Employee Director unless the related Option is a NQSO. +The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to +Article IV herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. +The grant price of a Freestanding SAR shall equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option. +B. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part of the Shares subject to the +related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. +Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted to an Employee in +connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the +difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value +of the Shares subject to the ISO exceeds the Option Price of the ISO. +A-9 +Table of Contents +C. EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised +upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them. +D. SAR +AGREEMENT. Each Subject to Section V.C, each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee may determine. +E. TERM OF SARS. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole +discretion; provided, however, that such term shall not exceed ten (10) years. +F. PAYMENT OF SAR +AMOUNT. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: +1. the difference between the Fair Market Value of a Share on the date of exercise over the grant price; by +2. the number of Shares with respect to which the SAR is exercised. +At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. The Committee’s determination regarding the form of +SAR payout shall be set forth in the Award Agreement pertaining to the grant of the SAR. +G. TERMINATION +OF EMPLOYMENT BY A PARTICIPANT WHO IS AN EMPLOYEE. With respect to a Participant who is an Employee, each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the +Participant’s employment with the Company and/or its Subsidiaries , with the exception of a termination of employment that occurs after a Change in Control, which is controlled by Article XVII . Such provisions shall +be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all SARs issued pursuant to the Plan and may reflect distinctions based on the reasons for +termination of employment. +H. NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be sold, +transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement Further , all +SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or the Participant’s legal representative. +VIII. RESTRICTED STOCK +A. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts +as the Committee shall determine. For purposes of this Article VIII, the term “Participant” shall include Non-Employee Directors of the Company. +B. RESTRICTED STOCK AGREEMENT. Each Subject to Section V.C, each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the +Period(s) of Restriction, the number of Shares of Restricted Stock granted and such other provisions as the Committee shall determine. +C. NONTRANSFERABILITY. Except as provided in this Article VIII and subject to federal securities laws, the Shares of Restricted Stock granted under the Plan may not be sold, transferred, +pledged, assigned or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, +as specified by the Committee in its sole discretion and as set forth in the Restricted Stock Award +A-10 +Table of Contents +Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant or the Participant’s +legal representative for the Period of Restriction. +D. OTHER RESTRICTIONS. Subject to Article XI +herein, the Committee may impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated +purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, divisional and/or individual), time-based restrictions on vesting following the attainment of the performance +goals and/or restrictions under applicable federal or state securities laws. +The Company may retain the +certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied. +Except as otherwise provided in this Article VIII and subject to Federal securities laws, Shares of Restricted Stock +covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction. +E. VOTING RIGHTS. Participants holding Shares of Restricted Stock granted hereunder may be granted the right to +exercise full voting rights with respect to those Shares during the Period of Restriction. +F. DIVIDENDS +AND OTHER DISTRIBUTIONS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder shall be credited with regular cash dividends paid with respect to the underlying Shares while they are so held. The +Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Restricted Stock granted to a Covered Employee is designed to comply +with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Restricted Stock, such that the dividends and/or the Restricted Stock +maintain eligibility for the Performance-Based Exception. Notwithstanding anything to the contrary herein, (i) dividends accrued on Restricted Stock will only be paid if the Restricted Stock vests; and (ii) for any Award that is governed +by Code Section 409A regarding non-qualified deferred compensation, the Committee shall establish the schedule of any payments of dividends in accordance with the requirements of Code Section 409A or any guidance promulgated thereunder. +G. TERMINATION OF EMPLOYMENT BY A PARTICIPANT WHO IS AN EMPLOYEE. With respect to a Participant who is +an Employee, each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive nonvested Restricted Shares following termination of the Participant’s employment with the Company. Such +provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock issued pursuant to the Plan and may reflect +distinctions based on the reasons for termination of employment. +H. VESTING OF RESTRICTED STOCK +AWARDS. Unless otherwise provided in the Plan or under an Award Agreement: (1) all Awards of Restricted Stock that vest based on the passage of time which are granted to a Participant shall vest no more rapidly than pro-rata over a three +(3) year period from the date of grant (the “Time-Based Restricted Stock”); and (2) all Awards of Restricted Stock that vest based on the achievement of specific measures designed to satisfy the Performance-Based Exception or +other performance measures which are granted to a Participant shall vest no more rapidly than one (1) year from the date of grant (the “Performance-Based Restricted Stock”); provided, however: (1) up to ten percent (10%) of +the Time-Based Restricted Stock Awards, Performance-Based Restricted Stock Awards, or both, may by designation of the Committee (as reflected in the Restricted Stock Award Agreement), be subject to a more accelerated time-based vesting schedule or +performance-based vesting schedule, as the case may be; and (2) Restricted Stock Awards which +A-11 +Table of Contents +fully vest upon certain termination events as determined by the Committee and specified in the Employee’s Restricted Stock Award Agreement (or as a result of +termination from the Board as a Non-Employee Director pursuant to Section VIII.I.3.f.) or a Change in Control shall not count as part of this ten percent (10%) pool. +I. ADDITIONAL PROVISIONS RELATED TO RESTRICTED STOCK AWARDS TO NON-EMPLOYEE DIRECTORS. +1. AWARD DATES. Effective as of the date specified by the Committee in its sole discretion, each Non-Employee +Director will be awarded such number of Shares of Restricted Stock as determined by the Board, after consideration of the recommendation of the Committee. Non-Employee Directors may, but need not, be awarded the same number of Shares of Restricted +Stock. A Non-Employee Director who is first elected to the Board on a date subsequent to the date specified by the Committee in its sole discretion will be awarded such number of Shares of Restricted Stock as of such date of election as determined +by the Board, after consideration of the recommendation of the Committee. +2. DIVIDEND RIGHTS OF HOLDERS +OF RESTRICTED STOCK. Notwithstanding Section VIII.F., upon issuance of a Restricted Stock Agreement, the Non-Employee Director in whose name the Restricted Stock Agreement is registered will, subject to the provisions of the Plan , have +the right to receive immediately all cash dividends and other cash distributions thereon. +3. PERIOD OF RESTRICTION. Restricted Stock will be subject to the restrictions forfeiture as +set forth in Section VIII.I.4. and the other provisions of the Plan during the Period of Restriction commencing on the date as of which the Restricted Stock is awarded (the “Award Date”) and ending on the earliest of the first to +occur of the following: +a. the retirement of the Non-Employee Director from the Board in compliance with +the Board’s retirement policy as then in effect; +b. the termination of the Non-Employee +Director’s service on the Board as a result of the Non-Employee Director’s not being nominated for reelection by the Board; +c. the termination of the Non-Employee Director’s service on the Board because of the Non-Employee Director’s resignation or failure to stand for reelection with the consent of the +Company’s Board (which means approval by at least 80% of the Directors voting, with the affected Non-Employee Director abstaining); +d. the termination of the Non-Employee Director’s service on the Board because the Non-Employee Director, although nominated for reelection by the Board, is not reelected by the stockholders; +e. the termination of the Non-Employee Director’s service on the Board because of (i) the +Non-Employee’s Director’s resignation at the request of the Nominating and Governance Committee of the Board (or successor committee), (ii) the Non-Employee Director’s removal by action of the stockholders or by the Board, or +(iii) a Change in Control of the Company; +f. the termination of the Non-Employee Director’s +service on the Board because of Disability or death; or +g. the vesting of the Restricted Stock. +Section VIII.I.3.a. through g. above are subject to the further restrictions that a removal or +resignation for “Cause” will be deemed to not constitute completion of the Period of Restriction and will result in a forfeiture of Restricted Stock not previously vested under Section VIII.I.4. For purposes of this Plan, +“Cause” will be a good faith determination by the Board that the Non-Employee Director (i) failed to substantially perform his or her duties (other than a failure resulting from his or her incapacity due to physical or mental illness) +after a written +A-12 +Table of Contents +demand for substantial performance has been delivered to him or her by the Board, which demand specifically identifies the manner in which the Board believes such Non-Employee Director has not +substantially performed his or her duties; (ii) has engaged in conduct the consequences of which are materially adverse to the Company, monetarily or otherwise; or (iii) has pleaded guilty or nolo contendere to or been convicted of a +felony. The Non-Employee Director will not be deemed to have been terminated for Cause unless there will have been delivered to the Non-Employee Director a letter from the Board setting forth the reasons for the Company’s termination of the +Non-Employee Director for Cause and, with respect to (i) or (ii), stating that the Non-Employee Director has failed to cure such reason for termination within thirty (30) days after the Non-Employee Director’s receipt of such notice. +4. FORFEITURE OF RESTRICTED STOCK. As of the date (“Termination Date”) a Non-Employee Director +ceases to be a member of the Board for any reason, including but not limited to removal or resignation for Cause, the Non-Employee Director shall forfeit to the Company all Restricted Stock awarded to the Non-Employee Director for which the Period +of Restriction has not ended pursuant to Section VIII.I.3. as of or prior to the Termination Date. +IX. RESTRICTED STOCK UNITS +A. GRANT OF RESTRICTED STOCK UNITS. Subject to the terms of the Plan, RSUs Restricted Stock Units may be granted to Participants in such amounts and upon such terms, and at any +time and from time to time, as shall be determined by the Committee. For purposes of this Article IX, the term “Participant” shall include Non-Employee Directors of the Company. +B. RESTRICTED STOCK UNIT AGREEMENT. Each RSU Subject to Section V.C, each Restricted Stock +Unit grant shall be evidenced by a Restricted Stock Unit Award Agreement that shall specify the Period(s) of Restriction, the number of RSUs Restricted Stock Units granted, and such other provisions as the Committee may +determine. +C. VALUE OF RESTRICTED STOCK UNIT. Each RSU Restricted Stock Unit shall +have a value that is equal to the Fair Market Value of a Share on the date of grant. +D. FORM AND TIMING OF PAYMENT OF RESTRICTED STOCK UNITS. Settlement of vested +RSUs Restricted Stock Units may be made in the form of (i) cash, (ii) Shares or (iii) any combination of both, as determined by the Committee at the time of the grant of the RSUs Restricted +Stock Units , in its sole discretion. Vested RSUs Restricted Stock Units shall be settled in a lump sum as soon as administratively practicable after the vesting date, but in no event later than two and one-half (2 1 / 2 ) months +following the vesting date. The amount of such settlement shall be equal to the Fair Market Value of the RSUs Restricted Stock Units on the vesting date. +E. DIVIDEND EQUIVALENTS. Each RSU Restricted Stock Unit shall be credited with an amount +equal to the dividends paid on a Share between the date of grant and the date such RSU is Restricted Stock Unitis paid to the Participant (if at all). Dividend equivalents shall vest, if at all, upon the same terms and +conditions governing the vesting of RSUs Restricted Stock Units under the Plan. Payment of the dividend equivalent shall be made at the same time as payment of the RSU and Restricted Stock Unitand shall +be made without interest or other adjustment. If the RSU is Restricted Stock Unitis forfeited, the Participant shall have no right to dividend equivalents. +F. VOTING RIGHTS. The holders of RSUs Restricted Stock Units shall have no voting rights. +G. NONTRANSFERABILITY. RSUs Restricted Stock Units may not be sold, transferred, +pledged, assigned, or otherwise alienated or hypothecated, other than by will or by laws of descent and distribution. +A-13 +Table of Contents +H. TERMINATION OF EMPLOYMENT BY A PARTICIPANT WHO IS AN EMPLOYEE. With +respect to a Participant who is an Employee, each Restricted Stock Unit Award Agreement shall set forth the extent to which the Participant shall have the right to receive nonvested Restricted Stock Units following termination of the +Participant’s employment with the Company. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Restricted Stock +Units issued pursuant to the Plan and may reflect distinctions based on the reasons for termination of employment. +X. PERFORMANCE UNITS AND PERFORMANCE SHARES +A. GRANT +OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the +Committee. +B. PERFORMANCE UNIT/SHARE AGREEMENT. Each Subject to Section V.C, each +Performance Unit or Performance Share grant shall be evidenced by a Performance Unit or Performance Share Award Agreement, as the case may be, that shall specify the number of Performance Units or Performance Shares granted and such other provisions +as the Committee may determine. +C. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have +an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its +discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares that will be paid out to the Participant. For purposes of this Article X, the time period during which the +performance goals must be met shall be called a “Performance Period.” +D. EARNING OF +PERFORMANCE UNITS/SHARES. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number and value of Performance Units/Shares earned by +the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved. +E. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of earned Performance +Units/Shares shall be made in a single lump sum following the close of the applicable Performance Period. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or in +Shares (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions deemed +appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award. Payment shall be made no later than two and one-half +(2 1 / 2 ) months +following the close of the Performance Period. +F. SEPARATION FROM SERVICE DUE TO DEATH OR +DISABILITY. In the event the Participant incurs a Separation From Service by reason of death or Disability during a Performance Period, the Participant shall not receive a payout of the Performance Units/Shares, unless determined otherwise by the +Committee or set forth in the Participant’s Award Agreement. +Payment of earned Performance Units/Shares +shall be made at a time specified by the Committee in its sole discretion and set forth in the Participant’s Award Agreement. +G. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a Participant’s employment terminates for any reason other than those reasons set forth in Section X.F. herein, all +Performance Units/Shares intended to qualify for the Performance-Based Exception shall be forfeited by the Participant to the Company. +A-14 +Table of Contents +H. NONTRANSFERABILITY. Except as otherwise provided in a +Participant’s Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as +otherwise provided in a Participant’s Award Agreement Further , a Participant’s rights under the Plan shall be exercisable during the Participant’s lifetime only by the Participant or the Participant’s legal +representative. +I. NO DIVIDEND AND VOTING RIGHTS. Participants will not be entitled to receive any +dividends declared with respect to Shares which have been earned in connection with grants of Performance Units and/or Performance Shares, but not yet distributed to Participants nor shall Participants have voting rights with respect to such Shares. +XI. PERFORMANCE MEASURES +Unless and until the Committee proposes for stockholder vote and the Company’s stockholders approve a change in the +general performance measures set forth in this Article XI, the attainment of which may determine the degree of payout and/or vesting with respect to Awards to Covered Employees which measures are designed to qualify for the Performance-Based +Exception, the performance measure(s) to be used as determined in the Committee’s discretion for purposes of such grants may be measured (i) on a total basis, on a per Mcf or BOE equivalent basis (mcf or barrels equivalent for +gas and oil), on a per share basis, or on such other measurement basis as may be determined by the Committee, and/or (ii) at the Company level, at a , Subsidiary or , Affiliate level, +or at an operating unit level and , and/or (iii) on an absolute or a comparative basis against the Company’s internal targets, the Company’s competitors, the industry or some other +comparator group. The measures shall be chosen from among the following: net income either before or after taxes (including adjusted net income), share price, earnings per share (basic or diluted), total stockholder return, return on assets, +return on equity, operating income, return on capital or investment, cash flow or adjusted cash flow from operations , economic value added or adjusted cash flow per Share (net income plus or minus change in operating assets +and liabilities), , debt level, cost reduction targets, equity ratios, capital efficiency (adjusted EBITDA divided by production and divided by average funding and development cost per unit), ), coverage ratio +(adjusted EBITDAX/interest), EBITDA or EBIDTA margin, operating and general and administrative expense per Mcfe (the sum of total lease operating expense, exploration general and administrative expense and corporate general and +administrative expense divided by Mcfe (mcf equivalent for gas and oil)), ), average reserve replacement ratio (the sum of extensions and discoveries, revisions in previous estimates and purchase of reserves divided by the sum +of the same), production (actual production volume for a specified period of time) (including, but not limited to, any or all of such measures in comparison to the Company’s competitors, the industry or some other comparator group), +amount of the oil and gas or production growth, oil and gas reserves or growth in reserves, oil and gas reserve additions, and costs of finding oil and gas reserves. +The Committee shall have the discretion to adjust the determinations of the degree of attainment of the preestablished +performance goals; provided, however, that Awards which are designed to qualify for the Performance-Based Exception, and which are held by Covered Employees, may not be adjusted upward (the Committee shall retain the discretion to adjust such Awards +downward). +In the event that applicable tax and/or securities laws or exchange listing standards change to +permit Committee discretion to alter the governing performance measures without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the +event that the Committee determines that it is advisable to grant Awards which shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Code Section 162(m). +In the case of any Award which is granted subject to the condition that a specified performance measure be achieved, no +payment under such Award shall be made prior to the time that the Committee certifies in writing that the performance measure has been satisfied, in accordance with Internal Revenue Service requirements. No such certification is required, however, +in the case of an Award that is based solely on an increase in the value of a Share from the date such Award was made. +A-15 +Table of Contents +XII. BENEFICIARY DESIGNATION +Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named +contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall +be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such designated beneficiary, benefits remaining unpaid at the +Participant’s death shall be paid to the Participant’s estate. +XIII. DEFERRALS +The Committee may permit or require a Participant to defer such Participant’s receipt of the payment of cash or the +delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock or Restricted Stock Units, or the satisfaction of any requirements +or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals, provided, however, all deferrals shall +be designed to be made in accordance with all applicable requirements of Code Section 409A or any guidance promulgated thereunder. +XIV. RIGHTS OF EMPLOYEES +A. EMPLOYMENT. Nothing in the Plan +shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. +B. PARTICIPATION. No Employee shall have the right to be selected to receive an Award under this Plan or, having +been so selected, to be selected to receive a future Award. +XV. AMENDMENT, MODIFICATION, TERMINATION AND +ADJUSTMENTS +A. AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms of the Plan, the Board, +upon recommendation of the Committee, may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part for any purpose which the Committee deems appropriate and that is otherwise consistent with +Code Section 409A; provided, however, no amendment shall, without shareholder approval, (i) materially increase the benefits accruing to Participants under the Plan; (ii) materially increase the number of securities which may be +issued under the Plan; or (iii) materially modify the requirements for participation in the Plan. +Except +in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, +or exchange of shares), the terms of outstanding Awards may not be amended to reduce the exercise price of outstanding Options or SARs or cancel outstanding Options or SARs in exchange for cash, other awards or Options or SARs with an exercise price +that is less than the exercise price of the original Options or SARs without shareholder approval. +B. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS. The Committee may make +adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section IV.C. hereof) affecting the Company or the +financial statements of the Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or +potential benefits intended to be made available under the Plan; provided that unless the Committee determines otherwise, no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan or Awards meeting +the requirements of Code Sections 162(m) and 409A, as from time to time amended. +A-16 +Table of Contents +C. AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of +the Plan to the contrary (but subject to Section XV.B. hereof), no termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan without the written consent of the +Participant holding such Award. +D. COMPLIANCE WITH CODE SECTION 162(m). At all times when Code +Section 162(m) is applicable, all Awards granted under this Plan shall comply with the requirements of Code Section 162(m); provided, however, that in the event the Committee determines that such compliance is not desired with respect to +any Award or Awards available for grant under the Plan, then compliance with Code Section 162(m) will not be required. In addition, in the event that changes are made to Code Section 162(m) to permit greater flexibility with respect to any +Award or Awards available under the Plan, the Committee may, subject to this Article XV, make any adjustments it deems appropriate consistent with the changes made to Code Section 162(m). +XVI. PAYMENT OF PLAN AWARDS AND CONDITIONS THEREON +A. EFFECT OF COMPETITIVE ACTIVITY. Anything contained in the Plan to the contrary notwithstanding, unless otherwise +covered in an employment or other agreement by and between the Company and the Participant or in any applicable severance or similar plan sponsored by the Company , with respect to any Participant who is an Employee, if the employment +of any Participant shall terminate, for any reason other than death, while any Award to such Participant is outstanding hereunder, and such Participant has not yet received the Shares covered by such Award or otherwise received the full benefit of +such Award, such Participant, if otherwise entitled thereto, shall receive such Shares or benefit only if, during the entire period from the date of such Participant’s termination to the date of such receipt, such Participant shall have earned +such Award by: (i) making himself or herself available, upon request, at reasonable times and upon a reasonable basis, to consult with, supply information to, and otherwise cooperate with the Company or any Subsidiary or Affiliate thereof with +respect to any matter that shall have been handled by him or her or under his or her supervision while he or she was in the employ of the Company or of any Subsidiary or Affiliate thereof; and (ii) refraining from engaging in any activity +within any county or parish, or adjacent to any county or parish, in which the Company owns any oil and gas interests that is directly or indirectly in competition with any gas, exploration and production activities, including oil and gas leasing or +drilling activities of the Company or any Subsidiary or Affiliate thereof for a period of one (1) year following his or her termination of employment. +B. NONFULFILLMENT OF COMPETITIVE ACTIVITY CONDITIONS; WAIVERS UNDER THE PLAN. In the event of a Participant’s nonfulfillment of any condition set forth in Section XVI.A. hereof, such +Participant’s rights under any Award shall be forfeited and canceled forthwith; provided, however, that the nonfulfillment of such condition may at any time (whether before, at the time of, or subsequent to termination of employment) be waived +by the Committee upon its determination that in its sole judgment there shall not have been and will not be any substantial adverse effect upon the Company or any Subsidiary or Affiliate thereof by reason of the nonfulfillment of such condition. +XVII. CHANGE IN CONTROL +A. TREATMENT OF OUTSTANDING EXISTING AWARDS. Notwithstanding any provisions in the +Participant’s Employment With respect to Awards existing as of the Effective Date, unless otherwise provided in an applicable Award Agreement to , the contrary, but subject to Section XVII.B. +herein or Change in Control provisions set forth in the Plan governing as in effect on the particular Award, date such Awards were granted shall govern the treatment of such Awards upon +the occurrence of a Change in Control : . +1. any and all +Options and SARs granted hereunder shall become immediately exercisable; +2. any Periods +of Restriction and restrictions imposed on Restricted Stock or RSUs which are not intended to qualify for the Performance-Based Exception shall lapse; and +A-17 +Table of Contents +3. any Award intended to qualify for the Performance-Based +Exception shall be earned in accordance with the applicable Award Agreement. +B. TERMINATION, AMENDMENT AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS. Notwithstanding any other +provision of the Plan or any Award Agreement provision, the provisions of this Article XVII may not be terminated, amended or modified on or after the date of an event, commencing upon material discussions by the Board respecting a possible +transaction that would result in a Change in Control, which is likely to give rise to a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said +Participant’s outstanding Awards. +B. TREATMENT OF NEW AWARDS. With respect to Awards granted +on and after the Effective Date, unless otherwise provided in an applicable Award Agreement, in the event of a Change in Control, the Board or the Committee (as applicable) shall have full discretion to take whatever actions it deems necessary or +appropriate with respect to outstanding Awards, including, but not limited to: (i) to provide for full or partial accelerated vesting of any Award or portion thereof, either immediately prior to such Change in Control or on such terms and +conditions following the Change in Control (such as a termination without cause) as the Board or the Committee determine in their sole and absolute discretion, (ii) to provide for the assumption of such Awards (or portions thereof) or the +substitution of such Awards (or portions thereof) with similar awards of the surviving or acquiring Company, in a manner designed to comply with Section 409A of the Code, (iii) to provide for the cash out and cancellation of any Award (or +portion thereof) immediately prior to such Change in Control, which cash out may (in a manner designed to comply with Code Section 409A) be subject to any escrow, earn-out or other contingent or deferred payment arrangement that is contemplated +by such Change in Control, and (iv) take any other actions as the Board or Committee deem necessary or advisable in connection with such Change in Control transaction; provided, however, that in the event the surviving or acquiring company does +not assume the outstanding Awards (or portions thereof) or substitute similar stock awards for those outstanding under the Plan as of the Change in Control, then (i) the vesting and exercisability (if applicable) of all Awards (or portions +thereof) shall be accelerated in full immediately prior to such Change in Control, and (ii) such outstanding Awards (or portions thereof) shall terminate and/or be payable upon the occurrence of the Change in Control. The Board or the +Committee, as applicable, may take different actions with respect to different Participants under the Plan, different Awards under the Plan, and different portions of Awards granted under the Plan. +XVIII. TAX PROVISIONS +A. TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant who is an Employee to remit to the Company, an amount sufficient to satisfy federal, +state and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan. +B. SHARE WITHHOLDING. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock or Restricted RSUs Restricted +Stock Units , upon achievement of the performance goals on Performance Shares or Performance Units or upon any other taxable event arising as a result of Awards granted hereunder, Participants who are Employees may elect, subject to the approval +of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined at least equal to the minimum, but not no +more than the maximum, minimum statutory tax which could be imposed on the transaction. All such elections shall be irrevocable, made in writing, and signed by the Participant, and shall be subject to any restrictions or +limitations that the Committee, in its sole discretion, deems appropriate. +C. REQUIREMENT OF +NOTIFICATION OF CODE SECTION 83(b) ELECTION. If any Participants shall make an election under Code Section 83(b) (to include in gross income in the year of transfer the amounts specified in Code Section 83(b)) or under a similar provisions +of the laws of a jurisdiction outside the United +A-18 +Table of Contents +States, such Participant shall notify the Company of such election within ten (10) days after filing notice of the election with the Internal Revenue Service or other government authority, +in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b) or other applicable provision. +D. REQUIREMENT OF NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER CODE SECTION 421(b). If any Participant shall make any disposition of shares of stock delivered pursuant to the exercise of an +Incentive Stock Option under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) days thereof. +XIX. INDEMNIFICATION +Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be +imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act +under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit or proceeding against him or her, +provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive +of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Bylaws, as a matter of law or otherwise, or any power that the Company may have to indemnify them or hold them +harmless. +XX. SUCCESSORS +All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor +to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company. +XXI. LEGAL CONSTRUCTION +A. GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall +include the plural. +B. SEVERABILITY. In the event any provision of the Plan shall be held illegal or +invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. +C. REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under the Plan shall be subject to all +applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. +D. SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. +To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. +E. CODE SECTION 409A COMPLIANCE. Notwithstanding any other provision of this Plan to the contrary, all Awards under +this Plan that are subject to Code Section 409A shall be designed and administered in a manner that does not result in is intended to avoid the imposition of tax or penalties under Code Section 409A. Accordingly, +Awards under this Plan that are subject to Code Section 409A shall be designed to comply with the following requirements, as applicable. +A-19 +Table of Contents +1. Distribution to Specified Employees Upon Separation from Service. To +the extent that payment under an Award which is subject to Code Section 409A is due to a Specified Employee on account of the Specified Employee’s Separation from Service from the Company or its Affiliate or Subsidiary, such payment shall +be delayed until the first day of the seventh (7th) month following such Separation from Service (or as soon as practicable thereafter). The Committee, in its discretion, may provide in the Award document for the payment of interest at a rate +set by the Committee for such six-month period. In the event that a payment under an Award is exempt from Code Section 409A, payment shall be made to a Specified Employee without any such six-month delay. +2. No Acceleration of Payment. To the extent that an Award is subject to Code Section 409A, payment under such +Award shall not be accelerated from the date(s) specified in the Award documents as of the date of grant. +3. Subsequent Delay in Payment. To the extent that an Award is subject to Code Section 409A, payment under such +Award shall not be deferred beyond the dates specified in the Award document as of the date of grant, unless the Committee or Participant, as the case may be, makes the decision to delay payment at least one year prior to the scheduled payment date, +and payment is delayed at least five (5) years. +4. No Liability. Notwithstanding anything to the +contrary in this Plan, in no event shall the Company, the Board, the Committee, or any of their respective agents, assigns, or representatives have any liability to any Plan Participant for any taxes, penalties, or interest assessed against such +Participant as a result of the application of Code Section 409A to any Award made hereunder. +F. +GOVERNING LAW. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Colorado. +A-20 +Table of Contents +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your +proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must +be received by 1:00 am Eastern Time on June 6, 2013. +Vote by Internet +• Go to www.envisionreports.com/PDCE +• Or scan the QR code with your smartphone +• Follow the steps outlined on the secure +website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded +message +Using a black ink pen, mark your votes with an X as +shown in +this example. Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. q +A +Proposals — The Board recommends a vote FOR both nominees and FOR Proposals 2, 3 and 4. +1. Election of Two Class III Directors: +For +Withhold +For +Withhold ++ +01 - Larry F. Mazza +¨ +¨ +02 - James M. Trimble +¨ +¨ +For +Against +Abstain +2. To ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the +Company for the year ending December 31, 2013. +¨ +¨ +¨ +3. To approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +¨ +¨ +¨ +4. To approve an Amended and Restated 2010 Long-Term Equity Compensation Plan for the Company. +¨ +¨ +¨ +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign personally. When signing as attorney, executor, +administrator, trustee, guardian, or custodian, please give full title as such. If a corporation or partnership, please sign full corporate or partnership name, by an authorized officer or an authorized person, respectively. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 (if needed) — Please keep signature within the box. +/ +/ +Table of Contents +q IF +YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +q +Proxy — PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +Proxy Solicited by Board of Directors for 2013 Annual Meeting of Stockholders +The undersigned appoints GYSLE R. SHELLUM and DANIEL W. AMIDON, and either of them, proxies, each with full power to act without the other and with full +power of substitution for and in the name of the undersigned at the 2013 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) to be held on June 6, 2013, at 11:30 a.m. Central Time, and at any adjournment or postponement +thereof, to vote all shares of the common stock of the Company held by the undersigned with respect to the matters herein and on such other matters as may properly come before the meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement for such meeting to be held on +June 6, 2013, and a copy of the Company’s 2012 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE +REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1 +AND FOR EACH OF PROPOSAL 2, PROPOSAL 3 AND PROPOSAL 4. +In their discretion, the appointed proxies are authorized to vote upon such other +business as may properly come before the meeting and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON +OTHER SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-13-168327/proxy_rpt.txt b/raw/proxies/0000077877/0001193125-13-168327/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..4d9b721c929eb9dadfca1aef181531100665b6c2 --- /dev/null +++ b/raw/proxies/0000077877/0001193125-13-168327/proxy_rpt.txt @@ -0,0 +1,15 @@ +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From January 1, 2012 to the present, there was no transaction or series of transactions, nor is there any currently +proposed transaction, in which the amount involved exceeds $120,000, in which the Company is participant and in which any Director, executive officer, known holder of more than five percent of the Company’s common stock or any member of the +immediate family of any of the foregoing persons had or will have a direct or indirect material interest for which disclosure is required under SEC Rule S-K 404. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related party transaction policy +applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the +foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial interest. +Under our related party transaction policy, a related person transaction is a transaction or arrangement involving a +related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit +Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction to the Company and the +business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis, and the impact of the transaction on the Company’s business and +operations. \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-08-094864/proxy.txt b/raw/proxies/0000874499/0001193125-08-094864/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b25453a507d51ae81ebb1350229b6bf7f3eebdc7 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-08-094864/proxy.txt @@ -0,0 +1,1411 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +x Filed by the Registrant ¨ Filed by a Party other than the Registrant +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under § 240.14a-12 +Gulfport Energy Corporation +(Name of Registrant as Specified In Its +Charter) +(Name of Person(s) Filing Proxy Statement, if +other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +¨ +Fee paid previously with written preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +Table of Contents +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +2008 +ANNUAL STOCKHOLDERS MEETING +and +PROXY STATEMENT +Wednesday +June 4, 2008 +10 a.m. local time +14313 N. May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134 +April 29, 2008 +Dear Gulfport Energy Corporation Stockholder: +On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 14313 N. May Avenue, Suite 100, +Oklahoma City, Oklahoma 73134 on Wednesday, June 4, 2008, at 10 a.m. +It is +important that your shares be represented at the meeting. Whether or not you plan to attend the meeting, please complete and return the enclosed proxy card in the accompanying envelope. Please note that submitting a proxy will not prevent you from +attending the meeting and voting in person. +You will find information regarding the +matters to be voted on at the meeting in the enclosed proxy statement. Our 2007 Annual Report to Stockholders is either enclosed with these materials or has previously been mailed to you. +In addition to the formal items of business to be brought before the meeting, there will be a report +on our operations, followed by a question and answer period. Your interest in Gulfport Energy Corporation is appreciated. We look forward to seeing you on June 4, 2008. +Sincerely, +James D. Palm +Mike Liddell +Chief Executive Officer +Chairman of the Board +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 4, 2008 +To our Stockholders: +The Annual Meeting of Stockholders of Gulfport Energy Corporation will be held on June 4, 2008 at 10 a.m., local time, at 14313 North May +Avenue, Suite 100, Oklahoma City, Oklahoma 73134, for the following purposes: +1. +To elect five directors to serve until the Company’s 2009 Annual Meeting of Stockholders; +2. +To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2008; and +3. +To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. +Your vote is important. Please carefully consider the proposals and vote in one of these ways: +• +Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope; or +• +Submit a ballot at the Annual Meeting. +Only stockholders +of record at the close of business on April 23, 2008, or their proxy holders may vote at the meeting. +By Order of +the Board of Directors, +Michael G. Moore +Chief Financial Officer and Secretary +This notice and proxy statement are first being mailed to stockholders on or about May 2, 2008. +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +PROXY STATEMENT +TABLE OF CONTENTS +About the Annual Meeting +1 +Board of Directors Information +4 +Election of Directors and Director Biographies +5 +Corporate Governance Matters and Communications with the Board +9 +Code of Business Conduct and Ethics +10 +Nominating Process For Directors +10 +Audit Committee Report +11 +Executive Officers +13 +Executive Compensation +14 +Compensation Discussion and Analysis +14 +Compensation Components +15 +Report of the Compensation Committee on Executive Compensation +18 +Compensation Committee Interlocks and Insider Participation +18 +Compensation Tables +18 +Retirement Plans +21 +401(k) Plan +21 +Amended and Restated 2005 Stock Incentive Plan +21 +Employment Agreements +22 +Change-in-Control Arrangements +22 +Potential Payments Upon Termination or Change-in-Control +23 +Stock Ownership +24 +Holdings of Major Stockholders +24 +Holdings of Officers and Directors +25 +Section 16(a) Beneficial Ownership Reporting Compliance +25 +Certain Relationships and Related Transactions +26 +Administrative Services Agreements +26 +Services Provided to Us by Our Affiliates +26 +Our Investments in Affiliates and Related Agreements +27 +Option and Purchase Agreement and Related Agreements +28 +Proposal to Ratify the Appointment of Our Independent Auditors +29 +Solicitation by Board; Expenses of Solicitation +31 +Submission of Future Stockholder Proposals +31 +Availability of Form 10-K and Annual Report to Stockholders +31 +Householding +31 +Other Matters +32 +i +Table of Contents +About the Annual Meeting +Who is soliciting my vote? +The board of directors of Gulfport Energy Corporation, which we refer to as “Gulfport,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2008 Annual Meeting +of Stockholders. +What am I voting on? +You are voting +on: +• +The election of directors ( see page 5 ); +• +The ratification of Grant Thornton LLP as our independent auditors for 2008 ( see page 29 ); and +• +Any other business properly coming before the meeting. +How does the board of directors recommend that I vote my shares? +Unless you give other instructions on your proxy card, the persons named +as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors. The Board’s recommendation can be found with the description of each item in this proxy statement. In summary, the board of directors +recommends a vote: +• +FOR the proposal to elect nominated directors; and +• +FOR the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2008. +Who is entitled to vote? +You may vote if you were the record owner +of our common stock as of the close of business on April 23, 2008. Each share of common stock is entitled to one vote. As of April 23, 2008, we had 42,571,419 shares of common stock outstanding and entitled to vote, excluding 82,488 shares +of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan. There is no cumulative voting. +How many votes must be +present to hold the meeting? +Your shares are counted as present at the Annual Meeting if you attend the meeting and vote in person or if you properly +return a proxy by mail. In order for us to hold our meeting, holders of a majority of the voting power of our outstanding shares of common stock as of the close of business on April 23, 2008, must be present in person or by proxy at the +meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the meeting. +What +is a broker non-vote? +If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive +instructions from the beneficial owner on how to vote those shares, the broker may return the proxy card without voting on that proposal. This is known as a broker non-vote . +How many votes are needed to approve each of the proposals? +The five nominees for election as directors at the +Annual Meeting who receive the highest number of “FOR” votes will be elected as directors. This is called plurality voting. Unless you indicate otherwise on your proxy +1 +Table of Contents +card, the persons named as your proxies will vote your shares FOR all the nominees for director named in this proxy statement. +All other proposals require the affirmative “FOR” vote of a majority of the votes cast. Only votes for or against such other proposals will be counted as votes +cast. Abstentions and broker non-votes will not be counted for voting purposes and will have no effect on the result of the vote on such other proposals. +How do I vote? +You can vote either in person at the meeting or by proxy without attending the meeting. +To vote by proxy, you must fill out the enclosed proxy card , date and sign it, and return it in the enclosed postage-paid envelope. +Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person at the Annual Meeting, and you hold your stock in +street name, you must obtain a proxy from your broker and bring that proxy to the meeting. +Can I change my vote? +Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by: +• +Signing another proxy card with a later date and returning it to us prior to the meeting, +• +Sending our Corporate Secretary a written document revoking your earlier proxy, or +• +Voting again at the meeting. +Who counts the +votes? +We have hired Computershare Trust Company, N.A., our transfer agent, to count the votes represented by proxies cast by mail or ballot. +Employees of Computershare Trust Company, N.A. will act as inspectors of election. +Will my vote be confidential? +Yes. As a matter of Company policy, proxies, ballots and voting tabulations that identify individual stockholders are treated as confidential. Only the tabulation agent +and the inspectors of election have access to your vote. Directors and employees of the Company may see your vote only if there is a contested proxy solicitation, as required by law or in certain other special circumstances. +Will my shares be voted if I don’t provide my proxy and don’t attend the Annual Meeting? +If you do not provide a proxy or vote your shares held in your name, your shares will not be voted. +If you hold your +shares in street name, your broker may be able to vote your shares for certain “routine” matters even if you do not provide the broker with voting instructions. The election of directors and the ratification of Grant Thornton LLP as our +independent auditors for 2008 are considered routine matters. +2 +Table of Contents +How are votes counted? +In the election of directors, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For any other proposal, you may vote “FOR,” “AGAINST” +or “ABSTAIN.” +What if I return my proxy but don’t vote for some of the matters listed on my proxy card? +If you return a signed proxy card without indicating your vote, your shares will be voted FOR the director nominees listed on the card and FOR the ratification of Grant +Thornton LLP as our independent auditors for 2008. +Could other matters be decided at the Annual Meeting? +We are not aware of any other matters that will be considered at the Annual Meeting. If any other matters arise at the Annual Meeting, the persons named in your proxies +will vote in accordance with their best judgment. +Who can attend the meeting? +The Annual Meeting is open to all holders of our common stock. +What do I need to bring to attend the Annual Meeting? +You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of your broker or bank or other nominee, you +will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN +SHARES OF OUR STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING. +How can I access the Company’s proxy materials and annual report electronically? +This proxy statement and our 2007 Annual Report on Form 10-K are available on our website at www.gulfportenergy.com . +3 +Table of Contents +Board of Directors Information +What is the makeup of the board of directors and how often are the members elected? +Our board of directors consists of five members who are elected annually. The majority of these directors are independent under the Nasdaq listing +standards. +What if a nominee is unable or unwilling to serve? +That is not expected to occur. If it does, shares represented by proxies will be voted for a substitute nominated by the board of directors. +How are directors compensated? +Our policy adopted in the second quarter of 2007 is that members of our board of directors who are also our +officers or employees do not receive compensation for their services as directors. Prior to the adoption of such policy, James D. Palm, our Chief Executive Officer and one of our directors, received $3,000 in director fees in the first quarter of +2007. +Equity Compensation +We provide our +non-employee directors with equity compensation under our Amended and Restated 2005 Stock Incentive Plan. Our current non-employee directors are Donald L. Dillingham, Scott E. Streller and David L. Houston. In March 2008, we granted 6,666 shares of +our restricted common stock to Mr. Dillingham in connection with his appointment to our board of directors in November 2007, of which 740 shares vested on April 1, 2008 and the remaining shares will vest in 36 equal monthly installments +beginning on May 1, 2008. In August 2006, we granted 6,666 shares of our restricted common stock to Mr. Streller in connection with his appointment to our board of directors, which shares vest in 36 substantially equal monthly installments +beginning on the date of grant. Mr. Houston holds options to purchase an aggregate of 40,000 shares of our common stock granted to him for his service as a director, of which options to purchase 32,000 shares of our common stock are fully +vested. Unvested options to purchase 8,000 shares of our common stock held by Mr. Houston vest in two remaining equal installments on January 24, 2009 and 2010, respectively, and have ten-year terms from the date of grant. No equity grants +were made to any of our non-employee directors in 2007. Further details regarding our director compensation in 2007 are set forth under the heading “Director Compensation” below. +Cash Compensation +In 2007, we paid our non-employee directors a +monthly retainer of $1,000 and a per meeting attendance fee of $500 and reimburse all ordinary and necessary expenses incurred by non-employee directors in the conduct of our business. In March 2008, the compensation committee of our board of +directors, following its review of the compensation survey prepared by an outside consultant, determined that committee members and chairpersons commit substantially more time than other board members. As a result, the compensation committee has +determined that for 2008, in addition to the fees described above, each committee member of our board of directors will receive $3,000 per year for his service on each committee. However, if a director serves as the committee chairman, he will +receive $4,500 per year per committee. +Insurance and Indemnification Contracts +We provide liability insurance for our directors and officers at a current annual cost of approximately $321,330 and have contractual indemnification arrangements with our directors and certain of our officers under +which we agree, in certain circumstances, to compensate them for costs and liabilities incurred in actions brought against them while acting as directors or officers of the Company. +How often did the board of directors meet in 2007? +The board of directors met four times in 2007. In addition to +these meetings, the board of directors adopted resolutions by unanimous written consent. Each director attended at least 75% of the aggregate meetings of the board of directors and the meetings of the committees on which he served. +4 +Table of Contents +Election of Directors and Director Biographies +(Proposal 1 on the Proxy Card) +Who are this year’s nominees? +The directors standing for +election this year to hold office until the 2009 Annual Meeting of Stockholders and until each such director’s successor is elected are: +MIKE +LIDDELL, age 54. Mr. Liddell has served as a director of our company since July 1997 and as Chairman of the Board of our company since July 1998. Mr. Liddell served as Chief Executive Officer of our company from April 1998 to December +2005 and President of our company from July 2000 to December 2005. In addition, Mr. Liddell served as Chief Executive Officer of DLB Oil & Gas, Inc., a publicly held oil and natural gas company, from October 1994 to April 1998, and as +a director of DLB Oil & Gas from 1991 through April 1998. From 1991 to 1994, Mr. Liddell was President of DLB Oil & Gas. From 1979 to 1991, he was President and Chief Executive Officer of DLB Energy. Mr. Liddell has +served since May 2005 as a director of Bronco Drilling Company, Inc., a provider of contract land drilling services, and served as its Chairman of the Board from May 2005 until August 2007. Since November 2006, Mr. Liddell has served as +Chairman of the Board of Diamondback Energy Services, Inc. Mr. Liddell received a Bachelor of Science degree in education from Oklahoma State University. +DONALD DILLINGHAM, age 45. Mr. Dillingham has served as a director of our company since November 2007. Mr. Dillingham is also a director nominee to the board of directors of Diamondback Energy Services, Inc., one of our +affiliates. Since August 2001, Mr. Dillingham has served as the Senior Portfolio Manager for Avondale Investments, LLC and Merit Advisors, Inc., each of which is a registered investment advisor. Mr. Dillingham is currently the Senior +Portfolio Manager for two mutual funds, a member of the investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer of the Merit Advisors Investment Trust. From August 2002 to December 2004, Mr. Dillingham served as an adjunct +professor of finance at the University of Oklahoma. From April 1998 to August 2001, Mr. Dillingham served as Senior Vice President, portfolio manager and state director for J.P. Morgan Investment Management. From March 1996 to April 1998, +Mr. Dillingham served American Express as the state director responsible for managing the financial planning services and product sales for the state of Oklahoma. From May 1994 to December 1996, Mr. Dillingham worked for Bank of America as +Vice-President of Investment Banking. Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker and sales manager from August 1984 to may 1994. Mr. Dillingham +received a Bachelors of Business and Administration in Accounting from the University of Oklahoma and his Masters of Business and Administration in Finance from Oklahoma City University. Mr. Dillingham is a Chartered Financial Analyst, a +Certified Public Accountant and a Certified Financial Planner. +DAVID L. HOUSTON, age 55. Mr. Houston has served as a director of our company +since July 1998. Since 1991, Mr. Houston has been the principal of Houston & Associates, a firm that offers life and disability insurance, compensation and benefits plans and estate planning. Mr. Houston has served as a director +of Bronco Drilling Company since May 2005. Prior to 1991, Mr. Houston was President and Chief Executive Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank. Mr. Houston currently serves on the board of directors and +executive committee of Deaconess Hospital, Oklahoma City, Oklahoma, and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston received a Bachelor of Science degree in business +from Oklahoma State University and a graduate degree in banking from Louisiana State University. +JAMES D. PALM, age 63. Mr. Palm has served as +a director of our company since February 2006 and as Chief Executive Officer of our company since December 2005. Prior to joining our company, Mr. Palm pursued oil and gas investments primarily in Oklahoma, the Texas Panhandle and Kansas as the +manager and owner of Crescent +5 +Table of Contents +Exploration, LLC, a company he founded in 1995. Mr. Palm currently serves as a member of the Industry Advisory Committee of the Oklahoma Corporation +Commission. From October 2001 through October 2003, Mr. Palm served as the Chairman of the Oklahoma Energy Resources Board. From 1997 through 1999, Mr. Palm served as the President of the Oklahoma Independent Petroleum Association. +Mr. Palm received a Bachelor of Science degree in Mechanical Engineering in 1968, and a Masters in Business Administration in 1971, both from Oklahoma State University. +SCOTT E. STRELLER, age 40. Mr. Streller has served as a director of our company since August 2006. Mr. Streller is also a director nominee to the board of directors of Diamondback Energy Services, +Inc., one of our affiliates. Since April 1993, Mr. Streller has operated an insurance agency for Farmer’s Insurance and Farmer’s Financial Solutions. Mr. Streller received a Master’s degree in Athletic Administration from +Oklahoma State University and a Bachelor of Business Administration degree in Business Management from the University of Central Oklahoma. +What does +the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS +6 +Table of Contents +What are the committees of the Board? +Our board of directors has the following committees: +Committee +Members +Principal Functions +Number of +Meetings in +2007 +Audit +David L. Houston* +Donald L. Dillingham +Scott E. Streller +• Reviews and discusses with management and the independent auditors the integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management +compliance. +• Monitors and oversees our accounting, auditing and financial +reporting processes generally, including the qualifications, independence and performance of the independent auditor. +• Monitors our compliance with legal and regulatory requirements. +• Establishes procedures for the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and the confidential, +anonymous submission by employees of concerns regarding questionable accounting or auditing matters. +• Reviews and approves related party transactions. +• Appoints, determines compensation, evaluates and terminates our independent auditors. +• Pre-approves audit and permissible non-audit services to be performed by the independent auditors. +• Prepares the report required by the SEC for the inclusion in our annual proxy +statement. +• Reviews and reassesses the adequacy of the audit committee charter +on a periodic basis. +5 +Compensation +Scott E. Streller +David L. Houston* +• Oversees and administers our executive compensation policies, plans and practices. +• Assists the board of directors in discharging its responsibilities relating to the compensation of our executives, including our chief executive officer, and other key employees. +• Administers our equity-based compensation plans, including the grants of stock +options, restricted stock awards and other equity awards under such plans. +• Makes recommendations to the board with respect to incentive compensation. +• Conducts annual performance evaluation of the committee. +• Reviews disclosure related to executive compensation in our proxy statement. +• Reviews and reassesses the adequacy of the compensation committee charter. +— +7 +Table of Contents +Committee +Members +Principal Functions +Number of +Meetings in +2007 +Nominating +Donald L. Dillingham +David L. Houston +Scott E. Streller* +• Assists the board of directors in developing criteria for, identifying and evaluating individuals qualified to serve as members of our board of directors. +• Selects and recommends director candidates to the board of directors to be submitted for +election at the Annual Meeting and to fill any vacancies on the board of directors. +• Periodically reviews and makes recommendations regarding the composition and size of the board of directors and each of its committees;. +• Reviews and recommends to the board of directors appropriate corporate governance polices and +procedures for our company. +• Conducts an annual assessment of the qualifications +and performance of the Board. +• Annually reviews and reports to the board of +directors on the performance of management. +• Reviews and reassesses the adequacy +of the nominating committee charter. +1** +* Committee Chairperson +** Our nominating committee was formed in April 2007. Prior to that date, we relied on the “controlled +company exemption” provided by the Nasdaq listing standards and applicable transition rules and were not required to have a nominating and corporate governance committee composed entirely of independent directors and written charters addressing +specified matters until May 1, 2007. +Do the committees have written charters? +Yes. The charters for our Audit Committee, Compensation Committee and Nominating Committee can be found on our website at www.gulfportenergy.com under the “Corporate Governance” caption. You may also +obtain copies of these charters, as well as our Code of Business Conduct and Ethics, which is described below, by writing to Benjamin E. Russ, our General Counsel, at 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +8 +Table of Contents +Corporate Governance Matters and Communications with the Board +Who are our independent directors? +The board of directors has determined that Donald L. Dillingham, David L. Houston and Scott E. Streller meet the standards regarding independence set forth in the Nasdaq +listing standards and are free of any material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). +Our board of directors has determined that each member of the Audit Committee is independent for purposes of serving on such committee under the Nasdaq listing standards +and applicable federal law. In addition, our board of directors has determined that each current member of the Audit Committee is financially literate under the Nasdaq listing standards and that each of Mr. Houston, who serves as the Chairman +of the Audit Committee, and Mr. Dillingham qualifies as the “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. +Our board of directors have also determined that each member of the Compensation Committee and the Nominating Committee meets the independence requirements applicable to those committees under the Nasdaq rules. In +addition, our board of directors determined that each member of our compensation committee is an “outside director” in accordance with Section 162(m) of the Internal Revenue Code and a “non-employee director” in accordance +with Rule 16b-3 under the Securities Exchange Act of 1934, as amended. +Do our non-management directors meet separately without management? +Our non-management directors have the opportunity to meet in an executive session following each regularly scheduled meeting of the board of +directors. During 2007, our non-management directors met in an executive session on August 14, 2007. +How can I communicate with the board of +directors? +Individuals may communicate with our board of directors or individual directors by writing to our Corporate Secretary, Michael G. Moore, at +Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. Our Corporate Secretary will review all such correspondence and forward to our board of directors a summary of all such correspondence and copies of all +correspondence that, in the opinion of our Corporate Secretary, relates to the functions of our board of directors or the compensation committee thereof or that he otherwise determines requires their attention. Directors may review a log of all such +correspondence received by us and request copies. Concerns relating to accounting, internal control over financial reporting or auditing matters will be immediately brought to the attention of the chairman of the audit committee and handled in +accordance with the audit committee procedures established with respect to such matters. +Do directors attend the Annual Meeting? +Recognizing that director attendance at our Annual Meeting can provide our stockholders with an opportunity to communicate with directors about issues affecting the +Company, we actively encourage our directors to attend the Annual Meeting of Stockholders. Directors Mike Liddell, James D. Palm and Scott E. Streller attended the 2007 Annual Meeting of Stockholders. Directors Robert Brooks, who subsequently +resigned as a director on October 29, 2007 and was replaced by Donald L. Dillingham on November 9, 2007, and David L. Houston were unable to attend. +9 +Table of Contents +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and Ethics designed to help directors and +employees resolve ethical issues. Our Code of Business Conduct and Ethics applies to all directors and employees, including the Chief Executive Officer, the Chief Financial Officer and all senior financial officers. Our Code of Business Conduct and +Ethics covers various topics including, but not limited to, conflicts of interest, fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is +posted on our website under the “Investor Relations—Corporate Governance” caption. +Nominating Process For Directors +The Nominating Committee is comprised of three non-employee directors, all of whom are +independent under Nasdaq listing standards. The Committee identifies, investigates and recommends to our board of directors candidates with the goal of creating a balance of knowledge, experience and diversity. Generally, the committee identifies +candidates through the personal, business and organizational contacts of the directors and management. +Potential directors should possess the highest +personal and professional ethics, integrity and values, and be committed to representing the interests of our stockholders. In addition to reviewing a candidate’s background and accomplishments, candidates for director nominees are reviewed in +the context of the current composition of our board of directors and the evolving needs of our stockholders’ businesses. It is the policy of our board of directors that at all times at least a majority of its members meets the standards of +independence promulgated by Nasdaq and the Securities and Exchange Commission, or the SEC, and that all members reflect a range of talents, ages, skills, diversity and expertise, particularly in the areas of accounting and finance, management, +leadership and oil and gas related industries sufficient to provide sound and prudent guidance with respect to our stockholders’ operations and interests. We also require that the members of our board of directors be able to dedicate the time +and resources sufficient to ensure the diligent performance of their duties on our behalf, including attending all meetings of the board of directors and applicable committee meetings. +Our board of directors will consider stockholder nominations for director candidates upon written submission of such recommendation to our Corporate Secretary along with, among other things, the nominee’s +qualifications and certain biographical information regarding the nominee, such nominee’s written consent to serving as a director if elected and being named in the proxy or information statement and certain information regarding the status of +the stockholder submitting the recommendation, all in the manner required by our amended and restated bylaws and the applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. Following verification of the +stockholder status of persons proposing candidates, recommendations will be aggregated and considered by our board of directors at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the +nomination of a director candidate, such materials will be forwarded to our board of directors. +Our board of directors may also review materials provided +by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, our board of directors will seek to achieve a balance of knowledge, experience and capability on the +board. Our board of directors uses the same criteria for evaluating candidates nominated by stockholders as it does for those proposed by current board members, professional search firms and other persons. After completing its evaluation, our board +of directors approves the final slate of director nominees. +Our Nominating Committee approved the director nominees submitted for election at this Annual +Meeting. Prior to the formation of our Nominating Committee in April 2007, these functions were performed by our full board of directors. +10 +Table of Contents +Audit Committee Report +The Audit Committee is responsible for providing independent, objective oversight for the integrity of +the Company’s financial reporting process and internal control system. Other primary responsibilities of the Audit Committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the +Company’s independent registered public accounting firm and providing an open venue for communication among the independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of +the Company. A more detailed description of the responsibilities of the Audit Committee is set forth in its written charter, which is posted on our website at www.gulfportenergy.com . The following report summarizes certain of the Audit +Committee’s activities with respect to its responsibilities during 2007. +Review with Management and Independent Registered Public Accounting +Firm . The Audit Committee has reviewed and discussed with management and Grant Thornton LLP, an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, +2007. +Controls and Procedures. Management has established and maintains a system of disclosure controls and procedures designed to provide +reasonable assurance that information required to be disclosed by our Company in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods +specified in the SEC’s rules and forms, and includes controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, including +our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2007, management conducted an evaluation of our disclosure controls and procedures. +Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in the reports +we file or submit under the Securities and Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Audit Committee discussed with management and Grant +Thornton LLP the quality and adequacy of the Company’s disclosure controls and procedures. +Management has also established and maintains a system of +internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that +disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in +Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control—Integrated Framework, +management concluded that our internal control over financial reporting was effective as of December 31, 2007, as discussed in more detail in Management’s Report on Internal Control Over Financial Reporting, which was included in our +Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008. The effectiveness of our internal control over financial reporting as of December 31, 2007, has been audited by Grant Thornton LLP, +as stated in its attestation report, which was included in our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008. The Audit Committee reviewed and discussed with management and Grant +Thornton LLP the Company’s system of internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. +Discussions with Independent Auditing Firm . The Audit Committee has discussed with Grant Thornton LLP, independent auditors for the Company, the matters required to be discussed by Statement on Auditing Standards No. 61, +Communication with Audit Committees , as amended. The Audit Committee has received the written +11 +Table of Contents +disclosures and the letter from Grant Thornton LLP required by Independence Standards Board Standard No. 1, Independence Discussions with Audit +Committees , as amended, and has discussed with that firm its independence from the Company. +Recommendation to the board of directors . Based on +its review and discussions noted above, the Audit Committee recommended to the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. +THE AUDIT COMMITTEE +David L. Houston, Chairman +Donald L. Dillingham +Scott E. Streller +12 +Table of Contents +Executive Officers +The following table sets forth the name, age and positions of each of our executive officers as of the +record date: +Name +Age +Position +Mike Liddell +54 +Chairman of the Board and Director +James D. Palm +63 +Chief Executive Officer, Director +Michael G. Moore +51 +Vice President, Chief Financial Officer and Secretary +Biographical information for each of Messrs. Liddell and Palm is set forth in this proxy statement under the +heading “Election of Directors and Director Biographies.” +MICHAEL G. MOORE. Mr. Moore has served as Vice President and Chief +Financial Officer of our company since July 2000. From May 1998 through July 2000, Mr. Moore served as Vice President and Chief Financial Officer of Indian Oil Company. From September 1995 through May 1998, Mr. Moore served as Controller +of DLB Oil & Gas. Prior to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based gas marketing company. Mr. Moore received both his Bachelor of Business Administration degree in finance and his Masters in Business +Administration from the University of Central Oklahoma. +13 +Table of Contents +Executive Compensation +Compensation Discussion And Analysis +Compensation Practices +To date, all compensation decisions for our Chief Executive Officer and our Chief Financial Officer have been made by our Chairman of the Board. Our Chairman of the +Board has been compensated as provided in his employment agreement with our company, which was effective as of June 1, 1999. Although our board of directors established a compensation committee, effective as of February 14, 2006, until +recently the role of the compensation committee was limited, as we relied on the “controlled company” exemption and applicable transition rules provided by the Nasdaq listing standards. The compensation committee is currently composed +entirely of independent directors. In the future, the compensation committee is expected to be responsible for establishing, implementing and monitoring our compensation programs, including those applicable to our executive officers. In particular, +the compensation committee’s role will be to oversee, on behalf of our board of directors, our compensation and benefit plans and policies, administer our stock plans (including reviewing and approving equity grants to directors and executive +officers) and review and approve annually all compensation decisions relating to our Chief Executive Officer and make recommendations to our board of directors with respect to other executive officer compensation. The compensation committee is +expected to meet at least annually to review executive compensation programs, approve compensation levels and performance targets, review management performance and administer our equity-based compensation plans. The compensation committee will +operate in accordance with its charter, adopted effective as of February 14, 2006, which sets forth its powers and responsibilities described in more detail under the “Corporate Governance—Compensation Committee.” +Compensation Philosophy and Objectives +The objectives of our +compensation program are to: +• +attract and retain key executives; +• +align the interests of our executives with those of our stockholders; and +• +motivate and reward individual performance and contributions. +Compensation Benchmarking +In the fall of 2007, the compensation committee engaged Equilar, an outside consultant, +to perform a compensation survey, based on the available compensation data for fiscal 2006, which survey included the following industry peer companies: Arena Resources Inc., Brigham Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake +Energy Corporation, Continental Resources Inc., Devon Energy Corporation, Edge Petroleum Corporation, Energy Partners LTD, Goodrich Petroleum Corporation, Quest Resources Corporation, Ram Energy Resources Inc., Stone Energy Corporation and Swift +Energy Company. Following its review of the survey and taking into account (i) the adjustments made with respect to 2007 compensation of our named executive officers and (ii) the difference in duties performed by our named executive +officers as compared to duties performed by their counterparts at the peer group companies, the compensation committee determined that compensation of our Chairman of the Board and our Chief Executive Officer is reasonable as compared to similarly +situated executives at peer group companies. The compensation committee further recommended that our Chairman of the Board and our Chief Executive Officer review other executive compensation for reasonableness and competitiveness. +14 +Table of Contents +Compensation Policy +The key elements of our compensation program are salary, annual bonus and long-term incentive compensation. We use these elements to meet our compensation objectives as follows: +• +Attract and retain key executives. We believe that to attract and retain talented executives, we must offer compensation that is competitive. We also believe that +our Chairman of the Board, Mike Liddell, our Chief Executive Officer, James D. Palm, and our Chief Financial Officer, Michael G. Moore, are critical to the long-term success of our company. To facilitate the retention of our Chairman of the Board +and our Chief Executive Officer, we entered an employment agreement with Mr. Liddell in May of 1999 and into an oral agreement with Mr. Palm with respect to their respective compensations and benefits. We believe that the terms of these +agreements are reasonable as compared to similarly situated executives at peer group companies. +• +Align the interests of our executives with those of our stockholders. In the past, we used both options and restricted stock awards to provide long-term incentive +compensation and to align the financial interests of our executives with those of our stockholders. In 2007, the compensation committee did not grant any awards to our executive officers. It is anticipated that in the future the compensation +committee will structure our long-term incentive compensation in the form of restricted stock awards. For a discussion of the Company’s long-term incentive policy, see “Long Term Incentive Compensation” below. +• +Stock options represent the right of an option holder to buy shares of our common stock at an exercise price equal to the market value of our common stock on the +date of grant. Under our outstanding stock options, the right to buy underlying shares generally vests in 36 substantially equal monthly installments from the date of grant, except that certain options vest in five substantially equal annual +installments beginning on the first anniversary of the date of grant. We awarded these stock options in order to align compensation with company performance as the options become valuable to the executive only if the stock price increases from the +date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. +• +Restricted stock generally vests in 36 substantially equal monthly installments. Restricted stock awards thereby ensure that our executives have a continuing stake +in the long-term success of our company as the value of the award will depend on the stock price of the time of vesting. +• +Motivate and reward individual performance and contributions. The Company’s evaluation of the individual performance of each executive officer affects most +aspects of the executive’s compensation. Individual performance and level of responsibility are considered in determining an executive’s annual salary, and are important factors in deciding discretionary bonuses and equity awards. +Compensation Components +Base Salary +Salaries for our Chairman of the Board and our Chief Executive Officer are provided in their respective agreements described in more detail under the heading “Employment Agreements” below. The annual base +salary for our Chairman of the Board is increased annually in an amount equal to any increase in the cost of living as determined in accordance with his employment agreement. The salary for our Chief Financial Officer in 2007 was determined by our +Chairman of the Board. In the future, we anticipate that the base salaries of our named executive officers will be reviewed by the compensation committee on an annual basis, subject to the terms of any employment agreements that we may have with our +named executive officers. With respect to the 2007 salaries of our Chief Executive Officer and our Chief Financial Officer, our Chairman of the Board has considered various factors, including the compensation of executive officers of comparable +companies within the oil and natural gas industry, the performance of such executive officer and increases in responsibilities. In the +15 +Table of Contents +future, the compensation committee is expected to consider similar factors in reviewing salaries of our named executive officers, as well as the +recommendation of our Chairman of the Board with respect to base salaries of other named executive officers. +In 2007, the annual base salaries for our +Chairman of the Board, our Chief Executive Officer and our Chief Financial Officer were $243,503, $211,749 and $225,000, respectively. +Discretionary +Bonus +Our Chairman of the Board determined the bonuses that were paid to our named executive officers for 2007 based on their respective performances +in 2007 and other factors, including our profitability, growth and market share achieved in 2007. Our Chairman of the Board, Chief Executive Officer and Chief Financial Officer received bonuses of $40,000, $25,410 and $400,000, respectively, for +fiscal 2007. Further details regarding 2007 bonuses for our Chief Executive Officer and other named executive officers are set forth in the Summary Compensation Table below. +Long-Term Incentive Compensation +2007 Awards . No awards were granted by the compensation committee in 2007. +Long-Term Incentive Policy . Although in the past, we awarded both options and restricted stock as part of our long-term incentive compensation +program, our board of directors and the compensation committee believe that restricted stock awards are an essential component of our compensation strategy, and we intend to continue offering such awards in the future. Further, we anticipate that +any equity awards granted to our executive officers during the remainder of 2008 will be in the form of restricted stock. The Committee may also determine to issue other forms of stock-based awards to our named executive officers or other eligible +participants under our Amended and Restated 2005 Stock Incentive Plan or other equity incentive plans in effect at that time. Our current equity incentive plan is described below under the heading “Amended and Restated 2005 Stock Incentive +Plan.” +Perquisites and Other Personal Benefits +Our company provides certain of our named executive officers with a limited number of perquisites or other personal benefits, primarily consisting of life insurance premiums for our Chairman of the Board and a company vehicle for our Chief +Financial Officer, that we believe help provide a competitive package of compensation and benefits. The value of these benefits is disclosed in the Summary Compensation Table. +Broad-Based Employee Benefits +• +401(k) Plan. We have retirement savings plan in which our named executive officers currently participate. The retirement plan is a tax qualified 401(k) plan that +covers all eligible employees including the named executive officers. Under the plan, we make a safe harbor contribution equal to 3% of each eligible employee gross annual compensation for the prior calendar year. We also have the ability to make an +additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made regardless of employee’s deferrals into the plan. For 2007, we made a safe harbor +and discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Services regulations. All contributions made by us on behalf of an employee are 100% vested when +contributed. For more details regarding our 401(k) plan, see “Retirement Plans—401(k) Plan” below. +16 +Table of Contents +• +Our named executive officers are eligible to participate in all of our other employee benefit plans which include medical, dental, group life, disability and +accidental death and dismemberment insurance, in each case on the same basis as all other employees. +Employment Agreements +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and +automatically renews for successive one-year terms thereafter. The agreement provides for an annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to +$243,505 in 2007. Upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. +The agreement also restricts Mr. Liddell’s use or disclosure of any of our confidential information during the term of the agreement and for a period of five years thereafter. +We also entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which Mr. Palm is entitled to an annual salary of $200,000 and, +at the discretion of our board of directors, an annual cash incentive bonus. In 2007, Mr. Palm’s annual salary was increased to $225,000. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans +available to our other employees. +Change in Control Arrangements +Our named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement provides that upon termination of Mr. Liddell’s employment by +us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. See “Employment Agreements” above. In addition, our Amended and +Restated 2005 Stock Incentive Plan provides that in the event of significant corporate transaction involving a change in control (as defined under the plan) of our company, such as a dissolution or liquidation of us, or any corporate separation or +division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the +surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued or substituted for by any surviving or acquiring entity (or its +parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in +full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential payments to our Chief Executive Officer and our other named executive officers upon termination or following a change in control event are set +forth under the heading “Potential Payments upon Termination or Change-in-Control.” +Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax purposes of executive compensation paid to the Chief Executive +Officer and the four other most highly compensated officers of a public company to $1,000,000 per year, but contains an exception for certain performance-based compensation. Our policy is to periodically review and consider whether particular +compensation and incentive payments to our executives will be deductible for federal income tax purposes. We intend, to the extent feasible and when we believe it is in the best interests of our company and our stockholders, to attempt to qualify +executive compensation as tax deductible where it does not adversely affect the development and execution of our compensation plans. +17 +Table of Contents +Accounting Implications of Executive Compensation Policy +We are required to recognize compensation expense of all stock-based awards pursuant to the principals set forth in Statement of Financial Accounting Standards +No. 123(R), “ Share-Based Payment .” Non-vested shares are deemed issued and outstanding from legal perspective; however, under U.S. generally accepted accounting principles, or GAAP, only vested shares are included in basic +shares outstanding. Also, under GAAP, non-vested shares are included in diluted shares outstanding when the effect is dilutive. +Report of the Compensation Committee on Executive Compensation +The compensation committee has reviewed and discussed the +foregoing Compensation Discussion and Analysis with management. Based on its review and discussion with management, the compensation committee recommended that the Compensation Discussion and Analysis be included in this proxy statement. +Respectfully submitted by the compensation committee: +David L. Houston +Scott Streller +Compensation Committee Interlocks and Insider Participation +No current member of our Compensation Committee has ever been an +officer or employee of ours. None of our executive officers serves, or has served during the past fiscal year, as a member of the Board of Directors or compensation committee of any other company that has one or more executive officers serving as +member of our Board of Directors or Compensation Committee. +Compensation Tables +SUMMARY COMPENSATION TABLE +The following table provides information concerning compensation of our principal executive officer, principal financial officer and our other highest paid executive +officer for the fiscal years ended December 31, 2007 and December 31, 2006. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +All Other +Compensation +($)(2) +Total +($) +James D. Palm(3) +2007 +211,750 +25,410 +— +336,738 +16,500 +590,398 +Chief Executive Officer +2006 +200,000 +24,000 +— +336,738 +24,320 +585,058 +Mike Liddell(4) +2007 +243,505 +40,000 +— +149,967 +20,725 +454,197 +Chairman of the Board +2006 +239,716 +— +— +149,967 +21,016 +410,699 +Michael G. Moore +2007 +225,000 +400,000 +82,267 +29,942 +19,625 +756,834 +Vice President, Chief Financial Officer and Secretary(5) +2006 +210,875 +100,000 +42,976 +29,942 +17,166 +400,959 +(1) +The amounts reported in the Stock Awards and Option Awards columns reflect the dollar amount recognized for financial reporting purposes for the fiscal year ended December 31, +2007 of awards of stock options and restricted stock to the named executive officers as indicated in such columns and were calculated in accordance with the provisions of SFAS 123(R). These amounts were calculated using certain assumptions, as set +forth in Note 10 to our audited financial statements for the fiscal year ended December 31, 2007, included in our Annual Report on Form 10-K, filed with the SEC on March 17, 2008. These amounts may include amounts from awards granted in +and prior to 2007. +18 +Table of Contents +(2) +Amounts for Mr. Liddell include our matching 401(k) plan contributions of $13,500 and $13,791 for 2007 and 2006, respectively, and life insurance premium payments of $7,225 for +each of 2007 and 2006. Amounts for Mr. Palm include our matching 401(k) plan contributions of $13,500 and $13,320 for 2007 and 2006, respectively, and director compensation fees of $3,000 and $11,000 for 2007 and 2006, respectively. The amount +for Mr. Moore for 2007 represents our matching 401(k) plan contributions of $13,500 and $6,125 attributable to use of a company vehicle and the amount for 2006 represents our matching 401(k) plan contributions. +(3) +Mr. Palm joined us as Chief Executive Officer in December 2005 with an annual salary of $200,000. Mr. Palm’s options vest in 36 substantially equal monthly +installments beginning on the date of grant. +(4) +Mr. Liddell resigned as our Chief Executive Officer and President in December 2005 but remains our Chairman of the Board and a Director. Mr. Liddell’s options vest in +five substantially equal annual installments beginning on the first anniversary of the date of grant. +(5) +Restricted stock awards held by Mr. Moore vest in approximately 36 substantially equal monthly installments. The vesting schedule for Mr. Moore’s options is discussed +under the heading “Outstanding Equity Awards at Fiscal Year-End” below. +OUTSTANDING EQUITY AWARDS AT FISCAL +YEAR-END +The following table provides information concerning equity awards outstanding for our principal executive officer, our principal financial +officer and our other highest paid executive officer at December 31, 2007. +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vested +($)(1) +James D. Palm +138,889 +61,111 +(2) +$ +11.20 +12/1/2015 +— +— +Mike Liddell +— +274,362 +(3) +$ +3.36 +1/24/2015 +— +— +Michael G. Moore +4,000 +15,000 +6,000 +5,000 +(3) +(2) +$ +$ +3.36 +9.07 +1/24/2015 +9/9/2015 +9,861 +— +(4) +$ +180,062 +— +(1) +Market value of shares or units that have not vested is based on the closing price of $18.26 per share of our common stock on The NASDAQ Global Select Market on December 31, +2007, the last trading day of 2007. +(2) +Options vest in 36 substantially equal monthly installments. The option expiration date reflects the tenth anniversary from the date of grant. +(3) +Options vest in five substantially equal annual installments beginning on the first anniversary of the date of grant. The option expiration date reflects the tenth anniversary from +the date of grant. +(4) +Restricted stock awards vest in approximately 36 substantially equal monthly installments. +OPTION EXERCISES AND STOCK VESTED +The following table provides certain information for the +named executive officers on stock option exercises during 2007, including the number of shares acquired upon exercise and the value realized, and the number of shares acquired upon the vesting of restricted stock awards. +Name +Option Awards +Stock Awards +Number of Shares +Acquired on +Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on +Vesting +(#) +Value Realized +on Vesting +($) +James D. Palm +— +— +— +— +Mike Liddell +91,454 +728,888 +(1) +— +— +Michael G. Moore +— +— +6,667 +115,451 +(2) +(1) +Value realized on exercise is the difference between the closing price per share of our common stock on The NASDAQ Global Select Market on the day of exercise and the exercise price +of $3.36 per share. +(2) +Value realized on vesting is based on the vesting date closing price per share of our common stock on The NASDAQ Global Select Market. +19 +Table of Contents +DIRECTOR COMPENSATION +The following table contains information with respect to 2007 compensation of our directors who served in such capacity during that year, except that the 2007 compensation of those directors who are also our named +executive officers is disclosed in the Summary Compensation Table above. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +Total +($) +Donald L. Dillingham(2) +2,500 +— +— +2,500 +Robert E. Brooks(3) +10,000 +— +6,559 +(4) +16,559 +Dan Noles(5) +4,500 +— +6,559 +(4) +11,059 +David L. Houston +13,000 +— +6,559 +(4) +19,559 +Mickey Liddell(6) +4,000 +— +6,559 +(4) +10,559 +Scott E. Streller +13,500 +26,731 +— +40,231 +(1) +The amounts reported in the Stock Awards and Option Awards columns reflect the dollar amount recognized for financial reporting purposes for the fiscal year ended December 31, +2007 of awards of stock options and restricted stock to the directors as indicated in such columns and were calculated in accordance with the provisions of SFAS 123(R). These amounts were calculated using certain assumptions, as set forth in Note 10 +to our audited financial statements for the fiscal year ended December 31, 2007, included in our Annual Report on Form 10-K, filed with the SEC on March 17, 2008. These amounts may include amounts from awards granted in and prior to 2007. +(2) +Mr. Dillingham joined us as a director on November 9, 2007 following Mr. Brooks’ resignation as a director on October 29, 2007. Although Mr. Dillingham +did not receive any equity awards in 2007, in March 2008, we granted 6,666 shares of our restricted stock, with the fair value of $88,658, to Mr. Dillingham in connection with his appointment to our board of directors in November 2007, of which +740 shares vested on April 1, 2008 and the remaining shares will vest in 36 equal monthly installments beginning on May 1, 2008. +(3) +Mr. Brooks resigned as a director on October 29, 2007. +(4) +Options vest in five substantially equal annual installments beginning on the first anniversary of the date of grant. +(5) +Mr. Noles resigned as a director on April 30, 2007. +(6) +Mr. Liddell resigned as a director on April 30, 2007. +20 +Table of Contents +Retirement Plans +401(k) Plan +We maintain a retirement savings plan, or a 401(k) Plan, for the benefit of our eligible employees who have +attained the age of 18. Currently, employees may elect to defer their compensation up to the statutorily prescribed limit. During the following year, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual +compensation for the prior calendar year. We also have the ability to make an additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made, +regardless of employee’s deferrals into the plan. For 2007, we made a safe harbor and discretionary contribution totaling six percent for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue +Services regulations. All contributions made by us on behalf of an employee are 100% vested when contributed. The 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code. As such, contributions to the 401(k) +Plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) Plan, and all contributions are deductible by us when made. +Amended and Restated 2005 Stock Incentive Plan +Our Amended and Restated 2005 Stock Incentive Plan was adopted to enable us, +and any of our affiliates, to attract and retain the services of the types of employees, consultants and directors who will contribute to our long range success and to provide incentives which are linked directly to increases in share value which +will inure to the benefit of our stockholders. The plan provides a means by which eligible recipients of awards may be given an opportunity to benefit from increases in value of our common stock through the granting of incentive stock options, +nonstatutory stock options, restricted awards, performance awards and stock appreciation rights. Our board of directors, or a committee of the board of directors, serves as the plan administrator. +Eligible award recipients are employees, consultants and directors of ours and our affiliates. Incentive stock options may be granted only to our employees. Awards other +than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our authorized but unissued common stock, and the maximum aggregate amount of such common stock which +may be issued upon exercise of all awards in the plan, including incentive stock options, may not exceed 3,000,000 shares, subject to adjustment to reflect certain corporate transactions or changes in our capital structure. In 2007, we did not grant +any awards to officers or directors. As of April 23, 2008, 527,380 shares were issuable upon exercise of outstanding options and 119,110 shares of restricted common stock had been granted under this plan. There were 1,238,007 shares available +for future grants under this plan. +In the event of significant corporate transaction involving a change in control (as defined in the plan) of our +company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of +our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be +assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without +consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the +Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +21 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth, as of December 31, 2007, certain information with respect to all compensation plans under which equity securities are authorized for issuance. +Plan Category +Number of Securities to +be issued upon exercise +of outstanding options, +warrants and +rights +(a)(1)(2) +Weighted average +exercise price of +outstanding options, +warrants and rights +(b) +Number of securities +remaining available +for future issuance +under equity +compensation +plans +(excluding +securities +reflected in column +(a))(c) +Equity compensation plans approved by security holders(1) +805,111 +$ +6.22 +1,244,673 +Equity compensation plans not approved by security holders +— +— +— +(1) +Refers to our Amended and Restated 2005 Stock Incentive Plan and our 1999 Stock Option Plan. +(2) +Includes outstanding restricted stock grants of 130,721 shares. +Employment Agreements +What are the terms of the employment agreements with our executive officers? +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and automatically renews +for successive one-year terms thereafter. The agreement provides for an annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $243,505 in 2007. Upon +termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. The agreement also +restricts Mr. Liddell’s use or disclosure of any of our confidential information during the term of the agreement and for a period of five years thereafter. +We also entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which Mr. Palm is entitled to an annual salary of $200,000 and, +at the discretion of our board of directors, an annual cash incentive bonus. In 2007, Mr. Palm’s annual salary was increased to $225,000. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans +available to our other employees. +Change in Control Arrangements +Our named executive officers do not currently have any change in control arrangements, +except that Mr. Liddell’s employment agreement provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his +then unexercisable options will become exercisable. See “Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan provides that in the event of significant corporate transaction involving a change in +control of our company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or +substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the +plan administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be +cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan +22 +Table of Contents +administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in +the event of a change in control. +Potential payments to our Chief Executive Officer and our other named executive officers upon termination or following a +change in control event are set forth under the heading “Potential Payments upon Termination or Change-in-Control” below. +Potential Payments Upon Termination or Change-in-Control +If Mr. Liddell had been terminated at December 31, 2007 +without cause, he would have been entitled to $250,162 in cash severance payments. The value of his unexercisable stock options would have been $0. If Messrs. Palm and Moore had been terminated at December 31, 2007 for any reason, they would +have been entitled to no cash severance payments. +23 +Table of Contents +Stock Ownership +Holdings of Major Stockholders +The following table sets forth certain information regarding the beneficial ownership as of +April 23, 2008 of shares of our common stock by each person or entity known to us to be a beneficial owner of 5% or more of our common stock. +MAJOR STOCKHOLDERS TABLE +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Owners +Percent of +Class +Charles E. Davidson +411 W. Putnam Avenue +Greenwich, CT 06830 +15,235,786 +(2) +35.7 +% +Southpoint Capital Advisor, LP +237 Park Avenue, Suite 900 +New York, New York 10017 +4,183,621 +(3) +9.8 +% +Luxor Capital Group, LP +599 Lexington Avenue, 35 th +Floor +New York, New York 10153 +2,763,115 +(4) +6.5 +% +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by that person that +are exercisable as of April 23, 2008, or exercisable within 60 days of April 23, 2008, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each +other person. The percentage of shares beneficially owned is based on 42,653,907 shares of common stock outstanding as of April 23, 2008, which includes 82,488 shares of restricted common stock awarded under our Amended and Restated 2005 Stock +Incentive Plan. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 23, 2008, or exercisable within 60 days of April 23, 2008. +(2) +Based on the Form 4 filed with the SEC on May 30, 2007 by Charles E. Davidson and the Company’s records. Includes 14,391,829 shares of common stock held by CD Holding +Company LLC and 843,957 shares of common stock held in an IRA for Mr. Davidson. Mr. Davidson is the manager and a member of CD Holding Company LLC. and the Chairman and Chief Investment Officer of Wexford Capital LLC. +(3) +Based on a Schedule 13G/A filed with the SEC on February 14, 2008 on behalf of Southpoint Capital Advisors LLC, a Delaware limited liability company, Southpoint GP, LLC, a +Delaware limited liability company, Southpoint Capital Advisors LP, a Delaware limited partnership, Southpoint GP, LP, Robert W. Butts and John S. Clark II. Southpoint Capital Advisors LP, Southpoint GP LP, Southpoint Capital Advisors LLC, +Southpoint GP LLC, Robert W. Butts and John S. Clark II have sole voting and dispositive power over 4,183,621 shares of common stock. Southpoint Capital Advisors LLC is the general partner of Southpoint Capital Advisors LP. Southpoint GP LLC is +the general partner of Southpoint GP, LP. Southpoint GP, LP is the general partner of Southpoint Fund LP, a Delaware limited partnership, Southpoint Qualified Fund LP, a Delaware limited partnership, and Southpoint Master Fund, LP, a Cayman Islands +exempted limited partnership. Southpoint Offshore Fund, Ltd., a Cayman Island exempted company, is also a general partner of the Southpoint Master Fund, LP. +(4) +Based on a Schedule 13G/A filed with the SEC on February 14, 2008 by Luxor Capital Partners, LP, LCG Select, LLC, Luxor Capital Partners Offshore, Ltd., LCG Select Offshore, +Ltd., Luxor Capital Group, LP, Luxor Management, LLC, LCG Holdings, LLC and Christian Leone. Luxor Capital Partners, LP, Luxor Capital Group, LP, Luxor Management, LLC, LCG Holdings, LLC and Mr. Leone share voting and dispositive power over +667,090 shares of common stock held by Luxor Capital Partners, LP. LCG Select, LLC, Luxor Capital Group, LP, Luxor Management, LLC, LCG Holdings, LLC and Mr. Leone share voting and dispositive power over 150,985 shares of common stock held by +LCG Select, LLC. Luxor Capital Partners Offshore, Ltd., Luxor Capital Group, LP, Luxor Management, LLC and Mr. Leone share voting and dispositive power over 984,095 shares of common stock held by Luxor Capital Partners Offshore, Ltd. LCG Select +Offshore, Ltd. , Luxor Capital Group, LP, Luxor Management, LLC and Mr. Leone share voting and dispositive power over 744,031 shares held by LCG Select Offshore, Ltd. Luxor Capital Group, LP, Luxor Management, LLC and Mr. Leone share +voting and dispositive power over 216,914 shares held in accounts managed by Luxor Capital Group, LP. Luxor Capital Group, LP as the investment manager of Luxor Capital Partners, LP, LCG Select, LLC, Luxor Capital Partners Offshore, Ltd. and LCG +Select Offshore, Ltd. may be deemed to beneficially own 2,546,201 shares of common stock held by them, and an additional 216,914 shares of common stock held in accounts that it separately manages. Luxor Management, LLC is the general partner of +Luxor Capital Group, LP, and Mr. Leone is the managing member of Luxor Management, LLC. LCG Holdings, LLC is the general partner of Luxor Capital Partners, LP and LCG Select, LLC and Mr. Leone is the managing member of LCG Holdings, LLC. +Luxor Capital Partners Offshore, Ltd. and LCG Select Offshore, Ltd. are entities organized in the Cayman Islands. +24 +Table of Contents +Holdings of Officers and Directors +The following table sets forth certain information regarding the beneficial ownership as +of April 23, 2008 of shares of our common stock by each of our directors, by each named executive officer and by all directors and executive officers as a group: +Name of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Mike Liddell(2) +826,885 +2.0 +% +Donald L. Dillingham(3) +6,666 +* +David L. Houston(4) +32,000 +* +Scott E. Streller(5) +6,666 +* +James D. Palm(6) +172,222 +* +Michael G. Moore(7) +44,333 +* +Directors and Executive Officers as a Group (6 persons) +1,108,772 +2.6 +% +* +Less than 1%. +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by that person that +are exercisable as of April 23, 2008, or exercisable within 60 days of April 23, 2008, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each +other person. The percentage of shares beneficially owned is based on 42,653,907 shares of common stock outstanding as April 23, 2008, which includes 82,488 shares of restricted common stock awarded under our Amended and Restated 2005 Stock +Incentive Plan. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 23, 2008, or exercisable within 60 days of April 23, 2008. +(2) +Includes (i) 741,632 shares of our common stock held by Mr. Liddell directly, (ii) 19,081 shares of our common stock held by Liddell Investments LLC, an entity +controlled by Mr. Liddell, of which shares Mr. Liddell may be deemed to be the beneficial owner and (iii) 66,172 shares of our common stock held in trust for the benefit of Mr. Liddell’s daughters, of which +Mr. Liddell’s spouse serves as the trustee and of which Mr. Liddell may be deemed to be the beneficial owner. Excludes (i) options to purchase 182,908 shares of our common stock, none of which are exercisable within 60 days of +the date of this prospectus supplement, and (ii) an aggregate of 434,312 shares of our common stock held in trust for the benefit of Jesse Liddell and Luci Liddell, Mr. Liddell’s nephew and niece. Mr. Liddell serves as the +trustee of the trust for the benefit of his nephew and niece and may be deemed to be the beneficial owner of shares held in such trust. Mr. Liddell disclaims beneficial ownership of 434,312 shares held in the trust for the benefit of his nephew +and niece referenced above. +(3) +Represents the number of shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, of which amount (i) 740 shares vested on +April 1, 2008 and (ii) the remaining shares will vest in 36 equal monthly installments beginning on May 1, 2008. +(4) +Includes options to purchase 32,000 shares of our common stock, all of which are exercisable within 60 days of April 23, 2008. Excludes options to purchase 8,000 shares of our +common stock, none of which are exercisable within 60 days of April 23, 2008. +(5) +Includes 6,666 shares of our restricted common stock, granted on August 17, 2006 under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 36 equal monthly +installments beginning on the date of grant. +(6) +Includes options to purchase 172,222 shares of our common stock, all of which are exercisable within 60 days of April 23, 2008. Excludes options to purchase 27,778 shares of +our common stock, none of which are exercisable within 60 days of April 23, 2008. +(7) +Includes (i) options to purchase 24,333 shares of our common stock, all of which are exercisable within 60 days of April 23, 2008 and (ii) 20,000 shares of our +restricted common stock, of which 5,000 were granted on May 16, 2006 and 15,000 were granted on August 17, 2006, in each instance under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in approximately 36 substantially +equal monthly installments. Excludes options to purchase 5,667 shares of our common stock, none of which are exercisable within 60 days of April 23, 2008. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish us with +copies of the forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations of our officers and directors, all Section 16(a) reports for the year ended December 31, +2007 applicable to our officers and directors and such other persons were filed on a timely basis, except for Donald L. Dillingham, whose Forms 3 and 4 were inadvertently filed late in March of 2008. +25 +Table of Contents +Certain Relationships and Related Transactions +Administrative Services Agreements +We are a party to administrative service agreements with Diamondback Energy Services LLC, +which we refer to as Diamondback, Great White Energy Services LLC, which we refer to as Great White, Caliber Development Company, LLC, which we refer to as Caliber, Stampede Investments LLC, which we refer to as Stampede, and Grizzly Oil Sands ULC, +which we refer to as Grizzly, which agreements were entered into effective as of September 29, 2006, July 26, 2006, February 9, 2005, November 1, 2007 and November 15, 2007, respectively. Under these +agreements, our services include accounting, human resources, legal and technical support. The services provided to these entities and the fees for such services can be amended by mutual agreement of the parties to these agreements. Each +administrative services agreement has a three-year term, and upon expiration of that term the agreement will continue on a month-to-month basis until cancelled by either party to such agreement with at least 30 days prior written notice. Each +administrative services agreement is terminable (1) by the counterparty at any time with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within +30 days of receipt of written notice of such breach. Each of Diamondback, Great White, Caliber, Stampede and Grizzly reimbursed us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time +our employees spent performing services for such entity. We were reimbursed approximately $17,000, $754,000, $1,249,000, $123,000 and $953,000 by Diamondback, Great White, Caliber, Stampede and Grizzly, respectively, for services provided under +these agreements during the year ended December 31, 2007. Each of Diamondback, Great White, Caliber, Stampede and Grizzly is controlled by Wexford Capital LLC. Charles Davidson, who beneficial owned approximately 35.7% of our outstanding common +stock as of April 23, 2008, is the Chairman and Chief Investment Officer of Wexford Capital LLC. Our Chairman of the Board, Mike Liddell, is also the Chairman of the Board of Diamondback Energy Services, Inc., a subsidiary of Diamondback. Two +of our directors, Scott Streller and Donald L. Dillingham, are also director nominees of Diamondback Energy Services, Inc. +We provide office space, +furniture, telecommunications and computer and other information technology support to certain employees of Windsor Energy Resources LLC, or Windsor. Windsor has agreed to reimburse us for such services based on the number of employees we office and +nature of services provided by us to such employees, which can vary from time to time. Windsor is controlled by Wexford Capital LLC. +Two of our petroleum +engineers are providing services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to Tatex Thailand II, LLC, or Tatex II, and Tatex Thailand III LLC, or Tatex III. +Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities, which can vary from time to time. Tatex II and Tatex III +are controlled by Wexford Capital LLC. +We provide certain general and administrative services to Floran Technologies LLC, or Floran. We are reimbursed for +our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing such services. For the year ended December 31, 2007, we were reimbursed approximately $61,000 by +Floran and were owed an additional $31,000 for such services at that date. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C. to provide barge services in our West +Cote Blanche Bay, or WCBB, and Hackberry fields located along the Louisiana Gulf Coast. In January 31, 2006, Athena was acquired by an entity controlled by Wexford Capital LLC. For the year ended December 31, 2007, we paid Athena +$5,902,000 and owed an additional $1,561,000 for such services at that date. +26 +Table of Contents +In February 2005, but effective as of December 1, 2004, we acquired an interest in the Marquiss field, an +approximately 9,500 net acre coalbed methane play in Campbell County, Wyoming. Windsor Energy Group, LLC, an entity controlled by Wexford Capital LLC, was the operator of this field. For the year ended December 31, 2007, we paid Windsor Energy +Group $363,000 and owed an additional $440,000 related to reimbursement for services provided. Our interest in the Marquiss field was sold in February 2007. +Packers & Service Tools, Inc., which we refer to as Packers, performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2007, we paid Packers $1,406,000 and owed an additional $425,000 related +to these services at that date. Packers is an entity controlled by Wexford Capital LLC. +Diamondback Completions LLC, which we refer to as Completions, +performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2007, we paid Completions $278,000 and owed an additional $241,000 related to these services at that date. Completions is an entity controlled by Wexford +Capital LLC. +Great White Towing LLC, which we refer to as Towing, performs services for us at our WCBB field. For the year ended December 31, 2007, +we paid Towing $95,000 and owed an additional $50,000 related to these services at that date. Towing is an entity controlled by Wexford Capital LLC. +Effective March 1, 2008, Windsor provides tax planning, preparation of supporting tax schedules and consultation services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of +the parties. Windsor is controlled by Wexford Capital LLC. +Caliber provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. +For the year ended December 31, 2007, we paid Caliber $14,000 and owed an additional $3,000 related to these services at that date. Caliber is an entity controlled by Wexford Capital LLC. +Our Investments in Affiliates and Related Agreements +During 2005, we purchased a 23.5% ownership interest in Tatex II at a +cost of $2,400,000. The remaining interests in Tatex II are owned by other entities controlled by Wexford Capital LLC. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil +and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering three million acres which includes the Phu Horm Field. During 2007, we paid $88,000 in cash calls in respect of our +investment in Tatex II. +During 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. Approximately 68.7% of the remaining +interests in Tatex III are owned by other entities and individuals affiliated with Wexford Capital LLC. +During 2005, we purchased a 20% ownership interest +in Windsor Bakken, LLC, or Bakken. The remaining interests in Bakken are owned by other entities controlled by Wexford Capital LLC. In 2006, Bakken acquired leases on undeveloped acreage in the Williston Basin areas of western North Dakota and +eastern Montana, which we refer to as the contract area. During 2007, we paid $127,000 in respect of our interest in Bakken. Effective January 1, 2008, we acquired a direct, undivided 20% interest in Bakken’s assets in redemption of our +20% interest in Bakken. +In addition, effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor Dakota +LLC, or Windsor Dakota, to jointly acquire oil and gas leases on certain lands located in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each party must +offer the other party the right to participate in such acquisition in proportion to its participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain exceptions, to share +third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy Group, L.L.C., as the +operator, also entered into the exploration agreement, effective as of January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and +27 +Table of Contents +Windsor Energy Group, L.L.C. agreed to act as the operator under the terms of a joint operating agreement, effective as of March 4, 2008. In the event +Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport as the operator. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with +respect to the contract area as provided in the joint operating agreement. +During the third quarter of 2006, we purchased, through our wholly owned +subsidiary Grizzly Holdings, Inc., a 24.9999% interest in Grizzly, a Canadian unlimited liability company, for approximately $8,200,000. The remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LLC. During 2006, +Grizzly acquired leases in the Athabasca region located in the Alberta Province near Fort McMurray within a few miles of other existing oil sands projects. Grizzly has commenced drilling of core holes for feasibility of oil production in three +separate lease blocks but has not commenced development of operations. As of December 31, 2007, our net investment in Grizzly was $27,801,000. +At +December 31, 2007, our wholly owned subsidiary, Grizzly Holdings Inc., owed Grizzly approximately $151,000 for shares issued in 2007. +Option and Purchase Agreement and Related Agreements +On November 30, 2007, we entered into an option agreement with +Windsor Permian LLC, an entity controlled by Wexford Capital LLC, which we refer to as Windsor Permian. Under the option agreement, we were granted the right to participate on a 50/50 basis with Windsor Permian in the acquisition of certain +strategic assets in Upton County, Texas in the Permian Basin. We paid Windsor Permian $8.5 million for the option, which amount was applied to our portion of the purchase price for the acquisition. On December 12, 2007, we exercised the option +and on December 18, 2007, the purchase agreement was amended to, among other things, add Gulfport as a buyer under the purchase agreement. On December 20, 2007, the acquisition was closed, effective as of November 1, 2007. We and +Windsor Permian also agreed to share equally all third-party costs and expenses incurred by each of us in connection with the transaction, none of which had been paid as of December 31, 2007. +In addition, effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly acquire oil and gas leases in the +Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion +to their respective participating interests and pay certain other fees as provided in the agreement. On March 20, 2008, in connection with this agreement, we received a six-month option to acquire a direct, undivided interest of up to 25% in +Windsor Permian’s oil and gas interests acquired on February 29, 2008 in Midland County, Texas. The option price is the sum of (i) the option percentage of the acquisition consideration paid by Windsor Permian to a third party in +connection with the acquisitions of these assets, subject to certain exceptions, (ii) a fee equal to 1% of our purchase price, (iii) the option percentage of the sum of all third-party costs and expenses incurred by Windsor Permian in +connection with the acquisition of these assets, subject to certain exceptions, (iv) the option percentage of all capital costs and lease operating expenses incurred subsequent to Windsor Permian’s acquisition of these assets and prior to +the date of the option exercise by Gulfport, subject to certain exceptions, and (v) interest, at 8% per annum, on the amounts set forth in items (i), (iii) and (iv) calculated from the time of accrual to the closing date of the +option. +In connection with the Area of Mutual Interest Agreement, we, Windsor Permian and Windsor Energy Group, L.L.C., as the operator, entered into the +joint development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy Group, L.L.C. agreed to act as the +operator under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either party has greater than a 50% interest in a prospect, as defined in the development agreement, the majority party may designate the +operator of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +28 +Table of Contents +Proposal to Ratify the Appointment of Our Independent Auditors +(Item 2 on the Proxy Card) +What am I voting on? +You are voting on a proposal to ratify the +appointment of Grant Thornton LLP as our independent auditors for fiscal year 2008. The Audit Committee has appointed Grant Thornton to serve as independent auditors. +What services do the independent auditors provide? +Audit services of Grant Thornton for fiscal 2007 included an +audit of our consolidated financial statements and services related to periodic filings made with the SEC. Additionally, Grant Thornton provided certain services related to the consolidated quarterly reports and annual and other periodic reports and +other services as described below. +How much were the independent auditors paid in 2006 and 2007? +Grant Thornton’s fees for professional services totaled $207,758 for 2006 and $463,746 for 2007. Grant Thornton’s fees for professional services included the +following: +• +Audit Fees – aggregate fees for audit services, which relate to the fiscal year consolidated audit, quarterly reviews, registration statements, comfort +letters, statutory and regulatory audits and accounting consultations were $207,189 in 2006 and $451,980 in 2007. The increase in audit fees from 2006 to 2007 primarily relates to our being subject to internal control audit requirements of Section +404 of the Sarbanes-Oxley Act of 2002 for the first time. +• +Audit-Related Fees – aggregate fees for audit-related services, consisting of audits in connection with proposed or consummated dispositions, benefit +plan audits, other subsidiary audits, special reports, and accounting consultations, were $569 in 2006 and $11,766 in 2007. +• +Tax and All Other Fees – there were no tax or other fees for products or services provided by Grant Thornton in addition to the services described above +in 2006 and 2007. +Does the Audit Committee approve the services provided by Grant Thornton? +It is our audit committee’s policy to pre-approve all audit, audit related and permissible non-audit services rendered to us by our independent auditor. Consistent +with such policy, all of the fees listed above that we incurred for services rendered by Grant Thornton LLP in fiscal 2006 and 2007 were pre-approved by our audit committee. No non-audit services were provided to us by Grant Thornton in 2006 or +2007. +Will a representative of Grant Thornton LLP be present at the meeting? +Yes, one or more representatives of Grant Thornton will be present at the meeting. The representatives will have an opportunity to make a statement if they desire and will be available to respond to appropriate +questions from the stockholders. +What vote is required to approve this proposal? +Stockholder ratification of the appointment of our independent auditors is not required by the Company’s bylaws or otherwise. However, we are submitting this proposal to the stockholders as a matter of good +corporate practice. Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal. If the appointment of Grant Thornton is not ratified, the Audit Committee will reconsider the appointment. Even if the +appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if it is determined that such change would be in best interests of the Company and its +stockholders. +29 +Table of Contents +Has Grant Thornton LLP always served as Gulfport’s independent auditors? +Grant Thornton has served as our independent auditors since 2005. +What +does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP +AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE YEAR 2008. +30 +Table of Contents +Solicitation by Board; Expenses of Solicitation +Our board of directors has sent you this proxy statement. Our directors, +officers and employees may solicit proxies by mail, by telephone or in person. Those persons will receive no additional compensation for any solicitation activities. We will request banking institutions, brokerage firms, custodians, trustees, +nominees and fiduciaries to forward solicitation materials to the beneficial owners of common stock held of record by those entities, and we will, upon the request of those record holders, reimburse reasonable forwarding expenses. We will pay the +costs of preparing, printing, assembling and mailing the proxy material used in the solicitation of proxies. +Submission of Future Stockholder Proposals +Under SEC rules, a stockholder who intends to present a proposal, including the +nomination of directors, at the 2009 Annual Meeting of Stockholders and who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing to our Corporate Secretary. The proposal must be received no +later than January 2, 2009. +Stockholders who wish to propose a matter for action at the 2009 Annual Meeting, including the nomination of directors, but +who do not wish to have the proposal or nomination included in the proxy statement, must notify the Company in writing of the information required by the provisions of our by-laws dealing with stockholder proposals. The notice must be delivered to +our Corporate Secretary between February 13, 2009 and March 14, 2009. You can obtain a copy of our by-laws by writing the Corporate Secretary at the address below, or via the Internet at www.gulfportenergy.com under our +“Corporate Governance” caption. +All written proposals should be directed to Michael G. Moore, Corporate Secretary, Gulfport Energy Corporation, +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +The board of directors is responsible for selecting and recommending director candidates +and will consider nominees recommended by stockholders. If you wish to have the board of directors consider a nominee for director, you must send a written notice to our Corporate Secretary at the address provided above and include the information +required by our by-laws and discussed on page 10 of this proxy statement. +Availability of Form 10-K and Annual Report to Stockholders +SEC rules require us to provide an Annual Report to stockholders +who receive this proxy statement. Additional copies of the Annual Report, along with copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, including the financial statements and the financial statement schedules, +are available without charge to stockholders upon written request to Director of Investor Relations, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134 or via the Internet at www.gulfportenergy.com . +We will furnish the exhibits to our Annual Report on Form 10-K upon payment of our copying and mailing expenses. +Householding +The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or +more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and +reduces our mailing and printing expenses. +31 +Table of Contents +If you would like to receive your own set of the annual report and proxy statement this year or in future years, follow +the instructions described below. Similarly, if you share an address with another Gulfport stockholder and together both of you would like to receive in the future only a single annual report and proxy statement, follow these instructions: +• +If your shares of our common stock are registered in your own name, please contact our transfer agent, Computershare Trust Company, N.A., and inform them of your +request by calling their toll-free number: 816-442-8030 or by mail: 114 West 11th Street, Suite 150 Kansas City, Missouri 64105. +• +If a broker or other nominee holds your shares, please contact your broker or nominee. +Other Matters +The board of directors does not intend to present any other items of business other than those stated in the +Notice of Annual Meeting of Stockholders. If other matters are properly brought before the meeting, the persons named as your proxies will vote the shares represented by it in accordance with their best judgment. Discretionary authority to vote on +other matters is included in the proxy. +32 +Table of Contents +GULFPORT +ENERGY CORPORATION +Admission Ticket +000004 +MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext +Proxy – Gulfport Energy Corporation. +You are cordially invited to attend the Annual Meeting of Stockholders +To +be held on June 4, 2008, at 10:00 a.m. Oklahoma City time, at +14313 North May Avenue, Suite 100, Oklahoma City, +Oklahoma 73134. +Annual Meeting Proxy Card +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +A Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposal 2. +1. Election of Directors: 04 01—- James Mike Liddell D. Palm 02 05—- Donald Scott E. L. Streller Dillingham 03—David L. Houston +04—James D. Palm 05—Scott E. Streller +Mark here to vote FOR all +nominees +Mark here to WITHHOLD vote from all nominees +the box to the left and the corresponding numbered box(es) to the right. +01 02 03 04 05 +2. Proposal Thornton 2 LLP —Proposal as the Company’s to ratify the independent appointment auditors of Grant for the fiscal year ending December 31, 2008. +For Against Abstain +B Non-Voting Items +Change of Address — Please print new address below. +C Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate +officer, trustee, guardian, or custodian, please give full Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. + 00W60B +C 1234567890 J N T +1 U P X 0 1 7 6 3 5 1 +MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A +SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +Table of Contents +PLEASE FOLD ALONG +THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +GULFPORT +ENERGY CORPORATION +Proxy — Gulfport Energy Corporation +This Proxy Is Solicited On Behalf Of The Board Of Directors +The undersigned hereby appoints Mike Liddell, James D. Palm and Michael G. Moore (together, the “Proxies”), and +each of them, with full power of substitution, as proxies to vote the shares that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Gulfport Energy Corporation (the “Company”) to be held on June 4, 2008 at +10:00 a.m. Oklahoma City time and at any adjournments and postponements thereof. Such shares shall be voted as indicated with respect to the proposals listed on the reverse side hereof and in the Proxies’ discretion on such other matters as may +properly come before the meeting or any adjournment or postponement thereof. +The undersigned acknowledges receipt of the +2008 Notice of Annual Meeting and accompanying Proxy Statement and revokes all prior proxies for said meeting. +THE SHARES +REPRESENTED BY THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION IS GIVEN AS TO THE PROPOSALS ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES +NAMED IN PROPOSAL 1 AND FOR PROPOSAL 2. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. +This proxy, when +properly signed, will be voted in the manner stated on the reverse side by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR ELECTION OF DIRECTORS UNDER PROPOSAL 1 AND FOR PROPOSAL 2. +IMPORTANT – PLEASE MARK, SIGN, DATE ON THE REVERSE SIDE AND RETURN THE PROXY CARD PROMPTLY. THANK YOU FOR VOTING. \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-08-094864/proxy_rpt.txt b/raw/proxies/0000874499/0001193125-08-094864/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..52aa67776c03810efe44f458684bb91b3dfabc78 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-08-094864/proxy_rpt.txt @@ -0,0 +1,90 @@ +Certain Relationships and Related Transactions +Administrative Services Agreements +We are a party to administrative service agreements with Diamondback Energy Services LLC, +which we refer to as Diamondback, Great White Energy Services LLC, which we refer to as Great White, Caliber Development Company, LLC, which we refer to as Caliber, Stampede Investments LLC, which we refer to as Stampede, and Grizzly Oil Sands ULC, +which we refer to as Grizzly, which agreements were entered into effective as of September 29, 2006, July 26, 2006, February 9, 2005, November 1, 2007 and November 15, 2007, respectively. Under these +agreements, our services include accounting, human resources, legal and technical support. The services provided to these entities and the fees for such services can be amended by mutual agreement of the parties to these agreements. Each +administrative services agreement has a three-year term, and upon expiration of that term the agreement will continue on a month-to-month basis until cancelled by either party to such agreement with at least 30 days prior written notice. Each +administrative services agreement is terminable (1) by the counterparty at any time with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within +30 days of receipt of written notice of such breach. Each of Diamondback, Great White, Caliber, Stampede and Grizzly reimbursed us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time +our employees spent performing services for such entity. We were reimbursed approximately $17,000, $754,000, $1,249,000, $123,000 and $953,000 by Diamondback, Great White, Caliber, Stampede and Grizzly, respectively, for services provided under +these agreements during the year ended December 31, 2007. Each of Diamondback, Great White, Caliber, Stampede and Grizzly is controlled by Wexford Capital LLC. Charles Davidson, who beneficial owned approximately 35.7% of our outstanding common +stock as of April 23, 2008, is the Chairman and Chief Investment Officer of Wexford Capital LLC. Our Chairman of the Board, Mike Liddell, is also the Chairman of the Board of Diamondback Energy Services, Inc., a subsidiary of Diamondback. Two +of our directors, Scott Streller and Donald L. Dillingham, are also director nominees of Diamondback Energy Services, Inc. +We provide office space, +furniture, telecommunications and computer and other information technology support to certain employees of Windsor Energy Resources LLC, or Windsor. Windsor has agreed to reimburse us for such services based on the number of employees we office and +nature of services provided by us to such employees, which can vary from time to time. Windsor is controlled by Wexford Capital LLC. +Two of our petroleum +engineers are providing services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to Tatex Thailand II, LLC, or Tatex II, and Tatex Thailand III LLC, or Tatex III. +Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities, which can vary from time to time. Tatex II and Tatex III +are controlled by Wexford Capital LLC. +We provide certain general and administrative services to Floran Technologies LLC, or Floran. We are reimbursed for +our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing such services. For the year ended December 31, 2007, we were reimbursed approximately $61,000 by +Floran and were owed an additional $31,000 for such services at that date. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C. to provide barge services in our West +Cote Blanche Bay, or WCBB, and Hackberry fields located along the Louisiana Gulf Coast. In January 31, 2006, Athena was acquired by an entity controlled by Wexford Capital LLC. For the year ended December 31, 2007, we paid Athena +$5,902,000 and owed an additional $1,561,000 for such services at that date. +26 +Table of Contents +In February 2005, but effective as of December 1, 2004, we acquired an interest in the Marquiss field, an +approximately 9,500 net acre coalbed methane play in Campbell County, Wyoming. Windsor Energy Group, LLC, an entity controlled by Wexford Capital LLC, was the operator of this field. For the year ended December 31, 2007, we paid Windsor Energy +Group $363,000 and owed an additional $440,000 related to reimbursement for services provided. Our interest in the Marquiss field was sold in February 2007. +Packers & Service Tools, Inc., which we refer to as Packers, performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2007, we paid Packers $1,406,000 and owed an additional $425,000 related +to these services at that date. Packers is an entity controlled by Wexford Capital LLC. +Diamondback Completions LLC, which we refer to as Completions, +performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2007, we paid Completions $278,000 and owed an additional $241,000 related to these services at that date. Completions is an entity controlled by Wexford +Capital LLC. +Great White Towing LLC, which we refer to as Towing, performs services for us at our WCBB field. For the year ended December 31, 2007, +we paid Towing $95,000 and owed an additional $50,000 related to these services at that date. Towing is an entity controlled by Wexford Capital LLC. +Effective March 1, 2008, Windsor provides tax planning, preparation of supporting tax schedules and consultation services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of +the parties. Windsor is controlled by Wexford Capital LLC. +Caliber provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. +For the year ended December 31, 2007, we paid Caliber $14,000 and owed an additional $3,000 related to these services at that date. Caliber is an entity controlled by Wexford Capital LLC. +Our Investments in Affiliates and Related Agreements +During 2005, we purchased a 23.5% ownership interest in Tatex II at a +cost of $2,400,000. The remaining interests in Tatex II are owned by other entities controlled by Wexford Capital LLC. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil +and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering three million acres which includes the Phu Horm Field. During 2007, we paid $88,000 in cash calls in respect of our +investment in Tatex II. +During 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. Approximately 68.7% of the remaining +interests in Tatex III are owned by other entities and individuals affiliated with Wexford Capital LLC. +During 2005, we purchased a 20% ownership interest +in Windsor Bakken, LLC, or Bakken. The remaining interests in Bakken are owned by other entities controlled by Wexford Capital LLC. In 2006, Bakken acquired leases on undeveloped acreage in the Williston Basin areas of western North Dakota and +eastern Montana, which we refer to as the contract area. During 2007, we paid $127,000 in respect of our interest in Bakken. Effective January 1, 2008, we acquired a direct, undivided 20% interest in Bakken’s assets in redemption of our +20% interest in Bakken. +In addition, effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor Dakota +LLC, or Windsor Dakota, to jointly acquire oil and gas leases on certain lands located in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each party must +offer the other party the right to participate in such acquisition in proportion to its participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain exceptions, to share +third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy Group, L.L.C., as the +operator, also entered into the exploration agreement, effective as of January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and +27 +Table of Contents +Windsor Energy Group, L.L.C. agreed to act as the operator under the terms of a joint operating agreement, effective as of March 4, 2008. In the event +Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport as the operator. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with +respect to the contract area as provided in the joint operating agreement. +During the third quarter of 2006, we purchased, through our wholly owned +subsidiary Grizzly Holdings, Inc., a 24.9999% interest in Grizzly, a Canadian unlimited liability company, for approximately $8,200,000. The remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LLC. During 2006, +Grizzly acquired leases in the Athabasca region located in the Alberta Province near Fort McMurray within a few miles of other existing oil sands projects. Grizzly has commenced drilling of core holes for feasibility of oil production in three +separate lease blocks but has not commenced development of operations. As of December 31, 2007, our net investment in Grizzly was $27,801,000. +At +December 31, 2007, our wholly owned subsidiary, Grizzly Holdings Inc., owed Grizzly approximately $151,000 for shares issued in 2007. +Option and Purchase Agreement and Related Agreements +On November 30, 2007, we entered into an option agreement with +Windsor Permian LLC, an entity controlled by Wexford Capital LLC, which we refer to as Windsor Permian. Under the option agreement, we were granted the right to participate on a 50/50 basis with Windsor Permian in the acquisition of certain +strategic assets in Upton County, Texas in the Permian Basin. We paid Windsor Permian $8.5 million for the option, which amount was applied to our portion of the purchase price for the acquisition. On December 12, 2007, we exercised the option +and on December 18, 2007, the purchase agreement was amended to, among other things, add Gulfport as a buyer under the purchase agreement. On December 20, 2007, the acquisition was closed, effective as of November 1, 2007. We and +Windsor Permian also agreed to share equally all third-party costs and expenses incurred by each of us in connection with the transaction, none of which had been paid as of December 31, 2007. +In addition, effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly acquire oil and gas leases in the +Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion +to their respective participating interests and pay certain other fees as provided in the agreement. On March 20, 2008, in connection with this agreement, we received a six-month option to acquire a direct, undivided interest of up to 25% in +Windsor Permian’s oil and gas interests acquired on February 29, 2008 in Midland County, Texas. The option price is the sum of (i) the option percentage of the acquisition consideration paid by Windsor Permian to a third party in +connection with the acquisitions of these assets, subject to certain exceptions, (ii) a fee equal to 1% of our purchase price, (iii) the option percentage of the sum of all third-party costs and expenses incurred by Windsor Permian in +connection with the acquisition of these assets, subject to certain exceptions, (iv) the option percentage of all capital costs and lease operating expenses incurred subsequent to Windsor Permian’s acquisition of these assets and prior to +the date of the option exercise by Gulfport, subject to certain exceptions, and (v) interest, at 8% per annum, on the amounts set forth in items (i), (iii) and (iv) calculated from the time of accrual to the closing date of the +option. +In connection with the Area of Mutual Interest Agreement, we, Windsor Permian and Windsor Energy Group, L.L.C., as the operator, entered into the +joint development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy Group, L.L.C. agreed to act as the +operator under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either party has greater than a 50% interest in a prospect, as defined in the development agreement, the majority party may designate the +operator of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +28 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-09-094499/proxy.txt b/raw/proxies/0000874499/0001193125-09-094499/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d7973b04bae15b0f8114d3a394d6c5f988a1ebec --- /dev/null +++ b/raw/proxies/0000874499/0001193125-09-094499/proxy.txt @@ -0,0 +1,1626 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +x Filed by the Registrant ¨ Filed by a Party other than the Registrant +Check +the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under § 240.14a-12 +Gulfport Energy Corporation +(Name of Registrant as Specified In Its +Charter) +(Name of Person(s) Filing Proxy Statement, if +other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +¨ +Fee paid previously with written preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +Table of Contents +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +2009 +ANNUAL STOCKHOLDERS MEETING +and +PROXY STATEMENT +Wednesday +June 10, 2009 +10 a.m. local time +14313 N. May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134 +April 30, 2009 +Dear Gulfport Energy Corporation Stockholder: +On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 14313 N. May Avenue, Suite 100, +Oklahoma City, Oklahoma 73134 on Wednesday, June 10, 2009, at 10 a.m. +It is +important that your shares be represented at the meeting. Whether or not you plan to attend the meeting, please complete and return the enclosed proxy card in the accompanying envelope. Please note that submitting a proxy will not prevent you from +attending the meeting and voting in person. +You will find information regarding the +matters to be voted on at the meeting in the enclosed proxy statement. Our 2008 Annual Report to Stockholders is either enclosed with these materials or has previously been mailed to you. This proxy statement and our 2008 Annual Report to +Stockholders are also available on our website at www.gulfportenergy.com/proxy . +In addition to the formal items of business to be brought before the meeting, there will be a report on our operations, followed by a question and answer period. Your interest in Gulfport Energy Corporation is appreciated. We look forward +to seeing you on June 10, 2009. +Sincerely, +James D. Palm +Mike Liddell +Chief Executive Officer +Chairman of the Board +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 10, 2009 +To our Stockholders: +The Annual Meeting of Stockholders of Gulfport Energy Corporation will be held on June 10, 2009 at 10 a.m., local time, at 14313 North May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134, for the following purposes: +1. +To elect five directors to serve until the Company’s 2010 Annual Meeting of Stockholders; +2. +To approve an amendment to the Company’s restated certificate of incorporation to increase the total number of authorized shares of common stock from 55,000,000 shares to +100,000,000 shares. +3. +To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2009; and +4. +To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. +Your vote is important. Please carefully consider the proposals and vote in one of these ways: +• +Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope; or +• +Submit a ballot at the Annual Meeting. +Only stockholders +of record at the close of business on April 20, 2009 or their proxy holders may vote at the meeting. +IMPORTANT NOTICE +REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 10, 2009 : This proxy statement and the Company’s 2008 Annual Report to Stockholders are available on the Company’s website at +www.gulfportenergy.com/proxy . +By Order of the Board of Directors, +Michael G. Moore +Chief Financial Officer and Secretary +This notice and proxy statement are first being mailed to stockholders on or about May 11, 2009. +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +PROXY STATEMENT +TABLE OF CONTENTS +About the Annual Meeting +1 +Board of Directors Information +5 +Election of Directors and Director Biographies +6 +Corporate Governance Matters and Communications with the Board +10 +Code of Business Conduct and Ethics +11 +Nominating Process For Directors +11 +Audit Committee Report +12 +Executive Officers +14 +Executive Compensation +15 +Compensation Discussion And Analysis +15 +Compensation Components +17 +Report of the Compensation Committee on Executive Compensation +20 +Compensation Committee Interlocks and Insider Participation +20 +Compensation Tables +20 +Retirement Plans +23 +401(k) Plan +23 +Amended and Restated 2005 Stock Incentive Plan +23 +Employment Agreements +24 +Stock Ownership +26 +Holdings of Major Stockholders +26 +Holdings of Officers and Directors +27 +Section 16(a) Beneficial Ownership Reporting Compliance +28 +Certain Relationships and Related Transactions +28 +Administrative Services Agreements +28 +Services Provided to Us by Our Affiliates +29 +Our Investments in Affiliates and Related Agreements +30 +Option and Purchase Agreement and Related Agreements +31 +Proposal to Approve the Amendment to Our Restated Certificate of Incorporation to Increase the Total Number of Authorized +Shares of Common Stock +32 +Proposal to Ratify the Appointment of Our Independent Auditors +34 +Solicitation by Board; Expenses of Solicitation +36 +Submission of Future Stockholder Proposals +36 +Availability of Form 10-K and Annual Report to Stockholders +36 +Householding +36 +Other Matters +37 +Appendix A – Form of Amendment to Restated Certificate of Incorporation of Gulfport Energy +Corporation +A-1 +i +Table of Contents +About the Annual Meeting +Who is soliciting my vote? +The board of directors of Gulfport Energy Corporation, which we refer to as +“Gulfport,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2009 Annual Meeting of Stockholders. +What am I voting on? +You are voting on: +• +The election of directors ( see page 6 ); +• +The amendment of the Company’s restated certificate of incorporation to increase the total number of authorized shares of common stock from 55,000,000 shares +to 100,000,000 shares ( see page 32 ); +• +The ratification of Grant Thornton LLP as our independent auditors for 2009 ( see page 34 ); and +• +Any other business properly coming before the meeting. +How does the board of directors recommend that I vote my shares? +Unless you give other instructions on your proxy card, the persons named +as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors. The board of directors’ recommendation can be found with the description of each item in this proxy statement. In summary, the board +of directors recommends a vote: +• +FOR the proposal to elect nominated directors; +• +FOR the proposal to approve the amendment to the Company’s restated certificate of incorporation to increase the total number of authorized shares of common +stock from 55,000,000 shares to 100,000,000 shares; and +• +FOR the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2009. +Who is entitled to vote? +You may vote if you were the record owner +of our common stock as of the close of business on April 20, 2009. Each share of common stock is entitled to one vote. As of April 20, 2009, we had 42,657,485 shares of common stock outstanding and entitled to vote, excluding 74,586 shares +of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan. There is no cumulative voting. +How many votes must be +present to hold the meeting? +Your shares are counted as present at the Annual Meeting if you attend the meeting and vote in person or if you properly +return a proxy by mail. In order for us to hold our meeting, holders of a majority of the voting power of our outstanding shares of common stock as of the close of business on April 20, 2009 must be present in person or by proxy at the meeting. +This is referred to as a quorum. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the meeting. +1 +Table of Contents +What is a broker non-vote? +If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive instructions from the beneficial owner on how to vote those shares, the broker may return the proxy card without voting on +that proposal. This is known as a broker non-vote . No broker may vote your shares on the proposal to approve the amendment to our restated certificate of incorporation to increase the total number of authorized shares of common stock from +55,000,000 to 100,000,000 shares without your specific instructions. +How many votes are needed to approve each of the proposals? +The five nominees for election as directors at the Annual Meeting who receive the highest number of “FOR” votes will be elected as directors. This is called +plurality voting. Unless you indicate otherwise on your proxy card, the persons named as your proxies will vote your shares FOR all the nominees for director named in this proxy statement. +Approval of the amendment to our restated certificate of incorporation to increase the total number of authorized shares of our common stock from 55,000,000 to +100,000,000 requires the affirmative “FOR” vote of a majority of the outstanding shares of our common stock entitled to vote thereon. Abstentions will have the same effect as negative votes in determining whether this proposal was approved +by the stockholders. Broker non-votes, however, will not be counted for voting purposes and will have no effect on the result of the vote on this proposal. +All other proposals require the affirmative “FOR” vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Only votes for or against +such other proposals will be counted as votes cast. Abstentions and broker non-votes will not be counted for voting purposes and will have no effect on the result of the vote on such other proposals. +How do I vote? +You can vote either in person at the meeting +or by proxy without attending the meeting. +To vote by proxy, you must fill out the enclosed proxy card , date and sign it, and return it in +the enclosed postage-paid envelope. +Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person +at the Annual Meeting, and you hold your stock in street name, you must obtain a proxy from your broker and bring that proxy to the meeting. +Can I +change my vote? +Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by: +• +Signing another proxy card with a later date and returning it to us prior to the meeting; +• +Sending our Corporate Secretary a written document revoking your earlier proxy; or +• +Voting again at the meeting. +2 +Table of Contents +Who counts the votes? +We have hired Computershare Trust Company, N.A., our transfer agent, to count the votes represented by proxies cast by mail or ballot. Employees of Computershare Trust Company, N.A. will act as inspectors of election. +Will my vote be confidential? +Yes. As a matter of Company policy, +proxies, ballots and voting tabulations that identify individual stockholders are treated as confidential. Only the tabulation agent and the inspectors of election have access to your vote. Directors and employees of the Company may see your vote +only if there is a contested proxy solicitation, as required by law or in certain other special circumstances. +Will my shares be voted if I don’t +provide my proxy and don’t attend the Annual Meeting? +If you do not provide a proxy or vote your shares held in your name, your shares will not +be voted. +If you hold your shares in street name, your broker may be able to vote your shares for certain “routine” matters even if you do not +provide the broker with voting instructions. The election of directors and the ratification of Grant Thornton LLP as our independent auditors for 2009 are considered routine matters. For matters not considered “routine,” if you do not give +your broker instructions on how to vote your shares, the broker will return the proxy card without voting on that proposal. This is a broker non-vote. The approval of the amendment to the Company’s restated certificate of incorporation to +increase the total number of authorized shares of common stock is not considered routine. As a result, no broker may vote your shares on the proposed amendment to our restated certificate of incorporation without your specific instructions. +How are votes counted? +In the election of directors, +you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For any other proposal, including the approval of the amendment to our restated certificate of incorporation to +increase the total number of authorized shares of our common stock and the ratification of Grant Thornton LLP as our independent auditors for 2009, you may vote “FOR,” “AGAINST” or “ABSTAIN.” +What if I return my proxy but don’t vote for some of the matters listed on my proxy card? +If you return a signed proxy card without indicating your vote, your shares will be voted FOR the director nominees listed on the card, FOR the approval of the amendment to our restated certificate of incorporation to +increase the total number of authorized shares of our common stock and FOR the ratification of Grant Thornton LLP as our independent auditors for 2009. +Could other matters be decided at the Annual Meeting? +We have not received any stockholder proposals and are not aware of any other +matters that will be considered at the Annual Meeting. If any other matters arise at the Annual Meeting, the persons named in your proxies will vote in accordance with their best judgment. +Who can attend the meeting? +The Annual Meeting is open to all +holders of our common stock. +3 +Table of Contents +What do I need to bring to attend the Annual Meeting? +You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of your broker or bank or other nominee, you will need to bring +evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN SHARES OF OUR STOCK, +YOU MAY NOT BE ADMITTED INTO THE MEETING. +How can I access the Company’s proxy materials and annual report electronically? +This proxy statement and the Company’s 2008 Annual Report to Stockholders are available on the Company’s website at www.gulfportenergy.com/proxy. +4 +Table of Contents +Board of Directors Information +What is the makeup of the board of directors and how often are the members elected? +Our board of directors consists of five members who are elected annually. The majority of these directors are independent under the Nasdaq listing standards. +What if a nominee is unable or unwilling to serve? +That is not +expected to occur. If it does, shares represented by proxies will be voted for a substitute nominated by the board of directors. +How are directors +compensated? +Our policy adopted in the second quarter of 2007 is that members of our board of directors who are also our officers or employees do not +receive compensation for their services as directors. +Equity Compensation +We provide our non-employee directors with equity compensation under our Amended and Restated 2005 Stock Incentive Plan. Our current non-employee directors are Donald L. Dillingham, Scott E. Streller and David L. +Houston. In March 2008, we granted 6,666 shares of our restricted common stock to Mr. Dillingham in connection with his appointment to our board of directors in November 2007, of which 740 shares vested on April 1, 2008 and the remaining +shares vest in 36 substantially equal monthly installments beginning on May 1, 2008. No equity grants were made to any of our other non-employee directors in 2008. Further details regarding our director compensation in 2008 are set forth under +the heading “Director Compensation” below. +Cash Compensation +In 2008, we paid our non-employee directors a monthly retainer of $1,000 and a per meeting in-person attendance fee of $500 and reimburse all ordinary and necessary expenses incurred by non-employee directors in the +conduct of our business. In March 2008, the compensation committee of our board of directors, following its review of the compensation survey prepared by an outside consultant, determined that committee members and chairpersons commit substantially +more time than other board members. As a result, the compensation committee determined that effective April 1, 2008, in addition to the fees described above, each committee member of our board of directors will receive $3,000 per year for his +service on each committee. However, if a director serves as the committee chairman, he will receive $4,500 per year per committee. No changes to the cash compensation structure for our non-employee directors have been made in 2009. +Insurance and Indemnification Contracts +We provide liability +insurance for our directors and officers at a current annual cost of approximately $285,000 and have contractual indemnification arrangements with our directors and certain of our officers under which we agree, in certain circumstances, to +compensate them for costs and liabilities incurred in actions brought against them while acting as directors or officers of the Company. +How often did +the board of directors meet in 2008? +The board of directors met six times in 2008. In addition to these meetings, the board of directors adopted +resolutions by unanimous written consent. Each director attended at least 75% of the aggregate meetings of the board of directors and the meetings of the committees on which he served. +5 +Table of Contents +Election of Directors and Director Biographies +(Proposal 1 on the Proxy Card) +Who are this year’s +nominees? +The directors standing for election this year to hold office until the 2010 Annual Meeting of Stockholders and until each such +director’s successor is elected are: +MIKE LIDDELL, age 55. Mr. Liddell has served as a director of our company since July 1997 and as +Chairman of the Board of our company since July 1998. Mr. Liddell served as Chief Executive Officer of our company from April 1998 to December 2005 and President of our company from July 2000 to December 2005. In addition, Mr. Liddell +served as Chief Executive Officer of DLB Oil & Gas, Inc., a publicly held oil and natural gas company, from October 1994 to April 1998, and as a director of DLB Oil & Gas from 1991 through April 1998. From 1991 to 1994, +Mr. Liddell was President of DLB Oil & Gas. From 1979 to 1991, he was President and Chief Executive Officer of DLB Energy. Mr. Liddell served as a director of Bronco Drilling Company, Inc., a provider of contract land drilling +services, from May 2005 until August 2008 and as its Chairman of the Board from May 2005 until August 2007. Mr. Liddell has served as Chairman of the Board of Windsor Energy Group, LLC and Great White Energy Services, LLC since December 2005 +and November 2006, respectively, and served as Chairman of the Board of Diamondback Energy Services, Inc. from November 2006 until December 2008. Mr. Liddell received a Bachelor of Science degree in education from Oklahoma State University. +DONALD DILLINGHAM, age 46. Mr. Dillingham has served as a director of our company since November 2007. Since August 2001, Mr. Dillingham +has served as the Senior Portfolio Manager for Avondale Investments, LLC and Merit Advisors, Inc., each of which is a registered investment advisor. Mr. Dillingham is currently the Senior Portfolio Manager for two mutual funds, a member of the +investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer of the Merit Advisors Investment Trust. From August 2002 to December 2004, Mr. Dillingham served as an adjunct professor of finance at the University of Oklahoma. +From April 1998 to August 2001, Mr. Dillingham served as Senior Vice President, portfolio manager and state director for J.P. Morgan Investment Management. From March 1996 to April 1998, Mr. Dillingham served American Express as the state +director responsible for managing the financial planning services and product sales for the state of Oklahoma. From May 1994 to December 1996, Mr. Dillingham worked for Bank of America as Vice-President of Investment Banking. +Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker and sales manager from August 1984 to may 1994. Mr. Dillingham received a Bachelors of Business and +Administration in Accounting from the University of Oklahoma and his Masters of Business and Administration in Finance from Oklahoma City University. Mr. Dillingham is a Chartered Financial Analyst, a Certified Public Accountant and a Certified +Financial Planner. +DAVID L. HOUSTON, age 56. Mr. Houston has served as a director of our company since July 1998. Since 1991, Mr. Houston +has been the principal of Houston & Associates, a firm that offers life and disability insurance, compensation and benefits plans and estate planning. Mr. Houston has served as a director of Bronco Drilling Company since May 2005. +Prior to 1991, Mr. Houston was President and Chief Executive Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank. Mr. Houston served on the board of directors and executive committee of Deaconess Hospital, Oklahoma +City, Oklahoma, from January 1993 until December 2008 and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston received a Bachelor of Science degree in business from Oklahoma +State University and a graduate degree in banking from Louisiana State University. +JAMES D. PALM, age 64. Mr. Palm has served as a director of +our company since February 2006 and as Chief Executive Officer of our company since December 2005. Prior to joining our company, Mr. Palm pursued oil and gas investments primarily in Oklahoma, the Texas Panhandle and Kansas as the manager and +owner of Crescent +6 +Table of Contents +Exploration, LLC, a company he founded in 1995. Mr. Palm currently serves as a member of the Industry Advisory Committee of the Oklahoma Corporation +Commission. From October 2001 through October 2003, Mr. Palm served as the Chairman of the Oklahoma Energy Resources Board. From 1997 through 1999, Mr. Palm served as the President of the Oklahoma Independent Petroleum Association. +Mr. Palm received a Bachelor of Science degree in Mechanical Engineering in 1968, and a Masters in Business Administration in 1971, both from Oklahoma State University. +SCOTT E. STRELLER, age 41. Mr. Streller has served as a director of our company since August 2006. Since April 1993, Mr. Streller has operated an insurance agency for Farmer’s Insurance and +Farmer’s Financial Solutions. Mr. Streller received a Master’s degree in Athletic Administration from Oklahoma State University and a Bachelor of Business Administration degree in Business Management from the University of Central +Oklahoma. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS +7 +Table of Contents +What are the committees of the Board? +Our board of directors has the following committees: +Committee +Members +Principal Functions +Number of +Meetings in +2008 +Audit +David L. Houston* +Donald L. Dillingham +Scott E. Streller +• Reviews and discusses with management and the independent auditors the integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management +compliance. +• Monitors and oversees our accounting, auditing and financial +reporting processes generally, including the qualifications, independence and performance of the independent auditor. +• Monitors our compliance with legal and regulatory requirements. +• Establishes procedures for the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and the confidential, +anonymous submission by employees of concerns regarding questionable accounting or auditing matters. +• Reviews and approves related party transactions. +• Appoints, determines compensation, evaluates and terminates our independent auditors. +• Pre-approves audit and permissible non-audit services to be performed by the independent auditors. +• Prepares the report required by the SEC for the inclusion in our annual proxy +statement. +• Reviews and reassesses the adequacy of the audit committee charter +on a periodic basis. +6 +Compensation +Scott E. Streller +David L. Houston* +• Oversees and administers our executive compensation policies, plans and practices. +• Assists the board of directors in discharging its responsibilities relating to the compensation of our executives, including our chief executive officer, and other key employees. +• Administers our equity-based compensation plans, including the grants of stock +options, restricted stock awards and other equity awards under such plans. +• Makes recommendations to the board with respect to incentive compensation. +• Conducts annual performance evaluation of the committee. +• Reviews disclosure related to executive compensation in our proxy statement. +• Reviews and reassesses the adequacy of the compensation committee charter. +3 +8 +Table of Contents +Committee +Members +Principal Functions +Number of +Meetings in +2008 +Nominating +Donald L. Dillingham +David L. Houston +Scott E. Streller* +• Assists the board of directors in +developing criteria for, identifying and evaluating individuals qualified to serve as members of our board of directors. +• Selects and recommends director candidates to the board of directors to be submitted for election at the Annual Meeting and to fill any vacancies on the board of directors. +• Periodically reviews and makes recommendations regarding the composition and size of the +board of directors and each of its committees. +• Reviews and recommends to the +board of directors appropriate corporate governance polices and procedures for our company. +• Conducts an annual assessment of the qualifications and performance of the Board. +• Annually reviews and reports to the board of directors on the performance of management. +• Reviews and reassesses the adequacy of the nominating committee charter. +1 +* Committee Chairperson +Do the committees have written charters? +Yes. The charters for our +Audit Committee, Compensation Committee and Nominating Committee can be found on our website at www.gulfportenergy.com under the “Corporate Governance” caption. You may also obtain copies of these charters, as well as our Code of +Business Conduct and Ethics, which is described below, by writing to our Corporate Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +9 +Table of Contents +Corporate Governance Matters and Communications with the Board +Who are our independent directors? +The board of directors has +determined that Donald L. Dillingham, David L. Houston and Scott E. Streller meet the standards regarding independence set forth in the Nasdaq listing standards and are free of any material relationship with the Company (either directly or as a +partner, stockholder or officer of an organization that has a relationship with the Company). +Our board of directors has determined that each member of +the Audit Committee is independent for purposes of serving on such committee under the Nasdaq listing standards and applicable federal law. In addition, our board of directors has determined that each current member of the Audit Committee is +financially literate under the Nasdaq listing standards and that each of Mr. Houston, who serves as the Chairman of the Audit Committee, and Mr. Dillingham qualifies as the “audit committee financial expert,” as such term is +defined in Item 407(d) of Regulation S-K. +Our board of directors has also determined that each member of the Compensation Committee and the +Nominating Committee meets the independence requirements applicable to those committees under the Nasdaq rules. In addition, our board of directors determined that each member of our compensation committee is an “outside director” in +accordance with Section 162(m) of the Internal Revenue Code and a “non-employee director” in accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended. +Do our non-management directors meet separately without management? +Our non-management directors have the opportunity to meet in an executive session following each regularly scheduled meeting of the board of directors. During 2008, our non-management directors met in an executive session on +November 26, 2008. +How can I communicate with the board of directors? +Individuals may communicate with our board of directors or individual directors by writing to our Corporate Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, +Oklahoma 73134. Our Corporate Secretary will review all such correspondence and forward to our board of directors a summary of all such correspondence and copies of all correspondence that, in the opinion of our Corporate Secretary, relates to the +functions of our board of directors or the compensation committee thereof or that he otherwise determines requires their attention. Directors may review a log of all such correspondence received by us and request copies. Concerns relating to +accounting, internal control over financial reporting or auditing matters will be immediately brought to the attention of the chairman of the audit committee and handled in accordance with the audit committee procedures established with respect to +such matters. +Do directors attend the Annual Meeting? +Recognizing that director attendance at our Annual Meeting can provide our stockholders with an opportunity to communicate with directors about issues affecting the Company, we actively encourage our directors to attend the Annual Meeting +of Stockholders. Directors Liddell, Palm, Houston, Streller and Dillingham attended the 2008 Annual Meeting of Stockholders. +10 +Table of Contents +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and Ethics designed to help directors and employees resolve ethical issues. Our Code of Business Conduct and Ethics applies to +all directors and employees, including the Chief Executive Officer, the Chief Financial Officer and all senior financial officers. Our Code of Business Conduct and Ethics covers various topics including, but not limited to, conflicts of interest, +fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is posted on our website under the “Investor Relations—Corporate +Governance” caption. +Nominating Process For Directors +The Nominating Committee is comprised of three non-employee directors, all of whom are independent under Nasdaq listing standards. The Committee identifies, investigates and recommends to our board of directors +candidates with the goal of creating a balance of knowledge, experience and diversity. Generally, the committee identifies candidates through the personal, business and organizational contacts of the directors and management. +Potential directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the interests of our +stockholders. In addition to reviewing a candidate’s background and accomplishments, candidates for director nominees are reviewed in the context of the current composition of our board of directors and the evolving needs of our +stockholders’ businesses. It is the policy of our board of directors that at all times at least a majority of its members meets the standards of independence promulgated by Nasdaq and the Securities and Exchange Commission, or the SEC, and that +all members reflect a range of talents, ages, skills, diversity and expertise, particularly in the areas of accounting and finance, management, leadership and oil and gas related industries sufficient to provide sound and prudent guidance with +respect to our stockholders’ operations and interests. We also require that the members of our board of directors be able to dedicate the time and resources sufficient to ensure the diligent performance of their duties on our behalf, including +attending all meetings of the board of directors and applicable committee meetings. +Our board of directors will consider stockholder nominations for +director candidates upon written submission of such recommendation to our Corporate Secretary along with, among other things, the nominee’s qualifications and certain biographical information regarding the nominee, such nominee’s written +consent to serving as a director if elected and being named in the proxy or information statement and certain information regarding the status of the stockholder submitting the recommendation, all in the manner required by our amended and restated +bylaws and the applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by +our board of directors at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to our board of directors. +Our board of directors may also review materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a +stockholder. In evaluating such nominations, our board of directors will seek to achieve a balance of knowledge, experience and capability on the board. Our board of directors uses the same criteria for evaluating candidates nominated by +stockholders as it does for those proposed by current board members, professional search firms and other persons. After completing its evaluation, our board of directors approves the final slate of director nominees. +Our Nominating Committee approved the director nominees submitted for election at this Annual Meeting. +11 +Table of Contents +Audit Committee Report +The Audit Committee is responsible for providing independent, objective oversight for the integrity of the Company’s financial reporting process and internal control system. Other primary responsibilities of the +Audit Committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the Company’s independent registered public accounting firm and providing an open venue for communication among the +independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of the Company. A more detailed description of the responsibilities of the Audit Committee is set forth in its written +charter, which is posted on our website at www.gulfportenergy.com. The following report summarizes certain of the Audit Committee’s activities with respect to its responsibilities during 2008. +Review with Management and Independent Registered Public Accounting Firm . The Audit Committee has reviewed and discussed with management and Grant Thornton LLP, +an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, 2008. +Controls and Procedures. Management has established and maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by our Company in the reports that we +file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and includes controls and procedures designed to provide +reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions +regarding required disclosure. As of December 31, 2008, management conducted an evaluation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our +disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Securities and Exchange Act, as amended, is recorded, processed, +summarized and reported within the time periods specified in the SEC’s rules and forms. The Audit Committee discussed with management and Grant Thornton LLP the quality and adequacy of the Company’s disclosure controls and procedures. +Management has also established and maintains a system of internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the +Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements +are reasonable. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations +of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control—Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, +2008, as discussed in more detail in Management’s Report on Internal Control Over Financial Reporting, which was included in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 16, 2009. +Our internal control over financial reporting as of December 31, 2008 has been audited by Grant Thornton LLP, as stated in its attestation report, which was included in our Annual Report on Form 10-K for the year ended December 31, 2008, +filed with the SEC on March 16, 2009. The Audit Committee reviewed and discussed with management and Grant Thornton LLP the Company’s system of internal control over financial reporting in compliance with Section 404 of the +Sarbanes-Oxley Act of 2002. +Discussions with Independent Auditing Firm . The Audit Committee has discussed with Grant Thornton LLP, independent +auditors for the Company, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees , as amended. The Audit Committee has received the written disclosures and the letter from Grant +Thornton LLP required by applicable requirements of the Public Company +12 +Table of Contents +Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence and has discussed with +that firm its independence from the Company. +Recommendation to the board of directors . Based on its review and discussions noted above, the Audit +Committee recommended to the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. +THE AUDIT COMMITTEE +David L. Houston, Chairman +Donald L. Dillingham +Scott E. Streller +13 +Table of Contents +Executive Officers +The following table sets forth the name, age and positions of each of our executive officers as of the record date: +Name +Age +Position +Mike Liddell +55 +Chairman of the Board and Director +James D. Palm +64 +Chief Executive Officer, Director +Michael G. Moore +52 +Vice President, Chief Financial Officer and Secretary +Biographical information for each of Messrs. Liddell and Palm is set forth in this proxy statement under the +heading “Election of Directors and Director Biographies.” +MICHAEL G. MOORE. Mr. Moore has served as Vice President and Chief +Financial Officer of our company since July 2000. From May 1998 through July 2000, Mr. Moore served as Vice President and Chief Financial Officer of Indian Oil Company. From September 1995 through May 1998, Mr. Moore served as Controller +of DLB Oil & Gas. Prior to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based gas marketing company. Mr. Moore received both his Bachelor of Business Administration degree in finance and his Masters in Business +Administration from the University of Central Oklahoma. +14 +Table of Contents +Executive Compensation +Compensation Discussion And Analysis +Compensation Practices +Until the end of 2007, all compensation decisions for our Chief Executive Officer and our Chief Financial Officer (other than decisions relating to our equity +compensation plans) were made by our Chairman of the Board. Our Chairman of the Board has been compensated as provided in his employment agreement with our company, which was effective as of June 1, 1999. Although our board of directors +established a compensation committee effective as of February 14, 2006, until the end of 2007, the role of the compensation committee was limited, as we relied on the “controlled company” exemption and applicable transition rules +provided by the Nasdaq listing standards. The compensation committee is currently composed entirely of independent directors. Since the end of 2007, the compensation committee has been primarily responsible for establishing, implementing and +monitoring our compensation programs, including those applicable to our executive officers. In particular, the compensation committee’s current role is to oversee, on behalf of our board of directors, our compensation and benefit plans and +policies, administer our stock plans (including reviewing and approving equity grants to directors and executive officers) and review and approve annually all compensation decisions relating to our Chief Executive Officer and make recommendations to +our board of directors and Chairman of the Board with respect to other executive officer compensation. The compensation committee meets at least annually to review executive compensation programs, approve compensation levels, consider performance +targets, review management performance and administer our equity-based compensation plans. The compensation committee operates in accordance with its charter, adopted effective as of February 14, 2006, which sets forth its powers and +responsibilities described in more detail under the “Corporate Governance—Compensation Committee.” +Compensation Philosophy and +Objectives +The objectives of our compensation program are to: +• +attract and retain key executives; +• +align the interests of our executives with those of our stockholders; and +• +motivate and reward individual performance and contributions. +Compensation Benchmarking +In the fall of 2007, the compensation committee engaged Equilar, an outside consultant, +to perform a compensation survey, based on the available compensation data for fiscal 2006, which survey included the following industry peer companies: Arena Resources Inc., Brigham Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake +Energy Corporation, Continental Resources Inc., Devon Energy Corporation, Edge Petroleum Corporation, Energy Partners LTD, Goodrich Petroleum Corporation, Quest Resources Corporation, Ram Energy Resources Inc., Stone Energy Corporation and Swift +Energy Company. Following its review of the survey and taking into account (i) the adjustments made with respect to 2007 compensation of our named executive officers and (ii) the difference in duties performed by our named executive +officers as compared to duties performed by their counterparts at the peer group companies, the compensation committee determined that the compensation of our Chairman of the Board and our Chief Executive Officer for fiscal 2008 was reasonable as +compared to similarly situated executives at peer group companies. The compensation committee further recommended that our Chairman of the Board and our Chief Executive Officer review other executive compensation for fiscal 2008 for reasonableness +and competitiveness. In November 2008, the compensation committee reviewed and considered the 2009 compensation packages for our Chairman of the Board, Chief Executive Officer and Chief +15 +Table of Contents +Financial Officer, taking into consideration their 2007 and 2008 compensation packages and the compensation survey prepared by Equilar in the fall of 2007. +The compensation committee did not engage an outside consultant during 2008 and relied on data contained in the 2007 Equilar report for purposes of making compensation determinations for 2009. In making compensation determinations for 2009, the +compensation committee considered the following factors: Company performance during fiscal 2008, value the executives bring to the Company, market trends, economic climate, experience, leadership and employee retention. +Compensation Policy +The key elements of our compensation program +are salary, annual bonus and long-term incentive compensation. We use these elements to meet our compensation objectives as follows: +• +Attract and retain key executives. We believe that to attract and retain talented executives, we must offer compensation that is competitive. We also believe that +our Chairman of the Board, Mike Liddell, our Chief Executive Officer, James D. Palm, and our Chief Financial Officer, Michael G. Moore, are critical to the long-term success of our company. To facilitate the retention of our Chairman of the Board +and our Chief Executive Officer, we entered into an employment agreement with Mr. Liddell in May of 1999 and into an oral agreement with Mr. Palm with respect to their respective compensations and benefits. We believe that the terms of +these agreements are reasonable as compared to similarly situated executives at peer group companies. +• +Align the interests of our executives with those of our stockholders. In the past, we used both options and restricted stock awards to provide long-term incentive +compensation and to align the financial interests of our executives with those of our stockholders. In 2008, the compensation committee granted only restricted stock awards as part of our long-term incentive compensation. For more details, see +“Stock Options” and “Restricted Stock Awards” below. It is anticipated that in the future the compensation committee will continue to structure our long-term incentive compensation in the form of restricted stock awards. For a +discussion of the Company’s long-term incentive policy, see “Long Term Incentive Compensation” below. +• +Stock Options . Stock options represent the right of an option holder to buy shares of our common stock at an exercise price equal to the market value of our +common stock on the date of grant. Under our outstanding stock options, the right to buy underlying shares generally vests in 36 substantially equal monthly installments from the date of grant, except that certain options vest in five substantially +equal annual installments beginning on the first anniversary of the date of grant. We awarded these stock options in order to align compensation with company performance as the options become valuable to the executive only if the stock price +increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. +• +Restricted Stock Awards . Restricted stock granted to our executive officers prior to 2008 generally vests in 36 substantially equal monthly installments. In +December 2008, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chief Executive Officer under our Amended and Restated 2005 Stock Incentive Plan. Of this amount, 5,556 shares vested on +December 17, 2008 and the remaining shares vest in 11 substantially equal quarterly installments beginning on March 18, 2009. No other executive officers received any equity awards in 2008. Restricted stock awards ensure that our +executives have a continuing stake in the long-term success of our company as the value of the award will depend on the stock price at the time of vesting. +• +Motivate and reward individual performance and contributions. The Company’s evaluation of the individual performance of each executive officer affects most +aspects of the executive’s compensation. Individual performance and level of responsibility are considered in determining an executive’s annual salary, and are important factors in deciding discretionary bonuses and equity awards. +16 +Table of Contents +Compensation Components +Base Salary +Salaries for our Chairman of the Board and our Chief Executive Officer are provided in their respective +agreements described in more detail under the heading “Employment Agreements” below. The annual base salary for our Chairman of the Board is increased annually in an amount equal to any increase in the cost of living as determined in +accordance with his employment agreement. The respective salaries for our Chief Executive Officer and Chief Financial Officer for 2008 were determined by our compensation committee and our Chairman of the Board, respectively. With respect to the +2008 salaries of our Chief Executive Officer and our Chief Financial Officer, the various factors considered included the recommendation of our Chairman of the Board, the compensation of executive officers of comparable companies within the oil and +natural gas industry, the performance of such executive officer and changes in responsibilities, the experience, leadership and potential future contributions to the Company and, in the case of our Chief Executive Officer, his oral employment +agreement with the Company. In the future, we anticipate that the compensation committee will review the base salaries of our named executive officers on an annual basis, subject to the terms of any employment agreements that we may have with our +named executive officers, and will consider similar factors, as well as the recommendation of our Chairman of the Board with respect to base salaries of other named executive officers. During 2008, the annual base salaries for our Chairman of the +Board, our Chief Executive Officer and our Chief Financial Officer were $260,585, $225,000 and $300,000, respectively. +In November 2008, the compensation +committee reviewed and considered salaries for our Chairman of the Board, Chief Executive Officer and Chief Financial Officer for 2009, taking into consideration their 2007 and 2008 compensation packages and the compensation survey prepared by +Equilar in the fall of 2007. The compensation committee also considered Company performance, value the executives bring to the Company, market trends, economic climate, experience, leadership and employee retention and, in the case of our Chairman +of the Board and Chief Executive Officer, the terms of their respective agreements with the Company. Following such review, the compensation committee adjusted the base salary of our Chairman of the Board for the increase in cost of living, as +provided by his employment agreement, and renewed the respective 2008 base salaries of our Chief Executive Officer and Chief Financial Officer at the same levels for 2009. +Discretionary Bonus +The compensation committee determined the year-end discretionary bonuses that were paid to our +named executive officers based on their respective performances in 2008 and other factors, including Company performance in 2008, value the executives bring to the Company, market trends, economic climate, experience, leadership and employee +retention. The compensation committee determined that our Chairman of the Board would receive a year-end discretionary bonus of $40,000, consistent with prior annual bonuses paid to our Chairman of the Board. The compensation committee also +determined that our Chief Executive Officer and Chief Financial Officer would each receive a year-end discretionary bonus in the range of 12% of their respective base salaries during 2008, to be more specifically determined by our Chairman of the +Board. As result, our Chief Executive Officer and Chief Financial Officer received 2008 year-end discretionary bonuses of $25,000 and $50,000, respectively. In addition, our Chief Financial Officer received special bonuses of $25,000 in each of July +and October of 2008 in recognition of his services to the Company. No specific financial or operational performance targets were set by the compensation committee for 2008 with respect to discretionary bonuses or other executive compensation. +Long-Term Incentive Compensation +2008 Awards . +In December 2008, the compensation committee reviewed and evaluated our Chief Executive Officer’s performance during 2008. As part of this process, the committee considered a 2007 study by a nationally recognized compensation consulting firm, +Equilar, with respect to executive and board of directors’ compensation +17 +Table of Contents +as it relates to a selected industry peer group. For more information regarding the Equilar study and our peer group, see “Compensation +Benchmarking” above. The compensation committee also considered the current status of the energy sector with a special focus on the Company’s peer group and the national and global economic conditions and reviewed the Chief Executive +Officer’s outstanding equity awards and related exercise prices. Following a thorough review of the Equilar study, and taking into consideration the factors mentioned above, the compensation committee granted a restricted stock award of 66,667 +shares of restricted common stock to our Chief Executive Officer under our Amended and Restated 2005 Stock Incentive Plan. Of this amount, 5,556 shares vested on December 17, 2008 and the remaining shares vest in 11 substantially equal +quarterly installments beginning on March 18, 2009. Such award placed a larger portion of our Chief Executive Officer’s compensation at risk as well as tied it to the enhancement of stockholder value. No other executive officers received +any equity awards in 2008 due to the current economic conditions. +Long-Term Incentive Policy . Although in the past, we awarded both options and +restricted stock as part of our long-term incentive compensation program, our board of directors and the compensation committee believe that restricted stock awards are an essential component of our compensation strategy, and we intend to continue +offering such awards in the future. Further, we anticipate that any equity awards granted to our executive officers during the remainder of 2009 will be in the form of restricted stock. The Committee may also determine to issue other forms of +stock-based awards to our named executive officers or other eligible participants under our Amended and Restated 2005 Stock Incentive Plan or other equity incentive plans in effect at that time. Our current equity incentive plan is described below +under the heading “Amended and Restated 2005 Stock Incentive Plan.” +In November 2008, the compensation committee reviewed and discussed the +Company’s current equity compensation plan and objectives. The compensation committee considered the advisability of developing a plan for appropriate benchmarking with respect to the Company’s equity award program and the need to issue +new equity awards as old awards become fully vested, so as to provide future incentives to our executive officers. Upon review, the compensation committee did not establish any objective performance targets or make any other changes to its long-term +incentive policy for 2009. +Perquisites and Other Personal Benefits +Our company provides certain of our named executive officers with a limited number of perquisites or other personal benefits, primarily consisting of life insurance premiums and, in the case of our Chief Financial +Officer, a company vehicle, that we believe help provide a competitive package of compensation and benefits. The value of these benefits is disclosed in the Summary Compensation Table. +Broad-Based Employee Benefits +• +401(k) Plan. We have retirement savings plan in which our named executive officers currently participate. The retirement plan is a tax qualified 401(k) plan that +covers all eligible employees including the named executive officers. Under the plan, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual compensation for the prior calendar year. We also have the ability to +make an additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made regardless of employee’s deferrals into the plan. In 2008, we made a safe +harbor and discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Services regulations. All contributions made by us on behalf of an employee are 100% vested +when contributed. For more details regarding our 401(k) plan, see “Retirement Plans—401(k) Plan” below. +• +Our named executive officers are eligible to participate in all of our other employee benefit plans which include medical, dental, group life, disability and +accidental death and dismemberment insurance, in each case on the same basis as all other employees. +18 +Table of Contents +Employment Agreements +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and automatically renews for successive one-year terms thereafter. The agreement provides for an +annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $260,585 in 2008 and to $261,373 in 2009. Upon termination of Mr. Liddell’s employment +by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. The agreement also restricts Mr. Liddell’s use or disclosure of +any of our confidential information during the term of the agreement and for a period of five years thereafter. +We also entered into an oral agreement +with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which Mr. Palm is entitled to an annual salary of $200,000 and, at the discretion of our board of directors, an annual cash incentive +bonus. For 2008, Mr. Palm’s annual salary was increased to $225,000. The compensation committee has determined that Mr. Palm’s annual salary for 2009 will remain at the 2008 level. Mr. Palm is also eligible to participate in +all insurance, retirement and benefits plans available to our other employees. +Change in Control Arrangements +Our named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement provides that upon +termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. See “Employment +Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan provides that in the event of significant corporate transaction involving a change in control (as defined under the plan) of our company, such as a dissolution +or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, +consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued or +substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the +extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 +Stock Incentive Plan in the event of a change in control. +Potential payments to our Chief Executive Officer and our other named executive officers upon +termination or following a change in control event are set forth under the heading “Potential Payments upon Termination or Change-in-Control.” +Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax +purposes of executive compensation paid to the Chief Executive Officer and the four other most highly compensated officers of a public company to $1,000,000 per year, but contains an exception for certain performance-based compensation. Our policy +is to periodically review and consider whether particular compensation and incentive payments to our executives will be deductible for federal income tax purposes. We intend, to the extent feasible and when we believe it is in the best interests of +our company and our stockholders, to attempt to qualify executive compensation as tax deductible where it does not adversely affect the development and execution of our compensation plans. +19 +Table of Contents +Accounting Implications of Executive Compensation Policy +We are required to recognize compensation expense of all stock-based awards pursuant to the principals set forth in Statement of Financial Accounting Standards +No. 123(R), “ Share-Based Payment .” Non-vested shares are deemed issued and outstanding from legal perspective; however, under U.S. generally accepted accounting principles, or GAAP, only vested shares are included in basic +shares outstanding. Also, under GAAP, non-vested shares are included in diluted shares outstanding when the effect is dilutive. +Report of the Compensation Committee on Executive Compensation +The compensation committee has reviewed and +discussed the foregoing Compensation Discussion and Analysis with management. Based on its review and discussion with management, the compensation committee recommended that the Compensation Discussion and Analysis be included in this proxy +statement. +Respectfully submitted by the compensation committee: +David L. Houston +Scott Streller +Compensation Committee Interlocks and Insider Participation +No current member of our Compensation Committee has ever been an officer or employee +of ours. None of our executive officers serves, or has served during the past fiscal year, as a member of the Board of Directors or compensation committee of any other company that has one or more executive officers serving as member of our Board of +Directors or Compensation Committee. +Compensation Tables +SUMMARY COMPENSATION TABLE +The following table provides information concerning compensation of +our principal executive officer, principal financial officer and our other highest paid executive officer for the fiscal years ended December 31, 2008, December 31, 2007 and December 31, 2006. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +All Other +Compensation +($)(2) +Total +($) +James D. Palm(3) +2008 +225,000 +25,000 +22,389 +308,677 +24,550 +605,616 +Chief Executive Officer +2007 +211,750 +25,410 +— +336,738 +16,500 +590,398 +2006 +200,000 +24,000 +— +336,738 +24,320 +585,058 +Mike Liddell(4) +2008 +260,585 +40,000 +— +149,967 +24,550 +475,102 +Chairman of the Board +2007 +243,505 +40,000 +— +149,967 +20,725 +454,197 +2006 +239,716 +— +— +149,967 +21,016 +410,699 +Michael G. Moore +2008 +279,340 +100,000 +82,267 +21,055 +23,450 +506,112 +Vice President, Chief Financial Officer and Secretary(5) +2007 +225,000 +400,000 +82,267 +29,942 +19,625 +756,834 +2006 +210,875 +100,000 +42,976 +29,942 +17,166 +400,959 +(1) +The amounts reported in the Stock Awards and Option Awards columns reflect the dollar amount recognized for financial reporting purposes for the fiscal years ended December 31, +2008, 2007 and 2006, respectively, of awards of stock options and restricted stock to the named executive officers as indicated in such columns and were calculated in accordance with the provisions of SFAS 123(R). These amounts were calculated using +certain assumptions, as set forth in Note 10 to our audited financial statements for the fiscal year ended December 31, 2008, included in our Annual Report on Form 10-K, filed with the SEC on March 16, 2009. These amounts may include +amounts from awards granted in and prior to such years. +(2) +Amounts for Mr. Liddell include our 401(k) plan contributions of $17,325, $13,500 and $13,791 for 2008, 2007 and 2006, respectively, life insurance premium +payments of $7,225 for each of 2008, 2007 and 2006. Amounts for Mr. Palm include our 401(k) plan contributions of $17,325, $13,500 and $13,320 for 2008, 2007 and 2006, respectively, and director compensation fees of $3,000 and +20 +Table of Contents +$11,000 for 2007 and 2006, respectively. The amounts for Mr. Moore for 2008 and 2007 represent our 401(k) plan contributions of $17,325 and $13,500, +respectively, and $6,125 and $6,125, respectively, attributable to use of a company vehicle, and the amount for 2006 represents our matching 401(k) plan contributions. +(3) +Mr. Palm’s options vest in 36 substantially equal monthly installments beginning on the date of grant. Mr. Palm’s restricted stock award of 66,667 shares of our +restricted common stock vest in 12 substantially equal quarterly installments beginning on December 17, 2008. +(4) +Mr. Liddell’s options vest in five substantially equal annual installments beginning on the first anniversary of the date of grant. +(5) +Restricted stock awards held by Mr. Moore vest in approximately 36 substantially equal monthly installments. The vesting schedule for Mr. Moore’s options is discussed +under the heading “Outstanding Equity Awards at Fiscal Year-End” below. +GRANTS OF PLAN-BASED AWARDS +The following table provides information concerning each grant of an award made to our principal executive officer, our principal financial officer +and our other highest paid executive officer in fiscal 2008 under any Company plan. +Name +Grant +Date +Estimated Future Payouts Under +Equity Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock or +Units +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant +Date +Fair +Value +of +Stock +and +Option +Awards +($) +Threshold +(#) +Target +(#) +Maximum +(#) +James D. Palm +12/05/2008 +— +— +— +66,667 +(1) +— +— +268,668 +Chief Executive Officer +Mike Liddell +— +— +— +— +— +— +— +— +Chairman of the Board +Michael G. Moore +— +— +— +— +— +— +— +— +Vice President, Chief Financial Officer & Secretary +(1) +Mr. Palm’s restricted stock award of 66,667 shares of our restricted common stock vest in 12 substantially equal quarterly installments beginning on December 17, +2008. +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information concerning equity awards outstanding for our principal executive officer, our principal financial officer and our other highest paid executive officer at December 31, +2008. +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vested +($)(1) +James D. Palm +200,000 +— +11.20 +12/1/2015 +61,107 +(2) +241,373 +Mike Liddell +— +182,908 +(3) +3.36 +1/24/2015 +— +— +Michael G. Moore +6,000 +4,000 +(3) +3.36 +1/24/2015 +3,195 +(4) +12,620 +20,000 +— +(5) +9.07 +9/9/2015 +— +— +(1) +Market value of shares or units that have not vested is based on the closing price of $3.95 per share of our common stock on The NASDAQ Global Select Market on December 31, +2008, the last trading day of 2008. +(2) +Restricted stock awards vest in 12 substantially equal quarterly installments beginning on December 17, 2008. +21 +Table of Contents +(3) +Options vest in five substantially equal annual installments beginning on the first anniversary of the date of grant. The option expiration date reflects the tenth anniversary from +the date of grant. +(4) +Restricted stock awards vest in approximately 36 substantially equal monthly installments. +(5) +Options vest in 36 substantially equal monthly installments. The option expiration date reflects the tenth anniversary from the date of grant. +OPTION EXERCISES AND STOCK VESTED +The following +table provides certain information for the named executive officers on stock option exercises during 2008, including the number of shares acquired upon exercise and the value realized, and the number of shares acquired upon the vesting of restricted +stock awards. +Name +Option Awards +Stock Awards +Number of Shares +Acquired on +Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on +Vesting +(#) +Value Realized +on Vesting +($) +James D. Palm +— +— +5,560 +25,687 +Mike Liddell +91,454 +1,071,841 +(1) +— +— +Michael G. Moore +— +— +6,668 +82,635 +(2) +(1) +Value realized on exercise is the difference between the closing price per share of our common stock on The NASDAQ Global Select Market on the day of exercise and the exercise price +of $3.36 per share. +(2) +Value realized on vesting is based on the vesting date closing price per share of our common stock on The NASDAQ Global Select Market. +DIRECTOR COMPENSATION +The following table contains +information with respect to 2008 compensation of our directors who served in such capacity during that year, except that the 2008 compensation of those directors who are also our named executive officers is disclosed in the Summary Compensation +Table above. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +Total +($) +Donald L. Dillingham(2) +20,000 +27,357 +— +47,357 +David L. Houston +25,500 +— +6,559 +(3) +32,059 +Scott E. Streller +24,375 +26,731 +— +51,106 +(1) +The amounts reported in the Stock Awards and Option Awards columns reflect the dollar amount recognized for financial reporting purposes for the fiscal year ended December 31, +2008 of awards of stock options and restricted stock to the directors as indicated in such columns and were calculated in accordance with the provisions of SFAS 123(R). These amounts were calculated using certain assumptions, as set forth in Note 10 +to our audited financial statements for the fiscal year ended December 31, 2008, included in our Annual Report on Form 10-K, filed with the SEC on March 16, 2009. These amounts may include amounts from awards granted in and prior to 2008. +(2) +In March 2008, we granted 6,666 shares of our restricted stock to Mr. Dillingham in connection with his appointment to our board of directors in November 2007, of which 740 +shares vested on April 1, 2008 and the remaining shares will vest in 36 substantially equal monthly installments beginning on May 1, 2008. +(3) +Options vest in five substantially equal annual installments beginning on the first anniversary of the date of grant. +22 +Table of Contents +Retirement Plans +401(k) Plan +We maintain a retirement savings plan, or a 401(k) Plan, for the benefit of +our eligible employees who have attained the age of 18. Currently, employees may elect to defer their compensation up to the statutorily prescribed limit. During the following year, we make a safe harbor contribution equal to 3% of each eligible +employee’s gross annual compensation for the prior calendar year. We also have the ability to make an additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both +contributions are made, regardless of employee’s deferrals into the plan. In 2008, we made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal +Revenue Services regulations. All contributions made by us on behalf of an employee are 100% vested when contributed. The 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code. As such, contributions to the +401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) Plan, and all contributions are deductible by us when made. +Amended and Restated 2005 Stock Incentive Plan +Our Amended and Restated 2005 Stock +Incentive Plan was adopted to enable us, and any of our affiliates, to attract and retain the services of the types of employees, consultants and directors who will contribute to our long range success and to provide incentives which are linked +directly to increases in share value which will inure to the benefit of our stockholders. The plan provides a means by which eligible recipients of awards may be given an opportunity to benefit from increases in value of our common stock through the +granting of incentive stock options, nonstatutory stock options, restricted awards, performance awards and stock appreciation rights. Our board of directors, or a committee of the board of directors, serves as the plan administrator. +Eligible award recipients are employees, consultants and directors of ours and our affiliates. Incentive stock options may be granted only to our employees. Awards other +than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our authorized but unissued common stock, and the maximum aggregate amount of such common stock which +may be issued upon exercise of all awards in the plan, including incentive stock options, may not exceed 3,000,000 shares, subject to adjustment to reflect certain corporate transactions or changes in our capital structure. In December 2008, we +granted 66,667 shares of our restricted common stock to our Chief Executive Officer, of which amount 5,556 shares vested on December 17, 2008 and the remaining shares vest in 11 substantially equal quarterly installments beginning on +March 18, 2009. In March 2008, we granted 6,666 shares of our restricted common stock to one of our independent directors in connection with his appointment to our board of directors in November 2007, of which amount 740 shares vested on +April 1, 2008 and the remaining shares vest in 36 substantially equal monthly installments beginning on May 1, 2008. We did not grant any other awards to our executive officers or directors in 2008 or to date in 2009. On April 1, +2009, 520,630 shares were issuable upon exercise of outstanding options and 190,524 shares of restricted common stock had been granted under this plan. There were 1,159,340 shares available for future grants under this plan. +In the event of significant corporate transaction involving a change in control (as defined in the plan) of our company, such as a dissolution or liquidation of us, or +any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger +in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued, or substituted for by any surviving or +acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient +may exercise the award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a +change in control. +23 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth, as of December 31, 2008, certain information with respect to all compensation plans under which equity securities are authorized for issuance. +Plan Category +Number of Securities to +be issued upon exercise +of outstanding options, +warrants and +rights +(a)(1)(2) +Weighted average +exercise price of +outstanding options, +warrants and +rights +(b) +Number of securities +remaining available +for future issuance +under equity +compensation +plans +(excluding +securities +reflected in column +(a))(c) +Equity compensation plans approved by security holders(1) +738,434 +$ +7.01 +1,159,340 +Equity compensation plans not approved by security holders +— +— +— +(1) +Refers to our Amended and Restated 2005 Stock Incentive Plan and our 1999 Stock Option Plan. +(2) +Includes outstanding restricted stock grants of 216,054 shares. +Employment Agreements +What are the terms of the employment agreements with our executive officers? +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and automatically renews +for successive one-year terms thereafter. The agreement provides for an annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $260,585 in 2008. Upon +termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. The agreement also +restricts Mr. Liddell’s use or disclosure of any of our confidential information during the term of the agreement and for a period of five years thereafter. +We also entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which Mr. Palm is entitled to an annual salary of $200,000 and, +at the discretion of our board of directors, an annual cash incentive bonus. For 2008, Mr. Palm’s annual salary was increased to $225,000. The compensation committee has determined that Mr. Palm’s annual salary for 2009 will +remain at the 2008 level. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans available to our other employees. +Change in Control Arrangements +Our named executive officers do not currently have any change in control arrangements, except that +Mr. Liddell’s employment agreement provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then +unexercisable options will become exercisable. See “Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan provides that in the event of significant corporate transaction involving a change in control +of our company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially +all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan +administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be +cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an +award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +24 +Table of Contents +Potential payments to our Chief Executive Officer and our other named executive officers upon termination or following a +change in control event are set forth under the heading “Potential Payments upon Termination or Change-in-Control” below. +Potential Payments +Upon Termination or Change-in-Control +If Mr. Liddell had been terminated at December 31, 2008 without cause, he would have been entitled to +$260,585 in cash severance payments. The value of his unexercisable stock options would have been $0. If Messrs. Palm and Moore had been terminated at December 31, 2008 for any reason, they would have been entitled to no cash severance +payments. +25 +Table of Contents +Stock Ownership +Holdings of Major Stockholders +The following table sets forth certain information +regarding the beneficial ownership as of April 1, 2009 of shares of our common stock by each person or entity known to us to be a beneficial owner of 5% or more of our common stock. +MAJOR STOCKHOLDERS TABLE +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Owners +Percent of +Class +Charles E. Davidson +15,235,786 +(2) +35.7 +% +411 W. Putnam Avenue +Greenwich, CT 06830 +Southpoint Capital Advisor, LP +4,237,621 +(3) +9.9 +% +237 Park Avenue, Suite 900 +New York, New York 10017 +Luxor Capital Group, LP +3,146,462 +(4) +7.4 +% +767 Fifth Avenue, 19 th Floor +New York, New York 10153 +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by that person that +are exercisable as of April 1, 2009, or exercisable within 60 days of April 1, 2008, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other +person. The percentage of shares beneficially owned is based on 42,732,071 shares of common stock outstanding as of April 1, 2009, which includes 76,021 shares of restricted common stock awarded under our Amended and Restated 2005 Stock +Incentive Plan. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 1, 2009, or exercisable within 60 days of April 1, 2009. +(2) +Based on the Form 4 filed with the SEC on May 30, 2007 by Charles E. Davidson and the Company’s records. Includes 14,391,829 shares of common stock held by CD Holding +Company LLC and 843,957 shares of common stock held in an IRA for Mr. Davidson. Mr. Davidson is the manager and a member of CD Holding Company LLC. and the Chairman and Chief Investment Officer of Wexford Capital LLC. +(3) +Based on a Schedule 13G/A filed with the SEC on February 18, 2009 on behalf of Southpoint Capital Advisors LLC (“Southpoint CA LLC”), Southpoint GP, LLC ( +“Southpoint GP LLC”), Southpoint Capital Advisors LP (“Southpoint Advisors”), Southpoint GP, LP (“Southpoint GP”), Robert W. Butts and John S. Clark II. Southpoint CA LLC, Southpoint GP LLC, Southpoint GP, Southpoint +Advisors, Robert W. Butts and John S. Clark II may be deemed to be the beneficial owners of 4,237,621 shares of common stock. Southpoint CA LLC, Southpoint GP LLC, Southpoint GP, Southpoint Advisors, Robert W. Butts and John S. Clark II have the +sole power to vote and dispose of the 4,237,621 shares of common stock beneficially owned. Southpoint CA LLC is the general partner of Southpoint Advisors. Southpoint GP LLC is the general partner of Southpoint GP. Southpoint GP is the general +partner of Southpoint Fund LP (the “Fund”), Southpoint Qualified Fund LP (the “Qualified Fund”) and Southpoint Master Fund, LP (the “Master Fund”). Southpoint Offshore Fund, Ltd. is also a general partner of the Master +Fund. +(4) +Based on a Schedule 13G/A filed with the SEC on February 17, 2009 by Luxor Capital Partners, LP (the “Onshore Fund”), LCG Select, LLC (the +“Select Onshore Fund”), Luxor Spectrum, LLC (“Spectrum Onshore Fund”), Luxor Capital Partners Offshore, Ltd. (the “Offshore Fund”), LCG Select Offshore, Ltd. (the “Select Offshore Fund”), Luxor Spectrum +Offshore, Ltd. (the “Spectrum Offshore Fund”), Luxor Capital Group, LP (“Luxor Capital Group”), Luxor Management, LLC (“Luxor Management”), LCG Holdings, LLC (“LCG Holdings”) and Christian Leone. Luxor Capital +Group may be deemed to beneficially own the 3,002,352 shares of common stock held by Select Onshore Fund, Offshore Fund and Select Offshore Fund, and an additional 144,110 shares of common stock held in accounts that it separately manages. Luxor +Management and Mr. Leone may each be deemed to be the beneficial owners of the shares of common stock beneficially owned by Luxor Capital Group. LCG Holdings may be deemed to be the beneficial owner of the 160,978 shares of common stock held by +the Select Onshore Fund and the Spectrum Onshore Fund. Mr. Leone may be deemed to be the beneficial owner of the shares of common stock beneficially owned by LCG Holdings. The Select Onshore Fund, Luxor Capital Group, Luxor Management, LCG +Holdings and Mr. Leone have shared voting and dispositive powers with respect to 145,847 shares of common stock held by the Select Onshore Fund. The Spectrum Onshore Fund, Luxor Capital Group, LCG Holdings, Luxor Management and Mr. Leone +have shared voting and dispositive powers with respect to 15,131 shares of common stock held by the Spectrum Onshore Fund. The Offshore Fund, Luxor Capital Group, Luxor Management and Mr. Leone have shared voting and dispositive powers with +respect to 2,140,221 shares of common stock held by the Offshore Fund. The Select Offshore Fund, Luxor Capital Group, Luxor +26 +Table of Contents +Management and Mr. Leone have shared voting and dispositive powers with respect to 685,572 shares of common stock held by the Select Offshore Fund. The +Spectrum Offshore Fund, Luxor Capital Group, Luxor Management and Mr. Leone have shared voting and dispositive powers with respect to 15,581 shares of common stock held by the Spectrum Offshore Fund. Luxor Capital Group, Luxor Management and +Mr. Leone have shared voting and dispositive powers with respect to 144,110 shares of common stock beneficially owned by Luxor Capital Group through the separate accounts it manages. Luxor Capital Group acts as the investment manager of the +Onshore Fund, the Select Onshore Fund, the Spectrum Onshore Fund, the Offshore Fund, the Select Offshore Fund and the Spectrum Offshore Fund, among other accounts. Luxor Management is the general partner of Luxor Capital Group. Mr. Leone is the +managing member of Luxor Management. LCG Holdings is the general partner of the Onshore Fund and the managing member of the Select Onshore Fund and the Spectrum Onshore Fund. Mr. Leone is the managing member of LCG Holdings. +Holdings of Officers and Directors +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2009 of shares of our common stock by each of our directors, by each named executive officer and by all +directors and executive officers as a group: +Name of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Mike Liddell(2) +852,167 +2.0 +% +Donald L. Dillingham(3) +6,666 +* +David L. Houston(4) +36,000 +* +Scott E. Streller(5) +6,666 +* +James D. Palm(6) +276,667 +* +Michael G. Moore(7) +29,682 +* +Directors and Executive Officers as a Group (6 persons) +1,207,848 +2.8 +% +* +Less than 1%. +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by that person that +are exercisable as of April 1, 2009, or exercisable within 60 days of April 1, 2009, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other +person. The percentage of shares beneficially owned is based on 42,732,071 shares of common stock outstanding as April 1, 2009, which includes 76,021 shares of restricted common stock awarded under our Amended and Restated 2005 Stock Incentive +Plan. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 1, 2009, or exercisable within 60 days of April 1, 2009. +(2) +Includes (i) 741,632 shares of our common stock held by Mr. Liddell directly, (ii) 19,081 shares of our common stock held by Liddell Investments LLC, an entity +controlled by Mr. Liddell, of which shares Mr. Liddell may be deemed to be the beneficial owner, and (iii) options to purchase 91,454 shares of our common stock, all of which are fully vested and exercisable. Excludes options to +purchase 91,454 shares of our common stock, none of which are exercisable within 60 days of April 1, 2009. +(3) +Represents the number of shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, of which amount (i) 740 shares vested on +April 1, 2008 and (ii) the remaining shares vest in 36 equal monthly installments beginning on May 1, 2008. +(4) +Includes options to purchase 36,000 shares of our common stock, all of which are exercisable within 60 days of April 1, 2009. Excludes options to purchase 4,000 shares of our +common stock, none of which are exercisable within 60 days of April 1, 2009. +(5) +Includes 6,666 shares of our restricted common stock, granted on August 17, 2006 under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 36 substantially +equal monthly installments beginning on the date of grant. +(6) +Includes (i) 10,000 shares of our common stock held by Mr. Palm directly, (ii) options to purchase 200,000 shares of our common stock, all of which are exercisable +within 60 days of April 1, 2009 and (ii) 66,667 shares of our restricted stock, granted on December 5, 2008 under our Amended and Restated 2005 Stock Incentive Plan which vest in 12 substantially equal quarterly installments beginning +on December 17, 2008. +(7) +Includes (i) 1,682 shares of our common stock held by Mr. Moore directly and (ii) options to purchase 28,000 shares of our common stock, all of which are exercisable +within 60 days of April 1, 2009. Excludes options to purchase 2,000 shares of our common stock, none of which are exercisable within 60 days of April 1, 2009. +27 +Table of Contents +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who beneficially own more than 10% of a registered +class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of the forms they file. To our knowledge, based solely on a review of the copies of such reports +furnished to us and written representations of our officers and directors, all Section 16(a) reports for the year ended December 31, 2008 applicable to our officers and directors and such other persons were filed on a timely basis. +Certain Relationships and Related Transactions +Administrative Services Agreements +We are or have been a party to administrative service +agreements with Caliber Development Company, LLC, which we refer to as Caliber, Great White Energy Services LLC, which we refer to as Great White, Diamondback Energy Services LLC, which we refer to as Diamondback, and Stampede Investments LLC, which +we refer to as Stampede Investments, which agreements were entered into effective as of February 9, 2005, July 22, 2006, September 26, 2006 and November 1, 2007, respectively. Under these agreements, our services +include accounting, human resources, legal and technical support. The services provided and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements has a three-year term, and upon +expiration of that term the agreements will continue on a month-to-month basis until cancelled by either party with at least 30 days prior written notice. Each administrative service agreement is terminable (1) by the counterparty at any time +with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. Each of Caliber, Great White, +Diamondback and Stampede Investments reimbursed us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing services for such entity. We were reimbursed +approximately $60,000, $83,000, $10,000 and $0 by Caliber, Great White, Diamondback and Stampede Investments, respectively, for services provided under these agreements during the year ended December 31, 2008. Our administrative services +agreements with Caliber and Diamondback were each terminated effective December 10, 2008. Each of Caliber, Great White and Stampede Investments is, and Diamondback was, controlled by Wexford Capital LLC. Charles Davidson, who beneficially owned +approximately 36% of our outstanding common stock as of April 1, 2009, is the Chairman and Chief Investment Officer of Wexford Capital LLC. Our Chairman of the Board, Mike Liddell, served as the Chairman of the Board of Diamondback Energy +Services, Inc., a subsidiary of Diamondback until December 2008. As of December 2008, Diamondback is no longer controlled by Wexford Capital LLC and is no longer an affiliate of ours. +We are also a party to administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Grizzly Oil Sands ULC, which we refer to as Grizzly, and Everest Operations Management LLC, which +we refer to as Everest, which agreements were each entered into effective March 1, 2008. Under these agreements, our services include professional and technical support. Under our agreements with Stampede Farms and Everest, we also provided +office space during 2008. The services provided under these agreements and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements has a two-year term, and upon expiration of that +term such agreement will continue on a month-to-month basis until cancelled by either party to such agreement with at least 60 days prior written notice. Each administrative service agreement is terminable (1) by the counterparty at any time +with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We were reimbursed approximately +$159,000, $368,000 and $154,000 by Stampede Farms, Grizzly and Everest, respectively, for services provided under these agreements during the year ended December 31, 2008. We were also reimbursed approximately $20,000 and 26,000 by Stampede +Farms and Everest, respectively, for office space under these agreements for the year ended December 31, 2008. Each of Stampede Farms, Grizzly and Everest is controlled by Wexford Capital LLC. +28 +Table of Contents +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to identify and evaluate +potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, the +party whose acquisition team identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share +of the acquisition or divestiture consideration. The agreement has a one year term unless earlier terminated by either party upon 30 days notice. +We +provide professional support, office space, furniture, telecommunications and computer and other information technology support to Windsor Energy Resources LLC, or Windsor, and Everest. Both Windsor and Everest have agreed to reimburse us for such +services based on the number of employees we office and nature of services provided by us to each respective company, which can vary from time to time. We were reimbursed an aggregate of approximately $469,000 for the above services provided to +Windsor and Everest for the year ended December 31, 2008. Both Windsor and Everest are controlled by Wexford Capital LLC. +From time to time, various +members of our scientific staff provide services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to Tatex Thailand II, LLC, or Tatex II, and Tatex Thailand III +LLC, or Tatex III. Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our staff to such entities. Tatex II and Tatex III are controlled by Wexford +Capital LLC. +We provide certain general and administrative services to Floran Technologies LLC, or Floran. We are reimbursed for our dedicated employee +time and related general and administrative costs based on the proportionate amount of time our employees spent performing such services. For the year ended December 31, 2008, we were reimbursed approximately $46,000 by Floran and were owed an +additional $16,000 for such services at that date. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge services in our West Cote Blanche Bay, or WCBB, and Hackberry fields located +along the Louisiana Gulf Coast. For the year ended December 31, 2008, we paid Athena $3,888,000 and owed an additional $759,000 for such services at that date. Athena is controlled by Wexford Capital LLC. +Windsor Energy Group operates our Permian Basin wells in West Texas. For the year ended December 31, 2008, we paid Windsor Energy Group $39,137,000 and owed an +additional $3,724,000 for such services at that date. Windsor Energy Group is controlled by Wexford Capital LLC. +Packers & Service Tools, Inc., +which we refer to as Packers, performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2008, we paid Packers $1,966,000 owed an additional $465,000 related to these services at that date. Packers was controlled +by Wexford Capital LLC until November 18, 2008. On that date, Packers ceased to be an affiliate of ours. +Diamondback Completions LLC, which we refer +to as Completions, performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2008, we paid Completions $444,000 and owed an additional $24,000 related to these services at that date. Completions were controlled +by Wexford Capital LLC until November 18, 2008. On that date, Completions ceased to be an affiliate of ours. +Great White Towing LLC, which we refer +to as Towing, performs services for us at our WCBB field. For the year ended December 31, 2008, we paid Towing $269,000 and owed an additional $222,000 related to these services at that date. Towing is an entity controlled by Wexford Capital +LLC. +29 +Table of Contents +Effective March 1, 2008, Windsor provides tax planning, preparation of supporting tax schedules and consultation +services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of the parties. Windsor is controlled by Wexford Capital LLC. +Caliber provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. For the year ended December 31, 2008, we paid Caliber $20,000 and owed an additional $2,000 at that date. Caliber is +an entity controlled by Wexford Capital LLC. +Our Investments in Affiliates and Related Agreements +During 2005, we purchased a 23.5% ownership interest in Tatex II at a cost of $2,400,000. The remaining interests in Tatex II are owned by other entities controlled by +Wexford Capital LLC. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its +ownership of concessions covering three million acres which includes the Phu Horm Field. During 2008, we paid $50,000 and received $912,000 in distributions in respect of our investment in Tatex II. +During the first quarter of 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. Approximately 68.7% of the remaining interests in Tatex III +are owned by other entities and individuals affiliated with Wexford Capital LLC. During 2008, we paid $35,000 in cash calls in respect of our investment in Tatex III. +During 2005, we purchased a 20% ownership interest in Windsor Bakken, LLC, or Bakken, with the remaining interests in Bakken owned by other entities controlled by Wexford Capital LLC. In 2006, Bakken acquired leases +on undeveloped acreage in the Williston Basin areas of western North Dakota and eastern Montana, which we refer to as the contract area. Effective January 1, 2008, we acquired a direct, undivided 20% interest in Bakken’s assets in +redemption of our 20% interest in Bakken. +Effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor +Dakota LLC, or Windsor Dakota, to jointly acquire oil and gas leases on certain lands located in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each +party must offer the other party the right to participate in such acquisition in proportion to its participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy +Group, L.L.C., as the operator, also entered into an exploration agreement, effective as of January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and Windsor +Energy Group, L.L.C. agreed to act as the operator under the terms of a joint operating agreement. In the event Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport +as the operator. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +During the third quarter of 2006, we purchased, through our wholly owned subsidiary Grizzly Holdings, Inc., a 24.9999% interest in Grizzly, a Canadian unlimited liability company, for approximately $8,200,000. The +remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LLC. During 2006, Grizzly acquired leases in the Athabasca region located in the Alberta Province near Fort McMurray near other oil sands development projects. +Grizzly has commenced drilling of core holes for feasability of oil production in five separate lease blocks but has not commenced development of operations. As of December 31, 2008, our net investment in Grizzly was $21,881,000. +We, through our wholly owned subsidiary Grizzly Holdings Inc., entered into a loan agreement with Grizzly effective January 1, 2008, under which Grizzly may borrow +funds from us. Borrowed funds bear interest at +30 +Table of Contents +LIBOR plus 4%. Interest is paid on a paid-in-kind basis by increasing the outstanding balance of the loan. The loan matures on December 31, 2012. We +loaned Grizzly approximately $10,519,000 during the year ended December 31, 2008. The Company recognized interest income of approximately $410,000 for the year ended December 31, 2008 under this loan agreement. The note balance was +decreased by approximately $1,776,000 as a result of a currency translation loss for the year ended December 31, 2008. +Option and Purchase Agreement and Related Agreements +On November 30, 2007, we entered into an option +agreement with Windsor Permian LLC, an entity controlled by Wexford Capital LLC, which we refer to as Windsor Permian. Under the option agreement, we were granted the right to participate on a 50/50 basis with Windsor Permian in the acquisition of +certain strategic assets in Upton County, Texas in the Permian Basin. On December 12, 2007, we exercised the option and on December 18, 2007, the purchase agreement was amended to, among other things, add Gulfport as a buyer under the +purchase agreement. On December 20, 2007, the acquisition was closed, effective as of November 1, 2007. We and Windsor Permian also agreed to share equally all third-party costs and expenses incurred by each of us in connection with the +transaction. +In addition, effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly +acquire oil and gas leases in the Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party +costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. On March 20, 2008, in connection with this agreement, we received a six-month option to acquire a direct, +undivided interest of up to 25% in Windsor Permian’s oil and gas interests acquired on February 29, 2008 in Midland County, Texas. The option price is the sum of (i) the option percentage of the acquisition consideration paid by +Windsor Permian to a third party in connection with the acquisitions of these assets, subject to certain exceptions, (ii) a fee equal to 1% of our purchase price, (iii) the option percentage of the sum of all third-party costs and expenses +incurred by Windsor Permian in connection with the acquisition of these assets, subject to certain exceptions, (iv) the option percentage of all capital costs and lease operating expenses incurred subsequent to Windsor Permian’s +acquisition of these assets and prior to the date of the option exercise by Gulfport, subject to certain exceptions, and (v) interest, at 8% per annum, on the amounts set forth in items (i), (iii) and (iv) calculated from the +time of accrual to the closing date of the option. +In connection with the area of mutual interest agreement, we, Windsor Permian and Windsor Energy Group, +L.L.C., as the operator, entered into the joint development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy +Group, L.L.C. agreed to act as the operator under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either party has greater than a 50% interest in a prospect, as defined in the development agreement, +the majority party may designate the operator of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +31 +Table of Contents +Proposal to Approve the Amendment to Our Restated Certificate of Incorporation to Increase +the Total Number of Authorized Shares of Common Stock +(Item 2 on the Proxy Card) +Our restated certificate of incorporation currently provides for authorized capital stock consisting of 55,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value +$0.01 per share. As of the record date, we had 42,657,485 shares of common stock, excluding 74,586 shares of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, and no shares of preferred stock outstanding. +As of the record date, we had 10,979,646 shares of common stock remaining authorized for future issuance, after deducting 1,159,340 shares remaining available for future issuance under our Amended and Restated 2005 Stock Incentive Plan and our 1999 +Stock Option Plan and 203,529 shares issuable upon exercise of outstanding warrants to purchase our common stock. +Our stockholders are being asked to +approve an amendment to our restated certificate of incorporation to increase the total number of shares of common stock that we are authorized to issue from 55,000,000 shares to 100,000,000 shares. The additional shares of common stock for which +authorization is sought would be part of the existing class of common stock and, if and when issued, would have the same rights and privileges as the shares of common stock presently outstanding. Such additional shares would not (and the shares of +common stock presently outstanding do not) entitle the holders thereof to preemptive or cumulative voting rights. The number of authorized shares of our preferred stock will not be affected by this amendment to our restated certificate of +incorporation and will be maintained at 5,000,000 shares. +Our board of directors has determined that it is necessary and advisable and in the best +interest of the Company’s stockholders for the Company to amend its restated certificate of incorporation to increase the total number of authorized shares of the Company’s common stock from 55,000,000 to 100,000,000 shares. Accordingly, +on April 20, 2009, our board of directors approved this amendment to our restated certificate of incorporation in substantially the form attached hereto as Appendix A, subject to stockholder approval, and directed that this amendment be +submitted to a vote of our stockholders. +Our board of directors believes that the number of shares of common stock presently available for future issuance +under our restated certificate of incorporation is insufficient to provide us with flexibility in issuing shares for future corporate purposes and has therefore proposed to increase the number of authorized shares to ensure that we have such +flexibility, without further stockholder approval, except as may be required by any federal or state law, regulation or stock exchange rules. We may issue shares in the future in connection with, among other things, public or private stock +offerings, acquisitions, equity incentives for employees, strategic investments, partnerships and similar transactions and payments of stock dividends, stock splits or other recapitalizations, or for any other corporate purposes. We do not have any +current plans, intentions, commitments, arrangements, understanding or agreements, either oral or written, with respect to issuances of the additional authorized shares. +In addition to these corporate purposes, an increase in the number of authorized shares of our common stock could be used to make it more difficult to, or discourage an attempt to, obtain control of our company by +means of a takeover bid that our board of directors determines is not in our best interests or the best interests of our stockholders. However, our board of directors does not intend or view the proposed increase in authorized common stock as an +anti-takeover measure and is not proposing the increase in response to any attempt or plan to obtain control of the Company. +The additional shares of +common stock being authorized by this charter amendment may be issued at times and under circumstances as to have a dilutive effect on earnings per share or the percentage ownership interest of the present holders of our common stock, none of whom +have preemptive rights under our restated certificate of incorporation to subscribe for additional securities that we may issue. +32 +Table of Contents +Approval of the proposed amendment to our restated certificate of incorporation requires the affirmative vote of a +majority of the outstanding shares of our common stock entitled to vote thereon. The proposed amendment to our restated certificate of incorporation will become effective on the date such amendment is filed with the Secretary of State of the State +of Delaware. It is anticipated that the appropriate filing to effect the share increase will be made as soon as practicable following approval of this proposal. +Unless required by law or by the rules or regulations of Nasdaq or any other stock exchange on which our common stock may in the future be listed, no further vote by the stockholders will be sought with respect to any issuance of shares of +our common stock. Under existing Nasdaq rules and regulations, subject to certain exceptions, stockholder approval would nevertheless be required where, due to the present or potential issuance of common stock, or securities convertible into or +exercisable for common stock, other than a public offering for cash: (i) the common stock has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities +convertible into or exercisable for common stock; or (ii) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares or common stock outstanding before the issuance of the stock or +securities. Under the existing Nasdaq rules and regulations, stockholder approval would also be required, subject to certain exceptions, in connection with a transaction other than a public offering involving: (i) the sale, issuance or +potential issuance by the issuer of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which together with sales by officers, directors or substantial shareholders +of the company equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or (ii) the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable +common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. +THE BOARD OF DIRECTORS RECOMMENDS VOTING “FOR” THE ADOPTION OF PROPOSAL TWO TO APPROVE THE AMENDMENT TO OUR RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF +COMMON STOCK FROM 55,000,000 SHARES TO 100,000,000 SHARES. +33 +Table of Contents +Proposal to Ratify the Appointment of Our Independent Auditors +(Item 3 on the Proxy Card) +What am I voting on? +You are voting on a proposal to ratify the appointment of Grant Thornton LLP as our independent auditors for fiscal year 2009. The Audit Committee has appointed Grant +Thornton to serve as independent auditors. +What services do the independent auditors provide? +Audit services of Grant Thornton for fiscal 2008 included an audit of our consolidated financial statements and services related to periodic filings made with the SEC. +Additionally, Grant Thornton provided certain services related to the consolidated quarterly reports and annual and other periodic reports and other services as described below. +How much were the independent auditors paid in 2007 and 2008? +Grant Thornton’s fees for professional services +totaled $463,746 for 2007 and $347,802 for 2008. Grant Thornton’s fees for professional services included the following: +• +Audit Fees – aggregate fees for audit services, which relate to the fiscal year consolidated audit, quarterly reviews, registration statements, comfort +letters, statutory and regulatory audits and accounting consultations were $451,980 in 2007 and $301,182 in 2008. +• +Audit-Related Fees – aggregate fees for audit-related services, consisting of audits in connection with proposed or consummated dispositions, benefit +plan audits, other subsidiary audits, special reports, and accounting consultations, were $11,766 in 2007 and $46,620 in 2008. +• +Tax and All Other Fees – there were no tax or other fees for products or services provided by Grant Thornton in addition to the services described above +in 2007 or 2008. +Does the Audit Committee approve the services provided by Grant Thornton? +It is our audit committee’s policy to pre-approve all audit, audit related and permissible non-audit services rendered to us by our independent auditor. Consistent +with such policy, all of the fees listed above that we incurred for services rendered by Grant Thornton LLP in fiscal 2007 and 2008 were pre-approved by our audit committee. No non-audit services were provided to us by Grant Thornton in 2007 or +2008. +Will a representative of Grant Thornton LLP be present at the meeting? +Yes, one or more representatives of Grant Thornton will be present at the meeting. The representatives will have an opportunity to make a statement if they desire and will be available to respond to appropriate +questions from the stockholders. +What vote is required to approve this proposal? +Stockholder ratification of the appointment of our independent auditors is not required by the Company’s bylaws or otherwise. However, we are submitting this proposal to the stockholders as a matter of good +corporate practice. Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal. If the appointment of Grant Thornton is not ratified, the Audit Committee will reconsider the appointment. Even if +34 +Table of Contents +the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the +year if it is determined that such change would be in best interests of the Company and its stockholders. +Has Grant Thornton LLP always served as +Gulfport’s independent auditors? +Grant Thornton has served as our independent auditors since 2005. +What does the board of directors recommend? +THE BOARD RECOMMENDS +THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE YEAR 2009. +35 +Table of Contents +Solicitation by Board; Expenses of Solicitation +Our board of directors has sent you this proxy statement. Our directors, officers and employees may solicit proxies by mail, by telephone or in person. Those persons +will receive no additional compensation for any solicitation activities. We will request banking institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to forward solicitation materials to the beneficial owners of common stock +held of record by those entities, and we will, upon the request of those record holders, reimburse reasonable forwarding expenses. We will pay the costs of preparing, printing, assembling and mailing the proxy material used in the solicitation of +proxies. +Submission of Future Stockholder Proposals +Under SEC rules, a stockholder who intends to present a proposal, including the nomination of directors, at the 2009 Annual Meeting of Stockholders and who wishes the proposal to be included in the proxy statement for +that meeting must submit the proposal in writing to our Corporate Secretary. The proposal must be received no later than January 12, 2010. +Stockholders who wish to propose a matter for action at the 2009 Annual Meeting, including the nomination of directors, but who do not wish to have the proposal or nomination included in the proxy statement, must notify the Company in +writing of the information required by the provisions of our by-laws dealing with stockholder proposals. The notice must be delivered to our Corporate Secretary between February 9, 2010 and March 11, 2010. You can obtain a copy of our +by-laws by writing the Corporate Secretary at the address below, or via the Internet at www.gulfportenergy.com under our “Corporate Governance” caption. +All written proposals should be directed to Michael G. Moore, Corporate Secretary, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +The board of directors is responsible for selecting and recommending director candidates and will consider nominees recommended by stockholders. If you wish to have the +board of directors consider a nominee for director, you must send a written notice to our Corporate Secretary at the address provided above and include the information required by our by-laws and discussed on page 10 of this proxy statement. +Availability of Form 10-K and Annual Report to Stockholders +SEC rules require us to provide an Annual Report to stockholders who receive this proxy statement. Additional copies of the Annual Report, along with copies of our +Annual Report on Form 10-K for the fiscal year ended December 31, 2008, including the financial statements and the financial statement schedules, are available without charge to stockholders upon written request to Director of Investor +Relations, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134 or via the Internet at www.gulfportenergy.com . We will furnish the exhibits to our Annual Report on Form 10-K upon payment of our copying +and mailing expenses. +Householding +The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy +card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces our mailing and printing expenses. +36 +Table of Contents +If you would like to receive your own set of the annual report and proxy statement this year or in future years, follow +the instructions described below. Similarly, if you share an address with another Gulfport stockholder and together both of you would like to receive in the future only a single annual report and proxy statement, follow these instructions: +• +If your shares of our common stock are registered in your own name, please contact our transfer agent, Computershare Trust Company, N.A., and inform them of your +request by calling their toll-free number : (800) 962-4284 or by mail: Computershare Trust Company, N.A., 350 Indiana Street, Suite 800, Golden, Colorado 80401. +• +If a broker or other nominee holds your shares, please contact your broker or nominee. +Other Matters +The board of directors does +not intend to present any other items of business other than those stated in the Notice of Annual Meeting of Stockholders. If other matters are properly brought before the meeting, the persons named as your proxies will vote the shares represented +by it in accordance with their best judgment. Discretionary authority to vote on other matters is included in the proxy. +37 +Table of Contents +Appendix A +Form of Certificate of Amendment No. 1 of +the Restated Certificate of +Incorporation of +Gulfport Energy Corporation +(Pursuant to Section 242 of the General Corporation Law of the State of Delaware) +Gulfport Energy +Corporation, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows: +1. +The name of the Corporation is Gulfport Energy Corporation. +2. +Article IV of the Corporation’s Restated Certificate of Incorporation is hereby amended by striking the introductory sentence of Article IV and the first sentence of paragraph +(a) of Article IV in their entirety and replacing them with the following: +“The Corporation is hereby authorized +to issue a total of one hundred five million (105,000,000) shares of capital stock which shall be subdivided into classes as follows: +(a) One hundred million (100,000,000) shares of the Corporation’s capital stock shall be denominated as Common Stock, have a par value of $0.01 per share, and have the rights, powers and preferences set forth in this +paragraph.” +3. +The above-referenced amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. +IN WITNESS WHEREOF , Gulfport Energy Corporation has caused this Certificate of Amendment to be executed as of June +, 2009. +GULFPORT ENERGY CORPORATION +By: +Name: +Office: +A-1 +Table of Contents +PLEASE FOLD ALONG +THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +Proxy — GULFPORT ENERGY CORPORATION +FOR THE ANNUAL MEETING OF STOCKHOLDERS OF Gulfport Energy Corporation This Proxy Is Solicited On Behalf Of The Board Of +Directors +The undersigned hereby appoints Mike Liddell, James D. Palm and Michael G. Moore (together, the +“Proxies”), and each of them, with full power of substitution, as proxies to vote the shares that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Gulfport Energy Corporation (the “Company”) to be held +on June 10, 2009 at 10:00 a.m. Oklahoma City time and at any adjournments and postponements thereof. Such shares shall be voted as indicated with respect to the proposals listed on the reverse side hereof and in the Proxies’ discretion on +such other matters as may properly come before the meeting or any adjournment or postponement thereof. +The undersigned +acknowledges receipt of the 2009 Notice of Annual Meeting and accompanying Proxy Statement and revokes all prior proxies for said meeting. +THE SHARES REPRESENTED BY THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION IS GIVEN AS TO THE PROPOSALS ON THE REVERSE SIDE, THIS PROXY WILL BE +VOTED FOR EACH OF THE NOMINEES NAMED IN PROPOSAL 1, FOR PROPOSAL 2 AND FOR PROPOSAL 3. +IMPORTANT – PLEASE MARK, SIGN, +DATE ON THE REVERSE SIDE AND RETURN THE PROXY CARD PROMPTLY. THANK YOU FOR VOTING. +(Continued and to be marked, dated and +signed on reverse side.) +Table of Contents +MR A SAMPLE +DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 +ADD 6 +Admission Ticket +C123456789 +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +Proxy – Gulfport Energy Corporation. +You are cordially invited to attend the Annual Meeting of Stockholders +To be held on June 10, 2009, at 10:00 a.m. Oklahoma City time, at +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +Annual Meeting Proxy Card +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 3. +1. +ELECTION OF DIRECTORS: 01 - Mike Liddell 02 - Donald L. Dillingham 03 - David L. Houston +04 - James D. Palm 05 - Scott E. +Streller + +Mark here to vote Mark here to WITHHOLD For All EXCEPT - To withhold authority to vote for any +FOR all nominees vote from all nominees nominee(s), write the name(s) of such nominee(s) below. +For Against Abstain For Against Abstain +2.- Proposal to approve the amendment to the Company’s 3.- Proposal to ratify the appointment of Grant Thornton LLP as +restated certificate of incorporation to increase the total the Company’s independent auditors for the fiscal year +number of authorized shares of the Company’s common ending December 31, 2009. +stock from 55,000,000 shares to 100,000,000 shares. +B Non-Voting Items +Change of Address — Please print new address below. +C Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee, or guardian, please give full title as such. If a corporation, please sign in full +corporate name by president or other authorized officer. If a partnership, please sign in partnership name by an authorized person. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +C 1234567890 J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE +140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +1 U P X 0 2 1 9 9 4 1 MR A +SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND + + 0124BB \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-09-094499/proxy_rpt.txt b/raw/proxies/0000874499/0001193125-09-094499/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..0f183afa0a257b027435867e6317d1082bdf10f8 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-09-094499/proxy_rpt.txt @@ -0,0 +1,103 @@ +Certain Relationships and Related Transactions +Administrative Services Agreements +We are or have been a party to administrative service +agreements with Caliber Development Company, LLC, which we refer to as Caliber, Great White Energy Services LLC, which we refer to as Great White, Diamondback Energy Services LLC, which we refer to as Diamondback, and Stampede Investments LLC, which +we refer to as Stampede Investments, which agreements were entered into effective as of February 9, 2005, July 22, 2006, September 26, 2006 and November 1, 2007, respectively. Under these agreements, our services +include accounting, human resources, legal and technical support. The services provided and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements has a three-year term, and upon +expiration of that term the agreements will continue on a month-to-month basis until cancelled by either party with at least 30 days prior written notice. Each administrative service agreement is terminable (1) by the counterparty at any time +with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. Each of Caliber, Great White, +Diamondback and Stampede Investments reimbursed us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing services for such entity. We were reimbursed +approximately $60,000, $83,000, $10,000 and $0 by Caliber, Great White, Diamondback and Stampede Investments, respectively, for services provided under these agreements during the year ended December 31, 2008. Our administrative services +agreements with Caliber and Diamondback were each terminated effective December 10, 2008. Each of Caliber, Great White and Stampede Investments is, and Diamondback was, controlled by Wexford Capital LLC. Charles Davidson, who beneficially owned +approximately 36% of our outstanding common stock as of April 1, 2009, is the Chairman and Chief Investment Officer of Wexford Capital LLC. Our Chairman of the Board, Mike Liddell, served as the Chairman of the Board of Diamondback Energy +Services, Inc., a subsidiary of Diamondback until December 2008. As of December 2008, Diamondback is no longer controlled by Wexford Capital LLC and is no longer an affiliate of ours. +We are also a party to administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Grizzly Oil Sands ULC, which we refer to as Grizzly, and Everest Operations Management LLC, which +we refer to as Everest, which agreements were each entered into effective March 1, 2008. Under these agreements, our services include professional and technical support. Under our agreements with Stampede Farms and Everest, we also provided +office space during 2008. The services provided under these agreements and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements has a two-year term, and upon expiration of that +term such agreement will continue on a month-to-month basis until cancelled by either party to such agreement with at least 60 days prior written notice. Each administrative service agreement is terminable (1) by the counterparty at any time +with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We were reimbursed approximately +$159,000, $368,000 and $154,000 by Stampede Farms, Grizzly and Everest, respectively, for services provided under these agreements during the year ended December 31, 2008. We were also reimbursed approximately $20,000 and 26,000 by Stampede +Farms and Everest, respectively, for office space under these agreements for the year ended December 31, 2008. Each of Stampede Farms, Grizzly and Everest is controlled by Wexford Capital LLC. +28 +Table of Contents +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to identify and evaluate +potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, the +party whose acquisition team identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share +of the acquisition or divestiture consideration. The agreement has a one year term unless earlier terminated by either party upon 30 days notice. +We +provide professional support, office space, furniture, telecommunications and computer and other information technology support to Windsor Energy Resources LLC, or Windsor, and Everest. Both Windsor and Everest have agreed to reimburse us for such +services based on the number of employees we office and nature of services provided by us to each respective company, which can vary from time to time. We were reimbursed an aggregate of approximately $469,000 for the above services provided to +Windsor and Everest for the year ended December 31, 2008. Both Windsor and Everest are controlled by Wexford Capital LLC. +From time to time, various +members of our scientific staff provide services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to Tatex Thailand II, LLC, or Tatex II, and Tatex Thailand III +LLC, or Tatex III. Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our staff to such entities. Tatex II and Tatex III are controlled by Wexford +Capital LLC. +We provide certain general and administrative services to Floran Technologies LLC, or Floran. We are reimbursed for our dedicated employee +time and related general and administrative costs based on the proportionate amount of time our employees spent performing such services. For the year ended December 31, 2008, we were reimbursed approximately $46,000 by Floran and were owed an +additional $16,000 for such services at that date. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge services in our West Cote Blanche Bay, or WCBB, and Hackberry fields located +along the Louisiana Gulf Coast. For the year ended December 31, 2008, we paid Athena $3,888,000 and owed an additional $759,000 for such services at that date. Athena is controlled by Wexford Capital LLC. +Windsor Energy Group operates our Permian Basin wells in West Texas. For the year ended December 31, 2008, we paid Windsor Energy Group $39,137,000 and owed an +additional $3,724,000 for such services at that date. Windsor Energy Group is controlled by Wexford Capital LLC. +Packers & Service Tools, Inc., +which we refer to as Packers, performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2008, we paid Packers $1,966,000 owed an additional $465,000 related to these services at that date. Packers was controlled +by Wexford Capital LLC until November 18, 2008. On that date, Packers ceased to be an affiliate of ours. +Diamondback Completions LLC, which we refer +to as Completions, performs services for us at our WCBB and Hackberry fields. For the year ended December 31, 2008, we paid Completions $444,000 and owed an additional $24,000 related to these services at that date. Completions were controlled +by Wexford Capital LLC until November 18, 2008. On that date, Completions ceased to be an affiliate of ours. +Great White Towing LLC, which we refer +to as Towing, performs services for us at our WCBB field. For the year ended December 31, 2008, we paid Towing $269,000 and owed an additional $222,000 related to these services at that date. Towing is an entity controlled by Wexford Capital +LLC. +29 +Table of Contents +Effective March 1, 2008, Windsor provides tax planning, preparation of supporting tax schedules and consultation +services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of the parties. Windsor is controlled by Wexford Capital LLC. +Caliber provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. For the year ended December 31, 2008, we paid Caliber $20,000 and owed an additional $2,000 at that date. Caliber is +an entity controlled by Wexford Capital LLC. +Our Investments in Affiliates and Related Agreements +During 2005, we purchased a 23.5% ownership interest in Tatex II at a cost of $2,400,000. The remaining interests in Tatex II are owned by other entities controlled by +Wexford Capital LLC. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its +ownership of concessions covering three million acres which includes the Phu Horm Field. During 2008, we paid $50,000 and received $912,000 in distributions in respect of our investment in Tatex II. +During the first quarter of 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. Approximately 68.7% of the remaining interests in Tatex III +are owned by other entities and individuals affiliated with Wexford Capital LLC. During 2008, we paid $35,000 in cash calls in respect of our investment in Tatex III. +During 2005, we purchased a 20% ownership interest in Windsor Bakken, LLC, or Bakken, with the remaining interests in Bakken owned by other entities controlled by Wexford Capital LLC. In 2006, Bakken acquired leases +on undeveloped acreage in the Williston Basin areas of western North Dakota and eastern Montana, which we refer to as the contract area. Effective January 1, 2008, we acquired a direct, undivided 20% interest in Bakken’s assets in +redemption of our 20% interest in Bakken. +Effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor +Dakota LLC, or Windsor Dakota, to jointly acquire oil and gas leases on certain lands located in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each +party must offer the other party the right to participate in such acquisition in proportion to its participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy +Group, L.L.C., as the operator, also entered into an exploration agreement, effective as of January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and Windsor +Energy Group, L.L.C. agreed to act as the operator under the terms of a joint operating agreement. In the event Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport +as the operator. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +During the third quarter of 2006, we purchased, through our wholly owned subsidiary Grizzly Holdings, Inc., a 24.9999% interest in Grizzly, a Canadian unlimited liability company, for approximately $8,200,000. The +remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LLC. During 2006, Grizzly acquired leases in the Athabasca region located in the Alberta Province near Fort McMurray near other oil sands development projects. +Grizzly has commenced drilling of core holes for feasability of oil production in five separate lease blocks but has not commenced development of operations. As of December 31, 2008, our net investment in Grizzly was $21,881,000. +We, through our wholly owned subsidiary Grizzly Holdings Inc., entered into a loan agreement with Grizzly effective January 1, 2008, under which Grizzly may borrow +funds from us. Borrowed funds bear interest at +30 +Table of Contents +LIBOR plus 4%. Interest is paid on a paid-in-kind basis by increasing the outstanding balance of the loan. The loan matures on December 31, 2012. We +loaned Grizzly approximately $10,519,000 during the year ended December 31, 2008. The Company recognized interest income of approximately $410,000 for the year ended December 31, 2008 under this loan agreement. The note balance was +decreased by approximately $1,776,000 as a result of a currency translation loss for the year ended December 31, 2008. +Option and Purchase Agreement and Related Agreements +On November 30, 2007, we entered into an option +agreement with Windsor Permian LLC, an entity controlled by Wexford Capital LLC, which we refer to as Windsor Permian. Under the option agreement, we were granted the right to participate on a 50/50 basis with Windsor Permian in the acquisition of +certain strategic assets in Upton County, Texas in the Permian Basin. On December 12, 2007, we exercised the option and on December 18, 2007, the purchase agreement was amended to, among other things, add Gulfport as a buyer under the +purchase agreement. On December 20, 2007, the acquisition was closed, effective as of November 1, 2007. We and Windsor Permian also agreed to share equally all third-party costs and expenses incurred by each of us in connection with the +transaction. +In addition, effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly +acquire oil and gas leases in the Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party +costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. On March 20, 2008, in connection with this agreement, we received a six-month option to acquire a direct, +undivided interest of up to 25% in Windsor Permian’s oil and gas interests acquired on February 29, 2008 in Midland County, Texas. The option price is the sum of (i) the option percentage of the acquisition consideration paid by +Windsor Permian to a third party in connection with the acquisitions of these assets, subject to certain exceptions, (ii) a fee equal to 1% of our purchase price, (iii) the option percentage of the sum of all third-party costs and expenses +incurred by Windsor Permian in connection with the acquisition of these assets, subject to certain exceptions, (iv) the option percentage of all capital costs and lease operating expenses incurred subsequent to Windsor Permian’s +acquisition of these assets and prior to the date of the option exercise by Gulfport, subject to certain exceptions, and (v) interest, at 8% per annum, on the amounts set forth in items (i), (iii) and (iv) calculated from the +time of accrual to the closing date of the option. +In connection with the area of mutual interest agreement, we, Windsor Permian and Windsor Energy Group, +L.L.C., as the operator, entered into the joint development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy +Group, L.L.C. agreed to act as the operator under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either party has greater than a 50% interest in a prospect, as defined in the development agreement, +the majority party may designate the operator of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +31 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-10-096718/proxy.txt b/raw/proxies/0000874499/0001193125-10-096718/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d97c3e08a5e262ba8e1e246f36b37d0ad5243756 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-10-096718/proxy.txt @@ -0,0 +1,1549 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +x Filed by the +Registrant ¨ Filed by a Party +other than the Registrant +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under § 240.14a-12 +Gulfport Energy Corporation +(Name of Registrant as +Specified In Its Charter) +(Name of Person(s) Filing Proxy +Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +¨ +Fee paid previously with written preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +Table of Contents +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +2010 +ANNUAL STOCKHOLDERS MEETING +and +PROXY STATEMENT +Friday +June 18, 2010 +2 p.m. local time +14313 N. May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134 +April 28, 2010 +Dear Gulfport Energy Corporation Stockholder: +On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 14313 N. May +Avenue, Suite 100, Oklahoma City, Oklahoma 73134 on Friday, June 18, 2010, at 2 p.m. +It is important that your shares be represented at the meeting. Whether or not you plan to attend the meeting, please complete and return the enclosed +proxy card in the accompanying envelope. Please note that submitting a proxy will not prevent you from attending the meeting and voting in person. +You will find information regarding the matters to be voted on at the meeting in the enclosed proxy statement. Our 2009 Annual Report to Stockholders is +either enclosed with these materials or has previously been mailed to you. This proxy statement and our 2009 Annual Report to Stockholders are also available on our website at www.gulfportenergy.com/proxy. +In addition to the formal items of business to be brought before the meeting, there +will be a report on our operations, followed by a question and answer period. Your interest in Gulfport Energy Corporation is appreciated. We look forward to seeing you on June 18, 2010. +Sincerely, +James D. Palm +Mike Liddell +Chief Executive Officer +Chairman of the Board +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 18, 2010 +To our Stockholders: +The Annual Meeting of +Stockholders of Gulfport Energy Corporation will be held on June 18, 2010 at 2 p.m., local time, at 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134, for the following purposes: +1. +To elect five directors to serve until the Company’s 2011 Annual Meeting of Stockholders; +2. +To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2010; and +3. +To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. +Your vote is important. Please carefully consider the proposals and vote in one of these ways: +• +Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope; or +• +Submit a ballot at the Annual Meeting. +Only stockholders of record at the close of business on April 26, 2010 or their proxy holders may vote at the meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 18, 2010 . This proxy +statement and the Company’s 2009 Annual Report to Stockholders are available on the Company’s website at www.gulfportenergy.com/proxy. +By Order of the Board of Directors, +Michael G. Moore +Chief Financial Officer and Secretary +This notice and proxy statement are first being mailed to stockholders on or about May 18, 2010. +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +PROXY +STATEMENT +TABLE OF CONTENTS +About the Annual Meeting +1 +Board of Directors Information +4 +Election of Directors and Director Biographies +5 +Corporate Governance Matters and Communications with the Board +9 +Code of Business Conduct and Ethics +10 +Nominating Process For Directors, Director Qualifications and Review of Director +Nominees +10 +Director Leadership Structure +11 +Board of Director’s Role in Risk Oversight +12 +Audit Committee Report +13 +Executive Officers +15 +Executive Compensation +16 +Compensation Discussion And Analysis +16 +Compensation Components +18 +Report of the Compensation Committee on Executive Compensation +21 +Compensation Committee Interlocks and Insider Participation +22 +Compensation Tables +22 +Retirement Plans +24 +401(k) Plan +24 +Amended and Restated 2005 Stock Incentive Plan +24 +Employment Agreements +26 +Stock Ownership +28 +Holdings of Major Stockholders +28 +Holdings of Officers and Directors +28 +Section 16(a) Beneficial Ownership Reporting Compliance +29 +Certain Relationships and Related Transactions +30 +Administrative Services Agreements +30 +Services Provided to Us by Our Affiliates +30 +Our Investments in Affiliates and Related Agreements +31 +Option and Purchase Agreement and Related Agreements +32 +Proposal to Ratify the Appointment of Our Independent Auditors +33 +Solicitation by Board; Expenses of Solicitation +34 +Submission of Future Stockholder Proposals +34 +Availability of Form 10-K and Annual Report to Stockholders +34 +Householding +35 +Other Matters +35 +i +Table of Contents +About the Annual Meeting +Who is soliciting my vote? +The board of +directors of Gulfport Energy Corporation, which we refer to as “Gulfport,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2010 Annual Meeting of Stockholders. +What am I voting on? +You are voting on: +• +The election of directors ( see page 5 ); +• +The ratification of Grant Thornton LLP as our independent auditors for 2010 ( see page 33 ); and +• +Any other business properly coming before the meeting. +How does the board of directors recommend that I vote my shares? +Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the +recommendations of our board of directors. The board of directors’ recommendation can be found with the description of each item in this proxy statement. In summary, the board of directors recommends a vote: +• +FOR the proposal to elect nominated directors; and +• +FOR the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2010. +Who is entitled to vote? +You may vote +if you were the record owner of our common stock as of the close of business on April 26, 2010. Each share of common stock is entitled to one vote. As of April 26, 2010, we had 42,710,874 shares of common stock outstanding and entitled to +vote, excluding 112,446 shares of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan. There is no cumulative voting. +How many votes must be present to hold the meeting? +Your shares are counted as present at the Annual Meeting if you attend the meeting and vote in person or if you properly return a proxy by mail. In order +for us to hold our meeting, holders of a majority of the voting power of our outstanding shares of common stock as of the close of business on April 26, 2010 must be present in person or by proxy at the meeting. This is referred to as a quorum. +Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the meeting. +What is a broker non-vote? +If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive instructions from the +beneficial owner on how to vote those shares, the broker may return the proxy card without voting on that proposal. This is known as a broker non-vote . No broker may vote your shares on the proposal to elect directors without your specific +instructions. +How many votes are needed to approve each of the proposals? +The five nominees for election as directors at the Annual Meeting who receive the highest number of “FOR” votes will be elected as directors. +This is called plurality voting. Unless you indicate otherwise on your proxy card, the persons named as your proxies will vote your shares FOR all the nominees for director named in this proxy statement. +1 +Table of Contents +All other proposals require the affirmative “FOR” vote of a majority of the votes cast by the +stockholders present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Only votes for or against such other proposals will be counted as votes cast. Abstentions and broker non-votes will not be counted for voting +purposes and will have no effect on the result of the vote on such other proposals. +How do I vote? +You can vote either in person at the meeting or by proxy without attending the meeting. +To vote by proxy, you must fill out the enclosed proxy card , date and sign it, and return it in the enclosed postage-paid envelope. +Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person at the Annual Meeting, and you hold +your stock in street name, you must obtain a proxy from your broker and bring that proxy to the meeting. +Can I change my vote? +Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by: +• +Signing another proxy card with a later date and returning it to us prior to the meeting; +• +Sending our Corporate Secretary a written document revoking your earlier proxy; or +• +Voting again at the meeting. +Who counts the votes? +We have hired +Computershare Trust Company, N.A., our transfer agent, to count the votes represented by proxies cast by mail or ballot. Employees of Computershare Trust Company, N.A. will act as inspectors of election. +Will my vote be confidential? +Yes. As a +matter of Company policy, proxies, ballots and voting tabulations that identify individual stockholders are treated as confidential. Only the tabulation agent and the inspectors of election have access to your vote. Directors and employees of the +Company may see your vote only if there is a contested proxy solicitation, as required by law or in certain other special circumstances. +Will my shares be voted if I don’t provide my proxy and don’t attend the Annual Meeting? +If you do not provide a proxy or vote your shares held in your name, your shares will not be voted. +If you hold your shares in street name, your broker may be able to vote your shares for certain “routine” matters even if you do not provide +the broker with voting instructions. The ratification of Grant Thornton LLP as our independent auditors for 2010 is considered routine. For matters not considered “routine,” if you do not give your broker instructions on how to vote your +shares, the broker will return the proxy card without voting on that proposal. This is a broker non-vote. The proposal to elect directors is not considered routine. As a result, no broker may vote your shares on the proposal to elect directors +without your specific instructions. +How are votes counted? +In the election of directors, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the +nominees. For any other proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” +2 +Table of Contents +What if I return my proxy but don’t vote for some of the matters listed on my proxy card? +If you return a signed proxy card without indicating your vote, your shares will be voted FOR the director nominees listed on the card and +FOR the ratification of Grant Thornton LLP as our independent auditors for 2010. +Could other matters be decided at the Annual Meeting? +We have not received any stockholder proposals and are not aware of any other matters that will be considered at the Annual Meeting. If +any other matters arise at the Annual Meeting, the persons named in your proxies will vote in accordance with their best judgment. +Who can +attend the meeting? +The Annual Meeting is open to all holders of our common stock. +What do I need to bring to attend the Annual Meeting? +You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of your broker or bank or other nominee, you +will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN +SHARES OF OUR STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING. +How can I access the Company’s proxy materials and annual report +electronically? +This proxy statement and the Company’s 2009 Annual Report to Stockholders are available on the Company’s website +at www.gulfportenergy.com/proxy. +3 +Table of Contents +Board of Directors Information +What is the makeup of the board of directors and how often are the members elected? +Our board of directors consists of five members who are elected annually. The majority of these directors are independent under the Nasdaq listing +standards. +What if a nominee is unable or unwilling to serve? +That is not expected to occur. If it does, shares represented by proxies will be voted for a substitute nominated by the board of directors. +How are directors compensated? +Our +policy adopted in the second quarter of 2007 is that members of our board of directors who are also our officers or employees do not receive compensation for their services as directors. +Equity Compensation +We provide our non-employee directors with equity compensation under our Amended and Restated 2005 Stock Incentive Plan. Our current non-employee +directors are Donald L. Dillingham, Scott E. Streller and David L. Houston. As additional compensation and incentive, in November 2009, we granted 6,666 shares of our restricted common stock to each of Messrs. Streller and Houston under our Amended +and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments beginning on December 17, 2009. In March 2008, we granted 6,666 shares of our restricted common stock to Mr. Dillingham in +connection with his appointment to our board of directors in November 2007, of which 740 shares vested on April 1, 2008 and the remaining shares vest in 36 equal monthly installments beginning on May 1, 2008. Due to his receipt of the 2008 +grant of our restricted common stock, Mr. Dillingham did not receive any equity awards in 2009. Further details regarding our director compensation in 2009 are set forth under the heading “Director Compensation” below. +Cash Compensation +In 2009, we paid our non-employee directors a monthly retainer of $1,000 and a per meeting in-person attendance fee of $500 and reimbursed all ordinary +and necessary expenses incurred by non-employee directors in the conduct of our business. In addition to the fees described above, each committee member of our board of directors receives $3,000 per year for his service on each committee, provided +that the committee chairman receives $4,500 per year per committee. As of the date of this proxy statement, no changes to the cash compensation structure for our non-employee directors have been made for 2010. +Insurance and Indemnification Contracts +We provide liability insurance for our directors and officers at a current annual cost of approximately $285,000 and have contractual indemnification +arrangements with our directors and certain of our officers under which we agree, in certain circumstances, to compensate them for costs and liabilities incurred in actions brought against them while acting as directors or officers of the Company. +How often did the board of directors meet in 2009? +The board of directors met six times in 2009. In addition to these meetings, the board of directors adopted resolutions by unanimous written consent. Each +director attended at least 75% of the aggregate meetings of the board of directors and the meetings of the committees on which he served. +4 +Table of Contents +Election of Directors and Director Biographies +(Proposal 1 on the Proxy Card) +Who are this year’s nominees? +The +directors standing for election this year to hold office until the 2011 Annual Meeting of Stockholders and until each such director’s successor is elected are: +MIKE LIDDELL, age 56. Mr. Liddell has served as a director of our company since July 1997 and as Chairman of the Board of our company since +July 1998. Mr. Liddell served as Chief Executive Officer of our company from April 1998 to December 2005 and President of our company from July 2000 to December 2005. In addition, Mr. Liddell served as Chief Executive Officer of DLB +Oil & Gas, Inc., a publicly held oil and natural gas company, from October 1994 to April 1998, and as a director of DLB Oil & Gas from 1991 through April 1998. From 1991 to 1994, Mr. Liddell was President of DLB +Oil & Gas. From 1979 to 1991, he was President and Chief Executive Officer of DLB Energy. Mr. Liddell served as a director of Bronco Drilling Company, Inc., a provider of contract land drilling services, from May 2005 until August 2008 +and as its Chairman of the Board from May 2005 until August 2007. Mr. Liddell has served as Chairman of the Board of Windsor Energy Group, LLC and Great White Energy Services, LLC since December 2005 and November 2006, respectively, and served +as Chairman of the Board of Diamondback Energy Services, Inc. from November 2006 until December 2008. Mr. Liddell received a Bachelor of Science degree in education from Oklahoma State University. +DONALD DILLINGHAM, age 47. Mr. Dillingham has served as a director of our company since November 2007. Since August 2001, Mr. Dillingham +has served as the Senior Portfolio Manager for Avondale Investments, LLC and Merit Advisors, Inc., each of which is a registered investment advisor. Mr. Dillingham is currently the Senior Portfolio Manager for two mutual funds, a member of the +investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer of the Merit Advisors Investment Trust. From August 2002 to December 2004, Mr. Dillingham served as an adjunct professor of finance at the University of Oklahoma. +From April 1998 to August 2001, Mr. Dillingham served as Senior Vice President, portfolio manager and state director for J.P. Morgan Investment Management. From March 1996 to April 1998, Mr. Dillingham served American Express as the state +director responsible for managing the financial planning services and product sales for the state of Oklahoma. From May 1994 to December 1996, Mr. Dillingham worked for Bank of America as Vice-President of Investment Banking. +Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker and sales manager from August 1984 to May 1994. Mr. Dillingham received a Bachelors of Business and +Administration in Accounting from the University of Oklahoma and his Masters of Business and Administration in Finance from Oklahoma City University. Mr. Dillingham is a Chartered Financial Analyst, a Certified Public Accountant and a Certified +Financial Planner. +DAVID L. HOUSTON, age 57. Mr. Houston has served as a director of our company since July 1998. Since 1991, +Mr. Houston has been the principal of Houston & Associates, a firm that offers life and disability insurance, compensation and benefits plans and estate planning. Mr. Houston has served as a director of Bronco Drilling Company +since May 2005 and is currently a member of its audit committee. Prior to 1991, Mr. Houston was President and Chief Executive Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank. Mr. Houston served on the board of +directors and executive committee of Deaconess Hospital, Oklahoma City, Oklahoma, from January 1993 until December 2008 and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston +received a Bachelor of Science degree in business from Oklahoma State University and a graduate degree in banking from Louisiana State University. +JAMES D. PALM, age 65. Mr. Palm has served as a director of our company since February 2006 and as Chief Executive Officer of our company +since December 2005. Prior to joining our company, Mr. Palm pursued oil and gas investments primarily in Oklahoma, the Texas Panhandle and Kansas as the manager and owner of Crescent +5 +Table of Contents +Exploration, LLC, a company he founded in 1995. Mr. Palm currently serves as a member of the Industry Advisory Committee of the Oklahoma Corporation Commission. From October 2001 through +October 2003, Mr. Palm served as the Chairman of the Oklahoma Energy Resources Board. From 1997 through 1999, Mr. Palm served as the President of the Oklahoma Independent Petroleum Association. Mr. Palm received a Bachelor of Science +degree in Mechanical Engineering in 1968, and a Masters in Business Administration in 1971, both from Oklahoma State University. +SCOTT E. +STRELLER, age 42. Mr. Streller has served as a director of our company since August 2006. Since April 1993, Mr. Streller has operated an insurance agency for Farmer’s Insurance and Farmer’s Financial Solutions. +Mr. Streller received a Master’s degree in Athletic Administration from Oklahoma State University and a Bachelor of Business Administration degree in Business Management from the University of Central Oklahoma. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS +6 +Table of Contents +What are the committees of the Board? +Our board of directors has the following committees: +Committee +Members +Principal Functions +Number of +Meetings in +2009 +Audit +David L. Houston* +Donald L. Dillingham +Scott E. Streller +• Reviews and discusses with management and the independent auditors +the integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management compliance. +• Monitors and oversees our accounting, auditing and financial reporting processes +generally, including the qualifications, independence and performance of the independent auditor. +• Monitors our compliance with legal and regulatory requirements. +• Establishes +procedures for the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding +questionable accounting or auditing matters. +• Reviews and approves related party transactions. +• Appoints, determines +compensation, evaluates and terminates our independent auditors. +• Pre-approves audit and permissible non-audit services to be performed by the independent +auditors. +• Prepares the report required by the SEC for the inclusion in our annual proxy statement. +• Reviews +and reassesses the adequacy of the audit committee charter on a periodic basis. +4 +Compensation +Scott E. Streller +David L. +Houston* +• Oversees and administers our executive compensation policies, plans +and practices and evaluates their impact on risk and risk management. +• Assists the board of directors in discharging its responsibilities relating to the +compensation of our executives, including our chief executive officer, and other key employees. +2 +7 +Table of Contents +Committee +Members +Principal Functions +Number of +Meetings in +2009 +• Administers our equity-based compensation plans, including the +grants of stock options, restricted stock awards and other equity awards under such plans. +• Makes recommendations to the board with respect to incentive compensation. +• Conducts annual +performance evaluation of the committee. +• Reviews disclosure related to executive compensation in our proxy statement. +• Reviews and +reassesses the adequacy of the compensation committee charter. +Nominating +Donald L. Dillingham +David L. Houston +Scott E. Streller* +• Assists the board of directors in developing criteria for, +identifying and evaluating individuals qualified to serve as members of our board of directors. +• Selects and recommends director candidates to the board of directors to be submitted for +election at the Annual Meeting and to fill any vacancies on the board of directors. +• Periodically reviews and makes recommendations regarding the composition and size of the +board of directors and each of its committees. +• Reviews and recommends to the board of directors appropriate corporate governance polices +and procedures for our company. +• Conducts an annual assessment of the qualifications and performance of the +Board. +• Annually reviews and reports to the board of directors on the performance of management. +• Reviews +and reassesses the adequacy of the nominating committee charter. +1 +* +Committee Chairperson +Do the committees +have written charters? +Yes. The charters for our Audit Committee, Compensation Committee and Nominating Committee can be found on our +website at www.gulfportenergy.com under the “Corporate Governance” caption. You may also obtain copies of these charters, as well as our Code of Business Conduct and Ethics, which is described below, by writing to our Corporate +Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +8 +Table of Contents +Corporate Governance Matters and Communications with the Board +Who are our independent directors? +The board of directors has determined that Donald L. Dillingham, David L. Houston and Scott E. Streller meet the standards regarding independence set +forth in the Nasdaq listing standards and are free of any material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). +Our board of directors has determined that each member of the Audit Committee is independent for purposes of serving on such committee under the Nasdaq +listing standards and applicable federal law. In addition, our board of directors has determined that each current member of the Audit Committee is financially literate under the Nasdaq listing standards and that each of Mr. Houston, who serves +as the Chairman of the Audit Committee, and Mr. Dillingham qualifies as the “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. +Our board of directors has also determined that each member of the Compensation Committee and the Nominating Committee meets the independence +requirements applicable to those committees under the Nasdaq rules. In addition, our board of directors determined that each member of our compensation committee is an “outside director” in accordance with Section 162(m) of the +Internal Revenue Code and a “non-employee director” in accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended. +Do our non-management directors meet separately without management? +Our non-management directors have the opportunity to meet in an executive session following each regularly scheduled meeting of the board of directors. +During 2009, our non-management directors met in an executive session on November 12, 2009. +How can I communicate with the board of +directors? +Individuals may communicate with our board of directors or individual directors by writing to our Corporate Secretary, Michael +G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. Our Corporate Secretary will review all such correspondence and forward to our board of directors a summary of all such correspondence and +copies of all correspondence that, in the opinion of our Corporate Secretary, relates to the functions of our board of directors or the compensation committee thereof or that he otherwise determines requires their attention. Directors may review a +log of all such correspondence received by us and request copies. Concerns relating to accounting, internal control over financial reporting or auditing matters will be immediately brought to the attention of the chairman of the audit committee and +handled in accordance with the audit committee procedures established with respect to such matters. +Do directors attend the Annual +Meeting? +Recognizing that director attendance at our Annual Meeting can provide our stockholders with an opportunity to communicate with +directors about issues affecting the Company, we actively encourage our directors to attend the Annual Meeting of Stockholders. Four of our directors attended the 2009 Annual Meeting of Stockholders. +9 +Table of Contents +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and Ethics designed to help directors and employees resolve ethical issues. Our Code of Business Conduct and +Ethics applies to all directors and employees, including the Chief Executive Officer, the Chief Financial Officer and all senior financial officers. Our Code of Business Conduct and Ethics covers various topics including, but not limited to, +conflicts of interest, fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is posted on our website under the “Investor +Relations—Corporate Governance” caption. +Nominating Process For Directors, Director +Qualifications and Review of Director Nominees +The Nominating Committee is comprised of three non-employee directors, all of whom are +independent under Nasdaq listing standards. As provided by the Nominating Committee’s charter, our Nominating Committee identifies, investigates and recommends to our board of directors candidates with the goal of creating a balance of +knowledge, experience and diversity. Generally, the committee identifies candidates through the personal, business and organizational contacts of the directors and management. +Potential directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the interests of +our stockholders. In addition to reviewing a candidate’s background and accomplishments, candidates for director nominees are reviewed in the context of the current composition of our board of directors and the evolving needs of our +stockholders’ businesses. It is the policy of our board of directors that at all times at least a majority of its members meets the standards of independence promulgated by Nasdaq and the Securities and Exchange Commission, or the SEC, and that +all members reflect a range of talents, ages, skills and expertise, particularly in the areas of accounting and finance, management, leadership and oil and gas related industries sufficient to provide sound and prudent guidance with respect to our +stockholders’ operations and interests. In addition to the foregoing factors, our Nominating Committee considers diversity in its evaluation of candidates for board membership. Although our board of directors does not have a formal diversity +policy, our board believes that diversity with respect to viewpoint, skills and experience should be an important factor in board composition. Our Nominating Committee ensures that diversity considerations are discussed in connection with each +potential nominee, as well as on a periodic basis in connection with its periodic review of the composition of the board and the size of the board as a whole. +We also require that the members of our board of directors be able to dedicate the time and resources sufficient to ensure the diligent performance of +their duties on our behalf, including attending all meetings of the board of directors and applicable committee meetings. In accordance with its charter, our Nominating Committee periodically reviews the criteria for the selection of directors to +serve on our board and recommends any proposed changes to our board of directors for approval. +Our board of directors will consider +stockholder nominations for director candidates upon written submission of such recommendation to our Corporate Secretary along with, among other things, the nominee’s qualifications and certain biographical information regarding the nominee, +such nominee’s written consent to serving as a director if elected and being named in the proxy or information statement and certain information regarding the status of the stockholder submitting the recommendation, all in the manner required +by our amended and restated bylaws and the applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. Following verification of the stockholder status of persons proposing candidates, recommendations will be +aggregated and considered by our board of directors at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to our board +of directors. +Our board of directors may also review materials provided by professional search firms or other parties in connection with a +nominee who is not proposed by a stockholder. In evaluating such nominations, our board of +10 +Table of Contents +directors will seek to achieve a balance of knowledge, experience and capability on the board. Our board of directors uses the same criteria for evaluating candidates nominated by stockholders as +it does for those proposed by current board members, professional search firms and other persons. After completing its evaluation, our board of directors approves the final slate of director nominees. +Our Nominating Committee approved the director nominees submitted for election at this Annual Meeting. Each nominee is a current board member and brings +a strong and unique background and set of skills to our board of directors, giving our board of directors as a whole competence and experience in a variety of areas, including corporate governance and board service, executive management, oil and +natural gas industry, accounting and finance and risk assessment and management. Specifically, in nominating the current board members for re-election at this Annual Meeting, our Nominating Committee considered such directors’ past service on +our board and the information discussed in each of the directors’ individual biographies set forth on page 5 above. In particular, with regard to Messrs. Liddell and Palm, our Nominating Committee considered their respective public company +experience as executive officers and directors, as well as their strong oil and natural gas backgrounds. With respect to Mr. Palm, our Nominating Committee also considered his current and prior service with various state and independent +advisory boards and committees in the petroleum industry. With regard to Mr. Dillingham, our Nominating Committee considered his strong background in finance and risk assessment and management developed as part of his career as a registered +investment advisor and portfolio manager, as well as his academic experience. With regard to Messrs. Houston and Streller, our Nominating Committee considered their respective business backgrounds and risk assessment skills. +Director Leadership Structure +Since December 2005, the positions of Chairman of the Board and Chief Executive Officer have been held by two different individuals. Separating these +positions allows our Chief Executive Officer to focus on our day-to-day business and operations, while allowing our Chairman of the Board to lead the board in its fundamental role of providing advice to and oversight of management. In accordance +with our bylaws, the position of the Chairman of the Board is an executive officer position and not an independent director position. The Chairman of the Board provides leadership to our board of directors and works with the board of directors to +define its structure and activities in the fulfillment of its responsibilities. The Chairman of the Board sets the board agendas, with the input from other members of the board and our management, facilitates communications among and information +flow to directors, has the power to call special meetings of our board of directors and stockholders and presides at meetings of our board of directors and stockholders. The Chairman of the Board also advises and counsels our Chief Executive Officer +and other officers. Our board of directors does not have a position of a lead director. +We believe that our directors bring a broad range of +leadership experience to the boardroom and regularly contribute to the thoughtful discussion involved in effectively overseeing the business and affairs of our company. We believe that the atmosphere of our board is collegial, that all board members +are well engaged in their responsibilities, and that all board members express their views and consider the opinions expressed by other directors. We do not believe that appointing an independent board chairman, or a lead or presiding director, +would improve the performance of our board of directors. Further, three out of five directors on our board are independent under the Nasdaq listing standards and SEC rules. We believe that all of our independent directors have demonstrated +leadership in business enterprises and are familiar with board processes. Our independent directors are involved in the leadership structure of our board by serving on our Audit, Nominating and Compensation committees, each having a separate +independent chairperson. Specifically, the chair of our Audit Committee oversees the accounting and financial reporting processes, as well as compliance with legal and regulatory requirements. The chair of our Compensation Committee oversees the +annual performance evaluation of our Chief Executive Officer and our compensation policies and practices and their impact on risk and risk management. The chair of our Nominating Committee monitors matters such as the composition of the board and +its committees, board performance and best practices in corporate governance. As such, each committee chair provides independent leadership for purposes of many important functions delegated by our board of directors to such committee. +11 +Table of Contents +Board of Director’s Role in Risk Oversight +As an exploration and production company, we face a number of risks, including risks associated with supply of and demand for oil and natural gas, +volatility of oil and natural gas prices, exploring for, developing, producing and delivering oil and natural gas, declining production, environmental and other government regulations and taxes, weather conditions, including hurricanes, that can +affect oil and natural gas operations over a wide area, political instability or armed conflict in oil and natural gas producing regions and overall economic environment. Management is responsible for the day-to-day management of risks we face as +the company, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. It its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk +management processes designed and implemented by management are adequate and functioning as designed. +Our board of directors believes that +full and open communication between management and the board of directors is essential for effective risk management and oversight. Our Chairman of the Board meets regularly with our Chief Executive Officer and other senior officers to discuss +strategy and risks facing our company. Senior management regularly attends the board meetings and is available to address any questions or concerns raised by the board on risk management-related and any other matters. At least quarterly, our board +of directors receives presentations from senior management on strategic matters involving our operations. During such meetings, our board of directors also discusses strategies, key challenges, and risks and opportunities for the company with senior +management. +While our board of directors is ultimately responsible for risk oversight at our company, our three committees assist the board +in fulfilling its oversight responsibilities in certain areas of risk. Our Audit Committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and +compliance with legal and regulatory requirements, and discusses policies with respect to risk assessment and risk management. Our Compensation Committee assists the board in fulfilling its oversight responsibilities with respect to the management +of risks arising from our compensation policies and programs. Our Nominating Committee assts the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, +succession planning for our directors and executive officers, and corporate governance. +12 +Table of Contents +Audit Committee Report +The Audit Committee is responsible for providing independent, objective oversight for the integrity of the Company’s financial reporting process and +internal control system. Other primary responsibilities of the Audit Committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the Company’s independent registered public accounting firm +and providing an open venue for communication among the independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of the Company. A more detailed description of the +responsibilities of the Audit Committee is set forth in its written charter, which is posted on our website at www.gulfportenergy.com . The following report summarizes certain of the Audit Committee’s activities with respect to its +responsibilities during 2009. +Review with Management and Independent Registered Public Accounting Firm . The Audit Committee has +reviewed and discussed with management and Grant Thornton LLP, an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, 2009. +Controls and Procedures. Management has established and maintains a system of disclosure controls and procedures designed to provide reasonable +assurance that information required to be disclosed by our Company in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the +SEC’s rules and forms, and includes controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our Chief +Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2009, management conducted an evaluation of our disclosure controls and procedures. Based on +this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file +or submit under the Securities and Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Audit Committee discussed with management and Grant Thornton LLP +the quality and adequacy of the Company’s disclosure controls and procedures. +Management has also established and maintains a system of +internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that +disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in +Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control—Integrated Framework, +management concluded that our internal control over financial reporting was effective as of December 31, 2009, as discussed in more detail in Management’s Report on Internal Control Over Financial Reporting, which was included in our +Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 12, 2010. Our internal control over financial reporting as of December 31, 2009 has been audited by Grant Thornton LLP, as stated in its +attestation report, which was included in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 12, 2010. The Audit Committee reviewed and discussed with management and Grant Thornton LLP the +Company’s system of internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. +Discussions with Independent Auditing Firm . The Audit Committee has discussed with Grant Thornton LLP, independent auditors for the Company, the +matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees , as amended. The Audit Committee has received the written disclosures and the letter from Grant Thornton LLP required by +applicable requirements of the Public Company +13 +Table of Contents +Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence and has discussed with that firm its independence from the +Company. +Recommendation to the board of directors . Based on its review and discussions noted above, the Audit Committee recommended to +the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. +THE AUDIT COMMITTEE +David L. Houston, +Chairman +Donald L. Dillingham +Scott E. Streller +14 +Table of Contents +Executive Officers +The following table sets forth the name, age and positions of each of our executive officers as of the record date: +Name +Age +Position +Mike Liddell +56 +Chairman of the Board and Director +James D. Palm +65 +Chief Executive Officer, Director +Michael G. Moore +53 +Vice President, Chief Financial Officer and Secretary +Biographical information for each of Messrs. Liddell and Palm is set forth in this proxy statement under the heading “Election of Directors and +Director Biographies.” +MICHAEL G. MOORE. Mr. Moore has served as Vice President and Chief Financial Officer of our company +since July 2000. From May 1998 through July 2000, Mr. Moore served as Vice President and Chief Financial Officer of Indian Oil Company. From September 1995 through May 1998, Mr. Moore served as Controller of DLB Oil & Gas. Prior +to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based gas marketing company. Mr. Moore received both his Bachelor of Business Administration degree in finance and his Masters in Business Administration from the University +of Central Oklahoma. +15 +Table of Contents +Executive Compensation +Compensation Discussion And Analysis +Compensation Practices +Until the end of 2007, all compensation decisions for our Chief Executive Officer and our Chief Financial Officer (other than decisions relating to our +equity compensation plans) were made by our Chairman of the Board. Our Chairman of the Board has been compensated as provided in his employment agreement with our company, which was effective as of June 1, 1999. Although our board of directors +established a compensation committee effective as of February 14, 2006, until the end of 2007, the role of the compensation committee was limited, as we relied on the “controlled company” exemption and applicable transition rules +provided by the Nasdaq listing standards. The compensation committee is currently composed entirely of independent directors. Since the end of 2007, the compensation committee has been primarily responsible for establishing, implementing and +monitoring our compensation programs, including those applicable to our executive officers. In particular, the compensation committee’s current role is to oversee, on behalf of our board of directors, our compensation and benefit plans and +policies, administer our stock plans (including reviewing and approving equity grants to directors and executive officers) and review and approve annually all compensation decisions relating to our Chief Executive Officer and make recommendations to +our board of directors and Chairman of the Board with respect to other executive officer compensation. The compensation committee meets at least annually to review executive compensation programs, approve compensation levels, consider performance +targets, review management performance and administer our equity-based compensation plans. The compensation committee operates in accordance with its charter, adopted effective as of February 14, 2006, which sets forth its powers and +responsibilities described in more detail under the “Corporate Governance—Compensation Committee.” +Compensation Philosophy and Objectives +The objectives of our compensation program are to: +• +attract and retain key executives; +• +align the interests of our executives with those of our stockholders; and +• +motivate and reward individual performance and contributions. +Compensation Benchmarking +In the fall of 2007, the compensation committee engaged Equilar, an outside consultant, to perform a compensation survey, based on the available +compensation data for fiscal 2006. In August 2009, the compensation committee engaged Equilar to perform an updated compensation survey to reflect present trends. The 2009 Equilar survey included the following industry peer companies: Abraxas +Petroleum Corporation, Arena Resources Inc., Brigham Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, Goodrich Petroleum Corporation, Ram +Energy Resources Inc., Sandridge Energy Inc., St. Mary Land & Exploration Company, Stone Energy Corporation, Swift Energy Company and Whiting Petroleum Corporation. Following its review of the 2009 survey, the compensation committee +discussed and evaluated the 2009 compensation packages of our Chairman of the Board, Chief Executive Officer and Chief Financial Officer in light of our performance, the value these executives bring to our company, market trends, peer benchmarking, +economic climate, their respective experience and leadership roles and employee retention considerations. Based on such evaluation, the compensation committee granted 2009 discretionary bonuses for these executive officers, but otherwise determined +not to make any substantive changes to their current compensation structure. The elements of our compensation structure are discussed in more detail below. +16 +Table of Contents +Compensation Policy +The key elements of our compensation program are salary, annual bonus and long-term incentive compensation. We use these elements to meet our compensation +objectives as follows: +• +Attract and retain key executives. We believe that to attract and retain talented executives, we must offer compensation that is competitive. We also +believe that our Chairman of the Board, Mike Liddell, our Chief Executive Officer, James D. Palm, and our Chief Financial Officer, Michael G. Moore, are critical to the long-term success of our company. To facilitate the retention of our Chairman of +the Board and our Chief Executive Officer, we entered into an employment agreement with Mr. Liddell in May of 1999 and into an oral agreement with Mr. Palm with respect to their respective compensations and benefits. We believe that the +terms of these agreements are reasonable as compared to similarly situated executives at peer group companies. +• +Align the interests of our executives with those of our stockholders. In the past, we used both options and restricted stock awards to provide +long-term incentive compensation and to align the financial interests of our executives with those of our stockholders. In 2009, the compensation committee did not grant any equity awards to our executive officers. In March 2010, the compensation +committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments, +beginning on March 18, 2010. It is anticipated that in the future the compensation committee will continue to structure our long-term incentive compensation in the form of restricted stock awards. For a discussion of the Company’s +long-term incentive policy, see “Long Term Incentive Compensation” below. +• +Stock Options . Stock options represent the right of an option holder to buy shares of our common stock at an exercise price equal to the market +value of our common stock on the date of grant. Under our outstanding stock options, the right to buy underlying shares generally vests in 36 substantially equal monthly installments from the date of grant, except that certain options vest in five +substantially equal annual installments beginning on the first anniversary of the date of grant. We awarded these stock options in order to align compensation with company performance as the options become valuable to the executive only if the stock +price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. +• +Restricted Stock Awards . Restricted stock granted to our executive officers prior to 2008 generally vests in 36 substantially equal monthly +installments. In December 2008, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chief Executive Officer under our Amended and Restated 2005 Stock Incentive Plan. Of this amount, 5,556 +shares vested on December 17, 2008 and the remaining shares vest in 11 substantially equal quarterly installments beginning on March 18, 2009. We did not grant any equity awards to any of our executive officers in 2009. As additional +compensation and incentive, in March 2010, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and Restated 2005 Stock Incentive Plan, which shares +vest in 12 substantially equal quarterly installments, beginning on March 18, 2010. Restricted stock awards ensure that our executives have a continuing stake in the long-term success of our company as the value of the award will depend on the +stock price at the time of vesting. +• +Motivate and reward individual performance and contributions. The Company’s evaluation of the individual performance of each executive officer +affects most aspects of the executive’s compensation. Individual performance and level of responsibility are considered in determining an executive’s annual salary, and are important factors in deciding discretionary bonuses and equity +awards. +17 +Table of Contents +Compensation Components +Base Salary +Salaries for our Chairman of the Board and our Chief Executive Officer are provided in their respective agreements described in more detail under the +heading “Employment Agreements” below. The annual base salary for our Chairman of the Board is increased annually in an amount equal to any increase in the cost of living as determined in accordance with his employment agreement. The +respective salaries for our Chief Executive Officer and Chief Financial Officer for 2009 were determined by our compensation committee and our Chairman of the Board, respectively. With respect to the 2009 salaries of our Chief Executive Officer and +our Chief Financial Officer, the various factors considered included the recommendation of our Chairman of the Board, the compensation of executive officers of comparable companies within the oil and natural gas industry, the performance of such +executive officer and changes in responsibilities, the experience, leadership and potential future contributions to the Company and, in the case of our Chief Executive Officer, his oral employment agreement with the Company. In the future, we +anticipate that the compensation committee will continue to review the base salaries of our named executive officers on an annual basis, subject to the terms of any employment agreements that we may have with our named executive officers, and will +consider similar factors, as well as the recommendation of our Chairman of the Board with respect to base salaries of other named executive officers. During 2009, the annual base salaries for our Chairman of the Board, our Chief Executive Officer +and our Chief Financial Officer were $261,373, $225,000 and $300,000, respectively. +In November 2009, the compensation committee reviewed and +considered salaries for our Chairman of the Board, Chief Executive Officer and Chief Financial Officer for 2010, taking into consideration their 2009 compensation packages and the compensation survey prepared by Equilar in the fall of 2009. The +compensation committee also considered Company performance, value the executives bring to the Company, market trends, peer benchmarking, economic climate, experience, leadership and employee retention and, in the case of our Chairman of the Board +and Chief Executive Officer, the terms of their respective agreements with the Company. Following such review, the compensation committee adjusted the base salary of our Chairman of the Board for the increase in cost of living, as provided by his +employment agreement, and to date has made no adjustments to the respective base salaries of our Chief Executive Officer and Chief Financial Officer for 2010. +Discretionary Bonus +The compensation committee determined the year end discretionary bonuses that were paid to our named executive officers based on their respective +performances in 2009 and other factors, including Company performance in 2009, the value the executives bring to the Company, market trends, peer benchmarking, economic climate, experience, leadership and employee retention. The compensation +committee determined that our Chief Executive Officer would receive a year-end discretionary bonus of $50,000, and our Chief Financial Officer would receive a year-end discretionary bonus of $125,000 in recognition of his services to the Company. In +addition, the compensation committee determined that our Chairman of the Board would receive a 2009 discretionary bonus of $40,000 similar to prior annual bonuses paid to our Chairman of the Board. No specific financial or operational performance +targets were set by the compensation committee for 2009 or 2010 with respect to discretionary bonuses or other executive compensation. +Long-Term Incentive Compensation +2009 Awards . In November 2009, the compensation committee reviewed and evaluated our Chief Executive Officer’s performance during 2009. As +part of this process, the committee considered a 2009 study by a nationally recognized compensation consulting firm, Equilar, with respect to executive and board of directors’ compensation as it relates to a selected industry peer group. For +more information regarding the Equilar study and our peer group, see “Compensation Benchmarking” above. The compensation committee also considered the current status of the energy sector with a special focus on the Company’s peer +group and the national and global economic conditions and reviewed the Chief Executive Officer’s outstanding equity awards, including his 2008 +18 +Table of Contents +award of our restricted common stock, and related exercise prices. Following a thorough review of the 2009 Equilar study, and taking into consideration the factors mentioned above and then +current economic conditions, the compensation committee determined not to make any new equity awards for Mr. Palm or any of our other executive officers in 2009. As additional compensation and incentive, in March 2010, the compensation +committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments, +beginning on March 18, 2010. +Long-Term Incentive Policy . Although in the past, we awarded both options and restricted stock as +part of our long-term incentive compensation program, our board of directors and the compensation committee believe that restricted stock awards are an essential component of our compensation strategy, and we intend to continue offering such awards +in the future. Further, we anticipate that any equity awards granted to our executive officers during the remainder of 2010 will be in the form of restricted stock. The Committee may also determine to issue other forms of stock-based awards to our +named executive officers or other eligible participants under our Amended and Restated 2005 Stock Incentive Plan or other equity incentive plans in effect at that time. Our current equity incentive plan is described below under the heading +“Amended and Restated 2005 Stock Incentive Plan.” +In November 2009, the compensation committee reviewed and discussed the +Company’s current equity compensation plan and objectives. The compensation committee considered the advisability of developing a plan for appropriate benchmarking with respect to the Company’s equity award program and the need to issue +new equity awards as old awards become fully vested, so as to provide future incentives to our executive officers. Upon review, the compensation committee did not establish any objective performance targets or make any other changes to its long-term +incentive policy for 2010. +Perquisites and Other Personal Benefits +Our company provides certain of our named executive officers with a limited number of perquisites or other personal benefits, primarily consisting of life +insurance premiums and in the case of our Chief Financial Officer, a company vehicle, that we believe help provide a competitive package of compensation and benefits. The value of these benefits is disclosed in the Summary Compensation Table. +Broad-Based Employee Benefits +• +401(k) Plan. We have retirement savings plan in which our named executive officers currently participate. The retirement plan is a tax qualified 401(k) +plan that covers all eligible employees including the named executive officers. Under the plan, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual compensation for the prior calendar year. We also have the +ability to make an additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made regardless of employee’s deferrals into the plan. In 2009, we +made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Services regulations. All contributions made by us on behalf of an employee are +100% vested when contributed. For more details regarding our 401(k) plan, see “Retirement Plans—401(k) Plan” below. +• +Our named executive officers are eligible to participate in all of our other employee benefit plans which include medical, dental, group life, +disability and accidental death and dismemberment insurance, in each case on the same basis as all other employees. +Employment Agreements +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and +automatically renews for successive one-year terms thereafter. The +19 +Table of Contents +agreement provides for an annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $261,373 +effective as of June 1, 2009. In the event that Mr. Liddell’s employment is terminated by us without cause, Mr. Liddell would be entitled to receive twelve months of his then current base salary, and all of his then unexercisable +options would become exercisable. The agreement also restricts Mr. Liddell’s use or disclosure of any of our confidential information during the term of the agreement and for a period of five years thereafter. +We have entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which +Mr. Palm is entitled to an annual salary of $200,000 and, at the discretion of our board of directors, an annual cash incentive bonus. For 2009, Mr. Palm’s annual salary was $225,000. To date, the compensation committee has made no +adjustments to Mr. Palm’s annual salary for 2010. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans available to our other employees. +Change in Control Arrangements +Our named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement provides +that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. See +“Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan provides that in the event of significant corporate transaction involving a change in control (as defined under the plan) of our company, such +as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or +a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, +continued or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration +paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and +Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential payments to our Chief Executive Officer and our other named +executive officers upon termination or following a change in control event are set forth under the heading “Potential Payments upon Termination or Change-in-Control.” +Effect of Our Compensation Policies and Practices on Risk and Risk Management +The Compensation Committee reviews the risks and rewards associated with our compensation policies and programs. We believe that such policies and +programs encourage and reward prudent business judgment and appropriate risk-taking over the long term. With respect to specific elements of compensation: +• +We believe that our programs balance short- and long-term incentives for our executive officers providing for an appropriate mix of fixed, +discretionary and equity compensation that overall encourages long-term performance; +• +We believe that annual base salaries for our named executive officers do not encourage excessive risk-taking as they are fixed amounts that are subject +to discretionary increases by our board of directors, based, among other factors, on annual performance evaluations. We also believe that such annual base salaries are set at reasonable levels, as compared to the base salaries of similarly situated +individuals at our peer group companies, and therefore do not encourage our named executive officers to be overly conservative with respect to taking appropriate amount of risk to increase stockholder value. +20 +Table of Contents +• +Our annual bonuses are designed to award achievement of short-term results, payment and amounts of which bonuses are within the discretion of and +determined by our board of directors based on our company’s performance for the prior fiscal year and annual performance evaluations of our named executive officers. +• +Stock options and restricted stock awards granted to our named executive officers are subject to time vesting provisions. We awarded stock options in +order to align compensation with company performance as the options become valuable to the executive only if the stock price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the +appreciation potential of the options. We award restricted stock awards to ensure that our executives have a continuing stake in the long-term success of our company as the value of the award will depend on the stock price at the time of vesting. We +believe that our long-term equity awards do not encourage excessive risk taking that may be associated with equity awards vesting of which is based strictly on achieving certain targets. We also believe that our long-term equity awards provide +incentive to our named executive officers to take appropriate amount of risk. +• +Our named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement +provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. +Based on the foregoing, the Compensation Committee believes that our company does not utilize compensation policies and +programs creating risks that are reasonably likely to have a material adverse impact on our company. +Deductibility of +Executive Compensation +Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax purposes of +executive compensation paid to the Chief Executive Officer and the four other most highly compensated officers of a public company to $1,000,000 per year, but contains an exception for certain performance-based compensation. Our policy is to +periodically review and consider whether particular compensation and incentive payments to our executives will be deductible for federal income tax purposes. We intend, to the extent feasible and when we believe it is in the best interests of our +company and our stockholders, to attempt to qualify executive compensation as tax deductible where it does not adversely affect the development and execution of our compensation plans. +Accounting Implications of Executive Compensation Policy +We are required to recognize compensation expense of all stock-based awards pursuant to the provisions of FASB ASC Topic 718, +“Compensation—Stock Compensation.” Non-vested shares are deemed issued and outstanding from legal perspective; however, under U.S. generally accepted accounting principles, or GAAP, only vested shares are included in basic shares +outstanding. Also, under GAAP, non-vested shares are included in diluted shares outstanding when the effect is dilutive. +Report of the Compensation Committee on Executive Compensation +The compensation committee has reviewed and discussed the foregoing +Compensation Discussion and Analysis with management. Based on its review and discussion with management, the compensation committee recommended that the Compensation Discussion and Analysis be included in this proxy statement. +Respectfully submitted by the compensation committee: +David L. Houston +Scott Streller +21 +Table of Contents +Compensation Committee Interlocks and Insider Participation +No current member of our Compensation Committee has ever been an officer or employee of ours. None of our executive officers serves, or has served during +the past fiscal year, as a member of the Board of Directors or compensation committee of any other company that has one or more executive officers serving as member of our Board of Directors or Compensation Committee. +Compensation Tables +SUMMARY COMPENSATION TABLE +The following table provides information concerning compensation of our principal executive officer, principal financial officer and our other highest +paid executive officer for the fiscal years ended December 31, 2009, December 31, 2008 and December 31, 2007. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +All Other +Compensation +($)(2) +Total +($) +James D. Palm(3) +2009 +$ +225,000 +$ +50,000 +$ +89,556 +$ +— +$ +13,800 +$ +378,356 +Chief Executive Officer +2008 +$ +225,000 +$ +25,000 +$ +22,389 +$ +308,677 +$ +17,325 +$ +605,616 +2007 +$ +211,750 +$ +25,410 +$ +— +$ +336,738 +$ +16,500 +$ +590,398 +Mike Liddell(4) +2009 +$ +261,373 +$ +40,000 +$ +— +$ +149,967 +$ +21,025 +$ +472,365 +Chairman of the Board +2008 +$ +260,585 +$ +40,000 +$ +— +$ +149,967 +$ +24,550 +$ +475,102 +2007 +$ +243,505 +$ +40,000 +$ +— +$ +149,967 +$ +20,725 +$ +454,197 +Michael G. Moore +2009 +$ +300,000 +$ +125,000 +$ +39,290 +$ +3,280 +$ +19,925 +$ +487,495 +Vice President, Chief Financial Officer and Secretary(5) +2008 +$ +279,340 +$ +100,000 +$ +82,267 +$ +21,055 +$ +23,450 +$ +506,112 +2007 +$ +225,000 +$ +400,000 +$ +82,267 +$ +29,942 +$ +19,625 +$ +756,834 +(1) +The amounts reported in the Stock Awards and Option Awards columns for the fiscal years ended December 31, 2009, 2008 and 2007, respectively, reflect fair value of +stock options and restricted stock awards on the award date. These amounts were calculated using certain assumptions, as set forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2009, included in our +Annual Report on Form 10-K, filed with the SEC on March 12, 2010. +(2) +Amounts for Mr. Liddell include our 401(k) plan contributions of $13,800, $17,325 and $13,500 for 2009, 2008 and 2007, respectively, life insurance premium +payments of $7,225 for each of 2009, 2008 and 2007. Amounts for Mr. Palm include our 401(k) plan contributions of $13,800, $17,325 and $13,500 for 2009, 2008 and 2007, respectively, and director compensation fees of $3,000 for 2007. The amounts +for Mr. Moore for 2009, 2008 and 2007 represent our 401(k) plan contributions of $13,800, $17,325 and $13,500, respectively, and $6,125, $6,125 and $6,125, respectively, attributable to use of a company vehicle. +(3) +Mr. Palm’s options are fully vested. Mr. Palm’s restricted stock award of 66,667 shares of our restricted common stock vest in 12 substantially +equal quarterly installments beginning on December 17, 2008. +(4) +Mr. Liddell’s options vest in five substantially equal annual installments beginning on the first anniversary of the date of grant and vested in full on +January 24, 2010. +(5) +Restricted stock awards held by Mr. Moore are fully vested. Mr. Moore’s options vested in full on January 24, 2010. +22 +Table of Contents +GRANTS OF PLAN-BASED AWARDS +No awards were made to our principal executive officer, our principal financial officer or our other highest paid executive officer in fiscal 2009 under +any Company plan. +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information concerning equity awards outstanding for our principal executive officer, our principal financial officer and +our other highest paid executive officer at December 31, 2009. +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have +Not +Vested +($)(1) +James D. Palm +200,000 +— +(2) +$ +11.20 +12/1/2015 +38,887 +(3) +$ +445,256 +Mike Liddell +91,454 +91,454 +(4) +$ +3.36 +1/24/2015 +— +— +Michael G. Moore +8,000 +20,000 +2,000 +— +(4) +(2) +$ +$ +3.36 +9.07 +1/24/2015 +9/9/2015 +— +— +— +— +(1) +Market value of shares or units that have not vested is based on the closing price of $11.45 per share of our common stock on The NASDAQ Global Select Market on +December 31, 2009, the last trading day of 2009. +(2) +Options vest in 36 substantially equal monthly installments. The option expiration date reflects the tenth anniversary from the date of grant. +(3) +Restricted stock awards vest in 12 substantially equal quarterly installments beginning on December 17, 2008. +(4) +Options vest in five substantially equal annual installments beginning on the first anniversary of the date of grant. The option expiration date reflects the tenth +anniversary from the date of grant. +OPTION EXERCISES AND STOCK VESTED +The following table provides certain information for the named executive officers on stock option exercises during 2009, including the number of shares +acquired upon exercise and the value realized, and the number of shares acquired upon the vesting of restricted stock awards. +Name +Option Awards +Stock Awards +Number of Shares +Acquired on +Exercise +(#) +Value Realized on Exercise +($) +Number of Shares +Acquired on +Vesting +(#) +Value Realized +on +Vesting +($) +James D. Palm +— +— +22,220 +163,176 +(1) +Mike Liddell +— +— +— +— +Michael G. Moore +— +— +3,195 +11,385 +(1) +(1) +Value realized on vesting is based on the vesting date closing price per share of our common stock on The NASDAQ Global Select Market. +23 +Table of Contents +DIRECTOR COMPENSATION +The following table contains information with respect to 2009 compensation of our directors who served in such capacity during that year, except that the +2009 compensation of those directors who are also our named executive officers is disclosed in the Summary Compensation Table above. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +Total +($) +Donald L. Dillingham +20,500 +26,272 +— +46,772 +David L. Houston (2) +26,500 +4,484 +6,559 +(3) +37,543 +Scott E. Streller (2) +25,000 +20,077 +— +45,077 +(1) +The amounts reported in the Stock Awards and Option Awards columns reflect fair value of stock options and restricted stock awards on the award date. These amounts were +calculated using certain assumptions, as set forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2009, included in our Annual Report on Form 10-K, filed with the SEC on March 12, 2010. +(2) +In November 2009, we granted 6,666 shares of our restricted stock, with the fair value of $53,861, to each of Messrs. Houston and Streller, which shares vest in 12 +substantially equal quarterly installments, beginning on December 17, 2009. +(3) +Options vest in five substantially equal installments beginning on the first anniversary of the date of grant. +Retirement Plans +401(k) Plan +We maintain a retirement savings plan, or a 401(k) Plan, for the benefit of our eligible employees who have attained the age of 18. Currently, employees +may elect to defer their compensation up to the statutorily prescribed limit. During the following year, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual compensation for the prior calendar year. We also +have the ability to make an additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made, regardless of employee’s deferrals into the plan. In +2009, we made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Services regulations. All contributions made by us on behalf of an +employee are 100% vested when contributed. The 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code. As such, contributions to the 401(k) Plan and earnings on those contributions are not taxable to the +employees until distributed from the 401(k) Plan, and all contributions are deductible by us when made. +Amended +and Restated 2005 Stock Incentive Plan +Our Amended and Restated 2005 Stock Incentive Plan was adopted to enable us, and any of our +affiliates, to attract and retain the services of the types of employees, consultants and directors who will contribute to our long range success and to provide incentives which are linked directly to increases in share value which will inure to the +benefit of our stockholders. The plan provides a means by which eligible recipients of awards may be given an opportunity to benefit from increases in value of our common stock through the granting of incentive stock options, nonstatutory stock +options, restricted awards, performance awards and stock appreciation rights. Our board of directors, or a committee of the board of directors, serves as the plan administrator. +Eligible award recipients are employees, consultants and directors of ours and our affiliates. Incentive stock options may be granted only to our +employees. Awards other than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our authorized +24 +Table of Contents +but unissued common stock, and the maximum aggregate amount of such common stock which may be issued upon exercise of all awards in the plan, including incentive stock options, may not exceed +3,000,000 shares, subject to adjustment to reflect certain corporate transactions or changes in our capital structure. In November 2009, we granted 6,666 shares of our restricted common stock to each of Messrs. Streller and Houston, two of our three +independent directors, which shares vest in 12 substantially equal quarterly installments beginning on December 17, 2009. We did not grant any other awards to our executive officers or directors in 2009. In March 2010, the compensation +committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments, +beginning on March 18, 2010. On April 1, 2010, 508,630 shares were issuable upon exercise of outstanding options and 269,773 shares of restricted common stock had been granted under this plan. There were 1,079,341 shares available for +future grants under this plan. +In the event of significant corporate transaction involving a change in control (as defined in the plan) of +our company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all +of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, +be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without +consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the +Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +25 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth, as of December 31, 2009, certain information with respect to all compensation plans under which equity securities +are authorized for issuance. +Plan Category +Number of Securities to +be issued upon exercise +of outstanding +options, +warrants and rights +(a)(1)(2) +Weighted average +exercise price of +outstanding options, +warrants and +rights +(b)(3) +Number of securities +remaining available +for future issuance +under equity +compensation +plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders(1) +568,874 +$ +7.14 +1,146,008 +Equity compensation plans not approved by security holders +— +— +— +(1) +Refers to our Amended and Restated 2005 Stock Incentive Plan and our 1999 Stock Option Plan. +(2) +Includes 60,244 shares of unvested restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan. +(3) +The weighted average exercise price does not take into account shares of restricted common stock because they have no exercise price. +Employment Agreements +What are the terms of the employment agreements with our executive officers? +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and +automatically renews for successive one-year terms thereafter. The agreement provides for an annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to +$261,373 effective June 1, 2009. Upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will +become exercisable. The agreement also restricts Mr. Liddell’s use or disclosure of any of our confidential information during the term of the agreement and for a period of five years thereafter. +We also entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which +Mr. Palm is entitled to an annual salary of $200,000 and, at the discretion of our board of directors, an annual cash incentive bonus. For 2009, Mr. Palm’s annual salary was $225,000. The compensation committee has determined that +Mr. Palm’s annual salary for 2010 will remain at the 2009 level. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans available to our other employees. +Change in Control Arrangements +Our +named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is +entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. See “Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan +provides that in the event of significant corporate transaction involving a change in control of our company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off +or a spin-off, or a sale in one or a series of related +26 +Table of Contents +transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended +and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without +consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan +administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential payments to our Chief Executive Officer and our other named executive officers upon termination or following a change in control event are set +forth under the heading “Potential Payments upon Termination or Change-in-Control” below. +Potential Payments Upon Termination or +Change-in-Control +If Mr. Liddell had been terminated at December 31, 2009 without cause, he would have been entitled to $261,373 +in cash severance payments. The value of his unexercisable stock options would have been $0. If Messrs. Palm and Moore had been terminated at December 31, 2009 for any reason, they would have been entitled to no cash severance payments. +27 +Table of Contents +Stock Ownership +Holdings of Major Stockholder +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2010 of shares of our common stock by each +person or entity known to us to be a beneficial owner of 5% or more of our common stock. +MAJOR STOCKHOLDER TABLE +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Owners +Percent of +Class +Charles E. Davidson +15,235,786 +(2) +35.6 +% +411 W. Putnam Avenue +Greenwich, CT 06830 +(1) +Beneficial ownership is determined in accordance with SEC rules. The percentage of shares beneficially owned is based on 42,823,320 shares of common stock outstanding +as of April 1, 2010, which includes 112,446 shares of restricted common stock awarded under our Amended and Restated 2005 Stock Incentive Plan. +(2) +Based on the Form 4 filed with the SEC on May 30, 2007 by Charles E. Davidson and the Company’s records. Includes 14,391,829 shares of common stock held by CD +Holding Company LLC and 843,957 shares of common stock held in an IRA for Mr. Davidson. Mr. Davidson is the manager and a member of CD Holding Company LLC. and the Chairman and Chief Investment Officer of Wexford Capital LP. +Holdings of Officers and Directors +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2010 of shares of our common stock by each of +our directors, by each named executive officer and by all directors and executive officers as a group: +Name of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Mike Liddell(2) +1,010,288 +2.4 +% +Donald L. Dillingham(3) +6,666 +* +David L. Houston(4) +46,666 +* +Scott E. Streller(5) +13,332 +* +James D. Palm(6) +276,667 +* +Michael G. Moore(7) +31,280 +* +Directors and Executive Officers as a Group (6 persons) +1,384,899 +3.2 +% +* +Less than 1%. +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by +that person that are exercisable as of April 1, 2010, or exercisable within 60 days of April 1, 2010, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage +ownership of each other person. The percentage of shares beneficially owned is based on 42,823,320 shares of common stock outstanding as April 1, 2010, which includes 112,446 shares of restricted common stock awarded under our Amended and +Restated 2005 Stock Incentive Plan. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 1, 2010, or exercisable within 60 days of April 1, 2010. +28 +Table of Contents +(2) +Includes (i) 741,632 shares of our common stock held by Mr. Liddell directly, (ii) 66,667 shares of restricted common stock granted under the Amended and +Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments beginning on March 18, 2010, (iii) 19,081 shares of our common stock held by Liddell Investments LLC, an entity controlled by +Mr. Liddell, of which shares Mr. Liddell may be deemed to be the beneficial owner, and (iv) options to purchase 182,908 shares of our common stock, all of which are fully vested and exercisable within 60 days of April 1, 2010. +(3) +Represents the number of shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, of which amount (i) 740 shares vested +on April 1, 2008 and (ii) the remaining shares vest in 36 equal monthly installments beginning on May 1, 2008. +(4) +Includes (i) 10,000 shares of our common stock held by Mr. Houston directly, (ii) options to purchase 30,000 shares of our common stock, all of which are +exercisable within 60 days of April 1, 2010, and (iii) 6,666 shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments beginning +on December 17, 2009. +(5) +Represents (i) 6,666 of our common stock held by Mr. Streller directly and (ii) 6,666 shares or our restricted common stock granted under the Amended and +Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments beginning on December 17, 2009. +(6) +Includes (i) 10,000 shares of our common stock, of which Mr. Palm and his spouse, Terri Palm, have shared voting and dispositive powers, (ii) options to +purchase 200,000 shares of our common stock, all of which are exercisable within 60 days of April 1, 2010, and (ii) 66,667 shares of our restricted stock, granted on December 5, 2008 under the Amended and Restated 2005 Stock Incentive +Plan which vest in 12 substantially equal quarterly installments beginning on December 17, 2008. +(7) +Includes (i) 1,280 shares of our common stock held by Mr. Moore directly and (ii) options to purchase 30,000 shares of our common stock, all of which are +exercisable within 60 days of April 1, 2010. +Section 16(a) Beneficial Ownership +Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons +who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of the forms they file. To our knowledge, based solely +on a review of the copies of such reports furnished to us and written representations of our officers and directors, all Section 16(a) reports for the year ended December 31, 2009 applicable to our officers and directors and such other +persons were filed on a timely basis, except that a report on Form 4 for each of Messrs. Streller and Houston with respect to the grants of 6,666 shares of our restricted common stock under the Amended and Restated 2005 Stock Incentive Plan to each +such director in November 2009 were inadvertently filed late. +29 +Table of Contents +Certain Relationships and Related Transactions +Administrative Services Agreements +We are a party to an administrative service agreement with Great White Energy Services LLC, which we refer to as Great White, which agreement was entered +into effective as of July 22, 2006. Under this agreement, our services include accounting, human resources, legal and technical support. The services provided and the fees for such services can be amended by mutual agreement of the parties. +This administrative service agreement has a three-year term, and upon expiration of that term the agreement will continue on a month-to-month basis until cancelled by either party with at least 30 days prior written notice. This administrative +service agreement is terminable (1) by the counterparty at any time with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of +receipt of written notice of such breach. Great White reimbursed us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing services for such entity. We +were reimbursed approximately $61,000 by Great White for services provided under this agreement during the year ended December 31, 2009. Great White is controlled by Wexford Capital LP. Charles Davidson, who beneficially owned approximately 36% +of our outstanding common stock as of April 1, 2010, is the Chairman and Chief Investment Officer of Wexford Capital LP. +We are also a +party to administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Grizzly Oil Sands ULC, which we refer to as Grizzly, and Everest Operations Management LLC, which we refer to as Everest, which agreements were +each entered into effective March 1, 2008. Under these agreements, our services include professional and technical support. Under our agreements with Stampede Farms and Everest, we also provide office space. The services provided under these +agreements and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements has a two-year term, and upon expiration of that term such agreement will continue on a month-to-month basis +until cancelled by either party to such agreement with at least 60 days prior written notice. Each administrative service agreement is terminable (1) by the counterparty at any time with at least 30 days prior written notice to us and +(2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We were reimbursed approximately $0, $20,000 and $508,000 by Stampede Farms, Grizzly and +Everest, respectively, for services provided under these agreements during the year ended December 31, 2009. We were also reimbursed approximately $2,000 and $1,000 by Stampede Farms and Everest, respectively, for office space under these +agreements for the year ended December 31, 2009. Each of Stampede Farms, Grizzly and Everest is controlled by Wexford Capital LP. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to identify and evaluate potential oil and gas properties in +which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, the party whose acquisition team +identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share of the acquisition or +divestiture consideration. The agreement has a one year term unless earlier terminated by either party upon 30 days notice. +From time to +time, two of our petroleum engineers provide services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to Tatex Thailand II, LLC, or Tatex II, and Tatex Thailand +III LLC, or Tatex III. Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities. Each of Tatex II and Tatex III is +controlled by Wexford Capital LP. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge services in our West Cote Blanche Bay, or WCBB, and Hackberry +fields located along the Louisiana Gulf Coast. For the year +30 +Table of Contents +ended December 31, 2009, we paid Athena $1,918,000 and owed an additional $836,000 for such services at that date. Athena is controlled by Wexford Capital LP. +Windsor Energy Group operates our Permian Basin wells in West Texas. For the year ended December 31, 2009, we paid Windsor Energy Group $7,158,000 +and owed an additional $1,631,000 for such services at that date. Windsor Energy Group is controlled by Wexford Capital LP. +Effective +March 1, 2008, Everest provides tax planning, preparation of supporting tax schedules and consultation services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of the parties. Everest +is controlled by Wexford Capital LP. +Caliber Development Company, LLC, or Caliber, provides building maintenance services for our +headquarters in Oklahoma City, Oklahoma. For the year ended December 31, 2009, we paid Caliber $17,000 and owed an additional $0 at that date. Caliber is an entity controlled by Wexford Capital LP. +Our Investments in Affiliates and Related Agreements +During 2005, we purchased a 23.5% ownership interest in Tatex II at a cost of $2,400,000. The remaining interests in Tatex II are owned by other entities +controlled by Wexford Capital LP. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia +through its ownership of concessions covering three million acres which includes the Phu Horm Field. During 2009, we paid $320,000 in cash calls and received $517,000 in distributions in respect of our investment in Tatex II. +During the first quarter of 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. In December 2009, we purchased an additional +approximately 12.9% ownership interest at a cost of approximately $3,385,000 bringing our total ownership interest to approximately 17.9%. Approximately 68.7% of the remaining interests in Tatex III are owned by other entities and individuals +affiliated with Wexford Capital LP. During 2009, we paid $428,000 in cash calls in respect of our investment in Tatex III. +During 2005, we +purchased a 20% ownership interest in Windsor Bakken, LLC, or Bakken, with the remaining interests in Bakken owned by other entities controlled by Wexford Capital LP. In 2006, Bakken acquired leases on undeveloped acreage in the Williston Basin +areas of western North Dakota and eastern Montana, which we refer to as the contract area. Effective January 1, 2008, we acquired a direct, undivided 20% interest in Bakken’s assets in redemption of our 20% interest in Bakken. During 2009, +we sold approximately 18,000 net acres in the Bakken Shale and approximately 190 net BOEPD of production for approximately $18.8 million. +Effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor Dakota LLC, or Windsor Dakota, to jointly +acquire oil and gas leases on certain lands located in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each party must offer the other party the right to +participate in such acquisition in proportion to its participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in +proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy Group, L.L.C., as the operator, also entered into an +exploration agreement, effective as of January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and Windsor Energy Group, L.L.C. agreed to act as the operator +under the terms of a joint operating agreement. In the event Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport as the operator. The parties agreed to pay Windsor +Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +31 +Table of Contents +During the third quarter of 2006, we purchased, through our wholly owned subsidiary Grizzly Holdings, Inc., +a 24.9999% interest in Grizzly, a Canadian unlimited liability company, for approximately $8,200,000. The remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LP. During 2006 and 2007, Grizzly acquired leases in +the Athabasca region located in the Alberta Province near Fort McMurray near other oil sands development projects. Grizzly has approximately 527,000 acres under lease and, at December 31, 2009, our net investment in Grizzly was approximately +$41,000,000, including a note receivable of $15,900,000 as discussed in the following paragraph. +We, through our wholly owned subsidiary +Grizzly Holdings Inc., entered into a loan agreement with Grizzly effective January 1, 2008, under which Grizzly may borrow funds from us. Borrowed funds bear interest at LIBOR plus 4%. Interest is paid on a paid-in-kind basis by increasing the +outstanding balance of the loan. The loan matures on December 31, 2012. We loaned Grizzly approximately $4,377,000 during the year ended December 31, 2009. The Company recognized interest income of approximately $547,000 for the year ended +December 31, 2009 under this loan agreement. The note balance was increased by approximately $1,843,000 as a result of a currency translation gain for the year ended December 31, 2009. +Option and Purchase Agreement and Related Agreements +On November 30, 2007, we entered into an option agreement with Windsor Permian LLC, an entity controlled by Wexford Capital LLC, which we refer to as +Windsor Permian. Under the option agreement, we were granted the right to participate on a 50/50 basis with Windsor Permian in the acquisition of certain strategic assets in Upton County, Texas in the Permian Basin. On December 12, 2007, we +exercised the option and on December 18, 2007, the purchase agreement was amended to, among other things, add Gulfport as a buyer under the purchase agreement. On December 20, 2007, the acquisition was closed, effective as of +November 1, 2007. We and Windsor Permian also agreed to share equally all third-party costs and expenses incurred by each of us in connection with the transaction. +In addition, effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly acquire oil and +gas leases in the Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party costs and +expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. +In connection +with the area of mutual interest agreement, we, Windsor Permian and Windsor Energy Group, L.L.C., as the operator, entered into the joint development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed +to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy Group, L.L.C. agreed to act as the operator under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either +party has greater than a 50% interest in a prospect, as defined in the development agreement, the majority party may designate the operator of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with +respect to the contract area as provided in the joint operating agreement. +32 +Table of Contents +Proposal to Ratify the Appointment of Our Independent Auditors +(Item 2 on the Proxy Card) +What am I voting on? +You are voting on +a proposal to ratify the appointment of Grant Thornton LLP as our independent auditors for fiscal year 2010. The Audit Committee has appointed Grant Thornton to serve as independent auditors. +What services do the independent auditors provide? +Audit services of Grant Thornton for fiscal 2009 included an audit of our consolidated financial statements and services related to periodic filings made +with the SEC. Additionally, Grant Thornton provided certain services related to the consolidated quarterly reports and annual and other periodic reports and other services as described below. +How much were the independent auditors paid in 2008 and 2009? +Grant Thornton’s fees for professional services totaled $347,802 for 2008 and $312,240 for 2009. Grant Thornton’s fees for professional services +included the following: +• +Audit Fees – aggregate fees for audit services, which relate to the fiscal year consolidated audit, quarterly reviews, registration +statements, comfort letters, statutory and regulatory audits and accounting consultations were $301,182 in 2008 and $312,240 in 2009. +• +Audit-Related Fees – aggregate fees for audit-related services, consisting of audits in connection with proposed or consummated +dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations, were $46,620 in 2008 and $0 in 2009. +• +Tax and All Other Fees – there were no tax or other fees for products or services provided by Grant Thornton in addition to the services +described above in 2008 or 2009. +Does the Audit Committee approve the services provided by Grant Thornton? +It is our audit committee’s policy to pre-approve all audit, audit related and permissible non-audit services rendered to us by our +independent auditor. Consistent with such policy, all of the fees listed above that we incurred for services rendered by Grant Thornton LLP in fiscal 2008 and 2009 were pre-approved by our audit committee. No non-audit services were provided to us +by Grant Thornton in 2008 or 2009. +Will a representative of Grant Thornton LLP be present at the meeting? +Yes, one or more representatives of Grant Thornton will be present at the meeting. The representatives will have an opportunity to make a statement if +they desire and will be available to respond to appropriate questions from the stockholders. +What vote is required to approve this +proposal? +Stockholder ratification of the appointment of our independent auditors is not required by the Company’s bylaws or +otherwise. However, we are submitting this proposal to the stockholders as a matter of good corporate practice. Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal. If the appointment of Grant +Thornton is not ratified, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if +it is determined that such change would be in best interests of the Company and its stockholders. +33 +Table of Contents +Has Grant Thornton LLP always served as Gulfport’s independent auditors? +Grant Thornton has served as our independent auditors since 2005. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY’S INDEPENDENT AUDITORS +FOR THE YEAR 2010. +Solicitation by Board; Expenses of Solicitation +Our board of directors has sent you this proxy statement. Our directors, officers and employees may solicit proxies by mail, by telephone or in person. +Those persons will receive no additional compensation for any solicitation activities. We will request banking institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to forward solicitation materials to the beneficial owners +of common stock held of record by those entities, and we will, upon the request of those record holders, reimburse reasonable forwarding expenses. We will pay the costs of preparing, printing, assembling and mailing the proxy material used in the +solicitation of proxies. +Submission of Future Stockholder Proposals +Under SEC rules, a stockholder who intends to present a proposal, including the nomination of directors, at the 2011 Annual Meeting of Stockholders and +who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing to our Corporate Secretary. The proposal must be received no later than January 18, 2011. +Stockholders who wish to propose a matter for action at the 2011 Annual Meeting, including the nomination of directors, but who do not wish to have the +proposal or nomination included in the proxy statement, must notify the Company in writing of the information required by the provisions of our by-laws dealing with stockholder proposals. The notice must be delivered to our Corporate Secretary +between February 18, 2011 and March 20, 2011. You can obtain a copy of our by-laws by writing the Corporate Secretary at the address below, or via the Internet at www.gulfportenergy.com under our “Corporate Governance” +caption. +All written proposals should be directed to Michael G. Moore, Corporate Secretary, Gulfport Energy Corporation, 14313 North May +Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +The board of directors is responsible for selecting and recommending director candidates +and will consider nominees recommended by stockholders. If you wish to have the board of directors consider a nominee for director, you must send a written notice to our Corporate Secretary at the address provided above and include the information +required by our by-laws and discussed on page 10 of this proxy statement. +Availability of Form +10-K and Annual Report to Stockholders +SEC rules require us to provide an Annual Report to stockholders who receive this proxy statement. +Additional copies of the Annual Report, along with copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, including the financial statements and the financial statement schedules, are available without charge to +stockholders upon written request to Director of Investor Relations, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134 or via the Internet at www.gulfportenergy.com . We will furnish the exhibits to +our Annual Report on Form 10-K upon payment of our copying and mailing expenses. +34 +Table of Contents +Householding +The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or more stockholders reside if they appear to +be members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces our mailing and printing expenses. +If you would like to receive your own set of the annual report and proxy statement this year or in future years, follow the instructions +described below. Similarly, if you share an address with another Gulfport stockholder and together both of you would like to receive in the future only a single annual report and proxy statement, follow these instructions: +• +If your shares of our common stock are registered in your own name, please contact our transfer agent, Computershare Trust Company, N.A., and inform +them of your request by calling their toll-free number: (800) 962-4284 or by mail: Computershare Trust Company, N.A., 250 Royall Street, Canton, MA 02021. +• +If a broker or other nominee holds your shares, please contact your broker or nominee. +Other Matters +The board of directors does not intend to present any other items of business other than those stated in the Notice of Annual Meeting of Stockholders. If +other matters are properly brought before the meeting, the persons named as your proxies will vote the shares represented by it in accordance with their best judgment. Discretionary authority to vote on other matters is included in the proxy. +35 +Table of Contents +Admission Ticket +MR A SAMPLE +DESIGNATION (IF ANY) +ADD 1 +ADD 2 +ADD 3 +ADD 4 +ADD 5 +ADD 6 +000004 +000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext +Proxy – Gulfport Energy Corporation. +You are cordially invited to attend the Annual Meeting of Stockholders +To be held on June 18, 2010 at +2 p.m. Oklahoma City time at +Using a black ink pen, mark your votes with an X as shown +in +this example. Please do not write outside the designated areas. +x +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +q +PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed in Proposal 1 and FOR Proposal 2. +1. ELECTION OF DIRECTORS: +For +Withhold +For +Withhold +For +Withhold ++ +01 - Mike Liddell +¨ +¨ +02 - Donald L. Dillingham +¨ +¨ +03 -David L. Houston +¨ +¨ +04 - James D. Palm +¨ +¨ +05 - Scott E. Streller +¨ +¨ +For +Against +Abstain +2. Proposal to ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the +fiscal year ending December 31, 2010. +¨ +¨ +¨ +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee, or guardian, please give full title as such. If a +corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by an authorized person. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Table of Contents +q PLEASE +FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +Proxy — GULFPORT ENERGY CORPORATION +FOR THE ANNUAL MEETING OF +STOCKHOLDERS OF +Gulfport Energy Corporation +This Proxy Is Solicited On Behalf Of The Board Of Directors +The undersigned hereby appoints Mike Liddell, James D. Palm and Michael G. Moore (together, the “Proxies”), and each of them, with full power +of substitution, as proxies to vote the shares that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Gulfport Energy Corporation (the “Company”) to be held on June 18, 2010 at 2 p.m. Oklahoma City time and at +any adjournments and postponements thereof. Such shares shall be voted as indicated with respect to the proposals listed on the reverse side hereof and in the Proxies’ discretion on such other matters as may properly come before the meeting or +any adjournment or postponement thereof. +The undersigned acknowledges receipt of the 2010 Notice of Annual Meeting and accompanying Proxy +Statement and revokes all prior proxies for said meeting. +THE SHARES REPRESENTED BY THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE +MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION IS GIVEN AS TO THE PROPOSALS ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES NAMED IN PROPOSAL 1 and FOR PROPOSAL 2. PLEASE MARK, SIGN, DATE AND +RETURN THE PROXY CARD PROMPTLY. +IMPORTANT – PLEASE MARK, SIGN, DATE ON THE REVERSE SIDE AND RETURN THE PROXY CARD PROMPTLY. THANK YOU +FOR VOTING. +(Continued and to be marked, dated and signed on reverse side.) \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-10-096718/proxy_rpt.txt b/raw/proxies/0000874499/0001193125-10-096718/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ec164539a84407552b5abd7fee8f04e4e34f1311 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-10-096718/proxy_rpt.txt @@ -0,0 +1,81 @@ +Certain Relationships and Related Transactions +Administrative Services Agreements +We are a party to an administrative service agreement with Great White Energy Services LLC, which we refer to as Great White, which agreement was entered +into effective as of July 22, 2006. Under this agreement, our services include accounting, human resources, legal and technical support. The services provided and the fees for such services can be amended by mutual agreement of the parties. +This administrative service agreement has a three-year term, and upon expiration of that term the agreement will continue on a month-to-month basis until cancelled by either party with at least 30 days prior written notice. This administrative +service agreement is terminable (1) by the counterparty at any time with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of +receipt of written notice of such breach. Great White reimbursed us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing services for such entity. We +were reimbursed approximately $61,000 by Great White for services provided under this agreement during the year ended December 31, 2009. Great White is controlled by Wexford Capital LP. Charles Davidson, who beneficially owned approximately 36% +of our outstanding common stock as of April 1, 2010, is the Chairman and Chief Investment Officer of Wexford Capital LP. +We are also a +party to administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Grizzly Oil Sands ULC, which we refer to as Grizzly, and Everest Operations Management LLC, which we refer to as Everest, which agreements were +each entered into effective March 1, 2008. Under these agreements, our services include professional and technical support. Under our agreements with Stampede Farms and Everest, we also provide office space. The services provided under these +agreements and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements has a two-year term, and upon expiration of that term such agreement will continue on a month-to-month basis +until cancelled by either party to such agreement with at least 60 days prior written notice. Each administrative service agreement is terminable (1) by the counterparty at any time with at least 30 days prior written notice to us and +(2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We were reimbursed approximately $0, $20,000 and $508,000 by Stampede Farms, Grizzly and +Everest, respectively, for services provided under these agreements during the year ended December 31, 2009. We were also reimbursed approximately $2,000 and $1,000 by Stampede Farms and Everest, respectively, for office space under these +agreements for the year ended December 31, 2009. Each of Stampede Farms, Grizzly and Everest is controlled by Wexford Capital LP. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to identify and evaluate potential oil and gas properties in +which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, the party whose acquisition team +identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share of the acquisition or +divestiture consideration. The agreement has a one year term unless earlier terminated by either party upon 30 days notice. +From time to +time, two of our petroleum engineers provide services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to Tatex Thailand II, LLC, or Tatex II, and Tatex Thailand +III LLC, or Tatex III. Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities. Each of Tatex II and Tatex III is +controlled by Wexford Capital LP. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge services in our West Cote Blanche Bay, or WCBB, and Hackberry +fields located along the Louisiana Gulf Coast. For the year +30 +Table of Contents +ended December 31, 2009, we paid Athena $1,918,000 and owed an additional $836,000 for such services at that date. Athena is controlled by Wexford Capital LP. +Windsor Energy Group operates our Permian Basin wells in West Texas. For the year ended December 31, 2009, we paid Windsor Energy Group $7,158,000 +and owed an additional $1,631,000 for such services at that date. Windsor Energy Group is controlled by Wexford Capital LP. +Effective +March 1, 2008, Everest provides tax planning, preparation of supporting tax schedules and consultation services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of the parties. Everest +is controlled by Wexford Capital LP. +Caliber Development Company, LLC, or Caliber, provides building maintenance services for our +headquarters in Oklahoma City, Oklahoma. For the year ended December 31, 2009, we paid Caliber $17,000 and owed an additional $0 at that date. Caliber is an entity controlled by Wexford Capital LP. +Our Investments in Affiliates and Related Agreements +During 2005, we purchased a 23.5% ownership interest in Tatex II at a cost of $2,400,000. The remaining interests in Tatex II are owned by other entities +controlled by Wexford Capital LP. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia +through its ownership of concessions covering three million acres which includes the Phu Horm Field. During 2009, we paid $320,000 in cash calls and received $517,000 in distributions in respect of our investment in Tatex II. +During the first quarter of 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. In December 2009, we purchased an additional +approximately 12.9% ownership interest at a cost of approximately $3,385,000 bringing our total ownership interest to approximately 17.9%. Approximately 68.7% of the remaining interests in Tatex III are owned by other entities and individuals +affiliated with Wexford Capital LP. During 2009, we paid $428,000 in cash calls in respect of our investment in Tatex III. +During 2005, we +purchased a 20% ownership interest in Windsor Bakken, LLC, or Bakken, with the remaining interests in Bakken owned by other entities controlled by Wexford Capital LP. In 2006, Bakken acquired leases on undeveloped acreage in the Williston Basin +areas of western North Dakota and eastern Montana, which we refer to as the contract area. Effective January 1, 2008, we acquired a direct, undivided 20% interest in Bakken’s assets in redemption of our 20% interest in Bakken. During 2009, +we sold approximately 18,000 net acres in the Bakken Shale and approximately 190 net BOEPD of production for approximately $18.8 million. +Effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor Dakota LLC, or Windsor Dakota, to jointly +acquire oil and gas leases on certain lands located in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each party must offer the other party the right to +participate in such acquisition in proportion to its participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in +proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy Group, L.L.C., as the operator, also entered into an +exploration agreement, effective as of January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and Windsor Energy Group, L.L.C. agreed to act as the operator +under the terms of a joint operating agreement. In the event Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport as the operator. The parties agreed to pay Windsor +Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +31 +Table of Contents +During the third quarter of 2006, we purchased, through our wholly owned subsidiary Grizzly Holdings, Inc., +a 24.9999% interest in Grizzly, a Canadian unlimited liability company, for approximately $8,200,000. The remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LP. During 2006 and 2007, Grizzly acquired leases in +the Athabasca region located in the Alberta Province near Fort McMurray near other oil sands development projects. Grizzly has approximately 527,000 acres under lease and, at December 31, 2009, our net investment in Grizzly was approximately +$41,000,000, including a note receivable of $15,900,000 as discussed in the following paragraph. +We, through our wholly owned subsidiary +Grizzly Holdings Inc., entered into a loan agreement with Grizzly effective January 1, 2008, under which Grizzly may borrow funds from us. Borrowed funds bear interest at LIBOR plus 4%. Interest is paid on a paid-in-kind basis by increasing the +outstanding balance of the loan. The loan matures on December 31, 2012. We loaned Grizzly approximately $4,377,000 during the year ended December 31, 2009. The Company recognized interest income of approximately $547,000 for the year ended +December 31, 2009 under this loan agreement. The note balance was increased by approximately $1,843,000 as a result of a currency translation gain for the year ended December 31, 2009. +Option and Purchase Agreement and Related Agreements +On November 30, 2007, we entered into an option agreement with Windsor Permian LLC, an entity controlled by Wexford Capital LLC, which we refer to as +Windsor Permian. Under the option agreement, we were granted the right to participate on a 50/50 basis with Windsor Permian in the acquisition of certain strategic assets in Upton County, Texas in the Permian Basin. On December 12, 2007, we +exercised the option and on December 18, 2007, the purchase agreement was amended to, among other things, add Gulfport as a buyer under the purchase agreement. On December 20, 2007, the acquisition was closed, effective as of +November 1, 2007. We and Windsor Permian also agreed to share equally all third-party costs and expenses incurred by each of us in connection with the transaction. +In addition, effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly acquire oil and +gas leases in the Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party costs and +expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. +In connection +with the area of mutual interest agreement, we, Windsor Permian and Windsor Energy Group, L.L.C., as the operator, entered into the joint development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed +to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy Group, L.L.C. agreed to act as the operator under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either +party has greater than a 50% interest in a prospect, as defined in the development agreement, the majority party may designate the operator of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with +respect to the contract area as provided in the joint operating agreement. +32 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-11-121660/proxy.txt b/raw/proxies/0000874499/0001193125-11-121660/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6b1687c79766fe684d24350eb53800ac0556f0a0 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-11-121660/proxy.txt @@ -0,0 +1,1763 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act +of 1934 +x Filed by the +Registrant ¨ Filed by a Party +other than the Registrant +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under § 240.14a-12 +Gulfport Energy Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +¨ +Fee paid previously with written preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +Table of Contents +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +2011 +ANNUAL STOCKHOLDERS +MEETING +and +PROXY STATEMENT +Thursday +June 16, 2011 +10:00 a.m. local time +14313 N. May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134 +May 2, 2011 +Dear Gulfport Energy Corporation Stockholder: +On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 14313 N. May +Avenue, Suite 100, Oklahoma City, Oklahoma 73134 on Thursday, June 16, 2011, at 10:00 a.m. +It is important that your shares be represented at the meeting. Whether or not you plan to attend the meeting, please complete and return the enclosed proxy card in the accompanying envelope. Please note +that submitting a proxy will not prevent you from attending the meeting and voting in person. +You will find information regarding the matters to be voted on at the meeting in the enclosed proxy statement. Our 2010 Annual Report to Stockholders is either enclosed with these materials or has +previously been mailed to you. This proxy statement and our 2010 Annual Report to Stockholders are also available on our website at www.gulfportenergy.com/proxy. +In addition to the formal items of business to be brought before the meeting, there will be a report on our operations, followed by a question and answer +period. Your interest in Gulfport Energy Corporation is appreciated. We look forward to seeing you on June 16, 2011. +Sincerely, +James D. Palm +Mike Liddell +Chief Executive Officer +Chairman of the Board +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 16, 2011 +To our Stockholders: +The Annual Meeting of Stockholders of Gulfport Energy Corporation will be +held on June 16, 2011 at 10:00 a.m., local time, at 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134, for the following purposes: +1. +To elect five directors to serve until the Company’s 2012 Annual Meeting of Stockholders; +2. +To hold an advisory vote on the Company’s executive compensation; +3. +To hold an advisory vote on the frequency of holding an advisory vote on the Company’s executive compensation; +4. +To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2011; and +5. +To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. +Your vote is important. Please carefully consider the proposals and vote in one of these ways: +• +Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope; or +• +Submit a ballot at the Annual Meeting. +Only stockholders of record at the close of business on April 26, 2011 or their proxy holders may vote at the meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 16, 2011 . This proxy statement and the Company’s 2010 Annual Report to +Stockholders are available on the Company’s website at www.gulfportenergy.com/proxy. +By Order of the +Board of Directors, +Michael G. Moore +Chief Financial Officer and Secretary +This notice and proxy statement are first being mailed to stockholders on or about May 16, 2011. +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +PROXY +STATEMENT +TABLE OF CONTENTS +About the Annual Meeting +1 +Board of Directors Information +5 +Election of Directors and Director Biographies +6 +Corporate Governance Matters and Communications with the Board +10 +Code of Business Conduct and Ethics +11 +Nominating Process For Directors, Director Qualifications and Review of Director +Nominees +11 +Director Leadership Structure +12 +Board of Director’s Role in Risk Oversight +13 +Audit Committee Report +14 +Executive Officers +16 +Executive Compensation +17 +Compensation Discussion And Analysis +17 +Compensation Components +19 +Report of the Compensation Committee on Executive Compensation +23 +Compensation Committee Interlocks and Insider Participation +24 +Compensation Tables +24 +Retirement Plans +26 +401(k) Plan +26 +Amended and Restated 2005 Stock Incentive Plan +27 +Employment Agreements +28 +Stock Ownership +30 +Holdings of Major Stockholder +30 +Holdings of Officers and Directors +30 +Section 16(a) Beneficial Ownership Reporting Compliance +31 +Certain Relationships and Related Transactions +32 +Administrative Services Agreements +32 +Services Provided to Us by Our Affiliates +33 +Our Investments in Affiliates and Related Agreements +34 +Area of Mutual Interest and Related Agreements +34 +Utica Agreement +35 +Proposal to Approve, on an Advisory Basis, the Company’s Executive Compensation +36 +Proposal to Approve, on an Advisory Basis, the Frequency of Advisory Stockholder Vote on the Company’s +Executive Compensation +37 +Proposal to Ratify the Appointment of Our Independent Auditors +38 +Solicitation by Board; Expenses of Solicitation +39 +Submission of Future Stockholder Proposals +39 +Availability of Form 10-K and Annual Report to Stockholders +39 +Householding +40 +Other Matters +40 +i +Table of Contents +About the Annual Meeting +Who is soliciting my vote? +The board of +directors of Gulfport Energy Corporation, which we refer to as “Gulfport,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2011 Annual Meeting of Stockholders. This year, in accordance +with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Company’s board of directors is providing the Company’s stockholders with a non-binding advisory vote on, among other proposals, the +Company’s executive compensation and the frequency of holding such advisory vote. These and other proposals to be voted on by the Company’s stockholders at the 2011 Annual Meeting of Stockholders are described in more detail below. +What am I voting on? +You +are voting on: +• +The election of directors ( see Proposal 1 beginning on page 6 ); +• +Approving, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy statement ( see +Proposal 2 on page 36 ); +• +Approving, on an advisory basis, the frequency of holding an advisory vote on the compensation paid to the Company’s named executive officers at +an interval of “every one year,” “every two years” or “every three years” ( see Proposal 3 on page 37 ); +• +The ratification of Grant Thornton LLP as our independent auditors for 2011 ( see Proposal 4 beginning on page 38 ); and +• +Any other business properly coming before the meeting. +How does the board of directors recommend that I vote my shares? +Unless you give other +instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors. The board of directors’ recommendation can be found with the description of each +item in this proxy statement. In summary, the board of directors recommends a vote: +• +FOR the proposal to elect nominated directors; +• +FOR approving, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy statement ( see +page 36 ); +• +FOR holding an advisory vote on the compensation paid to the Company’s named executive officers at an interval of “every three years” +( see page 37 ); and +• +FOR the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2011. +Who is entitled to vote? +You may vote +if you were the record owner of our common stock as of the close of business on April 26, 2011. Each share of common stock is entitled to one vote. As of April 26, 2011, we had 47,444,236 shares of common stock outstanding and entitled to +vote, excluding 99,585 shares of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, but not yet vested. There is no cumulative voting. +How many votes must be present to hold the meeting? +Your shares are counted as present at +the Annual Meeting if you attend the meeting and vote in person or if you properly return a proxy by mail. In order for us to hold our meeting, holders of a majority of the voting power of +1 +Table of Contents +our outstanding shares of common stock as of the close of business on April 26, 2011 must be present in person or by proxy at the meeting. This is referred to as a quorum. Abstentions and +broker non-votes will be counted for purposes of establishing a quorum at the meeting. +What is a broker non-vote? +If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive instructions from the beneficial +owner on how to vote those shares, the broker may return the proxy card without voting on that proposal. This is known as a broker non-vote . No broker may vote your shares without your specific instructions on any of the proposals to be +considered at the Annual Meeting other than the ratification of our independent auditors. +How many votes are needed to approve each of the +proposals? +The five nominees for election as directors at the Annual Meeting who receive the highest number of “FOR” votes will +be elected as directors. This is called plurality voting. Unless you indicate otherwise on your proxy card, the persons named as your proxies will vote your shares FOR all the nominees for director named in Proposal 1. +Proposals 2 and 4 require the affirmative “FOR” vote of a majority of the votes cast by the stockholders present in person or represented by +proxy at the Annual Meeting and entitled to vote thereon. Only votes for or against these proposals will be counted as votes cast. +With +respect to Proposal 3 to approve, on an advisory basis, the frequency of holding an advisory vote on the Company’s executive compensation, stockholders will be able to choose among four options, namely whether future stockholder votes to +approve executive compensation should occur every year, every two years or every three years, or whether the stockholder abstains from voting. The affirmative vote of a majority of the votes cast by the stockholders present in person or represented +by proxy at the Annual Meeting and entitled to vote thereon, in favor of one of the voting options contemplated by Proposal 3 is required to approve, on an advisory basis, Proposal 3. If one of the voting options is not adopted by the required vote +of the stockholders, our board of directors will evaluate the votes cast for each of the voting options and will deem the voting option receiving the greatest number of votes to be the voting option approved by the stockholders. +Abstentions and broker non-votes will not be counted for voting purposes and will have no effect on the result of the vote on any of the proposals +presented at the Annual Meeting. +How do I vote? +You can vote either in person at the meeting or by proxy without attending the meeting. +To vote by proxy, you must fill out the enclosed proxy card , date and sign it, and return it in the enclosed postage-paid envelope. +Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person at the Annual Meeting, and you hold your stock in street name, you must obtain a proxy +from your broker and bring that proxy to the meeting. +Can I change my vote? +Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by: +• +Signing another proxy card with a later date and returning it to us prior to the meeting; +2 +Table of Contents +• +Sending our Corporate Secretary a written document revoking your earlier proxy; or +• +Voting again at the meeting. +Who counts the votes? +We have hired Computershare Trust Company, N.A., our transfer agent, +to count the votes represented by proxies cast by mail or ballot. Employees of Computershare Trust Company, N.A. will act as inspectors of election. +Will my vote be confidential? +Yes. As a matter of Company policy, proxies, ballots and +voting tabulations that identify individual stockholders are treated as confidential. Only the tabulation agent and the inspectors of election have access to your vote. Directors and employees of the Company may see your vote only if there is a +contested proxy solicitation, as required by law or in certain other special circumstances. +Will my shares be voted if I don’t +provide my proxy and don’t attend the Annual Meeting? +If you do not provide a proxy or vote your shares held in your name, your +shares will not be voted. +If you hold your shares in street name, your broker may be able to vote your shares for certain “routine” +matters even if you do not provide the broker with voting instructions. The ratification of Grant Thornton LLP as our independent auditors for 2011 is considered routine. For matters not considered “routine,” if you do not give your broker +instructions on how to vote your shares, the broker will return the proxy card without voting on that proposal. This is a broker non-vote. The proposals to elect directors, to approve, on an advisory basis, the Company’s executive compensation +and to approve, on an advisory basis, the frequency of holding an advisory vote on the Company’s executive compensation are not considered routine. As a result, no broker may vote your shares on the proposals to elect directors, to approve, on +an advisory basis, the Company’s executive compensation and to approve, on an advisory basis, the frequency of holding an advisory vote on the Company’s executive compensation without your specific instructions. +How are votes counted? +In the election +of directors contemplated by Proposal 1, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For Proposals 2 and 4, you may vote “FOR,” “AGAINST” +or “ABSTAIN.” To approve, on an advisory basis, the frequency of holding an advisory vote on the Company’s executive compensation contemplated by Proposal 3, you may vote in favor of holding such advisory vote every year, every two +years or every three years or may “ABSTAIN” from the vote. +What if I return my proxy but don’t indicate my vote on the +matters listed on my proxy card? +If you return a signed proxy card without indicating your vote, your shares will be voted FOR the +director nominees listed on the card, FOR approving, on an advisory basis, the Company’s executive compensation as described in this proxy statement, FOR approving, on an advisory basis, of holding an advisory vote on the Company’s +executive compensation every three years and FOR the ratification of Grant Thornton LLP as our independent auditors for 2011. +Could other +matters be decided at the Annual Meeting? +We have not received any stockholder proposals and are not aware of any other matters that will +be considered at the Annual Meeting. If any other matters arise at the Annual Meeting, the persons named in your proxies will vote in accordance with their best judgment. +3 +Table of Contents +Who can attend the meeting? +The Annual Meeting is open to all holders of our common stock. +What do I need to bring to +attend the Annual Meeting? +You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of +your broker or bank or other nominee, you will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE +IDENTIFICATION AND PROOF THAT YOU OWN SHARES OF OUR STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING. +How can I access the Company’s +proxy materials and annual report electronically? +This proxy statement and the Company’s 2010 Annual Report to Stockholders are +available on the Company’s website at www.gulfportenergy.com/proxy. +4 +Table of Contents +Board of Directors Information +What is the makeup of the board of directors and how often are the members elected? +Our board of directors consists of five members who are elected annually. The majority of these directors are independent under the Nasdaq listing standards. +What if a nominee is unable or unwilling to serve? +That is not expected to occur. If it does, shares represented by proxies will be voted for a substitute nominated by the board of directors. +How are directors compensated? +Our policy adopted in the second quarter of 2007 is that +members of our board of directors who are also our officers or employees do not receive compensation for their services as directors. +Cash Compensation +In 2010, we paid our non-employee directors a monthly retainer of +$1,000 and a per meeting in-person attendance fee of $500 and reimbursed all ordinary and necessary expenses incurred by non-employee directors in the conduct of our business. In addition to the fees described above, each committee member of our +board of directors receives $3,000 per year for his service on each committee, provided that the committee chairman receives $4,500 per year per committee. As of the date of this proxy statement, no changes to the cash compensation structure for our +non-employee directors have been made for 2011. +Equity Compensation +From time to time, we provide our non-employee directors with equity compensation under our Amended and Restated 2005 Stock Incentive Plan as additional +compensation and incentive. Our current non-employee directors are Donald L. Dillingham, David L. Houston and Scott E. Streller. In November 2009, we granted 6,666 shares of our restricted common stock to each of Messrs. Streller and Houston under +our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments beginning on December 17, 2009. In March 2008, we granted 6,666 shares of our restricted common stock to Mr. Dillingham +in connection with his appointment to our board of directors in November 2007, which shares vested in 36 equal monthly installments beginning on May 1, 2008. Due to the receipt of the grants of our restricted common stock described above, +none of our non-employee directors received any equity awards in 2010. Further details regarding our director compensation in 2010 are set forth under the heading “Director Compensation” below. +Insurance and Indemnification +We provide liability insurance for our directors and officers at a current annual cost of approximately $333,000. In addition, our certificate of incorporation sets forth limitations on our +directors’ liability to our stockholders. Further, our bylaws contain indemnification and advancement of expenses provisions for the benefit of our directors and officers. +How often did the board of directors meet in 2010? +The board of directors met five times +in 2010. In addition to these meetings, the board of directors adopted resolutions by unanimous written consent. Each director attended at least 75% of the aggregate meetings of the board of directors and the meetings of the committees on which he +served. +5 +Table of Contents +Election of Directors and Director Biographies +(Proposal 1 on the Proxy Card) +Who are this year’s nominees? +The directors standing for election this year to hold +office until the 2012 Annual Meeting of Stockholders and until each such director’s successor is elected are: +MIKE LIDDELL, age 57. +Mr. Liddell has served as a director of our company since July 1997 and as Chairman of the Board of our company since July 1998. Mr. Liddell served as Chief Executive Officer of our company from April 1998 to December 2005 and +President of our company from July 2000 to December 2005. Mr. Liddell also served as President and Chief Executive Officer of Caliber Development Company, LLC from March 2004 until June 2006, and has served as its Chief Executive Officer since +June 2006. In addition, Mr. Liddell served as Chief Executive Officer of DLB Oil & Gas, Inc., a publicly held oil and natural gas company, from October 1994 to April 1998, and as a director of DLB Oil & Gas from 1991 through +April 1998. From 1991 to 1994, Mr. Liddell was President of DLB Oil & Gas. From 1979 to 1991, he was President and Chief Executive Officer of DLB Energy. Mr. Liddell served as a director of Bronco Drilling Company, Inc., a +provider of contract land drilling services, from May 2005 until August 2008 and as its Chairman of the Board from May 2005 until August 2007. Mr. Liddell has served as Chairman of the Board of Windsor Energy Group, L.L.C. and Great White +Energy Services, LLC since December 2005 and November 2006, respectively, and served as Chairman of the Board of Diamondback Energy Services, Inc. from November 2006 until December 2008. Mr. Liddell received a Bachelor of Science degree in +education from Oklahoma State University. +DONALD DILLINGHAM, age 48. Mr. Dillingham has served as a director of our company since +November 2007. Since August 2001, Mr. Dillingham has served as the Senior Portfolio Manager for Avondale Investments, LLC and Merit Advisors, Inc., each of which is a registered investment advisor. Mr. Dillingham is currently the Senior +Portfolio Manager for two mutual funds, a member of the investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer of the Merit Advisors Investment Trust. From August 2002 to December 2004, Mr. Dillingham served as an adjunct +professor of finance at the University of Oklahoma. From April 1998 to August 2001, Mr. Dillingham served as Senior Vice President, portfolio manager and state director for J.P. Morgan Investment Management. From March 1996 to April 1998, +Mr. Dillingham served American Express as the state director responsible for managing the financial planning services and product sales for the state of Oklahoma. From May 1994 to December 1996, Mr. Dillingham worked for Bank of America as +Vice-President of Investment Banking. Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker and sales manager from August 1984 to May 1994. Mr. Dillingham +received a Bachelors of Business and Administration in Accounting from the University of Oklahoma and his Masters of Business and Administration in Finance from Oklahoma City University. Mr. Dillingham is a Chartered Financial Analyst, a +Certified Public Accountant and a Certified Financial Planner. +DAVID L. HOUSTON, age 58. Mr. Houston has served as a director of +our company since July 1998. Since 1991, Mr. Houston has been the principal of Houston & Associates, a firm that offers life and disability insurance, compensation and benefits plans and estate planning. Prior to 1991, Mr. Houston +was President and Chief Executive Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank. Mr. Houston served on the board of directors and executive committee of Deaconess Hospital, Oklahoma City, Oklahoma, from January 1993 +until December 2008 and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston also served as a director of Bronco Drilling Company from May 2005 until December 2010 and was a +member of its audit committee. Mr. Houston received a Bachelor of Science degree in business from Oklahoma State University and a graduate degree in banking from Louisiana State University. +JAMES D. PALM, age 66. Mr. Palm has served as a director of our company since February 2006 and as Chief Executive Officer of our company +since December 2005. Prior to joining our company, Mr. Palm pursued oil and gas investments primarily in Oklahoma, the Texas Panhandle and Kansas as the manager and owner of Crescent +6 +Table of Contents +Exploration, LLC, a company he founded in 1995. Mr. Palm currently serves as a member of the Industry Advisory Committee of the Oklahoma Corporation Commission. From October 2001 through +October 2003, Mr. Palm served as the Chairman of the Oklahoma Energy Resources Board. From 1997 through 1999, Mr. Palm served as the President of the Oklahoma Independent Petroleum Association. Mr. Palm received a Bachelor of Science +degree in Mechanical Engineering in 1968, and a Masters in Business Administration in 1971, both from Oklahoma State University. +SCOTT E. +STRELLER, age 43. Mr. Streller has served as a director of our company since August 2006. Since April 1993, Mr. Streller has operated an insurance agency for Farmer’s Insurance and Farmer’s Financial Solutions. +Mr. Streller received a Master’s degree in Athletic Administration from Oklahoma State University and a Bachelor of Business Administration degree in Business Management from the University of Central Oklahoma. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS +7 +Table of Contents +What are the committees of the Board? +Our board of directors has the following committees: +Committee +Members +Principal Functions +Number of +Meetings in +2010 +Audit +David L. Houston* +Donald L. Dillingham +Scott E. +Streller +• Reviews and discusses with management and the independent +auditors the integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management compliance. +• Monitors and oversees our accounting, auditing and financial reporting processes +generally, including the qualifications, independence and performance of the independent auditor. +• Monitors our compliance with legal and regulatory requirements. +• Establishes +procedures for the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding +questionable accounting or auditing matters. +• Reviews and approves related party transactions. +• Appoints, determines compensation, evaluates and terminates our independent +auditors. +• Pre-approves audit and permissible non-audit services to be performed by the +independent auditors. +• Prepares the report required by the SEC for the inclusion in our annual proxy +statement. +• Reviews and reassesses the adequacy of the audit committee charter on a periodic +basis. +4 +Compensation +Scott E. Streller +David L. +Houston* +• Oversees and administers our executive compensation policies, +plans and practices and evaluates their impact on risk and risk management. +• Assists the board of directors in discharging its responsibilities relating to the compensation of our executives, including our chief executive officer, and other key +employees. +• Administers our equity-based compensation plans, including the grants of stock +options, restricted stock awards and other equity awards under such plans. +2 +8 +Table of Contents +Committee +Members +Principal Functions +Number of +Meetings in +2010 +• Makes recommendations to the board with respect to incentive +compensation. +• Conducts annual performance evaluation of the committee. +• Reviews +disclosure related to executive compensation in our proxy statement. +• Reviews and considers the stockholders’ advisory vote on executive compensation and the frequency of holding such advisory vote. +• Reviews and +reassesses the adequacy of the compensation committee charter. +Nominating +Donald L. Dillingham +David L. Houston +Scott E. +Streller* +• Assists the board of directors in developing criteria for, +identifying and evaluating individuals qualified to serve as members of our board of directors. +• Selects and recommends director candidates to the board of directors to be +submitted for election at the Annual Meeting and to fill any vacancies on the board of directors. +• Periodically reviews and makes recommendations regarding the composition and size +of the board of directors and each of its committees. +• Reviews and recommends to the board of directors appropriate corporate governance policies and procedures for our company. +• Conducts an +annual assessment of the qualifications and performance of the board of directors. +• Annually reviews and reports to the board of directors on the performance of management. +• Reviews and reassesses the adequacy of the nominating committee charter. +1 +* +Committee Chairperson +Do the committees +have written charters? +Yes. The charters for our Audit Committee, Compensation Committee and Nominating Committee can be found on our +website at www.gulfportenergy.com under the “Corporate Governance” caption. You may also obtain copies of these charters, as well as our Code of Business Conduct and Ethics, which is described below, by writing to our Corporate +Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +9 +Table of Contents +Corporate Governance Matters and Communications with the Board +Who are our independent directors? +Our board of directors has determined that Donald L. Dillingham, David L. Houston and Scott E. Streller meet the standards regarding independence set forth in the Nasdaq listing standards and are free of +any relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors of the Company. +Our board of directors has determined that each member of the Audit Committee is independent for purposes of serving on such committee under the Nasdaq listing standards and applicable federal law. In +addition, our board of directors has determined that each current member of the Audit Committee is financially literate under the Nasdaq listing standards and that each of Mr. Houston, who serves as the Chairman of the Audit Committee, and +Mr. Dillingham qualifies as the “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. +Our board of directors has also determined that each member of the Compensation Committee and the Nominating Committee meets the independence requirements applicable to those committees under the Nasdaq +rules. In addition, our board of directors determined that each member of our compensation committee is an “outside director” in accordance with Section 162(m) of the Internal Revenue Code and a “non-employee director” in +accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended. +Do our non-management directors meet separately without +management? +Our non-management directors have the opportunity to meet in an executive session following each regularly scheduled meeting +of the board of directors. During 2010, our non-management directors met in an executive session on December 29, 2010. +How can I +communicate with the board of directors? +Individuals may communicate with our board of directors or individual directors by writing to our +Corporate Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. Our Corporate Secretary will review all such correspondence and forward to our board of directors a summary of all +such correspondence and copies of all correspondence that, in the opinion of our Corporate Secretary, relates to the functions of our board of directors or the compensation committee thereof or that he otherwise determines requires their attention. +Directors may review a log of all such correspondence received by us and request copies. Concerns relating to accounting, internal control over financial reporting or auditing matters will be immediately brought to the attention of the chairman of +the audit committee and handled in accordance with the audit committee procedures established with respect to such matters. +Do directors +attend the Annual Meeting? +Recognizing that director attendance at our Annual Meeting can provide our stockholders with an opportunity to +communicate with directors about issues affecting the Company, we actively encourage our directors to attend the Annual Meeting of Stockholders. Four of our directors attended the 2010 Annual Meeting of Stockholders. +10 +Table of Contents +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and Ethics designed to help directors and employees resolve ethical issues. Our Code of Business Conduct and +Ethics applies to all directors and employees, including the Chief Executive Officer, the Chief Financial Officer and all senior financial officers. Our Code of Business Conduct and Ethics covers various topics including, but not limited to, +conflicts of interest, fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is posted on our website under the “Investor +Relations—Corporate Governance” caption. +Nominating Process For Directors, Director +Qualifications and Review of Director Nominees +The Nominating Committee is comprised of three non-employee directors, all of whom are +independent under Nasdaq listing standards. As provided by the Nominating Committee’s charter, our Nominating Committee identifies, investigates and recommends to our board of directors candidates with the goal of creating a balance of +knowledge, experience and diversity. Generally, the committee identifies candidates through the personal, business and organizational contacts of the directors and management. +Potential directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the interests of our stockholders. In addition to reviewing a +candidate’s background and accomplishments, candidates for director nominees are reviewed in the context of the current composition of our board of directors and the evolving needs of our stockholders’ businesses. It is the policy of our +board of directors that at all times at least a majority of its members meets the standards of independence promulgated by Nasdaq and the Securities and Exchange Commission, or the SEC, and that all members reflect a range of talents, ages, skills +and expertise, particularly in the areas of accounting and finance, management, leadership and oil and gas related industries sufficient to provide sound and prudent guidance with respect to our stockholders’ operations and interests. In +addition to the foregoing factors, our Nominating Committee considers diversity in its evaluation of candidates for board membership. Although our board of directors does not have a formal diversity policy, our board believes that diversity with +respect to viewpoint, skills and experience should be an important factor in board composition. Our Nominating Committee ensures that diversity considerations are discussed in connection with each potential nominee, as well as on a periodic basis in +connection with its periodic review of the composition of the board and the size of the board as a whole. +We also require that the members of +our board of directors be able to dedicate the time and resources sufficient to ensure the diligent performance of their duties on our behalf, including attending all meetings of the board of directors and applicable committee meetings. In +accordance with its charter, our Nominating Committee periodically reviews the criteria for the selection of directors to serve on our board and recommends any proposed changes to our board of directors for approval. +Our board of directors will consider stockholder nominations for director candidates upon written submission of such recommendation to our Corporate +Secretary along with, among other things, the nominee’s qualifications and certain biographical information regarding the nominee, such nominee’s written consent to serving as a director if elected and being named in the proxy or +information statement and certain information regarding the status of the stockholder submitting the recommendation, all in the manner required by our amended and restated bylaws and the applicable rules and regulations promulgated under the +Securities Exchange Act of 1934, as amended. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by our board of directors at a regularly scheduled or special meeting. +If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to our board of directors. +Our board of directors may also review materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, +our board of +11 +Table of Contents +directors will seek to achieve a balance of knowledge, experience and capability on the board. Our board of directors uses the same criteria for evaluating candidates nominated by stockholders as +it does for those proposed by current board members, professional search firms and other persons. After completing its evaluation, our board of directors approves the final slate of director nominees. +Our Nominating Committee approved the director nominees submitted for election at this Annual Meeting. Each nominee is a current board member and brings +a strong and unique background and set of skills to our board of directors, giving our board of directors as a whole competence and experience in a variety of areas, including corporate governance and board service, executive management, oil and +natural gas industry, accounting and finance and risk assessment and management. Specifically, in nominating the current board members for re-election at this Annual Meeting, our Nominating Committee considered such directors’ past service on +our board and the information discussed in each of the directors’ individual biographies set forth beginning on page 6 above. In particular, with regard to Messrs. Liddell and Palm, our Nominating Committee considered their respective +public company experience as executive officers and directors, as well as their strong oil and natural gas backgrounds. With respect to Mr. Palm, our Nominating Committee also considered his current and prior service with various state and +independent advisory boards and committees in the petroleum industry. With regard to Mr. Dillingham, our Nominating Committee considered his strong background in finance and risk assessment and management developed as part of his career as a +registered investment advisor and portfolio manager, as well as his academic experience. With regard to Messrs. Houston and Streller, our Nominating Committee considered their respective business backgrounds and risk assessment skills. +Director Leadership Structure +Since December 2005, the positions of Chairman of the Board and Chief Executive Officer have been held by two different individuals. Separating these positions allows our Chief Executive Officer to focus +on our day-to-day business and operations, while allowing our Chairman of the Board to lead the board in its fundamental role of providing advice to and oversight of management. In accordance with our bylaws, the position of the Chairman of the +Board is an executive officer position and not an independent director position. The Chairman of the Board provides leadership to our board of directors and works with the board of directors to define its structure and activities in the fulfillment +of its responsibilities. The Chairman of the Board sets the board agendas, with the input from other members of the board and our management, facilitates communications among and information flow to directors, has the power to call special meetings +of our board of directors and stockholders and presides at meetings of our board of directors and stockholders. The Chairman of the Board also advises and counsels our Chief Executive Officer and other officers. Our board of directors does not have +a position of a lead director. +We believe that our directors bring a broad range of leadership experience to the boardroom and regularly +contribute to the thoughtful discussion involved in effectively overseeing the business and affairs of our company. We believe that the atmosphere of our board is collegial, that all board members are well engaged in their responsibilities, and that +all board members express their views and consider the opinions expressed by other directors. We do not believe that appointing an independent board chairman, or a lead or presiding director, would improve the performance of our board of directors. +Further, three out of five directors on our board are independent under the Nasdaq listing standards and SEC rules. We believe that all of our independent directors have demonstrated leadership in business enterprises and are familiar with board +processes. Our independent directors are involved in the leadership structure of our board by serving on our Audit, Nominating and Compensation committees, each having a separate independent chairperson. Specifically, the chair of our Audit +Committee oversees the accounting and financial reporting processes, as well as compliance with legal and regulatory requirements. The chair of our Compensation Committee oversees the annual performance evaluation of our Chief Executive Officer and +our compensation policies and practices and their impact on risk and risk management. The chair of our Nominating Committee monitors matters such as the composition of the board and its committees, board performance and best practices in corporate +governance. As such, each committee chair provides independent leadership for purposes of many important functions delegated by our board of directors to such committee. +12 +Table of Contents +Board of Director’s Role in Risk Oversight +As an exploration and production company, we face a number of risks, including risks associated with supply of and demand for oil and natural gas, +volatility of oil and natural gas prices, exploring for, developing, producing and delivering oil and natural gas, declining production, environmental and other government regulations and taxes, weather conditions, including hurricanes, that can +affect oil and natural gas operations over a wide area, adequacy of our insurance coverage, political instability or armed conflict in oil and natural gas producing regions and overall economic environment. Management is responsible for the +day-to-day management of risks we face as the company, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. It its risk oversight role, our board of directors has the +responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. +Our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight. Our Chairman of the Board meets +regularly with our Chief Executive Officer and our Chief Financial Officer to discuss strategy and risks facing our company. Our executive officers regularly attend the board meetings and are available to address any questions or concerns raised by +the board on risk management-related and any other matters. Other members of our management team periodically attend the board meetings or are otherwise available to confer with the board to the extent their expertise is required to address risk +management matters. Periodically, our board of directors receives presentations from senior management on strategic matters involving our operations. During such meetings, our board of directors also discusses strategies, key challenges, and risks +and opportunities for the company with senior management. +While our board of directors is ultimately responsible for risk oversight at our +company, our three committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. Our Audit Committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of +financial reporting, internal controls and compliance with legal and regulatory requirements, and discusses policies with respect to risk assessment and risk management. Our Compensation Committee assists the board in fulfilling its oversight +responsibilities with respect to the management of risks arising from our compensation policies and programs. Our Nominating Committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated +with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance. +13 +Table of Contents +Audit Committee Report +The Audit Committee is responsible for providing independent, objective oversight for the integrity of the Company’s financial reporting process and +internal control system. Other primary responsibilities of the Audit Committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the Company’s independent registered public accounting firm +and providing an open venue for communication among the independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of the Company. A more detailed description of the +responsibilities of the Audit Committee is set forth in its written charter, which is posted on our website at www.gulfportenergy.com . The following report summarizes certain of the Audit Committee’s activities with respect to its +responsibilities during 2010. +Review with Management and Independent Registered Public Accounting Firm . The Audit Committee has +reviewed and discussed with management and Grant Thornton LLP, an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, 2010. +Controls and Procedures. Management has established and maintains a system of disclosure controls and procedures designed to provide reasonable +assurance that information required to be disclosed by our Company in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the +SEC’s rules and forms, and includes controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our Chief +Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2010, management conducted an evaluation of our disclosure controls and procedures. Based on +this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file +or submit under the Securities and Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Audit Committee discussed with management and Grant Thornton LLP +the quality and adequacy of the Company’s disclosure controls and procedures. +Management has also established and maintains a system of +internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that +disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in +Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control—Integrated Framework, +management concluded that our internal control over financial reporting was effective as of December 31, 2010, as discussed in more detail in Management’s Report on Internal Control Over Financial Reporting, which was included in our +Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 14, 2011. Our internal control over financial reporting as of December 31, 2010 has been audited by Grant Thornton LLP, as stated in its +attestation report, which was included in our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 14, 2011. The Audit Committee reviewed and discussed with management and Grant Thornton LLP the +Company’s system of internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. +Discussions with Independent Auditing Firm . The Audit Committee has discussed with Grant Thornton LLP, independent auditors for the Company, the +matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees , as amended. The Audit Committee has received the written disclosures and the letter from Grant Thornton LLP required by +applicable requirements of the Public Company +14 +Table of Contents +Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence and has discussed with that firm its independence from the +Company. +Recommendation to the board of directors . Based on its review and discussions noted above, the Audit Committee recommended to +the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. +THE AUDIT COMMITTEE +David L. Houston, Chairman +Donald L. Dillingham +Scott E. Streller +15 +Table of Contents +Executive Officers +The following table sets forth the name, age and positions of each of our executive officers as of the record date: +Name +Age +Position +Mike Liddell +57 +Chairman of the Board and Director +James D. Palm +66 +Chief Executive Officer, Director +Michael G. Moore +54 +Vice President, Chief Financial Officer and Secretary +Biographical information for each of Messrs. Liddell and Palm is set forth in this proxy statement under the heading “Election of Directors and +Director Biographies.” +MICHAEL G. MOORE. Mr. Moore has served as Vice President and Chief Financial Officer of our company +since July 2000. From May 1998 through July 2000, Mr. Moore served as Vice President and Chief Financial Officer of Indian Oil Company. From September 1995 through May 1998, Mr. Moore served as Controller of DLB Oil & Gas. Prior +to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based gas marketing company. Mr. Moore received both his Bachelor of Business Administration degree in Finance and his Masters in Business Administration from the University +of Central Oklahoma. +16 +Table of Contents +Executive Compensation +Compensation Discussion And Analysis +Compensation Practices +Until the end of 2007, all compensation decisions for our +Chief Executive Officer and our Chief Financial Officer (other than decisions relating to our equity compensation plans) were made by our Chairman of the Board. Our Chairman of the Board has been compensated as provided in his employment agreement +with our company, which was effective as of June 1, 1999. Although our board of directors established a compensation committee effective as of February 14, 2006, until the end of 2007, the role of the compensation committee was limited, as +we relied on the “controlled company” exemption and applicable transition rules provided by the Nasdaq listing standards. The compensation committee is currently composed entirely of independent directors. Since the end of 2007, the +compensation committee has been primarily responsible for establishing, implementing and monitoring our compensation programs, including those applicable to our executive officers. In particular, the compensation committee’s current role is to +oversee, on behalf of our board of directors, our compensation and benefit plans and policies, administer our stock plans (including reviewing and approving equity grants to directors and executive officers) and review and approve annually all +compensation decisions relating to our Chief Executive Officer and make recommendations to our board of directors and Chairman of the Board with respect to other executive officer compensation. The compensation committee meets at least annually to +review executive compensation programs, approve compensation levels, consider performance targets, review management performance and administer our equity-based compensation plans. The compensation committee operates in accordance with its charter, +adopted effective as of February 14, 2006, which sets forth its powers and responsibilities described in more detail under the “Corporate Governance—Compensation Committee.” +Compensation Philosophy and Objectives +The objectives of our compensation program are to: +• +attract and retain key executives; +• +align the interests of our executives with those of our stockholders; and +• +motivate and reward individual performance and contributions. +Compensation Benchmarking +In the fall of 2007, the compensation committee engaged Equilar, an outside consultant, to perform a compensation survey, based on the available compensation data for fiscal 2006. In August 2009, the +compensation committee engaged Equilar to provide an updated compensation survey to reflect present trends. The 2009 Equilar survey included the following industry peer companies: Abraxas Petroleum Corporation, Arena Resources Inc., Brigham +Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, Goodrich Petroleum Corporation, Ram Energy Resources Inc., Sandridge Energy Inc., St. +Mary Land & Exploration Company, Stone Energy Corporation, Swift Energy Company and Whiting Petroleum Corporation. Following its review of the 2009 survey, in November of 2009, the compensation committee discussed and evaluated the 2010 +compensation packages of our Chairman of the Board, Chief Executive Officer and Chief Financial Officer in light of our 2009 performance, the value these executives bring to our company, market trends, peer benchmarking, economic climate, their +respective experience and leadership roles and employee retention considerations. Based on such evaluation, the compensation committee did not make any substantive changes to our named executive officers’ 2010 compensation structure, except +that in March of 2010, the compensation committee approved the grant of a restricted stock award with a time vesting component to our Chairman of the Board to continue to incentivize our Chairman of the Board, considering that all of his previously +granted equity awards had vested. +In the fall of 2010, the compensation committee again engaged Equilar to provide executive compensation +analysis for 2010 focusing on how base salaries, annual bonuses, equity awards and total compensation packages +17 +Table of Contents +of our named executive officers compared to such compensation elements of similarly situated executives at peer group companies. The 2010 Equilar survey included the following industry peer +companies: Abraxas Petroleum Corporation, Brigham Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, Goodrich Petroleum Corporation, +Petroleum Development Corporation, Petroquest Energy Inc., Sandridge Energy Inc., St. Mary Land & Exploration Company, Stone Energy Corporation, Swift Energy Company and Whiting Petroleum Corporation. The 2010 Equilar survey revealed that +our named executive officers’ compensation for 2010 was below the mean and median amounts received by similarly situated executives at peer group companies with respect to each compensation element. The compensation committee reviewed the +results of the 2010 Equilar survey and evaluated the compensation packages of our Chairman of the Board, Chief Executive Officer and Chief Financial Officer in light of the compensation packages received by their peers. The compensation committee +also considered our 2010 performance, the value these executives bring to our company, market trends, peer benchmarking, economic climate, their respective experience and leadership roles and employee retention considerations. The compensation +committee noted that the Company demonstrated strong performance metrics as compared to its peers based on one year total shareholder return, three year total shareholder return and net income. +Based on these considerations, in November of 2010, the compensation committee granted 2010 discretionary bonuses to our named executive officers. Such +bonuses represented increases from bonuses granted to such executive officers for the prior year, which were intended to reflect our strong 2010 performance and their respective contributions to our company and to bring our named executive +officers’ overall compensation closer to the total compensation received by similarly situated executives at peer group companies, although our named executive officers’ overall compensation still remained below that of similarly situated +executives at peer group companies. The compensation committee also considered the need to continue to incentivize our named executive officers by providing long term equity awards with a time vesting component in light of peer group companies’ +practices. Based on the foregoing, the compensation committee approved a restricted stock award to our Chief Financial Officer. The compensation committee considered prior restricted stock awards granted to our Chairman of the Board in March of 2010 +and to our Chief Executive Officer in December of 2008 and determined not to award any additional restricted stock grants to such executive officers. The compensation committee did not make any other substantive changes to our named executive +officers’ current compensation structure. The elements of our compensation structure are discussed in more detail below. +Compensation Policy +The key elements of our compensation program are salary, annual bonus and long-term incentive compensation. We use these elements to meet our compensation objectives as follows: +• +Attract and retain key executives . We believe that to attract and retain talented executives, we must offer compensation that is +competitive. We also believe that our Chairman of the Board, Mike Liddell, our Chief Executive Officer, James D. Palm, and our Chief Financial Officer, Michael G. Moore, are critical to the long-term success of our company. To facilitate the +retention of our Chairman of the Board and our Chief Executive Officer, we entered into an employment agreement with Mr. Liddell in May of 1999 and into an oral agreement with Mr. Palm with respect to their respective compensations and +benefits. We believe that the terms of these agreements are reasonable as compared to similarly situated executives at peer group companies. +• +Align the interests of our executives with those of our stockholders . In the past, we used both options and restricted stock awards to +provide long-term incentive compensation and to align the financial interests of our executives with those of our stockholders. In March 2010, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to +our Chairman of the Board under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments, beginning on March 18, 2010. In addition, in November 2010, the compensation committee +granted a restricted stock award of 45,000 shares of restricted +18 +Table of Contents +common stock to our Chief Financial Officer under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in five annual installments. Of this amount, 3,000 shares vested on +December 17, 2010 and 6,000 shares vest on December 17, 2011, 9,000 shares vest on December 17, 2012, 12,000 shares vest on December 17, 2013 and 15,000 shares vest on December 17, 2014. It is anticipated that in the future +the compensation committee will continue to structure our long-term incentive compensation in the form of restricted stock awards, consistent with peer group companies’ practices. For a discussion of the Company’s long-term incentive +policy, see “Long Term Incentive Compensation” below. +• +Stock Options . Stock options represent the right of an option holder to buy shares of our common stock at an exercise price equal to the market +value of our common stock on the date of grant. Under our outstanding stock options, the right to buy underlying shares generally vests in 36 substantially equal monthly installments from the date of grant, except that certain options vest in five +substantially equal annual installments beginning on the first anniversary of the date of grant. We awarded these stock options in order to align compensation with company performance as the options become valuable to the executive only if the stock +price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. +• +Restricted Stock Awards . In December 2008, the compensation committee granted a restricted stock award of 66,667 shares of restricted common +stock to our Chief Executive Officer under our Amended and Restated 2005 Stock Incentive Plan, which vest in 12 substantially equal quarterly installments. Of this award, 50,000 shares had vested as of December 31, 2010 and the 16,667 +remaining unvested shares vest in three substantially equal quarterly installments on March 18, 2011, June 17, 2011 and September 17, 2011. We did not grant any equity awards to any of our executive officers in 2009. As additional +compensation and incentive, in March 2010, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and Restated 2005 Stock Incentive Plan, which shares +vest in 12 substantially equal quarterly installments. Of this amount, 22,220 shares had vested as of December 31, 2010 and the 44,447 remaining unvested shares vest in eight substantially equal quarterly installments on March 18, +June 17, September 17 and December 17 of each year through December 17, 2012. In November 2010, the compensation committee granted a restricted stock award of 45,000 shares of restricted common stock to our Chief Financial +Officer under our Amended and Restated 2005 Stock Incentive Plan to continue to provide incentive to him, which shares vest in five annual installments. Of this amount, 3,000 shares vested on December 17, 2010 and 6,000 shares vest on +December 17, 2011, 9,000 shares vest on December 17, 2012, 12,000 shares vest on December 17, 2013 and 15,000 shares vest on December 17, 2014. Restricted stock awards ensure that our executives have a continuing stake in the +long-term success of our company as the value of the award will depend on the stock price at the time of vesting. +• +Motivate and reward individual performance and contributions . The Company’s evaluation of the individual performance of each +executive officer affects most aspects of the executive’s compensation. Individual performance and level of responsibility are considered in determining an executive’s annual salary, and are important factors in deciding discretionary +bonuses and equity awards. +Compensation Components +Base Salary +Salaries for our Chairman of the Board and our Chief Executive Officer are provided in their respective agreements described in more detail under the +heading “Employment Agreements” below. The annual base salary for our Chairman of the Board is increased annually in an amount equal to any increase in the cost of living as determined in accordance with his employment agreement. The +respective salaries for our Chief +19 +Table of Contents +Executive Officer and Chief Financial Officer for 2010 were determined by our compensation committee and our Chairman of the Board, respectively. With respect to the 2010 salaries of our Chief +Executive Officer and our Chief Financial Officer, the various factors considered included the recommendation of our Chairman of the Board, the compensation of executive officers of comparable companies within the oil and natural gas industry, the +performance of such executive officer and changes in responsibilities, the experience, leadership and potential future contributions to the Company and, in the case of our Chief Executive Officer, his oral employment agreement with the Company. In +the future, we anticipate that the compensation committee will continue to review the base salaries of our named executive officers on an annual basis, subject to the terms of any employment agreements that we may have with our named executive +officers, and will consider similar factors, as well as the recommendation of our Chairman of the Board with respect to base salaries of other named executive officers. During 2010, the annual base salaries for our Chairman of the Board, our Chief +Executive Officer and our Chief Financial Officer were $262,330, $225,000 and $300,000, respectively. +In November 2010, the compensation +committee reviewed and considered salaries for our Chairman of the Board, Chief Executive Officer and Chief Financial Officer for 2011, taking into consideration their 2010 compensation packages and the compensation survey prepared by Equilar in the +fall of 2010. The compensation committee also considered the Company’s strong performance, as compared to its peers, based on one year total shareholder return, three year total shareholder return and net income. Further, the compensation +committee considered value the executives bring to the Company, market trends, peer benchmarking, economic climate, experience, leadership and employee retention and, in the case of our Chairman of the Board and Chief Executive Officer, the terms of +their respective agreements with the Company. Following such review, the compensation committee adjusted the base salary of our Chairman of the Board for the increase in cost of living, as provided by his employment agreement, and to date has made +no adjustments to the respective base salaries of our Chief Executive Officer and Chief Financial Officer for 2011. +Discretionary Bonus +The compensation committee determined the year end discretionary bonuses that were paid to our named executive officers based on their respective performances in 2010 and other factors, including Company +performance in 2010, the value the executives bring to the Company, market trends, peer benchmarking, economic climate, experience, leadership and employee retention. Based on the considerations described under “Compensation Benchmarking,” +the compensation committee determined that our Chief Executive Officer would receive a year-end discretionary bonus of $100,000, and our Chief Financial Officer would receive a year-end discretionary bonus of $225,000 in recognition of their +services to the Company. In addition, the compensation committee determined that our Chairman of the Board would receive a 2010 discretionary bonus of $50,000. Such bonuses represented increases from bonuses granted to such executive officers for +the prior year, and were intended to reflect our strong 2010 performance and their respective contributions to our company and to bring our named executive officers’ overall compensation closer to the total compensation received by similarly +situated executives at peer group companies, although our named executive officers’ overall compensation still remained below that of similarly situated executives at peer group companies. No specific financial or operational performance +targets were set by the compensation committee for 2010 or 2011 with respect to discretionary bonuses or other executive compensation. +Long-Term Incentive Compensation +2010 Awards . In March 2010, the +compensation committee reviewed and evaluated our Chief Executive Officer’s performance during 2010. As part of this process, the committee considered a 2009 survey by a nationally recognized compensation consulting firm, Equilar, with respect +to executive and board of directors’ compensation as it relates to a selected industry peer group. The compensation committee also considered the current status of the energy sector with a special focus on the Company’s peer group and the +national and global economic conditions and reviewed the Chief Executive Officer’s outstanding equity awards, including his 2008 award of our restricted common stock, and related exercise prices. Following a thorough review of the 2009 +20 +Table of Contents +Equilar study, and taking into consideration the factors mentioned above and then current economic conditions, the compensation committee determined not to make any new equity awards for +Mr. Palm or any of our other executive officers in 2009. As additional compensation and incentive, in March 2010, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the +Board under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in 12 substantially equal quarterly installments, beginning on March 18, 2010. In addition, in November 2010, following its evaluation of the 2010 Equilar survey +performed in the fall of 2010, the compensation committee granted a restricted stock award of 45,000 shares of restricted common stock to our Chief Financial Officer under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in five +annual installments. Of this amount, 3,000 shares vested on December 17, 2010 and 6,000 shares vest on December 17, 2011, 9,000 shares vest on December 17, 2012, 12,000 shares vest on December 17, 2013 and 15,000 shares vest on +December 17, 2014. For more information regarding the 2009 and 2010 Equilar surveys and our peer groups for 2009 and 2010, see “Compensation Benchmarking” above. +Long-Term Incentive Policy . Although in the past we awarded both options and restricted stock as part of our long-term incentive compensation program, our board of directors and the compensation +committee believe that restricted stock awards are an essential component of our compensation strategy, and currently intend to primarily offer such awards in the future. Further, we anticipate that any equity awards granted to our executive +officers during 2011 will be in the form of restricted stock. The Committee may also determine to issue other forms of stock-based awards to our named executive officers or other eligible participants under our Amended and Restated 2005 Stock +Incentive Plan or other equity incentive plans in effect at that time. Our current equity incentive plan is described below under the heading “Amended and Restated 2005 Stock Incentive Plan.” +In November 2010, the compensation committee reviewed and discussed the Company’s current equity compensation plan and objectives. The compensation +committee considered the advisability of developing a plan for appropriate benchmarking with respect to the Company’s equity award program and the need to issue new equity awards as old awards become fully vested, so as to provide future +incentives to our executive officers. Upon review, the compensation committee did not establish any objective performance targets or make any other changes to its long-term incentive policy for 2011. +Perquisites and Other Personal Benefits +Our company provides certain of our named executive officers with a limited number of perquisites or other personal benefits, primarily consisting of life insurance premiums and in the case of our Chief +Financial Officer, a company vehicle, that we believe help provide a competitive package of compensation and benefits. The value of these benefits is disclosed in the Summary Compensation Table. +Broad-Based Employee Benefits +• +401(k) Plan. We have retirement savings plan in which our named executive officers currently participate. The retirement plan is a tax qualified 401(k) +plan that covers all eligible employees including the named executive officers. Under the plan, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual compensation for the prior calendar year. We also have the +ability to make an additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made regardless of employee’s deferrals into the plan. In 2010, we +made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Service’s regulations. All contributions made by us on behalf of an employee +are 100% vested when contributed. For more details regarding our 401(k) plan, see “Retirement Plans—401(k) Plan” below. +• +Our named executive officers are eligible to participate in all of our other employee benefit plans which include medical, dental, group life, +disability and accidental death and dismemberment insurance, in each case on the same basis as all other employees. +21 +Table of Contents +Employment Agreements +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and automatically renews for successive one-year terms +thereafter. The agreement provides for an annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $262,330 effective as of June 1, 2010. In the +event that Mr. Liddell’s employment is terminated by us without cause, Mr. Liddell would be entitled to receive twelve months of his then current base salary, and all of his then unexercisable options would become exercisable. The +agreement also restricts Mr. Liddell’s use or disclosure of any of our confidential information during the term of the agreement and for a period of five years thereafter. +We have entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which Mr. Palm is entitled to an annual salary of +$200,000 and, at the discretion of our board of directors, an annual cash incentive bonus. For 2010, Mr. Palm’s annual salary was $225,000. To date, the compensation committee has made no adjustments to Mr. Palm’s annual salary +for 2011. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans available to our other employees. +Change in Control Arrangements +Our named executive officers do not currently have +any change in control arrangements, except that Mr. Liddell’s employment agreement provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then +current base salary, and all of his then unexercisable options will become exercisable. See “Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan provides that in the event of a significant +corporate transaction involving a change in control (as defined under the plan) of our company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a +spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and +Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration +for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan administrator may also +exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential payments to our Chief Executive Officer and our other named executive officers upon termination or following a change in control event are set forth under the heading “Potential Payments +upon Termination or Change-in-Control.” +Effect of Our Compensation Policies and Practices on Risk and Risk +Management +The Compensation Committee reviews the risks and rewards associated with our compensation policies and programs. We believe +that such policies and programs encourage and reward prudent business judgment and appropriate risk-taking over the long term. With respect to specific elements of compensation: +• +We believe that our programs balance short- and long-term incentives for our executive officers providing for an appropriate mix of fixed, +discretionary and equity compensation that overall encourages long-term performance; +• +We believe that annual base salaries for our named executive officers do not encourage excessive risk-taking as they are fixed amounts that are subject +to discretionary increases by our board of directors, based, among other factors, on annual performance evaluations. We also believe that such annual base salaries are set at reasonable levels, as compared to the base salaries of similarly situated +individuals at +22 +Table of Contents +our peer group companies, and therefore do not encourage our named executive officers to be overly conservative with respect to taking appropriate amount of risk to increase stockholder value. +• +Our annual bonuses are designed to award achievement of short-term results. The payment and amounts of such bonuses are within the discretion of and +determined by our board of directors based on our company’s performance for the prior fiscal year and annual performance evaluations of our named executive officers. +• +Stock options and restricted stock awards granted to our named executive officers are subject to time vesting provisions. We award stock options in +order to align compensation with company performance, as the options become valuable to the executive only if the stock price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the +appreciation potential of the options. We award restricted stock awards to ensure that our executives have a continuing stake in the long-term success of our company as the value of the award will depend on the stock price at and after the time of +vesting. We believe that our long-term equity awards do not encourage excessive risk taking that may be associated with equity awards that vest based strictly on achieving certain targets. We also believe that our long-term equity awards provide +incentive to our named executive officers to take appropriate amount of risk. +• +Our named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement +provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. +Based on the foregoing, the Compensation Committee believes that our company does not utilize compensation policies and +programs creating risks that are reasonably likely to have a material adverse impact on our company. +Deductibility of +Executive Compensation +Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax purposes of +executive compensation paid to the Chief Executive Officer and the four other most highly compensated officers of a public company to $1,000,000 per year, but contains an exception for certain performance-based compensation. Our policy is to +periodically review and consider whether particular compensation and incentive payments to our executives will be deductible for federal income tax purposes. We intend, to the extent feasible and when we believe it is in the best interests of our +company and our stockholders, to attempt to qualify executive compensation as tax deductible where it does not adversely affect the development and execution of our compensation plans. +Accounting Implications of Executive Compensation Policy +We are required to recognize compensation expense of all stock-based awards pursuant to the provisions of FASB ASC Topic 718, “ Compensation—Stock Compensation .” Non-vested shares are +deemed issued and outstanding from a legal perspective; however, under U.S. generally accepted accounting principles, or GAAP, only vested shares are included in basic shares outstanding. Also, under GAAP, non-vested shares are included in diluted +shares outstanding when the effect is dilutive. +Report of the Compensation Committee on Executive Compensation +The compensation committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on its +review and discussion with management, the compensation committee recommended that the Compensation Discussion and Analysis be included in this proxy statement. +Respectfully submitted by the compensation committee: +David L. Houston +Scott Streller +23 +Table of Contents +Compensation Committee Interlocks and Insider Participation +No current member of our Compensation Committee has ever been an officer or employee of ours. None of our executive officers serves, or has served during +the past fiscal year, as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as member of our board of directors or compensation committee. +Compensation Tables +SUMMARY COMPENSATION TABLE +The following table provides information concerning +compensation of our principal executive officer, principal financial officer and our other highest paid executive officer for the fiscal years ended December 31, 2010, December 31, 2009 and December 31, 2008. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +All Other +Compensation +($)(2) +Total +($) +James D. Palm +2010 +$ +225,000 +$ +100,000 +$ +— +$ +— +$ +22,686 +$ +347,686 +Chief Executive Officer +2009 +$ +225,000 +$ +50,000 +$ +— +$ +— +$ +13,800 +$ +288,800 +2008 +$ +225,000 +$ +25,000 +$ +268,668 +(3) +$ +— +$ +17,325 +$ +535,993 +Mike Liddell +2010 +$ +262,330 +$ +50,000 +$ +662,003 +(4) +$ +— +$ +22,686 +$ +997,019 +Chairman of the Board +2009 +$ +261,373 +$ +40,000 +$ +— +$ +— +$ +21,025 +$ +322,398 +2008 +$ +260,585 +$ +40,000 +$ +— +$ +— +$ +24,550 +$ +325,135 +Michael G. Moore +2010 +$ +300,000 +$ +225,000 +$ +783,000 +(5) +$ +— +$ +28,811 +$ +1,336,811 +Vice President, Chief Financial Office and Secretary +2009 +$ +300,000 +$ +125,000 +$ +— +$ +— +$ +19,925 +$ +444,925 +2008 +$ +279,340 +$ +100,000 +$ +— +$ +— +$ +23,450 +$ +402,790 +(1) +The amount reported in the Stock Awards column reflects the fair value of the restricted stock award on the award date. The amount was calculated using certain +assumptions, as set forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2010, included in our Annual Report on Form 10-K, filed with the SEC on March 14, 2011. +(2) +Amounts for Mr. Liddell include our 401(k) plan contributions of $22,686, $13,800 and $17,325 for 2010, 2009 and 2008, respectively, and life insurance premium +payments of $7,225 for each of 2009 and 2008. Amounts for Mr. Palm include our 401(k) plan contributions of $22,686, $13,800 and $17,325 for 2010, 2009 and 2008, respectively. The amounts for Mr. Moore for 2010, 2009 and 2008 represent our +401(k) plan contributions of $22,686, $13,800 and $17,325, respectively, and $6,125, $6,125 and $6,125, respectively, attributable to use of a company vehicle. +(3) +Mr. Palm’s restricted stock award of 66,667 shares of our restricted common stock vests in 12 substantially equal quarterly installments beginning on +December 17, 2008. +(4) +Mr. Liddell’s restricted stock award of 66,667 shares of our restricted common stock vests in 12 substantially equal quarterly installments beginning on +March 18, 2010. +(5) +Mr. Moore’s restricted stock award of 45,000 shares of our restricted common stock vests in five annual installments. Of this amount, 3,000 shares vested on +December 17, 2010 and 6,000 shares vest on December 17, 2011, 9,000 shares vest on December 17, 2012, 12,000 shares vest on December 17, 2013 and 15,000 shares vest on December 17, 2014. +24 +Table of Contents +GRANTS OF PLAN-BASED AWARDS +The following table provides information concerning each grant of an award made to our principal executive officer, our principal financial officer and our other highest paid executive officer in fiscal +2010 under any Company plan. +Name +Grant Date +Estimated Future Payouts Under Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock +or +Units +(#) +All Other +Option +Awards: +Number +of +Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value +of Stock +and Option +Awards ($) +Threshold (#) +Target +(#) +Maximum (#) +James D. Palm +— +— +— +— +— +— +— +— +Chief Executive Officer +Mike Liddell +03/08/2010 +— +— +— +66,667 +(1) +— +— +662,003 +(1) +Chairman of the Board +Michael G. Moore +11/03/2010 +— +— +— +45,000 +(2) +— +— +783,000 +(2) +Vice President, Chief Financial Officer & Secretary +(1) +Mr. Liddell’s restricted stock award of 66,667 shares of our restricted common stock vests in 12 substantially equal quarterly installments beginning on +March 18, 2010. The amount was calculated using certain assumptions, as set forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2010, included in our Annual Report on Form 10-K, filed with the +SEC on March 14, 2011. +(2) +Mr. Moore’s restricted stock award of 45,000 shares of our restricted common stock vests in five annual installments. Of this amount, 3,000 shares vested on +December 17, 2010 and 6,000 shares vest on December 17, 2011, 9,000 shares vest on December 17, 2012, 12,000 shares vest on December 17, 2013 and 15,000 shares vest on December 17, 2014. The amount was calculated using +certain assumptions, as set forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2010, included in our Annual Report on Form 10-K, filed with the SEC on March 14, 2011. +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information concerning equity awards outstanding for our principal executive officer, our principal financial officer and our other highest paid executive officer at +December 31, 2010. +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date(1) +Number +of Shares +or Units +of Stock +That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vest +($)(2) +James D. Palm +200,000 +— +$ +11.20 +12/1/2015 +16,667 +(3) +$ +361,341 +Mike Liddell +182,908 +— +$ +3.36 +1/24/2015 +44,447 +(4) +$ +963,611 +Michael G. Moore +10,000 +— +$ +3.36 +1/24/2015 +— +$ +— +20,000 +— +$ +9.07 +9/9/2015 +42,000 +(5) +$ +910,560 +(1) +The option expiration date reflects the tenth anniversary from the date of grant. +25 +Table of Contents +(2) +Market value of shares or units that have not vested is based on the closing price of $21.68 per share of our common stock on The NASDAQ Global Select Market on +December 31, 2010, the last trading day of 2010. +(3) +These shares of restricted stock vest in three substantially equal quarterly installments on March 18, 2011, June 17, 2011 and September 17, 2011. +(4) +These shares of restricted stock vest in eight substantially equal quarterly installments on March 18, June 17, September 17 and December 17 of each +year through December 17, 2012. +(5) +These shares of restricted stock vest in four annual installments as follows: 6,000 shares vest on December 17, 2011; 9,000 shares vest on December 17, 2012; +12,000 shares vest on December 17, 2013; and 15,000 shares vest on December 17, 2014. +OPTION +EXERCISES AND STOCK VESTED +The following table provides certain information for the named executive officers on stock option exercises +during 2010, including the number of shares acquired upon exercise and the value realized, and the number of shares acquired upon the vesting of restricted stock awards. +Name +Option Awards +Stock Awards +Number of Shares +Acquired on Exercise +(#) +Value Realized +on +Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on +Vesting +($) +James D. Palm +— +— +22,220 +324,175 +(1) +Mike Liddell +— +— +22,220 +324,123 +(1) +Michael G. Moore +— +— +3,000 +62,580 +(1) +(1) +Value realized on vesting is based on the vesting date closing price per share of our common stock on The NASDAQ Global Select Market. +DIRECTOR COMPENSATION +The following table contains information with respect to 2010 compensation of our directors who served in such capacity during that year, except that the +2010 compensation of those directors who are also our named executive officers is disclosed in the Summary Compensation Table above. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +Total +($) +Donald L. Dillingham(1) +19,000 +— +— +19,000 +David L. Houston(1) +25,000 +— +— +25,000 +Scott E. Streller(1) +23,500 +— +— +23,500 +(1) +There were 660, 3,889 and 3,889 shares of unvested restricted common stock outstanding at the end of 2010 for Messrs. Dillingham, Houston and Streller. In addition, +options to purchase an aggregate of 20,000 shares of common stock were outstanding for Mr. Houston at the end of 2010. +Retirement Plans +401(k) Plan +We maintain a retirement savings plan, or a 401(k) Plan, for the benefit of our eligible employees who have attained the age of 18. +Currently, employees may elect to defer their compensation up to the statutorily prescribed limit. During the following year, we make a safe harbor contribution equal to 3% of each eligible +26 +Table of Contents +employee’s gross annual compensation for the prior calendar year. We also have the ability to make an additional, discretionary contribution based on each eligible employee’s gross +annual compensation for the prior calendar year. Both contributions are made, regardless of employee’s deferrals into the plan. In 2010, we made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain +limitations provided by our 401(k) plan and Internal Revenue Services’ regulations. All contributions made by us on behalf of an employee are 100% vested when contributed. The 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) +of the Internal Revenue Code. As such, contributions to the 401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) Plan, and all contributions are deductible by us when made. +Amended and Restated 2005 Stock Incentive Plan +Our Amended and Restated 2005 Stock Incentive Plan was adopted to enable us, and any of our affiliates, to attract and retain the services of the types of employees, consultants and directors who will +contribute to our long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of our stockholders. The plan provides a means by which eligible recipients of awards may be given +an opportunity to benefit from increases in value of our common stock through the granting of incentive stock options, nonstatutory stock options, restricted awards, performance awards and stock appreciation rights. Our board of directors, or a +committee of the board of directors, serves as the plan administrator. +Eligible award recipients are employees, consultants and directors of +ours and our affiliates. Incentive stock options may be granted only to our employees. Awards other than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our +authorized but unissued common stock, and the maximum aggregate amount of such common stock which may be issued upon exercise of all awards in the plan, including incentive stock options, may not exceed 3,000,000 shares, subject to adjustment to +reflect certain corporate transactions or changes in our capital structure. In March 2010, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and +Restated 2005 Stock Incentive Plan. Of this amount, 22,220 shares had vested as of December 31, 2010, and the remaining 44,447 shares vest in eight substantially equal quarterly installments on each March 18, June 17, September 17 and +December 17 through December 17, 2012. In addition, in November 2010, the compensation committee granted a restricted stock award of 45,000 shares of restricted common stock to our Chief Financial Officer under our Amended and Restated +2005 Stock Incentive Plan, which shares vest in five annual installments. Of this amount, 3,000 shares vested on December 17, 2010 and 6,000 shares vest on December 17, 2011, 9,000 shares vest on December 17, 2012, 12,000 shares vest +on December 17, 2013 and 15,000 shares vest on December 17, 2014. On April 15, 2011, 433,241 shares were issuable upon exercise of outstanding options and 314,773 shares of restricted common stock had been granted under this plan. +There were 1,034,341 shares available for future grants under this plan. +In the event of significant corporate transaction involving a change +in control (as defined in the plan) of our company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related +transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the +sole discretion of the plan administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the +event an option award would be cancelled without consideration paid to the extent vested, the option award recipient may exercise the option award in full or in part for a period of ten days. The plan administrator may also exercise its +discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +27 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth, as of December 31, 2010, certain information with respect to all compensation plans under which equity securities +are authorized for issuance. +Plan Category +Number of Securities to +be issued upon exercise +of outstanding +options, +warrants and rights +(a)(1)(2) +Weighted average +exercise price of +outstanding options, +warrants and +rights +(b)(3) +Number of securities +remaining available +for future issuance +under equity +compensation +plans +(excluding securities +reflected in column +(a))(c) +Equity compensation plans approved by security holders(1) +571,627 +$ +7.23 +1,034,341 +Equity compensation plans not approved by security holders +— +— +— +(1) +Refers to our Amended and Restated 2005 Stock Incentive Plan and our 1999 Stock Option Plan. +(2) +Includes 113,386 shares of unvested restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan. +(3) +The weighted average exercise price does not take into account shares of restricted common stock because they have no exercise price. +Employment Agreements +What are the terms of the employment agreements with our executive officers? +In May 1999, +we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and automatically renews for successive one-year terms thereafter. The agreement provides for an annual base salary of +$200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $262,330 effective June 1, 2010. Upon termination of Mr. Liddell’s employment by us without cause, +Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. The agreement also restricts Mr. Liddell’s use or disclosure of any of our +confidential information during the term of the agreement and for a period of five years thereafter. +We also entered into an oral agreement +with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which Mr. Palm is entitled to an annual salary of $200,000 and, at the discretion of our board of directors, an annual cash incentive +bonus. For 2010, Mr. Palm’s annual salary was $225,000. The compensation committee has determined that Mr. Palm’s annual salary for 2011 will remain at the 2010 level. Mr. Palm is also eligible to participate in all +insurance, retirement and benefits plans available to our other employees. +Change in Control Arrangements +Our named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement provides +that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. See +“Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan provides that in the event of a significant corporate transaction involving a change in control of our company, such as a dissolution or +liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, +consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive +28 +Table of Contents +Plan may, in the sole discretion of the plan administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with +or without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan +administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential payments to our Chief Executive Officer and our other named executive officers upon termination or following a change in control event are set forth under the heading “Potential Payments +upon Termination or Change-in-Control” below. +Potential Payments Upon Termination or Change-in-Control +If Mr. Liddell had been terminated at December 31, 2010 without cause, he would have been entitled to $262,330 in cash severance payments. If +Messrs. Palm and Moore had been terminated at December 31, 2010 for any reason, they would have been entitled to no cash severance payments. +29 +Table of Contents +Stock Ownership +Holdings of Major Stockholder +The following table sets forth certain information regarding the beneficial ownership as of April 15, 2011 of shares of our common stock by each person or entity known to us to be a beneficial owner +of 5% or more of our common stock. +MAJOR STOCKHOLDER TABLE +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Owners +Percent of +Class +Charles E. Davidson +8,565,786 +(2) +18.0 +% +411 W. Putnam Avenue +Greenwich, CT 06830 +(1) +Beneficial ownership is determined in accordance with SEC rules. The percentage of shares beneficially owned is based on 47,543,821 shares of common stock outstanding +as of April 15, 2011, including 99,585 shares of restricted common stock awarded under our Amended and Restated 2005 Stock Incentive Plan, but not yet vested. +(2) +Based on the Schedule 13D/A filed with the SEC on April 7, 2011 by Charles E. Davidson and CD Holding Company, LLC. Represents 8,565,786 shares of common stock +held by CD Holding Company, LLC. Mr. Davidson is the manager and a member of CD Holding Company, LLC and the Chairman and Chief Investment Officer of Wexford Capital LP. +Holdings of Officers and Directors +The following table sets +forth certain information regarding the beneficial ownership as of April 15, 2011 of shares of our common stock by each of our directors, by each named executive officer and by all directors and executive officers as a group: +Name of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Mike Liddell(2) +910,288 +1.9 +% +Donald L. Dillingham +6,666 +* +David L. Houston(3) +46,666 +* +Scott E. Streller(4) +12,632 +* +James D. Palm(5) +223,887 +* +Michael G. Moore(6) +73,100 +* +Directors and Executive Officers as a Group (6 persons) +1,273,239 +2.7 +% +* +Less than 1%. +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by +that person that are exercisable as of April 15, 2011, or exercisable within 60 days of April 15, 2011, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage +ownership of each other person. The percentage of shares beneficially owned is based on 47,543,821 shares of common stock outstanding as April 15, 2011, including 99,585 shares of restricted common stock awarded under our Amended and Restated +2005 Stock Incentive Plan, but not yet vested. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 15, 2011 or within 60 days of April 15, 2011. +30 +Table of Contents +(2) +Represents (i) 669,412 shares of our common stock held by Mr. Liddell directly, (ii) 38,887 unvested shares of restricted common stock granted under the Amended and +Restated 2005 Stock Incentive Plan, which vest in seven substantially equal quarterly installments during the period June 17, 2011 through December 17, 2012, (iii) 19,081 shares of our common stock held by Liddell Investments LLC, an entity +controlled by Mr. Liddell, of which shares Mr. Liddell may be deemed to be the beneficial owner, and (iv) options to purchase 182,908 shares of our common stock, all of which are fully vested and exercisable as of April 15, 2011. +(3) +Represents (i) 23,333 shares of our common stock held by Mr. Houston directly, (ii) options to purchase 20,000 shares of our common stock, all of which are fully vested +and exercisable as of April 15, 2011 and (iii) 3,333 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which vest in six substantially equal quarterly installments during the period June 17, +2011 through September 17, 2012. +(4) +Represents (i) 9,299 of our common stock held by Mr. Streller directly and (ii) 3,333 unvested shares of our restricted common stock granted under the Amended and +Restated 2005 Stock Incentive Plan, which vest in six substantially equal quarterly installments during the period June 17, 2011 through September 17, 2012. +(5) +Represents (i) 10,000 shares of our common stock, of which Mr. Palm and his spouse, Terri Palm, have shared voting and dispositive powers, (ii) 27,773 shares of our +common stock held by Mr. Palm directly, (iii) options to purchase 175,000 shares of our common stock, all of which are fully vested and exercisable as of April 15, 2011 and (iv) 11,114 unvested shares of our restricted stock, granted on December 5, +2008 under the Amended and Restated 2005 Stock Incentive Plan, which vest in two substantially equal quarterly installments on June 17, 2011 and September 17, 2011. +(6) +Represents (i) 1,100 shares of our common stock held by Mr. Moore directly, (ii) 42,000 unvested shares of restricted common stock granted under the Amended and +Restated 2005 Stock Incentive Plan, which shares vest in four annual installments of 6,000 shares on December 17, 2011, 9,000 shares on December 17, 2012, 12,000 shares on December 17, 2013 and 15,000 shares on December 17, 2014 and +(iii) options to purchase 30,000 shares of our common stock, all of which are fully vested and exercisable as of April 15, 2011. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who beneficially own more than 10% of +a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of the forms they file. To our knowledge, based solely on a review of the copies of such +reports furnished to us and written representations of our officers and directors, all Section 16(a) reports for the year ended December 31, 2010 applicable to our officers and directors and such other persons were filed on a timely basis. +31 +Table of Contents +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be substantively applied to each transaction +reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the Company. Further, the Company’s Code of +Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party transactions. +The Company’s policy that all of its employees and directors, as well as their family members, must avoid any activity that is or has the appearance +of conflicting with the Company’s business interest. This policy is a written policy included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform +the designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the +Code of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give +rise to a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring +compliance with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all +relationships and transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, +have a direct or indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as +they determine in the good faith exercise of their discretion. +Administrative Services Agreements +We are a party to an administrative service agreement with Great White Energy Services LLC, which we refer to as Great White, which +agreement was entered into effective as of July 22, 2006. Under this agreement, our services include accounting, human resources, legal and technical support. The services provided and the fees for such services can be amended by mutual +agreement of the parties. This administrative service agreement had an initial three-year term, and upon expiration of that term the agreement has continued on a month-to-month basis. This administrative service agreement is terminable by either +party at any time with at least 30 days prior written notice. Great White reimburses us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing services +for such entity. Our services under this agreement ceased in January 2007, and we were not reimbursed any amounts by Great White for services provided under this agreement during the year ended December 31, 2010. However, Great White owes +continuing indemnification obligations to us in connection with the pending Cudd litigation described in more detail in our Annual Report on Form 10-K. Great White paid us $67,000 in 2010 as reimbursement for our attorneys fees and expenses in +connection with such litigation. Great White is controlled by Wexford Capital LP. Charles Davidson, who beneficially owned approximately 18.0% of our outstanding common stock as of April 15, 2011, is the Chairman and Chief Investment Officer of +Wexford Capital LP. Mike Liddell, our Chairman of the Board, is also Chairman of the Board of Great White. +We are also a party to +administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Grizzly Oil Sands ULC, which we refer to as Grizzly, Everest Operations Management LLC, +32 +Table of Contents +which we refer to as Everest, and Tatex Thailand III, LLC, which we refer to as Tatex III, which agreements were each entered into effective March 1, 2008. Under these agreements, our +services include professional and technical support. The services provided under these agreements and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements had an initial +two-year term, and has continued thereafter on a month-to-month basis. Each agreement may be cancelled by either party to such agreement with at least 60 days prior written notice and is also terminable (1) by the counterparty at any time with +at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We did not provide services under any of +these agreements in 2010 and received no reimbursements thereunder. Each of Stampede Farms, Grizzly, Everest and Tatex III is controlled by Wexford Capital LP. Our administrative service agreement with Grizzly was terminated effective +December 31, 2010. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to identify and evaluate +potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, the +party whose acquisition team identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share +of the acquisition or divestiture consideration. The agreement has a one year term unless earlier terminated by either party upon 30 days notice. +From time to time, two of our petroleum engineers provide services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to +Tatex Thailand II, LLC, or Tatex II, and Tatex III. Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities. Each +of Tatex II and Tatex III is controlled by Wexford Capital LP. We did not provide any services under these arrangements in 2010. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge +services in our West Cote Blanche Bay, or WCBB, and Hackberry fields located along the Louisiana Gulf Coast. For the year ended December 31, 2010, we paid Athena $3,036,000 and owed an additional $791,000 for such services at that date. Athena +is controlled by Wexford Capital LP. +Windsor Energy Group operates our Permian Basin wells in West Texas. For the year ended +December 31, 2010, we paid Windsor Energy Group $32,641,000 and owed an additional $5,871,000 for such services at that date. Mike Liddell, our Chairman of the Board, is also Chairman of the Board of Windsor Energy Group, L.L.C. Windsor Energy +Group is controlled by Wexford Capital LP. +Effective March 1, 2008, Everest provides tax planning, preparation of supporting tax +schedules and consultation services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of the parties. Everest is controlled by Wexford Capital LP. We paid Everest $10,000 for these services +in 2010. +Caliber Development Company, LLC, or Caliber, provides building maintenance services for our headquarters in Oklahoma City, +Oklahoma. For the year ended December 31, 2010, we paid Caliber $18,000 and owed an additional $3,000 at that date. Mike Liddell, our Chairman of the Board, is Chief Executive Officer of Caliber. Caliber is an entity controlled by Wexford +Capital LP. +Great White Directional Services LLC, which we refer to as Directional, performs directional drilling services for us at our WCBB +and Hackberry fields. For the year ended December 31, 2010, we paid Directional +33 +Table of Contents +approximately $2,755,000 and owed an additional $952,000 for such services at that date. Directional is an entity controlled by Wexford Capital LP. +Great White Pressure Control, which we refer as Pressure Control, performs services for us at our WCBB field. At December 31, 2010, we owed $80,000 +to Pressure Control for such services at that date. No amounts were paid to Pressure Control in 2010. Pressure Control is an entity controlled by Wexford Capital LP. +Black Fin P&A, LLC, which we refer to as Black Fin, performs plugging and abandonment services for us at our WCBB field. For the year ended December 31, 2010, we paid $826,000 to Black Fin for +such services at that date. No additional amounts were owed to Black Fin at December 31, 2010. Black Fin is an entity controlled by Wexford Capital LP. +Our Investments in Affiliates and Related Agreements +During +2005, we purchased a 23.5% ownership interest in Tatex II at a cost of $2,400,000. The remaining interests in Tatex II are owned by other entities controlled by Wexford Capital LP. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 +outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering three million acres which includes the Phu Horm Field. +During 2010, we received $565,000 in distributions, reducing our total investment in Tatex II (including previous investments) to $1,907,000. +During the first quarter of 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. In December 2009, we purchased an additional +approximately 12.9% ownership interest at a cost of approximately $3,385,000 bringing our total ownership interest to approximately 17.9%. Approximately 68.7% of the remaining interests in Tatex III are owned by other entities and individuals +affiliated with Wexford Capital LP. During 2010, we paid $402,000 in capital calls, bringing our total investment in Tatex III to $4,660,000. +During the third quarter of 2006, we purchased, through our wholly owned subsidiary Grizzly Holdings, Inc., a 24.9999% interest in Grizzly, a Canadian +unlimited liability company, for approximately $8,200,000. The remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LP. During 2006 and 2007, Grizzly acquired leases in the Athabasca region located in the Alberta +Province near Fort McMurray near other oil sands development projects. Grizzly has approximately 534,000 acres under lease and, at December 31, 2010, our net investment in Grizzly was approximately $46,460,000, including a note receivable of +$20,006,000 as discussed in the following paragraph. +We, through our wholly owned subsidiary Grizzly Holdings Inc., entered into a loan +agreement with Grizzly effective January 1, 2008, under which Grizzly may borrow funds from us. Borrowed funds bear interest at LIBOR plus 4% and had an original maturity date of December 31, 2012. Effective April 1, 2010, the loan +agreement was amended to modify the interest rate to 0.69% and change the maturity date to December 31, 2011. Effective October 15, 2010, the loan agreement was further amended to change the maturity date to the original maturity date of +December 31, 2012. Interest is paid on a paid-in-kind basis by increasing the outstanding balance of the loan. We loaned Grizzly approximately $2,877,000 during the year ended December 31, 2010. The Company recognized interest income of +approximately $267,000 for the year ended December 31, 2010 under this loan agreement. The note balance was increased by approximately $942,000 as a result of a currency translation gain for the year ended December 31, 2010. +Area of Mutual Interest and Related Agreements +Effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly acquire oil and gas leases in the Permian Basin. The agreement provides that each +party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain +34 +Table of Contents +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. +In connection with the area of mutual interest agreement, we, Windsor Permian and Windsor Energy Group, L.L.C., as the operator, entered into the joint +development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy Group, L.L.C. agreed to act as the operator +under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either party has greater than a 50% interest in a prospect, as defined in the development agreement, the majority party may designate the operator +of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +Effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor Dakota LLC, or Windsor Dakota, to jointly acquire oil and gas leases on certain lands located +in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each party must offer the other party the right to participate in such acquisition in proportion to its +participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion to their respective participating +interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy Group, L.L.C., as the operator, also entered into an exploration agreement, effective as of +January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and Windsor Energy Group, L.L.C. agreed to act as the operator under the terms of a joint operating +agreement. In the event Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport as the operator. The parties agreed to pay Windsor Energy Group, L.L.C. for its services +as the operator with respect to the contract area as provided in the joint operating agreement. +Effective April 1, 2010, we entered into +an area of mutual interest agreement with Windsor Niobrara LLC, which we refer to as Windsor Niobrara, to jointly acquire oil and gas leases on certain lands located in Northwest Colorado for the purpose of exploring, exploiting and producing oil +and gas from the Niobrara Formation. The agreement provides that each party must offer the other party the right to participate in such acquisitions on a 50/50 basis. The parties also agreed, subject to certain exceptions, to share third-party costs +and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we and Windsor Niobrara also entered into a development agreement, effective as of +April 1, 2010, pursuant to which we and Windsor Niobrara agreed to jointly develop the contract area, and we agreed to act as the operator under the terms of a joint operating agreement. Windsor Niobrara is controlled by Wexford Capital LP. +Utica Agreement +In February 2011, we entered into an agreement to acquire certain leasehold interests in 27,500 gross (13,750 net) acres located in the Utica Shale in Ohio. The agreement also grants us an exclusive right +of first refusal for a period of six months on certain additional tracts leased by the seller. Windsor Energy Group, L.L.C., directly or through one or more of its affiliates, has agreed to participate with us on a 50/50 basis in the acquisition of +all of the leases described above. We will be the operator on this acreage in the Utica Shale. The purchase price for our 50% interest in the initial acreage is approximately $31.6 million, subject to certain closing adjustments. This transaction is +expected to close in mid-May 2011. Windsor Energy Group, L.L.C. is controlled by Wexford Capital LP. +35 +Table of Contents +Proposal to Approve, on an Advisory Basis, the Company’s +Executive Compensation +(Item 2 on the Proxy Card) +In accordance with the Dodd-Frank Act, our board of directors is providing our stockholders with a non-binding advisory vote on the Company’s executive compensation as reported in this proxy +statement, or “say on pay” vote. The Company’s stockholders are being asked to vote on the following resolution: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, +including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.” +While the vote on +executive compensation is non-binding and solely advisory in nature, our board of directors and the Compensation Committee will review and consider the “say on pay” voting results when making future decisions regarding our executive +compensation program. +Stockholders are encouraged to carefully review the “Compensation Discussion and Analysis” section of this +proxy statement, which discusses in detail the Company’s compensation policy and compensation arrangements which the Company believes are appropriate and reasonably consistent with market practice and with the long-term interests of the Company +and its stockholders. In furtherance of the Company’s goals and objectives, the Compensation Committee, among other things, ensures that the Company’s executive compensation arrangements (i) do not incentivize executives to take +unnecessary risks, (ii) do not include excessive change in control provisions and (iii) include long-term vesting provisions in the restricted stock grants to encourage executives to focus on long-term performance. +Board Voting Recommendation +The board +of directors unanimously recommends that stockholders vote “FOR” this Proposal 2. +36 +Table of Contents +Proposal to Approve, on an Advisory Basis, the Frequency of +Advisory Stockholder Vote on the Company’s Executive Compensation +(Item 3 on the Proxy Card) +In accordance with the Dodd-Frank Act, our board of directors is also providing our stockholders with a non-binding advisory vote on whether future +advisory votes on executive compensation of the nature reflected in Proposal 2 should be held every year, every two years or every three years. While this vote is non-binding and solely advisory in nature, our board of directors and the Compensation +Committee will carefully review and consider the voting results when determining the frequency of future advisory votes on executive compensation. +Our board of directors believes that a frequency of “every three years” for the advisory vote on executive compensation is the optimal interval for conducting and responding to a “say on +pay” vote. A triennial approach provides regular input by stockholders, while allowing time to evaluate the effects of the Company’s executive compensation over a longer period. Stockholders who have concerns about executive compensation +during the interval between “say on pay” votes are welcome to bring their specific concerns to the attention of our board of directors. For information regarding stockholder communications with our board of directors, see “Corporate +Governance Matters and Communications with the board of directors.” +The enclosed proxy card gives stockholders four choices for voting +on this item. Stockholders can choose whether the advisory vote on executive compensation should be conducted every year, every two years or every three years. Stockholders may also abstain from voting on this item. Stockholders are not +voting to approve or disapprove the board of directors’ recommendation on this item. +Board Voting Recommendation +The board of directors unanimously recommends that stockholders vote for the option of “every three years” for future advisory votes on +executive compensation. +37 +Table of Contents +Proposal to Ratify the Appointment of Our Independent Auditors +(Item 4 on the Proxy Card) +What am I voting on? +You are voting on a proposal to ratify the appointment of Grant +Thornton LLP as our independent auditors for fiscal year 2011. The Audit Committee has appointed Grant Thornton to serve as independent auditors. +What services do the independent auditors provide? +Audit services of Grant Thornton for +fiscal 2010 included an audit of our consolidated financial statements and services related to periodic filings made with the SEC. Additionally, Grant Thornton provided certain services related to the consolidated quarterly reports and annual and +other periodic reports, registration statements and comfort letters and other services as described below. +How much were the independent +auditors paid in 2009 and 2010? +Grant Thornton’s fees for professional services totaled $312,240 for 2009 and $376,556 for 2010. +Grant Thornton’s fees for professional services included the following: +• +Audit Fees – aggregate fees for audit services, which relate to the fiscal year consolidated audit, quarterly reviews, registration +statements, comfort letters, statutory and regulatory audits and accounting consultations were $312,240 in 2009 and $376,556 in 2010. +• +Audit-Related Fees – aggregate fees for audit-related services, consisting of audits in connection with proposed or consummated +dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations, were $0 in 2009 and $0 in 2010. +• +Tax and All Other Fees – there were no tax or other fees for products or services provided by Grant Thornton in addition to the services +described above in 2009 or 2010. +Does the Audit Committee approve the services provided by Grant Thornton? +It is our audit committee’s policy to pre-approve all audit, audit related and permissible non-audit services rendered to us by our +independent auditor. Consistent with such policy, all of the fees listed above that we incurred for services rendered by Grant Thornton LLP in fiscal 2009 and 2010 were pre-approved by our audit committee. No non-audit services were provided to us +by Grant Thornton in 2009 or 2010. +Will a representative of Grant Thornton LLP be present at the meeting? +Yes, one or more representatives of Grant Thornton will be present at the meeting. The representatives will have an opportunity to make a statement if +they desire and will be available to respond to appropriate questions from the stockholders. +What vote is required to approve this +proposal? +Stockholder ratification of the appointment of our independent auditors is not required by the Company’s bylaws or +otherwise. However, we are submitting this proposal to the stockholders as a matter of good corporate practice. Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal. If the appointment of Grant +Thornton is not ratified, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if +it is determined that such change would be in best interests of the Company and its stockholders. +38 +Table of Contents +Has Grant Thornton LLP always served as Gulfport’s independent auditors? +Grant Thornton has served as our independent auditors since 2005. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE +“FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE YEAR 2011. +Solicitation by Board; Expenses of Solicitation +Our board of +directors has sent you this proxy statement. Our directors, officers and employees may solicit proxies by mail, by telephone or in person. Those persons will receive no additional compensation for any solicitation activities. We will request banking +institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to forward solicitation materials to the beneficial owners of common stock held of record by those entities, and we will, upon the request of those record holders, +reimburse reasonable forwarding expenses. We will pay the costs of preparing, printing, assembling and mailing the proxy material used in the solicitation of proxies. +Submission of Future Stockholder Proposals +Under SEC rules, a +stockholder who intends to present a proposal, including the nomination of directors, at the 2012 Annual Meeting of Stockholders and who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing +to our Corporate Secretary. The proposal must be received no later than January 17, 2012. +Stockholders who wish to propose a matter for +action at the 2012 Annual Meeting, including the nomination of directors, but who do not wish to have the proposal or nomination included in the proxy statement, must notify the Company in writing of the information required by the provisions of our +by-laws dealing with stockholder proposals. The notice must be delivered to our Corporate Secretary between February 17, 2012 and March 19, 2012. You can obtain a copy of our by-laws by writing the Corporate Secretary at the address below, +or via the Internet at www.gulfportenergy.com under our “Corporate Governance” caption. +All written proposals should be +directed to Michael G. Moore, Corporate Secretary, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +The board of directors is responsible for selecting and recommending director candidates and will consider nominees recommended by stockholders. If you wish to have the board of directors consider a +nominee for director, you must send a written notice to our Corporate Secretary at the address provided above and include the information required by our by-laws and discussed on page 10 of this proxy statement. +Availability of Form 10-K and Annual Report to Stockholders +SEC rules require us to provide an Annual Report to stockholders who receive this proxy statement. Additional copies of the Annual Report, along with +copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, including the financial statements and the financial statement schedules, are available without charge to stockholders upon written request to Director of +Investor Relations, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134 or via the Internet at www.gulfportenergy.com . We will furnish the exhibits to our Annual Report on Form 10-K upon payment of +our copying and mailing expenses. +39 +Table of Contents +Householding +The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder +continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces our mailing and printing expenses. +If you would like to receive your own set of the annual report and proxy statement this year or in future years, follow the instructions described below. +Similarly, if you share an address with another Gulfport stockholder and together both of you would like to receive in the future only a single annual report and proxy statement, follow these instructions: +• +If your shares of our common stock are registered in your own name, please contact our transfer agent, Computershare Trust Company, N.A., and inform +them of your request by calling their toll-free number: (800) 962-4284 or by mail: Computershare Trust Company, N.A., 250 Royall Street, Canton, MA 02021. +• +If a broker or other nominee holds your shares, please contact your broker or nominee. +Other Matters +The board of directors does not intend to present any other items of business other than those stated in the Notice of Annual Meeting of Stockholders. If other matters are properly brought before the +meeting, the persons named as your proxies will vote the shares represented by it in accordance with their best judgment. Discretionary authority to vote on other matters is included in the proxy. +40 +Table of Contents +PROXY +FOR THE ANNUAL MEETING OF STOCKHOLDERS OF +Gulfport Energy Corporation +This Proxy Is Solicited On Behalf Of The Board Of Directors +The undersigned hereby appoints Mike Liddell, James D. Palm and Michael G. Moore (together, the “Proxies”), and each of them, +with full power of substitution, as proxies to vote the shares that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Gulfport Energy Corporation (the “Company”) to be held on June 16, 2011 at 10:00 a.m. Oklahoma +City time and at any adjournments and postponements thereof. Such shares shall be voted as indicated with respect to the proposals listed on the reverse side hereof and in the Proxies’ discretion on such other matters as may properly come +before the meeting or any adjournment or postponement thereof. +The undersigned acknowledges receipt of the 2011 Notice of +Annual Meeting and accompanying Proxy Statement and revokes all prior proxies for said meeting. +THE SHARES REPRESENTED BY +THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION IS GIVEN AS TO THE PROPOSALS ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES NAMED IN +PROPOSAL 1 AND FOR EACH OF THE PROPOSALS 2, 3 AND 4 IN ACCORDANCE WITH THE BOARD OF DIRECTOR’S RECOMMENDATION. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and signed on reverse side.) +Ù Detach here from proxy voting card. Ù +GULFPORT ENERGY CORPORATION +FOR +all nominees listed (except as withheld) +WITHHOLD AUTHORITY +to vote for nominees listed +¨ +¨ +Proposal 1 - ELECTION OF DIRECTORS +01 +Mike Liddell +¨ +¨ +02 +Donald L. Dillingham +¨ +¨ +03 +David L. Houston +¨ +¨ +04 +James D. Palm +¨ +¨ +05 +Scott E. Streller +¨ +¨ +Proposal 2 –Proposal to approve, on an advisory basis, the Company’s executive compensation +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +Proposal 3 –Proposal to approve, on an advisory basis, the frequency of advisory shareholder vote on the Company’s executive compensation +1 YEAR +¨ +2 YEARS +¨ +3 YEARS +¨ +ABSTAIN +¨ +Proposal 4 –Proposal to ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, +2011 +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +This proxy, when properly signed, will be voted in the manner directed +herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR ELECTION OF DIRECTORS UNDER PROPOSAL 1 AND FOR EACH OF THE PROPOSALS 2, 3 AND 4 IN ACCORDANCE WITH THE BOARD OF DIRECTOR’S +RECOMMENDATION. +IMPORTANT – PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. THANK YOU FOR VOTING. +Signature +Signature, if held jointly +Dated , 2011 +When shares are held by +joint tenants, both should sign. When signing as attorney, executor, administrator, trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a +partnership, please sign in partnership name by an authorized person. +Proxy – Gulfport Energy Corporation. +You are cordially invited to attend the Annual Meeting of Stockholders +To be held on June 16, 2011, at +10:00 a.m. Oklahoma City time, at +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-11-121660/proxy_rpt.txt b/raw/proxies/0000874499/0001193125-11-121660/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..78f6edae532b31f8303c4d6d254ce7ad426d19d0 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-11-121660/proxy_rpt.txt @@ -0,0 +1,109 @@ +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be substantively applied to each transaction +reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the Company. Further, the Company’s Code of +Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party transactions. +The Company’s policy that all of its employees and directors, as well as their family members, must avoid any activity that is or has the appearance +of conflicting with the Company’s business interest. This policy is a written policy included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform +the designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the +Code of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give +rise to a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring +compliance with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all +relationships and transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, +have a direct or indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as +they determine in the good faith exercise of their discretion. +Administrative Services Agreements +We are a party to an administrative service agreement with Great White Energy Services LLC, which we refer to as Great White, which +agreement was entered into effective as of July 22, 2006. Under this agreement, our services include accounting, human resources, legal and technical support. The services provided and the fees for such services can be amended by mutual +agreement of the parties. This administrative service agreement had an initial three-year term, and upon expiration of that term the agreement has continued on a month-to-month basis. This administrative service agreement is terminable by either +party at any time with at least 30 days prior written notice. Great White reimburses us for our dedicated employee time and related general and administrative costs based on the proportionate amount of time our employees spent performing services +for such entity. Our services under this agreement ceased in January 2007, and we were not reimbursed any amounts by Great White for services provided under this agreement during the year ended December 31, 2010. However, Great White owes +continuing indemnification obligations to us in connection with the pending Cudd litigation described in more detail in our Annual Report on Form 10-K. Great White paid us $67,000 in 2010 as reimbursement for our attorneys fees and expenses in +connection with such litigation. Great White is controlled by Wexford Capital LP. Charles Davidson, who beneficially owned approximately 18.0% of our outstanding common stock as of April 15, 2011, is the Chairman and Chief Investment Officer of +Wexford Capital LP. Mike Liddell, our Chairman of the Board, is also Chairman of the Board of Great White. +We are also a party to +administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Grizzly Oil Sands ULC, which we refer to as Grizzly, Everest Operations Management LLC, +32 +Table of Contents +which we refer to as Everest, and Tatex Thailand III, LLC, which we refer to as Tatex III, which agreements were each entered into effective March 1, 2008. Under these agreements, our +services include professional and technical support. The services provided under these agreements and the fees for such services can be amended by mutual agreement of the parties. Each of these administrative service agreements had an initial +two-year term, and has continued thereafter on a month-to-month basis. Each agreement may be cancelled by either party to such agreement with at least 60 days prior written notice and is also terminable (1) by the counterparty at any time with +at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We did not provide services under any of +these agreements in 2010 and received no reimbursements thereunder. Each of Stampede Farms, Grizzly, Everest and Tatex III is controlled by Wexford Capital LP. Our administrative service agreement with Grizzly was terminated effective +December 31, 2010. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to identify and evaluate +potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, the +party whose acquisition team identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share +of the acquisition or divestiture consideration. The agreement has a one year term unless earlier terminated by either party upon 30 days notice. +From time to time, two of our petroleum engineers provide services relating to evaluation of potential investments to Wexford Capital LLC and geological evaluations, seismic review and similar services to +Tatex Thailand II, LLC, or Tatex II, and Tatex III. Wexford Capital LLC, Tatex II and Tatex III, respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities. Each +of Tatex II and Tatex III is controlled by Wexford Capital LP. We did not provide any services under these arrangements in 2010. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge +services in our West Cote Blanche Bay, or WCBB, and Hackberry fields located along the Louisiana Gulf Coast. For the year ended December 31, 2010, we paid Athena $3,036,000 and owed an additional $791,000 for such services at that date. Athena +is controlled by Wexford Capital LP. +Windsor Energy Group operates our Permian Basin wells in West Texas. For the year ended +December 31, 2010, we paid Windsor Energy Group $32,641,000 and owed an additional $5,871,000 for such services at that date. Mike Liddell, our Chairman of the Board, is also Chairman of the Board of Windsor Energy Group, L.L.C. Windsor Energy +Group is controlled by Wexford Capital LP. +Effective March 1, 2008, Everest provides tax planning, preparation of supporting tax +schedules and consultation services to us, based on agreed upon fee structure. The scope of such services can be modified upon mutual agreement of the parties. Everest is controlled by Wexford Capital LP. We paid Everest $10,000 for these services +in 2010. +Caliber Development Company, LLC, or Caliber, provides building maintenance services for our headquarters in Oklahoma City, +Oklahoma. For the year ended December 31, 2010, we paid Caliber $18,000 and owed an additional $3,000 at that date. Mike Liddell, our Chairman of the Board, is Chief Executive Officer of Caliber. Caliber is an entity controlled by Wexford +Capital LP. +Great White Directional Services LLC, which we refer to as Directional, performs directional drilling services for us at our WCBB +and Hackberry fields. For the year ended December 31, 2010, we paid Directional +33 +Table of Contents +approximately $2,755,000 and owed an additional $952,000 for such services at that date. Directional is an entity controlled by Wexford Capital LP. +Great White Pressure Control, which we refer as Pressure Control, performs services for us at our WCBB field. At December 31, 2010, we owed $80,000 +to Pressure Control for such services at that date. No amounts were paid to Pressure Control in 2010. Pressure Control is an entity controlled by Wexford Capital LP. +Black Fin P&A, LLC, which we refer to as Black Fin, performs plugging and abandonment services for us at our WCBB field. For the year ended December 31, 2010, we paid $826,000 to Black Fin for +such services at that date. No additional amounts were owed to Black Fin at December 31, 2010. Black Fin is an entity controlled by Wexford Capital LP. +Our Investments in Affiliates and Related Agreements +During +2005, we purchased a 23.5% ownership interest in Tatex II at a cost of $2,400,000. The remaining interests in Tatex II are owned by other entities controlled by Wexford Capital LP. Tatex II, a privately-owned entity, holds 85,122 of the 1,000,000 +outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering three million acres which includes the Phu Horm Field. +During 2010, we received $565,000 in distributions, reducing our total investment in Tatex II (including previous investments) to $1,907,000. +During the first quarter of 2008, we purchased a 5% ownership interest in Tatex III at a cost of $850,000. In December 2009, we purchased an additional +approximately 12.9% ownership interest at a cost of approximately $3,385,000 bringing our total ownership interest to approximately 17.9%. Approximately 68.7% of the remaining interests in Tatex III are owned by other entities and individuals +affiliated with Wexford Capital LP. During 2010, we paid $402,000 in capital calls, bringing our total investment in Tatex III to $4,660,000. +During the third quarter of 2006, we purchased, through our wholly owned subsidiary Grizzly Holdings, Inc., a 24.9999% interest in Grizzly, a Canadian +unlimited liability company, for approximately $8,200,000. The remaining interests in Grizzly are owned by other entities controlled by Wexford Capital LP. During 2006 and 2007, Grizzly acquired leases in the Athabasca region located in the Alberta +Province near Fort McMurray near other oil sands development projects. Grizzly has approximately 534,000 acres under lease and, at December 31, 2010, our net investment in Grizzly was approximately $46,460,000, including a note receivable of +$20,006,000 as discussed in the following paragraph. +We, through our wholly owned subsidiary Grizzly Holdings Inc., entered into a loan +agreement with Grizzly effective January 1, 2008, under which Grizzly may borrow funds from us. Borrowed funds bear interest at LIBOR plus 4% and had an original maturity date of December 31, 2012. Effective April 1, 2010, the loan +agreement was amended to modify the interest rate to 0.69% and change the maturity date to December 31, 2011. Effective October 15, 2010, the loan agreement was further amended to change the maturity date to the original maturity date of +December 31, 2012. Interest is paid on a paid-in-kind basis by increasing the outstanding balance of the loan. We loaned Grizzly approximately $2,877,000 during the year ended December 31, 2010. The Company recognized interest income of +approximately $267,000 for the year ended December 31, 2010 under this loan agreement. The note balance was increased by approximately $942,000 as a result of a currency translation gain for the year ended December 31, 2010. +Area of Mutual Interest and Related Agreements +Effective as of November 1, 2007, we and Windsor Permian entered into an area of mutual interest agreement to jointly acquire oil and gas leases in the Permian Basin. The agreement provides that each +party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain +34 +Table of Contents +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. +In connection with the area of mutual interest agreement, we, Windsor Permian and Windsor Energy Group, L.L.C., as the operator, entered into the joint +development agreement, effective as of November 1, 2007, pursuant to which we and Windsor Permian agreed to develop certain jointly held oil and gas leases in the Permian Basin, and Windsor Energy Group, L.L.C. agreed to act as the operator +under the terms of the joint operating agreement, effective as of November 1, 2007. In the event either party has greater than a 50% interest in a prospect, as defined in the development agreement, the majority party may designate the operator +of its choice. The parties agreed to pay Windsor Energy Group, L.L.C. for its services as the operator with respect to the contract area as provided in the joint operating agreement. +Effective January 1, 2008, we entered into an area of mutual interest agreement with Bakken and Windsor Dakota LLC, or Windsor Dakota, to jointly acquire oil and gas leases on certain lands located +in North Dakota and Montana for the purpose of exploring, exploiting and producing oil and gas from the Bakken Shale. The agreement provides that each party must offer the other party the right to participate in such acquisition in proportion to its +participating interest, which is 20% for us and 80% for Bakken and Windsor Dakota, collectively. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion to their respective participating +interests and pay certain other fees as provided in the agreement. In connection with this agreement, we, Bakken, Windsor Dakota and Windsor Energy Group, L.L.C., as the operator, also entered into an exploration agreement, effective as of +January 1, 2008, pursuant to which we, Bakken and Windsor Dakota agreed to jointly evaluate, explore, exploit and develop the contract area, and Windsor Energy Group, L.L.C. agreed to act as the operator under the terms of a joint operating +agreement. In the event Gulfport has greater than a 50% interest in a prospect, as defined in the exploration agreement, the parties agreed to support Gulfport as the operator. The parties agreed to pay Windsor Energy Group, L.L.C. for its services +as the operator with respect to the contract area as provided in the joint operating agreement. +Effective April 1, 2010, we entered into +an area of mutual interest agreement with Windsor Niobrara LLC, which we refer to as Windsor Niobrara, to jointly acquire oil and gas leases on certain lands located in Northwest Colorado for the purpose of exploring, exploiting and producing oil +and gas from the Niobrara Formation. The agreement provides that each party must offer the other party the right to participate in such acquisitions on a 50/50 basis. The parties also agreed, subject to certain exceptions, to share third-party costs +and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we and Windsor Niobrara also entered into a development agreement, effective as of +April 1, 2010, pursuant to which we and Windsor Niobrara agreed to jointly develop the contract area, and we agreed to act as the operator under the terms of a joint operating agreement. Windsor Niobrara is controlled by Wexford Capital LP. +Utica Agreement +In February 2011, we entered into an agreement to acquire certain leasehold interests in 27,500 gross (13,750 net) acres located in the Utica Shale in Ohio. The agreement also grants us an exclusive right +of first refusal for a period of six months on certain additional tracts leased by the seller. Windsor Energy Group, L.L.C., directly or through one or more of its affiliates, has agreed to participate with us on a 50/50 basis in the acquisition of +all of the leases described above. We will be the operator on this acreage in the Utica Shale. The purchase price for our 50% interest in the initial acreage is approximately $31.6 million, subject to certain closing adjustments. This transaction is +expected to close in mid-May 2011. Windsor Energy Group, L.L.C. is controlled by Wexford Capital LP. +35 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-12-196642/proxy.txt b/raw/proxies/0000874499/0001193125-12-196642/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b1db6734aae19e626eda0db50ad533c147bfb41f --- /dev/null +++ b/raw/proxies/0000874499/0001193125-12-196642/proxy.txt @@ -0,0 +1,1798 @@ +DEF 14A +1 +d337122ddef14a.htm +DEFINITIVE PROXY STATEMENT +DEFINITIVE PROXY STATEMENT +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities +Exchange Act of 1934 +x Filed by the +Registrant ¨ Filed by a Party +other than the Registrant +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under § 240.14a-12 +Gulfport Energy Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy +Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +¨ +Fee paid previously with written preliminary materials. +Table of Contents +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +Table of Contents +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +2012 +ANNUAL STOCKHOLDERS +MEETING +and +PROXY STATEMENT +Thursday +June 7, 2012 +10:00 a.m. local time +14313 N. May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134 +April 30, 2012 +Dear Gulfport Energy Corporation Stockholder: +On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 14313 N. May +Avenue, Suite 100, Oklahoma City, Oklahoma 73134 on Thursday, June 7, 2012, at 10:00 a.m. +It is important that your shares be represented at the meeting. Whether or not you plan to attend the meeting, please complete and return the enclosed proxy card in the accompanying envelope. Please note +that submitting a proxy will not prevent you from attending the meeting and voting in person. +You will find information regarding the matters to be voted on at the meeting in the enclosed proxy statement. Our 2011 Annual Report to Stockholders is either enclosed with these materials or has +previously been mailed to you. This proxy statement and our 2011 Annual Report to Stockholders are also available on our website at www.gulfportenergy.com/proxy. +In addition to the formal items of business to be brought before the meeting, there will be a report on our operations, followed by a question and answer +period. Your interest in Gulfport Energy Corporation is appreciated. We look forward to seeing you on June 7, 2012. +Sincerely, +James D. Palm +Mike Liddell +Chief Executive Officer +Chairman of the Board +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 7, 2012 +To our Stockholders: +The Annual Meeting of Stockholders of Gulfport Energy Corporation will be +held on June 7, 2012 at 10:00 a.m., local time, at 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134, for the following purposes: +1. +To elect six directors to serve until the Company’s 2013 Annual Meeting of Stockholders; +2. +To hold an advisory vote on the Company’s executive compensation; +3. +To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2012; and +4. +To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. +Your vote is important. Please carefully consider the proposals and vote in one of these ways: +• +Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope; or +• +Submit a ballot at the Annual Meeting. +Only stockholders of record at the close of business on April 24, 2012 or their proxy holders may vote at the meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 7, 2012 . This proxy statement and the Company’s 2011 Annual Report to +Stockholders are available on the Company’s website at www.gulfportenergy.com/proxy. +By Order of the +Board of Directors, +Michael G. Moore +Chief Financial Officer and Secretary +This notice and proxy statement are first being mailed to stockholders on or about May 10, 2012. +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +PROXY +STATEMENT +TABL E OF CONTENTS +About the Annual Meeting +1 +Board of Directors Information +4 +Election of Directors and Director Biographies +5 +Corporate Governance Matters and Communications with the Board +9 +Code of Business Conduct and Ethics +10 +Nominating Process For Directors, Director Qualifications and Review of Director +Nominees +10 +Director Leadership Structure +11 +Board of Director’s Role in Risk Oversight +12 +Audit Committee Report +13 +Executive Officers +15 +Executive Compensation +16 +Compensation Discussion And Analysis +16 +Compensation Components +20 +Report of the Compensation Committee on Executive Compensation +24 +Compensation Committee Interlocks and Insider Participation +24 +Compensation Tables +25 +Retirement Plans +27 +401(k) Plan +27 +Amended and Restated 2005 Stock Incentive Plan +28 +Employment Agreements +29 +Stock Ownership +31 +Holdings of Major Stockholder +31 +Holdings of Officers and Directors +32 +Section 16(a) Beneficial Ownership Reporting Compliance +33 +Certain Relationships and Related Transactions +34 +Review and Approval of Related Party Transactions +34 +Administrative Services Agreements +34 +Services Provided to Us by Our Affiliates +34 +Our Investments in Affiliates and Related Agreements +35 +Area of Mutual Interest and Related Agreements +36 +Proposal to Approve, on an Advisory Basis, the Company’s Executive Compensation +38 +Proposal to Ratify the Appointment of Our Independent Auditors +39 +Solicitation by Board; Expenses of Solicitation +40 +Submission of Future Stockholder Proposals +40 +Availability of Form 10-K and Annual Report to Stockholders +40 +Householding +41 +Other Matters +41 +i +Table of Contents +About the Annual Meeting +Who is soliciting my vote? +The board of +directors of Gulfport Energy Corporation, which we refer to as “Gulfport,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2012 Annual Meeting of Stockholders. In accordance with the +Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and consistent with the advisory vote of the Company’s stockholders obtained in 2011, the Company’s board of directors is providing the +Company’s stockholders with a non-binding advisory vote on, among other proposals, the Company’s executive compensation. This and other proposals to be voted on by the Company’s stockholders at the 2012 Annual Meeting of Stockholders +are described in more detail below. +What am I voting on? +You are voting on: +• +The election of directors ( see Proposal 1 beginning on page 5 ); +• +Approving, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy statement ( see +Proposal 2 on page 38 ); +• +The ratification of Grant Thornton LLP as our independent auditors for 2012 ( see Proposal 3 beginning on page 39 ); and +• +Any other business properly coming before the meeting. +How does the board of directors recommend that I vote my shares? +Unless you give other +instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors. The board of directors’ recommendation can be found with the description of each +item in this proxy statement. In summary, the board of directors recommends a vote: +• +FOR the proposal to elect nominated directors; +• +FOR approving, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy statement ( see +page 38 ); +• +FOR the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2012. +Who is entitled to vote? +You may vote +if you were the record owner of our common stock as of the close of business on April 24, 2012. Each share of common stock is entitled to one vote. As of April 24, 2012, we had 55,649,717 shares of common stock outstanding and entitled to +vote, excluding 342,502 shares of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, but not yet vested. There is no cumulative voting. +How many votes must be present to hold the meeting? +Your shares are counted as present at +the Annual Meeting if you attend the meeting and vote in person or if you properly return a proxy by mail. In order for us to hold our meeting, holders of a majority of the voting power of our outstanding shares of common stock as of the close of +business on April 24, 2012 must be present in person or by proxy at the meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the meeting. +1 +Table of Contents +What is a broker non-vote? +If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive instructions from the beneficial owner on how to vote those shares, the broker may +return the proxy card without voting on that proposal. This is known as a broker non-vote . No broker may vote your shares without your specific instructions on any of the proposals to be considered at the Annual Meeting other than the +ratification of our independent auditors. +How many votes are needed to approve each of the proposals? +The six nominees for election as directors at the Annual Meeting who receive the highest number of “FOR” votes will be elected as directors. +This is called plurality voting. Unless you indicate otherwise on your proxy card, the persons named as your proxies will vote your shares FOR all the nominees for director named in Proposal 1. +Proposals 2 and 3 require the affirmative “FOR” vote of a majority of the votes cast by the stockholders present in person or represented by +proxy at the Annual Meeting and entitled to vote thereon. Only votes for or against these proposals will be counted as votes cast. +Abstentions and broker non-votes will not be counted for voting purposes and will have no effect on the result of the vote on any of the proposals +presented at the Annual Meeting. +How do I vote? +You can vote either in person at the meeting or by proxy without attending the meeting. +To vote by proxy, you must fill out the enclosed proxy card , date and sign it, and return it in the enclosed postage-paid envelope. +Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person at the Annual Meeting, and you hold your stock in street name, you must obtain a proxy +from your broker and bring that proxy to the meeting. +Can I change my vote? +Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by: +• +Signing another proxy card with a later date and returning it to us prior to the meeting; +• +Sending our Corporate Secretary a written document revoking your earlier proxy; or +• +Voting again at the meeting. +Who counts the votes? +We have hired Computershare Trust Company, N.A., our transfer agent, +to count the votes represented by proxies cast by mail or ballot. Employees of Computershare Trust Company, N.A. will act as inspectors of election. +Will my vote be confidential? +Yes. As a matter of Company policy, proxies, ballots and +voting tabulations that identify individual stockholders are treated as confidential. Only the tabulation agent and the inspectors of election have access to your vote. Directors and employees of the Company may see your vote only if there is a +contested proxy solicitation, as required by law or in certain other special circumstances. +2 +Table of Contents +Will my shares be voted if I don’t provide my proxy and don’t attend the Annual Meeting? +If you do not provide a proxy or vote your shares held in your name, your shares will not be voted. +If you hold your shares in street name, your broker may be able to vote your shares for certain “routine” matters even if you do not provide +the broker with voting instructions. The ratification of Grant Thornton LLP as our independent auditors for 2012 is considered routine. For matters not considered “routine,” if you do not give your broker instructions on how to vote your +shares, the broker will return the proxy card without voting on that proposal. This is a broker non-vote. The proposals to elect directors and to approve, on an advisory basis, the Company’s executive compensation are not considered routine. As +a result, no broker may vote your shares on the proposals to elect directors and to approve, on an advisory basis, the Company’s executive compensation without your specific instructions. +How are votes counted? +In the election +of directors contemplated by Proposal 1, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For Proposals 2 and 3, you may vote “FOR,” “AGAINST” +or “ABSTAIN.” +What if I return my proxy but don’t indicate my vote on the matters listed on my proxy card? +If you return a signed proxy card without indicating your vote, your shares will be voted FOR the director nominees listed on the card, FOR approving, on +an advisory basis, the Company’s executive compensation as described in this proxy statement and FOR the ratification of Grant Thornton LLP as our independent auditors for 2012. +Could other matters be decided at the Annual Meeting? +We have not received any stockholder +proposals and are not aware of any other matters that will be considered at the Annual Meeting. If any other matters arise at the Annual Meeting, the persons named in your proxies will vote in accordance with their best judgment. +Who can attend the meeting? +The Annual +Meeting is open to all holders of our common stock. +What do I need to bring to attend the Annual Meeting? +You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of your broker or bank or other nominee, you +will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN +SHARES OF OUR STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING. +How can I access the Company’s proxy materials and annual report +electronically? +This proxy statement and the Company’s 2011 Annual Report to Stockholders are available on the Company’s website +at www.gulfportenergy.com/proxy. +3 +Table of Contents +Board of Directors Information +What is the makeup of the board of directors and how often are the members elected? +Our board of directors consists of six members who are elected annually. The majority of these directors are independent under the Nasdaq listing standards. +What if a nominee is unable or unwilling to serve? +That is not expected to occur. If it does, shares represented by proxies will be voted for a substitute nominated by the board of directors. +How are directors compensated? +Our policy adopted in the second quarter of 2007 is that +members of our board of directors who are also our officers or employees do not receive compensation for their services as directors. +Cash Compensation +In 2011, we paid our non-employee directors a monthly retainer of +$1,000 and a per meeting in-person attendance fee of $500 and reimbursed all ordinary and necessary expenses incurred by non-employee directors in the conduct of our business. In addition to the fees described above, each committee member of our +board of directors receives $3,000 per year for his service on each committee, provided that the committee chairman receives $4,500 per year per committee. As of the date of this proxy statement, no changes to the cash compensation structure for our +non-employee directors have been made for 2012. +Equity Compensation +From time to time, we provide our non-employee directors with equity compensation under our Amended and Restated 2005 Stock Incentive Plan as additional +compensation and incentive. Our current non-employee directors are Donald L. Dillingham, Craig Groeschel, David L. Houston and Scott E. Streller. In May 2011, we granted 6,666 shares of our restricted common stock to Mr. Dillingham under our +Amended and Restated 2005 Stock Incentive Plan, which shares vest in three annual installments of 2,220 on March 16, 2012, 2,220 shares on March 18, 2013 and 2,226 shares on March 18, 2014. In October 2011, we granted 6,666 shares of +our restricted common stock to Mr. Groeschel under our Amended and Restated 2005 Stock Incentive Plan in connection with Mr. Groeschel’s appointment to our board of directors in August 2011, which shares vest in three annual +installments of 2,220 shares on December 15, 2011, 2,220 shares on December 14, 2012 and 2,226 shares on December 16, 2013. Neither Mr. Streller nor Mr. Houston received any awards in 2011 under our Amended and Restated 2005 +Stock Incentive Plan because we granted 6,666 shares of our restricted common stock to each of them in November 2009. The shares of our restricted common stock granted to Messrs. Streller and Houston vest in 12 substantially equal quarterly +installments beginning on December 17, 2009. Further details regarding our director compensation in 2011 are set forth under the heading “Director Compensation” below. +Insurance and Indemnification +We provide liability insurance for our directors and officers at a current annual cost of approximately $410,000. In addition, our certificate of incorporation sets forth limitations on our +directors’ liability to our stockholders. Further, our bylaws contain indemnification and advancement of expenses provisions for the benefit of our directors and officers. +How often did the board of directors meet in 2011? +The board of directors met six times in +2011. In addition to these meetings, the board of directors adopted resolutions by unanimous written consent. Each director attended at least 75% of the aggregate meetings of the board of directors and the meetings of the committees on which he +served. +4 +Table of Contents +Election of Directors and Director Biographies +(Proposal 1 on the Proxy Card) +Who are this year’s nominees? +The directors standing for election this year to hold +office until the 2013 Annual Meeting of Stockholders and until each such director’s successor is elected are: +MIKE LIDDELL, age +58. Mr. Liddell has served as a director of the Company since July 1997 and as Chairman of the Board of the Company since July 1998. Mr. Liddell served as Chief Executive Officer of the Company from April 1998 to December 2005 and +President of the Company from July 2000 to December 2005. Mr. Liddell also served as President and Chief Executive Officer of Caliber Development Company, LLC from March 2004 until June 2006, and has served as its Chief Executive Officer since +June 2006. In addition, Mr. Liddell served as Chief Executive Officer of DLB Oil & Gas, Inc., a publicly held oil and natural gas company, from October 1994 to April 1998, and as a director of DLB Oil & Gas from 1991 through +April 1998. From 1991 to 1994, Mr. Liddell was President of DLB Oil & Gas. From 1979 to 1991, he was President and Chief Executive Officer of DLB Energy. Mr. Liddell served as a director of Bronco Drilling Company, Inc., a +provider of contract land drilling services, from May 2005 until August 2008 and as its Chairman of the Board from May 2005 until August 2007. Mr. Liddell received a Bachelor of Science degree in education from Oklahoma State University. +DONALD DILLINGHAM, age 49. Mr. Dillingham has served as a director of the Company since November 2007. Since August 2001, +Mr. Dillingham has served as the Senior Portfolio Manager for Avondale Investments, LLC and Merit Advisors, Inc., each of which is a registered investment advisor. Mr. Dillingham is currently the Senior Portfolio Manager for two mutual +funds, a member of the investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer of the Merit Advisors Investment Trust. From August 2002 to December 2004, Mr. Dillingham served as an adjunct professor of finance at the +University of Oklahoma. From April 1998 to August 2001, Mr. Dillingham served as Senior Vice President, portfolio manager and state director for J.P. Morgan Investment Management. From March 1996 to April 1998, Mr. Dillingham served +American Express as the state director responsible for managing the financial planning services and product sales for the state of Oklahoma. From May 1994 to December 1996, Mr. Dillingham worked for Bank of America as Vice-President of +Investment Banking. Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker and sales manager from August 1984 to May 1994. Mr. Dillingham received a Bachelors of +Business and Administration in Accounting from the University of Oklahoma and his Masters of Business and Administration in Finance from Oklahoma City University. Mr. Dillingham is a Chartered Financial Analyst, a Certified Public Accountant +and a Certified Financial Planner. +CRAIG GROESCHEL, age 44. Mr. Groeschel has served as a director of the Company since August +2011. Since 1996, Mr. Groeschel has served as a founding pastor of LifeChurch.tv, one of the largest churches in the United States, reaching over 30,000 people each weekend. Since founding LifeChurch, Mr. Groeschel has served on its Board +of Directors. Under Mr. Groeschel’s leadership, LifeChurch has grown to 15 locations in the United States. Mr. Groeschel received a Bachelors in Business Marketing from the Oklahoma City University and a Masters of Divinity from the +Phillips Graduate Seminary. Mr. Groeschel is a frequent speaker at various domestic and international forums and an author of a number of books. +DAVID L. HOUSTON, age 59. Mr. Houston has served as a director of the Company since July 1998. Since 1991, Mr. Houston has been the principal of Houston & Associates, a firm that +offers life and disability insurance, compensation and benefits plans and estate planning. Prior to 1991, Mr. Houston was President and +5 +Table of Contents +Chief Executive Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank. Mr. Houston served on the board of directors and executive committee of Deaconess Hospital, Oklahoma +City, Oklahoma, from January 1993 until December 2008 and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston also served as a director of Bronco Drilling Company from May +2005 until December 2010 and was a member of its audit committee. Mr. Houston received a Bachelor of Science degree in business from Oklahoma State University and a graduate degree in banking from Louisiana State University. +JAMES D. PALM, age 67. Mr. Palm has served as a director of the Company since February 2006 and as Chief Executive Officer of the Company +since December 2005. Prior to joining the Company, Mr. Palm pursued oil and gas investments primarily in Oklahoma, the Texas Panhandle and Kansas as the manager and owner of Crescent Exploration, LLC, a company he founded in 1995. Mr. Palm +currently serves as a member of the Industry Advisory Committee of the Oklahoma Corporation Commission. From October 2001 through October 2003, Mr. Palm served as the Chairman of the Oklahoma Energy Resources Board. From 1997 through 1999, +Mr. Palm served as the President of the Oklahoma Independent Petroleum Association. Mr. Palm received a Bachelor of Science degree in Mechanical Engineering in 1968, and a Masters in Business Administration in 1971, both from Oklahoma +State University. +SCOTT E. STRELLER, age 44. Mr. Streller has served as a director of the Company since August 2006. Since April +1993, Mr. Streller has operated an insurance agency for Farmer’s Insurance and Farmer’s Financial Solutions. Mr. Streller received a Master’s degree in Athletic Administration from Oklahoma State University and a Bachelor of +Business Administration degree in Business Management from the University of Central Oklahoma. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS +6 +Table of Contents +What are the committees of the Board? +Our board of directors has the following committees: +Committee +Members +Principal Functions +Number of +Meetings in +2011 +Audit +David L. Houston* +Donald L. Dillingham +Scott E. +Streller +• Reviews and discusses with management and the independent +auditors the integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management compliance. +• Monitors and oversees our accounting, auditing and financial reporting +processes generally, including the qualifications, independence and performance of the independent auditor. +• Monitors our compliance with legal and regulatory requirements. +• Establishes procedures for the receipt, retention and treatment of complaints +received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. +• Reviews +and approves related party transactions. +• Appoints, determines compensation, evaluates and terminates our independent auditors. +• Pre-approves audit and permissible non-audit services to be performed by the +independent auditors. +• Prepares the report required by the SEC for the inclusion in our annual proxy +statement. +• Reviews and reassesses the adequacy of the audit committee charter on a +periodic basis. +5 +Compensation +Scott E. Streller +David L. +Houston* +• Oversees and administers our executive compensation +policies, plans and practices and evaluates their impact on risk and risk management. +• Assists the board of directors in discharging its responsibilities relating +to the compensation of our executives, including our chief executive officer, and other key employees. +• Administers our equity-based compensation plans, including the grants of +stock options, restricted stock awards and other equity awards under such plans. +3 +7 +Table of Contents +Committee +Members +Principal Functions +Number of +Meetings in +2011 +• Makes recommendations to the board with respect to +incentive compensation. +• Conducts annual performance evaluation of the committee. +• Reviews +disclosure related to executive compensation in our proxy statement. +• Reviews and considers the stockholders’ advisory vote on executive compensation and the frequency of holding such advisory vote. +• Reviews +and reassesses the adequacy of the compensation committee charter. +Nominating +Donald L. Dillingham +David L. Houston +Scott E. +Streller* +• Assists the board of directors in developing criteria for, +identifying and evaluating individuals qualified to serve as members of our board of directors. +• Selects and recommends director candidates to the board of directors to be +submitted for election at the Annual Meeting and to fill any vacancies on the board of directors. +• Periodically reviews and makes recommendations regarding the composition and +size of the board of directors and each of its committees. +• Reviews and recommends to the board of directors appropriate corporate governance policies and procedures for the Company. +• Conducts +an annual assessment of the qualifications and performance of the board of directors. +• Annually reviews and reports to the board of directors on the performance of +management. +• Reviews and reassesses the adequacy of the nominating committee +charter. +1 +* +Committee Chairperson +Do the committees +have written charters? +Yes. The charters for our Audit Committee, Compensation Committee and Nominating Committee can be found on our +website at www.gulfportenergy.com under the “Corporate Governance” caption. You may also obtain copies of these charters, as well as our Code of Business Conduct and Ethics, which is described below, by writing to our Corporate +Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +8 +Table of Contents +Corporate Governance Matters and Communications with the Board +Who are our independent directors? +Our board of directors has determined that Donald L. Dillingham, Craig Groeschel, David L. Houston and Scott E. Streller meet the standards regarding independence set forth in the Nasdaq listing standards +and are free of any relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors of the Company. +Our board of directors has determined that each member of the Audit Committee is independent for purposes of serving on such committee under the Nasdaq +listing standards and applicable federal law. In addition, our board of directors has determined that each current member of the Audit Committee is financially literate under the Nasdaq listing standards and that each of Mr. Houston, who serves +as the Chairman of the Audit Committee, and Mr. Dillingham qualifies as the “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. +Our board of directors has also determined that each member of the Compensation Committee and the Nominating Committee meets the independence requirements applicable to those committees under the Nasdaq +rules. In addition, our board of directors determined that each member of our compensation committee is an “outside director” in accordance with Section 162(m) of the Internal Revenue Code and a “non-employee director” in +accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended. +Do our non-management directors meet separately without +management? +Our non-management directors have the opportunity to meet in an executive session following each regularly scheduled meeting +of the board of directors. During 2011, our non-management directors met in an executive session on April 25, 2011. +How can I +communicate with the board of directors? +Individuals may communicate with our board of directors or individual directors by writing to our +Corporate Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. Our Corporate Secretary will review all such correspondence and forward to our board of directors a summary of all +such correspondence and copies of all correspondence that, in the opinion of our Corporate Secretary, relates to the functions of our board of directors or the compensation committee thereof or that he otherwise determines requires their attention. +Directors may review a log of all such correspondence received by us and request copies. Concerns relating to accounting, internal control over financial reporting or auditing matters will be immediately brought to the attention of the chairman of +the audit committee and handled in accordance with the audit committee procedures established with respect to such matters. +Do directors +attend the Annual Meeting? +Recognizing that director attendance at our Annual Meeting can provide our stockholders with an opportunity to +communicate with directors about issues affecting the Company, we actively encourage our directors to attend the Annual Meeting of Stockholders. All of our directors attended the 2011 Annual Meeting of Stockholders. +9 +Table of Contents +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and Ethics designed to help directors and employees resolve ethical issues. Our Code of Business Conduct and +Ethics applies to all directors and employees, including the Chief Executive Officer, the Chief Financial Officer and all senior financial officers. Our Code of Business Conduct and Ethics covers various topics including, but not limited to, +conflicts of interest, fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is posted on our website under the “Investor +Relations—Corporate Governance” caption. +Nominating Process For Directors, Director +Qualifications and Review of Director Nominees +The Nominating Committee is comprised of three non-employee directors, all of whom are +independent under Nasdaq listing standards. As provided by the Nominating Committee’s charter, our Nominating Committee identifies, investigates and recommends to our board of directors candidates with the goal of creating a balance of +knowledge, experience and diversity. Generally, the committee identifies candidates through the personal, business and organizational contacts of the directors and management. +Potential directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the interests of our stockholders. In addition to reviewing a +candidate’s background and accomplishments, candidates for director nominees are reviewed in the context of the current composition of our board of directors and the evolving needs of our stockholders’ businesses. It is the policy of our +board of directors that at all times at least a majority of its members meets the standards of independence promulgated by Nasdaq and the Securities and Exchange Commission, or the SEC, and that all members reflect a range of talents, ages, skills +and expertise, particularly in the areas of accounting and finance, management, leadership and oil and gas related industries sufficient to provide sound and prudent guidance with respect to our stockholders’ operations and interests. In +addition to the foregoing factors, our Nominating Committee considers diversity in its evaluation of candidates for board membership. Although our board of directors does not have a formal diversity policy, our board believes that diversity with +respect to viewpoint, skills and experience should be an important factor in board composition. Our Nominating Committee ensures that diversity considerations are discussed in connection with each potential nominee, as well as on a periodic basis in +connection with its periodic review of the composition of the board and the size of the board as a whole. +We also require that the members of +our board of directors be able to dedicate the time and resources sufficient to ensure the diligent performance of their duties on our behalf, including attending all meetings of the board of directors and applicable committee meetings. In +accordance with its charter, our Nominating Committee periodically reviews the criteria for the selection of directors to serve on our board and recommends any proposed changes to our board of directors for approval. +Our board of directors will consider stockholder nominations for director candidates upon written submission of such recommendation to our Corporate +Secretary along with, among other things, the nominee’s qualifications and certain biographical information regarding the nominee, such nominee’s written consent to serving as a director if elected and being named in the proxy or +information statement and certain information regarding the status of the stockholder submitting the recommendation, all in the manner required by our amended and restated bylaws and the applicable rules and regulations promulgated under the +Securities Exchange Act of 1934, as amended. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by our board of directors at a regularly scheduled or special meeting. +If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to our board of directors. +10 +Table of Contents +Our board of directors may also review materials provided by professional search firms or other parties in +connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, our board of directors will seek to achieve a balance of knowledge, experience and capability on the board. Our board of directors uses the same criteria +for evaluating candidates nominated by stockholders as it does for those proposed by current board members, professional search firms and other persons. After completing its evaluation, our board of directors approves the final slate of director +nominees. +Our Nominating Committee approved the director nominees submitted for election at this Annual Meeting. Each nominee is a current +board member and brings a strong and unique background and set of skills to our board of directors, giving our board of directors as a whole competence and experience in a variety of areas, including corporate governance and board service, executive +management, oil and natural gas industry, accounting and finance and risk assessment and management. Specifically, in nominating the current board members for re-election at this Annual Meeting, our Nominating Committee considered such +directors’ past service on our board and the information discussed in each of the directors’ individual biographies set forth beginning on page 5 above. In particular, with regard to Messrs. Liddell and Palm, our Nominating Committee +considered their respective public company experience as executive officers and directors, as well as their strong oil and natural gas backgrounds. With respect to Mr. Palm, our Nominating Committee also considered his current and prior service +with various state and independent advisory boards and committees in the petroleum industry. With regard to Mr. Dillingham, our Nominating Committee considered his strong background in finance and risk assessment and management developed as +part of his career as a registered investment advisor and portfolio manager, as well as his academic experience. With regard to Mr. Groeschel, our Nominating Committee considered his leadership and prior board service at a non-profit +organization, community involvement and administrative and public speaking skills. With regard to Messrs. Houston and Streller, our Nominating Committee considered their respective business backgrounds and risk assessment skills. +Director Leadership Structure +Since December 2005, the positions of Chairman of the Board and Chief Executive Officer have been held by two different individuals. Separating these positions allows our Chief Executive Officer to focus +on our day-to-day business and operations, while allowing our Chairman of the Board to lead the board in its fundamental role of providing advice to and oversight of management. In accordance with our bylaws, the position of the Chairman of the +Board is an executive officer position and not an independent director position. The Chairman of the Board provides leadership to our board of directors and works with the board of directors to define its structure and activities in the fulfillment +of its responsibilities. The Chairman of the Board sets the board agendas, with the input from other members of the board and our management, facilitates communications among and information flow to directors, has the power to call special meetings +of our board of directors and stockholders and presides at meetings of our board of directors and stockholders. The Chairman of the Board also advises and counsels our Chief Executive Officer and other officers. Our board of directors does not have +a position of a lead director. +We believe that our directors bring a broad range of leadership experience to the boardroom and regularly +contribute to the thoughtful discussion involved in effectively overseeing the business and affairs of the Company. We believe that the atmosphere of our board is collegial, that all board members are well engaged in their responsibilities, and that +all board members express their views and consider the opinions expressed by other directors. We do not believe that appointing an independent board chairman, or a lead or presiding director, would improve the performance of our board of directors. +Further, four out of six directors on our board are independent under the Nasdaq listing standards and SEC rules. We believe that all of our independent directors have demonstrated leadership in business enterprises and are familiar with board +processes. Our independent directors are involved in the leadership structure of our board by serving on our Audit, Nominating and Compensation committees, each having a separate independent chairperson. Specifically, the chair of our Audit +Committee oversees the accounting and financial reporting processes, as well as compliance with legal and +11 +Table of Contents +regulatory requirements. The chair of our Compensation Committee oversees the annual performance evaluation of our Chief Executive Officer and our compensation policies and practices and their +impact on risk and risk management. The chair of our Nominating Committee monitors matters such as the composition of the board and its committees, board performance and best practices in corporate governance. As such, each committee chair provides +independent leadership for purposes of many important functions delegated by our board of directors to such committee. +Board of Director’s Role in Risk Oversight +As an exploration and production company, we face a number of risks, including risks +associated with supply of and demand for oil and natural gas, volatility of oil and natural gas prices, exploring for, developing, producing and delivering oil and natural gas, declining production, environmental and other government regulations and +taxes, weather conditions, including hurricanes, that can affect oil and natural gas operations over a wide area, adequacy of our insurance coverage, political instability or armed conflict in oil and natural gas producing regions and overall +economic environment. Management is responsible for the day-to-day management of risks we face as the company, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. It its risk +oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. +Our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management +and oversight. Our Chairman of the Board meets regularly with our Chief Executive Officer and our Chief Financial Officer to discuss strategy and risks facing the Company. Our executive officers regularly attend the board meetings and are available +to address any questions or concerns raised by the board on risk management-related and any other matters. Other members of our management team periodically attend the board meetings or are otherwise available to confer with the board to the extent +their expertise is required to address risk management matters. Periodically, our board of directors receives presentations from senior management on strategic matters involving our operations. During such meetings, our board of directors also +discusses strategies, key challenges, and risks and opportunities for the company with senior management. +While our board of directors is +ultimately responsible for risk oversight at the Company, our three committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. Our Audit Committee assists the board in fulfilling its oversight responsibilities +with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and discusses policies with respect to risk assessment and risk management. Our Compensation Committee +assists the board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. Our Nominating Committee assists the board in fulfilling its oversight responsibilities with +respect to the management of risks associated with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance. +12 +Table of Contents +Audit Committee Report +The Audit Committee is responsible for providing independent, objective oversight for the integrity of the Company’s financial reporting process and +internal control system. Other primary responsibilities of the Audit Committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the Company’s independent registered public accounting firm +and providing an open venue for communication among the independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of the Company. A more detailed description of the +responsibilities of the Audit Committee is set forth in its written charter, which is posted on our website at www.gulfportenergy.com . The following report summarizes certain of the Audit Committee’s activities with respect to its +responsibilities during 2011. +Review with Management and Independent Registered Public Accounting Firm. The Audit Committee has +reviewed and discussed with management and Grant Thornton LLP, an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, 2011. +Controls and Procedures. Management has established and maintains a system of disclosure controls and procedures designed to provide reasonable +assurance that information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the +SEC’s rules and forms, and includes controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our Chief +Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2011, management conducted an evaluation of our disclosure controls and procedures. Based on this +evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or +submit under the Securities and Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Audit Committee discussed with management and Grant Thornton LLP the +quality and adequacy of the Company’s disclosure controls and procedures. +Management has also established and maintains a system of +internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that +disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in +Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control—Integrated Framework, management concluded +that our internal control over financial reporting was effective as of December 31, 2011, as discussed in more detail in Management’s Report on Internal Control Over Financial Reporting, which was included in our Annual Report on Form 10-K +for the year ended December 31, 2011, filed with the SEC on February 27, 2012. Our internal control over financial reporting as of December 31, 2011 has been audited by Grant Thornton LLP, as stated in its attestation report, which +was included in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 27, 2012. The Audit Committee reviewed and discussed with management and Grant Thornton LLP the Company’s system of +internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. +Discussions with +Independent Auditing Firm. The Audit Committee has discussed with Grant Thornton LLP, independent auditors for the Company, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, +as amended. The Audit Committee has received the written disclosures and the letter from Grant Thornton LLP required by applicable requirements of the Public Company +13 +Table of Contents +Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence and has discussed with that firm its independence from the +Company. +Recommendation to the board of directors. Based on its review and discussions noted above, the Audit Committee recommended to +the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. +THE AUDIT COMMITTEE +David L. Houston, Chairman +Donald L. Dillingham +Scott E. Streller +14 +Table of Contents +Executive Officers +The following table sets forth the name, age and positions of each of our executive officers as of the record date: +Name +Age +Position +Mike Liddell +58 +Chairman of the Board and Director +James D. Palm +67 +Chief Executive Officer, Director +Michael G. Moore +55 +Vice President, Chief Financial Officer and Secretary +Biographical information for each of Messrs. Liddell and Palm is set forth in this proxy statement under the heading +“Election of Directors and Director Biographies.” +MICHAEL G. MOORE. Mr. Moore has served as Vice President and Chief +Financial Officer of the Company since July 2000. From May 1998 through July 2000, Mr. Moore served as Vice President and Chief Financial Officer of Indian Oil Company. From September 1995 through May 1998, Mr. Moore served as Controller +of DLB Oil & Gas. Prior to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based gas marketing company. Mr. Moore received both his Bachelor of Business Administration degree in Finance and his Masters in Business +Administration from the University of Central Oklahoma. +15 +Table of Contents +Executive Compensation +Compensation Discussion And Analysis +Compensation Practices +Until the end of 2007, all compensation decisions for our +Chief Executive Officer and our Chief Financial Officer (other than decisions relating to our equity compensation plans) were made by our Chairman of the Board. Our Chairman of the Board has been compensated as provided in his employment agreement +with the Company, which was effective as of June 1, 1999. Although our board of directors established a compensation committee effective as of February 14, 2006, until the end of 2007, the role of the compensation committee was limited, as +we relied on the “controlled company” exemption and applicable transition rules provided by the Nasdaq listing standards. The compensation committee is currently composed entirely of independent directors. Since the end of 2007, the +compensation committee has been primarily responsible for establishing, implementing and monitoring our compensation programs, including those applicable to our executive officers. In particular, the compensation committee’s current role is to +oversee, on behalf of our board of directors, our compensation and benefit plans and policies, administer our stock plans (including reviewing and approving equity grants to directors and executive officers) and review and approve annually all +compensation decisions relating to our Chief Executive Officer and make recommendations to our board of directors and Chairman of the Board with respect to other executive officer compensation. The compensation committee meets at least annually to +review executive compensation programs, approve compensation levels, consider performance targets, review management performance and administer our equity-based compensation plans. The compensation committee operates in accordance with its charter, +adopted effective as of February 14, 2006, which sets forth its powers and responsibilities described in more detail under the “Corporate Governance—Compensation Committee.” +Compensation Philosophy and Objectives +The objectives of our compensation program are to: +• +attract and retain key executives; +• +align the interests of our executives with those of our stockholders; and +• +motivate and reward individual performance and contributions. +Compensation Benchmarking +In the fall of 2010, the compensation committee engaged Equilar, an outside consultant, to provide executive compensation analysis for 2010 focusing on how base salaries, annual bonuses, equity awards and +total compensation packages of our named executive officers compared to such compensation elements of similarly situated executives at peer group companies. The 2010 Equilar survey included the following industry peer companies: Abraxas Petroleum +Corporation, Brigham Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, Goodrich Petroleum Corporation, Petroleum Development Corporation, +Petroquest Energy Inc., Sandridge Energy Inc., St. Mary Land & Exploration Company, Stone Energy Corporation, Swift Energy Company and Whiting Petroleum Corporation. The 2010 Equilar survey revealed that our named executive officers’ +compensation for 2010 was below the mean and median amounts received by similarly situated executives at peer group companies with respect to each compensation element. The compensation committee reviewed the results of the 2010 Equilar survey and +evaluated bonuses and equity awards for 2010 and compensation packages for 2011 for our Chairman of the Board, Chief Executive Officer and Chief Financial Officer in light of the compensation packages received by their peers. The compensation +committee also considered our 2010 performance, the value these executives bring to the Company, market trends, peer benchmarking, economic climate, their respective experience and leadership roles and employee retention considerations. The +compensation committee noted that the Company demonstrated strong performance metrics as compared to its peers based on one year total shareholder return, three year total shareholder return and net income. +16 +Table of Contents +Based on these considerations, in November 2010, the compensation committee granted 2010 discretionary +bonuses to our Chief Executive Officer and our Chief Financial Officer. The compensation committee also granted a $50,000 discretionary bonus for 2011 to our Chairman of the Board in recognition of his continuing contributions to the Company. The +compensation committee also considered the need to continue to incentivize our named executive officers by providing long term equity awards with a time vesting component in light of peer group companies’ practices. Based on the foregoing, the +compensation committee approved a restricted stock award to our Chief Financial Officer. The compensation committee considered prior restricted stock awards granted to our Chairman of the Board in March 2010 and to our Chief Executive Officer in +December 2008 and determined not to award any additional restricted stock grants to such executive officers. The compensation committee did not make any other substantive changes to our named executive officers’ compensation structure for 2011, +except that in May 2011, the compensation committee approved a grant of a restricted stock award with a time vesting component to our Chief Financial Officer to continue to incentivize him and to reward his contribution to the Company’s +successful completion of an equity offering to, among other purposes, finance the acquisition of certain assets in the Utica Shale in Eastern Ohio. +In the fall of 2011, the compensation committee again engaged Equilar to provide executive compensation analysis for 2011 focusing on how base salaries, annual bonuses, equity awards and total +compensation packages of our Chief Executive Officer and Chief Financial Officer compared to such compensation elements of similarly situated executives at peer group companies. The 2011 Equilar survey included the following industry peer companies: +Abraxas Petroleum Corporation, Berry Petroleum Company, Brigham Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, EV Energy Partners, LP, +Goodrich Petroleum Corporation, Petroleum Development Corporation, Petroquest Energy Inc., RAM Energy Resources, Inc., Sandridge Energy Inc., SM Energy Company, Stone Energy Corporation, Swift Energy Company and Whiting Petroleum Corporation. The +2011 Equilar survey revealed that similar to the results of the 2010 Equilar survey, these named executive officers’ compensation for 2011 continued to be below the mean and median amounts received by similarly situated executives at peer group +companies with respect to each compensation element, except that the value of our Chief Financial Officer’s 2011 restricted stock award exceeded both mean and median values of equity awards granted in 2011 to Chief Financial Officers of peer +group companies. The compensation committee reviewed the results of the 2011 Equilar survey and evaluated the bonuses and equity awards for 2011 and the compensation packages for 2012 for our Chairman of the Board, Chief Executive Officer and Chief +Financial Officer in light of the compensation packages received by their peers. The compensation committee also considered our 2011 performance, the value these executives bring to the Company, market trends, peer benchmarking, economic climate, +their respective experience and leadership roles and employee retention considerations. The compensation committee noted that in 2011 the Company continued to demonstrate strong performance metrics as compared to its peers based on one year total +shareholder return, three year total shareholder return and net income. +Based on these considerations, in October 2011, the compensation +committee granted 2011 discretionary bonuses to our Chief Executive Officer and our Chief Financial Officer. Such bonuses represented increases from bonuses granted to such executive officers for the prior year, which were intended to reflect our +strong 2011 performance and their respective contributions to the Company, including with respect to the Company’s successful completion of the underwritten public equity offerings to finance acquisitions of oil and gas assets, including in the +Utica Shale in Eastern Ohio. The bonuses were also intended to bring these named executive officers’ overall compensation closer to the total compensation received by similarly situated executives at peer group companies. The compensation +committee also increased our Chief Executive Officer’s annual salary to $250,000, effective August 16, 2011, and adjusted our Chairman of the Board’s salary for the annual increase in the cost of living contemplated by his employment +agreement. The compensation committee also considered the need to continue to incentivize our named executive officers by providing long term equity awards with a time vesting component in light of peer group companies’ practices. The +compensation committee noted its intention to evaluate an equity award grant for our Chief Executive Officer in 2012 to further incentivize him, considering that all of his previously granted equity awards had vested. In light of the restricted +stock award granted to our Chairman of the Board in March of 2010 and the restricted stock awards granted to our Chief Financial Officer in November 2010 +17 +Table of Contents +and May 2011, the compensation committee did not recommend any equity awards for such named executive officers at that time. The compensation committee also determined to grant a $500,000 +discretionary bonus for 2012 to our Chairman of the Board in recognition of his continuing contributions to the Company. The compensation committee did not make any other substantive changes to our named executive officers’ compensation +structure for 2012 at that time. In February 2012, once the Company’s 2011 results of operations were available, the compensation committee again reviewed the compensation packages for our named executive officers for 2012 in light of our prior +year’s performance and the 2011 Equilar survey of compensation packages of similarly situated executive officers at peer group companies. During such review, the compensation committee evaluated our strategy for recruiting, retaining and +motivating our named executive officers and key employees. The compensation committee noted the Company’s strong financial performance on the basis of total stockholder value metrics and considered our named executive officers’ respective +contributions to our strong operating and financial performance, including our successful completion of three equity offerings in 2011 to, among other purposes, finance the acquisition of certain strategic assets in the Utica Shale in Eastern Ohio. +The compensation committee indicated its desire to adjust the incentive structure for our named executive officers to align their interests more closely with those of our stockholders and to more adequately reward such named executive officers for +their respective performances in 2011. Following such discussion, the compensation committee determined to grant restricted stock awards of 40,000 shares, 67,500 shares and 40,000 shares of restricted common stock to our Chairman of the Board, our +Chief Executive Officer and our Chief Financial Officer, respectively, under our Amended and Restated 2005 Stock Incentive Plan. See “Compensation Components—Restricted Stock Awards” below. The compensation committee also evaluated +the need for a new employment agreement with each of our Chairman of the Board and our Chief Executive Officer to, among other things, increase their salaries to be commensurate with their respective levels of responsibility with the Company, as +well as the need for an employment agreement with our Chief Financial Officer. The compensation committee determined to negotiate these employment agreements and consider our entry into such employment agreements at the compensation committee’s +May 2012 meeting. See “Compensation Components—Base Salary” below. +The elements of our compensation structure are discussed in +more detail below. +Compensation Policy +The key elements of our compensation program are salary, annual bonus and long-term incentive compensation. We use these elements to meet our compensation objectives as follows: +• +Attract and retain key executives . We believe that to attract and retain talented executives, we must offer compensation that is +competitive. We also believe that our Chairman of the Board, Mike Liddell, our Chief Executive Officer, James D. Palm, and our Chief Financial Officer, Michael G. Moore, are critical to the long-term success of the Company. To facilitate the +retention of our Chairman of the Board and our Chief Executive Officer, we entered into an employment agreement with Mr. Liddell in May of 1999 and into an oral agreement with Mr. Palm with respect to their respective compensations and +benefits. Although we believe that the terms of these agreements were reasonable as compared to similarly situated executives at peer group companies at the time we entered into them, at its February 2012 meeting, the compensation committee +determined that there is a need for a new employment agreement with each of our Chairman of the Board and our Chief Executive Officer and an employment agreement with our Chief Financial Officer to continue to retain their services and provide +certain protections to such named executive officers in light of industry practices. The compensation committee determined to negotiate employment agreements with such named executive officers for consideration at its May 2012 meeting. +• +Align the interests of our executives with those of our stockholders . In the past, we used both options and restricted stock awards to +provide long-term incentive compensation and to align the financial interests of our executives with those of our stockholders. Since 2006, we used restricted stock awards to incentivize our named executive officers. It is anticipated that in the +future the compensation committee will continue to structure our long-term incentive compensation in the form of restricted +18 +Table of Contents +stock awards, consistent with peer group companies’ practices. For a discussion of the Company’s long-term incentive policy, see “Long Term Incentive Compensation” below. +• +Stock Options . Stock options represent the right of an option holder to buy shares of our common stock at an exercise price equal to the market +value of our common stock on the date of grant. Under our outstanding stock options, the right to buy underlying shares generally vests in 36 substantially equal monthly installments from the date of grant, except that certain options vest in five +substantially equal annual installments beginning on the first anniversary of the date of grant. We awarded these stock options in order to align compensation with company performance as the options become valuable to the executive only if the stock +price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. +• +Restricted Stock Awards . In December 2008, the compensation committee granted a restricted stock award of 66,667 shares of restricted common +stock to our Chief Executive Officer under our Amended and Restated 2005 Stock Incentive Plan. All of these shares of restricted common stock had vested as of December 31, 2011. We did not grant any equity awards to any of our executive +officers in 2009. As additional compensation and incentive, in March 2010, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and Restated 2005 Stock +Incentive Plan, which shares vest in 12 substantially equal quarterly installments. Of this amount, 44,440 shares had vested as of December 31, 2011, 5,560 shares vested on March 18, 2012 and the 16,667 remaining unvested shares vest in +three substantially equal quarterly installments on June 17, September 17 and December 17, 2012. In November 2010, the compensation committee granted a restricted stock award of 45,000 shares of restricted common stock to our +Chief Financial Officer under our Amended and Restated 2005 Stock Incentive Plan to continue to provide incentive to him, which shares vest in five annual installments. Of this amount, 9,000 shares had vested as of December 31, 2011 and the +36,000 remaining unvested shares vest in three annual installments of 9,000 shares on December 17, 2012, 12,000 shares on December 17, 2013 and 15,000 shares on December 17, 2014. In May 2011, the compensation committee granted a +restricted stock award of 25,000 shares of restricted common stock to our Chief Financial Officer under our Amended and restated 2005 Stock Incentive Plan, of which 1,667 shares vested on June 17, 2011 and the 23,333 remaining unvested shares +vest in four annual installments of 3,333 shares on June 15, 2012, 5,000 shares on June 17, 2013, 6,667 shares on June 16, 2014 and 8,333 shares on June 17, 2015. In addition, in February 2012, the compensation committee granted +restricted stock awards of 40,000 shares, 67,500 shares and 40,000 shares of restricted common stock to our Chairman of the Board, our Chief Executive Officer and our Chief Financial Officer, respectively, under our Amended and Restated 2005 Stock +Incentive Plan. Of these shares, 2,500, 9,375 and 6,250 shares held by our Chairman of the Board, our Chief Executive Officer and our Chief Financial Officer, respectively, vested on March 16, 2012. The remaining 37,500 unvested shares of +restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan to our Chairman of the Board in February 2012 vest in 11 quarterly installments, with 7,500 shares vesting during the remainder of 2012, 20,000 shares vesting +in 2013 and 10,000 shares vesting in 2014. The remaining 58,125 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan to our Chief Executive Officer in February 2012 vest in 11 quarterly +installments, with 28,125 shares vesting during the remainder of 2012, 20,000 shares vesting in 2013 and 10,000 shares vesting in 2014. The remaining 33,750 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock +Incentive Plan to our Chief Financial Officer in February 2012 vest in 11 quarterly installments, with 18,750 shares vesting during the remainder of 2012, 10,000 shares vesting in 2013 and 5,000 shares vesting in 2014. Restricted stock awards ensure +that our executives have a continuing stake in the long-term success of the Company as the value of the award will depend on the stock price at the time of vesting. +19 +Table of Contents +• +Motivate and reward individual performance and contributions . The Company’s evaluation of the individual performance of each +executive officer affects most aspects of the executive’s compensation. Individual performance and level of responsibility are considered in determining an executive’s annual salary, and are important factors in deciding discretionary +bonuses and equity awards. +Compensation Components +Base Salary +Salaries for our Chairman of the Board and our Chief Executive Officer are provided for in their respective agreements described in more detail below +under the heading “Employment Agreements.” The annual base salary for our Chairman of the Board is increased annually in an amount equal to any increase in the cost of living as determined in accordance with his employment agreement. The +respective salaries for our Chief Executive Officer and Chief Financial Officer for 2011 were determined by our compensation committee and our Chairman of the Board, respectively. With respect to the 2011 salaries of our Chief Executive Officer and +our Chief Financial Officer, the various factors considered included the recommendation of our Chairman of the Board, the compensation of executive officers of comparable companies within the oil and natural gas industry, the performance of such +executive officer and changes in responsibilities, the experience, leadership and potential future contributions to the Company and, in the case of our Chief Executive Officer, his oral employment agreement with the Company. In the future, we +anticipate that the compensation committee will continue to review the base salaries of our named executive officers on an annual basis, subject to the terms of any employment agreements that we may have with our named executive officers, and will +consider similar factors, as well as the recommendation of our Chairman of the Board with respect to base salaries of other named executive officers. During 2011, the base salaries for our Chairman of the Board, our Chief Executive Officer and our +Chief Financial Officer were $267,534, $234,375 and $300,000, respectively. +In October 2011, the compensation committee reviewed and +considered salaries for our Chairman of the Board, Chief Executive Officer and Chief Financial Officer for 2012, taking into consideration their 2011 compensation packages and the compensation survey prepared by Equilar in the fall of 2011. The +compensation committee also considered the Company’s strong performance, as compared to its peers, based on one year total shareholder return, three year total shareholder return and net income. Further, the compensation committee considered +the value the executives bring to the Company, market trends, peer benchmarking, economic climate, experience, leadership and employee retention and, in the case of our Chairman of the Board and Chief Executive Officer, the terms of their respective +agreements with the Company. Following such review, the compensation committee adjusted the base salary of our Chairman of the Board for the increase in cost of living, as provided by his employment agreement, increased the base salary of our Chief +Executive Officer, effective August 16, 2011, to $250,000 and made no adjustment to the base salary of our Chief Financial Officer for 2011. In February 2012, the compensation committee again evaluated annual salaries of our named executive +officers in light of the 2011 Equilar survey and the need for a new employment agreement with each of our Chairman of the Board and our Chief Executive Officer to, among other matters, increase the annual salary of each of them to $300,000 to be +commensurate with the level of responsibility such named executive officer has with the Company, as well as the need for an employment agreement with our Chief Financial Officer. The compensation committee believes that these employment agreements +would allow us to continue to retain our named executive officers’ services and provide certain protections to them in light of industry practices. The compensation committee determined to negotiate these employment agreements and consider our +entry into such employment agreements at the compensation committee’s May 2012 meeting. +Discretionary Bonus +The compensation committee determined the year end discretionary bonuses that were paid to our Chief Executive Officer and our Chief +Financial Officer based on their respective performances in 2011 and other factors, including Company performance in 2011, the value the executives bring to the Company, market trends, +20 +Table of Contents +peer benchmarking, economic climate, experience, leadership and employee retention. Based on the considerations described under “Compensation Benchmarking,” the compensation committee +determined that each of our Chief Executive Officer and Chief Financial Officer would receive a year-end discretionary bonus of $500,000 and our Chairman of the Board would receive a discretionary bonus of $500,000 for 2012. +Long-Term Incentive Compensation +2011 and 2012 Awards . In May 2011, the compensation committee granted a restricted stock award of 25,000 shares of restricted common stock to our Chief Financial Officer under our equity plan. In +February 2012, the compensation committee reviewed and discussed the Company’s current equity compensation plan and objectives. The compensation committee also considered the need to issue new equity awards as old awards become fully vested, so +as to provide future incentives to our executive officers. Upon review, the compensation committee granted restricted stock awards of 40,000 shares, 67,500 shares and 40,000 shares, respectively, of restricted common stock to our Chairman of the +Board, Chief Executive Officer and Chief Financial Officer under our equity plan. For additional information regarding these awards, see “— Compensation Policy—Align the interests of our executives with those of our +stockholders—Restricted Stock Awards ” above. +Long-Term Incentive Policy . Although in the past we awarded both options +and restricted stock as part of our long-term incentive compensation program, our board of directors and the compensation committee believe that restricted stock awards are an essential component of our compensation strategy, and currently intend to +primarily offer such awards in the future. Further, we anticipate that any equity awards granted to our executive officers during 2012 will be in the form of restricted stock. The Committee may also determine to issue other forms of stock-based +awards to our named executive officers or other eligible participants under our Amended and Restated 2005 Stock Incentive Plan or other equity incentive plans in effect at that time. Our current equity incentive plan is described below under the +heading “Amended and Restated 2005 Stock Incentive Plan.” The compensation committee did not establish any objective performance targets for 2012. +Perquisites and Other Personal Benefits +Our company provides certain of our named +executive officers with a limited number of perquisites or other personal benefits, primarily consisting of life insurance premiums and in the case of our Chief Financial Officer, a company vehicle, that we believe help provide a competitive package +of compensation and benefits. The value of these benefits is disclosed in the Summary Compensation Table. +Broad-Based +Employee Benefits +• +401(k) Plan. We have retirement savings plan in which our named executive officers currently participate. The retirement plan is a tax qualified 401(k) +plan that covers all eligible employees including the named executive officers. Under the plan, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual compensation for the prior calendar year. We also have the +ability to make an additional, discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made regardless of employee’s deferrals into the plan. In 2011, we +made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Service’s regulations. All contributions made by us on behalf of an employee +are 100% vested when contributed. For more details regarding our 401(k) plan, see “Retirement Plans—401(k) Plan” below. +• +Our named executive officers are eligible to participate in all of our other employee benefit plans which include medical, dental, group life, +disability and accidental death and dismemberment insurance, in each case on the same basis as all other employees. +21 +Table of Contents +Employment Agreements +In May 1999, we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and automatically renews for successive one-year terms +thereafter. The agreement provides for an annual base salary of $200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $273,861 effective as of June 1, 2011. In the +event that Mr. Liddell’s employment is terminated by us without cause, Mr. Liddell would be entitled to receive twelve months of his then current base salary, and all of his then unexercisable options would become exercisable. The +agreement also restricts Mr. Liddell’s use or disclosure of any of our confidential information during the term of the agreement and for a period of five years thereafter. In February 2012, the compensation committee evaluated the need for +a new employment agreement with our Chairman of the Board to, among other things, increase his annual salary to $300,000 to be commensurate with the level of responsibility such named executive officer has with the Company. +We have entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which +Mr. Palm is entitled to an annual salary of $200,000 and, at the discretion of our board of directors, an annual cash incentive bonus. For 2011, Mr. Palm’s annual salary was $225,000. In October 2011, the compensation committee +increased Mr. Palm’s annual salary, effective August 2011, to $250,000. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans available to our other employees. In February 2012, the compensation +committee evaluated the need for a new employment agreement with our Chief Executive Officer to, among other things, increase his annual salary to $300,000 to be commensurate with the level of responsibility such named executive officer has with the +Company. +In February 2012, the compensation committee also evaluated the need for an employment agreement with our Chief Financial Officer. +The compensation committee believes that our entry into these employment agreements with our named executive officers would allow us to +continue to retain their services and provide certain protections to such named executive officers commensurate with industry practices. The compensation committee determined to negotiate these employment agreements with our named executive officers +and consider our entry into such employment agreements at the compensation committee’s May 2012 meeting. +Change in +Control Arrangements +Our named executive officers do not currently have any change in control arrangements, except that +Mr. Liddell’s employment agreement provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then +unexercisable options will become exercisable. See “Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan provides that in the event of a significant corporate transaction involving a change in +control (as defined under the plan) of the Company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related +transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the +sole discretion of the plan administrator, be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the +event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to +accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential +payments to our Chief Executive Officer and our other named executive officers upon termination or following a change in control event are set forth under the heading “Potential Payments upon Termination or Change-in-Control.” +22 +Table of Contents +Effect of Our Compensation Policies and Practices on Risk and Risk Management +The Compensation Committee reviews the risks and rewards associated with our compensation policies and programs. We believe that such +policies and programs encourage and reward prudent business judgment and appropriate risk-taking over the long term. With respect to specific elements of compensation: +• +We believe that our programs balance short- and long-term incentives for our executive officers providing for an appropriate mix of fixed, +discretionary and equity compensation that overall encourages long-term performance. +• +We believe that annual base salaries for our named executive officers do not encourage excessive risk-taking as they are fixed amounts that are subject +to discretionary increases by our compensation committee or the board of directors upon the recommendation of our compensation committee, as the case may be, based, among other factors, on annual performance evaluations. We also believe that such +annual base salaries are set at reasonable levels, as compared to the base salaries of similarly situated individuals at our peer group companies, and therefore do not encourage our named executive officers to be overly conservative with respect to +taking appropriate amount of risk to increase stockholder value. +• +Our annual bonuses are designed to award achievement of short-term results. The payment and amounts of such bonuses are within the discretion of and +determined by our compensation committee or the board of directors upon the recommendation of our compensation committee, as the case may be, based on the Company’s performance for the prior fiscal year and annual performance evaluations of our +named executive officers. +• +Stock options and restricted stock awards granted to our named executive officers are subject to time vesting provisions. We award stock options in +order to align compensation with company performance, as the options become valuable to the executive only if the stock price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the +appreciation potential of the options. We award restricted stock awards to ensure that our executives have a continuing stake in the long-term success of the Company as the value of the award will depend on the stock price at and after the time of +vesting. We believe that our long-term equity awards do not encourage excessive risk taking that may be associated with equity awards that vest based strictly on achieving certain targets. We also believe that our long-term equity awards provide +incentive to our named executive officers to take appropriate amount of risk. +• +Our named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement +provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. The +compensation committee determined to negotiate a new employment agreement with each of our Chairman of the Board and our Chief Executive Officer and an employment agreement with our Chief Financial Officer to continue to retain their services and +provide certain protections to such executive officers commensurate with industry practices. The compensation committee expects to consider our entry into such employment agreements at its May 2012 meeting. +Based on the foregoing, the Compensation Committee believes that the Company does not utilize compensation policies and programs creating risks that are +reasonably likely to have a material adverse impact on the Company. +Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax purposes of executive compensation +paid to the Chief Executive Officer and the four other most highly compensated officers of a public company to $1,000,000 per year, but contains an exception for certain performance-based compensation. Our policy is to periodically review and +consider whether particular compensation and incentive +23 +Table of Contents +payments to our executives will be deductible for federal income tax purposes. We intend, to the extent feasible and when we believe it is in the best interests of the Company and its +stockholders, to attempt to qualify executive compensation as tax deductible where it does not adversely affect the development and execution of our compensation plans. +Accounting Implications of Executive Compensation Policy +We are required to +recognize compensation expense of all stock-based awards pursuant to the provisions of FASB ASC Topic 718, “ Compensation—Stock Compensation .” Non-vested shares are deemed issued and outstanding from a legal perspective; +however, under U.S. generally accepted accounting principles, or GAAP, only vested shares are included in basic shares outstanding. Also, under GAAP, non-vested shares are included in diluted shares outstanding when the effect is dilutive. +The Role of Stockholders’ Say-on-Pay Vote +We provide our stockholders with the opportunity to cast an annual advisory vote on executive compensation (a “say-on-pay proposal”) in accordance with the Dodd-Frank Act. At our June 2011 +annual meeting of stockholders, our stockholders expressed substantial support for the compensation of our named executive officers, with approximately 99.7% of the votes cast for approval of the “say-on-pay” advisory vote. The +compensation committee evaluated the results of the 2011 “say-on-pay” advisory vote at its October 2011 meeting. The compensation committee believes that the results of the 2011 “say on pay” advisory vote affirm our +stockholders’ support of our executive compensation policies and practices. The compensation committee also believes that our executive compensation policies and practices are appropriate and reasonably consistent with market practices and with +the long-term interests of the Company and its stockholders, and did not make any significant changes to such policies and practices in 2011. The compensation committee will continue to consider the outcome of our stockholders’ future +“say-on-pay” votes when making compensation decisions for our named executive officers. +Report of the +Compensation Committee on Executive Compensation +The compensation committee has reviewed and discussed the foregoing Compensation +Discussion and Analysis with management. Based on its review and discussion with management, the compensation committee recommended that the Compensation Discussion and Analysis be included in this proxy statement. +Respectfully submitted by the compensation committee: +David L. Houston +Scott Streller +Compensation Committee Interlocks and Insider Participation +No +current member of our Compensation Committee has ever been an officer or employee of ours. None of our executive officers serves, or has served during the past fiscal year, as a member of the board of directors or compensation committee of any other +company that has one or more executive officers serving as member of our board of directors or compensation committee. +24 +Table of Contents +Compensation Tables +SUMMARY COMPENSATION TABLE +The following table provides information concerning compensation of our principal executive officer, principal financial officer and our other highest +paid executive officer for the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +All Other +Compensation +($)(2) +Total +($) +James D. Palm +2011 +$ +234,375 +$ +500,000 +$ +— +$ +— +$ +18,846 +$ +753,221 +Chief Executive Officer +2010 +$ +225,000 +$ +100,000 +$ +— +$ +— +$ +22,686 +$ +347,686 +2009 +$ +225,000 +$ +50,000 +$ +— +$ +— +$ +13,800 +$ +288,800 +Mike Liddell +2011 +$ +267,534 +$ +50,000 +$ +— +$ +— +$ +18,846 +$ +336,380 +Chairman of the Board +2010 +$ +262,330 +$ +50,000 +$ +662,003 +(3) +$ +— +$ +22,686 +$ +997,019 +2009 +$ +261,373 +$ +40,000 +$ +— +$ +— +$ +21,025 +$ +322,398 +Michael G. Moore +2011 +$ +300,000 +$ +500,000 +$ +758,000 +(4) +$ +— +$ +24,971 +$ +1,582,971 +Vice President, Chief +2010 +$ +300,000 +$ +225,000 +$ +783,000 +(5) +$ +— +$ +28,811 +$ +1,336,811 +Financial Officer and Secretary +2009 +$ +300,000 +$ +125,000 +$ +— +$ +— +$ +19,925 +$ +444,925 +(1) +The amount reported in the Stock Awards column reflects the fair value of the restricted stock award on the award date. The amount was calculated using certain +assumptions, as set forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2011, included in our Annual Report on Form 10-K, filed with the SEC on February 27, 2012. +(2) +Amounts for Mr. Liddell include our 401(k) plan contributions of $18,846, $22,686 and $13,800 for 2011, 2010 and 2009, respectively, and life insurance premium +payments of $7,225 for 2009. Amounts for Mr. Palm include our 401(k) plan contributions of $18,846, $22,686 and $13,800 for 2011, 2010 and 2009, respectively. The amounts for Mr. Moore for 2011, 2010 and 2009 represent our 401(k) plan +contributions of $18,846, $22,686 and $13,800, respectively, and $6,125, $6,125 and $6,125, respectively, attributable to use of a company vehicle. +(3) +Mr. Liddell’s restricted stock award of 66,667 shares of our restricted common stock vests in 12 substantially equal quarterly installments. Of this amount, +44,440 shares had vested as of December 31, 2011, 5,560 shares vested on March 18, 2012, and the 16,667 remaining unvested shares vest in three substantially equal quarterly installments on June 17, September 17 and +December 17, 2012. +(4) +Mr. Moore’s restricted stock award of 25,000 shares of our restricted common stock vests in five annual installments. Of this amount, 1,667 shares vested on +June 17, 2011, 3,333 shares vest on June 15, 2012, 5,000 shares vest on June 17, 2013, 6,667 shares vest on June 16, 2014 and 8,333 shares vest on June 17, 2015. +(5) +Mr. Moore’s restricted stock award of 45,000 shares of our restricted common stock vests in five annual installments. Of this amount, 3,000 shares vested on +December 17, 2010, 6,000 shares vested on December 17, 2011, 9,000 shares vest on December 17, 2012, 12,000 shares vest on December 17, 2013 and 15,000 shares vest on December 17, 2014. +25 +Table of Contents +GRANTS OF PLAN-BASED AWARDS +The following table provides information concerning each grant of an award made to our principal executive officer, our principal financial officer and our other highest paid executive officer in fiscal +2011 under any Company plan. +Estimated Future Payouts Under Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock +or +Units +(#) +All Other +Option +Awards: +Number +of +Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value +of Stock +and Option +Awards ($) +Name +Grant Date +Threshold (#) +Target +(#) +Maximum (#) +James D. Palm +— +— +— +— +— +— +— +— +Chief Executive Officer +Mike Liddell +— +— +— +— +— +— +— +— +Chairman of the Board +Michael G. Moore +05/03/2011 +— +— +— +25,000 +(1) +— +— +758,000 +(1) +Vice President, Chief Financial Officer & Secretary +(1) +Mr. Moore’s restricted stock award of 25,000 shares of our restricted common stock vests in five annual installments. Of this amount, 1,667 shares vested on +June 17, 2011, 3,333 shares vest on June 15, 2012, 5,000 shares vest on June 17, 2013, 6,667 shares vest on June 16, 2014 and 8,333 shares vest on June 17, 2015. The amount was calculated using certain assumptions, as set +forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2011, included in our Annual Report on Form 10-K, filed with the SEC on February 27, 2012. +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information concerning equity awards outstanding for our principal executive officer, our principal financial officer and our other highest paid executive officer at +December 31, 2011. +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date(1) +Number +of Shares +or Units +of Stock +That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vest +($)(2) +James D. Palm +125,000 +— +$ +11.20 +12/1/2015 +— +$ +— +Mike Liddell +182,908 +— +$ +3.36 +1/24/2015 +22,227 +(3) +$ +654,585 +Michael G. Moore +20,000 +— +$ +9.07 +9/9/2015 +59,333 +(4) +$ +1,747,357 +(1) +The option expiration date reflects the tenth anniversary from the date of grant. +(2) +Market value of shares or units that have not vested is based on the closing price of $29.45 per share of our common stock on The NASDAQ Global Select Market on +December 30, 2011, the last trading day of 2011. +(3) +These shares of restricted stock vest in four substantially equal quarter installments on March 18, June 17, September 17 and December 17 of 2012. +26 +Table of Contents +(4) +Of these unvested shares of restricted stock, (i) 36,000 shares vest in three annual installments as follows: 9,000 shares vest on December 17, 2012, 12,000 +shares vest on December 17, 2013 and 15,000 shares vest on December 17, 2014; and (ii) 23,333 shares vest in four annual installments as follows: 3,333 shares vest on June 15, 2012, 5,000 shares vest on June 17, 2013, 6,667 +shares vest on June 16, 2014 and 8,333 shares vest on June 17, 2015. +OPTION EXERCISES AND STOCK +VESTED +The following table provides certain information for the named executive officers on stock option exercises during 2011, including +the number of shares acquired upon exercise and the value realized, and the number of shares acquired upon the vesting of restricted stock awards. +Name +Option Awards +Stock Awards +Number of Shares +Acquired on Exercise +(#) +Value Realized +on +Exercise +($)(2) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on +Vesting +($)(1) +James D. Palm +75,000 +1,617,500 +16,667 +473,015 +Mike Liddell +— +— +22,220 +631,291 +Michael G. Moore +10,000 +324,300 +7,667 +212,067 +(1) +Value realized on vesting is based on the vesting date closing price per share of our common stock on The NASDAQ Global Select Market. +(2) +Value realized on exercise is based on the difference between the exercise price and the exercise date closing price per share of our common stock on The NASDAQ Global +Select Market. +DIRECTOR COMPENSATION +The following table contains information with respect to 2011 compensation of our directors who served in such capacity during that year, except that the 2011 compensation of those directors who are also +our named executive officers is disclosed in the Summary Compensation Table above. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +Total +($) +Donald L. Dillingham(1) +20,000 +202,113 +— +222,113 +Craig Groeschel(1) +2,500 +207,579 +— +210,079 +David L. Houston(1) +26,000 +— +— +26,000 +Scott E. Streller(1) +24,500 +— +— +24,500 +(1) +There were 6,666, 4,446, 1,667 and 1,667 shares of unvested restricted common stock outstanding at the end of 2011 for Messrs. Dillingham, Groeschel, Houston and +Streller, respectively. In addition, options to purchase an aggregate of 20,000 shares of common stock were outstanding for Mr. Houston at the end of 2011. +Retirement Plans +401(k) Plan +We maintain a retirement savings plan, or a 401(k) Plan, for the benefit of our eligible employees who have attained the age of 18. +Currently, employees may elect to defer their compensation up to the statutorily prescribed limit. During the following year, we make a safe harbor contribution equal to 3% of each eligible +27 +Table of Contents +employee’s gross annual compensation for the prior calendar year. We also have the ability to make an additional, discretionary contribution based on each eligible employee’s gross +annual compensation for the prior calendar year. Both contributions are made, regardless of employee’s deferrals into the plan. In 2010, we made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain +limitations provided by our 401(k) plan and Internal Revenue Services’ regulations. All contributions made by us on behalf of an employee are 100% vested when contributed. The 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) +of the Internal Revenue Code. As such, contributions to the 401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) Plan, and all contributions are deductible by us when made. +Amended and Restated 2005 Stock Incentive Plan +Our Amended and Restated 2005 Stock Incentive Plan was adopted to enable us, and any of our affiliates, to attract and retain the services of the types of employees, consultants and directors who will +contribute to our long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of our stockholders. The plan provides a means by which eligible recipients of awards may be given +an opportunity to benefit from increases in value of our common stock through the granting of incentive stock options, nonstatutory stock options, restricted awards, performance awards and stock appreciation rights. Our board of directors, or a +committee of the board of directors, serves as the plan administrator. +Eligible award recipients are employees, consultants and directors of +ours and our affiliates. Incentive stock options may be granted only to our employees. Awards other than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our +authorized but unissued common stock, and the maximum aggregate amount of such common stock which may be issued upon exercise of all awards in the plan, including incentive stock options, may not exceed 3,000,000 shares, subject to adjustment to +reflect certain corporate transactions or changes in our capital structure. For a description of the awards granted under the plan to our named executive officers, see “ Compensation Discussion and Analysis — Compensation +Policy—Align the interests of our executives with those of our stockholders—Restricted Stock Awards ” above . On April 1, 2012, 356,241 shares were issuable upon exercise of outstanding options and 635,605 shares of restricted +common stock had been granted under this plan. There were 713,509 shares available for future grants under this plan. +In the event of +significant corporate transaction involving a change in control (as defined in the plan) of the Company, such as a dissolution or liquidation of the Company, or any corporate separation or division, including, but not limited to, a split-up, a +split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under +the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or +without consideration for the vested portion of the awards. In the event an option award would be cancelled without consideration paid to the extent vested, the option award recipient may exercise the option award in full or in part for a period of +ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +28 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth, as of December 31, 2011, certain information with respect to all compensation plans under which equity securities +are authorized for issuance. +Plan Category +Number of Securities to +be issued upon exercise +of outstanding options, +warrants and +rights +(a)(1)(2) +Weighted average +exercise price of +outstanding options, +warrants and +rights +(b)(3) +Number of securities +remaining available +for future issuance +under +equity +compensation plans +(excluding securities +reflected in column +(a))(c) +Equity compensation plans approved by security holders(1) +559,589 +$ +6.51 +881,009 +Equity compensation plans not approved by security holders +— +— +— +(1) +Refers to our Amended and Restated 2005 Stock Incentive Plan and our 1999 Stock Option Plan. +(2) +Includes 203,348 shares of unvested restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan. +(3) +The weighted average exercise price does not take into account shares of restricted common stock because they have no exercise price. +Employment Agreements +What are the terms of the employment agreements with our executive officers? +In May 1999, +we entered into an employment agreement with Mike Liddell, our Chairman of the Board. The agreement had an initial five-year term and automatically renews for successive one-year terms thereafter. The agreement provides for an annual base salary of +$200,000, adjusted for cost of living increases. As a result of these increases, Mr. Liddell’s base salary had risen to $273,861 effective as of June 1, 2011. Upon termination of Mr. Liddell’s employment by us without cause, +Mr. Liddell is entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. The agreement also restricts Mr. Liddell’s use or disclosure of any of our +confidential information during the term of the agreement and for a period of five years thereafter. In February 2012, the compensation committee evaluated the need for a new employment agreement with our Chairman of the Board to, among other +things, increase his annual salary to $300,000 to be commensurate with the level of responsibility such named executive officer has with the Company. +We also entered into an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and benefits, pursuant to which Mr. Palm is entitled to an annual salary of +$200,000 and, at the discretion of our board of directors, an annual cash incentive bonus. For 2011, Mr. Palm’s annual salary was $225,000. In October 2011, the compensation committee increased Mr. Palm’s annual salary, effective +August 16, 2011, to $250,000. Mr. Palm is also eligible to participate in all insurance, retirement and benefits plans available to our other employees. In February 2012, the compensation committee evaluated the need for a new employment +agreement with our Chief Executive Officer to, among other things, increase his annual salary to $300,000 to be commensurate with the level of responsibility such named executive officer has with the Company. +In February 2012, the compensation committee also evaluated the need for an employment agreement with our Chief Financial Officer. +29 +Table of Contents +The compensation committee believes that our entry into these employment agreements with our named executive +officers would allow us to continue to retain their services and provide certain protections to such named executive officers commensurate with industry practices. The compensation committee determined to negotiate these employment agreements with +our named executive officers and consider our entry into such employment agreements at the compensation committee’s May 2012 meeting. +Change in Control Arrangements +Our +named executive officers do not currently have any change in control arrangements, except that Mr. Liddell’s employment agreement provides that upon termination of Mr. Liddell’s employment by us without cause, Mr. Liddell is +entitled to receive twelve months of his then current base salary, and all of his then unexercisable options will become exercisable. See “Employment Agreements” above. In addition, our Amended and Restated 2005 Stock Incentive Plan +provides that in the event of a significant corporate transaction involving a change in control of the Company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not limited to, a split-up, a +split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under +the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or +without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period of ten days. The plan +administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential payments to our Chief Executive Officer and our other named executive officers upon termination or following a change in control event are set forth under the heading “Potential Payments +upon Termination or Change-in-Control” below. +Potential Payments Upon Termination or Change-in-Control +If Mr. Liddell had been terminated at December 31, 2011 without cause, he would have been entitled to $273,861 in cash severance payments. If +Messrs. Palm and Moore had been terminated at December 31, 2011 for any reason, they would have been entitled to no cash severance payments. +30 +Table of Contents +Stock Ownership +Holdings of Major Stockholder +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2012 of shares of our common stock by each person or entity known to us to be a beneficial owner +of 5% or more of our common stock. +MAJOR STOCKHOLDER TABLE +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Charles E. Davidson +5,336,526 +(2) +9.5 +% +411 W. Putnam Avenue +Greenwich, CT 06830 +BlackRock, Inc. +3,502,285 +(3) +6.3 +% +40 East 52 nd Street +New York, NY 10022 +Neuberger Berman Group LLC +3,415,610 +(4) +6.1 +% +605 Third Avenue +New York, NY 10158 +(1) +Beneficial ownership is determined in accordance with SEC rules. The percentage of shares beneficially owned is based on 55,992,219 shares of common stock outstanding +as of April 1, 2012, including 342,502 shares of restricted common stock awarded under our Amended and Restated 2005 Stock Incentive Plan, but not yet vested. +(2) +Based solely on Form 4 filed with the SEC on March 13, 2012 by Charles E. Davidson. Represents 5,336,526 shares of common stock held by CD Holding Company, LLC. +Mr. Davidson is the manager and a member of CD Holding Company, LLC and the Chairman and Chief Investment Officer of Wexford Capital LP. +(3) +Based solely on Schedule 13G filed with the SEC on February 9, 2012 by BlackRock, Inc. BlackRock, Inc. reported sole voting and dispositive power of such shares of +common stock. +(4) +Based solely on Schedule 13G filed with the SEC on February 14, 2012 by Neuberger Berman Group LLC, Neuberger Berman LLC, Neuberger Berman Management LLC and +Neuberger Berman Equity Funds. Neuberger Berman Group LLC may be deemed to be a beneficial owner of shares of common stock because certain affiliated persons have shared power to retain or dispose of certain reported shares of common stock held by +many unrelated clients. Neuberger Berman Group LLC or its affiliated persons do not, however, have any economic interest in the securities of those clients. The clients are the actual owners of the securities and have the sole right to receive and +the power to direct the receipt of dividends or proceeds from the sale of such securities. No one client has an interest of more than 5% of the issuer. The aggregate reported shares include 3,036,750 shares of common stock of which Neuberger Berman +Group LLC may be deemed to be the beneficial owner because certain affiliated persons have shared power to retain, dispose of and vote these shares. Each of Neuberger Berman LLC and Neuberger Berman Management LLC serve as a sub-adviser and +investment manager, respectively, of Neuberger Berman Group LLC’s various registered mutual funds which hold such shares in the ordinary course of their business. The aggregate reported shares also include 378,850 shares of common stock held in +individual client accounts over which Neuberger Berman LLC has shared power to dispose but does not have voting power over these shares. The shares held by Neuberger Berman Trust Co N.A., Neuberger Berman Trust Co of Delaware N.A., NB Alternative +Fund Management LLC, NB Alternatives Advisers LLC and Neuberger Berman Fixed Income LLC, affiliates of Neuberger Berman LLC, are also included in the aggregate reported shares. Each of Neuberger Berman Group LLC, Neuberger Berman LLC, Neuberger +Berman Management LLC and certain affiliated persons disclaimed beneficial ownership of the reported shares of common stock. +31 +Table of Contents +Holdings of Officers and Directors +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2012 of shares of our common stock by each of +our directors, by each named executive officer and by all directors and executive officers as a group: +Name of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Mike Liddell(2) +800,288 +1.4 +% +Donald L. Dillingham(3) +11,934 +* +Craig Groeschel(4) +9,166 +* +David L. Houston(5) +26,666 +* +Scott E. Streller(6) +12,632 +* +James D. Palm(7) +241,387 +* +Michael G. Moore(8) +121,000 +* +Directors and Executive Officers as a Group (7 persons) +1,223,073 +2.2 +% +* +Less than 1%. +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by +that person that are exercisable as of April 1, 2012, or exercisable within 60 days of April 1, 2012, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage +ownership of each other person. The percentage of shares beneficially owned is based on 55,992,219 shares of common stock outstanding as April 1, 2012, including 342,502 shares of restricted common stock awarded under our Amended and Restated +2005 Stock Incentive Plan, but not yet vested. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 1, 2012 or within 60 days of April 1, 2012. +(2) +Represents (i) 544,132 shares of our common stock held by Mr. Liddell directly, (ii) 37,500 unvested shares of restricted common stock granted under the +Amended and Restated 2005 Stock Incentive Plan, which vest in 11 quarterly installments, with 7,500 shares vesting during the remainder of 2012, 20,000 shares vesting in 2013 and 10,000 shares vesting in 2014, (iii) 16,667 unvested shares of +restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which vest in three substantially equal quarterly installments during the period June 17, 2012 through December 17, 2012, (iv) 19,081 shares of +our common stock held by Liddell Investments LLC, an entity controlled by Mr. Liddell, of which shares Mr. Liddell may be deemed to be the beneficial owner, and (v) options to purchase 182,908 shares of our common stock, all of which +are fully vested and exercisable as of April 1, 2012. +(3) +Represents (i) 2,220 shares of our common stock held by Mr. Dillingham directly, (ii) 4,446 unvested shares of our common stock granted under the Amended +and Restated 2005 Stock Incentive Plan, of which 2,220 shares vest on March 18, 2013 and 2,226 shares of March 18, 2014 and (iii) 5,268 shares of our common stock held by Donald L. Dillingham Trust, of which Mr. Dillingham is a +trustee. +(4) +Represents (i) 4,720 shares of our common stock held by Mr. Groeschel directly, (ii) 4,446 unvested shares of our common stock granted under the Amended +and Restated 2005 Stock Incentive Plan, of which 2,220 shares vest on December 14, 2012 and 2,226 shares vest on December 16, 2013. +(5) +Represents (i) 4,999 shares of our common stock held by Mr. Houston directly, (ii) 1,112 unvested shares of restricted common stock granted under the +Amended and Restated 2005 Stock Incentive Plan, which vest in two substantially equal quarterly installments during the period June 17, 2012 through September 17, 2012 and (iii) options to purchase 20,000 shares of our common stock, +all of which are fully vested and exercisable as of April 1, 2012. +(6) +Represents (i) 10,965 shares of our common stock held by Mr. Streller directly and (ii) 1,112 unvested shares of our restricted common stock granted +under the Amended and Restated 2005 Stock Incentive Plan, which vest in two substantially equal quarterly installments during the period June 17, 2012 through September 17, 2012. +32 +Table of Contents +(7) +Represents (i) 10,000 shares of our common stock, of which Mr. Palm and his spouse, Terri Palm, have shared voting and dispositive powers, (ii) 48,262 +shares of our common stock held by Mr. Palm directly, (iii) 58,125 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which shares vest in 11 remaining quarterly installments, with +28,125 shares vesting during the remainder of 2012, 20,000 shares vesting in 2013 and 10,000 shares vesting in 2014, and (iv) options to purchase 125,000 shares of our common stock, all of which are fully vested and exercisable as of +April 1, 2012. +(8) +Represents (i) 7,917 shares of our common stock held by Mr. Moore directly, (ii) 33,750 unvested shares of restricted common stock granted under the +Amended and Restated 2005 Stock Incentive Plan, which shares vest in 11 remaining quarterly installments, with 18,750 shares vesting during the remainder of 2012, 10,000 shares vesting in 2013 and 5,000 shares vesting in 2014, (iii) 23,333 +unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which shares vest in four remaining annual installments of 3,333 shares on June 15, 2012, 5,000 shares on June 17, 2013, 6,667 +shares on June 16, 2014 and 8,333 shares on June 17, 2015, (iv) 36,000 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which shares vest in three remaining annual +installments of 9,000 shares on December 17, 2012, 12,000 shares on December 17, 2013 and 15,000 shares on December 17, 2014 and (v) options to purchase 20,000 shares of our common stock, all of which are fully vested and +exercisable as of April 1, 2012. +Section 16(a) Beneficial Ownership Reporting +Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who +beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of the forms they file. To our knowledge, based solely on +a review of the copies of such reports furnished to us and written representations of our officers and directors, all Section 16(a) reports for the year ended December 31, 2011 applicable to our officers and directors and such other +persons were filed on a timely basis. +33 +Table of Contents +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be substantively applied to each transaction +reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the Company. Further, the Company’s Code of +Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party transactions. +The Company’s policy that all of its employees and directors, as well as their family members, must avoid any activity that is or has the appearance +of conflicting with the Company’s business interest. This policy is a written policy included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform +the designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the +Code of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give +rise to a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring +compliance with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all +relationships and transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, +have a direct or indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as +they determine in the good faith exercise of their discretion. +Administrative Services Agreements +We are a party to administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Everest Operations +Management LLC, which we refer to as Everest, and Tatex Thailand III, LLC, which we refer to as Tatex III. Under these agreements, our services include professional and technical support and the fees for such services can be amended by mutual +agreement of the parties. Each of these administrative service agreements may be cancelled (1) by us with at least 60 days prior written notice and, (2) by the counterparty at any time with at least 30 days prior written notice to us and +(3) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We did not provide services under any of these agreements in 2011 and received no +reimbursements thereunder. Each of Stampede Farms, Everest and Tatex III is controlled by Wexford Capital LP, or Wexford. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge +services in our West Cote Blanche Bay, or WCBB, and Hackberry fields located along the Louisiana Gulf Coast. For the year ended December 31, 2011, we paid Athena $3,389,000 and owed an additional $676,000 for such services at that date. Athena +is controlled by Wexford. +34 +Table of Contents +Effective March 1, 2008, Everest provides tax planning, preparation of supporting tax schedules and +consultation services to us based on an agreed fee structure. The scope of such services can be modified with the mutual agreement of the parties. Everest is controlled by Wexford. We paid Everest $5,000 for these services in 2011. +Caliber Development Company, LLC, or Caliber, provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. For the year ended +December 31, 2011, we paid Caliber $20,000 and owed an additional $2,000 at that date. Caliber is an entity controlled by Wexford. +Great +White Directional Services LLC, which we refer to as Directional, performs directional drilling services for us at our WCBB and Hackberry fields. Directional was an entity controlled by Wexford until August 24, 2011 when it was sold to an +unrelated third party. Directional is no longer a related party. While still a related party, we paid Directional approximately $2,625,000 and owed an additional $1,133,000 for such services at that date. +Great White Pressure Control, which we refer as Pressure Control, performs services for us at our WCBB field. Pressure Control was an entity controlled +by Wexford until August 24, 2011 when it was sold to an unrelated third party. Pressure Control is no longer a related party. While still a related party, we paid Pressure Control approximately $80,000. No amounts were owed to Pressure Control +as of August 24, 2011. +Black Fin P&A, LLC, which we refer to as Black Fin, performs plugging and abandonment services for us at our +WCBB field. For the year ended December 31, 2011, we did not pay any amounts to Black Fin and owed $436,000 to for such services at that date. Black Fin is an entity controlled by Wexford. +Our Investments in Affiliates and Related Agreements +We have a 23.5% ownership interest in Tatex Thailand II, LLC, or Tatex II. The remaining interests in Tatex II are owned by other entities controlled by Wexford. Tatex II holds 85,122 of the 1,000,000 +outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering two million acres which includes the Phu Horm Field. +During 2011, we received $870,000 in distributions from Tatex II. +We have a 17.9% ownership interest in Tatex III. Tatex III owns a +concession covering approximately one million acres in Thailand. Approximately 68.7% of the remaining interests in Tatex III are owned by other entities and individuals affiliated with Wexford. During the year ended December 31, 2011, we paid +$3,794,000 in cash calls to Tatex III. +We own a 24.9999% interest in Grizzly, a Canadian unlimited liability company, through our wholly +owned subsidiary Grizzly Holdings, Inc. The remaining interests in Grizzly are owned by other entities controlled by Wexford. As of December 31, 2011, Grizzly had approximately 754,000 acres under lease in the Athabasca region located in the +Alberta Province near Fort McMurray. Grizzly Holdings Inc. entered into a loan agreement with Grizzly effective January 1, 2008, under which Grizzly borrowed funds from us. Borrowed funds initially bore interest at LIBOR plus 4% and had an +original maturity date of December 31, 2012. Effective April 1, 2010, the loan agreement was amended to modify the interest rate to 0.69% and change the maturity date to December 31, 2011. Effective October 15, 2010, the loan +agreement was further amended to change the maturity date to December 31, 2012. Interest was paid on a paid-in-kind basis by increasing the outstanding balance of the loan. During the year ended December 31, 2011, we loaned Grizzly +approximately $3,182,000 and recognized interest income of approximately $147,000. Effective December 7, 2011, Grizzly Holdings Inc. entered into a debt settlement agreement with Grizzly under which Grizzly agreed to satisfy the entire +outstanding debt and accrued interest of $22,325,000 by issuing additional common shares of Grizzly with no effect to the ownership structure of Grizzly. +35 +Table of Contents +During the third quarter of 2011, we purchased a 25% ownership interest in Bison Drilling and Field Services +LLC, or Bison, at a cost of $6,009,000, subject to adjustment. In April 2012, we increased our ownership interest in Bison to 40% for an additional payment of $6,152,000. The remaining interests in Bison are owned by entities controlled by Wexford, +including Windsor Permian LLC, or Windsor. Bison owns and operates drilling rigs. +During the fourth quarter of 2011, we purchased a 25% +ownership interest in Muskie Holdings LLC, or Muskie, at a cost of $2,142,000, subject to adjustment. The remaining interests in Muskie are owned by entities controlled by Wexford, including Windsor. Muskie holds certain assets, real estate and +rights in a lease covering land in Wisconsin that is prospective for mining oil and natural gas fracture grade sand. +Area of Mutual Interest and Related Agreements +Effective as of November 1, 2007, we and Windsor entered into an area of mutual +interest agreement to jointly acquire oil and gas leases in the Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. During 2011, we acquired approximately 604 net acres from Windsor under the terms +of this agreement for an aggregate of $1,102,000. Windsor is controlled by Wexford. +Windsor is the operator of all of our acreage in the +Permian Basin. As operator of these properties, Windsor is responsible for the daily operations, monthly operation billings and monthly revenue disbursements for the properties in which we hold an interest. For the year ended December 31, 2011, +Windsor billed us approximately $56,103,000 and at December 31, 2011, we owed $5,593,000 for these services. +Effective April 1, +2010, we entered into an area of mutual interest agreement with Windsor Niobrara LLC, which we refer to as Windsor Niobrara, to jointly acquire oil and gas leases on certain lands located in Northwest Colorado for the purpose of exploring, +exploiting and producing oil and gas from the Niobrara Formation. The agreement provides that each party must offer the other party the right to participate in such acquisitions on a 50/50 basis. The parties also agreed, subject to certain +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. We are the operator of this acreage in the Niobrara Formation. As operator, we are +responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2011, we billed Windsor Niobrara $6,642,000 and, at December 31, 2011, Windsor Niobrara +owed us $3,557,000 for these services. Windsor Niobrara is controlled by Wexford. +In February 2011, we entered into an agreement with an +unrelated third party to acquire certain leasehold interests in acreage located in the Utica Shale in Ohio. The agreement also granted us an exclusive right of first refusal for a period of six months on certain additional tracts leased by the +seller. As of December 31, 2011, we had acquired leasehold interests in approximately 98,000 gross (49,000 net) acres in the Utica Shale in Eastern Ohio under these and other agreements for approximately $118,421,000. As of February 20, +2012, we had closed on additional acquisitions bringing our leasehold interests to approximately 107,000 gross (53,500 net) acres. We have commitments with various future closing dates that could increase our acreage position in the Utica Shale to +an aggregate of approximately 125,000 gross (62,500 net) leasehold acres. Entities affiliated with Wexford, primarily Windsor Ohio LLC, or Windsor Ohio, participated with us on a 50/50 basis in the acquisition of the leases described above and, at +December 31, 2011, held leasehold interests in approximately 49,000 net acres for which they paid approximately $118,413,000, excluding fees and expenses of $1,184,000 billed under the acquisition team agreement described below. We are the +operator on this acreage in the Utica Shale. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to +identify and evaluate potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an +acquisition or divestiture, the party whose acquisition team identified the acquisition or divestiture is entitled to +36 +Table of Contents +receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share of the acquisition or +divestiture consideration. The agreement has a one-year term unless earlier terminated by either party upon 30 days notice. +From time to +time, certain of our petroleum engineers provide services relating to evaluation of potential investments to Wexford and geological evaluations, seismic review and similar services to Tatex II and Tatex III. Wexford, Tatex II and Tatex III, +respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities. We did not provide any services under these arrangements in 2011. +Our Relationships with Wexford and its Affiliates +Charles E. Davidson is the Chairman and Chief Investment Officer of Wexford and he beneficially owned approximately 16.8% of our outstanding common stock as of December 31, 2011. Wexford is the manager of +the Wexford-controlled entities described above. As manager, Wexford has the exclusive authority to, among other things, purchase, hold and dispose of the assets of each such entity. Mr. Liddell, our Chairman of the Board, is the operating member +and, in some cases, an officer, of certain of these entities. All distributions made by these entities are first paid to the Wexford members in accordance with their respective ownership interests until they have received amounts equal to their +respective capital contributions. Thereafter, distributions are to be made 90% to the Wexford members in accordance with their respective ownership interests and 10% to Mr. Liddell. Mr. Liddell is not currently entitled to, and has not received, +distributions from any of these entities. All transactions between us and these entities are reviewed and approved by our independent directors. +37 +Table of Contents +Proposal to Approve, on an Advisory Basis, the Company’s +Executive Compensation +(Item 2 on the Proxy Card) +In accordance with the Dodd-Frank Act, our board of directors is providing our stockholders with a non-binding advisory vote on the Company’s executive compensation as reported in this proxy +statement, or “say on pay” vote. The Company’s stockholders are being asked to vote on the following resolution: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, +including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.” +While the vote on +executive compensation is non-binding and solely advisory in nature, our board of directors and the Compensation Committee will review and consider the “say on pay” voting results when making future decisions regarding our executive +compensation program. +Stockholders are encouraged to carefully review the “Compensation Discussion and Analysis” section of this +proxy statement, which discusses in detail the Company’s compensation policy and compensation arrangements which the Company believes are appropriate and reasonably consistent with market practice and with the long-term interests of the Company +and its stockholders. In furtherance of the Company’s goals and objectives, the Compensation Committee, among other things, ensures that the Company’s executive compensation arrangements (i) do not incentivize executives to take +unnecessary risks, (ii) do not include excessive change in control provisions and (iii) include long-term vesting provisions in the restricted stock grants to encourage executives to focus on long-term performance. +Board Voting Recommendation +The board +of directors unanimously recommends that stockholders vote “FOR” this Proposal 2. +38 +Table of Contents +Proposal to Ratify the Appointment of Our Independent Auditors +(Item 3 on the Proxy Card) +What am I voting on? +You are voting on a proposal to ratify the appointment of Grant +Thornton LLP as our independent auditors for fiscal year 2012. The Audit Committee has appointed Grant Thornton to serve as independent auditors. +What services do the independent auditors provide? +Audit services of Grant Thornton for +fiscal 2011 included an audit of our consolidated financial statements and services related to periodic filings made with the SEC. Additionally, Grant Thornton provided certain services related to the consolidated quarterly reports and annual and +other periodic reports, registration statements and comfort letters and other services as described below. +How much were the independent +auditors paid in 2010 and 2011? +Grant Thornton’s fees for professional services totaled $376,556 for 2010 and $440,960 for 2011. +Grant Thornton’s fees for professional services included the following: +• +Audit Fees – aggregate fees for audit services, which relate to the fiscal year consolidated audit, quarterly reviews, registration +statements, comfort letters, statutory and regulatory audits and accounting consultations were $376,556 in 2010 and $440,960 in 2011. +• +Audit-Related Fees – aggregate fees for audit-related services, consisting of audits in connection with proposed or consummated +dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations, were $0 in 2010 and $0 in 2011. +• +Tax and All Other Fees – there were no tax or other fees for products or services provided by Grant Thornton in addition to the services +described above in 2010 or 2011. +Does the Audit Committee approve the services provided by Grant Thornton? +It is our audit committee’s policy to pre-approve all audit, audit related and permissible non-audit services rendered to us by our +independent auditor. Consistent with such policy, all of the fees listed above that we incurred for services rendered by Grant Thornton LLP in fiscal 2010 and 2011 were pre-approved by our audit committee. No non-audit services were provided to us +by Grant Thornton in 2010 or 2011. +Will a representative of Grant Thornton LLP be present at the meeting? +Yes, one or more representatives of Grant Thornton will be present at the meeting. The representatives will have an opportunity to make a statement if +they desire and will be available to respond to appropriate questions from the stockholders. +What vote is required to approve this +proposal? +Stockholder ratification of the appointment of our independent auditors is not required by the Company’s bylaws or +otherwise. However, we are submitting this proposal to the stockholders as a matter of good corporate practice. Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal. If the appointment of Grant +Thornton is not ratified, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if +it is determined that such change would be in best interests of the Company and its stockholders. +39 +Table of Contents +Has Grant Thornton LLP always served as Gulfport’s independent auditors? +Grant Thornton has served as our independent auditors since 2005. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE +“FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE YEAR 2012. +Solicitation by Board; Expenses of Solicitation +Our board of +directors has sent you this proxy statement. Our directors, officers and employees may solicit proxies by mail, by telephone or in person. Those persons will receive no additional compensation for any solicitation activities. We will request banking +institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to forward solicitation materials to the beneficial owners of common stock held of record by those entities, and we will, upon the request of those record holders, +reimburse reasonable forwarding expenses. We will pay the costs of preparing, printing, assembling and mailing the proxy material used in the solicitation of proxies. +Submission of Future Stockholder Proposals +Under SEC rules, a +stockholder who intends to present a proposal, including the nomination of directors, at the 2013 Annual Meeting of Stockholders and who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing +to our Corporate Secretary. The proposal must be received no later than January 8, 2013. +Stockholders who wish to propose a matter for +action at the 2013 Annual Meeting, including the nomination of directors, but who do not wish to have the proposal or nomination included in the proxy statement, must notify the Company in writing of the information required by the provisions of our +by-laws dealing with stockholder proposals. The notice must be delivered to our Corporate Secretary between February 8, 2013 and March 9, 2013. You can obtain a copy of our by-laws by writing the Corporate Secretary at the address below, +or via the Internet at www.gulfportenergy.com under our “Corporate Governance” caption. +All written proposals should be +directed to Michael G. Moore, Corporate Secretary, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +The board of directors is responsible for selecting and recommending director candidates and will consider nominees recommended by stockholders. If you wish to have the board of directors consider a +nominee for director, you must send a written notice to our Corporate Secretary at the address provided above and include the information required by our by-laws and discussed on page 10 of this proxy statement. +Availability of Form 10-K and Annual Report to Stockholders +SEC rules require us to provide an Annual Report to stockholders who receive this proxy statement. Additional copies of the Annual Report, along with +copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, including the financial statements and the financial statement schedules, are available without charge to stockholders upon written request to Director of +Investor Relations, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134 or via the Internet at www.gulfportenergy.com. We will furnish the exhibits to our Annual Report on Form 10-K upon payment of our +copying and mailing expenses. +40 +Table of Contents +Householding +The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder +continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces our mailing and printing expenses. +If you would like to receive your own set of the annual report and proxy statement this year or in future years, follow the instructions described below. +Similarly, if you share an address with another Gulfport stockholder and together both of you would like to receive in the future only a single annual report and proxy statement, follow these instructions: +• +If your shares of our common stock are registered in your own name, please contact our transfer agent, Computershare Trust Company, N.A., and inform +them of your request by calling their toll-free number: (800) 962-4284 or by mail: Computershare Trust Company, N.A., 250 Royall Street, Canton, MA 02021. +• +If a broker or other nominee holds your shares, please contact your broker or nominee. +Other Matters +The board of directors does not intend to present any other items of business other than those stated in the Notice of Annual Meeting of Stockholders. If other matters are properly brought before the +meeting, the persons named as your proxies will vote the shares represented by it in accordance with their best judgment. Discretionary authority to vote on other matters is included in the proxy. +41 +Table of Contents +PROXY +FOR THE ANNUAL MEETING OF STOCKHOLDERS OF +Gulfport Energy Corporation +This Proxy Is Solicited On Behalf Of The Board Of Directors +The undersigned hereby appoints Mike Liddell, James D. Palm and Michael G. Moore (together, the “Proxies”), and each of them, +with full power of substitution, as proxies to vote the shares that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Gulfport Energy Corporation (the “Company”) to be held on June 7, 2012 at 10:00 a.m. +Oklahoma City time and at any adjournments and postponements thereof. Such shares shall be voted as indicated with respect to the proposals listed on the reverse side hereof and in the Proxies’ discretion on such other matters as may properly +come before the meeting or any adjournment or postponement thereof. +The undersigned acknowledges receipt of the 2012 Notice +of Annual Meeting and accompanying Proxy Statement and revokes all prior proxies for said meeting. +THE SHARES REPRESENTED BY +THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION IS GIVEN AS TO THE PROPOSALS ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES NAMED IN +PROPOSAL 1 AND FOR EACH OF THE PROPOSALS 2 AND 3 IN ACCORDANCE WITH THE BOARD OF DIRECTOR’S RECOMMENDATION. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and signed on reverse side.) +Ù Detach here from proxy voting card. Ù +GULFPORT ENERGY CORPORATION +FOR +all nominees listed (except as withheld) +WITHHOLD AUTHORITY +to vote for nominees listed +¨ +¨ +Proposal 1 - ELECTION OF DIRECTORS +01 +Mike Liddell +¨ +¨ +02 +Donald Dillingham +¨ +¨ +03 +Craig Groeschel +¨ +¨ +04 +David L. Houston +¨ +¨ +05 +James D. Palm +¨ +¨ +06 +Scott E. Streller +¨ +¨ +Proposal 2 –Proposal to approve, on an advisory basis, the Company’s executive compensation +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +Proposal 3 –Proposal to ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, +2012 +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +This proxy, when properly signed, will be voted in the manner directed +herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR ELECTION OF DIRECTORS UNDER PROPOSAL 1 AND FOR EACH OF THE PROPOSALS 2 AND 3 IN ACCORDANCE WITH THE BOARD OF DIRECTOR’S +RECOMMENDATION. +IMPORTANT – PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. THANK YOU FOR VOTING. +Signature +Signature, if held jointly +Dated , 2012 +Table of Contents +When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, +trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by an authorized person. +Proxy – Gulfport Energy Corporation. +You are cordially invited to attend the Annual Meeting of Stockholders +To be held on June 7, 2012, at +10:00 a.m. Oklahoma City time, at +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-12-196642/proxy_rpt.txt b/raw/proxies/0000874499/0001193125-12-196642/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..6ab76f0ae7cf13197e595127c9164944e056d8a7 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-12-196642/proxy_rpt.txt @@ -0,0 +1,100 @@ +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be substantively applied to each transaction +reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the Company. Further, the Company’s Code of +Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party transactions. +The Company’s policy that all of its employees and directors, as well as their family members, must avoid any activity that is or has the appearance +of conflicting with the Company’s business interest. This policy is a written policy included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform +the designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the +Code of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give +rise to a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring +compliance with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all +relationships and transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, +have a direct or indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as +they determine in the good faith exercise of their discretion. +Administrative Services Agreements +We are a party to administrative service agreements with Stampede Farms LLC, which we refer to as Stampede Farms, Everest Operations +Management LLC, which we refer to as Everest, and Tatex Thailand III, LLC, which we refer to as Tatex III. Under these agreements, our services include professional and technical support and the fees for such services can be amended by mutual +agreement of the parties. Each of these administrative service agreements may be cancelled (1) by us with at least 60 days prior written notice and, (2) by the counterparty at any time with at least 30 days prior written notice to us and +(3) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We did not provide services under any of these agreements in 2011 and received no +reimbursements thereunder. Each of Stampede Farms, Everest and Tatex III is controlled by Wexford Capital LP, or Wexford. +Services Provided to Us by Our Affiliates +We contract with Athena Construction, L.L.C., which we refer to as Athena, to provide barge +services in our West Cote Blanche Bay, or WCBB, and Hackberry fields located along the Louisiana Gulf Coast. For the year ended December 31, 2011, we paid Athena $3,389,000 and owed an additional $676,000 for such services at that date. Athena +is controlled by Wexford. +34 +Table of Contents +Effective March 1, 2008, Everest provides tax planning, preparation of supporting tax schedules and +consultation services to us based on an agreed fee structure. The scope of such services can be modified with the mutual agreement of the parties. Everest is controlled by Wexford. We paid Everest $5,000 for these services in 2011. +Caliber Development Company, LLC, or Caliber, provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. For the year ended +December 31, 2011, we paid Caliber $20,000 and owed an additional $2,000 at that date. Caliber is an entity controlled by Wexford. +Great +White Directional Services LLC, which we refer to as Directional, performs directional drilling services for us at our WCBB and Hackberry fields. Directional was an entity controlled by Wexford until August 24, 2011 when it was sold to an +unrelated third party. Directional is no longer a related party. While still a related party, we paid Directional approximately $2,625,000 and owed an additional $1,133,000 for such services at that date. +Great White Pressure Control, which we refer as Pressure Control, performs services for us at our WCBB field. Pressure Control was an entity controlled +by Wexford until August 24, 2011 when it was sold to an unrelated third party. Pressure Control is no longer a related party. While still a related party, we paid Pressure Control approximately $80,000. No amounts were owed to Pressure Control +as of August 24, 2011. +Black Fin P&A, LLC, which we refer to as Black Fin, performs plugging and abandonment services for us at our +WCBB field. For the year ended December 31, 2011, we did not pay any amounts to Black Fin and owed $436,000 to for such services at that date. Black Fin is an entity controlled by Wexford. +Our Investments in Affiliates and Related Agreements +We have a 23.5% ownership interest in Tatex Thailand II, LLC, or Tatex II. The remaining interests in Tatex II are owned by other entities controlled by Wexford. Tatex II holds 85,122 of the 1,000,000 +outstanding shares of APICO, LLC, or APICO, an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering two million acres which includes the Phu Horm Field. +During 2011, we received $870,000 in distributions from Tatex II. +We have a 17.9% ownership interest in Tatex III. Tatex III owns a +concession covering approximately one million acres in Thailand. Approximately 68.7% of the remaining interests in Tatex III are owned by other entities and individuals affiliated with Wexford. During the year ended December 31, 2011, we paid +$3,794,000 in cash calls to Tatex III. +We own a 24.9999% interest in Grizzly, a Canadian unlimited liability company, through our wholly +owned subsidiary Grizzly Holdings, Inc. The remaining interests in Grizzly are owned by other entities controlled by Wexford. As of December 31, 2011, Grizzly had approximately 754,000 acres under lease in the Athabasca region located in the +Alberta Province near Fort McMurray. Grizzly Holdings Inc. entered into a loan agreement with Grizzly effective January 1, 2008, under which Grizzly borrowed funds from us. Borrowed funds initially bore interest at LIBOR plus 4% and had an +original maturity date of December 31, 2012. Effective April 1, 2010, the loan agreement was amended to modify the interest rate to 0.69% and change the maturity date to December 31, 2011. Effective October 15, 2010, the loan +agreement was further amended to change the maturity date to December 31, 2012. Interest was paid on a paid-in-kind basis by increasing the outstanding balance of the loan. During the year ended December 31, 2011, we loaned Grizzly +approximately $3,182,000 and recognized interest income of approximately $147,000. Effective December 7, 2011, Grizzly Holdings Inc. entered into a debt settlement agreement with Grizzly under which Grizzly agreed to satisfy the entire +outstanding debt and accrued interest of $22,325,000 by issuing additional common shares of Grizzly with no effect to the ownership structure of Grizzly. +35 +Table of Contents +During the third quarter of 2011, we purchased a 25% ownership interest in Bison Drilling and Field Services +LLC, or Bison, at a cost of $6,009,000, subject to adjustment. In April 2012, we increased our ownership interest in Bison to 40% for an additional payment of $6,152,000. The remaining interests in Bison are owned by entities controlled by Wexford, +including Windsor Permian LLC, or Windsor. Bison owns and operates drilling rigs. +During the fourth quarter of 2011, we purchased a 25% +ownership interest in Muskie Holdings LLC, or Muskie, at a cost of $2,142,000, subject to adjustment. The remaining interests in Muskie are owned by entities controlled by Wexford, including Windsor. Muskie holds certain assets, real estate and +rights in a lease covering land in Wisconsin that is prospective for mining oil and natural gas fracture grade sand. +Area of Mutual Interest and Related Agreements +Effective as of November 1, 2007, we and Windsor entered into an area of mutual +interest agreement to jointly acquire oil and gas leases in the Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. During 2011, we acquired approximately 604 net acres from Windsor under the terms +of this agreement for an aggregate of $1,102,000. Windsor is controlled by Wexford. +Windsor is the operator of all of our acreage in the +Permian Basin. As operator of these properties, Windsor is responsible for the daily operations, monthly operation billings and monthly revenue disbursements for the properties in which we hold an interest. For the year ended December 31, 2011, +Windsor billed us approximately $56,103,000 and at December 31, 2011, we owed $5,593,000 for these services. +Effective April 1, +2010, we entered into an area of mutual interest agreement with Windsor Niobrara LLC, which we refer to as Windsor Niobrara, to jointly acquire oil and gas leases on certain lands located in Northwest Colorado for the purpose of exploring, +exploiting and producing oil and gas from the Niobrara Formation. The agreement provides that each party must offer the other party the right to participate in such acquisitions on a 50/50 basis. The parties also agreed, subject to certain +exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. We are the operator of this acreage in the Niobrara Formation. As operator, we are +responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2011, we billed Windsor Niobrara $6,642,000 and, at December 31, 2011, Windsor Niobrara +owed us $3,557,000 for these services. Windsor Niobrara is controlled by Wexford. +In February 2011, we entered into an agreement with an +unrelated third party to acquire certain leasehold interests in acreage located in the Utica Shale in Ohio. The agreement also granted us an exclusive right of first refusal for a period of six months on certain additional tracts leased by the +seller. As of December 31, 2011, we had acquired leasehold interests in approximately 98,000 gross (49,000 net) acres in the Utica Shale in Eastern Ohio under these and other agreements for approximately $118,421,000. As of February 20, +2012, we had closed on additional acquisitions bringing our leasehold interests to approximately 107,000 gross (53,500 net) acres. We have commitments with various future closing dates that could increase our acreage position in the Utica Shale to +an aggregate of approximately 125,000 gross (62,500 net) leasehold acres. Entities affiliated with Wexford, primarily Windsor Ohio LLC, or Windsor Ohio, participated with us on a 50/50 basis in the acquisition of the leases described above and, at +December 31, 2011, held leasehold interests in approximately 49,000 net acres for which they paid approximately $118,413,000, excluding fees and expenses of $1,184,000 billed under the acquisition team agreement described below. We are the +operator on this acreage in the Utica Shale. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest to +identify and evaluate potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, Gulfport and Everest each agreed to form an acquisition team. Upon a successful closing of an +acquisition or divestiture, the party whose acquisition team identified the acquisition or divestiture is entitled to +36 +Table of Contents +receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate share of the acquisition or +divestiture consideration. The agreement has a one-year term unless earlier terminated by either party upon 30 days notice. +From time to +time, certain of our petroleum engineers provide services relating to evaluation of potential investments to Wexford and geological evaluations, seismic review and similar services to Tatex II and Tatex III. Wexford, Tatex II and Tatex III, +respectively, have agreed to reimburse us based on the amount, scope and nature of services provided by our petroleum engineers to such entities. We did not provide any services under these arrangements in 2011. +Our Relationships with Wexford and its Affiliates +Charles E. Davidson is the Chairman and Chief Investment Officer of Wexford and he beneficially owned approximately 16.8% of our outstanding common stock as of December 31, 2011. Wexford is the manager of +the Wexford-controlled entities described above. As manager, Wexford has the exclusive authority to, among other things, purchase, hold and dispose of the assets of each such entity. Mr. Liddell, our Chairman of the Board, is the operating member +and, in some cases, an officer, of certain of these entities. All distributions made by these entities are first paid to the Wexford members in accordance with their respective ownership interests until they have received amounts equal to their +respective capital contributions. Thereafter, distributions are to be made 90% to the Wexford members in accordance with their respective ownership interests and 10% to Mr. Liddell. Mr. Liddell is not currently entitled to, and has not received, +distributions from any of these entities. All transactions between us and these entities are reviewed and approved by our independent directors. +37 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-13-188014/proxy.txt b/raw/proxies/0000874499/0001193125-13-188014/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..3d2f9a60c0b6e9b78297f3ec3b05cd9d25fddd11 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-13-188014/proxy.txt @@ -0,0 +1,3875 @@ +DEF 14A +1 +d497328ddef14a.htm +DEFINITIVE PROXY STATEMENT +DEFINITIVE PROXY STATEMENT +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities +Exchange Act of 1934 +x Filed by the +Registrant ¨ Filed by a Party +other than the Registrant +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under § 240.14a-12 +Gulfport Energy Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy +Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +2) Aggregate number of securities to which transaction applies: +3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +4) Proposed maximum aggregate value of transaction: +5) Total fee paid: +¨ +Fee paid previously with written preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +2) Form, Schedule or Registration Statement No.: +3) Filing Party: +4) Date Filed: +Table of Contents +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +2013 +ANNUAL STOCKHOLDERS +MEETING +and +PROXY STATEMENT +Thursday +June 13, 2013 +10:00 a.m. local time +14313 N. May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134 +April 30, 2013 +Dear Gulfport Energy Corporation Stockholder: +On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 14313 N. May +Avenue, Suite 100, Oklahoma City, Oklahoma 73134 on Thursday, June 13, 2013, at 10:00 a.m. +It is important that your shares be represented at the meeting. Whether or not you plan to attend the meeting, please complete and return the enclosed proxy card in the accompanying envelope. Please note +that submitting a proxy will not prevent you from attending the meeting and voting in person. +You will find information regarding the matters to be voted on at the meeting in the enclosed proxy statement. Our 2012 Annual Report to Stockholders is either enclosed with these materials or has +previously been mailed to you. This proxy statement and our 2012 Annual Report to Stockholders are also available on our website at www.gulfportenergy.com/proxy. +In addition to the formal items of business to be brought before the meeting, there will be a report on our operations, followed by a question and answer +period. Your interest in Gulfport Energy Corporation is appreciated. We look forward to seeing you on June 13, 2013. +Sincerely, +James D. Palm +Mike Liddell +Chief Executive Officer +Chairman of the Board +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 13, 2013 +To our Stockholders: +The Annual Meeting of Stockholders of Gulfport Energy Corporation will be +held on June 13, 2013 at 10:00 a.m., local time, at 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134, for the following purposes: +1. +To elect five directors to serve until the Company’s 2014 Annual Meeting of Stockholders; +2. +To approve an amendment to the Company’s restated certificate of incorporation to increase the total number of authorized shares of common stock from 100,000,000 +shares to 250,000,000 shares; +3. +To approve the Company’s 2013 Restated Stock Incentive Plan; +4. +To hold an advisory vote on the Company’s executive compensation; +5. +To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2013; and +6. +To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. +Your vote is important. Please carefully consider the proposals and vote in one of these ways: +• +Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope; or +• +Submit a ballot at the Annual Meeting. +Only stockholders of record at the close of business on April 23, 2013 or their proxy holders may vote at the meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 13, 2013 . This proxy statement and the Company’s 2012 Annual Report to +Stockholders are available on the Company’s website at www.gulfportenergy.com/proxy. +By Order of the +Board of Directors, +Michael G. Moore +Vice President, Chief Financial Officer and Secretary +This notice and proxy statement are first being mailed to stockholders on or about May 13, 2013. +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +PROXY +STATEMENT +TABLE OF CONTENTS +Page +About the Annual Meeting +1 +Board of Directors Information +4 +Election of Directors and Director Biographies +6 +Corporate Governance Matters and Communications with the Board +10 +Code of Business Conduct and Ethics +11 +Nominating Process for Directors, Director Qualifications and Review of Director +Nominees +11 +Director Leadership Structure +12 +Board of Director’s Role in Risk Oversight +13 +Audit Committee Report +14 +Executive Officers +16 +Executive Compensation +17 +Compensation Discussion And Analysis +17 +Compensation Components +21 +Report of the Compensation Committee on Executive Compensation +24 +Compensation Committee Interlocks and Insider Participation +24 +Compensation Tables +25 +Retirement Plans +27 +401(k) Plan +27 +Amended and Restated 2005 Stock Incentive Plan +28 +Employment Agreements +29 +Stock Ownership +35 +Holdings of Major Stockholder +35 +Holdings of Officers and Directors +36 +Section 16(a) Beneficial Ownership Reporting Compliance +37 +Certain Relationships and Related Transactions +38 +Review and Approval of Related Party Transactions +38 +Services Provided to Us by Affiliated Entities +38 +Our Investments in Affiliated Entities and Related Agreements +38 +Area of Mutual Interest and Related Agreements +41 +Proposal to Approve the Amendment to Our Restated Certificate of Incorporation to Increase the Total Number +of Authorized Shares of Common Stock +43 +Proposal to Approve Our 2013 Restated Stock Incentive Plan +45 +Proposal to Approve, on an Advisory Basis, the Company’s Executive Compensation +54 +Proposal to Ratify the Appointment of Our Independent Auditors +55 +Solicitation by Board; Expenses of Solicitation +57 +Submission of Future Stockholder Proposals +57 +Availability of Form 10-K and Annual Report to Stockholders +57 +Other Matters +58 +i +Table of Contents +About the Annual Meeting +Who is soliciting my vote? +The board of +directors of Gulfport Energy Corporation, which we refer to as “Gulfport,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2013 Annual Meeting of Stockholders. In accordance with the +Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and consistent with the advisory vote of the Company’s stockholders obtained in 2011, the Company’s board of directors is providing the +Company’s stockholders with a non-binding advisory vote on, among other proposals, the Company’s executive compensation. This and other proposals to be voted on by the Company’s stockholders at the 2013 Annual Meeting of Stockholders +are described in more detail below. +What am I voting on? +You are voting on: +• +The election of directors ( see Proposal 1 beginning on page 6 ); +• +The amendment of the Company’s restated certificate of incorporation to increase the total number of authorized shares of common stock from +100,000,000 shares to 250,000,000 shares ( see Proposal 2 on page 43 ); +• +The approval of our 2013 Restated Stock Incentive Plan ( see Proposal 3 on page 45 ); +• +The approval, on an advisory basis, of the compensation paid to the Company’s named executive officers as reported in this proxy statement ( see +Proposal 4 on page 54 ); +• +The ratification of Grant Thornton LLP as our independent auditors for 2013 ( see Proposal 5 beginning on page 55 ); and +• +Any other business properly coming before the meeting. +How does the board of directors recommend that I vote my shares? +Unless you give other +instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors. The board of directors’ recommendations can be found with the description of each +item in this proxy statement. In summary, the board of directors recommends a vote: +• +FOR the proposal to elect the nominated directors; +• +FOR the proposal to approve the amendment to the Company’s restated certificate of incorporation to increase the total number of authorized shares +of common stock from 100,000,000 shares to 250,000,000 shares; +• +FOR the proposal to approve our 2013 Restated Stock Incentive Plan; +• +FOR the proposal to approve, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy +statement; +• +FOR the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2013. +Who is entitled to vote? +You may vote +if you were the record owner of our common stock as of the close of business on April 23, 2013. Each share of common stock is entitled to one vote. As of April 1, 2013, we had 77,375,107 shares of common stock outstanding and entitled to +vote, excluding 389,110 shares of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, but not yet vested. There is no cumulative voting. +How many votes must be present to hold the meeting? +Your shares are counted as present at +the Annual Meeting if you attend the meeting and vote in person or if you properly return a proxy by mail. In order for us to hold our meeting, holders of a majority of the voting power of +Table of Contents +our outstanding shares of common stock as of the close of business on April 23, 2013 must be present in person or by proxy at the meeting. This is referred to as a quorum. Abstentions and +broker non-votes will be counted for purposes of establishing a quorum at the meeting. +What is a broker non-vote? +If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive instructions from the beneficial +owner on how to vote those shares, the broker may return the proxy card without voting on that proposal. This is known as a broker non-vote . No broker may vote your shares without your specific instructions on any of the proposals to be +considered at the Annual Meeting other than the ratification of our independent auditors. +How many votes are needed to approve each of the +proposals? +The five nominees for election as directors at the Annual Meeting who receive the highest number of “FOR” votes will +be elected as directors. This is called plurality voting. Unless you indicate otherwise on your proxy card, the persons named as your proxies will vote your shares FOR all the nominees for director named in Proposal 1. +Approval of the amendment to our restated certificate of incorporation to increase the total number of authorized shares of our common stock from +100,000,000 to 250,000,000 requires the affirmative “FOR” vote of a majority of the outstanding shares of our common stock entitled to vote thereon. Abstentions will have the same effect as negative votes in determining whether this +proposal was approved by the stockholders. Broker non-votes will not be counted for voting purposes and will have no effect on the result of the vote on this proposal. +Proposals 3, 4 and 5 require the affirmative “FOR” vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the Annual Meeting and entitled to vote +thereon. Except with respect to the proposal to ratify our independent auditors, where broker non-votes will be counted, only votes for or against these proposals will be counted as votes cast and abstentions and broker non-votes will not be counted +for voting purposes. +How do I vote? +You can vote either in person at the meeting or by proxy without attending the meeting. +To vote by proxy, you must fill out the enclosed proxy card , date and sign it, and return it in the enclosed postage-paid envelope. +Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person at the Annual Meeting, and you hold your stock in street name, you must obtain a proxy +from your broker and bring that proxy to the meeting. +Can I change my vote? +Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by: +• +Signing another proxy card with a later date and returning it to us prior to the meeting; +• +Sending our Corporate Secretary a written document revoking your earlier proxy; or +• +Voting again at the meeting. +Who counts the votes? +We have hired Computershare Trust Company, N.A., our transfer agent, +to count the votes represented by proxies cast by mail or ballot. Employees of Computershare Trust Company, N.A. will act as inspectors of election. +2 +Table of Contents +Will my vote be confidential? +Yes. As a matter of Company policy, proxies, ballots and voting tabulations that identify individual stockholders are treated as confidential. Only the tabulation agent and the inspectors of election have +access to your vote. Directors and employees of the Company may see your vote only if there is a contested proxy solicitation, as required by law or in certain other special circumstances. +Will my shares be voted if I don’t provide my proxy and don’t attend the Annual Meeting? +If you do not provide a proxy or vote your shares held in your name, your shares will not be voted. +If you hold your shares in street name, your broker may be able to vote your shares for certain “routine” matters even if you do not provide the broker with voting instructions. The ratification +of Grant Thornton LLP as our independent auditors for 2013 is considered routine. For matters not considered “routine,” if you do not give your broker instructions on how to vote your shares, the broker will return the proxy card without +voting on that proposal. This is a broker non-vote. The proposals to elect directors, to approve the amendment to the Company’s restated certificate of incorporation to increase the number of authorized shares of common stock, to approve our +2013 Restated Stock Incentive Plan and to approve, on an advisory basis, the Company’s executive compensation are not considered routine. As a result, no broker may vote your shares on these proposals without your specific instructions. +How are votes counted? +In +the election of directors contemplated by Proposal 1, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For Proposals 2, 3, 4 and 5, you may vote “FOR,” +“AGAINST” or “ABSTAIN.” +What if I return my proxy but don’t indicate my vote on the matters listed on my proxy +card? +If you return a signed proxy card without indicating your vote, your shares will be voted FOR the director nominees listed on the +card, FOR the approval of the amendment to our restated certificate of incorporation to increase the total number of authorized shares of our common stock, FOR the approval of our 2013 Restated Stock Incentive Plan, FOR approving, on an advisory +basis, the Company’s executive compensation as described in this proxy statement and FOR the ratification of Grant Thornton LLP as our independent auditors for 2013. +Could other matters be decided at the Annual Meeting? +We have not received any stockholder +proposals and are not aware of any other matters that will be considered at the Annual Meeting. If any other matters arise at the Annual Meeting, the persons named in your proxies will vote in accordance with their best judgment. +Who can attend the meeting? +The Annual +Meeting is open to all holders of our common stock. +What do I need to bring to attend the Annual Meeting? +You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of your broker or bank or other nominee, you +will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN +SHARES OF OUR STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING. +How can I access the Company’s proxy materials and annual report +electronically? +This proxy statement and the Company’s 2012 Annual Report to Stockholders are available on the Company’s website +at www.gulfportenergy.com/proxy. +3 +Table of Contents +Board of Directors Information +What is the makeup of the board of directors and how often are the members elected? +Our board of directors currently consists of six members who are elected annually. We have elected to reduce the size of our board of directors to five members, which change will be effective when new +directors are elected at this meeting. The majority of these directors are independent under the Nasdaq listing standards. +What if a +nominee is unable or unwilling to serve? +That is not expected to occur. If it does, shares represented by proxies will be voted for a +substitute nominated by the board of directors. +How are directors compensated? +Our policy is that members of our board of directors who are also our officers or employees do not receive compensation for their services as directors. +The compensation of our non-employee directors is described below. +Cash Compensation +In 2012, we paid our non-employee directors a monthly retainer of $1,000 and a per meeting in-person attendance fee of $500 and reimbursed all ordinary +and necessary expenses incurred by non-employee directors in the conduct of our business. In addition to the fees described above, each committee member of our board of directors receives $3,000 per year for his service on each committee, provided +that the committee chairman receives $4,500 per year per committee. As of the date of this proxy statement, no changes to the cash compensation structure for our non-employee directors have been made for 2013. In addition, a special committee of the +board of directors was formed in 2012 in connection with the Company’s contribution of its Permian Basin assets to Diamondback Energy, Inc. and the Company’s initial acquisition of Utica Shale acreage from Windsor Ohio LLC in 2012. Each +special committee member received an aggregate of $30,000 for service on the special committee, of which $5,000 was paid in April 2012 and $25,000 was paid in December 2012, while the special committee chairman received an aggregate of $42,500, of +which $7,500 was paid in April 2012 and $35,000 was paid in December 2012. +Equity Compensation +From time to time, we have provided our non-employee directors with equity compensation under our Amended and Restated 2005 Stock Incentive Plan as +additional compensation and incentive, and we intend to continue to provide equity compensation to our non-employee directors under our 2013 Restated Stock Incentive Plan if approved. Our current non-employee directors are Donald L. Dillingham, +Craig Groeschel, David L. Houston and Scott E. Streller. In May 2011, we granted 6,666 shares of our restricted common stock to Mr. Dillingham under our Amended and Restated 2005 Stock Incentive Plan, which shares vest in three annual +installments of 2,220 on March 16, 2012, 2,220 shares on March 18, 2013 and 2,226 shares on March 18, 2014. In October 2011, we granted 6,666 shares of our restricted common stock to Mr. Groeschel under our Amended and Restated +2005 Stock Incentive Plan in connection with Mr. Groeschel’s appointment to our board of directors in August 2011, which shares vest in three annual installments of 2,220 shares on December 15, 2011, 2,220 shares on December 14, +2012 and 2,226 shares on December 16, 2013. Neither Mr. Streller nor Mr. Houston received any awards in 2011 under our Amended and Restated 2005 Stock Incentive Plan because we granted 6,666 shares of our restricted common stock to +each of them in November 2009. In November 2012, we granted 6,666 shares of our restricted common stock to each of Mr. Houston and Mr. Streller under our Amended and Restated 2005 Stock Incentive Plan, which in each case vest in three +equal annual installments of 2,222 shares, beginning on December 14, 2012. Further details regarding our director compensation in 2012 are set forth under the heading “Director Compensation” below. +4 +Table of Contents +Insurance and Indemnification +We provide liability insurance for our directors and officers at a current annual cost of approximately $410,000. In addition, our certificate of +incorporation sets forth limitations on our directors’ liability to our stockholders. Further, our bylaws contain indemnification and advancement of expenses provisions for the benefit of our directors and officers. +How often did the board of directors meet in 2012? +The board of directors met seven times in 2012. In addition to these meetings, the board of directors adopted resolutions by unanimous written consent. Each director attended at least 75% of the aggregate +meetings of the board of directors and the meetings of the committees on which he served. +5 +Table of Contents +Election of Directors and Director Biographies +(Proposal 1 on the Proxy Card) +Who are this year’s nominees? +The directors standing for election this year to hold +office until the 2014 Annual Meeting of Stockholders and until each such director’s successor is elected are: +DONALD L. DILLINGHAM, +age 50. Mr. Dillingham has served as a director of the Company since November 2007. Since August 2001, Mr. Dillingham has served as the Senior Portfolio Manager for Avondale Investments, LLC and Merit Advisors, Inc., each of which is a +registered investment advisor. Mr. Dillingham is currently the Senior Portfolio Manager for two mutual funds, a member of the investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer of the Merit Advisors Investment Trust. +From August 2002 to December 2004, Mr. Dillingham served as an adjunct professor of finance at the University of Oklahoma. From April 1998 to August 2001, Mr. Dillingham served as Senior Vice President, portfolio manager and state director +for J.P. Morgan Investment Management. From March 1996 to April 1998, Mr. Dillingham served American Express as the state director responsible for managing the financial planning services and product sales for the state of Oklahoma. From May +1994 to December 1996, Mr. Dillingham worked for Bank of America as Vice-President of Investment Banking. Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker +and sales manager from August 1984 to May 1994. Mr. Dillingham received a Bachelors of Business and Administration in Accounting from the University of Oklahoma and his Masters of Business and Administration in Finance from Oklahoma City +University. Mr. Dillingham is a Chartered Financial Analyst, a Certified Public Accountant and a Certified Financial Planner. +CRAIG +GROESCHEL, age 45. Mr. Groeschel has served as a director of the Company since August 2011. Since 1996, Mr. Groeschel has served as a founding pastor of LifeChurch.tv, one of the largest churches in the United States, reaching over +30,000 people each weekend. Since founding LifeChurch, Mr. Groeschel has served on its Board of Directors. Under Mr. Groeschel’s leadership, LifeChurch has grown to 15 locations in the United States. Mr. Groeschel received a +Bachelors in Business Marketing from the Oklahoma City University and a Masters of Divinity from the Phillips Graduate Seminary. Mr. Groeschel is a frequent speaker at various domestic and international forums and an author of a number of +books. +DAVID L. HOUSTON, age 60. Mr. Houston has served as a director of the Company since July 1998. Since 1991, +Mr. Houston has been the principal of Houston & Associates, a firm that offers life and disability insurance, compensation and benefits plans and estate planning. Prior to 1991, Mr. Houston was President and Chief Executive +Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. In May 1992, in settlement of administrative litigation (and +without any finding or admission of guilt) brought by the U.S. Office of Thrift Supervision against him in his capacity as an executive officer of a thrift institution, Mr. Houston entered into a consent order under which he agreed not to serve +as an officer of, or participate in the affairs of, insured depository institutions. The order relates to alleged violations of certain lending practices in early 1990 or before. Mr. Houston served on the board of directors and executive +committee of Deaconess Hospital, Oklahoma City, Oklahoma, from January 1993 until December 2008 and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston has served as a +director of Gulfport since July 1998 and is the chairman of its audit committee. He also served as a director of Bronco Drilling Company from May 2005 until December 2010 and was a member of its audit committee. Mr. Houston received a Bachelor +of Science degree in business from Oklahoma State University and a graduate degree in banking from Louisiana State University. +JAMES D. +PALM, age 68. Mr. Palm has served as a director of the Company since February 2006 and as Chief Executive Officer of the Company since December 2005. Prior to joining the Company, Mr. Palm pursued oil and gas investments primarily in +Oklahoma, the Texas Panhandle and Kansas as the manager and owner of +6 +Table of Contents +Crescent Exploration, LLC, a company he founded in 1995. Mr. Palm currently serves as a member of the Industry Advisory Committee of the Oklahoma Corporation Commission. From October 2001 +through October 2003, Mr. Palm served as the Chairman of the Oklahoma Energy Resources Board. From 1997 through 1999, Mr. Palm served as the President of the Oklahoma Independent Petroleum Association. Mr. Palm received a Bachelor of +Science degree in Mechanical Engineering in 1968, and a Masters in Business Administration in 1971, both from Oklahoma State University. +SCOTT E. STRELLER, age 45. Mr. Streller has served as a director of the Company since August 2006. Since April 1993, Mr. Streller has +operated an insurance agency for Farmer’s Insurance and Farmer’s Financial Solutions. Mr. Streller received a Master’s degree in Athletic Administration from Oklahoma State University and a Bachelor of Business Administration +degree in Business Management from the University of Central Oklahoma. +What does the board of directors recommend? +THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS +7 +Table of Contents +What are the committees of the Board? +Our board of directors has the following committees: +Committee +Members +Principal Functions +Number of +Meetings in +2012 +Audit +David L. Houston* +Donald L. Dillingham +Scott E. +Streller +• Reviews and discusses with management and the independent auditors +the integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management compliance. +• Monitors and oversees our accounting, auditing and financial reporting processes +generally, including the qualifications, independence and performance of the independent auditor. +• Monitors our compliance with legal and regulatory requirements. +• Establishes +procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding +questionable accounting or auditing matters. +• Reviews and approves related party transactions. +• Appoints, determines compensation, evaluates and terminates our independent +auditors. +• Pre-approves audit and permissible non-audit services to be performed by the independent +auditors. +• Prepares the report required by the Securities and Exchange Commission, or the SEC, for +the inclusion in our annual proxy statement. +• Reviews and reassesses the adequacy of the audit committee charter on a periodic basis. +6 +Compensation +Scott E. Streller +David L. +Houston* +• Oversees and administers our executive compensation policies, plans +and practices and evaluates their impact on risk and risk management. +• Assists the board of directors in discharging its responsibilities relating to the compensation of our executives, including our chief executive officer, and other key +employees. +• Administers our equity-based compensation plans, including the grants of stock options, +restricted stock awards and other equity awards under such plans. +4 +8 +Table of Contents +Committee +Members +Principal Functions +Number of +Meetings in +2012 +• Makes recommendations to the board with respect to incentive +compensation. +• Conducts annual performance evaluation of the committee. +• Reviews disclosure +related to executive compensation in our proxy statement. +• Reviews and considers the stockholders’ advisory vote on executive compensation and the frequency of holding such advisory vote. +• Reviews and +reassesses the adequacy of the compensation committee charter. +Nominating +Donald L. Dillingham +David L. Houston +Scott E. +Streller* +• Assists the board of directors in developing criteria for, +identifying and evaluating individuals qualified to serve as members of our board of directors. +• Selects and recommends director candidates to the board of directors to be submitted for +election at the Annual Meeting and to fill any vacancies on the board of directors. +• Periodically reviews and makes recommendations regarding the composition and size of the board of directors and each of its committees. +• Reviews and +recommends to the board of directors appropriate corporate governance policies and procedures for the Company. +• Conducts an annual assessment of the qualifications and performance of the board of +directors. +• Annually reviews and reports to the board of directors on the performance of +management. +• Reviews and reassesses the adequacy of the nominating committee charter. +1 +* +Committee Chairperson +Do the committees +have written charters? +Yes. The charters for our Audit Committee, Compensation Committee and Nominating Committee can be found on our +website at www.gulfportenergy.com under the “Corporate Governance” caption. You may also obtain copies of these charters, as well as our Code of Business Conduct and Ethics, which is described below, by writing to our Corporate +Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +9 +Table of Contents +Corporate Governance Matters and Communications with the Board +Who are our independent directors? +Our board of directors has determined that Donald L. Dillingham, Craig Groeschel, David L. Houston and Scott E. Streller meet the standards regarding independence set forth in the Nasdaq listing standards +and are free of any relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors of the Company. +Our board of directors has determined that each member of the Audit Committee is independent for purposes of serving on such committee under the Nasdaq +listing standards and applicable federal law. In addition, our board of directors has determined that each current member of the Audit Committee is financially literate under the Nasdaq listing standards and that each of Mr. Houston, who serves +as the Chairman of the Audit Committee, and Mr. Dillingham qualifies as the “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. +Our board of directors has also determined that each member of the Compensation Committee and the Nominating Committee meets the independence requirements applicable to those committees under the Nasdaq +rules. In addition, our board of directors determined that each member of our compensation committee is an “outside director” in accordance with Section 162(m) of the Internal Revenue Code and a “non-employee director” in +accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. +Do our non-management directors +meet separately without management? +Our non-management directors have the opportunity to meet in an executive session following each +regularly scheduled meeting of the board of directors. During 2012, our non-management directors met in an executive session on November 5, 2012. +How can I communicate with the board of directors? +Individuals may communicate with our +board of directors or individual directors by writing to our Corporate Secretary, Michael G. Moore, at Gulfport Energy Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. Our Corporate Secretary will review all such +correspondence and forward to our board of directors a summary of all such correspondence and copies of all correspondence that, in the opinion of our Corporate Secretary, relates to the functions of our board of directors or a committee thereof or +that he otherwise determines requires their attention. Directors may review a log of all such correspondence received by us and request copies. Concerns relating to accounting, internal control over financial reporting or auditing matters will be +immediately brought to the attention of the chairman of the audit committee and handled in accordance with the audit committee procedures established with respect to such matters. +Do directors attend the Annual Meeting? +Recognizing that director attendance at our Annual +Meeting can provide our stockholders with an opportunity to communicate with directors about issues affecting the Company, we actively encourage our directors to attend the Annual Meeting of Stockholders. Three of our directors attended the 2012 +Annual Meeting of Stockholders in person and one attended telephonically. +10 +Table of Contents +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and Ethics designed to help directors and employees resolve ethical issues. Our Code of Business Conduct and +Ethics applies to all directors and employees, including the Chief Executive Officer, the Chief Financial Officer and all senior financial officers. Our Code of Business Conduct and Ethics covers various topics including, but not limited to, +conflicts of interest, fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is posted on our website under the “Investor +Relations—Corporate Governance” caption. +Nominating Process for Directors, Director +Qualifications and Review of Director Nominees +The Nominating Committee is comprised of three non-employee directors, all of whom are +independent under Nasdaq listing standards. As provided by the Nominating Committee’s charter, our Nominating Committee identifies, investigates and recommends to our board of directors candidates with the goal of creating a balance of +knowledge, experience and diversity. Generally, the committee identifies candidates through the personal, business and organizational contacts of the directors and management. +Potential directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the interests of our stockholders. In addition to reviewing a +candidate’s background and accomplishments, candidates for director nominees are reviewed in the context of the current composition of our board of directors and the evolving needs of our business. It is the policy of our board of directors +that at all times at least a majority of its members meets the standards of independence promulgated by Nasdaq and the SEC and that all members reflect a range of talents, ages, skills and expertise, particularly in the areas of accounting and +finance, management, leadership and oil and gas related industries sufficient to provide sound and prudent guidance with respect to our operations and the interests of our stockholders. In addition to the foregoing factors, our Nominating Committee +considers diversity in its evaluation of candidates for board membership. Although our board of directors does not have a formal diversity policy, our board believes that diversity with respect to viewpoint, skills and experience should be an +important factor in board composition. Our Nominating Committee ensures that diversity considerations are discussed in connection with each potential nominee, as well as on a periodic basis in connection with its periodic review of the composition +of the board and the size of the board as a whole. +We also require that the members of our board of directors be able to dedicate the time +and resources sufficient to ensure the diligent performance of their duties on our behalf, including attending all meetings of the board of directors and applicable committee meetings. In accordance with its charter, our Nominating Committee +periodically reviews the criteria for the selection of directors to serve on our board and recommends any proposed changes to our board of directors for approval. +Our board of directors will consider stockholder nominations for director candidates upon written submission of such recommendation to our Corporate Secretary along with, among other things, the +nominee’s qualifications and certain biographical information regarding the nominee, such nominee’s written consent to serving as a director if elected and being named in the proxy or information statement and certain information regarding +the status of the stockholder submitting the recommendation, all in the manner required by our amended and restated bylaws and the applicable rules and regulations promulgated under the Exchange Act. Following verification of the stockholder status +of persons proposing candidates, recommendations will be aggregated and considered by our board of directors at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the nomination of a director +candidate, such materials will be forwarded to our board of directors. +Our board of directors may also review materials provided by +professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, our board of directors will seek to achieve a balance of knowledge, experience and capability on the board. +Our board of +11 +Table of Contents +directors uses the same criteria for evaluating candidates nominated by stockholders as it does for those proposed by current board members, professional search firms and other persons. After +completing its evaluation, our board of directors approves the final slate of director nominees. +Our Nominating Committee approved the +director nominees submitted for election at this Annual Meeting. Each nominee is a current board member and brings a strong and unique background and set of skills to our board of directors, giving our board of directors as a whole competence and +experience in a variety of areas, including corporate governance and board service, executive management, oil and natural gas industry, accounting and finance and risk assessment and management. Specifically, in nominating the candidates submitted +for election at this Annual Meeting, our Nominating Committee considered such directors’ past service on our board and the information discussed in each of the directors’ individual biographies set forth beginning on page 6 above. In +particular, with regard to Mr. Palm, our Nominating Committee considered his public company experience as an executive officer and director of Gulfport, as well as his strong oil and natural gas background and his current and prior service with +various state and independent advisory boards and committees in the petroleum industry. With regard to Mr. Dillingham, our Nominating Committee considered his strong background in finance and risk assessment and management developed as part of +his career as a registered investment advisor and portfolio manager, as well as his academic experience. With regard to Mr. Groeschel, our Nominating Committee considered his leadership and prior board service at a non-profit organization, +community involvement and administrative and public speaking skills. With regard to Messrs. Houston and Streller, our Nominating Committee considered their respective business backgrounds and risk assessment skills. Each of the director nominees has +consented to serve as a director if elected. +Director Leadership Structure +Since December 2005, the positions of Chairman of the Board and Chief Executive Officer have been held by two different individuals. Separating these +positions has allowed our Chief Executive Officer to focus on our day-to-day business and operations, while allowing our Chairman of the Board to lead the board in its fundamental role of providing advice to and oversight of management. In +accordance with our bylaws, the position of the Chairman of the Board is an executive officer position and not an independent director position. The Chairman of the Board has provided leadership to our board of directors and worked with the board of +directors to define its structure and activities in the fulfillment of its responsibilities. The Chairman of the Board has set the board agendas, with the input from other members of the board and our management, facilitated communications among and +information flow to directors, had the power to call special meetings of our board of directors and stockholders and presided at meetings of our board of directors and stockholders. The Chairman of the Board has also advised and counseled our Chief +Executive Officer and other officers. Our board of directors does not have a position of a lead director. +We believe that our directors +bring a broad range of leadership experience to the boardroom and regularly contribute to the thoughtful discussion involved in effectively overseeing the business and affairs of the Company. We believe that the atmosphere of our board is collegial, +that all board members are well engaged in their responsibilities, and that all board members express their views and consider the opinions expressed by other directors. We do not believe that appointing an independent board chairman, or a lead or +presiding director, would improve the performance of our board of directors. Further, four out of five director nominees are independent under the Nasdaq listing standards and SEC rules. We believe that all of our independent directors have +demonstrated leadership in business enterprises and are familiar with board processes. Our independent directors are involved in the leadership structure of our board by serving on our Audit, Nominating and Compensation committees, each having a +separate independent chairperson. Specifically, the chair of our Audit Committee oversees the accounting and financial reporting processes, as well as compliance with legal and regulatory requirements. The chair of our Compensation Committee +oversees our compensation policies and practices and their impact on risk and risk management. The chair of our Nominating Committee monitors +12 +Table of Contents +matters such as the composition of the board and its committees, board performance and best practices in corporate governance. As such, each committee chair provides independent leadership for +purposes of many important functions delegated by our board of directors to such committee. +Board +of Director’s Role in Risk Oversight +As an exploration and production company, we face a number of risks, including risks associated +with the supply of and demand for oil and natural gas, volatility of oil and natural gas prices, exploring for, developing, producing and delivering oil and natural gas, declining production, environmental and other government regulations and taxes, +weather conditions, including hurricanes, that can affect oil and natural gas operations over a wide area, adequacy of our insurance coverage, political instability or armed conflict in oil and natural gas producing regions and overall economic +environment. Management is responsible for the day-to-day management of risks we face as a company, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. It its risk oversight +role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. +Our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight. Our Chairman of the Board meets +regularly with our Chief Executive Officer and our Chief Financial Officer to discuss strategy and risks facing the Company. Our executive officers regularly attend the board meetings and are available to address any questions or concerns raised by +the board on risk management-related and any other matters. Other members of our management team periodically attend board meetings or are otherwise available to confer with the board to the extent their expertise is required to address risk +management matters. Periodically, our board of directors receives presentations from senior management on strategic matters involving our operations. During such meetings, our board of directors also discusses strategies, key challenges, and risks +and opportunities for the Company with senior management. +While our board of directors is ultimately responsible for risk oversight at the +Company, our three committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. Our Audit Committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of +financial reporting, internal controls and compliance with legal and regulatory requirements, and discusses policies with respect to risk assessment and risk management. Our Compensation Committee assists the board in fulfilling its oversight +responsibilities with respect to the management of risks arising from our compensation policies and programs. Our Nominating Committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated +with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance. +13 +Table of Contents +Audit Committee Report +The Audit Committee is responsible for providing independent, objective oversight for the integrity of the Company’s financial reporting process and +internal control system. Other primary responsibilities of the Audit Committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the Company’s independent registered public accounting firm +and providing an open venue for communication among the independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of the Company. A more detailed description of the +responsibilities of the Audit Committee is set forth in its written charter, which is posted on our website at www.gulfportenergy.com . The following report summarizes certain of the Audit Committee’s activities with respect to its +responsibilities during 2012. +Review with Management and Independent Registered Public Accounting Firm. The Audit Committee has +reviewed and discussed with management and Grant Thornton LLP, an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, 2012. +Controls and Procedures. Management has established and maintains a system of disclosure controls and procedures designed to provide reasonable +assurance that information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time +periods specified in the SEC’s rules and forms, and includes controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, +including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2012, management conducted an evaluation of our disclosure controls and +procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in +the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Audit Committee discussed with management and Grant Thornton LLP the +quality and adequacy of the Company’s disclosure controls and procedures. +Management has also established and maintains a system of +internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that +disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in +Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control—Integrated Framework, management concluded +that our internal control over financial reporting was effective as of December 31, 2012, as discussed in more detail in Management’s Report on Internal Control Over Financial Reporting, which was included in our Annual Report on Form 10-K +for the year ended December 31, 2012, filed with the SEC on March 1, 2013. Our internal control over financial reporting as of December 31, 2012 has been audited by Grant Thornton LLP, as stated in its attestation report, which was +included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 1, 2013. The Audit Committee reviewed and discussed with management and Grant Thornton LLP the Company’s system of internal +control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. +Discussions with Independent +Auditing Firm. The Audit Committee has discussed with Grant Thornton LLP, independent auditors for the Company, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended. +The Audit Committee has received the written disclosures and the letter from Grant Thornton LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the +audit committee concerning independence and has discussed with that firm its independence from the Company. +14 +Table of Contents +Recommendation to the board of directors. Based on its review and discussions noted above, the Audit +Committee recommended to the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. +THE AUDIT COMMITTEE +David L. Houston, Chairman +Donald L. Dillingham +Scott E. Streller +15 +Table of Contents +Executive Officers +The following table sets forth the name, age and positions of each of our executive officers as of the record date: +Name +Age +Position +Mike Liddell +59 +Chairman of the Board +James D. Palm +68 +Chief Executive Officer +Michael G. Moore +56 +Vice President, Chief Financial Officer and Secretary +Biographical information for Mr. Palm is set forth in this proxy statement under the heading “Election of +Directors and Director Biographies.” +MIKE LIDDELL. Mr. Liddell has served as a director of the Company since July 1997 +and as Chairman of the Board of the Company since July 1998. Mr. Liddell served as Chief Executive Officer of the Company from April 1998 to December 2005 and President of the Company from July 2000 to December 2005. Mr. Liddell also +served as President and Chief Executive Officer of Caliber Development Company, LLC from March 2004 until June 2006, and has served as its Chief Executive Officer since June 2006. In addition, Mr. Liddell served as Chief Executive Officer of +DLB Oil & Gas, Inc., a publicly held oil and natural gas company, from October 1994 to April 1998, and as a director of DLB Oil & Gas from 1991 through April 1998. From 1991 to 1994, Mr. Liddell was President of DLB +Oil & Gas. From 1979 to 1991, he was President and Chief Executive Officer of DLB Energy. Mr. Liddell served as a director of Bronco Drilling Company, Inc., a provider of contract land drilling services, from May 2005 until August 2008 +and as its Chairman of the Board from May 2005 until August 2007. Mr. Liddell received a Bachelor of Science degree in education from Oklahoma State University. In April 2013, Mr. Liddell notified us that he will not stand for re-election as a +director at our 2013 Annual Meeting of Stockholders and, as a result, his tenure as Chairman of the Board will end at the conclusion of that meeting. Mr. Liddell’s decision to not stand for re-election as a director or continue as Chairman of +the Board was not the result of any disagreement between Mr. Liddell and the Company. +MICHAEL G. MOORE. Mr. Moore has served +as Vice President, Chief Financial Officer and Secretary of the Company since July 2000. From May 1998 through July 2000, Mr. Moore served as Vice President and Chief Financial Officer of Indian Oil Company. From September 1995 through May +1998, Mr. Moore served as Controller of DLB Oil & Gas. Prior to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based gas marketing company. Mr. Moore received both his Bachelor of Business Administration +degree in Finance and his Masters in Business Administration from the University of Central Oklahoma. +16 +Table of Contents +Executive Compensation +Compensation Discussion And Analysis +Overview +The compensation discussion and analysis set forth below provides an +overview of our compensation program, including the objectives and rationale of each element of compensation, for each of our named executive officers. This section also describes the actions and decisions of the compensation committee of our board +of directors, and of our board of directors, as they relate to our executive compensation decisions. The compensation committee, which is composed entirely of independent directors, is primarily responsible for establishing, implementing and +monitoring our compensation programs, including those applicable to our executive officers. In particular, the compensation committee’s current role is to oversee, on behalf of our board of directors, our compensation and benefit plans and +policies, administer our stock plans (including reviewing and approving equity grants to directors and executive officers) and review and approve annually all compensation decisions relating to our Chief Executive Officer, Chairman of the Board and +Chief Financial Officer. The compensation committee meets at least annually to review executive compensation programs, approve compensation levels, consider performance targets, review management performance and administer our equity-based +compensation plans. The compensation committee operates in accordance with its charter, adopted effective as of February 14, 2006, which sets forth the committee’s powers and responsibilities, which are described in more detail under the +heading “Election of Directors and Director Biographies—What are the committees of the Board?” +Compensation Philosophy and Objectives +The objectives of our compensation program are to: +• +attract and retain key executives; +• +align the interests of our executives with those of our stockholders; and +• +motivate and reward individual performance and contributions. +Compensation Decisions in 2012 +In the fall of 2011, the compensation committee engaged Equilar, an outside consultant, to provide executive compensation analysis for 2011 focusing on how base salaries, annual bonuses, equity awards and +total compensation packages of our Chief Executive Officer and Chief Financial Officer compared to such compensation elements of similarly situated executives at peer group companies. The 2011 Equilar survey included the following industry peer +companies: Abraxas Petroleum Corporation, Berry Petroleum Company, Brigham Exploration Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, EV Energy +Partners, LP, Goodrich Petroleum Corporation, Petroleum Development Corporation, Petroquest Energy Inc., RAM Energy Resources, Inc., Sandridge Energy Inc., SM Energy Company, Stone Energy Corporation, Swift Energy Company and Whiting Petroleum +Corporation. The 2011 Equilar survey revealed that, similar to the results of a prior 2010 Equilar survey, the compensation of each of these named executive officers was below both the mean and median amounts received by similarly situated +executives at peer group companies with respect to each compensation element based on information publicly-available at the time, except that the value of our Chief Financial Officer’s 2011 restricted stock award exceeded both mean and median +values of equity awards granted to Chief Financial Officers of peer group companies. The compensation committee reviewed the results of the 2011 Equilar survey and evaluated the bonuses and equity awards for 2011 and the compensation packages for +2012 for our Chairman of the Board, Chief Executive Officer and Chief Financial Officer in light of the compensation packages received by their peers. The compensation committee also considered our 2011 performance, the value these executives bring +to the Company, market trends, peer benchmarking, economic climate, the respective experience and leadership roles of these executives and the Company’s desire to retain these executives. The compensation committee noted that in 2011 the +Company continued to demonstrate strong performance metrics as compared to its peers based on one year total stockholder return, three year total stockholder return and net income. +17 +Table of Contents +Based on these considerations, in October 2011, the compensation committee granted 2011 discretionary +bonuses to our Chief Executive Officer and our Chief Financial Officer. Such bonuses represented increases from bonuses granted to such executive officers for the prior year, which were intended to reflect our strong 2011 performance and their +respective contributions to the Company, including with respect to the Company’s successful completion of the underwritten public equity offerings to finance acquisitions of oil and gas assets, including in the Utica Shale in Eastern Ohio. The +bonuses were also intended to bring these named executive officers’ overall compensation closer to the total compensation received by similarly situated executives at peer group companies. The compensation committee also increased our Chief +Executive Officer’s annual salary to $250,000, effective August 16, 2011, and adjusted our Chairman of the Board’s salary for the annual increase in the cost of living contemplated by his then-current employment agreement. The +compensation committee also considered the need to continue to incentivize our named executive officers by providing long term equity awards with a time vesting component in light of peer group companies’ practices. The compensation committee +noted its intention to evaluate an equity award grant for our Chief Executive Officer in 2012 to further incentivize him, considering that all of his previously granted equity awards had vested. In light of the restricted stock award granted to our +Chairman of the Board in March of 2010 and the restricted stock awards granted to our Chief Financial Officer in November 2010 and May 2011, the compensation committee did not recommend any equity awards for such named executive officers at that +time. The compensation committee also determined to grant a $500,000 discretionary bonus payable in January 2012 to our Chairman of the Board in recognition of his continuing contributions to the Company. The compensation committee did not make any +other substantive changes to our named executive officers’ compensation structure for 2012 at that time. +In February 2012, once the +Company’s 2011 results of operations were available, the compensation committee again reviewed the compensation packages for our named executive officers for 2012 in light of our prior year’s performance and the 2011 Equilar survey of +compensation packages of similarly situated executive officers at peer group companies. During such review, the compensation committee evaluated our strategy for recruiting, retaining and motivating our named executive officers and key employees. +The compensation committee noted the Company’s strong financial performance on the basis of total stockholder value metrics and considered our named executive officers’ respective contributions to our strong operating and financial +performance, including our successful completion of three equity offerings in 2011 to, among other purposes, finance the acquisition of certain strategic assets in the Utica Shale in Eastern Ohio. The compensation committee indicated its desire to +adjust the incentive structure for our named executive officers to align their interests more closely with those of our stockholders and to more adequately reward such named executive officers for their respective performances in 2011. Following +such discussion, the compensation committee determined to grant restricted stock awards of 40,000 shares, 67,500 shares and 40,000 shares of restricted common stock to our Chairman of the Board, our Chief Executive Officer and our Chief Financial +Officer, respectively, under our Amended and Restated 2005 Stock Incentive Plan. See “Compensation Components—Restricted Stock Awards” below. The compensation committee also evaluated the need for a new employment agreement with each +of our Chairman of the Board and our Chief Executive Officer to, among other things, increase their salaries to be commensurate with their respective levels of responsibility with the Company, as well as the need for an employment agreement with our +Chief Financial Officer. +In the fall of 2012, the compensation committee again engaged Equilar to provide executive compensation analysis for +2012 focusing on how base salaries, annual bonuses, equity awards and total compensation packages of our Chief Executive Officer and Chief Financial Officer compared to such compensation elements of similarly situated executives at peer group +companies. The 2012 Equilar survey included the following industry peer companies: Abraxas Petroleum Corporation, Approach Resources Inc., Berry Petroleum Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources +Inc., Continental Resources, Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, EV Energy Partners, LP, Goodrich Petroleum Corporation, Halcon Resources Corp., Laredo Petroleum Holdings, Inc., PDC Energy, Inc., Petroquest Energy Inc., +Sandridge Energy Inc., SM Energy Company, Stone Energy Corporation, Swift Energy Company, W&T Offshore, Inc. and Whiting Petroleum Corporation. The 2012 Equilar survey revealed that the total compensation of each of these named executive +officers was below both the median and the mean amounts of total compensation received by +18 +Table of Contents +similarly situated executives at peer group companies based on information publicly-available at the time. Furthermore, each element of these named executive officers’ compensation was below +the median and the mean amounts for similarly situated executives at peer group companies, except that the amount of our Chief Executive Officer’s 2012 annual bonus exceeded both the median and mean annual bonus of such similarly situated +executives and the value of our Chief Executive Officer’s 2012 restricted stock award exceeded the median value of restricted stock awards granted to such similarly situated executives based on information publicly-available at the time. The +compensation committee reviewed the results of the 2012 Equilar survey and evaluated the bonuses and equity awards for 2012 and the compensation packages for 2013 for our Chairman of the Board, Chief Executive Officer and Chief Financial Officer in +light of the compensation packages received by their peers. The compensation committee also considered our 2012 performance, the value these executives bring to the Company, market trends, peer benchmarking, economic climate, the respective +experience and leadership roles of these executives and the Company’s desire to retain these executives. The compensation committee noted that in 2012 the Company continued to demonstrate strong performance metrics as compared to its peers +based on one year total stockholder return, three year total stockholder return and net income. +Based on the foregoing considerations, and +after examining the Company’s strategy for recruiting, retaining and motivating key employees, the compensation committee approved the Company entering into a new employment agreement with each of Messrs. Liddell, Palm and Moore in November +2012. Each of these agreements was entered into effective November 1, 2012, and the terms of the agreements are described in more detail below under the heading “Employment Agreements.” Also in November 2012, the compensation +committee granted discretionary bonuses in the amount of $500,000 to our Chief Executive Officer and our Chief Financial Officer for the 2012 fiscal year. The amount of each such bonus was the same as the bonus granted to such executive officers for +the prior year, which was intended to reflect our continued strong performance in 2012 and the contributions of such executive officers to the Company, including with respect to the Company’s successful completion of an offering of senior notes +to finance acquisitions of oil and gas assets, including in the Utica Shale in Eastern Ohio. The bonuses were also intended to keep these named executive officers’ overall compensation closer to the total compensation received by similarly +situated executives at peer group companies. The compensation committee also determined to grant a $500,000 discretionary bonus for the 2013 fiscal year to our Chairman of the Board in recognition of his continuing contributions to the Company. +Compensation Policy +The key elements of our compensation program are salary, annual bonus and long-term incentive compensation. We use these elements to meet our compensation objectives as follows: +• +Attract and retain key executives . We believe that to attract and retain talented executives, we must offer compensation that is +competitive with the compensation of similarly-situated executives of comparable companies within the oil and natural gas industry. To facilitate the retention of our executives, we entered into an employment agreement, effective November 1, +2012, with each of Messrs. Liddell, Palm and Moore. Each employment agreement has an initial term of three years and will automatically renew for successive one-year periods unless the Company or the applicable executive gives notice to the other, +in accordance with the terms of the employment agreement, that it has elected to not renew the agreement. +• +Align the interests of our executives with those of our stockholders . In the past, we used both options and restricted stock awards to +provide long-term incentive compensation and to align the financial interests of our executives with those of our stockholders. Since 2006, we have used only restricted stock awards to incentivize our named executive officers. It is anticipated that +in the future the compensation committee will continue to structure our long-term incentive compensation in the form of restricted stock awards, consistent with peer group companies’ practices. For a discussion of the Company’s long-term +incentive policy, see “Long Term Incentive Compensation” below. +19 +Table of Contents +• +Stock Options . Stock options represent the right of an option holder to buy shares of our common stock at an exercise price equal to the market +value of our common stock on the date of grant. Under our outstanding stock options, the right to buy underlying shares generally vested in 36 substantially equal monthly installments from the date of grant, except that certain options vested in +five substantially equal annual installments beginning on the first anniversary of the date of grant. All outstanding options have now vested. We awarded these stock options in order to align compensation with company performance as the options +become valuable to the executive only if the stock price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. +• +Restricted Stock Awards . In December 2008, the compensation committee granted a restricted stock award of 66,667 shares of restricted common +stock to our Chief Executive Officer under our Amended and Restated 2005 Stock Incentive Plan. All of these shares of restricted common stock had vested as of December 31, 2012. We did not grant any equity awards to any of our executive +officers in 2009. As additional compensation and incentive, in March 2010, the compensation committee granted a restricted stock award of 66,667 shares of restricted common stock to our Chairman of the Board under our Amended and Restated 2005 Stock +Incentive Plan, which shares vested in 12 substantially equal quarterly installments and all of which had vested as of December 31, 2012. In November 2010, the compensation committee granted a restricted stock award of 45,000 shares of +restricted common stock to our Chief Financial Officer under our Amended and Restated 2005 Stock Incentive Plan to continue to provide incentive to him, which shares vest in five annual installments. Of this amount, 18,000 shares had vested as of +December 31, 2012 and the 27,000 remaining unvested shares vest in two annual installments of 12,000 shares on December 17, 2013 and 15,000 shares on December 17, 2014. In May 2011, the compensation committee granted a restricted +stock award of 25,000 shares of restricted common stock to our Chief Financial Officer under our Amended and restated 2005 Stock Incentive Plan, of which 5,000 shares had vested as of December 31, 2012 and the 20,000 remaining unvested shares +vest in three annual installments of 5,000 shares on June 17, 2013, 6,667 shares on June 16, 2014 and 8,333 shares on June 17, 2015. In addition, in February 2012, the compensation committee granted restricted stock awards of 40,000 +shares, 67,500 shares and 40,000 shares of restricted common stock to our Chairman of the Board, our Chief Executive Officer and our Chief Financial Officer, respectively, under our Amended and Restated 2005 Stock Incentive Plan. Of these shares, +15,000, 42,500 and 27,500 shares held by our Chairman of the Board, our Chief Executive Officer and our Chief Financial Officer, respectively, had vested as of March 31, 2013. The remaining 25,000 unvested shares of restricted common stock +granted under our Amended and Restated 2005 Stock Incentive Plan to our Chairman of the Board in February 2012 vest in seven quarterly installments, with 15,000 shares vesting during the remainder of 2013 and 10,000 shares vesting in 2014. The +remaining 25,000 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan to our Chief Executive Officer in February 2012 vest in seven quarterly installments, with 15,000 shares vesting during the +remainder of 2013 and 10,000 shares vesting in 2014. The remaining 12,500 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan to our Chief Financial Officer in February 2012 vest in seven +quarterly installments, with 7,500 shares vesting during the remainder of 2013 and 5,000 shares vesting in 2014. Restricted stock awards ensure that our executives have a continuing stake in the long-term success of the Company as the value of the +award will depend on the stock price at the time of vesting. +• +Motivate and reward individual performance and contributions . The Company’s evaluation of the individual performance of each +executive officer affects most aspects of the executive’s compensation. Individual performance and level of responsibility are considered in determining an executive’s annual salary, and are important factors in deciding whether to grant +discretionary bonuses and equity awards. +20 +Table of Contents +Compensation Components +Base Salary +Base +salary is designed to provide basic economic security for our executives and be competitive with salary levels for comparable executives at our peer group companies. As discussed under the heading “Employment Agreements” below, we entered +into new employment agreements with each of our named executive officers in November 2012. Each of our named executive officers is entitled to a base salary in each year of such executive’s employment agreement, the amount of which is to be +reviewed from time to time by the compensation committee and may be adjusted upward, but not downward, by the compensation committee in its sole discretion. In determining the amount of the base salaries of our executive officers in connection with +the negotiation of their respective employment agreements, the compensation committee considered numerous factors, including the compensation of executive officers of comparable companies within the oil and natural gas industry, the performance of +such executive officer, the experience and leadership qualities of such executive officer, the value such executive officers brings to the Company and the Company’s strategy for recruiting, retaining and motivating key employees. In the future, +we anticipate that the compensation committee will continue to review the base salaries of our named executive officers on an annual basis, subject to the terms of any employment agreements that we may have with our named executive officers, and +will consider similar factors in making base salary determinations. Prior to entering into new employment agreements in November 2012, the annual base salaries for our Chairman of the Board, our Chief Executive Officer and our Chief Financial +Officer were $273,861, $250,000 and $300,000, respectively. Under the terms of the new employment agreements, each effective November 1, 2012, with our named executive officers, each of our Chairman of the Board, Chief Executive Officer and +Chief Financial Officer is entitled to a base salary of $300,000. In February 2013, the compensation committee increased the base salary for each of these officers to $400,000. For additional information, see “Compensation Decisions in +2012” above. +Discretionary Bonus +The annual bonus is an incentive designed to motivate our executives to maximize stockholder return. Pursuant to the terms of the new employment agreements with our named executive officers, each of our +Chairman of the Board, Chief Executive Officer and Chief Financial Officer is entitled to receive an annual cash bonus. The compensation committee is required to determine the amount of the annual cash bonus awarded to each of our executive +officers, provided that the amount of the bonus must equal or exceed the minimum annual bonus amount, as set forth in each executive’s employment agreement. The current minimum annual cash bonus of each of our Chairman of the Board, Chief +Executive Officer and Chief Financial Officer is $500,000. In November 2012, the compensation committee granted discretionary bonuses in the amount of $500,000 to our Chief Executive Officer and our Chief Financial Officer for the 2012 fiscal year. +The amount of each such bonus was the same as the bonus granted to such executive officers for the prior year, which was intended to reflect our continued strong performance in 2012 and the contributions of such executive officers to the Company, +including with respect to the Company’s successful completion of an offering of senior notes to finance acquisitions of oil and gas assets, including in the Utica Shale in Eastern Ohio. The bonuses were also intended to keep these named +executive officers’ overall compensation closer to the total compensation received by similarly situated executives at peer group companies. The compensation committee also determined to grant a $500,000 discretionary bonus for the 2013 fiscal +year to our Chairman of the Board in recognition of his continuing contributions to the Company. For additional information, see “Compensation Decisions in 2012” above. +Long-Term Incentive Compensation +2012 and 2013 Awards . In February 2012, the compensation committee reviewed and discussed the Company’s current equity compensation plan and objectives. The compensation committee also +considered the need to issue new equity awards as old awards become fully vested, so as to provide future incentives to our executive officers. Upon review, the compensation committee granted restricted stock awards of 40,000 shares, 67,500 shares +and 40,000 shares, respectively, of restricted common stock to our Chairman of the Board, Chief Executive Officer and Chief Financial Officer under our Amended and Restated 2005 Stock Incentive Plan. In February 2013, the +21 +Table of Contents +compensation committee granted restricted stock awards of 50,000 shares of restricted common stock each to our Chairman of the Board, Chief Executive Officer and Chief Financial Officer. For +additional information regarding these awards, see “— Compensation Policy—Align the interests of our executives with those of our stockholders—Restricted Stock Awards ” above. +Long-Term Incentive Policy . Although in the past we awarded both options and restricted stock as part of our long-term incentive compensation +program, our board of directors and the compensation committee believe that restricted stock awards are an essential component of our compensation strategy, and currently intend to primarily offer such awards in the future. Further, we anticipate +that any equity awards granted to our executive officers during 2013 will be in the form of restricted stock. The Committee may also determine to issue other forms of stock-based awards to our named executive officers or other eligible participants +under our Amended and Restated 2005 Stock Incentive Plan or other equity incentive plans in effect at that time. Our current equity incentive plan is described below under the heading “Existing Amended and Restated 2005 Stock Incentive +Plan.” The compensation committee did not establish any objective performance targets for 2013. As discussed in Proposal 3 below, we are seeking our stockholders’ approval of 2013 Restated Stock Incentive Plan. +Termination and Change of Control Benefits +As described in more detail under “Employment Agreements” and “Potential Payments Upon Termination, Resignation or Change of Control,” we have entered into employment agreements with +our named executive officers that provide for specified payments and benefits upon certain termination events, including termination following a change of control. The employment agreements contain termination and change of control provisions that +we believe are comparable to similar provisions employed by a majority of the companies in our industry peer group. The compensation committee believes these agreements encourage executives to remain in our employment in the event of a change of +control of the Company and during circumstances which indicate that a change of control might occur. The compensation committee believes this program is important in maintaining strong leadership and in encouraging retention in these situations. +Perquisites and Other Personal Benefits +We provide certain of our named executive officers with a limited number of perquisites or other personal benefits, primarily consisting of life insurance premiums and, in the case of our Chief Executive +Officer and Chief Financial Officer, a company vehicle, that we believe help provide a competitive package of compensation and benefits. The value of these benefits is disclosed in the Summary Compensation Table. +Broad-Based Employee Benefits +401(k) Plan . We have retirement savings plan in which our named executive officers currently participate. The retirement plan is a tax qualified 401(k) plan that covers all eligible employees +including the named executive officers. Under the plan, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual compensation for the prior calendar year. We also have the ability to make an additional, +discretionary contribution based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are made regardless of employee’s deferrals into the plan. In 2012, we made a safe harbor and +discretionary contribution totaling 6% for eligible employees, subject to certain limitations provided by our 401(k) plan and the Internal Revenue Service’s regulations. All contributions made by us on behalf of an employee are 100% vested when +contributed. For more details regarding our 401(k) plan, see “Retirement Plans—401(k) Plan” below. +Other Benefits . Our +named executive officers are eligible to participate in all of our other employee benefit plans which include medical, dental, group life, disability and accidental death and dismemberment insurance, in each case on the same basis as all other +employees. +22 +Table of Contents +Effect of Our Compensation Policies and Practices on Risk and Risk Management +The compensation committee reviews the risks and rewards associated with our compensation policies and programs. We believe that such policies and +programs encourage and reward prudent business judgment and appropriate risk-taking over the long term. With respect to specific elements of compensation: +• +We believe that our programs balance short- and long-term incentives for our executive officers providing for an appropriate mix of fixed, +discretionary and equity compensation that encourages long-term performance. +• +We believe that annual base salaries for our named executive officers do not encourage excessive risk-taking as they are fixed amounts that are subject +to discretionary increases by our compensation committee that may be based on, among other factors, annual performance evaluations. We also believe that such annual base salaries are set at reasonable levels, as compared to the base salaries of +similarly-situated individuals at our peer group companies, and therefore do not encourage our named executive officers to be overly conservative with respect to taking an appropriate amount of risk to increase stockholder value. +• +Our annual bonuses are designed to award achievement of short-term results. Subject to the minimum annual bonus amounts set forth in the employment +agreements of our executive officers, the amounts of such bonuses are within the discretion of and determined by our compensation committee and may be based upon, among other factors, the Company’s performance for the prior fiscal year and +annual performance evaluations of our named executive officers. +• +Restricted stock awards and stock options granted to our named executive officers are subject to time vesting provisions. We award restricted stock +awards to ensure that our executives have a continuing stake in the long-term success of the Company as the value of the award will depend on the stock price at and after the time of vesting. We have awarded stock options in order to align +compensation with company performance, as the options become valuable to the executive only if the stock price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential +of the options. We believe that our long-term equity awards do not encourage excessive risk taking that may be associated with equity awards that vest based strictly on achieving certain targets. We also believe that our long-term equity awards +provide incentive to our named executive officers to take an appropriate amount of risk. +Based on the foregoing, the +compensation committee believes that the Company does not utilize compensation policies and programs creating risks that are reasonably likely to have a material adverse impact on the Company. +Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax purposes of executive compensation paid to the Chief +Executive Officer and the three other most highly compensated officers (other than the Chief Executive Officer and the Chief Financial Officer) of a public company to $1,000,000 per year, but contains an exception for certain performance-based +compensation. Our policy is to periodically review and consider whether particular compensation and incentive payments to our executives will be deductible for federal income tax purposes. We intend, to the extent feasible and when we believe it is +in the best interests of the Company and its stockholders, to attempt to qualify executive compensation as tax deductible where it does not adversely affect the development and execution of our compensation plans. However, the compensation committee +may from time to time approve non-deductible payments in order to maintain flexibility in structuring appropriate compensation programs in the interests of the Company and our stockholders. For example, the compensation committee has in the past +granted stock options with time based vesting provisions that would be considered performance based compensation, but in recent years has granted restricted stock that is subject to time based vesting and does not constitute performance based +compensation that will satisfy the exception to the deduction limit. +23 +Table of Contents +Accounting Implications of Executive Compensation Policy +We are required to recognize compensation expense of all stock-based awards pursuant to the provisions of FASB ASC Topic 718, +“ Compensation—Stock Compensation .” Non-vested shares are deemed issued and outstanding from a legal perspective; however, under U.S. generally accepted accounting principles, or GAAP, only vested shares are included in basic +shares outstanding. Also, under GAAP, non-vested shares are included in diluted shares outstanding when the effect is dilutive. +The Role +of Stockholders’ Say-on-Pay Vote +We provide our stockholders with the opportunity to cast an annual advisory vote on executive +compensation (a “say-on-pay proposal”) in accordance with the Dodd-Frank Act. At our June 2011 annual meeting of stockholders, our stockholders expressed substantial support for the compensation of our named executive officers, with +approximately 99.7% of the votes cast for approval of the “say-on-pay” advisory vote. The compensation committee evaluated the results of the 2011 “say-on-pay” advisory vote at its October 2011 meeting. At our June 2012 annual +meeting of stockholders, our stockholders again expressed substantial support for the compensation of our named executive officers, with approximately 94.4% of the votes cast for approval of the “say-on-pay” advisory vote. The compensation +committee believes that the results of the 2011 and 2012 “say on pay” advisory votes affirm our stockholders’ support of our executive compensation policies and practices. The compensation committee also believes that our executive +compensation policies and practices are appropriate and reasonably consistent with market practices and with the long-term interests of the Company and its stockholders, and thus did not make any significant changes to such policies and practices in +2012. The compensation committee will continue to consider the outcome of our stockholders’ future “say-on-pay” votes when making compensation decisions for our named executive officers. +Report of the Compensation Committee on Executive Compensation +The compensation committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on its review and discussion with management, the compensation committee +recommended that the Compensation Discussion and Analysis be included in this proxy statement. +Respectfully submitted by the compensation +committee: +David L. Houston +Scott +E. Streller +Compensation Committee Interlocks and Insider Participation +No current member of our compensation committee has ever been an officer or employee of ours. None of our executive officers serves, or has served during +the past fiscal year, as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as member of our board of directors or compensation committee. +24 +Table of Contents +Compensation Tables +SUMMARY COMPENSATION TABLE +The following table provides information concerning compensation of our principal executive officer, principal financial officer and our other highest +paid executive officer for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +All Other +Compensation +($)(2) +Total +($) +James D. Palm +2012 +$ +258,333 +$ +500,000 +$ +2,521,800 +(3) +$ +— +$ +23,380 +$ +3,303,513 +Chief Executive Officer +2011 +$ +234,375 +$ +500,000 +$ +— +$ +— +$ +18,846 +$ +753,221 +2010 +$ +225,000 +$ +100,000 +$ +— +$ +— +$ +22,686 +$ +347,686 +Mike Liddell +2012 +$ +280,025 +$ +500,000 +$ +1,494,400 +(4) +$ +— +$ +19,431 +$ +2,293,856 +Chairman of the Board +2011 +$ +267,534 +$ +50,000 +$ +— +$ +— +$ +18,846 +$ +336,380 +2010 +$ +262,330 +$ +50,000 +$ +662,003 +(5) +$ +— +$ +22,686 +$ +997,019 +Michael G. Moore +2012 +$ +300,000 +$ +500,000 +$ +1,494,400 +(6) +$ +— +$ +30,093 +$ +2,324,493 +Vice President, Chief +2011 +$ +300,000 +$ +500,000 +$ +758,000 +(7) +$ +— +$ +24,971 +$ +1,582,971 +Financial Officer and Secretary +2010 +$ +300,000 +$ +225,000 +$ +783,000 +(8) +$ +— +$ +28,811 +$ +1,336,811 +(1) +The amount reported in the Stock Awards column reflects the fair value of the restricted stock award on the award date. The amount was calculated using certain +assumptions, as set forth in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2012, included in our Annual Report on Form 10-K, filed with the SEC on March 1, 2013. +(2) +Amounts for Mr. Liddell include our 401(k) plan contributions of $18,846, $18,846 and $22,686 for 2012, 2011 and 2010, respectively, and $585 attributable to +Company sponsored health club membership in 2012. Amounts for Mr. Palm include our 401(k) plan contributions of $18,846, $18,846 and $22,686 for 2012, 2011 and 2010, respectively, and $4,534 attributable to Company sponsored sporting tickets in +2012. The amounts for Mr. Moore for 2012, 2011 and 2010 represent our 401(k) plan contributions of $18,846, $18,846 and $22,686, respectively, $6,250, $6,125 and $6,125, respectively, attributable to use of a company vehicle and $4,997 +attributable to Company sponsored sporting tickets and health club membership in 2012. +(3) +Mr. Palm’s 2012 restricted stock award of 67,500 shares of our restricted common stock vests in 12 quarterly installments, with 37,500 shares vesting in 2012, +20,000 shares vesting in 2013 and 10,000 shares vesting in 2014. +(4) +Mr. Liddell’s 2012 restricted stock award of 40,000 shares of our restricted common stock vests in 12 quarterly installments, with 10,000 shares vesting in +2012, 20,000 shares vesting in 2013 and 10,000 shares vesting in 2014. +(5) +Mr. Liddell’s 2010 restricted stock award of 66,667 shares of our restricted common stock vested in 12 substantially equal quarterly installments and all +66,667 shares had vested as of December 31, 2012. +(6) +Mr. Moore’s 2012 restricted stock award of 40,000 shares of our restricted common stock vests in 12 quarterly installments, with 25,000 shares vesting in +2012, 10,000 shares vesting in 2013 and 5,000 shares vesting in 2014. +(7) +Mr. Moore’s 2011 restricted stock award of 25,000 shares of our restricted common stock vests in five annual installments. Of this amount, 1,667 shares vested +on June 17, 2011, 3,333 shares vested on June 15, 2012, 5,000 shares vest on June 17, 2013, 6,667 shares vest on June 16, 2014 and 8,333 shares vest on June 17, 2015. +(8) +Mr. Moore’s 2010 restricted stock award of 45,000 shares of our restricted common stock vests in five annual installments. Of this amount, 3,000 shares vested +on December 17, 2010, 6,000 shares vested on December 17, 2011, 9,000 shares vested on December 17, 2012, 12,000 shares vest on December 17, 2013 and 15,000 shares vest on December 17, 2014. +25 +Table of Contents +GRANTS OF PLAN-BASED AWARDS +The following table provides information concerning each grant of an award made to our principal executive officer, our principal financial officer and our other highest paid executive officer in the +fiscal year ended December 31, 2012 under any Company plan. +Estimated Future Payouts Under Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock +or +Units +(#) +All Other +Option +Awards: +Number +of +Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value +of Stock +and Option +Awards ($) +Name +Grant Date +Threshold (#) +Target +(#) +Maximum (#) +James D. Palm +— +— +— +— +67,500 +(1) +— +— +2,521,800 +Chief Executive Officer +Mike Liddell +— +— +— +— +40,000 +(2) +— +— +1,494,400 +Chairman of the Board +Michael G. Moore +— +— +— +— +40,000 +(3) +— +— +1,494,400 +Vice President, Chief Financial Officer & Secretary +(1) +Mr. Palm’s restricted stock award of 67,500 shares of our restricted common stock vests in 12 quarterly installments beginning on March 16, 2012, with +37,500 shares vesting in 2012, 20,000 shares vesting in 2013 and 10,000 shares vesting in 2014. +(2) +Mr. Liddell’s restricted stock award of 40,000 shares of our restricted common stock vests in 12 quarterly installments beginning on March 16, 2012, with +10,000 shares vesting in 2012, 20,000 shares vesting in 2013 and 10,000 shares vesting in 2014. +(3) +Mr. Moore’s restricted stock award of 40,000 shares of our restricted common stock vests in 12 quarterly installments beginning on March 16, 2012, with +25,000 shares vesting in 2012, 10,000 shares vesting in 2013 and 5,000 shares vesting in 2014. +OUTSTANDING +EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information concerning equity awards outstanding for our principal +executive officer, our principal financial officer and our other highest paid executive officer at December 31, 2012. +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date(1) +Number +of Shares +or Units +of Stock +That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vested +($)(2) +James D. Palm +125,000 +— +$ +11.20 +12/1/2015 +30,000 +(3) +$ +1,146,600 +Mike Liddell +182,908 +— +$ +3.36 +1/24/2015 +30,000 +(4) +$ +1,146,600 +Michael G. Moore +— +— +$ +— +— +62,000 +(5) +$ +2,369,640 +(1) +The option expiration date reflects the tenth anniversary from the date of grant. +(2) +Market value of shares or units that have not vested is based on the closing price of $38.22 per share of our common stock on the NASDAQ Global Select Market on +December 31, 2012, the last trading day of 2012. +(3) +These unvested shares of restricted stock vest in eight quarterly installments as follows: 20,000 shares vest in 2013 and 10,000 shares vest in 2014. +26 +Table of Contents +(4) +These unvested shares of restricted stock vest in eight quarterly installments as follows: 20,000 shares vest in 2013 and 10,000 shares vest in 2014. +(5) +Of these unvested shares of restricted stock: (i) 27,000 shares vest in two annual installments as follows: 12,000 shares vest on December 17, 2013 and 15,000 +shares vest on December 17, 2014; (ii) 20,000 shares vest in three annual installments as follows: 5,000 shares vest on June 17, 2013, 6,667 shares vest on June 16, 2014 and 8,333 shares vest on June 17, 2015; and +(iii) 15,000 shares vest in eight quarterly installments as follows: 10,000 shares vest in 2013 and 5,000 shares vest in 2014. +OPTION EXERCISES AND STOCK VESTED +The following table provides certain information for +the named executive officers on stock option exercises during 2012, including the number of shares acquired upon exercise and the value realized, and the number of shares acquired upon the vesting of restricted stock awards. +Name +Option Awards +Stock Awards +Number of Shares +Acquired on Exercise +(#) +Value Realized on +Exercise +($)(2) +Number of Shares +Acquired on Vesting +(#) +Value Realized on +Vesting +($)(1) +James D. Palm +— +— +37,500 +1,131,844 +Mike Liddell +— +— +32,227 +980,056 +Michael G. Moore +20,000 +592,900 +37,333 +1,178,992 +(1) +Value realized on vesting is based on the vesting date closing price per share of our common stock on the NASDAQ Global Select Market. +(2) +Value realized on exercise is based on the difference between the exercise price and the exercise date closing price per share of our common stock on the NASDAQ Global +Select Market. +DIRECTOR COMPENSATION +The following table contains information with respect to 2012 compensation of our directors who served in such capacity during that year, except that the 2012 compensation of those directors who are also +our named executive officers is disclosed in the Summary Compensation Table above. +Name +Fees Earned or +Paid in Cash(1) +($) +Stock +Awards +($)(2) +Option +Awards +($)(2) +Total +($) +Donald L. Dillingham +50,500 +— +— +50,500 +Craig Groeschel +44,500 +— +— +44,500 +David L. Houston +69,500 +218,845 +— +288,345 +Scott E. Streller +55,500 +218,845 +— +274,345 +(1) +For additional information regarding the fees earned or paid in cash to our non-employee directors in 2012, please see “Board of Directors Information—How are +directors compensated? —Equity Compensation.” +(2) +There were 4,446, 2,226, 4,444 and 4,444 shares of unvested restricted common stock outstanding at the end of 2012 for Messrs. Dillingham, Groeschel, Houston and +Streller, respectively. In addition, options to purchase an aggregate of 20,000 shares of common stock were outstanding for Mr. Houston at the end of 2012. +Retirement Plans +401(k) Plan +We maintain a retirement savings plan, or a 401(k) Plan, for the benefit of our eligible employees who have attained the age of 18. +Currently, employees may elect to defer their compensation up to the statutorily prescribed limit. During the following year, we make a safe harbor contribution equal to 3% of each eligible +27 +Table of Contents +employee’s gross annual compensation for the prior calendar year. We also have the ability to make an additional, discretionary contribution based on each eligible employee’s gross +annual compensation for the prior calendar year. Both contributions are made, regardless of employee’s deferrals into the plan. In 2012, we made a safe harbor and discretionary contribution totaling 6% for eligible employees, subject to certain +limitations provided by our 401(k) plan and the Internal Revenue Services’ regulations. All contributions made by us on behalf of an employee are 100% vested when contributed. The 401(k) Plan is intended to qualify under Sections 401(a) and +501(a) of the Internal Revenue Code. As such, contributions to the 401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) Plan, and all contributions are deductible by us when made. +Amended and Restated 2005 Stock Incentive Plan +Our Amended and Restated 2005 Stock Incentive Plan was adopted to enable us, and any of our affiliates, to attract and retain the services of the types of employees, consultants and directors who will +contribute to our long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of our stockholders. The plan provides a means by which eligible recipients of awards may be given +an opportunity to benefit from increases in value of our common stock through the granting of incentive stock options, nonstatutory stock options, restricted awards, performance awards and stock appreciation rights. Our board of directors, or a +committee of the board of directors, serves as the plan administrator. +Eligible award recipients are employees, consultants and directors of +ours and our affiliates. Incentive stock options may be granted only to our employees. Awards other than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our +authorized but unissued common stock, and the maximum aggregate amount of such common stock which may be issued upon exercise of all awards in the plan, including incentive stock options, may not exceed 3,000,000 shares, subject to adjustment to +reflect certain corporate transactions or changes in our capital structure. For a description of the awards granted under the plan to our named executive officers, see “ Compensation Discussion and Analysis — Compensation +Policy—Align the interests of our executives with those of our stockholders—Restricted Stock Awards ” above. On April 1, 2013, 335,241 shares were issuable upon exercise of outstanding options and 824,103 shares of restricted +common stock had been granted under this plan. There were 505,677 shares available for future grants under this plan as of April 1, 2013. +In the event of significant corporate transaction involving a change in control (as defined in the plan) of the Company, such as a dissolution or +liquidation of the Company, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, +consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued, or +substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event an option award would be cancelled without consideration paid +to the extent vested, the option award recipient may exercise the option award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended +and Restated 2005 Stock Incentive Plan in the event of a change in control. +As discussed in Proposal 3 below, we are seeking to have our +stockholders approve our 2013 Restated Stock Incentive Plan to amend and restate our Amended and Restated 2005 Stock Incentive Plan to, among other things, increase the number of shares issuable under the plan from 3,000,000 to 7,500,000. A more +detailed description of our proposed 2013 Restated Stock Incentive Plan can be found below under Proposal 3 beginning on page 45 of this proxy statement. +28 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth, as of December 31, 2012, certain information with respect to all compensation plans under which equity securities +are authorized for issuance. +Plan Category +Number of securities to +be issued upon exercise +of outstanding +options, +warrants and rights +(a)(1)(2) +Weighted average +exercise price of +outstanding options, +warrants and +rights +(b)(3) +Number of securities +remaining available +for future issuance +under +equity +compensation plans +(excluding securities +reflected in column +(a))(c) +Equity compensation plans approved by security holders(1) +581,072 +$ +6.37 +684,177 +Equity compensation plans not approved by security holders +— +— +— +(1) +Refers to our Amended and Restated 2005 Stock Incentive Plan and our 1999 Stock Option Plan. +(2) +Includes 245,831 shares of unvested restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan. +(3) +The weighted average exercise price does not take into account shares of restricted common stock because they have no exercise price. +Employment Agreements +Overview +In May 1999, we entered into an employment agreement with Mike Liddell, +our Chairman of the Board. The agreement had an initial five-year term and automatically renewed for successive one-year terms thereafter. The agreement provided for an annual base salary of $200,000, adjusted for cost of living increases. As a +result of these increases, Mr. Liddell’s base salary had risen to $273,861, effective as of June 1, 2012, prior to our entering into a new employment agreement with Mr. Liddell in November 2012. +Prior to November 2012, we were also party an oral agreement with James D. Palm, our Chief Executive Officer, with respect to his compensation and +benefits, pursuant to which Mr. Palm was entitled to an annual salary of $200,000 and, at the discretion of our board of directors, an annual cash incentive bonus. For 2011, Mr. Palm’s annual salary was $225,000. In October 2011, the +compensation committee increased Mr. Palm’s annual salary, effective August 2011, to $250,000. Mr. Palm was also eligible to participate in all insurance, retirement and benefits plans available to our other employees. +Prior to November 2012, we were not party to any employment with Michael G. Moore, our Vice President, Chief Financial Officer and Secretary. +In February 2012, the compensation committee evaluated the need for a new employment agreement with each of our Chairman of the Board, Chief Executive +Officer and Chief Financial Officer. +Effective November 1, 2012, we entered into an employment agreement with each of Messrs. Liddell, +Palm and Moore. The compensation committee believes that our entry into these employment agreements with our named executive officers will allow us to continue to retain their services and provide certain protections to such named executive officers +commensurate with industry practices. The terms of the three employment agreements are substantially the same, except that (i) each of Messrs. Palm and Moore are required to devote their services exclusively to the Company during the employment +term, whereas Mr. Liddell need only devote such time, energy and effort to the Company as may be reasonably necessary to promote the Company’s interests, and (ii) each of Messrs. Palm and Moore is entitled to the use of a +company-owned car during the employment term (and, in certain circumstances, for two years thereafter), whereas Mr. Liddell is not. The remaining terms of each executive’s employment agreement are the same and are described together below. +29 +Table of Contents +Each employment agreement has an initial term of three years and automatically renews for successive +one-year terms thereafter unless either we or the executive give notice to the other party of our or the executive’s election, as the case may be, to not renew the agreement. Each executive was initially entitled to a base salary of $300,000, +which amount may be increased, but not decreased, by the compensation committee in its sole discretion. In February 2013, the compensation committee increased the base salary for each executive to $400,000. In addition, each executive is entitled to +receive an annual discretionary cash bonus, the amount of which shall be determined by the compensation committee, provided that such amount shall be not less than $500,000 each year. Each executive is also entitled to participate in the +Company’s equity incentive plan. Whether an executive receives an equity award under the incentive plan, and the timing and amount of any such award, will be determined by the compensation committee in its sole discretion. Other benefits +afforded to each executive under the terms of his employment agreement include four weeks of paid vacation each year, participation in all group health plans of the Company then in effect, entitlement to receive life insurance coverage providing a +death benefit of not less than $500,000 and participation in all retirements plans of the Company then in effect. Each executive has agreed to certain restrictive covenants in his employment agreement, including, without limitation, his agreement to +not (i) disclose trade secrets or confidential information during the term of employment and so long thereafter as such trade secrets or information are not generally known to the public, (ii) compete with the Company while making use of +trade secrets of the Company at any time and (iii) solicit any employees, agents, consultants, customers or clients of the Company for the term of his employment with the Company plus twelve months thereafter. +Rights Upon Termination Without Cause, Resignation for Good Reason or Death or Disability +The continued employment of each of our named executive officers with us is “at-will,” meaning that either we or such officer may terminate the +employment relationship at any time and for any reason, with or without notice. However, if (i) we terminate an executive officer without “cause,” (ii) an executive officer terminates his employment for “good reason” or +(iii) an executive officer’s employment is terminated due to death or disability, then, subject to the executive signing and delivering a general release of any and all claims against us, the following would occur: +• +we would be obligated to make a lump sum payment on the termination date equal to all accrued and unpaid salary and other compensation payable to the +executive (including vacation and sick pay) with respect to services rendered through the termination date and a pro rata portion of the executive’s minimum annual bonus for the contract year in which termination occurs; +• +within 60 days of termination, we would be obligated to make a lump sum payment equal to the amount the executive would have earned as base salary and +on account of minimum annual bonuses during the two-year period following the termination date had the executive’s employment not been terminated, subject to certain adjustments; +• +all restricted stock, restricted stock units, stock options and stock appreciation rights granted to the executive that would have vested during the +three-year period following the termination date solely as a result of executive’s continued service to the Company would vest immediately on the termination date and, with respect to any such stock options and stock appreciation rights, would +remain exercisable in accordance with the terms applicable to such options or rights; +• +with respect to Mr. Palm and Mr. Moore, we would be obligated to continue providing a Company-owned car for two years following termination; +and +• +we would be required to pay the premiums for certain continuing health care benefits for the executive and his family for a period of 18 months or +until the executive becomes eligible for group health plan benefits with another employer. +For purposes of the employment +agreements with our executive officers, “cause” is generally defined as: +• +the executive’s conviction (including any plea of guilty or no contest) of any felony involving the embezzlement, theft or misappropriation of +monies or other property, of the Company or otherwise or any crime of moral turpitude; +30 +Table of Contents +• +gross misconduct in the performance of the executive’s duties; or +• +the repeated failure by the executive (except by reason of disability) to render full and proper services as required by the terms of the +executive’s employment after failure to cure such failure within 30 days after receiving written notice from the Company or the board of directors detailing the alleged failure. +“Good reason,” as used in each employment agreement, means (i) a material diminution in the duties, authority or responsibilities of the +executive or a material breach of the employment agreement by the Company, or (ii) requiring the executive to relocate his principal place of employment to a location that is more than 35 miles from the location of the Company’s principal +office in the Oklahoma City area as of the effective date of the employment agreement, in each case provided that the Company fails to cure such material diminution, breach or relocation within 30 days of receipt of a written notice from the +executive. +Rights Upon Termination for Cause or Resignation Other than for Good Reason +In the event one of our executive officers is terminated for “cause” or the executive voluntarily terminates his employment other than for +“good reason,” the executive would be entitled to a lump sum payment on the termination date equal to all accrued and unpaid salary and other compensation payable to the executive (including vacation and sick pay) with respect to services +rendered through the termination date and, subject to the executive signing a general release of any and all claims against us, a pro rata portion of the executive’s minimum annual bonus for the contract year in which termination occurs. As +discussed above under the heading “Executive Officers,” Mr. Liddell is not standing for re-election as one of our directors and his tenure as Chairman of the Board will end upon the conclusion of the 2013 Annual Meeting of Stockholders. +This will not constitute termination of employment for “good reason” within the meaning of Mr. Liddell’s employment agreement. +Rights Upon Termination Following a Change of Control +If an executive’s +employment with the Company or its successor is terminated on or before the second anniversary of the date of occurrence of a “change of control” either (a) by the Company or its successor other than for “cause”, (b) by +the executive for “good reason,” or (c) as a result of the executive’s death or disability, then, in addition to the benefits described under the heading “—Rights Upon Termination Without Cause, Resignation for Good +Reason or Death or Disability” above: +• +all restricted stock and restricted stock units that have been granted to the executive by the Company and that would have vested at any time after the +date of the executive’s termination solely as a result of the executive’s continued service to the Company will immediately vest on the date of termination; and +• +all stock options and stock appreciation rights that have been granted to the executive by the Company and that would have vested at any time after the +date of the executive’s termination solely as a result of the executive’s continued service to the Company will immediately vest and become exercisable on the date of termination. +Under the terms of each of the employment agreements, a “change of control” will be deemed to have occurred upon the occurrence of any of the +following: +• +any consolidation or merger of the Company into or with another person or entity pursuant to which shares of the Company’s common stock would be +converted into cash, securities or other property, other than any consolidation or merger of the Company in which the persons who were stockholders of the Company immediately prior to the consummation of such consolidation or merger are the +beneficial owners, immediately following the consummation of such consolidation or merger, of more than 50% of the combined voting power of the then outstanding voting securities of the person or entity surviving or resulting from such consolidation +or merger; +31 +Table of Contents +• +any sale, lease or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or +• +the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. +Additional information regarding the benefits that our executives are entitled to receive upon certain terminations, +resignations and changes of control are summarized below under the heading “Potential Payments Upon Termination, Resignation or Change of Control.” +Change in Control Arrangements +As described above under the heading “Employment +Agreement,” our named executive officers have certain rights under their employment agreements upon the termination of their employment following a change of control of the Company. In addition, our Amended and Restated 2005 Stock Incentive +Plan provides that in the event of a significant corporate transaction involving a change in control (as defined under the plan) of the Company, such as a dissolution or liquidation of us, or any corporate separation or division, including, but not +limited to, a split-up, a split-off or a spin-off, or a sale in one or a series of related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all +outstanding stock awards under the Amended and Restated 2005 Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company), or may be +cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a period +of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under the Amended and Restated 2005 Stock Incentive Plan in the event of a change in control. +Potential Payments Upon Termination, Resignation or Change of Control +The following tables provide information regarding potential payments to each of our named executive officers in connection with certain termination events, including a termination related to a change of +control of the Company. +Benefits and +Payments Upon Termination of +James D. Palm (1) +Voluntary +Resignation +(No Good +Reason) +Resignation +for Good +Reason/ +Termination +Without +Cause +Termination +for Cause +Termination +Following +Change of +Control +Death +Disability +Severance Payments +$ +— +(2) +$ +1,600,000 +(3) +$ +— +(2) +$ +1,600,000 +(3) +$ +1,600,000 +(3) +$ +1,600,000 +(3) +Long-Term Incentives: +Unvested Restricted Stock +— +$ +1,146,600 +(4) +— +$ +1,146,600 +(5) +$ +1,146,600 +(4) +$ +1,146,000 +(4) +Unvested Stock Options/SARs +— +— +(6) +— +— +(7) +— +(6) +— +(6) +Benefits Continuation +— +$ +23,905 +(8) +— +$ +23,905 +(8) +$ +23,905 +(8) +$ +23,905 +(8) +Other +— +$ +41,500 +(9) +— +$ +41,500 +(9) +$ +41,500 +(9) +$ +41,500 +(9) +Total +$ +— +$ +2,812,005 +$ +— +$ +2,812,005 +$ +2,812,005 +$ +2,812,005 +(1) +The executive’s base salary as of December 31, 2012 was $300,000. Information in this table assumes a termination date of December 31, 2012 and a price +per share of our common stock of $38.22 (the closing market price per share on December 31, 2012). +(2) +Upon a voluntary termination other than for Good Reason or a termination for Cause, the executive is only entitled to receive a lump sum payment on the termination date +equal to all accrued and unpaid salary and other compensation payable to the executive (including vacation and sick pay) with respect to services rendered through the termination date and a pro rata portion of the executive’s minimum annual +bonus for the contract year in which termination occurs, which shall be calculated by multiplying the executive’s minimum annual bonus by a fraction, the number of which is the number of days in the contract year that have elapsed and the +denominator of which is the total number of days (365 or 366) in the contract year. +32 +Table of Contents +(3) +Reflects receipt by the executive, within 60 days of termination, of a lump sum payment equal to the amount the executive would have earned as base salary and on +account of minimum annual bonuses during the two-year period following the termination date had the executive’s employment not been terminated, reduced by the fixed and determinable amount of any payments to be made to the executive during the +two-year period following the executive’s termination under any long-term disability insurance policy maintained by the Company for the executive’s benefit. +(4) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2012 that would have vested during the three-year +period following the termination date solely as a result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2012. +(5) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2012 that would have vested at any time after the +termination date solely as a result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2012. +(6) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2012 that would have +vested during the three-year period following the termination date solely as a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference +between the closing price of our common stock on December 31, 2012 and the per-share exercise price of the option. +(7) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2012 that would have +vested at any time after the termination date solely as a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price +of our common stock on December 31, 2012 and the per-share exercise price of the option. +(8) +Reflects the value of Company-paid continuation coverage under the Company’s group health plans and under the Consolidated Omnibus Budget Reconciliation Act of +1985 for the executive and his eligible family members for a period of 18 months following the date of termination. +(9) +Reflects the value of a Company-owned vehicle provided for the executive’s use for a period of two years following termination, including the payment by the +Company of all insurance and maintenance costs during such two-year period. +Benefits and +Payments Upon Termination of +Mike +Liddell (1) +Voluntary +Resignation +(No Good +Reason) +Resignation +for Good +Reason/ +Termination +Without +Cause +Termination +for Cause +Termination +Following +Change of +Control +Death +Disability +Severance Payments +$ +— +(2) +$ +1,600,000 +(3) +$ +— +(2) +$ +1,600,000 +(3) +$ +1,600,000 +(3) +$ +1,600,000 +(3) +Long-Term Incentives: +Unvested Restricted Stock +— +$ +1,146,600 +(4) +— +$ +1,146,600 +(5) +$ +1,146,600 +(4) +$ +1,146,000 +(4) +Unvested Stock Options/SARs +— +— +(6) +— +— +(7) +— +(6) +— +(6) +Benefits Continuation +— +$ +16,935 +(8) +— +$ +16,935 +(8) +$ +16,935 +(8) +$ +16,935 +(8) +Other +— +— +— +— +— +— +Total +$ +— +$ +2,763,535 +$ +— +$ +2,763,535 +$ +2,763,535 +$ +2,763,535 +(1) +The executive’s base salary as of December 31, 2012 was $300,000. Information in this table assumes a termination date of December 31, 2012 and a price +per share of our common stock of $38.22 (the closing market price per share on December 31, 2012). As discussed above under the heading “Executive Officers,” Mr. Liddell is not standing for re-election as a director of our Company and +his tenure as Chairman of the Board will end upon the conclusion of our 2013 Annual Meeting of Stockholders. This constitutes a voluntary resignation other than for Good Reason. +(2) +Upon a voluntary resignation other than for Good Reason or a termination for Cause, the executive is only entitled to receive a lump sum payment on the termination date +equal to all accrued and unpaid salary and other compensation payable to the executive (including vacation and sick pay) with respect to services rendered through the termination date and a pro rata portion of the executive’s minimum annual +bonus for the contract year in which termination occurs, which shall be calculated by multiplying the executive’s minimum annual bonus by a fraction, the number of which is the number of days in the contract year that have elapsed and the +denominator of which is the total number of days (365 or 366) in the contract year. +(3) +Reflects receipt by the executive, within 60 days of termination, of a lump sum payment equal to the amount the executive would have earned as base salary and on +account of minimum annual bonuses during the two-year period following the termination date had the executive’s employment not been terminated, reduced by the fixed and determinable amount of any payments to be made to the executive during the +two-year period following the executive’s termination under any long-term disability insurance policy maintained by the Company for the executive’s benefit. +(4) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2012 that would have vested during the three-year +period following the termination date solely as a result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2012. +(5) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2012 that would have vested at any time after the +termination date solely as a result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2012. +(6) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2012 that +would have vested during the three-year period following the termination date solely as a result of the executive’s continued service to the +33 +Table of Contents +Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price of our common stock on December 31, 2012 and the +per-share exercise price of the option. +(7) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2012 that would have +vested at any time after the termination date solely as a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price +of our common stock on December 31, 2012 and the per-share exercise price of the option. +(8) +Reflects the value of Company-paid continuation coverage under the Company’s group health plans and under the Consolidated Omnibus Budget Reconciliation Act of +1985 for the executive and his eligible family members for a period of 18 months following the date of termination. +Benefits and +Payments Upon Termination of +Michael G. Moore (1) +Voluntary +Resignation +(No Good +Reason) +Resignation +for Good +Reason/ +Termination +Without +Cause +Termination +for Cause +Termination +Following +Change of +Control +Death +Disability +Severance Payments +$ +— +(2) +$ +1,600,000 +(3) +$ +— +(2) +$ +1,600,000 +(3) +$ +1,600,000 +(3) +$ +1,600,000 +(3) +Long-Term Incentives: +Unvested Restricted Stock +— +$ +2,369,640 +(4) +— +$ +2,369,640 +(5) +$ +2,369,640 +(4) +$ +2,369,640 +(4) +Unvested Stock Options/SARs +— +— +(6) +— +— +(7) +— +(6) +— +(6) +Benefits Continuation +— +$ +23,905 +(8) +— +$ +23,905 +(8) +$ +23,905 +(8) +$ +23,905 +(8) +Other +— +$ +41,500 +(9) +— +$ +41,500 +(9) +$ +41,500 +(9) +$ +41,500 +(9) +Total +$ +— +$ +4,035,045 +$ +— +$ +4,035,045 +$ +4,035,045 +$ +4,035,045 +(1) +The executive’s base salary as of December 31, 2012 was $300,000. Information in this table assumes a termination date of December 31, 2012 and a price +per share of our common stock of $38.22 (the closing market price per share on December 31, 2012). +(2) +Upon a voluntary resignation other than for Good Reason or a termination for Cause, the executive is only entitled to receive a lump sum payment on the termination date +equal to all accrued and unpaid salary and other compensation payable to the executive (including vacation and sick pay) with respect to services rendered through the termination date and a pro rata portion of the executive’s minimum annual +bonus for the contract year in which termination occurs, which shall be calculated by multiplying the executive’s minimum annual bonus by a fraction, the number of which is the number of days in the contract year that have elapsed and the +denominator of which is the total number of days (365 or 366) in the contract year. +(3) +Reflects receipt by the executive, within 60 days of termination, of a lump sum payment equal to the amount the executive would have earned as base salary and on +account of minimum annual bonuses during the two-year period following the termination date had the executive’s employment not been terminated, reduced by the fixed and determinable amount of any payments to be made to the executive during the +two-year period following the executive’s termination under any long-term disability insurance policy maintained by the Company for the executive’s benefit. +(4) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2012 that would have vested during the three-year +period following the termination date solely as a result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2012. +(5) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2012 that would have vested at any time after the +termination date solely as a result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2012. +(6) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2012 that would have +vested during the three-year period following the termination date solely as a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference +between the closing price of our common stock on December 31, 2012 and the per-share exercise price of the option. +(7) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2012 that would have +vested at any time after the termination date solely as a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price +of our common stock on December 31, 2012 and the per-share exercise price of the option. +(8) +Reflects the value of Company-paid continuation coverage under the Company’s group health plans and under the Consolidated Omnibus Budget Reconciliation Act of +1985 for the executive and his eligible family members for a period of 18 months following the date of termination. +(9) +Reflects the value of a Company-owned vehicle provided for the executive’s use for a period of two years following termination, including the payment by the +Company of all insurance and maintenance costs during such two-year period. +34 +Table of Contents +Stock Ownership +Holdings of Major Stockholder +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2013 of shares of our common stock by each person or entity known to us to be a beneficial owner +of 5% or more of our common stock. +MAJOR STOCKHOLDER TABLE +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +BlackRock, Inc. +6,790,551 +(2) +8.7 +% +40 East 52 nd Street +New York, NY 10022 +Citadel Investment Group II, L.L.C. +4,419,759 +(3) +5.7 +% +131 S. Dearborn Street, 32 nd Floor +Chicago, IL 60603 +(1) +Beneficial ownership is determined in accordance with SEC rules. The percentage of shares beneficially owned is based on 77,764,217 shares of common stock outstanding +as of April 1, 2013, including 389,110 shares of restricted common stock awarded under our Amended and Restated 2005 Stock Incentive Plan, but not yet vested. +(2) +Based solely on Schedule 13G filed with the SEC on February 11, 2013 by BlackRock, Inc. BlackRock, Inc. reported sole voting and dispositive power of such shares +of common stock. +(3) +Based solely on Schedule 13G jointly filed with the SEC on February 19, 2013 by Citadel Advisors LLC (“Citadel Advisors”), Citadel Advisors Holdings LP +(“CAH”), Citadel Investment Group II, L.L.C. (“CIG-II”) and Mr. Kenneth Griffin (collectively with Citadel Advisors, CAH and CIG-II, the “Reporting Persons”) with respect to shares of common stock (and options to +purchase common stock) of the Company owned by Surveyor Capital Ltd., a Cayman Islands limited company (“SC”), Citadel Global Equities Master Fund Ltd., a Cayman Islands limited company (“CG”), Citadel Equity Ltd., a Cayman +Islands limited company (“CEF”), Citadel Quantitative Strategies Master Fund Ltd., a Cayman Islands limited company (“CQ”), Citadel Global Equities Alpha Select Master Fund Ltd., a Cayman Islands limited company +(“CG-Alpha”), certain segregated accounts and Citadel Securities LLC, a Delaware limited liability company (“Citadel Securities”). Citadel Advisors is the portfolio manager for SC, CG, CEF and CG-Alpha, and the investment manager +for certain segregated accounts. Citadel Advisors II LLC, a Delaware limited liability company (“CA-II”), is the portfolio manager of CQ. CAH is the managing member of Citadel Advisors and CA-II. Citadel Holdings I LP, a Delaware limited +partnership (“CH-I”), is the non-member manager of Citadel Securities. CIG-II is the general partner of CH-I and CAH. Mr. Griffin is the President and Chief Executive Officer of, and owns a controlling interest in, CIG-II. The +Reporting Persons have shared voting and dispositive power of these securities. The filing of this statement shall not be construed as an admission that any of the Reporting Persons is the beneficial owner of any securities covered by the statement +other than the securities actually owned by such person (if any). +35 +Table of Contents +Holdings of Officers and Directors +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2013 of shares of our common stock by each of +our directors, by each named executive officer and by all directors and executive officers as a group: +Name of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Mike Liddell(2) +850,288 +1.1 +% +Donald L. Dillingham(3) +11,934 +* +Craig Groeschel(4) +9,166 +* +David L. Houston(5) +33,332 +* +Scott E. Streller(6) +19,298 +* +James D. Palm(7) +291,387 +* +Michael G. Moore(8) +116,309 +* +Directors and Executive Officers as a Group (7 persons) +1,331,714 +1.7 +% +* +Less than 1%. +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by +that person that are exercisable as of April 1, 2013, or exercisable within 60 days of April 1, 2013, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage +ownership of each other person. The percentage of shares beneficially owned is based on 77,764,217 shares of common stock outstanding as April 1, 2013, including 389,110 shares of restricted common stock awarded under our Amended and Restated +2005 Stock Incentive Plan, but not yet vested. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 1, 2013 or within 60 days of April 1, 2013. Except +as otherwise noted, each stockholder has sole voting and investment power with respect to the shares beneficially owned. None of the shares beneficially owned by our executive officers or directors are pledged as security. +(2) +Represents (i) 578,299 shares of our common stock held by Mr. Liddell directly, (ii) 45,000 unvested shares of restricted common stock granted under the +Amended and Restated 2005 Stock Incentive Plan, which vest in eleven remaining quarterly installments, with 15,000 shares vesting during the remainder of 2013, 16,667 shares vesting in 2014 and 13,333 shares vesting in 2015, (iii) 25,000 +unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which vest in seven remaining quarterly installments, with 15,000 shares vesting during the remainder of 2013 and 10,000 shares vesting in +2014, (iv) 19,081 shares of our common stock held by Liddell Investments LLC, an entity controlled by Mr. Liddell, of which shares Mr. Liddell may be deemed to be the beneficial owner, and (v) options to purchase 182,908 shares +of our common stock, all of which are fully vested and exercisable as of April 1, 2013. +(3) +Represents (i) 4,440 shares of our common stock held by Mr. Dillingham directly, (ii) 2,226 unvested shares of our common stock granted under the Amended +and Restated 2005 Stock Incentive Plan, which vest on March 18, 2014 and (iii) 5,268 shares of our common stock held by Donald L. Dillingham Trust, of which Mr. Dillingham is a trustee. +(4) +Represents (i) 6,940 shares of our common stock held by Mr. Groeschel directly and (ii) 2,226 unvested shares of our common stock granted under the +Amended and Restated 2005 Stock Incentive Plan, which vest on December 16, 2013. +(5) +Represents (i) 8,888 shares of our common stock held by Mr. Houston directly, (ii) 4,444 unvested shares of restricted common stock granted under the +Amended and Restated 2005 Stock Incentive Plan, which vest in two remaining annual installments, with 2,222 shares vesting on December 16, 2013 and 2,222 shares vesting on December 15, 2014 and (iii) options to purchase 20,000 shares +of our common stock, all of which are fully vested and exercisable as of April 1, 2013. +36 +Table of Contents +(6) +Represents (i) 14,854 shares of our common stock held by Mr. Streller directly and (ii) 4,444 unvested shares of our restricted common stock granted +under the Amended and Restated 2005 Stock Incentive Plan, which vest in two remaining annual installments, with 2,222 shares vesting on December 16, 2013 and 2,222 shares vesting on December 15, 2014. +(7) +Represents (i) 10,000 shares of our common stock, of which Mr. Palm and his spouse, Terri Palm, have shared voting and investment powers, (ii) 86,387 +shares of our common stock held by Mr. Palm directly, (iii) 45,000 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which vest in eleven remaining quarterly installments, with +15,000 shares vesting during the remainder of 2013, 16,667 shares vesting in 2014 and 13,333 shares vesting in 2015, (iv) 25,000 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which +shares vest in seven remaining quarterly installments, with 15,000 shares vesting during the remainder of 2013 and 10,000 shares vesting in 2014, and (v) options to purchase 125,000 shares of our common stock, all of which are fully vested and +exercisable as of April 1, 2013. +(8) +Represents (i) 11,809 shares of our common stock held by Mr. Moore directly, (ii) 45,000 unvested shares of restricted common stock granted under the +Amended and Restated 2005 Stock Incentive Plan, which vest in eleven remaining quarterly installments, with 15,000 shares vesting during the remainder of 2013, 16,667 shares vesting in 2014 and 13,333 shares vesting in 2015, (iii) 12,500 +unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which shares vest in seven remaining quarterly installments, with 7,500 shares vesting during the remainder of 2013 and 5,000 shares vesting +in 2014, (iv) 20,000 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which shares vest in three remaining annual installments of 5,000 shares on June 17, 2013, 6,667 shares on +June 16, 2014 and 8,333 shares on June 17, 2015 and (v) 27,000 unvested shares of restricted common stock granted under the Amended and Restated 2005 Stock Incentive Plan, which shares vest in two remaining annual installments of +12,000 shares on December 17, 2013 and 15,000 shares on December 17, 2014. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file +reports of ownership and changes in ownership with the SEC and to furnish us with copies of the forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations of our officers and +directors, all Section 16(a) reports for the year ended December 31, 2012 applicable to our officers and directors and such other persons were filed on a timely basis. +37 +Table of Contents +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be substantively applied to each transaction +reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the Company. Further, the Company’s Code of +Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party transactions. +The Company’s policy is that all of its employees and directors, as well as their family members, must avoid any activity that is or has the +appearance of conflicting with the Company’s business interest. This policy is included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform the +designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the Code +of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give rise to +a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring +compliance with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all +relationships and transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, +have a direct or indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as +they determine in the good faith exercise of their discretion. +Services Provided to Us by Affiliated Entities +We contract with Athena Construction, L.L.C., or Athena, to provide barge services in our West Cote Blanche Bay, or WCBB, and Hackberry +fields located along the Louisiana Gulf Coast. During 2012, we paid Athena $4,675,000 and owed an additional $1,453,000 for such services at December 31, 2012. Athena is controlled by Wexford Capital LP, or Wexford. Our relationship with +Wexford is described below under the heading “Our Relationships with Wexford and its Affiliates.” +Caliber Development Company, LLC, +or Caliber, provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. We also lease office space from Caliber. During 2012, we paid Caliber $73,000 and owed an additional $12,000 as of December 31, 2012. Caliber is +an entity controlled by Wexford. +During the first six months of 2012, Black Fin P&A, LLC, or Black Fin, performed plugging and +abandonment services for us at our WCBB field. We paid Black Fin $1,086,000 for such services. In mid-2012, we ceased using Black Fin’s services. Black Fin is an entity controlled by Wexford. +Our Investments in Affiliated Entities and Related Agreements +On May 7, 2012, we entered into a contribution agreement with Diamondback Energy, Inc., or Diamondback, in which we agreed to contribute to Diamondback, prior to the closing of its initial public +offering, or the Diamondback IPO, all of our oil and natural gas interests in the Permian Basin. On October 11, 2012, we completed this contribution, which we refer to in this proxy statement as the Contribution. At the closing of the +Contribution, Diamondback issued to us (i) 7,914,036 shares of Diamondback common stock and (ii) a +38 +Table of Contents +promissory note for $63.6 million, which was repaid to us at the closing of the Diamondback IPO on October 17, 2012. This aggregate consideration was subject to a post-closing cash +adjustment based on changes in the working capital, long-term debt and certain other items of a Diamondback subsidiary as of the date of the Contribution. In January 2013, we received an additional payment from Diamondback of $18.6 million as a +result of this post-closing adjustment. In connection with the Contribution, we and Diamondback entered into an investor rights agreement in which we have the right, for so long as we beneficially own more than 10% of Diamondback’s outstanding +common stock, to designate one individual as a nominee to serve on Diamondback’s board of directors. Such nominee, if elected to Diamondback’s board, will also serve on each committee of the board so long as he or she satisfies the +independence and other requirements for service on the applicable committee of the board. So long as we have the right to designate a nominee to Diamondback’s board and there is no nominee of ours actually serving as a Diamondback director, we +will have the right to appoint one individual as an advisor to the board who shall be entitled to attend board and committee meetings. We are also entitled to certain information rights and Diamondback granted us certain demand and +“piggyback” registration rights obligating Diamondback to register with the SEC any shares of Diamondback common stock that we own. As of April 1, 2013, we held approximately 21.4% of Diamondback’s outstanding common stock. As of +December 11, 2012, Wexford beneficially owned approximately 44.4% of Diamondback’s outstanding common stock. Diamondback was the operator of all of the acreage in the Permian Basin that we contributed in the Contribution. As operator of +these properties, Diamondback was responsible for the daily operations, monthly operation billings and monthly revenue disbursements for the properties in which we held an interest. For the year ended December 31, 2012, we paid Diamondback +approximately $49,418,000 for these services and, at December 31, 2012, we owed $269,000 for these services. +Effective as of +November 1, 2007, we and an entity then-known as Windsor Permian LLC (which is currently a wholly-owned subsidiary of Diamondback and now known as Diamondback O&G LLC) entered into an area of mutual interest agreement to jointly acquire oil +and gas leases in the Permian Basin. The agreement provided that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party costs and +expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. During 2012, we acquired approximately 5,000 net acres from Windsor Permian LLC under the terms of this agreement for an +aggregate of $5,410,000. This area of mutual interest agreement was terminated in connection with the Contribution. +We own a 24.9999% +interest in Grizzly Oil Sands ULC, or Grizzly, a Canadian unlimited liability company, through our wholly owned subsidiary Grizzly Holdings, Inc. The remaining interests in Grizzly are owned by Grizzly Oils Sands Inc., an entity owned by certain +investment funds managed by Wexford. As of December 31, 2012, Grizzly had approximately 800,000 acres under lease in the Athabasca region located in the Alberta Province near Fort McMurray. On October 5, 2012, we entered into an agreement +with Grizzly in which we committed to make monthly payments from October 2012 to May 2013 in the aggregate amount of approximately $8.5 million to fund our proportionate share of the construction and development costs of the Algar Lake facility. We +also agreed to fund our proportionate share of any unfunded cost overruns in excess of $2.0 million. The remaining aggregate commitment at December 31, 2012 was approximately $6.3 million. During 2012, we paid an aggregate of $103,915,000 under +this agreement and in cash calls, increasing our total net investment in Grizzly to $172,766,000. +We have a 23.5% indirect ownership interest +in Tatex Thailand II, LLC, or Tatex II. The remaining indirect interests in Tatex II are owned by entities controlled by Wexford. Tatex II holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil and gas +exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering 243,000 acres which includes the Phu Horm Field. During 2012, we received $820,000 in distributions in respect of our interest in +Tatex II. +We have a 17.9% ownership interest in Tatex Thailand III, or Tatex III. Tatex III owns a concession covering approximately 490,000 +acres in Thailand. Approximately 68.7% of the remaining interests in Tatex III are owned by an entity controlled by Wexford. During the year ended December 31, 2012, we paid $626,000 in cash calls to Tatex III. +39 +Table of Contents +During the third quarter of 2011, we purchased a 25% ownership interest in Bison Drilling and Field Services +LLC, or Bison. In April 2012, we increased our ownership interest in Bison to 40% for a payment of $6,152,000. The remaining interests in Bison are owned by entities controlled by Wexford. Bison owns and operates drilling rigs. During the year ended +December 31, 2012, we paid $1,373,000 in cash calls, increasing our total net investment in Bison to $13,518,000. In addition, we entered into a loan agreement with Bison, effective May 15, 2012, under which Bison may borrow funds from us. +Interest accrues at LIBOR plus 0.28% or 8%, whichever is lower, and is paid on a paid-in-kind basis by increasing the outstanding balance of the loan. The loan has a maturity date of January 31, 2015. We loaned Bison $1,594,000 in principal +amount during the first nine months of 2012, all of which was repaid by Bison during the third quarter of 2012 along with $1,000 in accrued interest. No borrowings were outstanding as of December 31, 2012 under this loan agreement with Bison. +We have a 25% ownership interest in Muskie Proppant LLC, or Muskie (formerly known as Muskie Holdings LLC). The remaining interests in Muskie +are owned by entities controlled by or affiliated with Wexford. Muskie holds certain assets, real estate and rights in a lease covering land in Wisconsin that is prospective for mining oil and natural gas fracture grade sand. During the year ended +December 31, 2012, we paid $6,213,000 in cash calls, increasing our total net investment in Muskie to $7,320,000. +During the first +quarter of 2012, we and entities controlled by or affiliated with Wexford formed Timber Wolf Terminals LLC, or Timber Wolf. We have a 50% interest in Timber Wolf and our initial investment during 2012 was $1,000,000. Timber Wolf was formed to +operate a crude/condensate terminal and a sand transloading facility in Ohio. +During the first quarter of 2012, we purchased a 22.5% +ownership interest in Windsor Midstream LLC, or Midstream, at a cost of $7,021,000. The remaining interests in Midstream are owned by entities controlled by Wexford. Midstream owns a 28.4% interest in MidMar Gas LLC, a gas processing plant in West +Texas. During the year ended December 31, 2012, we paid $1,819,000 in cash calls, increasing our total net investment in Midstream to $9,503,000. +During 2012, we and other individuals and entities formed Stingray Pressure Pumping LLC, or Stingray Pressure, Stingray Cementing LLC, or Stingray Cementing, and Stingray Logistics LLC, or Stingray +Logistics, which provide well completion services, well cementing services and well services, respectively. Our initial interest in each Stingray entity is 50% and we are the manager of each entity. During the year ended December 31, 2012, we +paid (a) $14,500,000 in cash calls to Stingray Pressure, increasing our total net investment in Stingray Pressure to $13,265,000, (b) $3,269,000 in cash calls to Stingray Cementing, increasing our net investment in Stingray Cementing to +$3,110,000, and (c) $983,000 in cash calls to Stingray Logistics, increasing our net investment in Stingray Logistics to $947,000. The remaining interests in each of the Stingray entities are owned by the president of the entity, by Mike +Liddell, our Chairman of the Board, and by individuals and entities affiliated with Wexford. Mr. Liddell is not entitled to any distribution in respect of his interest in any Stingray entity until we and the Wexford affiliates have received +repayment in full of our and their respective capital accounts with respect to such entity. Thereafter, all future distributions to which the Wexford affiliates may be entitled from the applicable entity will be paid 90% to the Wexford affiliates +and 10% to Mr. Liddell. Mr. Liddell will not receive, or be entitled to receive, any distributions in respect of our interest in any Stingray entity. +During the second quarter of 2012, we and Windsor Ohio LLC, an entity controlled by Wexford, formed Blackhawk Midstream LLC, or Blackhawk. We are the manager of Blackhawk and have an initial 50% ownership +interest. Blackhawk coordinates gathering, compression, processing and marketing activities for us in connection with the development of our Utica Shale acreage. During the year ended December 31, 2012, we paid $436,000 in cash calls to +Blackhawk. +40 +Table of Contents +Area of Mutual Interest and Related Agreements +Effective April 1, 2010, we entered into an area of mutual interest agreement with Windsor Niobrara LLC, or Windsor Niobrara, to jointly acquire oil +and gas leases in Northwest Colorado for the purpose of exploring, exploiting and producing oil and gas from the Niobrara Formation. The agreement provides that each party must offer the other party the right to participate in such acquisitions on a +50/50 basis. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this +agreement, we and Windsor Niobrara also entered into a development agreement, effective as of April 1, 2010, pursuant to which we and Windsor Niobrara agreed to jointly develop the contract area, and we agreed to act as the operator under the +terms of a joint operating agreement. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2012, we billed Windsor Niobrara +$7,545,000 and, at December 31, 2012, Windsor Niobrara owed us $173,000 for these services. Windsor Niobrara is controlled by Wexford. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest Operations Management LLC, or Everest, to identify and evaluate +potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, the Company and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, +the party whose acquisition team identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate +share of the acquisition or divestiture consideration. The agreement has a one-year term unless earlier terminated by either party upon 30 days notice. Affiliates of Everest were billed approximately $1,087,000 under this acquisition team agreement +during the year ended December 31, 2012. +Utica Shale Transactions +Windsor Ohio LLC, or Windsor Ohio, an entity controlled by Wexford, participated with us in the acquisition of certain leasehold interests in acreage located in the Utica Shale in Ohio. We are the +operator of this acreage in the Utica Shale. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2012, we billed Windsor Ohio +approximately $163,650,000 for these services. At December 31, 2012, Windsor Ohio owed us approximately $6,520,000 for these services. Liddell Investments, LLC, or Liddell Investments, an entity controlled by our Chairman of the Board, has a +10% interest in Windsor Ohio. For the year ended December 31, 2012, we billed approximately $2,020,000 to Liddell Investments directly for these services and, at December 31, 2012, all of this amount was owed to us. For the year ended +December 31, 2012, we paid Liddell Investments approximately $102,000 in respect of its interest in Windsor Ohio. +In December 2012, we +entered into a purchase and sale agreement with Windsor Ohio pursuant to which Windsor Ohio agreed to sell to us approximately 30,000 net acres which, at the time, represented 50% of its right, title and interest in and to certain leasehold +interests in the Utica Shale in Eastern Ohio. The parties subsequently amended that agreement to provide for our acquisition of approximately 7,000 additional net acres. The aggregate purchase price for these interests was approximately $372.0 +million, subject to certain adjustments. Windsor Ohio retained its interest in 14 existing wells, along with certain acreage surrounding those wells. As discussed above, Windsor Ohio participated with us in the acquisition of our Utica Shale leases +and through this transaction, we acquired an additional approximately 27.5% interest in these leases, increasing our working interest in the acreage to 77.7%. The transaction closed on December 24, 2012. All of the acreage included in this +transaction was nonproducing at the time of the acquisition and we are the operator of all of this acreage, subject to existing development and operating agreements between the parties. Pending the completion of title review after the closing, +approximately $53.9 million of the purchase price was placed in an escrow account. The escrow account will terminate on April 30, 2013 and the escrow amount will be distributed to either us or Windsor Ohio based on any title benefits or title +defects resulting from the title review. The transaction was approved by a special committee of our board of directors, which engaged independent counsel and financial advisors to assist with its review. +41 +Table of Contents +In February 2013, we entered into another purchase and sale agreement with Windsor Ohio pursuant to which +Windsor Ohio agreed to sell to us approximately 22,000 net acres representing 100% of its right, title and interest in and to certain leasehold interests in the Utica Shale in Eastern Ohio for approximately $220.4 million, subject to certain +adjustments. This transaction, which closed on February 15, 2013, excluded Windsor Ohio’s interest in 14 existing wells and 16 proposed future wells together with certain acreage surrounding those wells. Through this most recent +transaction, we acquired an additional approximately 16.2% interest in our Utica Shale leases, increasing our working interest in the acreage to 93.8%. All of the acreage included in this transaction was nonproducing at the time of the acquisition +and we are the operator of all of this acreage, subject to existing development and operating agreements between the parties. Pending the completion of title review after the closing, approximately $33.6 million of the purchase price has been placed +in an escrow account. The escrow account will terminate on May 1, 2013 and the escrow amount will be distributed to either us or Windsor Ohio based on any title benefits or title defects resulting from the title review. The transaction was also +approved by a special committee of our board of directors, which engaged independent counsel and financial advisors to assist with its review. As noted above, Mr. Liddell, our Chairman of the Board, has a 10% interest in Windsor Ohio. We have +been advised by Windsor Ohio that Mr. Liddell received approximately $2.9 million in respect of this interest in connection with the December 2012 transaction and approximately $19.3 million in respect of this interest in connection with the +February 2013 transaction. Mr. Liddell may also receive up to an additional $5.4 million and $3.4 million in connection with these transactions, respectively, upon termination of the escrow accounts. +Rhino Exploration LLC, or Rhino, an affiliate of Wexford, has also participated with us in the acquisition of certain leasehold interest in acreage +located in the Utica Shale in Ohio. We are the operator of this acreage in the Utica Shale. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended +December 31, 2012, we billed Rhino approximately $4,443,000 for these services. At December 31, 2012, Rhino owed us approximately $4,257,000 for these services. +Our Relationships with Wexford and its Affiliates +Charles E. Davidson is the Chairman +and Chief Investment Officer of Wexford. He beneficially owned approximately 13.3% of our outstanding common stock as of December 31, 2011 and approximately 9.5% of our outstanding common stock as of March 13, 2012, which ownership +interest was reduced to less than 1% of our outstanding common stock as of December 31, 2012. Wexford is the manager of the Wexford-controlled entities described above. As manager, Wexford has the exclusive authority to, among other things, +purchase, hold and dispose of the assets of each such entity. Mr. Liddell, our Chairman of the Board, was the operating member of Windsor Permian prior to the Contribution, is the operating member of Athena, Caliber, Black Fin, Windsor +Midstream, Windsor Ohio, DB Energy and Windsor Niobrara, which we refer to collectively as the “operating member companies,” and the chairman or an officer of Everest, Bison, Timber Wolf, Windsor Midstream, Windsor Ohio and Windsor +Niobrara. Mr. Liddell also holds an equity interest in each of the operating member companies, Bison, Muskie and Timber Wolf, and an indirect profits interest in Grizzly Oil Sands, Inc. As a result, all distributions made by these entities and +payable to the Wexford members are to be first made to the Wexford members in accordance with their respective ownership interests until they have received amounts equal to their respective capital contributions. Thereafter, distributions are to be +made 90% to the Wexford members in accordance with their respective ownership interests and 10% to Mr. Liddell. Except as described above with respect to Windsor Ohio, Mr. Liddell is not currently entitled to, and has not received, +distributions from any of these entities. Transactions between us and these entities are reviewed and approved by our independent directors. Mr. Liddell is not standing for re-election as one of our directors and his tenure as Chairman of the Board +will end upon the conclusion of our 2013 Annual Meeting of Stockholders. +42 +Table of Contents +Proposal to Approve the Amendment to Our Restated Certificate +of Incorporation to Increase the Total Number of Authorized Shares of Common Stock +(Item 2 on the Proxy Card) +Our restated certificate of incorporation currently provides for authorized capital stock consisting of 100,000,000 shares of common +stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. As of the record date, we had 77,375,107 shares of common stock outstanding, excluding 389,110 shares of our restricted common stock granted under +our Amended and Restated 2005 Stock Incentive Plan but not yet vested, and no shares of preferred stock outstanding. As of the record date, we had 22,119,216 shares of common stock remaining authorized for future issuance, after deducting 505,677 +shares remaining available for future issuance under our Amended and Restated 2005 Stock Incentive Plan and our 1999 Stock Option Plan. +Our stockholders are being asked to approve an amendment to our restated certificate of incorporation to increase the total number of shares of common +stock that we are authorized to issue from 100,000,000 shares to 250,000,000 shares. The additional shares of common stock for which authorization is sought would be part of the existing class of common stock and, if and when issued, would have the +same rights and privileges as the shares of common stock presently outstanding. Such additional shares would not (and the shares of common stock presently outstanding do not) entitle the holders thereof to preemptive or cumulative voting rights. The +number of authorized shares of our preferred stock will not be affected by this amendment to our restated certificate of incorporation and will be maintained at 5,000,000 shares. +Our board of directors has determined that it is advisable and in the best interest of the Company’s stockholders for the Company to amend its restated certificate of incorporation to increase the +total number of authorized shares of the Company’s common stock from 100,000,000 to 250,000,000 shares. Accordingly, on April 19, 2013, our board of directors approved an amendment to our restated certificate of incorporation in substantially +the form attached hereto as Appendix A, subject to stockholder approval, and directed that this amendment be submitted to a vote of our stockholders. +Our board of directors believes that the number of shares of common stock presently available for future issuance under our restated certificate of incorporation is insufficient to provide us with +flexibility in issuing shares for future corporate purposes and has therefore proposed to increase the number of authorized shares to ensure that we have such flexibility, without further stockholder approval, except as may be required by any +federal or state law, regulation or stock exchange rules. We may issue shares in the future in connection with, among other things, public or private stock offerings, acquisitions, equity incentives for employees, strategic investments, partnerships +and similar transactions and payments of stock dividends, stock splits or other recapitalizations, or for any other corporate purposes. We do not have any current plans, intentions, commitments, arrangements, understanding or agreements, either oral +or written, with respect to issuances of the additional authorized shares. +In addition to these corporate purposes, an increase in the number +of authorized shares of our common stock could be used to make it more difficult to, or discourage an attempt to, obtain control of our company by means of a takeover bid that our board of directors determines is not in our best interests or the +best interests of our stockholders. However, our board of directors does not intend or view the proposed increase in authorized common stock as an anti-takeover measure and is not proposing the increase in response to any attempt or plan to obtain +control of the Company. +The additional shares of common stock being authorized by this amendment to our restated certificate of incorporation +may be issued at times and under circumstances as to have a dilutive effect on earnings per share, book value per share or the percentage ownership interest of the present holders of our common stock, none of whom have preemptive rights under our +restated certificate of incorporation to subscribe for additional securities that we may issue. +43 +Table of Contents +Approval of the proposed amendment to our restated certificate of incorporation requires the affirmative +vote of a majority of the outstanding shares of our common stock entitled to vote thereon. The proposed amendment to our restated certificate of incorporation will become effective on the date such amendment is filed with the Secretary of State of +the State of Delaware, which the Company anticipates doing as soon as practicable following approval of this proposal. +Unless required by law +or by the rules or regulations of Nasdaq or any other stock exchange on which our common stock may in the future be listed, no further vote by the stockholders will be sought with respect to any issuance of shares of our common stock. Under existing +Nasdaq rules and regulations, subject to certain exceptions, stockholder approval would nevertheless be required where, due to the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, other +than a public offering for cash: (i) the common stock has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common +stock; or (ii) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares or common stock outstanding before the issuance of the stock or securities. Under the existing Nasdaq rules and +regulations, stockholder approval would also be required, subject to certain exceptions, in connection with a transaction other than a public offering involving: (i) the sale, issuance or potential issuance by the issuer of common stock (or +securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which together with sales by officers, directors or substantial stockholders of the company equals 20% or more of common stock or +20% or more of the voting power outstanding before the issuance; or (ii) the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common +stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” THE ADOPTION OF PROPOSAL TWO TO APPROVE THE AMENDMENT TO OUR RESTATED CERTIFICATE +OF INCORPORATION TO INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 100,000,000 SHARES TO 250,000,000 SHARES. +44 +Table of Contents +Proposal to Approve Our 2013 Restated Stock Incentive Plan +(Item 3 on the Proxy Card) +We are asking you to approve the Gulfport Energy Corporation 2013 Restated Stock Incentive Plan, which we refer to as the “2013 Restated Stock Incentive Plan” or the “Plan,” as set +forth in Appendix B to this proxy statement. The Plan is an amendment and restatement of the Gulfport Energy Corporation Amended and Restated 2005 Stock Incentive Plan. The Plan authorizes and reserves 4,500,000 additional shares available for +awards under the Plan. The Plan became effective upon approval by the Board of Directors, but no award of the additional shares authorized under the Plan may be exercised (or, in the case of stock awards, granted) until the restated Plan is approved +by the stockholders of the Company. As of the date of this proxy statement no awards of the additional shares under the Plan have been made. The Plan was unanimously approved by our Board of Directors on April 19, 2013, which we refer to as the +“Effective Date.” If approved by our stockholders, the amendment and restatement of the Plan will do the following: +• +Change the name of the Plan. +• +Increase the aggregate number of shares that may be issued under awards under the Plan from 3,000,000 to 7,500,000 shares. Both the prior and the +amended share reserve include 627,337 outstanding options issued under the Gulfport Energy Corporation 1999 Stock Option Plan that will only be available for awards under the Plan if such outstanding options expire or are forfeited before being +exercised. +• +Eliminate the availability (add-back to the share reserve) for the grant of new awards of shares that are withheld in payment of the purchase or +exercise price for an award or in satisfaction of tax obligations relating to an award. +• +Eliminate the ability to grant reload options and to implement option repricing transactions without specific stockholder approval. +• +Impose a separate 25,000 share individual limit on the aggregate number of shares that may be granted to any of our eligible non-employee directors in +any calendar year. +• +Expand the business criteria on which performance goals may be based for performance awards. +• +Expand the permissible consideration for exercise of an option or the award of stock to include share withholding and future services. +• +Update the Plan to reflect recent changes to the Internal Revenue Code of 1986, as amended, or the Code, including revising the definition of +“fair market value” to reflect the final regulations under Section 409A of the Code, to make other conforming and clarifying amendments to comply with Section 162(m) of the Code and to reflect other legislative, regulatory and +interpretive developments under various corporate, securities and accounting requirements. +• +Extend the expiration date of the 2005 Plan from January 23, 2015, to April 18, 2023, the date that is the day before the 10th anniversary of the +Board’s adoption of the amendment and restatement of the Plan. +Rationale for Approval +The Plan authorizes the grant of stock options and other forms of stock-based compensation. The Board believes that stock-based compensation is a very +important factor in attracting and retaining experienced and talented employees who can contribute significantly to the management, growth and profitability of our business. Additionally, the Board believes that stock-based compensation aligns the +interests of our management with the interests of our stockholders. The availability of stock-based compensation not only increases employees’ focus on the creation of stockholder value, but also enhances employee retention and generally +provides increased motivation for our employees to contribute to the future success of the Company. +45 +Table of Contents +The Plan is the only plan pursuant to which the Company can grant stock options and other forms of +stock-based compensation, and the limited number of shares remaining available under the Plan restricts the Board’s ability to make stock-based awards. As of April 1, 2013, approximately 505,677 shares remained available for future awards under +the Plan. +The amendment to the Plan to eliminate the availability of shares that the Company withholds in payment of an award’s +purchase or exercise price or in satisfaction of an eligible individual’s tax obligations relating to an award for granting of new awards reflects current market practices in compensation. +The amendment to the Plan to eliminate the availability to grant reload options, which provide that an option holder exercising an option by the delivery +of previously acquired shares of Company stock automatically would be granted an additional option, and to eliminate the ability to reprice stock options without stockholder approval reflect current market practices in compensation. +The aggregate number of shares that may be granted under share-denominated awards are being increased to afford greater flexibility in granting such +awards. A new 25,000 share limit on the number of shares that may be granted to any of our non-employee directors also is being added to reflect current market practices in compensation. +The business criteria on which performance goals may be based for performance awards are being expanded to better reflect our business and to permit performance goals that better align the interests of +our management with those of the Company and our stockholders. Approval of the material terms of the performance goals set forth in the amendment and restatement of the Plan, including the expanded business criteria on which such performance goals +may be based, should allow performance awards granted under the Plan to qualify as tax-deductible performance-based compensation under Section 162(m) of the Code. +The amendments to the Plan to reflect changes under the Code are intended to reduce the likelihood of potential negative tax consequences to eligible individuals for not complying with Section 409A +of the Code and to better ensure that stock options, stock appreciation rights and performance awards under the Plan will be able to qualify as tax-deductible performance-based compensation under Section 162(m) of the Code. These amendments are +not expected to have a significant effect on the 2005 Plan. +The amendments to the Plan to expand the permissible consideration alternatives +to include share withholding for exercise of an option and future services as consideration for the award of stock reflect current market practices in compensation resulting from changes in accounting rules and changes in the Delaware corporation +law. +For the reasons discussed above, the Board believes that these amendments are needed to attract and retain employees to implement the +Company’s strategic plan and goals, to reflect market practices that align the interests of our management with the interests of our stockholders and is in the best interests of the Company and our stockholders. +Purpose of our 2013 Restated Stock Incentive Plan +Approval of the 2013 Restated Stock Incentive Plan is intended to enable the Company, and its affiliates, to obtain and retain the services of the types of employees, consultants and directors who will +contribute to the Company’s long range success and to provide incentives that are linked directly to increases in share value which will inure to the benefit of all of our stockholders. Some important factors and considerations related to the +adoption of the Plan are as follows: +• +The key terms and provisions of the Plan are substantially similar to our Amended and Restated 2005 Stock Incentive Plan, which was approved by our +stockholders in 2005; +• +The Plan enables us to provide competitive long-term incentive compensation; and +• +The Plan, and the policies of our Compensation Committee, restrict stock option repricing, discounted stock options and reload stock options. +46 +Table of Contents +Summary of our 2013 Restated Stock Incentive Plan +The following summary of our 2013 Restated Stock Incentive Plan is qualified by reference to the full text of the Plan, which is attached as Appendix B to +this proxy statement. +Eligibility +The term “Awards” as used in this proposal of the proxy statement includes incentive stock options, non-statutory stock options, restricted awards (restricted stock and hypothetical restricted +stock units that are settled in shares of stock), performance awards and stock appreciation rights granted under the Plan. Our employees, consultants and directors and those of our affiliates are eligible for Awards, provided that incentive stock +options may be granted only to employees. All other Awards, including non-statutory stock options, restricted awards, performance awards and stock appreciation rights, may be granted to our employees, directors and consultants and those of our +affiliates. Currently there are approximately 26 employees who are eligible to participate in the Plan, but this number is subject to change from time to time. In addition, the maximum number of shares with respect to which Awards can be granted to +any employee in any fiscal year is limited to 1,000,000 shares. +Administration of the Plan +The Board of Directors will administer the Plan, until the Board of Directors delegates the administration of the Plan to a committee. The Board of +Directors has delegated the administration of the Plan to the Compensation Committee, who will administer the Plan with respect to Awards and to whom we refer as the “Administrator.” +The Administrator has the authority to: +• +construe and interpret the Plan and apply its provisions; +• +promulgate, amend and rescind rules and regulations relating to the administration of the Plan; +• +authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; +• +delegate its authority to one or more officers of the Company with respect to Awards that do not involve the Company’s chief executive officer, or +the four other highest compensated officers of the Company, or “insiders” within the meaning of Section 16 of the Exchange Act, subject to specified limits on the number of shares that may be granted pursuant to that delegation; +• +determine when Awards are to be granted under the Plan; +• +from time to time, select, subject to the limitations set forth in this Plan, those people to whom Awards will be granted; +• +determine the number of shares of common stock to be made subject to each Award; +• +determine whether each option is to be an incentive stock option or a non-statutory stock option; +• +prescribe the terms and conditions of each Award, including, without limitation, the exercise price and medium of payment, vesting provisions and right +of repurchase provisions, and to specify the provisions of the Award agreement relating to that grant or sale; +• +amend any outstanding Awards, including for the purpose of modifying the time or manner of vesting, or the term of any outstanding award, subject to +certain limitations; +• +determine the duration and purpose of leaves of absences which may be granted to a person without constituting termination of their employment for +purposes of the Plan, which periods will be no shorter than the periods generally applicable to employees under the Company’s employment policies; +47 +Table of Contents +• +make decisions with respect to outstanding options that may become necessary upon a change in corporate control or an event that triggers anti-dilution +adjustments; and +• +exercise discretion to make any and all other determinations which it determines to be necessary or advisable for administration of the Plan. +The Administrator also may modify the purchase price or the exercise price of any outstanding Award, provided that if the +modification effects a repricing, stockholder approval will be required before the repricing is effective. +Potential Dilution +As of April 1, 2013, approximately 505,677 shares remained available for future awards under the Plan prior to amendment. The total +number of shares of common stock currently available for issuance under the Plan, which includes (a) 4,500,000 newly authorized shares of common stock plus (b) 3,000,000 previously authorized shares (which includes 627,337 prior +outstanding options issued under the Gulfport Energy Corporation 1999 Stock Option Plan that will only be available for awards under the Plan if such prior outstanding options expire or are forfeited before being exercised), represent approximately +9.7 percent of the Company’s outstanding shares on April 1, 2013. As of April 1, 2013, the market value of the common stock underlying the shares issuable upon exercise of options available for award under the terms of the Plan was +$22,962,792 based upon a closing per share price of $45.41 as quoted on the NASDAQ Global Select Market on such date. +Awards and Terms +Types of Awards +The following awards may be granted under the Plan (i) options intended to qualify as incentive stock options under Section 422 of the Code, (ii) non-statutory stock options not +specifically authorized or qualified for favorable federal income tax consequences, (iii) restricted stock awards consisting of shares of common stock that are subject to a substantial risk of forfeiture (vesting) restriction for some period of +time, (iv) restricted stock unit awards consisting of hypothetical shares of common stock that are subject to a substantial risk of forfeiture (vesting) restriction for some period of time and are settled upon vesting or other specified +settlement date by the transfer of Common Stock, (v) unrestricted stock awards that are free of any vesting restrictions, (vi) performance awards entitling the recipient to acquire shares of common stock or to vest in shares of common +stock upon the attainment of specified performance goals and (vi) stock appreciation rights. +Options +• +Exercise Price—Subject to certain exceptions, the exercise price of an incentive stock option or a non-statutory stock option, which we refer to +collectively as “options,” must be at least 100% of the fair market value of the common stock subject to that option on the date that option is granted, provided that the exercise price of an incentive stock option granted to a person who +owns stock possessing more than 10% of the total combined voting power of all classes of our stock, or of any of our affiliates, must be at least 110% of the fair market value of the common stock subject to that option on the date of grant. +• +Expiration Date—No option will be exercisable after the expiration of ten years from the date it was granted, provided that an incentive stock +option granted to a person who owns stock possessing more than 10% of the total combined voting power of all classes of our stock, or of any of our affiliates, will not be exercisable after the expiration of five years from the date of grant. +• +Consideration—The exercise price for common stock acquired pursuant to an option may be paid either (a) in cash or by certified or bank check +at the time the option is exercised or (b) upon those terms as the Administrator may approve. The exercise price may be paid (i) by delivery to the +48 +Table of Contents +Company of other common stock, duly endorsed for transfer to the Company, with a fair market value on the date of delivery equal to the exercise price due for the number of shares being acquired, +or by means of attestation whereby the participant identifies for delivery specific shares of common stock that have been held for more than six months (or a longer or shorter period of time required to avoid a charge to earnings for financial +accounting purposes) that have a fair market value on the date of attestation equal to the exercise price and receives a number of shares of common stock equal to the difference between the number of shares thereby purchased and the number of +identified attestation shares of common stock, which we refer to as a “Stock for Stock Exchange”, (ii) during any period for which the common stock is publicly traded, by a copy of instructions to a broker directing the broker to sell +the common stock for which the option is exercised, and to remit to the Company the aggregate exercise price of the options, (iii) by the Company retaining the number of shares of Common Stock from any transfer to the option holder, which we +refer to as “Share Withholding,” that otherwise would have been delivered by the Company on exercise of the option having a fair market value equal to all or part of the exercise price of the option exercise, in which case the option will +be deemed surrendered and cancelled with respect to the number of shares retained by the Company, and (iv) in any other form of legal consideration that may be acceptable to the Administrator, including without limitation with a full-recourse +promissory note, provided that during any period during which our common stock is publicly traded, an exercise with a promissory note or other transaction by a director or an executive officer that involves or may involve a direct or indirect +extension of credit or arrangement of an extension of credit by us, or our affiliates, in violation of Section 402(a) of the Sarbanes-Oxley Act (codified as Section 13(k) of the Exchange Act) will be prohibited with respect to any Award +under the Plan. +• +Vesting—The options may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The +Administrator may provide for an acceleration of vesting and exercisability in the terms of any option agreement upon the occurrence of any specified event. Unless otherwise specified in the terms of the option agreement, each option will become +exercisable at a rate of 33.333% per year over the three-year period commencing on the option’s grant date. +• +Transferability—An incentive stock option is only transferable by will or by the laws of descent and distribution, and will only be exercisable +during the lifetime of the option holder by the option holder. A non-statutory stock option may be transferable to a permitted transferee upon written approval by the Administrator to the extent provided in the option agreement. If a non-statutory +stock option does not provide for transferability, then the non-statutory stock option will only be transferable by will or by the laws of descent and distribution, and will only be exercisable during the lifetime of the option holder by the option +holder. +• +Termination—Unless otherwise provided in an option agreement or in an employment agreement the terms of which have been approved by the +Administrator, in the event an option holder’s continuous service with the Company or its affiliates terminates (other than upon the option holder’s death or disability or termination by the Company for cause), the option holder may +exercise his or her option (to the extent that the option holder was entitled to exercise the option as of the date of termination) within that period of time ending on the earlier of (a) the date three months following the termination of the +option holder’s continuous service, or (b) the expiration of the term of the option as set forth in the option agreement. Unless otherwise provided in an option agreement or in an employment agreement the terms of which have been approved +by the Administrator, or subject to certain other exceptions set forth in the Plan, outstanding options that are not exercisable at the time an option holder’s continuous service terminates for any reason other than for cause (including an +option holder’s death or disability) will be forfeited and expire at the close of business on the date of the termination. If the option holder’s continuous service terminates for cause, all outstanding options will be forfeited (whether +or not vested) and will expire as of the beginning of business on the date of the termination for cause. +49 +Table of Contents +Restricted Awards +• +Purchase Price—The Administrator will determine the purchase price, if any, of the restricted awards, which may be stated as cash, property, prior +services or future services. +• +Consideration—The consideration for common stock acquired pursuant to a restricted award may be paid either: (i) in cash at the time of +purchase; or (ii) in any other form of legal consideration that may be acceptable to the Administrator in its discretion including, without limitation, a recourse promissory note, property or a Stock for Stock Exchange, prior or future services +that the Administrator determines have a value at least equal to the fair market value of the common stock, provided that during any period during which our common stock is publicly traded, an exercise with a promissory note or other transaction by +a director or an executive officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by us, or our affiliates, in violation of Section 402(a) of the Sarbanes-Oxley Act (codified as +Section 13(k) of the Exchange Act) will be prohibited with respect to any Award under the Plan. +• +Vesting—Shares of common stock acquired under a restricted award may be subject to a restricted period that specifies a right of repurchase in +favor of the Company in accordance with a vesting schedule to be determined by the Administrator, or forfeiture in the event the consideration was in the form of services. The Administrator in its discretion may provide for an acceleration of +vesting in the terms of any restricted award, at any time, including in the event a change in control occurs. +• +Transferability—Shares of common stock acquired under a restricted award will not be transferable by the participant until the time the shares +vest and the restrictions imposed by the terms and conditions set forth in the award agreement lapse. +• +Termination—Unless otherwise provided in a restricted award agreement or in an employment agreement the terms of which have been approved by the +Administrator, in the event a participant’s continuous service terminates for any reason, the Company may exercise its right of repurchase or otherwise reacquire, or the participant will forfeit the unvested portion of a restricted award +acquired in consideration of prior or future services, and any or all of the shares of common stock held by the participant which have not vested as of the date of termination under the terms of the restricted award agreement will be forfeited and +the participant will have no rights with respect to the Award. +Performance Awards +• +Performance goals—The Administrator in its sole discretion will determine the performance goals applicable to each Award and the periods during +which the performance is to be measured. Performance goals will be based on a pre-established objective formula or standard that specifies the manner of determining the number of shares under the performance award that will be granted or will vest +if the performance goal is attained. Performance goals will meet the requirements of Section 162(m) of the Code. +• +Transferability—Performance awards and all rights with respect to a performance award may not be sold, assigned, transferred, pledged or otherwise +encumbered. +• +Termination—A participant’s rights in a performance award will automatically terminate upon the participant’s termination of employment +(or business relationship) with the Company and its affiliates for any reason. +• +Acceleration—At any time prior to the participant’s termination of employment (or other business relationship) by the Company or its +affiliates, the Administrator may in its sole discretion accelerate, waive, or amend any or all of the goals, restrictions or conditions imposed under any performance award. The Administrator in its discretion may provide for an acceleration of +vesting in the terms of any performance award at any time, including in the event a change in control occurs. +50 +Table of Contents +Stock Appreciation Rights +• +Restrictions on Grant—A stock appreciation right entitles the holder to receive the appreciation in the value of the common stock underlying the +stock appreciation right. Stock appreciation rights may be granted alone, or provided certain requirements are met, in tandem with all or part of an option granted under the Plan. A stock appreciation right may only be granted if the stock +appreciation right: (i) does not provide for the deferral of compensation within the meaning of Section 409A of the Code; or (ii) satisfies the requirements for nonqualified deferred compensation under Section 409A of the Code. +• +Exercise—The Administrator has discretion to settle the exercise of a stock appreciation right in stock or in cash. Generally, stock appreciation +rights will be settled for stock and the participant will have no right to receive a cash settlement. However, a participant may request that an exercise be settled in cash by a written request filed with the Company’s Secretary during the +period beginning on the third business day following the date of release for publication by the Company of quarterly or annual summary statements of earnings and ending on the twelfth business day following that date. Upon exercise of a stock +appreciation right, the holder will be entitled to receive from the Company, a number of shares of common stock, or in the discretion of the Administrator cash, with a value equal to the product of (i) the excess of the fair market value, on +the date of the written request, of one share of common stock over the stock appreciation right exercise price per share specified in the stock appreciation right or its related option, multiplied by (ii) the number of shares for which the +stock appreciation right will be exercised. +• +Exercise Price—The exercise price of a stock appreciation right granted by itself will be determined by the Administrator, but will not be less +than 100% of the fair market value of one share of common stock on the date of grant of the stock appreciation right. A stock appreciation right granted with or subsequent to the grant of an option and in conjunction therewith or in the alternative +thereto will have the same exercise price as the related option, will be transferable only upon the same terms and conditions as the related option, and will be exercisable only to the same extent as the related option. +Term +No Award +may be made under the Plan after April 18, 2023. +Amendment of the Plan +The Board of Directors may at any time amend or terminate the Plan, subject to approval by our stockholders to the extent stockholder approval is +necessary under any applicable law or any NASDAQ listing standards. Subject to certain exceptions, an amendment of the Plan may not impair the rights under any award granted before an amendment of the Plan unless (a) we request the consent of +the participants under the Plan and (b) the participants consent in writing. However, the cancellation of an Award in exchange for cash equal to the fair market value of vested stock, or, in the case of options, the difference between the fair +market value and the exercise price of the vested options that are subject to exercise, will not be an impairment that requires consent. +Amendment of Awards +The Administrator may at any time amend the terms of one or +more Awards, provided that the Administrator may not adopt any amendment which would otherwise constitute an impairment of the rights under any award unless (a) the Company requests the consent of the participant and (b) the participant +consents in writing. However, the cancellation of an Award in exchange for cash equal to the fair market value of vested stock, or, in the case of options, the difference between the fair market value and the exercise price of the vested options +that are subject to exercise, will not be an impairment that requires consent. +51 +Table of Contents +Federal Income Tax Consequences of the Plan +The following is a general summary of the material U.S. federal income tax consequences of the grant, exercise and vesting of awards under the Plan and +the disposition of shares acquired pursuant to the exercise of such awards and is intended to reflect the current provisions of the Code and the regulations thereunder. This summary is not intended to be a complete statement of applicable law, nor +does it address foreign, state, local and payroll tax considerations. Moreover, the U.S. federal income tax consequences to any particular participant may differ from those described herein by reason of, among other things, the particular +circumstances of such participant. +Options +The Code requires that, for treatment of an option as an incentive stock option, common stock acquired through the exercise of the option cannot be +disposed of before the later of (i) two years from the date of grant of the option, or (ii) one year from the date of exercise. Holders of incentive stock options will generally incur no federal income tax liability at the time of grant or +upon exercise of those options. However, the spread at exercise will be an “item of tax preference,” which may give rise to “alternative minimum tax” liability for the taxable year in which the exercise occurs. If the holder does +not dispose of the shares before two years following the date of grant and one year following the date of exercise, the difference between the exercise price and the amount realized upon disposition of the shares will constitute long-term capital +gain or loss, as the case may be. Assuming both holding periods are satisfied, no deduction will be allowed to the Company for federal income tax purposes in connection with the grant or exercise of the incentive stock option. If, within two years +following the date of grant or within one year following the date of exercise, the holder of shares acquired through the exercise of an incentive stock option disposes of those shares, the participant will generally realize taxable compensation at +the time of such disposition equal to the difference between the exercise price and the lesser of the fair market value of the share on the date of exercise or the amount realized on the subsequent disposition of the shares, and that amount will +generally be deductible by the Company for federal income tax purposes, subject to the possible limitations on deductibility under Sections 280G and 162(m) of the Code for compensation paid to executives designated in those Sections. Finally, if an +option that otherwise qualifies as an incentive stock option becomes first exercisable in any one year for shares having an aggregate value in excess of $100,000 (based on the grant date value), the portion of the incentive stock option in respect +of those excess shares will be treated as a non-statutory stock option for federal income tax purposes. +A participant will not realize any +income upon grant of a non-statutory stock option. Upon the exercise of a non-statutory stock option, the participant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the underlying +exercised shares over the exercise price paid at the time of exercise. The Company will be able to deduct this same amount for federal income tax purposes, but such deduction may be limited under Sections 280G and 162(m) of the Code for compensation +paid to certain executives designated in those Sections. +Restricted Stock +A participant will not be subject to tax upon the grant of an award of restricted stock unless the participant otherwise elects to be taxed at the time of +grant pursuant to Section 83(b) of the Code. On the date an award of restricted stock becomes transferable or is no longer subject to a substantial risk of forfeiture, the participant will have taxable compensation equal to the difference +between the fair market value of the shares on that date over the amount the participant paid for such shares, if any, unless the participant made an election under Section 83(b) of the Code to be taxed at the time of grant. If the participant +made an election under Section 83(b), the participant will have taxable compensation at the time of grant equal to the difference between the fair market value of the shares on the date of grant over the amount the participant paid for such +shares, if any. (Special rules apply to the receipt and disposition of restricted stock received by officers and directors who are subject to Section 16(b) of the Exchange Act.) We will be able to deduct, at the same time as it is recognized by +the participant, the amount of taxable compensation to the participant for federal income tax purposes, but such deduction may be limited under Sections 280G and 162(m) of the Code for compensation paid to certain executives designated in those +Sections. +52 +Table of Contents +Restricted Stock Units +A participant will not be subject to tax upon the grant of a restricted stock unit award. Rather, upon the delivery of shares or cash pursuant to a +restricted stock unit award, the participant will have taxable compensation equal to the fair market value of the number of shares (or the amount of cash) the participant actually receives with respect to the award. The Company will be able to +deduct the amount of taxable compensation to the participant for federal income tax purposes, but the deduction may be limited under Sections 280G and 162(m) of the Code for compensation paid to certain executives designated in those Sections. +Stock Appreciation Rights +A participant will not realize any income upon grant of a stock appreciation right. Upon the exercise of a stock appreciation right, the participant will recognize ordinary compensation income in an +amount equal to the fair market value of the payment received in respect of the stock appreciation right. The Company will be able to deduct this same amount for federal income tax purposes, but such deduction may be limited under Sections 280G and +162(m) of the Code for compensation paid to certain executives designated in those Sections. +Section 162(m) +In general, Section 162(m) of the Code denies a publicly held corporation a deduction for federal income tax purposes for +compensation exceeding $1 million per year per person to its principal executive officer and the three other officers (other than the principal executive officer and principal financial officer) whose compensation is disclosed in its proxy statement +as a result of their total compensation, subject to certain exceptions. The Plan is intended to satisfy an exception with respect to grants of options and stock appreciation rights to such covered employees. In addition, the Plan is designed to +permit granting of restricted stock and restricted stock units as performance awards intended to qualify under the “performance-based compensation” exception to Section 162(m) of the Code. However, the Company reserves the authority +to award non-deductible compensation as it deems appropriate. +Section 280G +Awards that are granted, accelerated or enhanced upon the occurrence of a change in control of the Company may give rise, in whole or in part, to +“excess parachute payments” within the meaning of Section 280G of the Code and, to such extent, will be non-deductible by the Company and subject to a 20% excise tax on the participant. The Plan provides the Administrator discretion +to provide for acceleration of awards upon a change in control. +New Plan Benefits +The number of Awards (i) that would have been received by or allocated to our executive officers, directors and employees for fiscal year 2012 if the +Plan had been in effect and (ii) that will be received by or allocated to our executive officers, directors and employees under the Plan is undeterminable because Awards under the Plan are discretionary. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF OUR 2013 RESTATED STOCK INCENTIVE PLAN. +53 +Table of Contents +Proposal to Approve, on an Advisory Basis, the Company’s +Executive Compensation +(Item 4 on the Proxy Card) +In accordance with the Dodd-Frank Act, our board of directors is providing our stockholders with a non-binding advisory vote on the Company’s executive compensation as reported in this proxy +statement, or “say on pay” vote. The Company’s stockholders are being asked to vote on the following resolution: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, +including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.” +This vote is +advisory, which means that the vote on executive compensation is not binding on the Company, our board of directors or the Compensation Committee. While the vote on executive compensation is solely advisory in nature, our board of directors and the +Compensation Committee will review and consider the “say on pay” voting results when making future decisions regarding our executive compensation program. +Stockholders are encouraged to carefully review the “Compensation Discussion and Analysis” section of this proxy statement, which discusses in detail the Company’s compensation policy and +compensation arrangements which the Company believes are appropriate and reasonably consistent with market practice and with the long-term interests of the Company and its stockholders. In furtherance of the Company’s goals and objectives, the +Compensation Committee, among other things, ensures that the Company’s executive compensation arrangements (i) do not incentivize executives to take unnecessary risks, (ii) do not include excessive change in control provisions and +(iii) include long-term vesting provisions in the restricted stock grants to encourage executives to focus on long-term performance. +We +have determined that our stockholders should cast an advisory vote on the compensation of our named executive officers on an annual basis. Unless this policy changes, the next advisory vote on the compensation of our named executive officers will be +at the 2014 annual meeting of stockholders. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THIS +PROPOSAL 4. +54 +Table of Contents +Proposal to Ratify the Appointment of Our Independent Auditors +(Item 5 on the Proxy Card) +What am I voting on? +You are voting on a proposal to ratify the appointment of Grant +Thornton LLP as our independent auditors for fiscal year 2013. The Audit Committee has appointed Grant Thornton to serve as independent auditors. +What services do the independent auditors provide? +Audit services of Grant Thornton for +fiscal 2012 included an audit of our consolidated financial statements and services related to periodic filings made with the SEC. Additionally, Grant Thornton provided certain services related to the consolidated quarterly reports and annual and +other periodic reports, registration statements and comfort letters and other services as described below. +How much were the independent +auditors paid in 2011 and 2012? +Grant Thornton’s fees for professional services totaled $440,960 for 2011 and $647,806 for 2012. +Grant Thornton’s fees for professional services included the following: +• +Audit Fees – aggregate fees for audit services, which relate to the fiscal year consolidated audit, quarterly reviews, registration +statements, comfort letters, statutory and regulatory audits and accounting consultations were $440,960 in 2011 and $564,866 in 2012. +• +Audit-Related Fees – aggregate fees for audit-related services, consisting of audits in connection with proposed or consummated +dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations, were $0 in 2011 and $82,940 in 2012. +• +Tax and All Other Fees – there were no tax or other fees for products or services provided by Grant Thornton in addition to the services +described above in 2011 or 2012. +Does the Audit Committee approve the services provided by Grant Thornton? +It is our audit committee’s policy to pre-approve all audit, audit related and permissible non-audit services rendered to us by our +independent auditor. Consistent with such policy, all of the fees listed above that we incurred for services rendered by Grant Thornton LLP in fiscal 2011 and 2012 were pre-approved by our audit committee. No non-audit services were provided to us +by Grant Thornton in 2011 or 2012. +Will a representative of Grant Thornton LLP be present at the meeting? +Yes, one or more representatives of Grant Thornton will be present at the meeting. The representatives will have an opportunity to make a statement if +they desire and will be available to respond to appropriate questions from the stockholders. +What vote is required to approve this +proposal? +Stockholder ratification of the appointment of our independent auditors is not required by the Company’s bylaws or +otherwise. However, we are submitting this proposal to the stockholders as a matter of good corporate practice. Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal. If the appointment of Grant +Thornton is not ratified, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if +it is determined that such change would be in best interests of the Company and its stockholders. +55 +Table of Contents +Has Grant Thornton LLP always served as Gulfport’s independent auditors? +Grant Thornton has served as our independent auditors since 2005. +What does the board of directors recommend? +THE BOARD OF DIRECTORS UNANIMOUSLY +RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE YEAR 2013. +56 +Table of Contents +Solicitation by Board; Expenses of Solicitation +Our board of directors has sent you this proxy statement. Our directors, officers and employees may solicit proxies by mail, by telephone or in person. +Those persons will receive no additional compensation for any solicitation activities. We will request banking institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to forward solicitation materials to the beneficial owners +of common stock held of record by those entities, and we will, upon the request of those record holders, reimburse reasonable forwarding expenses. We will pay the costs of preparing, printing, assembling and mailing the proxy material used in the +solicitation of proxies. +Submission of Future Stockholder Proposals +Under SEC rules, a stockholder who intends to present a proposal, including with respect to the nomination of directors, at the 2014 Annual Meeting of +Stockholders and who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing to our Corporate Secretary. The proposal must be received no later than January 14, 2014. +Stockholders who wish to propose a matter for action at the 2014 Annual Meeting, including with respect to the nomination of directors, but who do not +wish to have the proposal or nomination included in the proxy statement, must notify the Company in writing of the information required by the provisions of our by-laws dealing with stockholder proposals. The notice must be delivered to our +Corporate Secretary between February 14, 2014 and March 15, 2014. You can obtain a copy of our by-laws by writing the Corporate Secretary at the address below, or via the Internet at www.gulfportenergy.com under our “Corporate +Governance” caption. +All written proposals should be directed to Michael G. Moore, Corporate Secretary, Gulfport Energy Corporation, +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +The board of directors is responsible for selecting and recommending +director candidates and will consider nominees recommended by stockholders. If you wish to have the board of directors consider a nominee for director, you must send a written notice to our Corporate Secretary at the address provided above and +include the information required by our bylaws and discussed on page +11 of this proxy statement. +Availability of Form 10-K and Annual Report to Stockholders +SEC rules require us to provide an Annual Report to stockholders who receive this proxy statement. Additional copies of the Annual +Report, along with copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, including the financial statements and the financial statement schedules, are available without charge to stockholders upon written request +to Director of Investor Relations, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134 or via the Internet at www.gulfportenergy.com. We will furnish the exhibits to our Annual Report on Form 10-K upon +payment of our copying and mailing expenses. +Householding +The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder +continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces our mailing and printing expenses. +57 +Table of Contents +If you would like to receive your own set of the annual report and proxy statement this year or in future +years, follow the instructions described below. Similarly, if you share an address with another Gulfport stockholder and together both of you would like to receive in the future only a single annual report and proxy statement, follow these +instructions: +• +If your shares of our common stock are registered in your own name, please contact our transfer agent, Computershare Trust Company, N.A., and inform +them of your request by calling their toll-free number: (800) 962-4284 or by mail: Computershare Trust Company, N.A., 250 Royall Street, Canton, MA 02021. +• +If a broker or other nominee holds your shares, please contact your broker or nominee. +Other Matters +The board of directors does not intend to present any other items of business other than those stated in the Notice of Annual Meeting of Stockholders. If other matters are properly brought before the +meeting, the persons named as your proxies will vote the shares represented by it in accordance with their best judgment. Discretionary authority to vote on other matters is included in the proxy. +58 +Table of Contents +Appendix A +Form of Certificate of Amendment No. 2 of +the Restated Certificate +of Incorporation of +Gulfport Energy Corporation +(Pursuant to Section 242 of the General Corporation Law of the State of Delaware) +Gulfport Energy Corporation, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies +as follows: +1. The name of the Corporation is Gulfport Energy Corporation. +2. Article IV of the Corporation’s Restated Certificate of Incorporation is hereby amended by striking the introductory sentence of +Article IV and the first sentence of paragraph (a) of Article IV in their entirety and replacing them with the following: +“The +Corporation is hereby authorized to issue a total of two hundred fifty-five million (255,000,000) shares of capital stock which shall be subdivided into classes as follows: +(a) two hundred fifty million (250,000,000) shares of the Corporation’s capital stock shall be denominated as Common Stock, have a par value of $0.01 per share, and have the rights, powers and +preferences set forth in this paragraph.” +3. The above-referenced amendment was duly adopted in accordance with the +applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. +IN WITNESS WHEREOF , Gulfport Energy +Corporation has caused this Certificate of Amendment to be executed as of June , 2013. +GULFPORT ENERGY CORPORATION +By: +Name: +Office: +A-1 +Table of Contents +Appendix B +GULFPORT ENERGY CORPORATION +2013 RESTATED STOCK INCENTIVE PLAN +Gulfport Energy Corporation 2013 Restated Stock Incentive Plan +Table of Contents +GULFPORT ENERGY CORPORATION +2013 RESTATED STOCK INCENTIVE PLAN +TABLE OF CONTENTS +Page +Article 1 +Purpose, Eligibility +1 +1.1 +General Purpose +1 +1.2 +Eligible Award Recipients +1 +1.3 +Available Awards +1 +Article 2 +Definitions +1 +2.1 +“Administrator” +1 +2.2 +“Award” +1 +2.3 +“Award Agreement” +1 +2.4 +“Beneficial Owner” +1 +2.5 +“Board” +1 +2.6 +“Cashless Exercise” +1 +2.7 +“Cause” +1 +2.8 +“Change in Control” +2 +2.9 +“Code” +2 +2.10 +“Committee” +2 +2.11 +“Common Stock” +2 +2.12 +“Company” +2 +2.13 +“Consultant” +2 +2.14 +“Continuous Service” +3 +2.15 +“Covered Employee” +3 +2.16 +“Date of Grant” +3 +2.17 +“Detrimental Activity” +3 +2.18 +“Director” +3 +2.19 +“Disability” +3 +2.20 +“Effective Date” +4 +2.21 +“Employee” +4 +2.22 +“Established Securities Market” +4 +2.23 +“Exchange Act” +4 +2.24 +“Exercise Price” +4 +2.25 +“Fair Market Value” +4 +2.26 +“Free Standing SAR” +5 +2.27 +“Incentive Stock Option” +5 +2.28 +“Incumbent Directors” +5 +2.29 +“Insider” +5 +2.30 +“Market Standoff” +5 +2.31 +“Non-Employee Director” +5 +2.32 +“Nonstatutory Stock Option” +5 +2.33 +“Officer” +5 +2.34 +“Option” +5 +2.35 +“Option Agreement” +5 +2.36 +“Optionholder” +5 +2.37 +“Outside Director” +5 +2.38 +“Participant” +5 +2.39 +“Performance Award” +5 +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +[i] +Table of Contents +Page +2.40 +“Permitted Transferee” +6 +2.41 +“Person” +6 +2.42 +“Plan” +6 +2.43 +“Prior Plan” +6 +2.44 +“Prohibited Personal Loan” +6 +2.45 +“Related Company” +6 +2.46 +“Restricted Award” +6 +2.47 +“Restricted Period” +6 +2.48 +“Restricted Stock” +6 +2.49 +“Restricted Stock Unit” +6 +2.50 +“Right of Repurchase” +6 +2.51 +“Rule 16b-3” +6 +2.52 +“Securities Act” +6 +2.53 +“Stock Appreciation Right” or “SAR” +6 +2.54 +“Stock for Stock Exchange” +6 +2.55 +“Strike Price” +6 +2.56 +“Surviving Entity” +7 +2.57 +“Tandem SAR” +7 +2.58 +“Ten Percent Stockholder” +7 +Article 3 +Administration +7 +3.1 +Administration by Board +7 +3.2 +Authority of Administrator +7 +3.3 +Specific Authority +7 +3.4 +Decisions Final +8 +3.5 +The Committee +8 +3.6 +Indemnification +9 +Article 4 +Shares Subject to the Plan +9 +4.1 +Share Reserve +9 +4.2 +Reversion of Shares to the Share Reserve +9 +4.3 +Source of Shares +9 +Article 5 +Eligibility +10 +5.1 +Eligibility for Specific Awards +10 +5.2 +Ten Percent Stockholders +10 +5.3 +Section 162(m) Limitation +10 +5.4 +Directors +10 +Article 6 +Option Provisions +10 +6.1 +Term +10 +6.2 +Exercise Price +10 +6.3 +Consideration +10 +6.4 +Transferability of an Incentive Stock Option +11 +6.5 +Transferability of a Nonstatutory Stock Option +11 +6.6 +Vesting Generally +12 +6.7 +Termination of Continuous Service +12 +6.8 +Extension of Termination Date +12 +6.9 +Disability of Optionholder +12 +6.10 +Death of Optionholder +13 +6.11 +Incentive Stock Option $100,000 Limitation +13 +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +[ii] +Table of Contents +Page +6.12 +Early Exercise +13 +6.13 +Transfer, Approved Leave of Absence +13 +6.14 +Disqualifying Dispositions +13 +Article 7 +Provisions of Awards Other Than Options +13 +7.1 +Restricted Awards +13 +7.2 +Performance Awards +15 +7.3 +Stock Appreciation Rights +17 +Article 8 +Covenants of the Company +18 +8.1 +Availability of Shares +18 +8.2 +Securities Law Compliance +18 +Article 9 +Use of Proceeds from Stock +18 +Article 10 +Miscellaneous +19 +10.1 +Acceleration of Exercisability and Vesting +19 +10.2 +Stockholder Rights +19 +10.3 +No Employment or Other Service Rights +19 +10.4 +Transfer, Approved Leave of Absence +19 +10.5 +Investment Assurances +19 +10.6 +Withholding Obligations +19 +10.7 +Right of Repurchase +20 +Article 11 +Adjustments upon Changes in Stock +20 +11.1 +Capitalization Adjustments +20 +11.2 +Dissolution or Liquidation +20 +11.3 +Change in Control – Asset Sale, Merger, Consolidation or Reverse Merger +21 +Article 12 +Amendment of the Plan and Awards +21 +12.1 +Amendment of Plan +21 +12.2 +Stockholder Approval +21 +12.3 +Contemplated Amendments +21 +12.4 +Amendment of Awards +21 +12.5 +No Impairment of Rights +22 +Article 13 +General Provisions +22 +13.1 +Other Compensation Arrangements +22 +13.2 +Recapitalizations +22 +13.3 +Delivery +22 +13.4 +Other Provisions +22 +13.5 +Cancellation and Rescission of Awards for Detrimental Activity +22 +Article 14 +Market Standoff +23 +Article 15 +Effective Date of Plan +23 +Article 16 +Termination or Suspension of the Plan +23 +Article 17 +Choice of Law +23 +Article 18 +Limitation on Liability +23 +Article 19 +Execution +24 +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +[iii] +Table of Contents +GULFPORT ENERGY CORPORATION +2013 RESTATED STOCK INCENTIVE PLAN +ARTICLE 1 PURPOSE, ELIGIBILITY +1.1 General Purpose . The name of +the Plan is the Gulfport Energy Corporation 2013 Restated Stock Incentive Plan. This Plan is an amendment and restatement of the Gulfport Energy Corporation 2005 Stock Incentive Plan. The purpose of the Plan is to enable the Company and any Related +Company to obtain and retain the services of the types of Employees, Consultants, and Directors who will contribute to the Company’s long range success and to provide incentives that are linked directly to increases in share value which will +inure to the benefit of all stockholders of the Company. +1.2 Eligible Award Recipients . The persons eligible to +receive Awards are the Employees, Consultants and Directors of the Company and its Related Companies. +1.3 Available +Awards . The Plan provides a means by which eligible recipients of Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of one or more of the following Awards: Incentive Stock Options, +Nonstatutory Stock Options, Restricted Awards (Restricted Stock and Restricted Stock Units), Performance Awards and Stock Appreciation Rights. +ARTICLE 2 DEFINITIONS +2.1 “ Administrator ” means +the Board or the Committee appointed by the Board in accordance with Section 3.5 . +2.2 +“ Award ” means any right granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Award (Restricted Stock and Restricted Stock Units), a Performance Award and a Stock Appreciation +Right. +2.3 “ Award Agreement ” means a written agreement between the Company and a holder of an Award +evidencing the terms and conditions of an individual Award grant. Each Award Agreement will be subject to the terms and conditions of the Plan and need not be identical. +2.4 “ Beneficial Owner ” has the meaning assigned to that term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any +particular Person, that Person will be deemed to have beneficial ownership of all securities that that Person has the right to acquire by conversion or exercise of other securities, whether the right is currently exercisable or is exercisable only +after the passage of time, the satisfaction of performance goals or both. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning. +2.5 “ Board ” means the Board of Directors of the Company. +2.6 “ Cashless Exercise ” has the meaning set forth in Section 6.3 . +2.7 “ Cause ” means, (a) with respect to any Participant who is a party to an employment or service agreement +or employment policy manual with the Company or its Related Companies and which agreement or policy manual provides for a definition of Cause, as defined therein; and (b) with respect to all other Participants, (i) the commission of, or +plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or a Related Company; (ii) conduct tending +to bring the Company into substantial public disgrace or +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 1 +Table of Contents +disrepute; (iii) gross negligence or willful misconduct with respect to the Company or a Related Company; or (iv) material violation of state or federal securities laws. The +Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to whether a Participant has been discharged for Cause. +2.8 “ Change in Control ” means: +(a) The direct or +indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company to any Person; +(b) The Incumbent Directors cease for any reason to constitute a majority of the Board; +(c) The adoption of a plan relating to the liquidation or dissolution of the Company; or +(d) The consummation of any transaction (including, without limitation, any merger, consolidation or exchange) resulting in any Person +becoming the Beneficial Owner of more than 50% of the combined voting power of the Company (which voting power shall be calculated by assuming the conversion of all equity securities convertible (immediately or at some future time) into shares +entitled to vote, but not assuming the exercise of any warrant or right to subscribe to or purchase those shares) of the continuing or Surviving Entity’s securities outstanding immediately after such merger, consolidation, reorganization or +sale of stock is owned, directly or indirectly, by persons who were not stockholders of the Company immediately prior to such merger, consolidation, reorganization or sale of stock; provided, however, that in making the determination of ownership by +the stockholders of the Company, immediately after the reorganization, equity securities which persons own immediately before the reorganization as stockholders of another party to the transaction shall be disregarded. +The foregoing notwithstanding, a transaction will not constitute a Change in Control if (x) its sole purpose is to change the state +of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the Persons who held the Company’s securities immediately before the transaction; (y) it constitutes an initial +public offering or a secondary public offering that results in any security of the Company being listed (or approved for listing) on any securities exchange or designated (or approved for designation) as a security on an interdealer quotation +system; or (z) solely because 50% or more of the total voting power of the Company’s then outstanding securities is acquired by (1) a trustee or other fiduciary holding securities under one or more employee benefit Plans of the +Company or any Related Company, or (2) any company that, immediately before the acquisition, is owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock in the Company +immediately before the acquisition. +2.9 “ Code ” means the Internal Revenue Code of 1986, as amended. +2.10 “ Committee ” means a committee of one or more members of the Board appointed by the Board to +administer the Plan in accordance with Section 3.5 . +2.11 “ Common Stock ” means the common +stock of the Company. +2.12 “ Company ” means Gulfport Energy Corporation, a Delaware corporation. +2.13 “ Consultant ” means any natural person who provides bona fide consulting or advisory services to +the Company or a Related Company pursuant to a written agreement, so long as those services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market +for the Company’s securities. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 2 +Table of Contents +2.14 “ Continuous Service ” means that the Participant’s service +with the Company or a Related Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service will not be deemed to have terminated merely because of a change in the capacity in +which the Participant renders service to the Company or a Related Company as an Employee, Director or Consultant or a change in the entity for which the Participant renders service, so long as there is no interruption or termination of the +Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of a Related Company or a Director will not constitute an interruption of Continuous Service. The Administrator or its delegate, +in its sole discretion, may determine whether Continuous Service will be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. +2.15 “ Covered Employee ” means an Employee who is or could become a “covered employee” +within the meaning of Code Section 162(m)(3) and the regulations and interpretive guidance issued thereunder. +2.16 +“ Date of Grant ” means, if the key terms and conditions of the Award are communicated to the Participant within a reasonable period following the Administrator’s action, the date on which the Administrator adopts a +resolution or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award and from which the Participant begins to benefit from or be adversely affected by subsequent changes +in the Fair Market Value of the Common Stock or, if a subsequent date is set forth in the resolution or determined by the Administrator as the Date of Grant, then the date set forth in the resolution. In any situation where the terms of the Award +are subject to negotiation with the Participant, the Date of Grant will not be earlier than the date the key terms and conditions of the Award are communicated to the Participant. +2.17 “ Detrimental Activity ” means: (a) violation of the terms of any agreement with the Company concerning +non-disclosure, confidentiality, intellectual property, privacy or exclusivity; (b) disclosure of the Company’s confidential information to anyone outside the Company, without prior written authorization from the Company or in conflict +with the interests of the Company, whether the confidential information was acquired or disclosed by the Participant during or after employment by the Company; (c) failure or refusal to disclose promptly or assign to the Company all right, +title, and interest in any invention, work product or idea, patentable or not, made or conceived by the Participant during employment by the Company, relating in any manner to the interests of the Company or, the failure or refusal to do anything +reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in other countries; (d) activity that is discovered to be grounds for or results in termination of the Participant’s employment for +Cause; (e) any breach of a restrictive covenant contained in any employment or service agreement, Award Agreement or other agreement between the Participant and the Company, during any period for which a restrictive covenant prohibiting +Detrimental Activity or other similar conduct or act, is applicable to the Participant during or after employment by the Company; (f) any attempt directly or indirectly to induce any Employee of the Company to be employed or perform services or +acts in conflict with the interests of the Company; (g) any attempt, in conflict with the interests of the Company, directly or indirectly, to solicit the trade or business of any current or prospective customer, client, supplier or partner of +the Company; (h) the conviction of, or guilty plea entered by, the Participant for any felony or a crime involving moral turpitude whether or not connected with the Company; or (i) the commission of any other act involving willful +malfeasance or material fiduciary breach with respect to the Company. +2.18 “ Director ” means a member +of the Board. +2.19 “ Disability ” means the Participant’s inability to substantially perform his +or her duties to the Company or any Related Company by reason of a medically determinable physical or mental impairment that is expected to last for a period of six months or longer or to result in death; except that for purposes of determining the +term of an Incentive Stock Option pursuant to Section 6.9 hereof, the term Disability has the meaning ascribed to it under Code Section 22(e)(3). The Administrator will determine whether an individual has a Disability under +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 3 +Table of Contents +procedures established by the Administrator. Except in situations where the Administrator is determining Disability within the meaning of Code Section 22(e)(3) for purposes of the term of an +Incentive Stock Option pursuant to Section 6.9 hereof, the Administrator may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Related +Company in which a Participant participates. +2.20 “ Effective Date ” means April 19, 2013, the +date the Board adopted the restatement of the Plan. The Plan originally was adopted effective January 24, 2005. +2.21 +“ Employee ” means any person employed by the Company or a Related Company. Mere service as a Director or payment of a director’s fee by the Company or a Related Company is not sufficient to constitute +“employment” by the Company or a Related Company. +2.22 “ Established Securities Market ” +means a national securities exchange that is registered under Section 6 of the Exchange Act; a foreign national securities exchange that is officially recognized, sanctioned or supervised by governmental authority; and any over-the-counter +market that is reflected by the existence of an interdealer quotation system. +2.23 “ Exchange Act ” +means the Securities Exchange Act of 1934, as amended. +2.24 “ Exercise Price ” has the meaning set +forth in Section 6.2 of the Plan. +2.25 “ Fair Market Value ” means, as of any date, the +value of the Common Stock determined using a method consistent with the definition of fair market value found in Treasury Regulation section 1.409A-1(b)(5)(iv) and any regulatory interpretations issued thereunder, and will be determined using a +method that is a presumptively reasonable valuation method thereunder as determined below. +(a) On any date on which shares of +Common Stock are readily tradable on an Established Securities Market, if the Common Stock is admitted to trading on an exchange or market for which closing prices are reported on any date, Fair Market Value may be determined based on the last sale +before or the first sale after the Date of Grant of an Award; the closing price on the trading day before the Date of Grant of an Award or on the Date of Grant; or may be based on an average selling price during a specified period that is within 30 +days before or 30 days after the Date of Grant of an Award, provided that the commitment to grant an Award based on that valuation method must be irrevocable before the beginning of the specified period, and the valuation method must be used +consistently for grants of Awards under the same and substantially similar programs. +(b) If the Common Stock is readily +tradable on an Established Securities Market but closing prices are not reported, Fair Market Value may be determined based upon the average of the highest bid and lowest asked prices of the Common Stock reported on the trading day before the Date +of Grant of an Award or on the Date of Grant; or may be based upon an average of the highest bid and lowest asked prices during a specified period that is within 30 days before or 30 days after the Date of Grant of an Award, provided that the +commitment to grant an Award based on that valuation method must be irrevocable before the beginning of the specified period, and the valuation method must be used consistently for grants of Awards under the same and substantially similar programs. +(c) If the Common Stock is not readily tradable on an Established Securities Market, the Administrator shall determine the +Fair Market Value through the reasonable application of a reasonable valuation method based on the facts and circumstances as of the valuation date, including, at the election of the Administrator, by an independent appraisal that meets the +requirements of Code Section 401(a)(28)(C) and the regulations issued thereunder as of a date that is no more than 12 months before the relevant transaction to which the valuation is applied (for example, an Option’s Date of Grant), and +that determination will be conclusive and binding on all Persons. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 4 +Table of Contents +2.26 “ Free Standing SAR ” has the meaning set forth in +Section 7.3 (a). +2.27 “ Incentive Stock Option ” means an Option intended to qualify as an +incentive stock option within the meaning of Section 422 of the Code and the regulations issued thereunder. +2.28 +“ Incumbent Directors ” means individuals who, on the Effective Date, constitute the Board, and any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was +approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which that person is named as a nominee for Director without objection to the +nomination) will be an Incumbent Director. No individual initially elected or nominated as a Director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened +solicitation of proxies by or on behalf of any person other than the Board will be an Incumbent Director. +2.29 +“ Insider ” means an individual subject to Section 16 of the Exchange Act and includes an Officer, a Director or any other person who is directly or indirectly the Beneficial Owner of more than 10% of any class of any +equity security of the Company (other than an exempted security) that is registered pursuant to Section 12 of the Exchange Act. +2.30 “ Market Standoff ” has the meaning set forth in Article 14 . +2.31 “ Non-Employee Director ” means a Director who is a “non-employee director” within the meaning of Rule 16b-3. +2.32 “ Nonstatutory Stock Option ” means an Option not intended to qualify as an Incentive Stock Option. +2.33 “ Officer ” means (a) before the first date on which any security of the Company is +registered under Section 12 of the Exchange Act, any person designated by the Company as an officer; and (b) on and after the first date on which any security of the Company is registered under Section 12 of the Exchange Act, a person +who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations issued thereunder. +2.34 “ Option ” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan. +2.35 “ Option Agreement ” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement +will be subject to the terms and conditions of the Plan and need not be identical. +2.36 +“ Optionholder ” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. +2.37 “ Outside Director ” means a Director who is an “outside director” within the meaning of Section 162(m) of the Code and Treasury Regulation section +1.162-27(e)(3). +2.38 “ Participant ” means a person to whom an Award is granted pursuant to the Plan +or, if applicable, such other person who holds an outstanding Award. +2.39 “ Performance Award ” means +an Award granted pursuant to Section 7.2 . +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 5 +Table of Contents +2.40 “ Permitted Transferee ” means (a) any spouse, parents, +siblings (by blood, marriage or adoption) or lineal descendants (by blood, marriage or adoption) of a Participant; (b) any trust or other similar entity for the benefit of a Participant or the Participant’s spouse, parents, siblings or +lineal descendants; except and on condition that any transfer made by a Participant to a Permitted Transferee may only be made if the Permitted Transferee, prior to the time of transfer of stock, agrees in writing to be bound by the terms of the +Plan and provides written notice to the Company of the transfer. +2.41 “ Person ” means an individual, +partnership, limited liability company, corporation, association, joint stock company, trust, joint venture, labor organization, unincorporated organization, governmental entity or political subdivision thereof or any other entity, and includes a +syndicate or group as those terms are used in Section 13(d)(3) or 14(d)(2) of the Exchange Act. +2.42 +“ Plan ” means this Gulfport Energy Corporation 2013 Restated Stock Incentive Plan. Prior to this amendment and restatement, the Plan was known as the Gulfport Energy Corporation 2005 Stock Incentive Plan. +2.43 “ Prior Plan ” means the Gulfport Energy Corporation 1999 Stock Option Plan. +2.44 “ Prohibited Personal Loan ” means any direct or indirect extension of credit or arrangement of an extension +of credit to a Director or executive officer (or equivalent thereof) by the Company or a Related Company that is prohibited by Section 402(a) of the Sarbanes-Oxley Act (codified as Section 13(k) of the Exchange Act). +2.45 “ Related Company ” means any parent corporation or subsidiary corporation of the Company, whether now or +hereafter existing, as those terms are defined in Code Sections 424(e) and (f), respectively. +2.46 “ Restricted +Award ” means any Award granted pursuant to Section 7.1 , including Restricted Stock and Restricted Stock Units. +2.47 “ Restricted Period ” has the meaning set forth in Section 7.1 . +2.48 “ Restricted Stock ” has the meaning set forth in Section 7.1 . +2.49 “ Restricted Stock Unit ” means a hypothetical Common Stock unit having a value equal to the Fair Market Value of an identical number of shares of Common Stock as determined in +Section 7.1 . +2.50 “ Right of Repurchase ” means the Company’s option to repurchase +unvested Common Stock acquired under the Plan upon the Participant’s termination of Continuous Service pursuant to Section 10.7 . +2.51 “ Rule 16b-3 ” means Rule 16b-3 issued under the Exchange Act or any successor to Rule 16b-3. +2.52 “ Securities Act ” means the Securities Act of 1933, as amended. +2.53 “ Stock Appreciation Right ” or “ SAR ” means the right pursuant to an Award granted under Section 7.3 to receive an amount equal to the +excess, if any, of (a) the Fair Market Value, as of the date the Stock Appreciation Right or portion thereof is surrendered, of the shares of Common Stock covered by the right or portion thereof, over (b) the aggregate Strike Price of the +right or portion thereof. +2.54 “ Stock for Stock Exchange ” has the meaning set forth in +Section 6.3 . +2.55 “ Strike Price ” means the threshold value per share of Common Stock, the +excess over which will be payable upon exercise of a Stock Appreciation Right, as determined by the Administrator pursuant to Section 7.3(d) and set forth in the Award Agreement for a Stock Appreciation Right. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 6 +Table of Contents +2.56 “ Surviving Entity ” means the Company if immediately following +any merger, consolidation or similar transaction, the holders of outstanding voting securities of the Company immediately prior to the merger or consolidation own equity securities possessing more than 50% of the voting power of the entity existing +following the merger, consolidation or similar transaction. In all other cases, the other entity to the transaction and not the Company will be the Surviving Entity. In making the determination of ownership by the stockholders of an entity +immediately after a merger, consolidation or similar transaction, equity securities that the stockholders owned immediately before the merger, consolidation or similar transaction as stockholders of another party to the transaction will be +disregarded. Further, outstanding voting securities of an entity will be calculated by assuming the conversion of all equity securities convertible (immediately or at some future time whether or not contingent on the satisfaction of performance +goals) into shares entitled to vote. +2.57 “ Tandem SAR ” has the meaning set forth in +Section 7.3 (a). +2.58 “ Ten Percent Stockholder ” means a person who owns (or is deemed to +own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its Related Companies. +ARTICLE 3 ADMINISTRATION +3.1 Administration by Board . The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3.5 . +3.2 Authority of Administrator . The Administrator will have the power and authority to select Participants and grant Awards +pursuant to the terms of the Plan. +3.3 Specific Authority . In particular, the Administrator will have the authority +to: +(a) construe and interpret the Plan and apply its provisions; +(b) promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; +(c) authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; +(d) delegate its authority to one or more Officers of the Company with respect to Awards that do not involve Covered Employees or +Insiders, which delegation shall be pursuant to a resolution that specifies the total number of shares of Common Stock that may be subject to Awards by the Officer and the Officer may not make an Award to himself or herself; +(e) determine when Awards are to be granted under the Plan; +(f) select, subject to the limitations set forth in the Plan, those Participants to whom Awards will be granted; +(g) determine the number of shares of Common Stock to be made subject to each Award; +(h) determine whether each Option is to be an Incentive Stock Option or a Nonstatutory Stock Option; +(i) prescribe the terms and conditions of each Award, including, without limitation, the Strike Price or Exercise Price and medium of payment, vesting provisions and Right of Repurchase provisions, and to +specify the provisions of the Award Agreement relating to the grant or sale; +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 7 +Table of Contents +(j) subject to the restrictions applicable under Section 12.4 , amend any +outstanding Awards, including for the purpose of modifying the time or manner of vesting, the purchase price, Exercise Price or Strike Price or the term of any outstanding Award; except that if any such amendment impairs a Participant’s rights +or increases a Participant’s obligations under his or her Award, the amendment will also be subject to the Participant’s consent (for the avoidance of doubt, a cancellation of an Award where the Participant receives a payment equal in +value to the Fair Market Value of the vested Award or, in the case of vested Options, the difference between the Fair Market Value of the Common Stock subject to an Option and the Exercise Price, will not constitute an impairment of the +Participant’s rights that requires consent); +(k) determine the duration and purpose of leaves of absences that may be +granted to a Participant without constituting termination of their Continuous Service for purposes of the Plan, which periods will be no shorter than the periods generally applicable to Employees under the Company’s employment policies or as +required under applicable law; +(l) make decisions with respect to outstanding Awards that may become necessary upon a Change +in Control or an event that triggers capital adjustments; and +(m) exercise discretion to make any and all other +determinations that it may determine to be necessary or advisable for administration of the Plan. +3.4 Decisions Final . +All decisions made by the Administrator pursuant to the provisions of the Plan will be final and binding on the Company and the Participants, unless such decisions are determined by a court having jurisdiction to be arbitrary and capricious. +3.5 The Committee . +(a) General . The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term “ Committee ” will apply to any +person or persons to whom that authority has been delegated. If administration is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the +power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in the Plan to the Board or the Administrator will thereafter be to the Committee or subcommittee), subject, however, to +such resolutions, consistent with the provisions of the Plan, as the Board may adopt. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. The members of the Committee will be appointed by and serve +at the pleasure of the Board. The Board may increase or decrease the size of the Committee, add additional members to, remove members (with or without cause) from, appoint new members in substitution therefor, and fill vacancies, however caused, in +the Committee. The Committee shall act pursuant to a vote of the majority of its members or, in the case of a Committee comprised of only two members, the unanimous consent of its members, whether present or not, or by the written consent of the +majority of its members and shall keep minutes of all of its meetings. Subject to the limitations prescribed by the Plan and the Board, the Committee shall establish and follow such rules and regulations for the conduct of its business as it may +determine to be advisable. +(b) Committee Composition when Common Stock is Registered . Whenever the Common Stock is +required to be registered under Section 12 of the Exchange Act, in the discretion of the Board, a Committee may consist solely of two or more Non-Employee Directors who are also Outside Directors. The Board will have discretion to determine +whether or not it intends to comply with the exemption requirements of Rule 16b-3, Code Section 162(m), or both. If, however, the Board intends to satisfy those exemption requirements, with respect to Awards to any Covered Employee or to any +Officer or Director, the Committee must at all times consist solely of two or more Non-Employee Directors who are also Outside Directors. Within the scope of that authority, the Board or the Committee may (i) delegate to a committee of one or +more members of the Board who are not Outside Directors the authority to grant Awards to eligible persons who are either (A) not then Covered +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 8 +Table of Contents +Employees and are not expected to be Covered Employees at the time of recognition of income resulting from the Award or (B) not persons with respect to whom the Company wishes to comply with +Code Section 162(m); or (ii) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Awards to eligible persons who are not then Insiders. Nothing in this Plan is intended to +create an inference that an Award is not validly granted under the Plan in the event Awards are granted under the Plan by a committee of the Board that does not at all times consist solely of two or more Non-Employee Directors who are also Outside +Directors. +3.6 Indemnification . In addition to such other rights of indemnification as they may have as Directors or +members of the Committee, and to the extent allowed by applicable law, the Company shall indemnify the Administrator against the reasonable expenses, including attorney’s fees, actually incurred in connection with any action, suit or proceeding +or in connection with any appeal therein, to which the Administrator may be party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted under the Plan, and against all amounts paid by the +Administrator in settlement thereof (subject, however, to the Company’s approval of the settlement, which approval the Company shall not unreasonably withhold) or paid by the Administrator in satisfaction of a judgment in any such action, suit +or proceeding, except in relation to matters as to which it is adjudged in the action, suit or proceeding that the Administrator did not act in good faith and in a manner that the person reasonably believed to be in the best interests of the +Company, and in the case of a criminal proceeding, had no reason to believe that the conduct complained of was lawful. Notwithstanding the foregoing, it is a condition precedent to the Company’s obligations in this Section 3.6 that +within 60 days after institution of any such action, suit or proceeding, the Administrator or Committee member shall, in writing, offer the Company the opportunity at its own expense to handle and defend the action, suit or proceeding. +ARTICLE 4 SHARES SUBJECT TO THE PLAN +4.1 Share Reserve . Subject to adjustment pursuant to Section 11.1 , the maximum aggregate number of shares of Common Stock that may be issued upon exercise of all Awards under the Plan +is 7,500,000 shares, all of which may be used for Incentive Stock Options or any other Awards. Prior to this amendment and restatement, an aggregate of 3,000,000 Shares were reserved for issuance under the Plan, which included 627,337 shares +underlying outstanding options granted to Employees under the Prior Plan prior to the original Effective Date of this Plan. This amendment and restatement authorizes an additional 4,500,000 Shares that may be issued in connection with Awards under +the Plan. +4.2 Reversion of Shares to the Share Reserve . If any Award for any reason is forfeited, cancelled, expires +or otherwise terminates without exercise or settlement, in whole or in part, the shares of Common Stock not acquired under the Award will revert to and again become available for issuance under the Plan. If the Company reacquires shares of Common +Stock issued under the Plan pursuant to the terms of any forfeiture provision, including the Right of Repurchase of unvested Common Stock under Section 10.7 , those shares will again be available for purposes of the Plan. Each share of +Common Stock subject to any Award granted hereunder will be counted against the share reserve set forth in Section 4.1 on the basis of one share for every share subject thereto. Notwithstanding anything in the Plan to the contrary, +shares of Common Stock used to pay the required Exercise Price or tax obligations or shares not issued in connection with settlement of an Option or SAR or that are used or withheld to satisfy tax obligations of the Participant, will not be +available again for other Awards under the Plan. Awards, or portions thereof, that are settled in cash and not in shares of Common Stock will not be counted against the foregoing maximum share limitations. Any shares of Common Stock attributable to +options that are forfeited, cancelled, expire unexercised or are settled in cash instead of stock under the Prior Plan will be available, subject to the limitations set forth in this Article 4 , for issuance under the Plan. +4.3 Source of Shares . The shares that may be issued pursuant to Awards will consist of shares of the Company’s authorized but +unissued Common Stock and any shares of the Common Stock held by the Company as treasury shares. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 9 +Table of Contents +ARTICLE 5 ELIGIBILITY +5.1 Eligibility for Specific Awards . Incentive Stock Options may be granted only to Employees. Awards other than Incentive Stock +Options may be granted to Employees, Directors and Consultants. +5.2 Ten Percent Stockholders . An Incentive Stock +Option granted to a Ten Percent Stockholder must have an Exercise Price no less than 110% of the Fair Market Value of the Common Stock at the Date of Grant and must not be exercisable after the expiration of five years from the Date of Grant. +5.3 Section 162(m) Limitation . Subject to the provisions of Section 11.1 relating to adjustments upon +changes in the shares of Common Stock, no Person will be eligible to be granted Awards (including, without limitation, Options and SARs) covering more than 1,000,000 shares in the aggregate during any calendar year. +5.4 Directors . Each Director of the Company who is not an Employee will be eligible to receive discretionary grants of Awards +under the Plan. If the Board or the compensation committee of the Board separately has adopted or in the future adopts a compensation policy covering some or all Directors that provides for a predetermined formula grant that specifies the type of +Award, the timing of the Date of Grant and the number of shares to be awarded under the terms of the Plan, that formula grant will be incorporated by reference and will be administered as if those terms were provided under the terms of the Plan +without any requirement that the Administrator separately take action to determine the terms of those Awards. Notwithstanding the foregoing, no Director who is not an Employee will be eligible to be granted Awards covering more than 25,000 shares in +the aggregate during any calendar year. +ARTICLE 6 OPTION PROVISIONS +Each Option will be in such form and will contain such terms and conditions as the Administrator deems appropriate. All Options will be +separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of +Option. Notwithstanding the foregoing, the Company will have no liability to any Participant or any other person if an Option designated as an Incentive Stock Option fails to qualify as an Incentive Stock Option at any time. The provisions of +separate Options need not be identical, but each Option will include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: +6.1 Term . Subject to the provisions of Section 5.2 regarding Ten Percent Stockholders, no Option will be exercisable +after the expiration of 10 years from the Date of Grant. +6.2 Exercise Price . The exercise price per share of Common +Stock for each Option (the “ Exercise Price ”) will not be less than 100% of the Fair Market Value per share on the Date of Grant; except that in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, the +Exercise Price will be no less than 110% of the Fair Market Value per share of Common Stock on the Date of Grant. Notwithstanding the foregoing, an Option granted pursuant to an assumption or substitution for another stock option in a manner +satisfying the provisions of Section 424(a) of the Code, as if the Option was a statutory stock option, may be granted with an Exercise Price lower than the Fair Market Value per share on the Date of Grant. +6.3 Consideration . The Optionholder shall pay the Exercise Price of Common Stock acquired pursuant to an Option, to the extent +permitted by applicable statutes and regulations, either (a) in cash or by certified or bank check at the time the Option is exercised, or (b) in the Administrator’s discretion and upon such terms as the Administrator approves: +(i) by delivery to the Company of other Common Stock, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the Exercise Price (or portion thereof) +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 10 +Table of Contents +due for the number of shares being acquired or by means of attestation whereby the Participant identifies for delivery specific shares of Common Stock held by the Participant that have a Fair +Market Value on the date of attestation equal to the Exercise Price (or portion thereof) and receives a number of shares of Common Stock equal to the difference between the number of shares thereby purchased and the number of identified attestation +shares of Common Stock (a “ Stock for Stock Exchange ”); (ii) during any period for which the Common Stock is readily tradable on an Established Securities Market, by a copy of instructions to a broker directing the broker +to sell the Common Stock for which the Option is exercised and to remit to the Company the aggregate Exercise Price of the Option (a “ Cashless Exercise ”); (iii) subject to the Administrator’s discretion and on such +terms as the Administrator may approve, by notice of exercise including a statement directing the Company to retain the number of shares of Common Stock from any transfer to the Optionholder (“ Share Withholding ”) that +otherwise would have been delivered by the Company on exercise of the Option having a Fair Market Value equal to all or part of the exercise price of the Option exercise, in which case the Option will be deemed surrendered and cancelled with respect +to the number of shares retained by the Company; or (iv) in any other form of legal consideration that may be acceptable to the Administrator, including without limitation with a full-recourse promissory note; except that, if applicable law +requires, the Optionholder shall pay the par value (if any) of Common Stock, if newly issued, in cash or cash equivalents. The interest rate payable under the terms of the promissory note may not be less than the minimum rate (if any) required to +avoid the imputation of additional interest under the Code. Subject to the foregoing, the Administrator (in its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of the note. Unless the +Administrator determines otherwise, the holder shall pledge to the Company shares of Common Stock having a Fair Market Value at least equal to the principal amount of the loan as security for payment of the unpaid balance of the loan, which pledge +must be evidenced by a pledge agreement, the terms of which the Administrator shall determine, in its discretion; except that each loan must comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve +System and any other governmental agency having jurisdiction. Unless the Administrator determines otherwise, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery (or attestation) to the Company of other shares +of Common Stock acquired, directly or indirectly from the Company, will be paid only by shares of Common Stock that satisfy any requirements necessary to avoid liability award accounting treatment. Notwithstanding the foregoing, during any period +for which the Company has any class of its securities listed on a national securities exchange in the United States, has securities registered under Section 12 of the Exchange Act, is required to file reports under Section 13(a) or 15(d) +of the Exchange Act or has a registration statement pending under the Securities Act, an exercise with a promissory note or other transaction by an Optionholder that involves or may involve a Prohibited Personal Loan is prohibited with respect to +any Option under the Plan. Unless otherwise provided in the terms of an Option Agreement, payment of the Exercise Price by a Participant who is an Insider in the form of a Stock for Stock Exchange is subject to pre-approval by the Administrator, in +its sole discretion. The Administrator shall document any such pre-approval in the case of a Participant who is an Officer or Director in a manner that complies with the specificity requirements of Rule 16b-3, including the name of the Participant +involved in the transaction, the nature of the transaction, the number of shares to be acquired or disposed of by the Participant and the material terms of the Options involved in the transaction. +6.4 Transferability of an Incentive Stock Option . An Incentive Stock Option will not be transferable except by will or by the laws +of descent and distribution and will be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the +Company, designate a third party who, upon the death of the Optionholder, will thereafter be entitled to exercise the Option. +6.5 Transferability of a Nonstatutory Stock Option . A Nonstatutory Stock Option may, in the sole discretion of the Administrator, +be transferable to a Permitted Transferee upon written approval by the Administrator to the extent provided in the Option Agreement. A Permitted Transferee includes: (a) a transfer by gift or domestic relations order to a member of the +Optionholder’s immediate family (child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 11 +Table of Contents +father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships), any person sharing the Optionholder’s household (other than a tenant or +employee), a trust in which these persons (or the Optionholder) have more than 50% of the beneficial interest, a foundation in which these persons (or the Optionholder) control the management of assets, and any other entity in which these persons +(or the Optionholder) own more than 50% of the voting interests; (b) third parties designated by the Administrator in connection with a program established and approved by the Administrator pursuant to which Participants may receive a cash +payment or other consideration in consideration for the transfer of the Nonstatutory Stock Option; and (c) such other transferees as may be permitted by the Administrator in its sole discretion. If the Nonstatutory Stock Option does not provide +for transferability, then the Nonstatutory Stock Option will not be transferable except by will or by the laws of descent and distribution and will be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the +foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, upon the death of the Optionholder, will thereafter be entitled to exercise the Option. +6.6 Vesting Generally . The Option may, but need not, vest and therefore become exercisable in periodic installments that may, but +need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Administrator may deem appropriate. The vesting provisions of +individual Options may vary. The Administrator may, but will not be required to, provide that no Option may be exercised for a fraction of a share of Common Stock. The Administrator may, but will not be required to, provide for an acceleration of +vesting and exercisability in the terms of any Option Agreement upon the occurrence of a specified event. Unless otherwise specified in the terms of any Option Agreement, each Option granted pursuant to the terms of the Plan will become exercisable +at a rate of 33.333% per year over the three-year period commencing on the Date of Grant of the Option. +6.7 +Termination of Continuous Service . Unless otherwise provided in an Option Agreement or in an employment or service agreement the terms of which have been approved by the Administrator, if an Optionholder’s Continuous Service terminates +(other than upon the Optionholder’s death or Disability or termination by the Company for Cause), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise the Option as of the date of +termination) but only within the period ending on the earlier of (a) the date three months following the termination of the Optionholder’s Continuous Service, or (b) the expiration of the term of the Option as set forth in the Option +Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option will terminate. Unless otherwise provided in an Option Agreement or in an employment or service +agreement the terms of which have been approved by the Administrator, or as otherwise provided in Sections 6.8 , 6.9 and 6.10 , outstanding Options that are not exercisable at the time an Optionholder’s Continuous Service +terminates for any reason other than for Cause (including an Optionholder’s death or Disability) will be forfeited and expire at the close of business on the date of termination. If the Optionholder’s Continuous Service terminates for +Cause, all outstanding Options (whether or not vested) will be forfeited and expire as of the beginning of business on the date of termination for Cause. +6.8 Extension of Termination Date . An Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service for any reason +(other than upon the Optionholder’s death or Disability or termination by the Company for Cause) would violate any applicable federal, state or local law, the Option will terminate on the earlier of (a) the expiration of the term of the +Option in accordance with Section 6.1 , or (b) the date that is 30 days after the exercise of the Option would no longer violate any applicable federal, state or local law. +6.9 Disability of Optionholder . Unless otherwise provided in an Option Agreement or in an employment or service agreement the +terms of which have been approved by the Administrator, if an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 12 +Table of Contents +(to the extent that the Optionholder was entitled to exercise the Option as of the date of termination), but only within the period ending on the earlier of (a) the date 12 months following +termination, or (b) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in this Section 6.9 , the Option +will terminate. +6.10 Death of Optionholder . Unless otherwise provided in an Option Agreement or in an employment or +service agreement the terms of which have been approved by the Administrator, if an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, then the Option may be exercised (to the extent the Optionholder was +entitled to exercise the Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the +Optionholder’s death, but only within the period ending on the earlier of (a) the date 12 months following the date of death, or (b) the expiration of the term of the Option as set forth in the Option Agreement. If, after death, the +Option is not exercised within the time specified this Section 6.10 , the Option will terminate. +6.11 Incentive +Stock Option $100,000 Limitation . To the extent that the aggregate Fair Market Value of Common Stock on the Date of Grant with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar +year (under all plans of the Company and its Related Companies) exceeds $100,000, the Options or portions thereof which exceed that limit (according to the order in which they were granted) will be treated as Nonstatutory Stock Options. +6.12 Early Exercise . The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the +Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. In that case, the shares of Common Stock acquired on exercise +will be subject to the vesting schedule that otherwise would apply to determine the exercisability of the Option. Any unvested shares of Common Stock so purchased may be subject to any other restriction the Administrator determines to be +appropriate. +6.13 Transfer, Approved Leave of Absence . For purposes of Incentive Stock Options, no termination of +employment by an Employee will be deemed to result from either (a) a transfer to the employment of the Company from a Related Company, from the Company to a Related Company or from one Related Company to another; or (b) an approved leave +of absence for military service or sickness or for any other purpose approved by the Company, if the period of leave does not exceed three months or, if longer, the Employee’s right to re-employment is guaranteed either by a statute or by +contract. +6.14 Disqualifying Dispositions . Any Participant who makes a “disposition” (as defined in +Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years from the Date of Grant of the Incentive Stock Option or within one year after the issuance of the +shares of Common Stock acquired upon exercise of the Incentive Stock Option will be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of those shares of Common Stock. +ARTICLE 7 PROVISIONS OF AWARDS OTHER THAN OPTIONS +7.1 Restricted Awards . A Restricted Award is an Award of actual shares of Common Stock (“ Restricted +Stock ”) or hypothetical Common Stock units (“ Restricted Stock Units ”) having a value equal to the Fair Market Value of an identical number of shares of Common Stock, which may, but need not, provide that the +Restricted Award may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose for the period (the +“ Restricted Period ”) determined by the Administrator. Each Restricted Award will be in such form and will contain terms, conditions, and Restricted Periods as the Administrator deems appropriate, including the treatment of +dividends +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 13 +Table of Contents +or dividend equivalents, as the case may be. The Administrator in its discretion may provide for the acceleration of the end of the Restricted Period in the terms of any Restricted Award, at any +time, including in the event of a Change in Control. The terms and conditions of the Restricted Award may change from time to time, and the terms and conditions of separate Restricted Awards need not be identical, but each Restricted Award must +include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: +(a) Purchase Price . The purchase price of Restricted Awards, if any, will be determined by the Administrator, and may be stated as cash, property or prior or future services. Shares of Common Stock +acquired in connection with any Restricted Award may be issued for such consideration, having a value not less than the par value thereof, as determined by the Administrator. +(b) Consideration . The Participant shall pay the consideration for Common Stock acquired pursuant to the Restricted Award either: (i) in cash at the time of purchase; or (ii) in any other +form of legal consideration that may be acceptable to the Administrator in its discretion including, without limitation, a recourse promissory note, property, a Stock for Stock Exchange or prior or future services that the Administrator determines +have a value at least equal to the Fair Market Value of the Common Stock. Notwithstanding the foregoing, during any period for which the Company has any class of its securities listed on a national securities exchange in the United States, has +securities registered under Section 12 of the Exchange Act, is required to file reports under Section 13(a) or 15(d) of the Exchange Act or has a registration statement pending under the Securities Act, payment with a promissory note or +other transaction by a Participant that involves or may involve a Prohibited Personal Loan is prohibited with respect to any Restricted Award under the Plan. +(c) Vesting . The Restricted Award, and any shares of Common Stock acquired under the Restricted Award, may, but need not, be subject to a Restricted Period that specifies a Right of Repurchase in +favor of the Company, or forfeiture where the consideration was in the form of services, in accordance with a vesting schedule to be determined by the Administrator. The Administrator in its discretion may provide for an acceleration of vesting in +the terms of any Restricted Award, at any time, including upon a Change in Control. The Administrator in its discretion may grant a Restricted Award that is, in whole or in part, vested upon grant and not subject to a Restricted Period. +(d) Termination of Participant’s Continuous Service . Unless otherwise provided in a Restricted Award or in an employment or +service agreement the terms of which have been approved by the Administrator, if a Participant’s Continuous Service terminates for any reason, the Company may exercise its Right of Repurchase or otherwise reacquire, or the Participant shall +forfeit, the unvested portion of a Restricted Award acquired in consideration of services, and any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Restricted +Award will be forfeited and the Participant will have no rights with respect to the Award. +(e) Transferability . Rights +to acquire shares of Common Stock under the Restricted Award will be transferable by the Participant only upon the terms and conditions set forth in the Award Agreement, as the Administrator shall determine in its discretion, so long as Common Stock +awarded under the Restricted Award remains subject to the terms of the Award Agreement. +(f) Concurrent Tax Payment . +The Administrator, in its sole discretion, may (but will not be required to) provide for payment of a concurrent cash award in an amount equal, in whole or in part, to the estimated after-tax amount required to satisfy applicable federal, state or +local tax withholding obligations arising from the receipt and deemed vesting of Restricted Stock for which an election under Code Section 83(b) may be required. +(g) Lapse of Restrictions . Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Administrator (including, without limitation, +the Participant’s satisfaction of applicable tax withholding obligations attributable to the Award), the restrictions applicable to the Restricted Award will lapse and a stock certificate for the number of shares of Common Stock +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 14 +Table of Contents +with respect to which the restrictions have lapsed will be delivered, free of any restrictions except those that may be imposed by law, the terms of the Plan or the terms of a Restricted Award, +to the Participant or the Participant’s beneficiary or estate, as the case may be, unless the Restricted Award is subject to a deferral condition that complies with Section 409A of the Code and the regulations thereunder as may be allowed +or required by the Administrator in its sole discretion. The Company will not be required to deliver any fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value of the fractional share in cash to the Participant or the +Participant’s beneficiary or estate, as the case may be. With respect only to Restricted Stock Units, unless otherwise subject to a deferral condition that complies with Section 409A of the Code, the Common Stock certificate will be issued +and delivered and the Participant will be entitled to the beneficial ownership rights of the Common Stock not later than (i) the date that is +2 1 / 2 months after the end of the Participant’s taxable year (or the end of the Company’s taxable year, if later) for which the Restricted Period ends and the Restricted Stock Unit is no longer +subject to a substantial risk of forfeiture, or (ii) such earlier date as may be necessary to avoid application of Section 409A of the Code to the Award. +(h) Rights as a Stockholder . Prior to the expiration or termination of the Restricted Period, a Participant who receives an Award of Restricted Stock will have beneficial ownership rights as a +stockholder (voting and dividend rights) only to the extent specified in the Award Agreement. The Award Agreement may specify the extent, if any, of Participant’s voting and dividend rights under the Restricted Stock prior to the expiration or +termination of the Restricted Period, including whether dividends attributable to unvested shares of Restricted Stock will be paid currently or withheld until the shares vest. A Participant receiving a Restricted Award that is denominated in +hypothetical Restricted Stock Units will have the rights of a stockholder only as to shares actually received by the Participant. +7.2 Performance Awards . +(a) Nature of Performance Awards . A +Performance Award is an Award entitling the recipient to vest in or acquire shares of Common Stock or hypothetical Common Stock units having a value equal to the Fair Market Value of an identical number of shares of Common Stock that will be settled +in the form of shares of Common Stock upon the attainment of specified performance goals. The Administrator may make Performance Awards independent of or in connection with the granting of any other Award under the Plan. Performance Awards may be +granted under the Plan to any Participant, including those who qualify for awards under other performance plans of the Company. The Administrator in its sole discretion will determine whether and to whom Performance Awards will be made, the +performance goals applicable under each Award, the period or periods during which performance is to be measured, and all other limitations and conditions applicable to Performance Awards. The Administrator, in its discretion, may rely on the +performance goals and other standards applicable to other performance plans of the Company in setting the standards for Performance Awards under the Plan. +(b) Performance Goals . +(i) Performance goals will be based +on a pre-established objective formula or standard that specifies the manner of determining the number of shares of Common Stock under the Performance Award that will be granted or will vest if the performance goal is attained. The Administrator +shall determine the performance goals before the time that 25% of the service period has elapsed, but not later than 90 days after the commencement of the service period to which the performance goal relates. +(ii) Performance goals may be based on one or more of the following business criteria, which may be applied to a +Participant, a business unit or the Company and its Related Companies: revenue; sales; earnings before all or any of interest expense, taxes, depreciation and/or amortization (“EBIT,” “EBITA,” or “EBITDA”); funds from +operations; funds from operations per share; operating income; operating income per share; pre-tax or after-tax income; net cash provided by operating activities; cash available for distribution; cash available for distribution per share; working +capital and components thereof; sales (net or gross) measured by product line, territory, customer or customers or other category; return on equity or +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 15 +Table of Contents +average stockholders’ equity; return on assets; return on capital; enterprise value or economic value added; share price performance; improvements in the Company’s attainment of expense +levels; implementation or completion of critical projects; improvement in cash-flow (before or after tax); net earnings; earnings per share; earnings from continuing operations; net worth; credit rating; levels of expense, cost or liability by +category, operating unit or any other delineation; or any increase or decrease of one or more of the foregoing over a specified period; or the occurrence of a Change in Control. +(iii) A performance goal may be measured over a performance period on a periodic, annual, cumulative or average basis, may +be based on growth rate or compound annual growth rate, and may be established on a corporate-wide basis or with respect to one or more operating units, divisions, subsidiaries, acquired businesses, minority investments, partnerships or joint +ventures. More than one performance goal may be incorporated in a performance objective, in which case achievement with respect to each performance goal may be assessed individually or in combination with each other. The Administrator may, in +connection with the establishment of performance goals for a performance period, establish a matrix setting forth the relationship between performance on two or more performance goals and the amount of the Performance Award payable for that +performance period. The level or levels of performance specified with respect to a performance goal may be established in absolute terms, as objectives relative to performance in prior periods, as an objective compared to the performance of one or +more comparable companies or an index covering multiple companies or otherwise as the Administrator may determine. The Administrator also may establish certain objective specified adjustments at the time the performance goals are established. +(iv) Performance goals will be objective and, if the Company is required to be registered under +Section 12 of the Exchange Act, will otherwise meet the requirements of Section 162(m) of the Code. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants. A Performance Award to a +Participant who is a Covered Employee will (unless the Administrator determines otherwise) provide that if the Participant’s Continuous Service ceases prior to the end of the performance period for any reason, the Award will be payable only +(A) if the applicable performance objectives are achieved; and (B) to the extent, if any, determined by the Administrator. These objective performance goals are not required to be based on increases in a specific business criterion, but +may be based on maintaining the status quo or limiting economic losses. With respect to Participants who are not Covered Employees, the Administrator may establish additional objective or subjective performance goals. +(c) Restrictions on Transfer . Performance Awards and all rights with respect to the Performance Awards may not be sold, assigned, +transferred, pledged or otherwise encumbered. +(d) Satisfaction of Performance Goals . A Participant +will be entitled to receive a stock certificate evidencing the acquisition of shares of Common Stock under a Performance Award only upon satisfaction of all conditions specified in the written instrument evidencing the Performance Award (or in a +performance plan adopted by the Administrator), including, without limitation, the Participant’s satisfaction of applicable tax withholding obligations attributable to the Award. With respect only to a Performance Award that is denominated in +hypothetical Common Stock units, the Common Stock certificate will be issued and delivered and the Participant will be entitled to the beneficial ownership rights of the Common Stock not later than (i) the date that is 2 1 / 2 months after the end of the Participant’s taxable year (or the end of the Company’s taxable year, if later) for which the Administrator certifies that the Performance Award conditions have been +satisfied and the Performance Award is no longer subject to a substantial risk of forfeiture, and (ii) such earlier date as may be necessary to avoid application of Section 409A of the Code to the Award. +(e) Termination . Except as may otherwise be provided by the Administrator at any time, a Participant’s rights in all +Performance Awards will automatically terminate upon the Participant’s termination of employment (or business relationship) with the Company and its Related Companies for any reason. +(f) Acceleration, Waiver, Etc . With respect to Participants who are not Covered Employees, at any time before the +Participant’s termination of Continuous Service by the Company and its Related Companies, the Administrator may in its sole discretion accelerate, waive or, subject to Article 12 hereof, amend any or all of the +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 16 +Table of Contents +goals, restrictions or conditions imposed under any Performance Award. The Administrator in its discretion may provide for an acceleration of vesting in the terms of any Performance Award at any +time, including upon a Change in Control. Notwithstanding the foregoing, with respect to a Covered Employee, no amendment or waiver of the performance goal will be permitted, and no acceleration of payment (other than in the form of unvested Common +Stock) will be permitted (except in the event of the Participant’s death, Disability or upon the occurrence of a Change in Control) unless the performance goal has been attained and the Award is discounted to reasonably reflect the time value +of money attributable to the acceleration. +(g) Certification . Following the completion of each performance period, the +Administrator shall certify in writing, in accordance with the requirements of Section 162(m) of the Code, whether the performance objectives and other material terms of a Performance Award have been achieved or met. Unless the Administrator +determines otherwise, Performance Awards will not be settled until the Administrator has made the certification specified under this Section 7.2(g) . +7.3 Stock Appreciation Rights . +(a) General . Stock Appreciation +Rights may be granted either alone (“ Free Standing SARs ”) or, if the requirements of Section 7.3(b) are satisfied, in tandem with all or part of any Option granted under the Plan (“ Tandem +SARs ”). In the case of a Nonstatutory Stock Option, Tandem SARs may be granted either at or after the time of the grant of the Option. In the case of an Incentive Stock Option, Tandem SARs may be granted only at the time of the grant of +the Incentive Stock Option. +(b) Grant Requirements . A Stock Appreciation Right may only be granted if it does not +provide for the deferral of compensation within the meaning of Section 409A of the Code. A Stock Appreciation Right does not provide for a deferral of compensation if: (i) the Strike Price may never be less than the Fair Market Value per +share of Common Stock on the Date of Grant, (ii) the compensation payable under the Stock Appreciation Right can never be greater than the difference between the Strike Price and the Fair Market Value per share of Common Stock on the date the +Stock Appreciation Right is exercised, (iii) the number of shares of Common Stock subject to the Stock Appreciation Right is fixed on the Date of Grant of the Stock Appreciation Right, and (iv) the Stock Appreciation Right does not include +any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the right. +(c) Exercise and Payment . Upon delivery to the Administrator of a written request to exercise a Stock Appreciation Right, the +holder of the Stock Appreciation Right will be entitled to receive from the Company, an amount equal to the product of (i) the excess of the Fair Market Value, on the date of exercise, of one share of Common Stock over the Strike Price per +share specified in the Stock Appreciation Right or its related Option; multiplied by (ii) the number of shares for which the Stock Appreciation Right is exercised. Payment with respect to the exercise of a Stock Appreciation Right will be paid +on the date of exercise and made in shares of Common Stock valued at Fair Market Value on the date of exercise. Payment may be made in the form of shares of Common Stock (with or without restrictions as to substantial risk of forfeiture and +transferability, as determined by the Administrator in its sole discretion), cash or a combination thereof, as determined by the Administrator in its sole discretion. +(d) Strike Price . The Administrator shall determine the Strike Price of a Free Standing SAR, which may not be less than 100% of the Fair Market Value per share of Common Stock on the Date of Grant +of the Stock Appreciation Right. The Strike Price of a Tandem SAR granted simultaneously with or subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto will be the Exercise Price of the related Option. A +Tandem SAR will be transferable only upon the same terms and conditions as the related Option, and will be exercisable only to the same extent as the related Option; except that a Tandem SAR, by its terms, will be exercisable only when the Fair +Market Value per share of Common Stock subject to the Tandem SAR and related Option exceeds the Strike Price per share thereof. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 17 +Table of Contents +(e) Reduction in the Underlying Option Shares . Upon any exercise of a Stock +Appreciation Right, the number of shares of Common Stock for which any related Option will be exercisable will be reduced by the number of shares for which the Stock Appreciation Right has been exercised. The number of shares of Common Stock for +which a Tandem SAR is exercisable will be reduced upon any exercise of any related Option by the number of shares of Common Stock for which the Option has been exercised. +(f) Written Request . Unless otherwise determined by the Administrator in its sole discretion, Stock Appreciation Rights will be settled in the form of Common Stock. If permitted in the Award +Agreement, a Participant may request that any exercise of a Stock Appreciation Right be settled for cash, but a Participant will not have any right to demand a cash settlement. A request for a cash settlement may be made only by a written request +filed with the Corporate Secretary of the Company during the period beginning on the third business day following the date of release for publication by the Company of quarterly or annual summary statements of earnings and ending on the twelfth +business day following that date. Within 30 days of the receipt by the Company of a written request to receive cash in full or partial settlement of a Stock Appreciation Right or to exercise the Stock Appreciation Right for cash, the Administrator +shall, in its sole discretion, either consent to or disapprove, in whole or in part, the written request. A written request to receive cash in full or partial settlement of a Stock Appreciation Right or to exercise a Stock Appreciation Right for +cash may provide that, if the Administrator disapproves the written request, the written request will be deemed an exercise of the Stock Appreciation Right for shares of Common Stock. +(g) Disapproval by Administrator . If the Administrator disapproves in whole or in part any request by a Participant to receive +cash in full or partial settlement of a Stock Appreciation Right or to exercise the Stock Appreciation Right for cash, the disapproval will not affect the Participant’s right to exercise the Stock Appreciation Right at a later date, to the +extent that the Stock Appreciation Right will be otherwise exercisable, or to request a cash form of payment at a later date, in each case subject to the approval of the Administrator. Additionally, the disapproval will not affect the +Participant’s right to exercise any related Option. +(h) Restrictions on Transfer . Stock Appreciation Rights and +all rights with respect to Stock Appreciation Rights may not be sold, assigned, transferred, pledged or otherwise encumbered. +ARTICLE 8 COVENANTS OF THE COMPANY +8.1 Availability of Shares . During the terms of the Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy the Awards. +8.2 Securities Law Compliance . Each Award Agreement will provide that no shares of Common Stock may be purchased or sold +thereunder unless and until any then applicable requirements of state, federal or applicable foreign laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. The Company shall use reasonable +efforts to seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Awards and to issue and sell shares of Common Stock upon exercise of Awards; however, this undertaking +will not require the Company to register under the Securities Act the Plan, any Award or any Common Stock issued or issuable pursuant to any Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or +agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock upon exercise of any Awards +unless and until that authority is obtained. +ARTICLE 9 USE OF PROCEEDS FROM STOCK +Proceeds from the sale of Common Stock pursuant to Awards will constitute general funds of the Company. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 18 +Table of Contents +ARTICLE 10 MISCELLANEOUS +10.1 Acceleration of Exercisability and Vesting . The Administrator will have the power to accelerate the time at which an Award +may first be exercised or the time during which an Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Award stating the time at which it may first be exercised or the time during which it will +vest. +10.2 Stockholder Rights . Except as provided in Section 11.1 hereof or as otherwise provided in an +Award Agreement, no Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to an Award unless and until the Participant has satisfied all requirements for +exercise, payment or delivery of the Award, as applicable, pursuant to its terms, and no adjustment will be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the +record date is prior to the date of issue of a Common Stock certificate. +10.3 No Employment or Other Service Rights . +Nothing in the Plan or any instrument executed or Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or a Related Company in the capacity in effect at the time the Award was granted or will +affect the right of the Company or a Related Company to terminate (a) the employment of an Employee with or without notice and with or without Cause; (b) the service of a Consultant pursuant to the terms of the Consultant’s agreement +with the Company or a Related Company; or (c) the service of a Director pursuant to the Bylaws of the Company or a Related Company, and any applicable provisions of the corporate law of the state in which the Company or the Related Company is +incorporated, as the case may be. +10.4 Transfer, Approved Leave of Absence . For purposes of the Plan, no termination +of employment by an Employee will be deemed to result from either (a) a transfer to the employment of the Company from a Related Company, from the Company to a Related Company or from one Related Company to another; or (b) an approved +leave of absence for military service or sickness or for any other purpose approved by the Company, if the period of leave does not exceed three months or, if longer, the Employee’s right to re-employment is guaranteed either by a statute or by +contract. +10.5 Investment Assurances . The Company may require a Participant, as a condition of exercising or acquiring +Common Stock under any Award, (a) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory +to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Award; and (b) to +give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common +Stock. The foregoing requirements, and any assurances given pursuant to those requirements, will be inoperative if (x) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Award has been +registered under a then currently effective registration statement under the Securities Act; or (y) as to any particular requirement, a determination is made by counsel for the Company that that requirement need not be met in the circumstances +under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as that counsel deems necessary or appropriate in order to comply with applicable securities +laws, including, but not limited to, legends restricting the transfer of the Common Stock. +10.6 Withholding +Obligations . To the extent provided by the terms of an Award Agreement and subject to the discretion of the Administrator, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition +of Common Stock under an Award by any one or combination of the following means (in addition to the Company’s right to withhold from any compensation paid to the +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 19 +Table of Contents +Participant by the Company): (a) tendering a cash payment; (b) authorizing the Company to withhold a number of shares of Common Stock from the shares otherwise issuable to the +Participant as a result of the exercise or acquisition of Common Stock under the Award, the Fair Market Value of which does not exceed the minimum amount of tax required to be withheld by law and in which case the Award will be surrendered and +cancelled with respect to the number of shares of Common Stock retained by the Company; (c) delivering to the Company previously owned and unencumbered shares of Common Stock; or (d) by execution of a recourse promissory note by a +Participant. Notwithstanding the foregoing, during any period for which the Company has any class of its securities listed on a national securities exchange in the United States, has securities registered under Section 12 of the Exchange Act, +is required to file reports under Section 13(a) or 15(d) of the Exchange Act or has a registration statement pending under the Securities Act, payment of the tax withholding with a promissory note or other transaction by a Participant that +involves or may involve a Prohibited Personal Loan is prohibited with respect to any Award. Unless otherwise provided in the terms of an Option Agreement, payment of the tax withholding by a Participant who is an Insider by delivering previously +owned and unencumbered shares of Common Stock or in the form of share withholding is subject to pre-approval by the Administrator, in its sole discretion. The Administrator shall document any pre-approval in the case of a Participant who is an +Officer or Director in a manner that complies with the specificity requirements of Rule 16b-3, including the name of the Participant involved in the transaction, the nature of the transaction, the number of shares to be acquired or disposed of by +the Participant and the material terms of the Award involved in the transaction. +10.7 Right of Repurchase . Each Award +Agreement may provide that, following a termination of the Participant’s Continuous Service, the Company may repurchase the Participant’s unvested Common Stock acquired under the Plan as provided in this Section 10.7 (the +“ Right of Repurchase ”). The Right of Repurchase for unvested Common Stock will be exercisable at a price equal to the lesser of the purchase price at which the Common Stock was acquired under the Plan or the Fair Market Value +of the Common Stock (if an Award is granted solely in consideration of past services without payment of any additional consideration, the unvested Common Stock will be forfeited without any repurchase). The Award Agreement may specify the period +following a termination of the Participant’s Continuous Service during which the Right of Repurchase may be exercised. +ARTICLE 11 ADJUSTMENTS UPON CHANGES IN STOCK +11.1 Capitalization Adjustments . If any change is made in the Common Stock subject to the Plan or subject to any Award, without the receipt of consideration by the Company (through merger, +consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction +not involving the receipt of consideration by the Company), then (a) the aggregate number of shares of Common Stock or class of shares that may be purchased pursuant to Awards granted hereunder, (b) the aggregate number of shares of Common +Stock or class of shares that may be purchased pursuant to Incentive Stock Options granted hereunder, (c) the number and/or class of shares of Common Stock covered by outstanding Awards, (d) the maximum number of shares of Common Stock +with respect to which Awards may be granted to any single Person during any calendar year, and (e) the Exercise Price of any Option and the Strike Price of any Stock Appreciation Right in effect prior to the change shall be proportionately +adjusted by the Administrator to reflect any increase or decrease in the number of issued shares of Common Stock or change in the Fair Market Value of the Common Stock resulting from the transaction; provided , however , that any +fractional shares resulting from the adjustment shall be eliminated by rounding down. The Administrator shall make these adjustments in a manner that will provide an appropriate adjustment that neither increases nor decreases the value of the Award +as in effect immediately prior to the corporate change, and its determination will be final, binding and conclusive. The conversion of any securities of the Company that are by their terms convertible will not be treated as a transaction +“without receipt of consideration” by the Company. +11.2 Dissolution or Liquidation . In the event of a +dissolution or liquidation of the Company, then, subject to Section 11.3 , all outstanding Awards will terminate immediately prior to that dissolution or liquidation. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 20 +Table of Contents +11.3 Change in Control – Asset Sale, Merger, Consolidation or Reverse Merger . In +the event of a Change in Control, a dissolution or liquidation of the Company, an exchange of shares or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off or a sale, in one or a series of +related transactions, of all or substantially all of the assets of the Company; a merger or consolidation in which the Company is not the Surviving Entity; or a reverse merger in which the Company is the Surviving Entity, but the shares of Common +Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then the Company, to the extent permitted by applicable law, but otherwise in the +sole discretion of the Administrator may provide for: (a) the continuation of outstanding Awards by the Company (if the Company is the Surviving Entity); (b) the assumption of the Plan and the outstanding Awards by the Surviving Entity or +its parent; (c) the substitution by the Surviving Entity or its parent of awards with substantially the same terms (including an award to acquire the same consideration paid to the stockholders in the transaction described in this +Section 11.3 ) for the outstanding Awards and, if appropriate, subject to the equitable adjustment provisions of Section 11.1 hereof; (d) the cancellation of the outstanding Awards in consideration for a payment (in the +form of stock or cash) equal in value to the Fair Market Value of vested Awards, or in the case of an Option, the difference between the Fair Market Value and the Exercise Price for all shares of Common Stock subject to exercise (i.e., to the extent +vested) under any outstanding Option; or (e) the cancellation of the outstanding Awards without payment of any consideration. If the Awards would be canceled without consideration for vested Awards, the Participant will have the right, +exercisable during the later of the 10-day period ending on the fifth day prior to the merger or consolidation or 10 days after the Administrator provides the Award holder a notice of cancellation, to exercise the Awards in whole or in part without +regard to any installment exercise provisions in the Option Agreement. +ARTICLE 12 AMENDMENT OF THE PLAN AND AWARDS +12.1 Amendment of Plan . The Board at any time may amend or terminate the Plan. However, except as provided in +Section 11.1 relating to adjustments upon changes in Common Stock, no amendment will be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy any applicable law or any +securities exchange listing requirements. At the time of any amendment, the Board shall determine, upon advice from counsel, whether the amendment will be contingent on stockholder approval. +12.2 Stockholder Approval . The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, +including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate +deductibility of compensation paid to certain executive officers who are Covered Employees. +12.3 Contemplated +Amendments . It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code +and the regulations issued thereunder relating to Incentive Stock Options or to the nonqualified deferred compensation provisions of Section 409A of the Code and to bring the Plan and Awards granted hereunder into compliance therewith. +Notwithstanding the foregoing, neither the Board nor the Company nor any Related Company will have any liability to any Participant or any other Person as to (a) any tax consequences expected, but not realized, by a Participant or any other +person due to the receipt, exercise or settlement of any Award granted hereunder; or (b) the failure of any Award to comply with Section 409A of the Code. +12.4 Amendment of Awards . The Administrator at any time may amend the terms of any one or more Awards. However, subject to Section 12.5 , no amendment may impair the rights under any +Award granted before the amendment. Except as otherwise permitted under Article 11 , unless stockholder approval is obtained: (a) no +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 21 +Table of Contents +amendment or modification may reduce the Exercise Price of any Option or the Strike Price of any SAR; (b) the Committee may not cancel any outstanding Option or SAR and replace it with a new +Option or SAR, another Award or cash, if doing so would be considered a “repricing” for purposes of the stockholder approval rules of the applicable securities exchange or inter-dealer quotation system on which the Common Stock is listed +or quoted; and (c) the Committee may not take any other action that is considered a repricing for purposes of the stockholder approval rules of the applicable securities exchange or inter-dealer quotation system on which the Common Stock is +listed or quoted. +12.5 No Impairment of Rights . No amendment of the Plan or an Award may impair rights under any Award +granted before the amendment unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing. For the avoidance of doubt, a cancellation of an Award where the Participant receives a payment equal +in value to the Fair Market Value of the vested Award or, in the case of vested Options or SAR, the difference between the Fair Market Value and the Exercise Price or Strike Price, is not an impairment of the Participant’s rights that requires +consent of the Participant. +ARTICLE 13 GENERAL PROVISIONS +13.1 Other Compensation Arrangements . Nothing contained in the Plan will prevent the Board from adopting other or additional +compensation arrangements, subject to stockholder approval if stockholder approval is required; and those arrangements may be either generally applicable or applicable only in specific cases. +13.2 Recapitalizations . Each Award Agreement will contain provisions required to reflect the provisions of +Section 11.1 . +13.3 Delivery . Upon exercise of a right granted pursuant to an Award under the Plan, the +Company shall issue Common Stock or pay any amounts due within a reasonable period thereafter. Subject to any statutory or regulatory obligations the Company may otherwise have, for purposes of the Plan, 30 days will be considered a reasonable +period. +13.4 Other Provisions . The Award Agreements authorized under the Plan may contain such other provisions not +inconsistent with the Plan, including, without limitation, restrictions upon the exercise of the Awards, as the Administrator may deem advisable. +13.5 Cancellation and Rescission of Awards for Detrimental Activity . +(a) +Upon exercise, payment or delivery pursuant to an Award, the Administrator may require a Participant to certify in a manner acceptable to the Company that the Participant has not engaged in any Detrimental Activity. +(b) Unless the Award Agreement specifies otherwise, the Administrator may cancel, rescind, suspend, withhold or otherwise limit or +restrict any unexpired, unpaid or deferred Awards at any time if the Participant engages in any Detrimental Activity. +(c) If +a Participant engages in Detrimental Activity after any exercise, payment or delivery pursuant to an Award, during any period for which any restrictive covenant prohibiting such activity is applicable to the Participant, that exercise, payment or +delivery may be rescinded within one year thereafter. In the event of any such rescission, the Participant shall pay to the Company the amount of any gain realized or payment received as a result of the exercise, payment or delivery, in such manner +and on such terms and conditions as may be required by the Company. The Company will be entitled to set-off against the amount of that gain any amount owed to the Participant by the Company. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 22 +Table of Contents +ARTICLE 14 MARKET STANDOFF +Each Option Agreement and Award Agreement will provide that, in connection with any underwritten public offering by the Company of its +equity securities, the Participant shall agree not to sell, make any short sale of, loan, hypothecate, pledge, grant any option for the repurchase of, transfer the economic consequences of ownership or otherwise dispose or transfer for value or +otherwise agree to engage in any of the foregoing transactions with respect to any Common Stock without the prior written consent of the Company or its underwriters, for the period from and after the effective date of such registration statement as +may be requested by the Company or the underwriters (the “ Market Standoff ”). In order to enforce the Market Standoff, the Company may impose stop-transfer instructions with respect to the shares of Common Stock acquired under +the Plan until the end of the applicable standoff period. If there is any change in the number of outstanding shares of Common Stock by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification, +dissolution or liquidation of the Company, any corporate separation or division (including, but not limited to, a split-up, a split-off or a spin-off), a merger or consolidation; a reverse merger or similar transaction, then any new, substituted or +additional securities that are by reason of the transaction distributed with respect to any shares of Common Stock subject to the Market Standoff or into which the shares of Common Stock thereby become convertible, will immediately be subject to the +Market Standoff. +ARTICLE 15 EFFECTIVE DATE OF PLAN +This amendment and restatement of the Plan becomes effective on the Effective Date. Solely with respect to the additional Shares +authorized under the amended and restated Plan and the extension of the term of the Plan in Article 16, no Award granted on or after the Effective Date may be exercised (or, in the case of an Award denominated in Shares, may be granted) unless and +until the Plan has been approved by the stockholders of the Company, which approval must be within 12 months before or after the date the Plan is adopted by the Board. The amended and restated Plan shall be subject to approval by the stockholders of +the Company at the annual meeting of stockholders of the Company to be held on June 13, 2013 and, if approved, the amended and restated Plan shall be effective as of the Effective Date. If the stockholders of the Company fail to approve the +amended and restated Plan, the terms of the Plan, as approved by stockholders prior to the amendment and restatement of the Plan, will continue to be effective. +ARTICLE 16 TERMINATION OR SUSPENSION OF THE PLAN +The Plan will terminate +automatically on the day before the 10th anniversary of the Effective Date. No Award may be granted pursuant to the Plan after that date, but Awards theretofore granted may extend beyond that date. The Board may suspend or terminate the Plan at any +earlier date pursuant to Section 12.1 hereof. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated. +ARTICLE 17 CHOICE OF LAW +The law of the State of Delaware will govern all +questions concerning the construction, validity and interpretation of the Plan, without regard to that state’s conflict of law rules. +ARTICLE 18 LIMITATION ON LIABILITY +The Company and any Related Company +that is in existence or that hereafter comes into existence will have no liability to any Participant or any other person as to (1) the non-issuance or sale of shares of Common Stock as to which the Company has been unable to obtain from any +regulatory body having jurisdiction the authority +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 23 +Table of Contents +deemed by counsel to the Company necessary to the lawful issuance and sale of any shares hereunder; (2) any tax consequences expected, but not realized, by a Participant or any other person +due to the receipt, exercise or settlement of any Award granted hereunder; or (3) the failure of any Award that is determined to constitute “nonqualified deferred compensation” to comply with Section 409A of the Code and the +regulations thereunder. +ARTICLE 19 EXECUTION +To record the adoption of the Plan by the Board, the Company has caused its authorized officer to execute the Plan as of the date specified below. +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 24 +Table of Contents +IN WITNESS WHEREOF , upon authorization of the Board, the undersigned has executed the +Gulfport Energy Corporation 2013 Restated Stock Incentive Plan, effective as of the Effective Date, on the date opposite his or her signature. +GULFPORT ENERGY CORPORATION +Dated: April 18, 2013 +By: +James D. Palm, Chief Executive Officer +Gulfport +Energy Corporation 2013 Restated Stock Incentive Plan +Page 25 +Table of Contents +PROXY +FOR THE ANNUAL MEETING OF STOCKHOLDERS OF +Gulfport Energy Corporation +This Proxy Is Solicited On Behalf Of The Board Of Directors +The undersigned hereby appoints Mike Liddell, James D. Palm and Michael G. Moore (together, the “Proxies”), and each of them, +with full power of substitution, as proxies to vote the shares that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Gulfport Energy Corporation (the “Company”) to be held on June 13, 2013 at 10:00 a.m. +Oklahoma City time and at any adjournments and postponements thereof. Such shares shall be voted as indicated with respect to the proposals listed on the reverse side hereof and in the Proxies’ discretion on such other matters as may properly +come before the meeting or any adjournment or postponement thereof. +The undersigned acknowledges receipt of the 2013 Notice +of Annual Meeting and accompanying Proxy Statement and revokes all prior proxies for said meeting. +THE SHARES REPRESENTED BY +THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION IS GIVEN AS TO THE PROPOSALS ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES NAMED IN +PROPOSAL 1 AND FOR EACH OF THE PROPOSALS 2, 3, 4 AND 5 IN ACCORDANCE WITH THE BOARD OF DIRECTOR’S RECOMMENDATION. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and signed on reverse side.) +Detach here from proxy voting card. +GULFPORT ENERGY CORPORATION +FOR +all nominees listed (except as withheld) +WITHHOLD AUTHORITY +to vote for nominees listed +¨ +¨ +Proposal 1 - ELECTION OF DIRECTORS +01 +Donald L. Dillingham +¨ +¨ +02 +Craig Groeschel +¨ +¨ +03 +David L. Houston +¨ +¨ +04 +James D. Palm +¨ +¨ +05 +Scott E. Streller +¨ +¨ +Proposal 2 –Proposal to approve an amendment to the Company’s restated certificate of incorporation to increase the total number of authorized shares of common +stock from 100,000,000 shares to 250,000,000 shares +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +Proposal 3 – Proposal to approve our 2013 Restated Stock Incentive Plan +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +Proposal 4 –Proposal to approve, on an advisory basis, the Company’s executive compensation +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +Proposal 5 –Proposal to ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, +2013 +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +This proxy, when properly signed, will be voted in the manner directed herein by the undersigned stockholder. IF NO +DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR ELECTION OF DIRECTORS UNDER PROPOSAL 1 AND FOR EACH OF THE PROPOSALS 2, 3, 4 AND 5 IN ACCORDANCE WITH THE BOARD OF DIRECTOR’S RECOMMENDATION. +IMPORTANT – PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. THANK YOU FOR VOTING. +Signature +Signature, if held jointly +Dated , 2013 +When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or +guardian, please give full title as such. If a corporation, please sign in full corporate name by the president or another authorized officer. If a partnership, please sign in partnership name by an authorized person. +Proxy – Gulfport Energy Corporation. +You are cordially invited to attend the Annual Meeting of Stockholders +To be held on June 13, 2013, at +10:00 a.m. Oklahoma City time, at +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-13-188014/proxy_rpt.txt b/raw/proxies/0000874499/0001193125-13-188014/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f25846d374aede0e7637bf02fab0a156de55c682 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-13-188014/proxy_rpt.txt @@ -0,0 +1,138 @@ +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be substantively applied to each transaction +reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the Company. Further, the Company’s Code of +Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party transactions. +The Company’s policy is that all of its employees and directors, as well as their family members, must avoid any activity that is or has the +appearance of conflicting with the Company’s business interest. This policy is included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform the +designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the Code +of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give rise to +a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring +compliance with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all +relationships and transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, +have a direct or indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as +they determine in the good faith exercise of their discretion. +Services Provided to Us by Affiliated Entities +We contract with Athena Construction, L.L.C., or Athena, to provide barge services in our West Cote Blanche Bay, or WCBB, and Hackberry +fields located along the Louisiana Gulf Coast. During 2012, we paid Athena $4,675,000 and owed an additional $1,453,000 for such services at December 31, 2012. Athena is controlled by Wexford Capital LP, or Wexford. Our relationship with +Wexford is described below under the heading “Our Relationships with Wexford and its Affiliates.” +Caliber Development Company, LLC, +or Caliber, provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. We also lease office space from Caliber. During 2012, we paid Caliber $73,000 and owed an additional $12,000 as of December 31, 2012. Caliber is +an entity controlled by Wexford. +During the first six months of 2012, Black Fin P&A, LLC, or Black Fin, performed plugging and +abandonment services for us at our WCBB field. We paid Black Fin $1,086,000 for such services. In mid-2012, we ceased using Black Fin’s services. Black Fin is an entity controlled by Wexford. +Our Investments in Affiliated Entities and Related Agreements +On May 7, 2012, we entered into a contribution agreement with Diamondback Energy, Inc., or Diamondback, in which we agreed to contribute to Diamondback, prior to the closing of its initial public +offering, or the Diamondback IPO, all of our oil and natural gas interests in the Permian Basin. On October 11, 2012, we completed this contribution, which we refer to in this proxy statement as the Contribution. At the closing of the +Contribution, Diamondback issued to us (i) 7,914,036 shares of Diamondback common stock and (ii) a +38 +Table of Contents +promissory note for $63.6 million, which was repaid to us at the closing of the Diamondback IPO on October 17, 2012. This aggregate consideration was subject to a post-closing cash +adjustment based on changes in the working capital, long-term debt and certain other items of a Diamondback subsidiary as of the date of the Contribution. In January 2013, we received an additional payment from Diamondback of $18.6 million as a +result of this post-closing adjustment. In connection with the Contribution, we and Diamondback entered into an investor rights agreement in which we have the right, for so long as we beneficially own more than 10% of Diamondback’s outstanding +common stock, to designate one individual as a nominee to serve on Diamondback’s board of directors. Such nominee, if elected to Diamondback’s board, will also serve on each committee of the board so long as he or she satisfies the +independence and other requirements for service on the applicable committee of the board. So long as we have the right to designate a nominee to Diamondback’s board and there is no nominee of ours actually serving as a Diamondback director, we +will have the right to appoint one individual as an advisor to the board who shall be entitled to attend board and committee meetings. We are also entitled to certain information rights and Diamondback granted us certain demand and +“piggyback” registration rights obligating Diamondback to register with the SEC any shares of Diamondback common stock that we own. As of April 1, 2013, we held approximately 21.4% of Diamondback’s outstanding common stock. As of +December 11, 2012, Wexford beneficially owned approximately 44.4% of Diamondback’s outstanding common stock. Diamondback was the operator of all of the acreage in the Permian Basin that we contributed in the Contribution. As operator of +these properties, Diamondback was responsible for the daily operations, monthly operation billings and monthly revenue disbursements for the properties in which we held an interest. For the year ended December 31, 2012, we paid Diamondback +approximately $49,418,000 for these services and, at December 31, 2012, we owed $269,000 for these services. +Effective as of +November 1, 2007, we and an entity then-known as Windsor Permian LLC (which is currently a wholly-owned subsidiary of Diamondback and now known as Diamondback O&G LLC) entered into an area of mutual interest agreement to jointly acquire oil +and gas leases in the Permian Basin. The agreement provided that each party must offer the other party the right to participate in 50% of each such acquisition. The parties also agreed, subject to certain exceptions, to share third-party costs and +expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. During 2012, we acquired approximately 5,000 net acres from Windsor Permian LLC under the terms of this agreement for an +aggregate of $5,410,000. This area of mutual interest agreement was terminated in connection with the Contribution. +We own a 24.9999% +interest in Grizzly Oil Sands ULC, or Grizzly, a Canadian unlimited liability company, through our wholly owned subsidiary Grizzly Holdings, Inc. The remaining interests in Grizzly are owned by Grizzly Oils Sands Inc., an entity owned by certain +investment funds managed by Wexford. As of December 31, 2012, Grizzly had approximately 800,000 acres under lease in the Athabasca region located in the Alberta Province near Fort McMurray. On October 5, 2012, we entered into an agreement +with Grizzly in which we committed to make monthly payments from October 2012 to May 2013 in the aggregate amount of approximately $8.5 million to fund our proportionate share of the construction and development costs of the Algar Lake facility. We +also agreed to fund our proportionate share of any unfunded cost overruns in excess of $2.0 million. The remaining aggregate commitment at December 31, 2012 was approximately $6.3 million. During 2012, we paid an aggregate of $103,915,000 under +this agreement and in cash calls, increasing our total net investment in Grizzly to $172,766,000. +We have a 23.5% indirect ownership interest +in Tatex Thailand II, LLC, or Tatex II. The remaining indirect interests in Tatex II are owned by entities controlled by Wexford. Tatex II holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC, or APICO, an international oil and gas +exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering 243,000 acres which includes the Phu Horm Field. During 2012, we received $820,000 in distributions in respect of our interest in +Tatex II. +We have a 17.9% ownership interest in Tatex Thailand III, or Tatex III. Tatex III owns a concession covering approximately 490,000 +acres in Thailand. Approximately 68.7% of the remaining interests in Tatex III are owned by an entity controlled by Wexford. During the year ended December 31, 2012, we paid $626,000 in cash calls to Tatex III. +39 +Table of Contents +During the third quarter of 2011, we purchased a 25% ownership interest in Bison Drilling and Field Services +LLC, or Bison. In April 2012, we increased our ownership interest in Bison to 40% for a payment of $6,152,000. The remaining interests in Bison are owned by entities controlled by Wexford. Bison owns and operates drilling rigs. During the year ended +December 31, 2012, we paid $1,373,000 in cash calls, increasing our total net investment in Bison to $13,518,000. In addition, we entered into a loan agreement with Bison, effective May 15, 2012, under which Bison may borrow funds from us. +Interest accrues at LIBOR plus 0.28% or 8%, whichever is lower, and is paid on a paid-in-kind basis by increasing the outstanding balance of the loan. The loan has a maturity date of January 31, 2015. We loaned Bison $1,594,000 in principal +amount during the first nine months of 2012, all of which was repaid by Bison during the third quarter of 2012 along with $1,000 in accrued interest. No borrowings were outstanding as of December 31, 2012 under this loan agreement with Bison. +We have a 25% ownership interest in Muskie Proppant LLC, or Muskie (formerly known as Muskie Holdings LLC). The remaining interests in Muskie +are owned by entities controlled by or affiliated with Wexford. Muskie holds certain assets, real estate and rights in a lease covering land in Wisconsin that is prospective for mining oil and natural gas fracture grade sand. During the year ended +December 31, 2012, we paid $6,213,000 in cash calls, increasing our total net investment in Muskie to $7,320,000. +During the first +quarter of 2012, we and entities controlled by or affiliated with Wexford formed Timber Wolf Terminals LLC, or Timber Wolf. We have a 50% interest in Timber Wolf and our initial investment during 2012 was $1,000,000. Timber Wolf was formed to +operate a crude/condensate terminal and a sand transloading facility in Ohio. +During the first quarter of 2012, we purchased a 22.5% +ownership interest in Windsor Midstream LLC, or Midstream, at a cost of $7,021,000. The remaining interests in Midstream are owned by entities controlled by Wexford. Midstream owns a 28.4% interest in MidMar Gas LLC, a gas processing plant in West +Texas. During the year ended December 31, 2012, we paid $1,819,000 in cash calls, increasing our total net investment in Midstream to $9,503,000. +During 2012, we and other individuals and entities formed Stingray Pressure Pumping LLC, or Stingray Pressure, Stingray Cementing LLC, or Stingray Cementing, and Stingray Logistics LLC, or Stingray +Logistics, which provide well completion services, well cementing services and well services, respectively. Our initial interest in each Stingray entity is 50% and we are the manager of each entity. During the year ended December 31, 2012, we +paid (a) $14,500,000 in cash calls to Stingray Pressure, increasing our total net investment in Stingray Pressure to $13,265,000, (b) $3,269,000 in cash calls to Stingray Cementing, increasing our net investment in Stingray Cementing to +$3,110,000, and (c) $983,000 in cash calls to Stingray Logistics, increasing our net investment in Stingray Logistics to $947,000. The remaining interests in each of the Stingray entities are owned by the president of the entity, by Mike +Liddell, our Chairman of the Board, and by individuals and entities affiliated with Wexford. Mr. Liddell is not entitled to any distribution in respect of his interest in any Stingray entity until we and the Wexford affiliates have received +repayment in full of our and their respective capital accounts with respect to such entity. Thereafter, all future distributions to which the Wexford affiliates may be entitled from the applicable entity will be paid 90% to the Wexford affiliates +and 10% to Mr. Liddell. Mr. Liddell will not receive, or be entitled to receive, any distributions in respect of our interest in any Stingray entity. +During the second quarter of 2012, we and Windsor Ohio LLC, an entity controlled by Wexford, formed Blackhawk Midstream LLC, or Blackhawk. We are the manager of Blackhawk and have an initial 50% ownership +interest. Blackhawk coordinates gathering, compression, processing and marketing activities for us in connection with the development of our Utica Shale acreage. During the year ended December 31, 2012, we paid $436,000 in cash calls to +Blackhawk. +40 +Table of Contents +Area of Mutual Interest and Related Agreements +Effective April 1, 2010, we entered into an area of mutual interest agreement with Windsor Niobrara LLC, or Windsor Niobrara, to jointly acquire oil +and gas leases in Northwest Colorado for the purpose of exploring, exploiting and producing oil and gas from the Niobrara Formation. The agreement provides that each party must offer the other party the right to participate in such acquisitions on a +50/50 basis. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion to their respective participating interests and pay certain other fees as provided in the agreement. In connection with this +agreement, we and Windsor Niobrara also entered into a development agreement, effective as of April 1, 2010, pursuant to which we and Windsor Niobrara agreed to jointly develop the contract area, and we agreed to act as the operator under the +terms of a joint operating agreement. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2012, we billed Windsor Niobrara +$7,545,000 and, at December 31, 2012, Windsor Niobrara owed us $173,000 for these services. Windsor Niobrara is controlled by Wexford. +Effective July 1, 2008, we entered into an acquisition team agreement with Everest Operations Management LLC, or Everest, to identify and evaluate +potential oil and gas properties in which we and Everest or its affiliates may wish to invest. Pursuant to this agreement, the Company and Everest each agreed to form an acquisition team. Upon a successful closing of an acquisition or divestiture, +the party whose acquisition team identified the acquisition or divestiture is entitled to receive a fee from the other party and its affiliates, if applicable, participating in such closing. The fee is equal to 1% of the party’s proportionate +share of the acquisition or divestiture consideration. The agreement has a one-year term unless earlier terminated by either party upon 30 days notice. Affiliates of Everest were billed approximately $1,087,000 under this acquisition team agreement +during the year ended December 31, 2012. +Utica Shale Transactions +Windsor Ohio LLC, or Windsor Ohio, an entity controlled by Wexford, participated with us in the acquisition of certain leasehold interests in acreage located in the Utica Shale in Ohio. We are the +operator of this acreage in the Utica Shale. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2012, we billed Windsor Ohio +approximately $163,650,000 for these services. At December 31, 2012, Windsor Ohio owed us approximately $6,520,000 for these services. Liddell Investments, LLC, or Liddell Investments, an entity controlled by our Chairman of the Board, has a +10% interest in Windsor Ohio. For the year ended December 31, 2012, we billed approximately $2,020,000 to Liddell Investments directly for these services and, at December 31, 2012, all of this amount was owed to us. For the year ended +December 31, 2012, we paid Liddell Investments approximately $102,000 in respect of its interest in Windsor Ohio. +In December 2012, we +entered into a purchase and sale agreement with Windsor Ohio pursuant to which Windsor Ohio agreed to sell to us approximately 30,000 net acres which, at the time, represented 50% of its right, title and interest in and to certain leasehold +interests in the Utica Shale in Eastern Ohio. The parties subsequently amended that agreement to provide for our acquisition of approximately 7,000 additional net acres. The aggregate purchase price for these interests was approximately $372.0 +million, subject to certain adjustments. Windsor Ohio retained its interest in 14 existing wells, along with certain acreage surrounding those wells. As discussed above, Windsor Ohio participated with us in the acquisition of our Utica Shale leases +and through this transaction, we acquired an additional approximately 27.5% interest in these leases, increasing our working interest in the acreage to 77.7%. The transaction closed on December 24, 2012. All of the acreage included in this +transaction was nonproducing at the time of the acquisition and we are the operator of all of this acreage, subject to existing development and operating agreements between the parties. Pending the completion of title review after the closing, +approximately $53.9 million of the purchase price was placed in an escrow account. The escrow account will terminate on April 30, 2013 and the escrow amount will be distributed to either us or Windsor Ohio based on any title benefits or title +defects resulting from the title review. The transaction was approved by a special committee of our board of directors, which engaged independent counsel and financial advisors to assist with its review. +41 +Table of Contents +In February 2013, we entered into another purchase and sale agreement with Windsor Ohio pursuant to which +Windsor Ohio agreed to sell to us approximately 22,000 net acres representing 100% of its right, title and interest in and to certain leasehold interests in the Utica Shale in Eastern Ohio for approximately $220.4 million, subject to certain +adjustments. This transaction, which closed on February 15, 2013, excluded Windsor Ohio’s interest in 14 existing wells and 16 proposed future wells together with certain acreage surrounding those wells. Through this most recent +transaction, we acquired an additional approximately 16.2% interest in our Utica Shale leases, increasing our working interest in the acreage to 93.8%. All of the acreage included in this transaction was nonproducing at the time of the acquisition +and we are the operator of all of this acreage, subject to existing development and operating agreements between the parties. Pending the completion of title review after the closing, approximately $33.6 million of the purchase price has been placed +in an escrow account. The escrow account will terminate on May 1, 2013 and the escrow amount will be distributed to either us or Windsor Ohio based on any title benefits or title defects resulting from the title review. The transaction was also +approved by a special committee of our board of directors, which engaged independent counsel and financial advisors to assist with its review. As noted above, Mr. Liddell, our Chairman of the Board, has a 10% interest in Windsor Ohio. We have +been advised by Windsor Ohio that Mr. Liddell received approximately $2.9 million in respect of this interest in connection with the December 2012 transaction and approximately $19.3 million in respect of this interest in connection with the +February 2013 transaction. Mr. Liddell may also receive up to an additional $5.4 million and $3.4 million in connection with these transactions, respectively, upon termination of the escrow accounts. +Rhino Exploration LLC, or Rhino, an affiliate of Wexford, has also participated with us in the acquisition of certain leasehold interest in acreage +located in the Utica Shale in Ohio. We are the operator of this acreage in the Utica Shale. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended +December 31, 2012, we billed Rhino approximately $4,443,000 for these services. At December 31, 2012, Rhino owed us approximately $4,257,000 for these services. +Our Relationships with Wexford and its Affiliates +Charles E. Davidson is the Chairman +and Chief Investment Officer of Wexford. He beneficially owned approximately 13.3% of our outstanding common stock as of December 31, 2011 and approximately 9.5% of our outstanding common stock as of March 13, 2012, which ownership +interest was reduced to less than 1% of our outstanding common stock as of December 31, 2012. Wexford is the manager of the Wexford-controlled entities described above. As manager, Wexford has the exclusive authority to, among other things, +purchase, hold and dispose of the assets of each such entity. Mr. Liddell, our Chairman of the Board, was the operating member of Windsor Permian prior to the Contribution, is the operating member of Athena, Caliber, Black Fin, Windsor +Midstream, Windsor Ohio, DB Energy and Windsor Niobrara, which we refer to collectively as the “operating member companies,” and the chairman or an officer of Everest, Bison, Timber Wolf, Windsor Midstream, Windsor Ohio and Windsor +Niobrara. Mr. Liddell also holds an equity interest in each of the operating member companies, Bison, Muskie and Timber Wolf, and an indirect profits interest in Grizzly Oil Sands, Inc. As a result, all distributions made by these entities and +payable to the Wexford members are to be first made to the Wexford members in accordance with their respective ownership interests until they have received amounts equal to their respective capital contributions. Thereafter, distributions are to be +made 90% to the Wexford members in accordance with their respective ownership interests and 10% to Mr. Liddell. Except as described above with respect to Windsor Ohio, Mr. Liddell is not currently entitled to, and has not received, +distributions from any of these entities. Transactions between us and these entities are reviewed and approved by our independent directors. Mr. Liddell is not standing for re-election as one of our directors and his tenure as Chairman of the Board +will end upon the conclusion of our 2013 Annual Meeting of Stockholders. +42 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-14-172975/proxy.txt b/raw/proxies/0000874499/0001193125-14-172975/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7fab89abafb577f0804366f72e9cf658b935aec1 --- /dev/null +++ b/raw/proxies/0000874499/0001193125-14-172975/proxy.txt @@ -0,0 +1,2827 @@ +DEF 14A +1 +d720145ddef14a.htm +DEFINITIVE PROXY STATEMENT +DEFINITIVE PROXY STATEMENT +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +x Filed by the Registrant ¨ Filed by a Party other than the Registrant +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under §240.14a-12 +Gulfport Energy +Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing +fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +¨ +Fee paid previously with written preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +Table of Contents +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +2014 +ANNUAL +STOCKHOLDERS +MEETING +and +PROXY +STATEMENT +Thursday +June 12, 2014 +10:00 a.m. local time +14313 N. May Avenue, +Suite 100, Oklahoma City, +Oklahoma 73134 +April 30, 2014 +Dear Gulfport Energy Corporation Stockholder: +On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 14313 N. May Avenue, +Suite 100, Oklahoma City, Oklahoma 73134 on Thursday, June 12, 2014, at 10:00 a.m. +It is important that your shares be represented at the meeting. Whether or not you plan to attend the meeting, please complete and return the enclosed proxy +card in the accompanying envelope. Please note that submitting a proxy will not prevent you from attending the meeting and voting in person. +You will find information regarding the matters to be voted on at the meeting in the enclosed proxy statement. Our 2013 Annual Report to Stockholders is either +enclosed with these materials or has previously been mailed to you. This proxy statement and our 2013 Annual Report to Stockholders are also available on our website at www.gulfportenergy.com/proxy. +In addition to the formal items of business to be brought before the meeting, there will +be a report on our operations, followed by a question and answer period. Your interest in Gulfport Energy Corporation is appreciated. We look forward to seeing you on June 12, 2014. +Sincerely, +Michael G. Moore +David L. Houston +Chief Executive Officer and President +Chairman of the Board +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 12, 2014 +To our Stockholders: +The Annual Meeting of Stockholders of +Gulfport Energy Corporation will be held on June 12, 2014 at 10:00 a.m., local time, at 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134, for the following purposes: +1. +To elect six directors to serve until the Company’s 2015 Annual Meeting of Stockholders; +2. +To approve our 2014 Executive Annual Incentive Compensation Plan; +3. +To hold an advisory vote on the Company’s executive compensation; +4. +To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2014; and +5. +To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. +Your vote is important. Please carefully consider the proposals and vote in one of these ways: +• +Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope; or +• +Submit a ballot at the Annual Meeting. +Only stockholders of record at the close of business on April 23, +2014 or their proxy holders may vote at the meeting. Directions to the meeting can be obtained from the Company. +IMPORTANT NOTICE REGARDING THE +AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 12, 2014 . This proxy statement and the Company’s 2013 Annual Report to Stockholders are available on the Company’s website at +www.gulfportenergy.com/proxy. +By Order of the Board of Directors, +Michael G. Moore +Chief Executive Officer and +President +This notice and proxy statement are first being mailed to stockholders on or about May 8, 2014. +Table of Contents +GULFPORT ENERGY CORPORATION +14313 North May Avenue, Suite 100 +Oklahoma City, Oklahoma 73134 +PROXY +STATEMENT +TABLE OF CONTENTS +About the Annual Meeting +1 +Board of Directors Information +4 +Election of Directors and Director Biographies +5 +Corporate Governance Matters and Communications with the Board +9 +Code of Business Conduct and Ethics +10 +Nominating Process for Directors, Director Qualifications and Review of Director Nominees +10 +Director Leadership Structure +11 +Board of Director’s Role in Risk Oversight +11 +Audit Committee Report +12 +Executive Officers +14 +Executive Compensation +15 +Compensation Discussion and Analysis +15 +Compensation Components +19 +Effect of Our Compensation Policies and Practices on Risk and Risk Management +22 +Deductibility of Executive Compensation +22 +Accounting Implications of Executive Compensation Policy +22 +The Role of Stockholders’ Say-on-Pay Vote +23 +Compensation Committee Report on Executive Compensation +23 +Compensation Committee Interlocks and Insider Participation +23 +Compensation Tables +23 +401(k) Plan +27 +2013 Restated Stock Incentive Plan +27 +Employment Agreements +28 +Stock Ownership +34 +Holdings of Major Stockholders +34 +Holdings of Officers and Directors +34 +Section 16(a) Beneficial Ownership Reporting Compliance +36 +Certain Relationships and Related Transactions +37 +Review and Approval of Related Party Transactions +37 +Related Party Transactions and Relationships +37 +Proposal to Approve Our 2014 Executive Annual Incentive Compensation Plan +39 +Proposal to Approve, on an Advisory Basis, the Company’s Executive Compensation +43 +Proposal to Ratify the Appointment of Our Independent Auditors +44 +Solicitation by Board; Expenses of Solicitation +45 +Submission of Future Stockholder Proposals +45 +Availability of Form 10-K and Annual Report to Stockholders +45 +Other Matters +45 +Appendix A- Gulfport Energy Coporation 2014 Executive Annual Incentive Compensation Plan +A-1 +i +Table of Contents +About the Annual Meeting +Who is soliciting my vote? +The board of directors of +Gulfport Energy Corporation, which we refer to as “Gulfport,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2014 Annual Meeting of Stockholders. In accordance with the Dodd-Frank Wall +Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and consistent with the advisory vote of the Company’s stockholders obtained in 2011, the Company’s board of directors is providing the Company’s stockholders +with a non-binding advisory vote on, among other proposals, the Company’s executive compensation. This and other proposals to be voted on by the Company’s stockholders at the 2014 Annual Meeting of Stockholders are described in more detail +below. +What am I voting on? +You are voting on: +• +The election of directors (see Proposal 1 beginning on page 5 ); +• +The approval of our 2014 Executive Annual Incentive Compensation Plan ( see Proposal 2 on page 39 ); +• +The approval, on an advisory basis, of the compensation paid to the Company’s named executive officers as reported in this proxy statement ( see Proposal 3 on page 43 ); +• +The ratification of Grant Thornton LLP as our independent auditors for 2014 ( see Proposal 4 beginning on page 44 ); and +• +Any other business properly coming before the meeting. +How does the board of directors recommend that I +vote my shares? +Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance +with the recommendations of our board of directors. The board of directors’ recommendations can be found with the description of each item in this proxy statement. In summary, the board of directors recommends a vote: +• +FOR the proposal to elect the nominated directors; +• +FOR the proposal to approve our 2014 Executive Annual Incentive Compensation Plan; +• +FOR the proposal to approve, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy statement; and +• +FOR the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2014. +Who is +entitled to vote? +You may vote if you were the record owner of our common stock as of the close of business on the record date, which is +April 23, 2014. Each share of common stock is entitled to one vote. As of April 1, 2014, we had 85,424,391 shares of common stock outstanding and entitled to vote, excluding 529,312 shares of our restricted common stock granted under our +2013 Restated Stock Incentive Plan or its predecessors, but not yet vested. There is no cumulative voting. +How many votes must be present to hold the +meeting? +Your shares are counted as present at the Annual Meeting if you attend the meeting and vote in person or if you properly return a proxy by +mail. In order for us to hold our meeting, holders of a majority of the voting power of our outstanding shares of common stock as of the close of business on April 23, 2014 must be present in person or by proxy at the meeting. This is referred +to as a quorum. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the meeting. +What is a broker non-vote? +If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive instructions from the beneficial +owner on how to vote those shares, the broker may return the proxy card without voting on that proposal. This is known as a broker non-vote . No broker may vote your shares without your specific instructions on any of the proposals to be +considered at the Annual Meeting other than the ratification of our independent auditors. +How many votes are needed to approve each of the proposals? +In April 2014, our board of directors amended our bylaws to provide for the election of directors in uncontested elections by a majority of the votes +cast by the stockholders present in person or represented by proxy at the meeting and entitled to vote thereon. Prior to this amendment, our bylaws provided for the election of directors by a plurality of the votes cast by the stockholders present +in person or represented by proxy at a meeting of stockholders and entitled to vote thereon. Accordingly, for purposes of the Annual +1 +Table of Contents +Meeting, if a quorum is present, directors will be elected by the affirmative vote of a majority of the votes cast, in person or by proxy. The number of shares voted “FOR” a director +nominee must exceed the number of votes cast “AGAINST” that nominee. Stockholders may not cumulate their votes with respect to the re-election of directors. If any incumbent director is not elected because he does not receive a majority of +the votes cast, he is required to immediately tender his or her resignation for consideration by our board of directors. Our board of directors will evaluate whether to accept or reject such resignation, or whether other action should be taken; +provided, however, that the board will act on such resignation and publicly disclose its decision to accept or reject such resignation and the rationale behind such decision within 90 days from the date of the certification of the director election +results. +Each of Proposals 2, 3 and 4 require the affirmative “FOR” vote of a majority of the votes cast by the stockholders present in person +or represented by proxy at the Annual Meeting and entitled to vote thereon. Except with respect to the proposal to ratify our independent auditors, where broker non-votes will be counted, only votes for or against these proposals will be counted as +votes cast and abstentions and broker non-votes will not be counted for voting purposes. +How do I vote? +You can vote either in person at the meeting or by proxy without attending the meeting. +To vote by proxy, you must fill out the enclosed proxy card , date and sign it, and return it in the enclosed postage-paid envelope. +Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person at the Annual Meeting, and you hold your +stock in street name, you must obtain a proxy from your broker and bring that proxy to the meeting. +Can I change my vote? +Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by: +• +Signing another proxy card with a later date and returning it to us prior to the meeting; +• +Sending our Corporate Secretary a written document revoking your earlier proxy; or +• +Voting again at the meeting. +Who counts the votes? +We have hired Computershare Trust Company, N.A., our transfer agent, to count the votes represented by proxies cast by mail or ballot. Employees of +Computershare Trust Company, N.A. will act as inspectors of election. +Will my vote be confidential? +Yes. As a matter of Company policy, proxies, ballots and voting tabulations that identify individual stockholders are treated as confidential. Only the +tabulation agent and the inspectors of election have access to your vote. Directors and employees of the Company may see your vote only if there is a contested proxy solicitation, as required by law or in certain other special circumstances. +Will my shares be voted if I don’t provide my proxy and don’t attend the Annual Meeting? +If you do not provide a proxy or vote your shares held in your name, your shares will not be voted. +If you hold your shares in street name, your broker may be able to vote your shares for certain “routine” matters even if you do not provide the +broker with voting instructions. The ratification of Grant Thornton LLP as our independent auditors for 2014 is considered routine. For matters not considered “routine,” if you do not give your broker instructions on how to vote your +shares, the broker will return the proxy card without voting on that proposal. This is a broker non-vote. The proposals to elect directors, to approve our 2014 Executive Annual Incentive Compensation Plan and to approve, on an advisory basis, the +Company’s executive compensation are not considered routine. As a result, no broker may vote your shares on these proposals without your specific instructions. +How are votes counted? +In the election of directors +contemplated by Proposal 1, you may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to one or more of the nominees. For Proposals 2, 3 and 4, you may vote “FOR,” “AGAINST” or “ABSTAIN.” +What if I return my proxy but don’t indicate my vote on the matters listed on my proxy card? +If you return a signed proxy card without indicating your vote, your shares will be voted FOR the director nominees listed on the card, FOR the approval of our +2014 Executive Annual Incentive Compensation Plan, FOR approving, on an advisory basis, the Company’s executive compensation as described in this proxy statement and FOR the ratification of Grant Thornton LLP as our independent auditors for +2014. +2 +Table of Contents +Could other matters be decided at the Annual Meeting? +We have not received any stockholder proposals and are not aware of any other matters that will be considered at the Annual Meeting. If any other matters arise +at the Annual Meeting, the persons named in your proxies will vote in accordance with their best judgment. +Who can attend the meeting? +The Annual Meeting is open to all holders of our common stock. +What do I need to bring to attend the Annual Meeting? +You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of your broker or bank or other nominee, you will +need to bring evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN SHARES OF +OUR STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING. +How can I access the Company’s proxy materials and annual report electronically? +This proxy statement and the Company’s 2013 Annual Report to Stockholders are available on the Company’s website at www.gulfportenergy.com/proxy. +3 +Table of Contents +Board of Directors Information +What is the makeup of the board of directors and how often are the members elected? +Our board of directors currently consists of six members who are elected annually. The majority of these directors are independent under the Nasdaq listing +standards. +What if a nominee is unable or unwilling to serve? +That is not expected to occur. If it does, shares represented by proxies will be voted for a substitute nominated by the board of directors. +How are directors compensated? +Our policy is that +members of our board of directors who are also our officers or employees do not receive compensation for their services as directors. The compensation of our non-employee directors is described below. +Cash Compensation +In 2013, we +paid our non-employee directors a monthly retainer of $1,000 and a per meeting in-person attendance fee of $500 and reimbursed all ordinary and necessary expenses incurred by non-employee directors in the conduct of our business. In addition to the +fees described above, each committee member of our board of directors received $3,000 per year for his service on each committee, provided that the committee chairman received $4,500 per year per committee. Consistent with the recommendations of +Longnecker & Associates, an independent compensation consulting firm, effective January 1, 2014, the cash compensation we pay our non-employee directors was changed, and we now pay our non-employee directors an annual retainer of +$40,000, an attendance fee of $1,000 for each board meeting attended in person in 2014, increasing to $1,500 in 2015, and an attendance fee of $500 for each board meeting attended telephonically in 2014, increasing to $750 in 2015. In addition, +effective January 1, 2014, the Chairman of the Board now receives an additional $65,000 annual retainer, the audit committee chairman receives an additional $15,000 annual retainer and the chairman of each of the compensation committee and the +nominating committee receives an additional $10,000 annual retainer. The annual retainer paid to each committee member that is not the chairman of the respective committee remains $3,000 per year, although, effective January 1, 2014, each +committee member is entitled to a $500 attendance fee for each committee meeting attended in person in 2014, increasing to $1,000 in 2015, and a $250 attendance fee for each committee meeting attended telephonically in 2014, increasing to $500 in +2015. In addition, on December 10, 2013, each of our then-serving non-employee directors was granted a $100,000 bonus for 2013, payable approximately one-half in shares of restricted stock (863 shares based on a closing price of $57.91 per +share on December 10, 2013) and approximately one-half in cash. The shares of restricted stock will vest on December 10, 2014. +Equity Compensation +From time to +time, we have provided our non-employee directors with equity compensation under our stock incentive plans as additional compensation and incentive. As described immediately above, on December 10, 2013, we granted 863 shares of our restricted +common stock to each of our then-serving non-employee directors under our 2013 Restated Stock Incentive Plan, which shares will vest on December 10, 2014. This equity grant was part of a $100,000 bonus that our compensation committee elected to +award to each of our non-employee directors at such time for 2013, which was payable approximately one-half in shares of common stock of the Company with a grant date of December 10, 2013 and approximately one-half in cash. Effective +January 1, 2014, our non-employee directors will receive an annual grant of restricted stock with an aggregate value of approximately $100,000 based on the closing price of our common stock on the date of grant, with vesting to occur on the +first anniversary of the date of grant. +Further details regarding our director compensation in 2013 are set forth under the heading “Director +Compensation” below. +Insurance and Indemnification +We provide liability insurance for our directors and officers at a current annual cost of approximately $585,894. In addition, our certificate of incorporation +sets forth limitations on our directors’ liability to our stockholders. Further, our bylaws contain indemnification and advancement of expenses provisions for the benefit of our directors and officers. +How often did the board of directors meet in 2013? +The +board of directors met 12 times in 2013. In addition to these meetings, the board of directors adopted resolutions by unanimous written consent. Each director attended at least 75% of the aggregate meetings of the board of directors and the meetings +of the committees on which he served. +4 +Table of Contents +Election of Directors and Director Biographies +(Proposal 1 on the Proxy Card) +Who are this year’s nominees? +The directors +standing for election this year to hold office until the 2015 Annual Meeting of Stockholders and until each such director’s successor is elected are: +MICHAEL G. MOORE, age 57. Mr. Moore was appointed as our Chief Executive Officer and as a member of our board of directors on April 22, 2014, +and has served as our President since August 2013 and as our Chief Financial Officer and Secretary from July 2000 to April 2014. He will continue to serve as our interim Chief Financial Officer until his successor has been appointed. Mr. Moore +also served as our Interim Chief Executive Officer from February 15, 2014 until his appointment as our Chief Executive Officer on April 22, 2014. From May 1998 through July 2000, Mr. Moore served as Vice President and Chief Financial +Officer of Indian Oil Company. From September 1995 through May 1998, Mr. Moore served as Controller of DLB Oil & Gas, Inc. Prior to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based gas marketing company. +Mr. Moore received both his Bachelor of Business Administration Degree in Finance and his Master’s in Business Administration from the University of Central Oklahoma. +DONALD L. DILLINGHAM, age 51. Mr. Dillingham has served as a director of the Company since November 2007. Since April 2007, Mr. Dillingham +has served as Chief Executive Officer of Oak Hills Holdings, a holding company comprised of Avondale Investments, LLC, Merit Advisors, Inc. and Oak Hills Securities, each of which is a registered investment advisor. From August 2001 until July 2003, +Mr. Dillingham served as the Senior Portfolio Manager for two mutual funds, a member of the investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer and director of the Merit Advisors Investment Trust. From August 2002 to +December 2004, Mr. Dillingham served as an adjunct professor of finance at the University of Oklahoma. From April 1998 to August 2001, Mr. Dillingham served as Senior Vice President, portfolio manager and state director for J.P. Morgan +Investment Management. From March 1996 to April 1998, Mr. Dillingham served American Express as the state director responsible for managing the financial planning services and product sales for the state of Oklahoma. From May 1994 to December +1996, Mr. Dillingham worked for Bank of America as Vice-President of Investment Banking. Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker and sales manager +from August 1984 to May 1994. Mr. Dillingham is also the founder of Fortress Storage Solutions, a multi-unit self-storage company, and Dillingham Outdoor, an advertising company. Mr. Dillingham has also served since May 2009 as an +independent director and chairman of the audit committee for Emerging Brands, a privately-held restaurant holding company. From 2009 to 2011, Mr. Dillingham served as an independent director and chairman of the audit committee for The Beard +Company, a publicly-traded energy company. Mr. Dillingham is active in the community and has served in a variety of leadership roles in local organizations. He is an enrolled member of the Muscogee (Creek) Indian Nation, and after ten years of +service, recently rotated off the board of Oklahoma’s Native American Cultural and Education Authority. Mr. Dillingham received a Bachelor’s of Business and Administration in Accounting from the University of Oklahoma and his +Master’s of Business and Administration in Finance from Oklahoma City University. Mr. Dillingham is a Chartered Financial Analyst, a Certified Public Accountant and a Certified Financial Planner. +CRAIG GROESCHEL, age 46. Mr. Groeschel has served as a director of the Company since August 2011. Since 1996, Mr. Groeschel has served as a +founding pastor of LifeChurch.tv, one of the largest churches in the United States, reaching over 30,000 people each weekend. Since founding LifeChurch, Mr. Groeschel has served on its Board of Directors. Under Mr. Groeschel’s +leadership, LifeChurch has grown to 15 locations in the United States. Mr. Groeschel received a Bachelor’s in Business Marketing from the Oklahoma City University and a Master’s of Divinity from the Phillips Graduate Seminary. +Mr. Groeschel is a frequent speaker at various domestic and international forums and an author of a number of books. +DAVID L. HOUSTON, age +61. Mr. Houston has served as a director of the Company since July 1998 and as Chairman of the Board since July 2013. Since 1991, Mr. Houston has been the principal of Houston Financial, a firm that offers life and disability +insurance, compensation and benefits plans and wealth management services with a focus on the energy sector. Since 2000, Mr. Houston has managed a mineral trust with approximately 9,200 net acres in Oklahoma, Texas, Kansas and New Mexico, which +includes responsibility for leasing and production matters. Mr. Houston served on the board of directors and executive committee of Deaconess Hospital, Oklahoma City, Oklahoma, from January 1993 until December 2008. Mr. Houston has served +as a member of the board of directors of Diamondback Energy, Inc. (Nasdaq: FANG) since October 2012, is a member of its audit and compensation committees and is the chair of its nominating and corporate governance committee. He also served as a +director of Bronco Drilling Company from May 2005 until December 2010 and was a member of its audit committee. Mr. Houston received a Bachelor of Science Degree in business from Oklahoma State University and a graduate degree in banking from +Louisiana State University. +MICHAEL S. REDDIN, age 54. Mr. Reddin was appointed to our board of directors on April 22, 2014. Since +August 2009, Mr. Reddin has been president and chief executive officer of Davis Petroleum Corporation, an independent private oil and gas exploration, development, acquisitions and production company focused primarily in the onshore Gulf Coast +and deep-water Gulf of Mexico. Mr. Reddin has also served as chairman of the board of directors of Davis Petroleum Corporation since March 2013. From October 2008 +5 +Table of Contents +to June 2009, Mr. Reddin served as president, chief executive officer and a member of the board of directors of Kerogen Resources, Inc., an early-stage exploration and production company +focused on the development of North American shale plays. Before Kerogen Resources Inc., Mr. Reddin spent 2000 through 2008 at BP America Inc. focused in the development of its Gulf of Mexico assets, where he served as Vice President of +Production, Vice President of Development and several other leadership roles. Earlier, Mr. Reddin served in technical, financial and asset management positions of increasing responsibility at ARCO Oil & Gas Company and Vastar +Resources, Inc. Mr. Reddin also served on the board of director of Berry Petroleum Company from 2011 to 2013. Mr. Reddin earned a Bachelor’s Degree in Mechanical Engineering from Texas A&M University. +SCOTT E. STRELLER, age 45. Mr. Streller has served as a director of the Company since August 2006. He currently serves as chairman of +Company’s Nominating Committee and as a member on the Audit and Compensation Committees. In 1992, Mr. Streller founded the Scott Streller Insurance and Financial Services Agency (Farmers Insurance), which has been recognized both +regionally and nationally as one of the top agencies within the Farmers Insurance Group of Companies. Mr. Streller is active in the community and has served in a variety of leadership roles in local public and non-profit organizations. +Additionally, Mr. Streller frequently serves as a guest lecturer at local universities and insurance and financial services seminars. Mr. Streller earned a Bachelor’s Degree in Business Management from the University of Central +Oklahoma. In addition, Mr. Streller received a Master’s in Athletic Administration from Oklahoma State University, where he served as a Graduate Assistant Coach in men’s basketball under Coach Eddie Sutton. +What does the board of directors recommend? +THE BOARD +RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS +What are the committees of the Board? +Our board of directors has the following committees: +Committee +Members +Principal Functions +Number of +Meetings in +2013 +Audit +Donald L. Dillingham +David L. Houston* +Scott E. Streller +• Reviews and discusses with management and the independent auditors the +integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management compliance. +• Monitors and oversees our accounting, auditing and financial reporting processes +generally, including the qualifications, independence and performance of the independent auditor. +• Monitors our compliance with legal and regulatory requirements. +• Establishes +procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding +questionable accounting or auditing matters. +• Reviews and approves related party transactions. +• Appoints, +determines compensation, evaluates and terminates our independent auditors. +• Pre-approves audit and permissible non-audit services to be performed by the independent +auditors. +• Prepares the report required by the Securities and Exchange Commission, or the SEC, for +the inclusion in our annual proxy statement. +• Reviews and reassesses the adequacy of the audit committee charter on a periodic +basis. +Ten (10) +6 +Table of Contents +Committee +Members +Principal Functions +Number of +Meetings in +2013 +Compensation +David L. Houston* +Michael S. Reddin** +Scott E. Streller +• Oversees and administers our executive compensation policies, plans +and practices and evaluates their impact on risk and risk management. +• Assists the board of directors in discharging its responsibilities relating to the +compensation of our executives, including our chief executive officer, and other key employees. +• Administers our equity-based compensation plans, including the grants of stock options, +restricted stock awards and other equity awards under such plans. +• Reviews, approves and administers our cash-based incentive bonus plans, including the +establishment of performance criteria, targets and awards under our 2014 Executive Annual Incentive Compensation Plan. +Six (6) +• Makes recommendations to the board with respect to incentive +compensation. +• Conducts annual performance evaluation of the committee. +• Reviews disclosure +related to executive compensation in our proxy statement. +• Reviews and considers the stockholders’ advisory vote on executive compensation and +the frequency of holding such advisory vote. +• Reviews and reassesses the adequacy of the compensation committee charter. +Nominating +Donald L. Dillingham +David L. Houston +Michael S. Reddin** +Scott E. Streller* +• Assists the board of directors in developing criteria for, identifying +and evaluating individuals qualified to serve as members of our board of directors. +• Selects and recommends director candidates to the board of directors to be submitted for +election at the Annual Meeting and to fill any vacancies on the board of directors. +• Periodically reviews and makes recommendations regarding the composition and size of the +board of directors and each of its committees. +• Reviews and recommends to the board of directors appropriate corporate governance +policies and procedures for the Company. +• Conducts an annual assessment of the qualifications and performance of the board of +directors. +• Annually reviews and reports to the board of directors on the performance of +management. +• Reviews and reassesses the adequacy of the nominating committee charter. +Two (2) +* +Committee Chairperson +** +Joined committee upon his appointment to the Board on April 22, 2014. +7 +Table of Contents +Do the committees have written charters? +Yes. The charters for our Audit Committee, Compensation Committee and Nominating Committee can be found on our website at www.gulfportenergy.com under +the “Corporate Governance” caption. You may also obtain copies of these charters, as well as our Code of Business Conduct and Ethics, which is described below, by writing to our Corporate Secretary, Michael G. Moore, at Gulfport Energy +Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +8 +Table of Contents +Corporate Governance Matters and Communications with the Board +Who are our independent directors? +Our board of +directors has determined that Donald L. Dillingham, Craig Groeschel, David L. Houston, Michael S. Reddin and Scott E. Streller meet the standards regarding independence set forth in the Nasdaq listing standards and are free of any relationship +which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors of the Company. +Our board of directors has determined that each member of the Audit Committee is independent for purposes of serving on such committee under the Nasdaq +listing standards and applicable federal law. In addition, our board of directors has determined that each current member of the Audit Committee is financially literate under the Nasdaq listing standards and that each of Mr. Houston, who serves +as the Chairman of the Audit Committee, and Mr. Dillingham qualifies as the “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. +Our board of directors has also determined that each member of the Compensation Committee and the Nominating Committee meets the independence requirements +applicable to those committees under the Nasdaq rules. In addition, our board of directors determined that each member of our compensation committee is an “outside director” in accordance with Section 162(m) of the Internal Revenue +Code and a “non-employee director” in accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. +Do our non-management directors meet separately without management? +Our non-management directors have the opportunity to meet in an executive session following each regularly scheduled meeting of the board of directors. During +2013, our non-management directors met in an executive session on October 15, 2013. +How can I communicate with the board of directors? +Individuals may communicate with our board of directors or individual directors by writing to our Corporate Secretary, Michael G. Moore, at Gulfport Energy +Corporation, 14313 N. May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. Our Corporate Secretary will review all such correspondence and forward to our board of directors a summary of all such correspondence and copies of all correspondence that, +in the opinion of our Corporate Secretary, relates to the functions of our board of directors or a committee thereof or that he otherwise determines requires their attention. Directors may review a log of all such correspondence received by us and +request copies. Concerns relating to accounting, internal control over financial reporting or auditing matters will be immediately brought to the attention of the chairman of the audit committee and handled in accordance with the audit committee +procedures established with respect to such matters. +Do directors attend the Annual Meeting? +Recognizing that director attendance at our Annual Meeting can provide our stockholders with an opportunity to communicate with directors about issues +affecting the Company, we actively encourage our directors to attend the Annual Meeting of Stockholders. Five of our six directors then-serving attended the 2013 Annual Meeting of Stockholders in person. +9 +Table of Contents +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and Ethics designed to help directors and employees resolve ethical issues. Our Code of Business Conduct and Ethics +applies to all directors and employees, including the Chief Executive Officer, the Chief Financial Officer and all senior financial officers. Our Code of Business Conduct and Ethics covers various topics including, but not limited to, conflicts of +interest, fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is posted on our website under the “Investor Relations—Corporate +Governance” caption. +Nominating Process for Directors, Director Qualifications and Review of Director +Nominees +The Nominating Committee is comprised of four non-employee directors, all of whom are independent under Nasdaq listing standards. As +provided by the Nominating Committee’s charter, our Nominating Committee identifies, investigates and recommends to our board of directors candidates with the goal of creating a balance of knowledge, experience and diversity. Generally, the +committee identifies candidates through the personal, business and organizational contacts of the directors and management and through the use of third-party search firms. +Potential directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the interests of our +stockholders. In addition to reviewing a candidate’s background and accomplishments, candidates for director nominees are reviewed in the context of the current composition of our board of directors and the evolving needs of our business. It is +the policy of our board of directors that at all times at least a majority of its members meets the standards of independence promulgated by Nasdaq and the SEC and that all members reflect a range of talents, ages, skills and expertise, particularly +in the areas of accounting and finance, management, leadership and oil and gas related industries sufficient to provide sound and prudent guidance with respect to our operations and the interests of our stockholders. In addition to the foregoing +factors, our Nominating Committee considers diversity in its evaluation of candidates for board membership. Although our board of directors does not have a formal diversity policy, our board believes that diversity with respect to viewpoint, skills +and experience should be an important factor in board composition. Our Nominating Committee ensures that diversity considerations are discussed in connection with each potential nominee, as well as on a periodic basis in connection with its periodic +review of the composition of the board and the size of the board as a whole. +We also require that the members of our board of directors be able to +dedicate the time and resources sufficient to ensure the diligent performance of their duties on our behalf, including attending meetings of the board of directors and applicable committee meetings. In accordance with its charter, our Nominating +Committee periodically reviews the criteria for the selection of directors to serve on our board and recommends any proposed changes to our board of directors for approval. +Our board of directors will consider stockholder nominations for director candidates upon written submission of such recommendation to our Corporate Secretary +along with, among other things, the nominee’s qualifications and certain biographical information regarding the nominee, such nominee’s written consent to serving as a director if elected and being named in the proxy or information +statement and certain information regarding the status of the stockholder submitting the recommendation, all in the manner required by our amended and restated bylaws and the applicable rules and regulations promulgated under the Exchange Act. +Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by our board of directors at a regularly scheduled or special meeting. If any materials are provided by a stockholder +in connection with the nomination of a director candidate, such materials will be forwarded to our board of directors. See “Submission of Future Stockholder Proposals” below for additional detail regarding submitting director nominees. +Our board of directors may also review materials provided by professional search firms or other parties in connection with a nominee who is not proposed +by a stockholder. In evaluating such nominations, our board of directors will seek to achieve a balance of knowledge, experience and capability on the board. Our board of directors uses the same criteria for evaluating candidates nominated by +stockholders as it does for those proposed by current board members, professional search firms and other persons. After completing its evaluation, our board of directors approves the final slate of director nominees. +Our Nominating Committee approved the director nominees submitted for election at this Annual Meeting. Each nominee is a current board member and brings a +strong and unique background and set of skills to our board of directors, giving our board of directors as a whole competence and experience in a variety of areas, including corporate governance and board service, executive management, oil and +natural gas industry, accounting and finance and risk assessment and management. Specifically, in nominating the candidates submitted for election at this Annual Meeting, our Nominating Committee considered such candidates’ past service on our +board and the information discussed in each of the directors’ individual biographies set forth beginning on page 5 above. In particular, with regard to Mr. Dillingham, our Nominating Committee considered his strong background in finance +and risk assessment and management developed as part of his career as a registered investment advisor and portfolio manager, as well as his academic experience. With regard to Mr. Groeschel, our Nominating Committee considered his leadership +and prior board service at a non-profit organization, community involvement and administrative and public speaking skills. With regard to Messrs. Houston and Streller, our Nominating Committee considered their respective business backgrounds and +risk assessment skills. Mr. Moore’s public company experience while serving in various executive officer capacities at Gulfport and leadership skills that led to his promotion as our Chief Executive Officer in April 2014, as well as his +strong oil and natural gas background and extensive experience in finance, accounting, financial +10 +Table of Contents +reporting, internal controls and corporate governance, led our Nominating Committee to appoint Mr. Moore as a director and a nominee and to conclude that he should serve as one of our +directors. Mr. Reddin’s upstream engineering and operations expertise, prior public company experience and over 30 years of energy industry experience led our Nominating Committee, following an extensive search process undertaken by +Preng & Associates, an independent third-party search firm, in which approximately 80 potential candidates were reviewed, to appoint Mr. Reddin as a director and to recommend Mr. Reddin as a nominee and to conclude that he should +serve as one of our directors. As part of the search process, Preng & Associates completed an assessment of the current Board composition, identified numerous candidates and conducted interviews to support the nominating committee in the +selection process. Each of the director nominees has consented to serve as a director if elected. +Director +Leadership Structure +Since December 2005, the positions of Chairman of the Board and Chief Executive Officer have been held by two different +individuals. Mike Liddell, our former Chairman of the Board, did not stand for re-election as a director at our 2013 annual meeting of stockholders held on June 13, 2013 and, effective as of that date, resigned as the Chairman of the Board. In +July 2013, our board of directors amended our bylaws to make the Chairman of the Board a non-executive position, to be elected from among the directors by the board, and named Mr. Houston as Chairman of the Board until his successor is duly +appointed. On February 14, 2014, as previously announced, James D. Palm retired as our Chief Executive Officer and resigned from our board of directors. He has been replaced as our Chief Executive Officer and as a member of our board of +directors by Michael G. Moore. Separating the positions of Chairman of the Board and Chief Executive Officer has allowed our Chief Executive Officer to focus on our day-to-day business and operations, while allowing our Chairman of the Board to lead +the board in its fundamental role of providing advice to and oversight of management. The Chairman of the Board has provided leadership to our board of directors and worked with the board of directors to define its structure and activities in the +fulfillment of its responsibilities. The Chairman of the Board has set the board agendas, with the input from other members of the board and our management, facilitated communications among and information flow to directors, had the power to call +special meetings of our board of directors and stockholders and presided at meetings of our board of directors and stockholders. The Chairman of the Board has also advised and counseled our Chief Executive Officer and other officers. Our board of +directors does not have a position of a lead director. +We believe that our directors bring a broad range of leadership experience to the boardroom and +regularly contribute to the thoughtful discussion involved in effectively overseeing the business and affairs of the Company. We believe that the atmosphere of our board is collegial, that all board members are well engaged in their +responsibilities, and that all board members express their views and consider the opinions expressed by other directors. Five out of six of our director nominees are independent under the Nasdaq listing standards and SEC rules. We believe that all +of our independent directors have demonstrated leadership in business enterprises and are familiar with board processes. Our independent directors are involved in the leadership structure of our board by serving on our Audit, Nominating and +Compensation committees, each having an independent chairperson. Specifically, the chair of our Audit Committee oversees the accounting and financial reporting processes, as well as compliance with legal and regulatory requirements. The chair of our +Compensation Committee oversees our compensation policies and practices and their impact on risk and risk management. The chair of our Nominating Committee monitors matters such as the composition of the board and its committees, board performance +and best practices in corporate governance. As such, each committee chair provides independent leadership for purposes of many important functions delegated by our board of directors to such committee. +Board of Director’s Role in Risk Oversight +As an exploration and production company, we face a number of risks, including risks associated with the supply of and demand for oil and natural gas, +volatility of oil and natural gas prices, exploring for, developing, producing and delivering oil and natural gas, declining production, environmental and other government regulations and taxes, weather conditions, including hurricanes, that can +affect oil and natural gas operations over a wide area, adequacy of our insurance coverage, political instability or armed conflict in oil and natural gas producing regions and overall economic environment. Management is responsible for the +day-to-day management of risks we face as a company, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. It its risk oversight role, our board of directors has the +responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. +Our +board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight. Our Chairman of the Board meets regularly with our Chief Executive Officer and Chief +Financial Officer to discuss strategy and risks facing the Company. Our executive officers regularly attend the board meetings and are available to address any questions or concerns raised by the board on risk management-related and any other +matters. Other members of our management team periodically attend board meetings or are otherwise available to confer with the board to the extent their expertise is required to address risk management matters. Periodically, our board of directors +receives presentations from senior management on strategic matters involving our operations. During such meetings, our board of directors also discusses strategies, key challenges, and risks and opportunities for the Company with senior management. +11 +Table of Contents +While our board of directors is ultimately responsible for risk oversight at the Company, our three committees +assist the board in fulfilling its oversight responsibilities in certain areas of risk. Our Audit Committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal +controls and compliance with legal and regulatory requirements, and discusses policies with respect to risk assessment and risk management. Our Compensation Committee assists the board in fulfilling its oversight responsibilities with respect to the +management of risks arising from our compensation policies and programs. Our Nominating Committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership +and structure, succession planning for our directors and executive officers and corporate governance. +Audit +Committee Report +The Audit Committee is responsible for providing independent, objective oversight for the integrity of the Company’s financial +reporting process and internal control system. Other primary responsibilities of the Audit Committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the Company’s independent registered +public accounting firm and providing an open venue for communication among the independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of the Company. A more detailed +description of the responsibilities of the Audit Committee is set forth in its written charter, which is posted on our website at www.gulfportenergy.com . The following report summarizes certain of the Audit Committee’s activities with +respect to its responsibilities during 2013. +Review with Management and Independent Registered Public Accounting Firm. The Audit Committee has +reviewed and discussed with management and Grant Thornton LLP, an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, 2013. +Controls and Procedures. Management has established and maintains a system of disclosure controls and procedures designed to provide reasonable +assurance that information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time +periods specified in the SEC’s rules and forms, and includes controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, +including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2013, management conducted an evaluation of our disclosure controls and procedures. +Based on this evaluation, our Interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in the +reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Audit Committee discussed with management and Grant Thornton LLP the quality +and adequacy of the Company’s disclosure controls and procedures. +Management has also established and maintains a system of internal controls over +financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate +and that the judgments inherent in the preparation of financial statements are reasonable. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal +Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control—Integrated Framework, management did not identify +any material weaknesses in our internal control over financial reporting and concluded that our internal control over financial reporting was effective as of December 31, 2013, as discussed in more detail in Management’s Report on Internal +Control Over Financial Reporting, which was included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February 28, 2014. Our internal control over financial reporting as of December 31, +2013 has been audited by Grant Thornton LLP, as stated in its attestation report, which was included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February 28, 2014. The Audit Committee +reviewed and discussed with management and Grant Thornton LLP the Company’s system of internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. +Discussions with Independent Auditing Firm. The Audit Committee has discussed with Grant Thornton LLP, independent auditors for the Company, the +matters required to be discussed by Rules on Auditing Standard No. 16, Communication with Audit Committees, as amended. The Audit Committee has received the written disclosures and the letter from Grant Thornton LLP required by applicable +requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence and has discussed with that firm its independence from the Company. +Recommendation to the board of directors. Based on its review and discussions noted above, the Audit Committee recommended to the board of directors +that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. +12 +Table of Contents +THE AUDIT COMMITTEE +David L. Houston, Chairman +Donald L. Dillingham +Scott E. Streller +13 +Table of Contents +Executive Officers +The following table sets forth the name, age and positions of each of our executive officers as of the record date: +Name +Age +Position +Michael G. Moore +56 +Chief Executive Officer, President and Interim Chief Financial Officer +J. Ross Kirtley +59 +Chief Operating Officer +Stuart A. Maier +60 +Vice President of Geosciences +Steve R. Baldwin +60 +Vice President of Reservoir Engineering +Biographical information for Mr. Moore is set forth in this proxy statement under the heading “Election of Directors +and Director Biographies.” +J. ROSS KIRTLEY . Mr. Kirtley has served as Chief Operating Officer of the Company since April 22, 2014. +Previously, Mr. Kirtley served as Chief Operating Officer of our Ohio activities from October 2013 through April 22, 2014. From January 2007 to January 2013, he served as Vice President of Services for Sandridge Energy, Inc. and President +of Lariat Services, Inc., Hondo Heavy Haul, Inc. and Chapparal Supply, LLC, each a wholly-owned subsidiary of Sandridge Energy, Inc. Prior to joining Sandridge Energy, Inc., Mr. Kirtley served as Business Manager for NOMAC Drilling, Inc., a +wholly-owned subsidiary of Chesapeake Energy Corporation. Mr. Kirtley graduated from Southwestern Oklahoma State University in 1977. +STUART A. +MAIER. Mr. Maier has served as a Geological/Geophysical Manager of the Company since May 1998. From 1993 to May 1998, Mr. Maier had served as Senior Geologist with DLB Oil & Gas, Inc. From 1992 until joining DLB Oil & +Gas, Inc., Mr. Maier was a consulting geologist/geophysicist and, from 1981 to 1991, Mr. Maier was a geologist/geophysicist with The Anschutz Corporation, an oil and natural gas exploration and production company. From 1979 to 1981, +Mr. Maier was a production geologist for Gulf Oil Exploration and Production Company. From 1977 to 1979, Mr. Maier was a well site geologist. Mr. Maier received a Bachelor of Science Degree in Geology from the University of Missouri. +Mr. Maier is a member of the American Association of Petroleum Geologists. +STEVE R. BALDWIN. Mr. Baldwin has served as a Senior +Reservoir Engineer of the Company since October 2006. From February 2001 through September 2006, he served as Senior Reservoir and Acquisition Engineer for Chaparral Energy Inc. From 1996 to December 2000, Mr. Baldwin served as Senior +Operations Engineer for Saba Energy of Texas, Inc. Prior to that, Mr. Baldwin served as Operations Manager for Merrico Resources. Mr. Baldwin began his career with Mobil Oil Corporation after receiving his Bachelor of Science Degree from +the University of Oklahoma. Mr. Baldwin is a member of the Society of Petroleum Engineers. +14 +Table of Contents +Executive Compensation +Compensation Discussion and Analysis +Overview +The compensation +discussion and analysis set forth below provides an overview of our compensation program, including the objectives and rationale of each element of compensation, for each of our named executive officers. This section also describes the actions and +decisions of the compensation committee of our board of directors, and of our board of directors, as they relate to our executive compensation decisions. The compensation committee, which is composed entirely of independent directors, is primarily +responsible for establishing, implementing and monitoring our compensation programs, including those applicable to our executive officers. In particular, the compensation committee’s current role is to oversee, on behalf of our board of +directors, our compensation and benefit plans and policies, administer our stock plans (including reviewing and approving equity grants to directors and executive officers), administer our annual cash incentive bonus plans (including the +establishment of performance criteria, targets and awards under our 2014 Executive Annual Incentive Compensation Plan) and review and approve annually all compensation decisions relating to our named executive officers. In fulfilling its +responsibilities, the compensation committee may delegate any or all of its responsibilities to a member of the committee or to a subcommittee consisting of members of the committee, although no such delegations were made in 2013. The compensation +committee meets at least annually to review executive compensation programs, approve compensation levels, consider performance targets, review management performance and administer our equity-based compensation plans and cash incentive bonus plans. +The compensation committee operates in accordance with its charter, which was amended and restated in January 2014 and sets forth the committee’s powers and responsibilities, which are described in more detail under the heading “Election +of Directors and Director Biographies—What are the committees of the Board?” +As discussed in more detail below under “Potential Payments +Upon Termination, Resignation or Change of Control,” James D. Palm, our former Chief Executive Officer and a former member of the board of directors, retired from all positions with the Company effective February 15, 2014, and Mike +Liddell, our former Chairman of the Board, did not stand for re-election at our 2013 annual meeting of stockholders and, at such time, resigned as Chairman of the Board effective June 13, 2013. We began a nationwide search with Preng & +Associates for Mr. Palm’s successor in February 2014, and the board of directors conducted a review of both internal and external candidates. During this interim period, Michael G. Moore, our President and then-Chief Financial Officer, +assumed management responsibilities associated with the office and acted as Interim Chief Executive Officer pending the conclusion of the board’s search. Upon the conclusion of this search, the board determined that it is in the best interests +of the Company and its stockholders to appoint Mr. Moore as Chief Executive Officer and as a member of our board of directors, and he was appointed to serve in these capacities on April 22, 2014. Mr. Moore will also continue serving +as our President and will serve as our Chief Financial Officer until a new Chief Financial Officer is appointed. +Compensation +Philosophy and Objectives +The objectives of our compensation program are to: +• +attract and retain key executives; +• +align the interests of our executives with those of our stockholders; and +• +motivate and reward individual performance and contributions to the Company’s success and financial performance. +Highlights of Company Performance in 2013 +The following performance graph compares our cumulative total shareholder return (assuming dividend reinvestment) from January 1, 2009 through January 1, +2014, against the average performance of our 2013 proxy peer group identified by Longnecker & Associates (excluding Athlon Energy Inc., which was not publicly-traded until August 2013), as described below under “Compensation Decisions for +2013 and Changes in Compensation for 2014,” and against the Standard & Poor’s 500 Stock Index, a broad market index, or the S&P 500 Index. The graph assumes an investment of $100 on such date, and that all dividends were +reinvested. In 2013 and over this five-year period, we outperformed each of the peer group and the S&P 500 Index. +15 +Table of Contents +Compensation Decisions for 2013 and Changes in 2014 +In the fall of 2012, the compensation committee engaged Equilar, an outside consultant, to provide executive compensation analysis for 2012 focusing on how +base salaries, annual bonuses, equity awards and total compensation packages of our Chief Executive Officer and Chief Financial Officer compared to such compensation elements of similarly situated executives at peer group companies. The 2012 Equilar +survey included the following industry peer companies: Abraxas Petroleum Corporation, Approach Resources Inc., Berry Petroleum Company, Carrizo Oil & Gas, Inc., Chesapeake Energy Corporation, Concho Resources Inc., Continental Resources, +Inc., Devon Energy Corporation, Energy XXI (Bermuda) LTD, EV Energy Partners, LP, Goodrich Petroleum Corporation, Halcon Resources Corp., Laredo Petroleum Holdings, Inc., PDC Energy, Inc., Petroquest Energy Inc., Sandridge Energy Inc., SM Energy +Company, Stone Energy Corporation, Swift Energy Company, W&T Offshore, Inc. and Whiting Petroleum Corporation. The 2012 Equilar survey revealed that the total compensation of each of these named executive officers was below both the median and +the mean amounts of total compensation received by similarly situated executives at peer group companies based on information publicly-available at the time. Furthermore, each element of these named executive officers’ compensation was below +the median and the mean amounts for similarly situated executives at peer group companies, except that the amount of the 2012 annual bonus for Mr. Palm (our then-Chief Executive Officer) exceeded both the median and mean annual bonus of such +similarly situated executives and the value of Mr. Palm’s 2012 restricted stock award exceeded the median value of restricted stock awards granted to such similarly situated executives based on information publicly-available at the time. +In February 2013, once the Company’s 2012 results of operations were available, the compensation committee reviewed the compensation packages for +Mr. Liddell (our then-Chairman of the Board), Mr. Palm (our then-Chief Executive Officer) and Mr. Moore (our then-Chief Financial Officer) for 2013 in light of our prior year’s performance and the 2012 Equilar survey of +compensation packages of similarly situated executive officers at peer group companies. During such review, the compensation committee evaluated our strategy for recruiting, retaining and motivating our named executive officers and key employees. +The committee discussed and evaluated the 2013 compensation packages for Mr. Palm, Mr. Liddell and Mr. Moore in light of the Company’s performance, the value each executive brings to the Company, market trends, competitive market +data, economic climate, the respective experience and leadership roles of these executives and the Company’s desire to retain these executives. The compensation committee noted the Company’s strong performance metrics as compared to its +peers, citing the committee’s focus on total stockholder return as a key performance metric in determining executive compensation. After considering the foregoing, the compensation committee determined that the 2013 base salary for each of +Messrs. Palm, Liddell and Moore would be $400,000 effective February 2013, and determined to grant each of Messrs. Palm, Liddell and Moore 50,000 shares of restricted stock which, in the case of each executive, would vest in 12 quarterly +installments beginning on March 15, 2013, with 20,000 shares vesting in 2013, 16,667 shares vesting in 2014 and 13,333 shares vesting in 2015. +In +September 2013, the compensation committee engaged Longnecker & Associates, an independent compensation consulting firm, to, among other things, (i) conduct a peer analysis to aid the committee in determining the appropriate peer group +for 2013 and 2014, (ii) conduct an analysis of the Company’s executive compensation for Mr. Palm and Mr. Moore, including with respect to base salary, targeted annual incentives and targeted total direct compensation, +(iii) conduct a compensation analysis for Mr. Liddell, who, as previously disclosed and discussed below, became a consultant of the Company after resigning as Chairman of the Board, (iv) conduct an analysis of the compensation of the +board of directors, including with respect to annual retainers, meeting fees, equity grants and total director compensation, (v) provide the compensation committee with an opinion related to the payout of bonuses, including the analysis +performed of market prevalence and competitiveness, and (vi) conduct a review of the compensation committee’s charter. In establishing our peer group for 2013, Longnecker & Associates initially identified candidates of similar size, +with similar operations in the onshore oil and gas exploration and production industry, and with similar operations in comparable geographies. Based on Longnecker & Associates’ evaluation, our peer group for 2013 consisted of the following +16 companies: Athlon Energy Inc., Kodiak Oil & Gas Corp., Laredo Petroleum Holdings, Inc., Oasis Petroleum Inc., Rosetta Resources, Inc., Denbury Resources Inc., Energen Corp., QEP Resources, Inc., Whiting Petroleum Corp., Newfield Exploration +Co., Concho Resources, Inc., Range Resources Corporation, Energy XXI (Bermuda) Limited, SM Energy Company, Cimarex Energy Co. and Kosmos Energy Ltd. In selecting our 2013 peer group, Longnecker & Associates sought to include companies that are +operationally similar to Gulfport, while maintaining appropriate relative financial alignment. These considerations resulted in our 2013 peer group including companies that operate in similar plays, focus on onshore exploration and production and +have similar reserve and production characteristics (i.e. blend of gas and oil) and market capitalizations which are within a range of 0.5x – 2.0x that of Gulfport’s market capitalization. Longnecker & Associates believed that focusing +on companies with similar market capitalization was appropriate for the Company after evaluating its operations and the significant stock price growth the Company has experienced. Given Gulfport’s diverse and unique operational locales, +Longnecker & Associates focused on companies with a majority of operations in the continental U.S. rather than in any more specific geographic region. Among our 2013 peer group, Gulfport falls in the 17th percentile in revenue, 30th percentile +in assets, 73rd percentile in market capitalization, 69th percentile in net income and 64th percentile in enterprise value, in each case for the trailing 12 months effective October 8, 2013. +16 +Table of Contents +In October 2013, the compensation committee met to consider granting Mr. Moore a discretionary 2013 annual +bonus in advance of the scheduled year-end payment date. Based on Longnecker & Associates’ analysis, the compensation committee concluded that the off-cycle payment of the bonus would not negatively impact the incentive structure it +was designed to generate and approved the advance payment of a $500,000 discretionary bonus to Mr. Moore, the minimum annual bonus required to be paid to Mr. Moore pursuant to the terms of his employment agreement. The compensation +committee noted, however, that Mr. Moore’s bonus is intended to be performance driven and, given the Company’s performance and success during 2013, including total stockholder return as highlighted in the chart above, agreed to +consider, at a later date, increasing Mr. Moore’s discretionary bonus for 2013. +In December 2013, the compensation committee met to consider, +among other things, the bonuses to be paid to Mr. Palm and Mr. Moore based on their performance in 2013. In connection with the foregoing, the compensation committee reviewed the compensation report prepared by Longnecker & +Associates with respect to the compensation of Messrs. Moore and Palm. The compensation committee discussed and evaluated the compensation packages for Mr. Palm and Mr. Moore in light of the Company’s performance, the value each such +executive brings to the Company, market trends, competitive market data, economic climate, the respective experience and leadership roles of these executives and the Company’s desire to retain these executives. The compensation committee also +evaluated the compensation packages for the members of the board of directors of the Company considering the same factors. The compensation committee noted that the Company demonstrated strong performance metrics as compared to its peers. In +accordance with the recommendations in Longnecker & Associates’ report, the compensation committee recommended that each of Mr. Palm and Mr. Moore receive a bonus of $500,000 for the 2013 fiscal year. As discussed above, +Mr. Moore received an advance payment of this bonus in October 2013. The compensation committee also approved Mr. Palm’s recommendations with respect to discretionary bonuses for Messrs. Maier and Baldwin for 2013, considering their +increased role within the organization, individual performance and importance to the Company. +In February 2014, the compensation committee awarded 24,868 +shares of restricted stock to Mr. Moore under our 2013 Restated Stock Incentive Plan as a retention award in connection with his assumption of duties as Interim Chief Executive Officer after the retirement of Mr. Palm and in view of the +uncertainty relating to his position in recognition of the then-ongoing search for a new Chief Executive Officer. The retention award was subject to Mr. Moore’s continuous service with the Company and was to vest in two equal annual +installments beginning on February 24, 2015, unless earlier vesting occured upon his involuntary termination without cause, termination for good reason, death, disability or termination for any reason except cause or voluntary termination +without good reason within 24 months after a change in control. As described below, this retention award was rescinded when Mr. Moore was named our Chief Executive Officer. +On April 1, 2014, the compensation committee recommended the approval of, and the board of directors approved, the 2014 Executive Annual Incentive +Compensation Plan, subject to stockholder approval at the 2014 Annual Meeting of Stockholders. This plan, which we refer to as our Annual Incentive Plan, was approved in response to certain stockholder concerns as part of an ongoing initiative to +revise the Company’s compensation philosophy and programs away from a guaranteed minimum bonus structure to a mix of base compensation and performance based incentive compensation. The Annual Incentive Plan is described in more detail elsewhere +in this proxy statement, including in Proposal 2. On April 1, 2014, the compensation committee also determined to provide Mr. Moore, as an additional incentive, a cash retention bonus equal to $400,000 in view of the uncertainty relating +to his position in recognition of the then-ongoing search for a new Chief Executive Officer. The cash bonus amount was to vest and become payable in two equal annual installments, beginning on February 24, 2015, subject to Mr. Moore’s +continuous service with the Company, unless earlier vesting occurs upon his involuntary termination without cause, termination for good reason, death, disability or termination for any reason except cause or voluntary termination without good reason +within 24 months after a change in control. As described below, this cash bonus award was also rescinded when Mr. Moore was named our Chief Executive Officer. In addition, the compensation committee agreed to increase Mr. Moore’s 2013 +annual discretionary bonus under his employment agreement from $500,000 to $800,000. This increase was designed to recognize the significant financial and operating performance gains experienced by the Company in 2013, Mr. Moore’s overall +performance and the additional duties and responsibilities he assumed upon his appointment as President in August 2013, his service as Chief Financial Officer and Secretary of the Company and his leadership through transformative acquisitions and +related capital market transactions in 2013. +On April 22, 2014, Mr. Moore was appointed Chief Executive Officer of the Company. He continues to +serve as President of the Company and will also serve as interim Chief Financial Officer until a successor is appointed. In connection with his new responsibilities, we entered into an amended and restated employment agreement with Mr. Moore +dated April 30, 2014 but effective April 22, 2014 based on terms recommended by Longnecker & Associates. Material terms of this agreement are discussed below. See “Employment Agreements.” +The compensation committee did not make any changes to the compensation packages for Messrs. Maier and Baldwin for 2014. +17 +Table of Contents +Compensation Policy +The key elements of our compensation program are base salary, annual bonus and long-term incentive compensation. We use these elements to meet our compensation +objectives as follows: +• +Attract and retain key executives . We believe that to attract and retain talented executives, we must offer compensation that is competitive with the compensation of similarly-situated executives of +comparable companies within the oil and natural gas industry. To facilitate the retention of Michael G. Moore, our new Chief Executive Officer, President and interim Chief Financial Officer, we entered into an amended and restated employment +agreement, effective April 22, 2014, with Mr. Moore. The agreement has an initial term of three years and will automatically renew for successive one-year periods unless the Company or Mr. Moore gives notice to the other, in +accordance with the terms of the employment agreement, that it has elected to not renew the agreement. See immediately below and “Employment Agreements” for more information regarding the terms of this agreement. In addition, upon entering +into this agreement, the equity and cash retention awards granted to Mr. Moore in connection with his assumption of duties as Interim Chief Executive Officer after the retirement of Mr. Palm were rescinded in full. +• +Align the interests of our executives with those of our stockholders . In the past, we used both options and restricted stock awards to provide long-term incentive compensation and to align the financial +interests of our executives with those of our stockholders. Since 2006, we have used only restricted stock awards to incentivize our named executive officers. It is anticipated that in the future the compensation committee will continue to structure +our long-term incentive compensation in the form of restricted stock awards (including restricted stock units), consistent with peer group companies’ practices. For a discussion of the Company’s long-term incentive policy, see “Long +Term Incentive Compensation” below. +• +Restricted Stock Awards . In February 2013, each of Messrs. Palm, Liddell and Moore received a grant of 50,000 shares of restricted stock under our Amended and Restated 2005 Stock Incentive Plan. In the case of +each of Mr. Liddell and Mr. Moore, 24,166 shares of these shares had vested as of March 31, 2014, 12,501 of these shares will vest during the remainder of 2014 and 13,333 of these shares will vest in 2015. All of the 50,000 shares of +restricted common stock granted to Mr. Palm in February 2013 became fully vested upon Mr. Palm’s retirement on February 15, 2014, along with all other unvested stock options, restricted stock or any other equity awards held by +Mr. Palm at such time (excluding the restricted stock unit award for 80,000 shares of the Company’s common stock granted in connection with Mr. Palm’s retirement, which will vest in three substantially equal annual installments +beginning on the first anniversary of Mr. Palm’s retirement date). In December 2013, each of Messrs. Maier and Baldwin received a grant of 40,000 shares of restricted stock under our 2013 Restated Stock Incentive Plan. These shares vest in +three substantially equal installments beginning on December 12, 2013. James D. Palm, our then-Chief Executive Officer, recommended these equity grants for Messrs. Maier and Baldwin due to their increased role within the organization and their +significant contributions to the development of the Company. As discussed below, in February 2014, the compensation committee awarded 24,868 shares of restricted stock to Mr. Moore under our 2013 Restated Stock Incentive Plan as a retention +award in connection with his assumption of duties as the Company’s Interim Chief Executive Officer. In connection with his appointment as our Chief Executive Officer in April 2014 and our execution of an amended and restated employment +agreement effective April 22, 2014, the February 2014 retention award was rescinded and Mr. Moore was awarded 40,000 shares of restricted stock, which will vest in three annual installments of 13,333, 13,333 and 13,334 shares on May 12, +2014 and April 22, 2015 and 2016, respectively. Restricted stock awards ensure that our executives have a continuing stake in the long-term success of the Company as the value of the award will at all times depend on the stock price. +• +Stock Options . Stock options represent the right of an option holder to buy shares of our common stock at an exercise price equal to the market +value of our common stock on the date of grant. Under our outstanding stock options, the right to buy underlying shares generally vested in 36 substantially equal monthly installments from the date of grant, except that certain options vested in +five substantially equal annual installments beginning on the first anniversary of the date of grant. We have not granted stock options since 2005. All outstanding options have +18 +Table of Contents +now vested. We awarded these stock options in order to align compensation with company performance as the options become valuable to the executive only if the stock price increases from the date +of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. +• +Performance-Based Cash Incentive Compensation . As described in more detail in Proposal 2 below, on April 1, 2014, the compensation committee recommended the approval of, and the board of directors approved, +the Annual Incentive Plan, subject to stockholder approval at the 2014 Annual Meeting of Stockholders. Also on April 1, 2014, the compensation committee established the performance criteria and targets for 2014 under the Annual Incentive Plan, +again subject to stockholder approval of the Plan. For 2014, the performance levels require achieving certain financial and operational metrics, including growth in EBITDA, estimated proved reserves and oil and natural gas production, as compared to +the prior year period. The compensation committee granted an award to Michael G. Moore, our Chief Executive Officer, President and interim Chief Financial Officer, under the Annual Incentive Plan, which award will represent 50%, 100% or a maximum of +200% of his base salary, depending on reaching the threshold, target or above-target performance levels. Under the terms of Mr. Moore’s amended and restated employment agreement effective April 22, 2014, the potential amount of the +award is increased to 75%, 150% or a maximum of 300% of his base salary, subject to the same performance criteria and targets established by the compensation committee on April 1, 2014. Straight line interpolation will apply to determine the +amount of the bonus for performance that is above the threshold target and between performance levels. The compensation committee believes that performance-based cash incentive compensation, with meaningful performance targets, will further align +our executives’ interests with those of our stockholders, motivate our executives to contribute to the Company’s growth and profitability by encouraging the successful implementation of the annual business plan and objectives and link a +larger portion of our executives’ compensation to the performance of the Company. In response to stockholder input, the compensation committee has determined that objective performance-based bonus opportunities should be used to compensate our +executives in place of discretionary or minimum bonus requirements. +• +Motivate and reward individual performance and contributions to the Company’s success and financial performance . The Company’s evaluation of the individual performance of each executive officer +affects most aspects of the executive’s compensation. Individual performance and level of responsibility are considered in determining an executive’s annual salary, and are important factors in deciding whether to grant discretionary +bonuses and equity awards. The compensation committee also believes that the establishment of meaningful performance targets under the Annual Incentive Plan will motivate our executives to perform at a higher level. See “Compensation Policy - +Align the interests of our executives with those of our stockholders” and “Compensation Components – Performance-Based Cash Incentive Compensation”. +Compensation Components +Base Salary +Base salary is +designed to provide basic economic security for our executives and be competitive with salary levels for comparable executives at our peer group companies. As discussed under the heading “Employment Agreements” below, we entered into +employment agreements with Mr. Liddell, Mr. Palm and Mr. Moore in November 2012, and we entered into an amended and restated employment agreement with Mr. Moore effective as of April 22, 2014. As discussed elsewhere in this +proxy statement, Mr. Palm retired as our Chief Executive Officer and from our board of directors in February 2014, at which time his employment agreement was terminated, and Mr. Liddell did not stand for re-election as Chairman of the +Board at our last annual meeting of stockholders in June 2013 and his employment agreement with the Company was terminated at such time. Under each of these employment agreements, the named executive officer was entitled to a base salary in each +year of such executive’s employment agreement, the amount of which was to be reviewed from time to time by the compensation committee and could be adjusted upward, but not downward, by the compensation committee in its sole discretion. In +determining the amount of the base salaries of Mr. Liddell, Mr. Palm and Mr. Moore in connection with the negotiation of their respective employment agreements, the compensation committee considered numerous factors, including the +compensation of executive officers of comparable companies within the oil and natural gas industry, the performance of such executive officer, the experience and leadership qualities of such executive officer, the value such executive officers +brought to the Company and the Company’s strategy for recruiting, retaining and motivating key employees. In the future, we anticipate that the compensation committee will continue to review the base salaries of our named executive officers on +an annual basis, subject to the terms of any employment agreements that we may have with our named executive officers, and will consider similar factors in making base salary determinations. In February 2013, the compensation committee determined, +in accordance with the terms of the November 2012 employment agreements, that each of Mr. Liddell, Mr. Palm and Mr. Moore would receive a base salary of $400,000 in 2013. Under the terms of his amended and restated employment +agreement effective April 22, 2014, Mr. Moore’s annual base salary for 2014 remained at $400,000. For additional information, see “Compensation Decisions for 2013 and Changes in 2014” above. The compensation committee also +did not make any changes in the base salary for Messrs. Maier and Baldwin for 2014. +19 +Table of Contents +Performance-Based Cash Incentive Compensation +On April 1, 2014, the compensation committee recommended the approval of, and the board of directors approved, the 2014 Executive Annual Incentive +Compensation Plan, subject to stockholder approval at the 2014 Annual Meeting of Stockholders. The 2014 Executive Annual Incentive Compensation Plan, which we refer to as the Annual Incentive Plan, is designed to provide an incentive to executive +officers and other selected employees of the Company to contribute to the growth, profitability and increased value of the Company by providing cash incentive compensation that qualifies as “performance based compensation” within the +meaning of Section 162(m) of the Internal Revenue Code. We adopted the Annual Incentive Plan, in response to certain stockholder concerns, as part of an ongoing initiative to eliminate the use of minimum discretionary bonus arrangements in the +employment agreements of our executive officers in favor of performance-based bonuses. +The Annual Incentive Plan focuses on achievement of certain annual +objectives and goals, as determined by the compensation committee at the beginning of each calendar year, and provides that the participants may earn a pre-determined percentage of their respective base salaries for the achievement of such specified +goals. Under the Annual Incentive Plan, the payout opportunity is contingent upon meeting the threshold performance levels, and thereafter varies for performance above and below the pre-established target performance levels, subject to a maximum +award level. The target award to a participant will represent a percentage of such participant’s base salary, as adjusted based upon meeting or exceeding the performance levels established by the compensation committee for that year, and cannot +exceed a maximum payment limit specified by the compensation committee. The terms of the Annual Incentive Plan are described in more detail in Proposal 2 below beginning on page 39. +On April 1, 2014, the compensation committee established the performance criteria and targets for 2014 under the Annual Incentive Plan and specified the +weighting attributable to such performance metrics, subject to the approval of the Annual Incentive Plan by the Company’s stockholders at the 2014 annual meeting of stockholders. For 2014, the performance levels require achieving certain +financial and operational metrics, including growth in EBITDA, estimated proved reserves and oil and natural gas production, as compared to the prior year period. Also on April 1, 2014, the compensation committee granted an award to Michael G. +Moore, our Chief Executive Officer, President and interim Chief Financial Officer, under the Annual Incentive Plan, which award will represent 50%, 100% or a maximum of 200% of his base salary, depending on reaching the threshold, target or +above-target performance levels. Under the terms of Mr. Moore’s amended and restated employment agreement effective April 22, 2014, the potential amount of the award is increased to 75%, 150% or a maximum of 300% of his base salary, +subject to the same performance criteria and targets established by the compensation committee on April 1, 2014. Straight line interpolation will apply to determine the amount of the bonus for performance that is above the threshold target and +between performance levels. As discussed above, the compensation committee believes that performance-based cash incentive compensation, with meaningful performance targets, will further align our executives’ interests with those of our +stockholders, motivate our executives to contribute to the Company’s growth and profitability and link a larger portion of our executives’ compensation to the performance of the Company. +Discretionary Bonus +The annual +bonus is an incentive designed to motivate our executives to maximize stockholder return. Pursuant to the terms of the November 2012 employment agreements with Mr. Liddell, Mr. Palm and Mr. Moore, each such executive was entitled to +receive an annual cash bonus. The compensation committee was required to determine the amount of the annual cash bonus awarded to each of Mr. Liddell, Mr. Palm and Mr. Moore, provided that the amount of the bonus was required to equal +or exceed the minimum $500,000 annual bonus amount as set forth in each executive’s employment agreement. For 2013, the compensation committee granted a discretionary bonus of $500,000 to Mr. Palm and an aggregate discretionary bonus of +$800,000 to Mr. Moore. The amount of the bonus paid to Mr. Palm was the same as the bonus granted to Mr. Palm for the prior year, which was intended to reflect our continued strong performance in 2013 and the contributions of Mr. Palm +to the Company, including with respect to the Company’s successful completion of two underwritten public offerings of common stock and an acquisition of additional working interests in our acreage in the Utica Shale in Eastern Ohio. The +aggregate amount of the 2013 bonus awarded to Mr. Moore represented an increase of $300,000 over Mr. Moore’s annual discretionary bonus for 2012. The compensation committee determined this increase was warranted considering the +significant financial and operating performance gains experienced by the Company in 2013, Mr. Moore’s overall performance and the additional duties and responsibilities he assumed upon his appointment as President in August 2013, his +service as Chief Financial Officer and Secretary of the Company and his leadership through transformative acquisitions and related capital market transactions. The bonuses were also intended to keep these named executive officers’ overall +compensation closer to the total compensation received by similarly situated executives at peer group companies. Mr. Liddell, who resigned as Chairman of the Board in June 2013, did not receive a discretionary bonus for 2013. For additional +information, see “Compensation Decisions for 2013 and Changes in 2014” above. As discussed elsewhere in this proxy statement, in response to stockholder input, the compensation committee has determined that objective performance-based +bonus opportunities should be used to compensate our executives in place of discretionary or minimum bonus requirements. +Long-Term +Incentive Compensation +2013 Awards . In 2013, the compensation committee reviewed and discussed the Company’s current equity +compensation plan and objectives. The compensation committee also considered the need to issue new equity awards as old awards become fully vested, so as +20 +Table of Contents +to provide future incentives to our executive officers. Upon review, the compensation committee granted restricted stock awards of 50,000 shares of restricted common stock to each of +Mr. Liddell, Mr. Palm and Mr. Moore and restricted stock awards of 40,000 shares of restricted common stock to each of Mr. Maier and Mr. Baldwin. For additional information regarding these awards, see +“— Compensation Policy—Align the interests of our executives with those of our stockholders—Restricted Stock Awards ” above. +Long-Term Incentive Policy . Although in the past we awarded both options and restricted stock as part of our long-term incentive compensation program, +our board of directors and the compensation committee believe that restricted stock awards are an essential component of our compensation strategy, and currently intend to primarily offer such awards in the future. Further, we anticipate that any +equity awards granted to our executive officers during 2014 will be in the form of restricted stock. The Committee may also determine to issue other forms of stock-based awards to our named executive officers or other eligible participants under our +2013 Restated Stock Incentive Plan or other equity incentive plans in effect at that time. Our current equity incentive plan is described below under the heading “2013 Restated Stock Incentive Plan” below. The compensation committee did +not establish any objective performance targets for 2013. +Termination and Change of Control Benefits +As described in more detail under “Employment Agreements” and “Potential Payments Upon Termination, Resignation or Change of Control,” we +are party to an employment agreement with Mr. Moore that provides for specified payments and benefits upon certain termination events, including termination following a change of control. This employment agreement contains termination and +change of control provisions that we believe are comparable to similar provisions employed by a majority of the companies in our industry peer group. The compensation committee believes that this agreement will encourage Mr. Moore to remain in +our employment in the event of a change of control of the Company and during circumstances which indicate that a change of control might occur. The compensation committee believes termination and change of control benefits are important in +maintaining strong leadership and in encouraging retention in these situations and encourages our executives to act in the best interests of stockholders without distraction based on uncertainty regarding their employment status. +We do not have an employment agreement with either Mr. Maier or Mr. Baldwin but, under the terms of the restricted stock awards made to +Mr. Maier and Mr. Baldwin, the shares of restricted stock held by Mr. Maier and Mr. Baldwin may be accelerated in the discretion of the compensation committee upon a change of control. The value of the restricted stock held by +Mr. Maier and Mr. Baldwin was $2,251,658 and $2,062,268, respectively, as of December 31, 2013. See “Potential Payments Upon Termination, Resignation or Change in Control.” +Perquisites and Other Personal Benefits +We provide certain of our named executive officers with a limited number of perquisites or other personal benefits, primarily consisting of life insurance +premiums and, in the case of Mr. Palm, prior to his retirement as our Chief Executive Officer, and Mr. Moore, our current Chief Executive Officer, President and interim Chief Financial Officer, a company vehicle, that we believe help +provide a competitive package of compensation and benefits. The value of these benefits is disclosed in the Summary Compensation Table below. +Broad-Based Employee Benefits +401(k) Plan . We have a retirement savings plan in which our named executive officers currently participate. The retirement plan is a tax qualified +401(k) plan that covers all eligible employees including the named executive officers. Under the plan, we make a safe harbor contribution equal to 3% of each eligible employee’s gross annual compensation for the prior calendar year. We also +have the ability to make an additional, discretionary contribution that is allocated based on each eligible employee’s gross annual compensation for the prior calendar year. Both contributions are or may be made regardless of employee’s +deferrals into the plan. In 2013, we made safe harbor and discretionary contributions totaling 6% of eligible compensation for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Service regulations. +All contributions made by us on behalf of an employee are 100% vested when contributed. For more details regarding our 401(k) plan, see “Retirement Plans—401(k) Plan” below. +Other Benefits . Our named executive officers are eligible to participate in all of our other employee benefit plans which include medical, dental, +group life, disability and accidental death and dismemberment insurance, in each case on the same basis as all other employees. +21 +Table of Contents +Effect of Our Compensation Policies and Practices on Risk and Risk Management +The compensation committee reviews the risks and rewards associated with our compensation policies and programs. We believe that such policies and +programs encourage and reward prudent business judgment and to avoid encouraging excessive risk-taking over the long term. With respect to specific elements of compensation: +• +We believe that our programs balance short- and long-term incentives for our executive officers providing for an appropriate mix of fixed, performance-based, discretionary and equity compensation that encourages +long-term performance. +• +We believe that annual base salaries for our named executive officers do not encourage excessive risk-taking as they are fixed amounts that are subject to discretionary increases by our compensation committee that may +be based on, among other factors, annual performance evaluations. We also believe that such annual base salaries are set at reasonable levels, as compared to the base salaries of similarly-situated individuals at our peer group companies, and +therefore do not negate the effect of other compensation elements that encourage long-term service, growth and performance that may increase stockholder value. +• +Our annual bonuses are designed to award achievement of short-term results. Historically, subject to the minimum annual bonus amounts set forth in the employment agreements of certain of our executive officers, the +amounts of such bonuses have been within the discretion of and determined by our compensation committee and have been based upon, among other factors, the Company’s performance for the prior fiscal year and annual performance evaluations of our +named executive officers. The compensation committee has eliminated the use of minimum discretionary bonus arrangements in all of the Company’s employment agreements in recognition of the Company’s shift to the use of performance-based +bonuses. +• +On April 1, 2014, the compensation committee recommended the approval of, and the board of directors approved, the Annual Incentive Plan and established performance criteria thereunder, subject to stockholder +approval of the Plan at the 2014 Annual Meeting of Stockholders. The compensation committee believes that performance-based cash incentive compensation, with meaningful performance targets, such as those under our Annual Incentive Plan, will further +align our executives’ interests with those of our stockholders, will motivate our executives to contribute to the Company’s growth and profitability and will link a larger portion of our executives’ compensation to the performance of +the Company. +• +Restricted stock awards and stock options granted to our named executive officers are subject to time vesting provisions. We award restricted stock awards to ensure that our executives have a continuing stake in the +long-term success of the Company as the value of the award will depend on the stock price at and after the time of vesting. We have in the past awarded stock options in order to align compensation with company performance, as the options become +valuable to the executive only if the stock price increases from the date of grant. Also, stock options require a long-term commitment by executives to realize the appreciation potential of the options. However, we have not awarded stock options to +our executive officers since 2005. We believe that our long-term equity awards do not encourage excessive risk taking that may be associated with equity awards that vest based strictly on achieving certain targets. We also believe that our long-term +equity awards provide incentive to our named executive officers to reasonably encourage growth and financial performance that may increase stockholder value, as well as long-term service, and serve to align the interests of our executives with those +of our stockholders. +Based on the foregoing, the compensation committee believes that the Company does not utilize compensation policies +and programs creating risks that are reasonably likely to have a material adverse impact on the Company. +Deductibility of +Executive Compensation +Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax purposes of executive +compensation paid to the Chief Executive Officer and the three other most highly compensated officers (other than the Chief Executive Officer and the Chief Financial Officer) of a public company to $1,000,000 per year, but contains an exception for +certain performance-based compensation. Our policy is to periodically review and consider whether particular compensation and incentive payments to our executives will be deductible for federal income tax purposes. We intend, to the extent feasible +and when we believe it is in the best interests of the Company and its stockholders, to attempt to qualify executive compensation as tax deductible where it does not adversely affect the development and execution of our compensation plans. However, +the compensation committee may from time to time approve non-deductible payments in order to maintain flexibility in structuring appropriate compensation programs in the interests of the Company and our stockholders. For example, the compensation +committee has in the past granted stock options with time based vesting provisions that would be considered performance based compensation, but in recent years has granted restricted stock that is subject to time based vesting and does not +constitute performance based compensation that will satisfy the exception to the deduction limit. +Accounting Implications +of Executive Compensation Policy +We are required to recognize compensation expense of all stock-based awards pursuant to the provisions of FASB ASC +Topic 718, “ Compensation—Stock Compensation .” Non-vested shares are deemed issued and outstanding from a legal perspective; however, under U.S. generally accepted accounting principles, or GAAP, only vested shares are included +in basic shares outstanding. Also, under GAAP, non-vested shares are included in diluted shares outstanding when the effect is dilutive. +22 +Table of Contents +The Role of Stockholders’ Say-on-Pay Vote +We provide our stockholders with the opportunity to cast an annual advisory vote on executive compensation (a “say-on-pay proposal”) in accordance +with the Dodd-Frank Act. At our June 2011 annual meeting of stockholders, our stockholders expressed substantial support for the compensation of our named executive officers, with approximately 99.7% of the votes cast for approval of the +“say-on-pay” advisory vote. The compensation committee evaluated the results of the 2011 “say-on-pay” advisory vote at its October 2011 meeting. At our June 2012 and June 2013 annual meetings of stockholders, our stockholders +again expressed support for the compensation of our named executive officers, with approximately 94.4% and 63.6%, respectively, of the votes cast for approval of the “say-on-pay” advisory vote. The compensation committee believes that the +results of the 2011, 2012 and 2013 “say on pay” advisory votes affirm our stockholders’ support of our executive compensation policies and practices, but the compensation committee has implemented the Annual Incentive Plan, subject to +stockholder approval, to more closely align our executives’ interests with those of our stockholders and to link a larger portion of our executives’ compensation to the performance of the Company. The Annual Incentive Plan was approved, in +response to certain stockholder concerns, as part of a broader initiative to revise the Company’s compensation philosophy and programs away from a guaranteed minimum bonus structure to a mix of base compensation and performance based incentive +compensation. The compensation committee also has committed to eliminate the use of minimum discretionary bonus arrangements in future employment agreements, in recognition of the Company’s shift to the use of performance-based bonuses. The +compensation committee believes that our executive compensation policies and practices, including the newly-adopted Annual Incentive Plan and shift away from discretionary bonus arrangements, are appropriate and reasonably consistent with market +practices and with the long-term interests of the Company and its stockholders. The compensation committee will continue to consider the outcome of our stockholders’ future “say-on-pay” votes when making compensation decisions for our +named executive officers. +Compensation Committee Report on Executive Compensation +The compensation committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on its review and discussion +with management, the compensation committee recommended that the Compensation Discussion and Analysis be included in this proxy statement. +Respectfully +submitted by the compensation committee: +David L. Houston, Chairman +Scott E. Streller +Compensation +Committee Interlocks and Insider Participation +No current member of our compensation committee has ever been an officer or employee of ours. None of +our executive officers serves, or has served during the past fiscal year, as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as member of our board of directors or +compensation committee. +Compensation Tables +2011, 2012 AND 2013 SUMMARY COMPENSATION TABLE +The following table provides information concerning compensation of our principal executive officer, principal financial officer and our next three most +highly paid executive officers for the fiscal years ended December 31, 2013, December 31, 2012 and December 31, 2011. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +All Other +Compensation +($)(2) +Total +($) +Michael G. Moore +2013 +$ +383,333 +$ +500,000 +(4) +$ +1,790,000 +(5) +$ +— +$ +31,005 +$ +2,704,338 +President, Chief Financial Officer and Secretary(3) +2012 +2011 +$ +$ +300,000 +300,000 +$ +$ +500,000 +500,000 +$ +$ +1,494,400 +758,000 +(6) +(7) +$ +$ +— +— +$ +$ +30,093 +24,971 +$ +$ +2,324,493 +1,582,971 +Stuart A. Maier +2013 +$ +400,000 +$ +175,000 +$ +2,316,400 +(8) +$ +— +$ +22,504 +$ +2,913,904 +Vice President of Geosciences +Steve R. Baldwin +2013 +$ +195,833 +$ +200,000 +$ +2,316,400 +(9) +$ +— +$ +23,160 +$ +2,735,393 +Vice President of Reserve Engineering +James D. Palm +2013 +$ +383,333 +$ +500,000 +$ +1,790,000 +(10) +$ +— +$ +46,905 +$ +2,720,238 +Former Chief Executive Officer +2012 +$ +258,333 +$ +500,000 +$ +2,521,800 +(11) +$ +— +$ +23,380 +$ +3,303,513 +2011 +$ +234,375 +$ +500,000 +$ +— +$ +— +$ +18,846 +$ +753,221 +Mike Liddell +2013 +$ +166,671 +$ +— +$ +1,790,000 +(12) +$ +— +$ +441,968 +$ +2,398,639 +Former Chairman of the Board +2012 +$ +280,025 +$ +500,000 +$ +1,494,400 +(13) +$ +— +$ +19,431 +$ +2,293,856 +2011 +$ +267,534 +$ +50,000 +$ +— +$ +— +$ +18,846 +$ +336,380 +23 +Table of Contents +(1) +The amount reported in the Stock Awards column reflects the fair value of the restricted stock award on the award date. The amount was calculated using certain assumptions, as set forth in Note 9 to our consolidated +financial statements for the fiscal year ended December 31, 2013, included in our Annual Report on Form 10-K, filed with the SEC on February 28, 2014. +(2) +Amounts for Mr. Liddell include our 401(k) plan contributions of $19,197, $18,846 and $18,846 for 2013, 2012 and 2011, respectively, $271 and $585 attributable to Company sponsored health club membership in 2013 +and 2012, respectively, and $422,500 attributable to compensation under the Consulting Agreement entered into with Mr. Liddell following his resignation as our Chairman of the Board in June 2013. Amounts for Mr. Palm include our 401(k) +plan contributions of $19,197, $18,846 and $18,846 for 2013, 2012 and 2011, respectively, $5,332 and $4,534 attributable to Company sponsored sporting tickets in 2013 and 2012, respectively, and $22,376 attributable to use of a company vehicle in +2013. The amounts for Mr. Moore for 2013, 2012 and 2011 represent our 401(k) plan contributions of $19,197, $18,846 and $18,846, respectively, $6,413, $6,250 and $6,125, respectively, attributable to use of a company vehicle, $5,090 and $4,972 +attributable to Company sponsored sporting tickets in 2013 and 2012, respectively, and $305 and $25 attributable to Company sponsored health club membership in 2013 and 2012, respectively. Amounts for Mr. Maier include our 401(k) plan +contribution of $19,197, $611 attributable to Company sponsored health club membership and $2,696 attributable to Company sponsored sporting tickets. Amounts for Mr. Baldwin include our 401(k) plan contribution of $19,197, $305 attributable to +Company sponsored health club membership and $3,658 attributable to Company sponsored sporting tickets. +(3) +Effective April 22, 2014, Mr. Moore became our Chief Executive Officer and will continue to serve as our President. He will also serve as our interim Chief Financial Officer until a successor has been +appointed. +(4) +On April 1, 2014, the compensation committee awarded Mr. Moore an additional cash bonus of $300,000 attributable to his performance in 2013. +(5) +Mr. Moore’s 2013 restricted stock award of 50,000 shares of our restricted common stock vests in 12 quarterly installments, with 20,000 shares vested as of December 31, 2013, 16,667 shares vesting in 2014 +and 13,333 shares vesting in 2015. +(6) +Mr. Moore’s 2012 restricted stock award of 40,000 shares of our restricted common stock vests in 12 quarterly installments, with 35,000 shares vested as of December 31, 2013 and 5,000 shares vesting in +2014. +(7) +Mr. Moore’s 2011 restricted stock award of 25,000 shares of our restricted common stock vests in five annual installments. Of this amount, 10,000 shares were vested as of December 31, 2013, 6,667 shares +vest on June 16, 2014 and 8,333 shares vest on June 17, 2015. +(8) +Mr. Maier was granted in 2013 an award of 40,000 shares of restricted common stock that vest in three substantially equal annual installments beginning on December 12, 2013. +(9) +Mr. Baldwin was granted in 2013 an award of 40,000 shares of restricted common stock that vest in three substantially equal annual installments beginning on December 12, 2013. +(10) +Mr. Palm’s 2013 restricted stock award of 50,000 shares of our restricted common stock was scheduled to vest in 12 quarterly installments beginning on March 15, 2013, with 20,000 shares vesting in 2013, +16,667 shares vesting in 2014 and 13,333 shares vesting in 2015. Under the terms of the Separation Agreement entered into with Mr. Palm in connection with his retirement, all of these shares of restricted stock, along with all other unvested +stock options, restricted stock or any other equity awards held by Mr. Palm, became fully vested on February 15, 2014, Mr. Palm’s retirement date. +(11) +Mr. Palm’s 2012 restricted stock award of 67,500 shares of our restricted common stock was scheduled to vest in 12 quarterly installments, with 37,500 shares vesting in 2012, 20,000 shares vesting in 2013 and +10,000 shares vesting in 2014. Under the terms of the Separation Agreement entered into with Mr. Palm in connection with his retirement, all of these shares of restricted stock, along with all other unvested stock options, restricted stock or +any other equity awards held by Mr. Palm, became fully vested on February 15, 2014, Mr. Palm’s retirement date. +(12) +Mr. Liddell’s 2013 restricted stock award of 50,000 shares of our restricted common stock vests in 12 quarterly installments, with 20,000 shares vested as of December 31, 2013, 16,667 shares vesting in +2014 and 13,333 shares vesting in 2015. +(13) +Mr. Liddell’s 2012 restricted stock award of 40,000 shares of our restricted common stock vests in 12 quarterly installments, with 30,000 shares vested as of December 31, 2013 and 10,000 shares vesting in +2014. +24 +Table of Contents +2013 GRANTS OF PLAN-BASED AWARDS +The following table provides information concerning each grant of an award made to our principal executive officer, our principal financial officer and our +next three most highly paid executive officers in the fiscal year ended December 31, 2013 under any Company plan. +Estimated Future Payouts Under Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock or +Units +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value +of Stock +and Option +Awards ($) +Name +Grant Date +Threshold (#) +Target +(#) +Maximum (#) +Michael G. Moore +— +— +— +— +50,000 +(2) +— +— +1,790,000 +President, Chief Financial Officer and Secretary(1) +Stuart A. Maier +— +— +— +— +40,000 +(3) +— +— +2,316,400 +Vice President of Geosciences +Steve R. Baldwin +— +— +— +— +40,000 +(4) +— +— +2,316,400 +Vice President of Reserve Engineering +James D. Palm +— +— +— +— +50,000 +(5) +— +— +1,790,000 +Former Chief Executive Officer +Mike Liddell +— +— +— +— +50,000 +(6) +— +— +1,790,000 +Former Chairman of the Board +(1) +Effective April 22, 2014, Mr. Moore became our Chief Executive Officer and will continue to serve as our President. He will also serve as our interim Chief Financial Officer until a successor has been +appointed. +(2) +Mr. Moore’s restricted stock award of 50,000 shares of our restricted common stock vests in 12 quarterly installments beginning on March 15, 2013, with 20,000 shares vesting in 2013, 16,667 shares vesting +in 2014 and 13,333 shares vesting in 2015. +(3) +Mr. Maier’s restricted stock award of 40,000 shares of restricted common stock vests in three substantially equal annual installments beginning on December 12, 2013. +(4) +Mr. Baldwin’s restricted stock award of 40,000 shares of restricted common stock vests in three substantially equal annual installments beginning on December 12, 2013. +(5) +Mr. Palm’s restricted stock award of 50,000 shares of our restricted common stock was scheduled to vest in 12 quarterly installments beginning on March 15, 2013, with 20,000 shares vesting in 2013, 16,667 +shares vesting in 2014 and 13,333 shares vesting in 2015. Under the terms of the Separation Agreement entered into with Mr. Palm in connection with his retirement, all of these shares of restricted stock, along with all other unvested stock +options, restricted stock or any other equity awards held by Mr. Palm, became fully vested on February 15, 2014, Mr. Palm’s retirement date. +(6) +Mr. Liddell’s restricted stock award of 50,000 shares of our restricted common stock vests in 12 quarterly installments beginning on March 15, 2013, with 20,000 shares vesting in 2013, 16,667 shares +vesting in 2014 and 13,333 shares vesting in 2015. +25 +Table of Contents +OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR-END +The following table provides information concerning equity awards outstanding for our principal executive officer, our principal financial officer and our +next three most highly paid executive officers at December 31, 2013. +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date(1) +Number +of Shares +or Units +of Stock +That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vested +($)(2) +Michael G. Moore +— +— +$ +— +— +65,000 +(3) +$ +4,103,450 +Stuart A. Maier +— +— +$ +— +— +35,667 +(4) +$ +2,251,658 +Steve R. Baldwin +— +— +$ +— +— +32,667 +(5) +$ +2,062,268 +James D. Palm +— +— +$ +— +— +40,000 +(6) +$ +2,525,200 +Mike Liddell +182,908 +— +$ +3.36 +1/24/2015 +40,000 +(7) +$ +2,525,200 +(1) +The option expiration date reflects the tenth anniversary from the date of grant. +(2) +Market value of shares or units that have not vested is based on the closing price of $63.13 per share of our common stock on the NASDAQ Global Select Market on December 31, 2013, the last trading day of 2013. +(3) +Of these unvested shares of restricted stock: (i) 15,000 shares vest on December 17, 2014; (ii) 15,000 shares vest in two annual installments, with 6,667 shares vesting on June 16, 2014 and 8,333 +shares vesting on June 17, 2015; (iii) 5,000 shares vest in four quarterly installments in 2014 and (iv) 30,000 shares vest in eight quarterly installments, with 16,667 shares vesting in 2014 and 13,333 shares vesting in 2015. +(4) +Of these unvested shares of restricted stock: (i) 4,000 shares vest in June 2014; (ii) 5,000 shares vest in June 2015; and (iii) 26,667 vest in two substantially equal annual installments, beginning on +December 1, 2014. +(5) +Of these unvested shares of restricted stock: (i) 2,666 shares vest in June 2014; (ii) 3,334 shares vest in June 2015; and (iii) 26,667 vest in two substantially equal annual installments, beginning on +December 1, 2014. +(6) +These unvested shares of restricted stock were scheduled to vest in quarterly installments, with 26,667 shares vesting in 2014 and 13,333 shares vesting in 2015. Under the terms of the Separation Agreement with +Mr. Palm, all of these shares of restricted stock, along with all other unvested stock options, restricted stock or any other equity awards held by Mr. Palm, became fully vested on February 15, 2014, Mr. Palm’s retirement +date. +(7) +These unvested shares of restricted stock vest in quarterly installments, with 26,667 shares vesting in 2014 and 13,333 shares vesting in 2015. +2013 OPTION EXERCISES AND STOCK VESTED +The following table provides certain information for the named executive officers on stock option exercises during 2013, including the number of shares +acquired upon exercise and the value realized, and the number of shares acquired upon the vesting of restricted stock awards. +Name +Option Awards +Stock Awards +Number of Shares +Acquired on Exercise +(#) +Value Realized on +Exercise +($)(2) +Number of Shares +Acquired on Vesting +(#) +Value Realized on +Vesting +($)(1) +Michael G. Moore +— +— +47,000 +2,526,115 +Stuart A. Maier +— +— +16,333 +901,681 +Steve R. Baldwin +— +— +15,333 +851,381 +James D. Palm +125,000 +4,787,872 +40,000 +2,120,500 +Mike Liddell +— +— +40,000 +2,120,500 +(1) +Value realized on vesting is based on the vesting date closing price per share of our common stock on the NASDAQ Global Select Market. +(2) +Value realized on exercise is based on the difference between the exercise price and the exercise date closing price per share of our common stock on the NASDAQ Global Select Market. +26 +Table of Contents +2013 DIRECTOR COMPENSATION +The following table contains information with respect to 2013 compensation of our non-employee directors who served in such capacity during 2013. Employee +directors do not receive compensation for serving as directors of the Company. +Name +Fees Earned or +Paid in Cash +(1) ($) +Stock +Awards +($)(2) +Option +Awards +($)(2) +Total +($) +Donald L. Dillingham +95,500 +49,976 +— +145,476 +Craig Groeschel +89,000 +49,976 +— +138,976 +David L. Houston +111,000 +49,976 +— +160,976 +Scott E. Streller +100,000 +49,976 +— +149,976 +(1) +For additional information regarding the fees earned or paid in cash to our non-employee directors in 2013, please see “Board of Directors Information—How are directors compensated? —Equity +Compensation.” +(2) +The amounts shown reflect the grant date fair value of restricted stock awards granted, determined in accordance with FASB ASC Topic 718. See Note 9 to our consolidated financial statements for the fiscal year ended +December 31, 2013, included in our Annual Report on Form 10-K, filed with the SEC on February 28, 2014, regarding assumptions underlying valuations of equity awards for 2013. There were 3,090, 863, 3,085 and 3,085 shares of unvested +restricted common stock outstanding at the end of 2013 for Messrs. Dillingham, Groeschel, Houston and Streller, respectively. In addition, options to purchase an aggregate of 20,000 shares of common stock were outstanding for Mr. Houston at the +end of 2013. +401(k) Plan +We maintain a retirement savings plan, or a 401(k) Plan, for the benefit of our eligible employees who have attained the age of 18. Currently, employees may +elect to defer their compensation up to the statutorily prescribed limit. During the following year, we make a safe harbor contribution equal to 3% of each eligible employee’s eligible annual compensation for the prior calendar year. We also +have the ability to make an additional, discretionary contribution based on each eligible employee’s eligible annual compensation for the prior calendar year. Both contributions are made, regardless of employee’s deferrals into the plan. +In 2013, we made safe harbor and discretionary contributions totaling 6% of eligible compensation for eligible employees, subject to certain limitations provided by our 401(k) plan and Internal Revenue Service regulations. All contributions made by +us on behalf of an employee are 100% vested when contributed. The 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code. As such, contributions to the 401(k) Plan and earnings on those contributions are not +taxable to the employees until distributed from the 401(k) Plan, and all contributions are deductible by us when made. +2013 +Restated Stock Incentive Plan +Our 2013 Restated Stock Incentive Plan, which amended and restated our Amended and Restated 2005 Stock Incentive Plan, +was adopted to enable us, and any of our affiliates, to attract and retain the services of the types of employees, consultants and directors who will contribute to our long range success and to provide incentives which are linked directly to +increases in share value which will inure to the benefit of our stockholders. The plan provides a means by which eligible recipients of awards may be given an opportunity to benefit from increases in value of our common stock through the granting of +incentive stock options, nonstatutory stock options, restricted awards (restricted stock and restricted stock units), performance awards and stock appreciation rights. Our compensation committee serves as the plan administrator. +Eligible award recipients are employees, consultants and directors of ours and any present or future parent or subsidiary of ours. Incentive stock options may +be granted only to our employees. Awards other than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our authorized but unissued common stock, and the maximum +aggregate amount of such common stock which may be issued upon exercise of all awards in the plan, including incentive stock options, may not exceed 7,500,000 shares, subject to adjustment to reflect certain corporate transactions or changes in our +capital structure. For a description of the awards granted under the plan to our named executive officers, see “Compensation Discussion and Analysis—Compensation Policy—Align the interests of our executives with those of our +stockholders—Restricted Stock Awards” above. On April 1, 2014, 27,333 shares were issuable upon exercise of outstanding options and 1,230,681 shares of restricted common stock had been granted under this plan. There were 4,585,932 +shares available for future grants under this plan as of April 1, 2014. +In the event of a transaction involving a change in control (as defined in +the plan) of the Company, a dissolution or liquidation of the Company, an exchange of shares or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale, in one transaction or a series of +related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving entity, then all outstanding stock awards under our 2013 Restated Stock Incentive Plan may, in the sole +discretion of the plan administrator, be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company), or may be cancelled either with or without consideration for the vested portion of the awards. In the event +an option award would be cancelled without consideration paid to the extent vested, the option award recipient may exercise the option award in full or in part for a period of ten days. The plan administrator may also exercise its discretionary +authority to accelerate the vesting of an award under our 2013 Restated Stock Incentive Plan in the event of a change in control. +27 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth, as of December 31, 2013, certain information with respect to all compensation plans under which equity securities are +authorized for issuance. +Plan Category +Number of securities to +be issued upon exercise +of outstanding options, +warrants and rights +(a)(1)(2) +Weighted average +exercise price of +outstanding options, +warrants and rights +(b)(3) +Number of securities +remaining available +for future issuance +under equity +compensation plans +(excluding securities +reflected in column +(a))(c) +Equity compensation plans approved by security holders(1) +673,878 +$ +3.50 +4,720,225 +(1) +Refers to our 2013 Restated Stock Incentive Plan (which amended and restated our Amended and Restated 2005 Stock Incentive Plan) and our 1999 Stock Option Plan. +(2) +Includes 463,637 shares of unvested restricted common stock granted under our 2013 Restated Stock Incentive Plan (including shares originally issued under our Amended and Restated 2005 Stock Incentive Plan). +(3) +The weighted average exercise price does not take into account shares of restricted common stock because they have no exercise price. +Employment Agreements +Overview +Effective +November 1, 2012, we entered into an employment agreement with each of Messrs. Moore, Liddell and Palm. Each employment agreement had an initial term of three years and automatically renewed for successive one-year terms thereafter unless +either we or the executive gave notice to the other party of our or the executive’s election, as the case may be, to not renew the agreement. Each executive was initially entitled to a base salary of $300,000, which amount could be increased, +but not decreased, by the compensation committee in its sole discretion. In February 2013, the compensation committee increased the base salary for each executive to $400,000. In addition, each executive was entitled to receive an annual +discretionary cash bonus, the amount of which to be determined by the compensation committee, provided that such amount would not be less than $500,000 each year. Each executive was also entitled to participate in the Company’s equity incentive +plan. Whether an executive received an equity award under the incentive plan, and the timing and amount of any such award, was to be determined by the compensation committee in its sole discretion. Other benefits afforded to each executive under the +terms of his employment agreement included four weeks of paid vacation each year, participation in all group health plans of the Company then in effect, entitlement to receive life insurance coverage providing a death benefit of not less than +$500,000 and participation in all retirement plans of the Company then in effect. Each executive agreed to certain restrictive covenants in his employment agreement, including, without limitation, his agreement to not (i) disclose trade secrets +or confidential information during the term of employment and so long thereafter as such trade secrets or information are not generally known to the public, (ii) compete with the Company while making use of trade secrets of the Company at any +time and (iii) solicit any employees, agents, consultants, customers or clients of the Company for the term of his employment with the Company plus twelve months thereafter. +As discussed elsewhere in this proxy statement, the employment agreement with each of Messrs. Liddell and Palm was terminated on the date on which each such +executive resigned as an executive officer of the Company. +Effective April 22, 2014, we entered into an amended and restated employment agreement +with Mr. Moore in connection with his new responsibilities as Chief Executive Officer. The agreement has a three-year term commencing effective April 22, 2014 and provides for an annual base salary of $400,000 that can be increased from +time to time by the compensation committee, but not decreased. Mr. Moore is also entitled to a receive a target annual bonus of 150% of his base salary upon achievement of performance goals established by the compensation committee. The annual +bonus may be less than, or more than, the 150% target, up to a maximum of 300% of base salary in the event performance exceeds the target level established by the compensation committee. He also received an award of 40,000 shares of restricted stock +as described above under “Compensation Policy—Align the interests of our executives with those of our stockholders—Restricted Stock Awards” and, thereafter, will be entitled to receive annual grants of 40,000 shares of restricted +stock that will vest in three substantially equal annual installments commencing in the year granted. Mr. Moore is also entitled to five weeks of paid vacation, to participate in such medical insurance and other welfare benefit plans that we +establish from time to time, a $500,000 life insurance policy and to the use of a company vehicle. Mr. Moore remains subject to restrictive covenants as described above in his November 2012 employment agreement. +28 +Table of Contents +Rights Upon Termination Without Cause, Resignation for Good Reason or Death or Disability +The continued employment of Mr. Moore with us is “at-will,” meaning that either we or Mr. Moore may terminate the employment +relationship at any time and for any reason, with or without notice. However, under the terms of his amended and restated employment agreement, if (i) we terminate Mr. Moore without “cause,” (ii) Mr. Moore terminates his +employment for “good reason” or (iii) Mr. Moore’s employment is terminated due to death or disability, then, subject to Mr. Moore signing and delivering a general release of any and all claims against us, the following would +occur: +• +we would be obligated to make a lump sum payment on the termination date equal to all accrued and unpaid salary and other compensation payable to Mr. Moore (including vacation and sick pay) with respect to services +rendered through the termination date; +• +within 60 days of termination, we would be obligated to make a lump sum payment equal to 225% of the amount Mr. Moore would have earned as base salary during the two-year period following the termination date had +Mr. Moore’s employment not been terminated; +• +we would be obligated to immediately issue to Mr. Moore on a fully vested basis the restricted stock grants that he would have been entitled to during the two-year period following the termination date had +Mr. Moore’s employment not been terminated; +• +all restricted stock, restricted stock units, stock options and stock appreciation rights granted to Mr. Moore that would have vested during the three-year period following the termination date solely as a result +of Mr. Moore’s continued service to the Company would vest immediately on the termination date and, with respect to any such stock options and stock appreciation rights, would remain exercisable in accordance with the terms applicable to +such options or rights; +• +we would be obligated to continue providing a Company-owned car for two years following termination; and +• +we would be required to pay the premiums for certain continuing health care benefits for Mr. Moore and his family for a period of 18 months or until Mr. Moore becomes eligible for group health plan benefits +with another employer. +For purposes of the employment agreement with Mr. Moore, “cause” is generally defined as: +• +Mr. Moore’s conviction (including any plea of guilty or no contest) of any felony involving the embezzlement, theft or misappropriation of monies or other property, of the Company or otherwise or any crime of +moral turpitude; +• +gross misconduct in the performance of Mr. Moore’s duties; or +• +the repeated failure by Mr. Moore (except by reason of disability) to render full and proper services as required by the terms of Mr. Moore’s employment after failure to cure such failure within 30 days +after receiving written notice from the Company or the board of directors detailing the alleged failure. +“Good reason,” as used +in the employment agreement with Mr. Moore, means (i) a material diminution in the duties, authority or responsibilities of Mr. Moore or a material breach of the employment agreement by the Company, or (ii) requiring +Mr. Moore to relocate his principal place of employment to a location that is more than 35 miles from the location of the Company’s principal office in the Oklahoma City area as of the effective date of the employment agreement, provided +that the Company fails to cure such material diminution, breach or relocation within 30 days of receipt of a written notice from Mr. Moore. Except as expressly set forth above, the employment agreements of Messrs. Liddell and Palm, prior to the +termination of such agreements, entitled Messrs. Liddell and Palm to substantially similar rights upon termination without cause, resignation for good reason or death or disability as the rights afforded to Mr. Moore under his employment +agreement except that they were not entitled to any equity grant upon such termination event. +Rights Upon Termination for Cause or +Resignation Other than for Good Reason +Under the terms of our employment agreement with Mr. Moore, in the event Mr. Moore is terminated +for “cause” or Mr. Moore voluntarily terminates his employment other than for “good reason,” Mr. Moore would be entitled to a lump sum payment on the termination date equal to all accrued and unpaid salary and other +compensation payable to Mr. Moore (including vacation and sick pay) with respect to services rendered through the termination date and, subject to Mr. Moore signing a general release of any and all claims against us and, as consideration +for such release, an amount equal to his base salary amount in effect immediately preceding such termination pro rated based on the number of days between the first day of the contract year and the termination date, divided by 365. The employment +agreements of Messrs. Liddell and Palm, prior to the termination of such agreements, entitled Messrs. Liddell and Palm to substantially similar rights upon termination for cause or resignation for other than good reasons as the rights afforded to +Mr. Moore under his employment agreement, as described above. As discussed elsewhere in this proxy statement, Mr. Liddell did not stand for re-election as one of our directors and his tenure as Chairman of the Board ended upon the +conclusion of our 2013 annual meeting of stockholders, and Mr. Palm retired as our Chief Executive Officer in February 2014. Neither of these events constituted termination of employment for “good reason” within the meaning of +Mr. Liddell’s or Mr. Palm’s employment agreement. +29 +Table of Contents +Rights Upon Termination Following a Change of Control +Under the terms of our employment agreement with Mr. Moore, if Mr. Moore’s employment with the Company or its successor is terminated on or +before the second anniversary of the date of occurrence of a “change of control” either (a) by the Company or its successor other than for “cause,” (b) by Mr. Moore for “good reason,” or (c) as a +result of Mr. Moore’s death or disability, then, in addition to the benefits described under the heading “—Rights Upon Termination Without Cause, Resignation for Good Reason or Death or Disability” above: +• +all restricted stock and restricted stock units that have been granted to Mr. Moore by the Company prior to the date of the amended and restated employment agreement and that would have vested at any time after the +date of Mr. Moore’s termination solely as a result of Mr. Moore’s continued service to the Company will immediately vest on the date of termination; and +• +all stock options and stock appreciation rights that have been granted to Mr. Moore by the Company prior to the date of the amended and restated employment agreement and that would have vested at any time after the +date of Mr. Moore’s termination solely as a result of his continued service to the Company will immediately vest and become exercisable on the date of termination. +Under the terms of Mr. Moore’s employment agreement, any equity awards granted on or after the date of the agreement will provide that such equity +awards will vest upon the occurrence of a change of control. A “change of control” will be deemed to have occurred upon the occurrence of any of the following: +• +any consolidation or merger of the Company into or with another person or entity pursuant to which shares of the Company’s common stock would be converted into cash, securities or other property, other than any +consolidation or merger of the Company in which the persons who were stockholders of the Company immediately prior to the consummation of such consolidation or merger are the beneficial owners, immediately following the consummation of such +consolidation or merger, of more than 50% of the combined voting power of the then outstanding voting securities of the person or entity surviving or resulting from such consolidation or merger; +• +any sale, lease or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or +• +the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. +The employment agreements of Messrs. Liddell and Palm, prior to the termination of such agreements, entitled Messrs. Liddell and Palm to similar severance and +vesting acceleration rights upon termination following a change of control as the rights afforded to Mr. Moore under his employment agreement prior to the April 2014 amendment and restatement. Additional information regarding the benefits that +Mr. Moore is (and that Mr. Palm was prior to the termination of his employment agreement) entitled to receive upon certain terminations, resignations and changes of control, assuming such events took place as of December 31, 2013, are +summarized below under the heading “Potential Payments Upon Termination, Resignation or Change of Control.” The descriptions of (i) Mr. Liddell’s consulting agreement entered into with Mr. Liddell upon his resignation +as the Chairman of the Board and the related termination of his employment agreement and (ii) the separation agreement entered into with Mr. Palm in connection with his retirement are discussed below under the heading “Potential +Payments Upon Termination, Resignation or Change of Control.” +Change in Control Arrangements +As described above under the heading “Employment Agreement,” Mr. Moore has certain rights under his employment agreement following a change of +control of the Company. The employment agreements of Messrs. Liddell and Palm, prior to the termination of such agreements, also entitled Messrs. Liddell and Palm to certain rights following a change of control. In addition, our 2013 Restated Stock +Incentive Plan provides that in the event of a transaction involving a change in control (as defined under the plan) of the Company, a dissolution or liquidation of us, an exchange of shares or any corporate separation or division, including, but +not limited to, a split-up, a split-off or a spin-off, or a sale, in one transaction or a series of related transactions, of all or substantially all of our assets or a merger, consolidation, or reverse merger in which we are not the surviving +entity, then all outstanding stock awards under our 2013 Restated Stock Incentive Plan may, in the sole discretion of the plan administrator, be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company), or +may be cancelled either with or without consideration for the vested portion of the awards. In the event an award would be cancelled without consideration paid to the extent vested, the award recipient may exercise the award in full or in part for a +period of ten days. The plan administrator may also exercise its discretionary authority to accelerate the vesting of an award under our 2013 Restated Stock Incentive Plan in the event of a change in control. +30 +Table of Contents +Potential Payments Upon Termination, Resignation or Change of Control +The following tables provide information regarding potential payments as of December 31, 2013 to each of our named executive officers with whom we had an +employment agreement as of December 31, 2013 in connection with certain termination events, including a termination related to a change of control of the Company. +Benefits and +Payments Upon Termination of +Michael G. Moore (1) +Voluntary +Resignation +(No Good +Reason) +Resignation +for Good +Reason/ +Termination +Without +Cause +Termination +for Cause +Termination +Following +Change of +Control +Death +Disability +Severance Payments +$ +— +(2) +$ +1,800,000 +(3) +$ +— +(2) +$ +1,800,000 +(3) +$ +1,800,000 +(3) +$ +1,800,000 +(3) +Long-Term Incentives: +Unvested Restricted Stock +— +$ +4,103,450 +(4) +— +$ +4,103,450 +(5) +$ +4,103,450 +(4) +$ +4,103,450 +(4) +Unvested Stock Options/SARs +— +— +(6) +— +— +(7) +— +(6) +— +(6) +Benefits Continuation +— +$ +31,190 +(8) +— +$ +31,190 +(8) +$ +31,190 +(8) +$ +31,190 +(8) +Other +— +$ +41,500 +(9) +— +$ +41,500 +(9) +$ +41,500 +(9) +$ +41,500 +(9) +Total +$ +— +$ +5,976,140 +$ +— +$ +5,976,140 +$ +5,976,140 +$ +5,976,140 +(1) +The executive’s base salary as of December 31, 2013 was $400,000. Information in this table assumes a termination date of December 31, 2013 and a price per share of our common stock of $63.13 (the closing +market price per share on December 31, 2013), and applies the terms of his employment agreement as in effect on such date. As described above, Mr. Moore has entered into an amended and restated employment agreement effective as of +April 22, 2014 in connection with his appointment as our Chief Executive Officer. +(2) +Upon a voluntary termination other than for Good Reason or a termination for Cause, the executive is only entitled to receive a lump sum payment on the termination date equal to all accrued and unpaid salary and other +compensation payable to the executive (including vacation and sick pay) with respect to services rendered through the termination date and a pro rata portion of the executive’s minimum annual bonus for the contract year in which termination +occurs, which shall be calculated by multiplying the executive’s minimum annual bonus by a fraction, the number of which is the number of days in the contract year that have elapsed and the denominator of which is the total number of days (365 +or 366) in the contract year. +(3) +Reflects receipt by the executive, within 60 days of termination, of a lump sum payment equal to the amount the executive would have earned as base salary and on account of minimum annual bonuses during the two-year +period following the termination date had the executive’s employment not been terminated, reduced by the fixed and determinable amount of any payments to be made to the executive during the two-year period following the executive’s +termination under any long-term disability insurance policy maintained by the Company for the executive’s benefit. +(4) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2013 that would have vested during the three-year period following the termination date solely as a +result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2013. +(5) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2013 that would have vested at any time after the termination date solely as a result of the +executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2013. +(6) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2013 that would have vested during the three-year period following the +termination date solely as a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price of our common stock on +December 31, 2013 and the per-share exercise price of the option. +(7) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2013 that would have vested at any time after the termination date solely as +a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price of our common stock on December 31, 2013 and the +per-share exercise price of the option. +(8) +Reflects the value of Company-paid continuation coverage under the Company’s group health plans and under the Consolidated Omnibus Budget Reconciliation Act of 1985 for the executive and his eligible family members +for a period of 18 months following the date of termination. +(9) +Reflects the value of a Company-owned vehicle provided for the executive’s use for a period of two years following termination, including the payment by the Company of all insurance and maintenance costs during +such two-year period. +As previously disclosed, on January 29, 2014, we announced that Mr. Palm, our former Chief Executive +Officer and a former member of the Board of Directors, informed us of his decision to retire from all positions he held with the Company, effective as of February 15, 2014. In connection with Mr. Palm’s retirement, we entered into a +separation and release agreement with Mr. Palm, which we refer to as the Separation Agreement, pursuant to which Mr. Palm has agreed, among other things, to provide such advice and transition assistance to the board of directors and +management of the Company as may be requested by the Company from time to time and not to compete with the Company, in each case for a period of three years commencing on Mr. Palm’s retirement date. Under the Separation Agreement, we +agreed to provide Mr. Palm with certain compensation and benefits in satisfaction of all contractual obligations under Mr. Palm’s existing employment agreement with the Company and in exchange for the non-competition obligations +31 +Table of Contents +and the transition services to be provided by Mr. Palm to us during the non-compete period under the Separation Agreement, including: (i) all of Mr. Palm’s accrued but unpaid +salary and unreimbursed expenses through Mr. Palm’s retirement date, (ii) health care benefits for Mr. Palm and his dependents for up to eighteen (18) months following his retirement date, (iii) a lump-sum cash payment +of $1,800,000, (iv) $200,000 per year for a period of three years in consulting and non-competition fees, payable in arrears in three equal annual installments beginning on February 15, 2015 and (v) a restricted stock unit award for +80,000 shares of the Company’s common stock, which will vest in three substantially equal annual installments beginning on the first anniversary of Mr. Palm’s retirement date, provided, however, that the payments specified in clause +(iv) and the vesting of common stock specified in clause (v) are contingent upon Mr. Palm’s compliance with his obligations under the Separation Agreement and in the event of a violation of these obligations any unpaid payments +and unvested common stock will be forfeited. In addition, under the Separation Agreement, all unvested stock options, restricted stock or any other equity awards that had previously been granted to Mr. Palm became fully vested as of his +retirement date. Under the Separation Agreement, Mr. Palm is subject to certain covenants regarding non-competition, ownership of inventions, confidentiality and non-solicitation. The Separation Agreement also contains customary waiver and +release provisions pursuant to which Mr. Palm waived, released and discharged the Company and certain other related parties from any and all claims that Mr. Palm may have had against the Company or such other parties as of the date of the +Separation Agreement. +The table below provides information about the payments that would have been payable to Mr. Palm in connection with certain +hypothetical termination events as of December 31, 2013, including a termination related to a change of control of the Company, although, as discussed above, Mr. Palm waived his right to any such payments in connection with his retirement +in February 2014. +Benefits and +Payments Upon Termination of +James D. Palm (1) +Voluntary +Resignation +(No Good +Reason) +Resignation +for Good +Reason/ +Termination +Without +Cause +Termination +for Cause +Termination +Following +Change of +Control +Death +Disability +Severance Payments +$ +— +(2) +$ +1,800,000 +(3) +$ +— +(2) +$ +1,800,000 +(3) +$ +1,800,000 +(3) +$ +1,800,000 +(3) +Long-Term Incentives: +Unvested Restricted Stock +— +$ +2,525,200 +(4) +— +$ +2,525,200 +(5) +$ +2,525,200 +(4) +$ +2,525,200 +(4) +Unvested Stock Options/SARs +— +— +(6) +— +— +(7) +— +(6) +— +(6) +Benefits Continuation +— +$ +31,190 +(8) +— +$ +31,190 +(8) +$ +31,190 +(8) +$ +31,190 +(8) +Other +— +$ +41,500 +(9) +— +$ +41,500 +(9) +$ +41,500 +(9) +$ +41,500 +(9) +Total +$ +— +$ +4,397,890 +$ +— +$ +4,397,890 +$ +4,397,890 +$ +4,397,890 +(1) +The executive’s base salary as of December 31, 2013 was $400,000. Information in this table assumes a termination date of December 31, 2013 and a price per share of our common stock of $63.13 (the closing +market price per share on December 31, 2013), and applies the terms of his employment agreement as in effect on such date. As described above, in connection with Mr. Palm’s retirement, the employment agreement with Mr. Palm was +terminated and Mr. Palm released the Company of, among other things, any obligations under such employment agreement upon Mr. Palm’s termination or resignation or following a change of control. +(2) +Upon a voluntary termination other than for Good Reason or a termination for Cause, the executive is only entitled to receive a lump sum payment on the termination date equal to all accrued and unpaid salary and other +compensation payable to the executive (including vacation and sick pay) with respect to services rendered through the termination date and a pro rata portion of the executive’s minimum annual bonus for the contract year in which termination +occurs, which shall be calculated by multiplying the executive’s minimum annual bonus by a fraction, the number of which is the number of days in the contract year that have elapsed and the denominator of which is the total number of days (365 +or 366) in the contract year. +(3) +Reflects receipt by the executive, within 60 days of termination, of a lump sum payment equal to the amount the executive would have earned as base salary and on account of minimum annual bonuses during the two-year +period following the termination date had the executive’s employment not been terminated, reduced by the fixed and determinable amount of any payments to be made to the executive during the two-year period following the executive’s +termination under any long-term disability insurance policy maintained by the Company for the executive’s benefit. +(4) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2013 that would have vested during the three-year period following the termination date solely as a +result of the executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2013. +(5) +Represents the value of accelerated vesting of shares of restricted stock that were unvested at December 31, 2013 that would have vested at any time after the termination date solely as a result of the +executive’s continued service to the Company based on the closing market price per share of our common stock on December 31, 2013. +(6) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2013 +that would have vested during the three-year period following the termination date solely as a result of the +32 +Table of Contents +executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price of our common +stock on December 31, 2013 and the per-share exercise price of the option. +(7) +Represents the value of accelerated vesting of options to purchase common stock held by the executive that were unvested at December 31, 2013 that would have vested at any time after the termination date solely as +a result of the executive’s continued service to the Company; such value is calculated by multiplying the number of shares subject to the option by the difference between the closing price of our common stock on December 31, 2013 and the +per-share exercise price of the option. +(8) +Reflects the value of Company-paid continuation coverage under the Company’s group health plans and under the Consolidated Omnibus Budget Reconciliation Act of 1985 for the executive and his eligible family members +for a period of 18 months following the date of termination. +(9) +Reflects the value of a Company-owned vehicle provided for the executive’s use for a period of two years following termination, including the payment by the Company of all insurance and maintenance costs during +such two-year period. +As previously disclosed, Mike Liddell, our former Chairman of the Board, did not stand for re-election as a director +of the Company at the Company’s 2013 annual meeting of stockholders held on June 13, 2013 and, effective as of that date, resigned as the Chairman of the Board of the Company. Effective June 14, 2013, we entered into a consulting +agreement with Mike Liddell, which we refer to herein as the Consulting Agreement. Pursuant to the Consulting Agreement, Mr. Liddell serves as a special advisor to the Company’s board of directors and provides advice and strategic +assistance to the Company’s board of directors and management. The term of the Consulting Agreement began effective as of June 14, 2013 and continues until June 14, 2015, unless sooner terminated in accordance with the terms of the +agreement. The Consulting Agreement automatically extends for successive extension periods of 30 days, unless either party gives notice of its desire not to extend no later than 30 days before any such expiration date. Either party may terminate the +Consulting Agreement upon 15 days’ prior written notice to the other party. In addition, the Company may terminate the Consulting Agreement immediately if Mr. Liddell refuses to or is unable to perform or is in breach of a material +provision, and Mr. Liddell may terminate the Consulting Agreement immediately if the Company defaults in payment of any amount due, subject to a five-day cure period. If the Consulting Agreement is terminated by the Company prior to +June 14, 2015 other than for certain specified events as set forth in the Consulting Agreement, any unvested equity awards outstanding immediately prior to such termination will become fully vested and exercisable. We pay Mr. Liddell a +monthly fee of $65,000 per month for his services pursuant to the terms of the Consulting Agreement. Mr. Liddell will continue to be eligible for future equity awards under our 2013 Restated Stock Incentive Plan, and, if Mr. Liddell is +continuing to provide services under the Consulting Agreement, any prior equity awards issued to Mr. Liddell while he was an employee of the Company will continue to vest in accordance with their existing terms. We will also reimburse +Mr. Liddell for reasonable expenses incurred in connection with performing the services under the Consulting Agreement or, alternatively, may provide certain office services in-kind to Mr. Liddell in lieu of reimbursement. Mr. Liddell +is not eligible for any health or other benefits offered by the Company to its employees. If requested by Mr. Liddell, we will provide office space to Mr. Liddell for a fee based on then current market rates. Pursuant to the terms of the +Consulting Agreement, Mr. Liddell is subject to certain covenants, including covenants regarding ownership of inventions, confidentiality and non-solicitation. In addition, the Consulting Agreement requires Mr. Liddell to periodically +provide certain information to the Company regarding outside business activities, related party entities and transactions, and potential conflicts of interest. Both Mr. Liddell and the Company are also subject to certain other covenants, +including indemnification and non-disparagement. Mr. Liddell’s employment agreement with the Company was terminated in connection with his resignation as Chairman of the Board. +We do not have an employment agreement with either Mr. Maier or Mr. Baldwin but, under the terms of the restricted stock awards made to +Mr. Maier and Mr. Baldwin, the shares of restricted stock held by Mr. Maier and Mr. Baldwin may be accelerated in the discretion of the compensation committee upon a change of control. +33 +Table of Contents +Stock Ownership +Holdings of Major Stockholders +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2014 of shares of our common stock by each person or +entity known to us to be a beneficial owner of 5% or more of our common stock. +MAJOR STOCKHOLDER TABLE +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class(1) +BlackRock, Inc. +7,466,978 +(2) +8.7 +% +40 East 52 nd Street +New York, NY 10022 +The Vanguard Group +4,983,855 +(3) +5.8 +% +100 Vanguard Blvd. +Malvern, PA 19355 +Fir Tree Inc. +4,384,425 +(4) +5.1 +% +40 East 52 nd Street +New York, NY 10022 +Citadel GP LLC. +4,313,759 +(5) +5.0 +% +131 S. Dearborn Street, 32 nd Floor +Chicago, IL 60603 +(1) +Beneficial ownership is determined in accordance with SEC rules. The percentage of shares beneficially owned is based on 85,953,703 shares of common stock outstanding as of April 1, 2014, including 529,312 shares +of restricted common stock awarded under our 2013 Restated Stock Incentive Plan or our Amended and Restated 2005 Stock Incentive Plan, but not yet vested. +(2) +Based solely on Schedule 13G filed with the SEC on January 29, 2014 by BlackRock, Inc. BlackRock, Inc. reported sole voting and dispositive power of such shares of common stock. +(3) +Based solely on Schedule 13G filed with the SEC on February 11, 2014 by The Vanguard Group. The Vanguard Group reported sole voting power of 53,104 shares of common stock, sole dispositive power of 4,936,851 shares +of common stock and shared dispositive power of 47,004 shares of common stock. +(4) +Based solely on Schedule 13G filed with the SEC on February 13, 2014 by Fir Tree Inc. Fir Tree Inc. reported sole voting and dispositive power of such shares of common stock. +(5) +Based solely on Schedule 13G/A jointly filed with the SEC on February 14, 2014 by Citadel Advisors LLC (“Citadel Advisors”), Citadel Advisors Holdings LP (“CAH”), Citadel GP LLC +(“CGP”) and Mr. Kenneth Griffin (collectively with Citadel Advisors, CAH and CGP, the “Reporting Persons”) with respect to shares of common stock (and options to purchase common stock) of the Company owned by Surveyor +Capital Ltd., a Cayman Islands limited company (“SC”), Citadel Global Equities Master Fund Ltd., a Cayman Islands limited company (“CG”), Citadel Equity Ltd., a Cayman Islands limited company (“CEF”), PioneerPath +Capital Ltd., a Cayman Islands limited company (“PPC”), and Citadel Securities LLC, a Delaware limited liability company (“Citadel Securities”). Citadel Advisors is the portfolio manager for SC, CG, PPC and CEF. CAH2 is the +managing member of Citadel Advisors. CALC III LP, a Delaware limited partnership (“CALC3”), is the non-member manager of Citadel Securities. CGP is the general partner of CALC3 and CAH2. Mr. Griffin is the President and Chief +Executive Officer of, and owns a controlling interest in, CGP. The Reporting Persons reported having shared voting and dispositive power of these securities. The filing of this statement shall not be construed as an admission that any of the +Reporting Persons is the beneficial owner of any securities covered by the statement other than the securities actually owned by such person (if any). +Holdings of Officers and Directors +The following table sets forth certain information regarding the beneficial ownership as of April 1, 2014 of shares of our common stock by each of our +directors, by each named executive officer and by all directors and executive officers as a group: +Name of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership +Percent of +Class +Donald L. Dillingham(2) +10,547 +* +Craig Groeschel(3) +9,202 +* +David L. Houston(4) +34,195 +* +Scott E. Streller(5) +18,161 +* +Michael G. Moore(6) +89,868 +* +Stuart A. Maier(7) +39,111 +* +Steve R. Baldwin(8) +43,900 +* +Mike Liddell(9) +67,380 +* +James D. Palm(10) +91,387 +* +Directors and Executive Officers as a Group (7 persons) +403,751 +* +34 +Table of Contents +* +Less than 1%. +(1) +Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, shares of common stock subject to options held by that person that are exercisable as of April 1, +2014, or exercisable within 60 days of April 1, 2014, are deemed to be beneficially owned. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other person. The percentage of shares +beneficially owned is based on 85,953,703 shares of common stock outstanding as April 1, 2014, including 529,312 shares of restricted common stock awarded under our 2013 Restated Stock Incentive Plan or our Amended and Restated 2005 Stock +Incentive Plan, but not yet vested. Unless otherwise indicated, all amounts exclude shares issuable upon the exercise of outstanding options that are not exercisable as of April 1, 2014 or within 60 days of April 1, 2014. Except as +otherwise noted, each stockholder has sole voting and investment power with respect to the shares beneficially owned. None of the shares beneficially owned by our executive officers or directors are pledged as security. +(2) +Represents (i) 9,684 shares of our common stock held by Mr. Dillingham directly and (ii) 863 unvested shares of our common stock granted under our 2013 Restated Stock Incentive Plan, which vest on +December 10, 2014. +(3) +Represents (i) 8,339 shares of our common stock held by Mr. Groeschel directly and (ii) 863 unvested shares of our common stock granted under our 2013 Restated Stock Incentive Plan, which vest on +December 10, 2014. +(4) +Represents (i) 11,110 shares of our common stock held by Mr. Houston directly, (ii) 2,222 unvested shares of restricted common stock granted under our 2005 Amended and Restated Stock Incentive Plan, which +vest on December 15, 2014, (iii) 863 unvested shares of restricted common stock granted under our 2013 Restated Stock Incentive Plan, which vest on December 10, 2014, and (iv) options to purchase 20,000 shares of our common +stock, all of which are fully vested and exercisable as of April 1, 2014. +(5) +Represents (i) 15,076 shares of our common stock held by Mr. Streller directly, (ii) 2,222 unvested shares of our restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, +which vest on December 15, 2014 and (iii) 863 unvested shares of restricted common stock granted under our 2013 Restated Stock Incentive Plan, which vest on December 10, 2014. +(6) +Represents (i) 5,416 shares of our common stock held by Mr. Moore directly, (ii) 25,834 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, which +vest in seven remaining quarterly installments, with 12,501 shares vesting during the remainder of 2014 and 13,333 shares vesting in 2015, (iii) 3,750 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock +Incentive Plan, which shares vest in three remaining quarterly installments during the remainder of 2014, (iv) 15,000 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, which shares vest +in two remaining annual installments of 6,667 shares on June 16, 2014 and 8,333 shares on June 17, 2015, (v) 15,000 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, which +shares vest on December 17, 2014 and (vi) 24,868 unvested shares of restricted common stock granted under our 2013 Restated Stock Incentive Plan, which shares vest in two equal annual installments beginning on February 24, 2015. +(7) +Represents (i) 3,444 shares of our common stock held by Mr. Maier directly, (ii) 4,000 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan that vest +in June 2014; (ii) 5,000 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan that vest in June 2015; and (iii) 26,667 unvested shares of restricted common stock granted under our 2013 +Restated Stock Incentive Plan that vest in two remaining equal annual installments beginning on December 1, 2014. +(8) +Represents (i) 11,233 shares of our common stock held by Mr. Baldwin directly, (ii) 2,667 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan that +vest in June 2014; (iii) 3,333 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan that vest in June 2015; and (iv) 26,667 unvested shares of restricted common stock granted under our +2013 Restated Stock Incentive Plan that vest in two remaining equal annual installments beginning on December 1, 2014. +(9) +Represents (i) 34,046 shares of our common stock held by Mr. Liddell directly, (ii) 25,834 unvested shares of restricted common stock granted under our Amended and Restated 2005 Stock Incentive Plan, +which vest in seven remaining quarterly installments, with 12,501 shares vesting during the remainder of 2014 and 13,333 shares vesting in 2015, and (iii) 7,500 unvested shares of restricted common stock granted under our Amended and Restated +2005 Stock Incentive Plan, which vest in three remaining quarterly installments during the remainder of 2014. +35 +Table of Contents +(10) +Represents (i) 10,000 shares of our common stock, of which Mr. Palm and his spouse, Terri Palm, have shared voting and investment powers, (ii) 1,387 shares of our common stock held by Mr. Palm +directly, and (iii) 80,000 unvested shares of restricted common stock granted under our 2013 Restated Stock Incentive Plan, which vest in three substantially equal installments beginning on February 15, 2015. The 80,000 shares of +restricted stock referenced in the preceding sentence were granted to Mr. Palm pursuant to the Separation and Release Agreement entered into with Mr. Palm in connection with his retirement as Chief Executive Officer of the Company. +Pursuant to the terms of the Separation and Release Agreement, all other unvested stock options, restricted stock or any other equity awards held by Mr. Palm became fully vested on February 15, 2014, the effective date of +Mr. Palm’s retirement. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of +the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of the forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us +and written representations of our officers and directors, all Section 16(a) reports for the year ended December 31, 2013 applicable to our officers and directors and such other persons were filed on a timely basis. +36 +Table of Contents +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be +substantively applied to each transaction reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the +Company. Further, the Company’s Code of Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party +transactions. +The Company’s policy is that all of its employees and directors, as well as their family members, must avoid any activity that is or +has the appearance of conflicting with the Company’s business interest. This policy is included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform +the designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the +Code of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give +rise to a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring compliance +with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all relationships and +transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, have a direct or +indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as they determine in +the good faith exercise of their discretion. +Related Party Transactions and Relationships +We contract with Athena Construction, L.L.C., or Athena, to provide barge services in our West Cote Blanche Bay and Hackberry fields located along the +Louisiana Gulf Coast. During 2013, we paid Athena $5.2 million and owed an additional $1.0 million for such services at December 31, 2013. +Caliber +Development Company, LLC, or Caliber, provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. We also lease office space from Caliber. During 2013, we paid Caliber $175,000 and owed $43,000 as of December 31, +2013. +We own a 24.9999% interest in Grizzly Oil Sands ULC, or Grizzly, a Canadian unlimited liability company, through our wholly owned subsidiary +Grizzly Holdings, Inc. The remaining interests in Grizzly are owned by Grizzly Oils Sands Inc. As of December 31, 2013, Grizzly had approximately 830,000 acres under lease in the Athabasca and Peace River oil sands regions located in the +Alberta Province near Fort McMurray. On October 5, 2012, we entered into an agreement with Grizzly in which we committed to make monthly payments from October 2012 to May 2013 in the aggregate amount of approximately $8.5 million to fund our +proportionate share of the construction and development costs of the Algar Lake facility. We also agreed to fund our proportionate share of any unfunded cost overruns in excess of $2.0 million. During 2013, we paid an aggregate of $33.9 million +under this agreement and in cash calls. +We have a 25% ownership interest in Muskie Proppant LLC, or Muskie (formerly known as Muskie Holdings LLC). +Muskie processes and sells sand for use in hydraulic fracturing by the oil and natural gas industry and holds certain assets, real estate and rights in a lease covering land in Wisconsin that is prospective for mining oil and natural gas fracture +grade sand. During the year ended December 31, 2013, we paid $2.2 million in cash calls, increasing our total net investment in Muskie to $7.5 million. We also entered into a loan agreement with Muskie effective July 1, 2013, under which +we have loaned Muskie $0.9 million. Interest accrues at the prime rate plus 2.5%. The loan has a maturity date of July 31, 2014. At December 31, 2013, the outstanding balance of the loan was $0.9 million. +During 2011, we invested in Bison Drilling and Field Services LLC, or Bison. Bison owns and operates drilling rigs. During the year ended December 31, +2013, we paid $2.3 million in cash calls. We entered into a loan agreement with Bison effective May 15, 2012, under which Bison may borrow funds from us. Interest accrues at LIBOR plus 0.28% or 8%, whichever is lower, and is to be paid on a +paid-in-kind basis by increasing the outstanding balance of the loan. The loan has a maturity date of January 31, 2015. We loaned Bison $1.6 million during the first nine months of 2012, all of which was repaid by Bison during the third quarter +of 2012. We have made no loans to Bison since that time. +37 +Table of Contents +During the first quarter of 2012, we, Windsor Ohio LLC, or Windsor Ohio, and Rhino Energy LLC formed Timber Wolf +Terminals LLC, or Timber Wolf. We currently have a 50% interest in Timber Wolf and paid $0.1 million in cash calls during 2013. Timber Wolf was formed to operate a crude/condensate terminal and a sand transloading facility in Ohio. +During the first quarter of 2012, we purchased a 22.5% ownership interest in Windsor Midstream LLC, or Midstream, at a cost of $7.0 million. Midstream owns a +28.4% interest in Coronado Midstream LLC (formerly known as MidMar Gas LLC), a gas processing plant in West Texas. During the year ended December 31, 2013, we paid an immaterial amount in net cash calls. +During the second quarter of 2012, we and Windsor Ohio formed Blackhawk Midstream LLC, or Blackhawk. We are the manager of Blackhawk and have a 50% ownership +interest. Blackhawk coordinates gathering, compression, processing and marketing activities for us in connection with the development of our Utica Shale acreage. During the year ended December 31, 2013, we paid $0.7 million in cash calls to +Blackhawk. On January 28, 2014, Blackhawk closed on the sale of its equity interest in Ohio Gathering Company, LLC and Ohio Condensate Company, LLC for a purchase price of $190.0 million, of which $14.3 million was placed in escrow. We received +$84.8 million in net proceeds from this transaction. +Panther Drilling Systems, LLC, or Panther, performs directional drilling services for the Company. +During the year ended December 31, 2013, we were billed $12.6 million for these services and, at December 31, 2013, we owed Panther approximately $1.8 million. +Redback Directional Services, LLC, or Redback, provides coil tubing and flow back services for the Company. Redback billed us $0.1 million for these services +during the year ended December 31, 2013, and no amounts were owed to Redback at December 31, 2013. +Effective April 1, 2010, we entered +into an area of mutual interest agreement with Windsor Niobrara LLC, or Windsor Niobrara, to jointly acquire oil and gas leases in Northwest Colorado for the purpose of exploring, exploiting and producing oil and gas from the Niobrara Formation. The +agreement provides that each party must offer the other party the right to participate in such acquisitions on a 50/50 basis. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion to their +respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we and Windsor Niobrara also entered into a development agreement, effective as of April 1, 2010, pursuant to which +we and Windsor Niobrara agreed to jointly develop the contract area, and we agreed to act as the operator under the terms of a joint operating agreement. As operator, we are responsible for daily operations, monthly operation billings and monthly +revenue disbursements for these properties. For the year ended December 31, 2013, we billed Windsor Niobrara $0.9 million and, at December 31, 2013, Windsor Niobrara owed us an immaterial amount for these services. +Windsor Ohio participated with us in the acquisition of certain leasehold interests in acreage located in the Utica Shale in Ohio. We are the operator of this +acreage in the Utica Shale. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2013, we billed Windsor Ohio approximately +$73.4 million for these services. At December 31, 2013, Windsor Ohio owed us approximately $1.6 million for these services. +In February 2013, we +entered into a purchase and sale agreement with Windsor Ohio pursuant to which Windsor Ohio agreed to sell to us approximately 22,000 net acres representing 100% of its right, title and interest in and to certain leasehold interests in the Utica +Shale in Eastern Ohio for approximately $220.4 million, subject to certain adjustments. This transaction, which closed on February 15, 2013, excluded Windsor Ohio’s interest in 14 existing wells and 16 proposed future wells together with +certain acreage surrounding those wells. Through this transaction, we acquired an additional approximately 16.2% interest in our Utica Shale leases, increasing our working interest in the acreage to 93.8%. All of the acreage included in this +transaction was nonproducing at the time of the acquisition and we are the operator of all of this acreage, subject to existing development and operating agreements between the parties. Pending the completion of title review after the closing, +approximately $33.6 million of the purchase price was placed in an escrow account. In May 2013, the escrow accounts for both this acquisition and a prior acquisition with Windsor Ohio that was completed in December 2012 were terminated, and an +aggregate of $10.0 million was returned to us. The $77.5 million balance of the escrow accounts was disbursed to Windsor Ohio based on the results of title review. The transaction was approved by a special committee of our board of directors, which +engaged independent counsel and financial advisors to assist with its review. +Mr. Mike Liddell, our former Chairman of the Board and one of our +named executive officers during 2013, is the operating member and/or an officer of each of Windsor Niobrara, Windsor Ohio, Windsor Midstream, Athena, Panther, Redback, Timber Wolf, Bison and Caliber and holds a 10% participation interest in Windsor +Ohio and a direct or indirect contingent participation or profits interest ranging from 2.5% to 10.0% in Windsor Niobrara, Athena, Redback, Caliber, Windsor Midsteam, Muskie, Bison, Panther and Grizzly Oil Sands Inc., none of which interests are +dilutive to the interests, if any, that we hold in such entities. +38 +Table of Contents +Proposal to Approve Our 2014 Executive Annual Incentive Compensation +Plan +(Item 2 on the Proxy Card) +We are asking you to approve our 2014 Executive Annual Incentive Compensation Plan, which we refer to as the “Annual Incentive Plan” or the +“Plan,” as set forth in Appendix A to this proxy statement. +Purpose of our 2014 Executive Annual Incentive Compensation Plan +The compensation committee recommended the approval of, and the board of directors approved, the Annual Incentive Compensation Plan on April 1, 2014. +Approval of the Plan is intended to enable the Company to provide an incentive to executive officers and other selected employees of the Company to contribute to the growth, profitability and increased value of the Company by providing incentive +compensation that qualifies as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code. If other requirements are met, performance-based compensation may be deductible by us for federal income tax +purposes without regard to the $1 million deduction limitation imposed by Section 162(m) of the Code. +Summary of our 2014 Executive Annual +Incentive Compensation Plan +The following summary of the Annual Incentive Compensation Plan is qualified in its entirety by reference to the full text +of the Plan, which is attached as Appendix A to this proxy statement. +Eligibility . Our executive officers and selected employees +and those of our subsidiaries are eligible to receive awards under the Plan. +Awards . The Plan provides for awards of incentive +compensation that are contingent on the attainment of specific performance targets. The Administrator will establish the performance targets for each award and the performance period during which the performance is to be measured, which will +generally be our fiscal year. Performance targets may include a minimum level of performance below which no payment will be made, levels of performance at which specified percentages of the award will be paid, and a maximum level of performance +above which no additional award will be paid. The Administrator must adopt the performance targets and criteria for awards granted to executive officers subject to the limits of Section 162(m) of the Code, whom we refer to as “Covered +Employees,” no later than the earlier of: +• +90 days after the beginning of the performance period, or +• +the time when 25% of the performance period has elapsed. +In addition, award amounts to be paid to any Covered +Employee for any one year may not exceed the lesser of: (i) 300% of base salary at the time the Award is established, or (ii) $6 million dollars. Individual awards may be subject to lesser limits as specified in the discretion of the +compensation committee. +Performance Factors . Performance targets for each award will be based on pre-established performance +factors, which may include any or all of the following, individually or in combination: +• +revenue; +• +net sales; +• +operating income; +• +earnings before all or any of interest, taxes, depreciation and/or amortization (“EBIT,” “EBITA,” or “EBITDA”); +• +growth of oil and natural gas production; +• +growth of estimated or proved reserves; +• +capital efficiency based on revenue per barrel of oil equivalent (“BOE”) produced; +• +lease operating expenses; +39 +Table of Contents +• +general and administrative expenses; +• +net cash provided by operating activities or other cash flow measurements; +• +working capital and components thereof; +• +return on equity or average stockholders’ equity; +• +return on assets; +• +market share; +• +net or gross sales measured by product line, territory, one or more customers, or other category; +• +stock price; +• +earnings per share; +• +earnings from continuing operations; +• +net worth; +• +credit rating; +• +levels of expense, cost or liability by category, operating unit, or any other delineation; or +• +any increase or decrease of one or more of the foregoing over a specified period. +These performance factors +may relate to the performance of the Company or the performance of a business unit, product line, territory, or any combination of these. Performance targets for employees who are not executive officers may also be based on other additional +objective or subjective performance criteria established by the Administrator. +Limitation on Discretion . The Administrator may at +any time establish additional conditions and terms of payment of awards, including additional financial, strategic or individual goals, which may be objective or subjective. The Administrator may exercise negative discretion to reduce the amount of +an award, but may not adjust upwards the amount payable pursuant to any award to a Covered Employee, nor may it waive the achievement of the performance target requirement for any Covered Employee, except in the case of the death or disability of +the participant or a change in control of the Company. +Payment of Awards . Unless the Administrator determines otherwise, all +payments in respect of awards granted under the Plan will be made in cash, and will be paid within a reasonable period after the end of the performance period. In the case of awards designed not to be subject to Code Section 409A as deferred +compensation, payments will be made not later than the latest date at which such awards will still qualify for the Section 409A exemption for short-term deferrals. Unless the Administrator provides otherwise, a participant must be employed by +us on the date that awards are paid to receive an award payment, except in the case of death or disability. If a participant dies or becomes disabled during a performance period, the participant (or the participant’s beneficiary) will receive a +pro-rated award payment at the same time all other awards are paid for the performance period. In the event of a change in control, each named executive officer will be paid the target award amount (mid-point of any specified range of potential +award payment amount) based on the assumption that the performance target was attained at the target level (mid-point of any specified range of performance targets) for the entire performance period. The target award amount will be paid within ten +(10) days following the consummation of the change in control transaction. +Certification of Performance . Before payment of +any award to a Covered Employee our Compensation Committee must certify in writing that the performance target requirement for such award was met. +Term . The Plan, if approved is effective as of April 1, 2014 with respect to the fiscal year performance period beginning +January 1, 2014. The Administrator may at any terminate the Plan in whole or in part. +Amendment of the Plan . The +Administrator may at any time amend the Plan, subject to approval by our stockholders to the extent stockholder approval is necessary to continue to qualify as “performance-based compensation” under Section 162(m) of the Code. +40 +Table of Contents +Administration of the Plan . Our Board has delegated its authority to administer the Plan +to the Company’s compensation committee, to whom we refer as the “Administrator.” The compensation committee is expected to consist solely of two or more “outside directors” within the meaning of Section 162(m) of the +Code. The Administrator has the authority to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including (but not limited +to) the following: +• +to interpret the Plan and any award; +• +to prescribe rules relating to the Plan; +• +to determine the persons to receive awards; +• +to determine the terms, conditions, restrictions and performance criteria, including performance factors and performance targets, relating to any award; +• +to accelerate an award that is designed not to be deferred compensation subject to Code Section 409A (after the attainment of the applicable performance target or targets); +• +to adjust performance targets in recognition of specified events such as unusual or non-recurring events affecting us or our financial statements, including certain asset dispositions, cessation of operations resulting +from a natural disaster, or in response to changes in applicable laws, regulations, or accounting principles as specified in the Plan or in the performance targets established for any performance period; +• +to waive restrictive conditions for an award (but not performance targets); and +• +to make any other determinations that may be necessary or advisable for administration of the Plan. +Stockholder Approval . No award will be paid under the Plan if our stockholders do not approve the Plan, which approval will include the +performance factors and the maximum award limit. If our stockholders approve the Plan, we must submit the Plan to our stockholders for re-approval on or before the first stockholder meeting that occurs in the fifth year following this current +approval of the Plan. +Federal Income Tax Consequences of the Plan +Under federal income tax laws currently in effect: +Participants in the Plan will recognize in the year of payment ordinary income equal to the award amount, which is subject to applicable +income and employment tax withholding by us (including the additional tax of 0.9% imposed on wages in excess of $200,000 under Section 3101(b)(2) of the Code). Under current regulations and guidance, we expect that awards under the Plan will +not be subject to Section 409A of the Code, which imposes restrictions on nonqualified deferred compensation arrangements and penalizes participants for violating these restrictions. +Section 162(m) . Section 162(m) of the Code imposes a $1 million annual limit on the amount of compensation that we may deduct +for federal income tax purposes with respect to our chief executive officer and each of our three highest compensated officers (other than our chief executive officer and our chief financial officer), subject to certain exceptions. The Plan is +intended to qualify for the exception under Section 162(m) for “performance-based compensation.” We expect that we will be entitled to a tax deduction in connection with the payment of each award under the Plan in an amount equal to +the ordinary income realized by the participant without regard to the $1 million annual deduction limitation under Section 162(m) of the Code, if the stockholders approve the Plan and the other requirements of Section 162(m) are satisfied. +However, the Administrator may award compensation that is or may become non-deductible, and expects to consider whether it believes such grants are in the best interest of the Company, balancing tax efficiency with long-term strategic objectives. +While the Administrator is mindful of the limitation imposed by Section 162(m) of the Code, it also recognizes that facts and circumstances may render compliance with those limitations inappropriate, at odds with the best interests of the +Company or out of step with the then-prevailing competitive market conditions. In such event, the Administrator’s priority will be determining what is in the best interest of the Company and its stockholders rather than compliance with the +technical limitations imposed by the Code. +41 +Table of Contents +New Plan Benefits +Awards under the Plan are based on actual future performance. As a result, the amounts that will be paid under the Plan are not currently +determinable. In no event, however, may any Covered Employee receive award amounts for any one year exceeding the lesser of: (i) 300% of base salary at the time the Award is established, or (ii) $6 million dollars. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” THE APPROVAL OF OUR 2014 EXECUTIVE ANNUAL INCENTIVE COMPENSATION PLAN. +42 +Table of Contents +Proposal to Approve, on an Advisory Basis, the Company’s +Executive Compensation +(Item 3 on the Proxy Card) +In accordance with Section 14A of the Exchange Act, our board of directors is providing our stockholders with a non-binding advisory vote on the +Company’s executive compensation as reported in this proxy statement, or “say on pay” vote. The Company’s stockholders are being asked to vote on the following resolution: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including +the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.” +This vote is advisory, which means that +the vote on executive compensation is not binding on the Company, our board of directors or the Compensation Committee. While the vote on executive compensation is solely advisory in nature, our board of directors and the Compensation Committee will +review and consider the “say on pay” voting results when making future decisions regarding our executive compensation program. +Stockholders are +encouraged to carefully review the “Compensation Discussion and Analysis” section of this proxy statement, which discusses in detail the Company’s compensation policy and compensation arrangements which the Company believes are +appropriate and reasonably consistent with market practice and with the long-term interests of the Company and its stockholders. In furtherance of the Company’s goals and objectives, the Compensation Committee, among other things, ensures that +the Company’s executive compensation arrangements (i) do not incentivize executives to take unnecessary risks, (ii) do not include excessive change in control provisions and (iii) include long-term vesting provisions in the +restricted stock grants to encourage executives to focus on long-term performance. +We have determined that our stockholders should cast an advisory vote +on the compensation of our named executive officers on an annual basis. Unless this policy changes, the next advisory vote on the compensation of our named executive officers will be at the 2015 annual meeting of stockholders. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THIS PROPOSAL 3. +43 +Table of Contents +Proposal to Ratify the Appointment of Our Independent Auditors +(Item 4 on the Proxy Card) +What am I voting on? +You are voting on a proposal to +ratify the appointment of Grant Thornton LLP as our independent auditors for fiscal year 2014. The Audit Committee has appointed Grant Thornton to serve as independent auditors. +What services do the independent auditors provide? +Audit +services of Grant Thornton for fiscal 2013 included an audit of our consolidated financial statements and services related to periodic filings made with the SEC. Additionally, Grant Thornton provided certain services related to the consolidated +quarterly reports and annual and other periodic reports, registration statements and comfort letters and other services as described below. +How much +were the independent auditors paid in 2012 and 2013? +Grant Thornton’s fees for professional services totaled $647,806 for 2012 and $707,235 for +2013. Grant Thornton’s fees for professional services included the following: +• +Audit Fees – aggregate fees for audit services, which relate to the fiscal year consolidated audit, quarterly reviews, registration statements, comfort letters, statutory and regulatory audits and accounting +consultations were $564,866 in 2012 and $652,835 in 2013. +• +Audit-Related Fees – aggregate fees for audit-related services, consisting of audits in connection with proposed or consummated dispositions, benefit plan audits, other subsidiary audits, special reports, +and accounting consultations, were $82,940 in 2012 and $54,400 in 2013. +• +Tax and All Other Fees – there were no tax or other fees for products or services provided by Grant Thornton in addition to the services described above in 2012 or 2013. +Does the Audit Committee approve the services provided by Grant Thornton? +It is our audit committee’s policy to pre-approve all audit, audit related and permissible non-audit services rendered to us by our independent auditor. +Consistent with such policy, all of the fees listed above that we incurred for services rendered by Grant Thornton LLP in fiscal 2012 and 2013 were pre-approved by our audit committee. No non-audit services were provided to us by Grant Thornton in +2012 or 2013. +Will a representative of Grant Thornton LLP be present at the meeting? +Yes, one or more representatives of Grant Thornton will be present at the meeting. The representatives will have an opportunity to make a statement if they +desire and will be available to respond to appropriate questions from the stockholders. +What vote is required to approve this proposal? +Stockholder ratification of the appointment of our independent auditors is not required by the Company’s bylaws or otherwise. However, we are submitting +this proposal to the stockholders as a matter of good corporate practice. Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal. If the appointment of Grant Thornton is not ratified, the Audit +Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if it is determined that such change +would be in best interests of the Company and its stockholders. +Has Grant Thornton LLP always served as Gulfport’s independent auditors? +Grant Thornton has served as our independent auditors since 2005. +What does the board of directors recommend? +THE BOARD +OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE YEAR 2014. +44 +Table of Contents +Solicitation by Board; Expenses of Solicitation +Our board of directors has sent you this proxy statement. Our directors, officers and employees may solicit proxies by mail, by telephone or in person. Those +persons will receive no additional compensation for any solicitation activities. We will request banking institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to forward solicitation materials to the beneficial owners of +common stock held of record by those entities, and we will, upon the request of those record holders, reimburse reasonable forwarding expenses. We will pay the costs of preparing, printing, assembling and mailing the proxy material used in the +solicitation of proxies. +Submission of Future Stockholder Proposals +Under SEC rules, a stockholder who intends to present a proposal, including with respect to the nomination of directors, at the 2014 Annual Meeting of +Stockholders and who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing to our Corporate Secretary. The proposal must be received no later than January 8, 2015. +Stockholders who wish to propose a matter for action at the 2015 Annual Meeting, including with respect to the nomination of directors, but who do not wish to +have the proposal or nomination included in the proxy statement, must notify the Company in writing of the information required by the provisions of our by-laws dealing with stockholder proposals. The notice must be delivered to our Corporate +Secretary between February 12, 2015 and March 14, 2015. You can obtain a copy of our by-laws by writing the Corporate Secretary at the address below, or via the Internet at www.gulfportenergy.com under our “Corporate +Governance” caption. +All written proposals should be directed to Michael G. Moore, our Corporate Secretary at Gulfport Energy Corporation, 14313 +North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. +The board of directors is responsible for selecting and recommending director candidates and +will consider nominees recommended by stockholders. If you wish to have the board of directors consider a nominee for director, you must send a written notice to our Corporate Secretary at the address provided above and include the information +required by our bylaws and discussed beginning on page 10 of this proxy statement. +Availability of Form +10-K and Annual Report to Stockholders +SEC rules require us to provide an Annual Report to stockholders who receive this proxy statement. +Additional copies of the Annual Report, along with copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, including the financial statements and the financial statement schedules, are available without charge +to stockholders upon written request to Director of Investor Relations, Gulfport Energy Corporation, 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134 or via the Internet at www.gulfportenergy.com . We will furnish the +exhibits to our Annual Report on Form 10-K upon payment of our copying and mailing expenses. +Householding +The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or more stockholders reside if they appear to be +members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces our mailing and printing expenses. +If you would like to receive your own set of the annual report and proxy statement this year or in future years, follow the instructions described below. +Similarly, if you share an address with another Gulfport stockholder and together both of you would like to receive in the future only a single annual report and proxy statement, follow these instructions: +• +If your shares of our common stock are registered in your own name, please contact our transfer agent, Computershare Trust Company, N.A., and inform them of your request by calling their toll-free number: +(800) 962-4284 or by mail: Computershare Trust Company, N.A., 250 Royall Street, Canton, MA 02021. +• +If a broker or other nominee holds your shares, please contact your broker or nominee. +Other Matters +The board of directors does not intend to present any other items of business other than those stated in the Notice of Annual Meeting of Stockholders. If +other matters are properly brought before the meeting, the persons named as your proxies will vote the shares represented by it in accordance with their best judgment. Discretionary authority to vote on other matters is included in the proxy. +45 +Table of Contents +Appendix A +GULFPORT ENERGY CORPORATION +2014 EXECUTIVE ANNUAL INCENTIVE COMPENSATION PLAN +1. +Purpose. +The purpose of Gulfport Energy, Inc. 2014 Executive Annual Incentive +Compensation Plan is to provide an incentive to executive officers and other selected employees of the Company to contribute to the growth, profitability and increased value of the Company by providing incentive compensation that qualifies as +“performance based compensation” within the meaning of Section 162(m) of the Code. The Plan is designed to focus on achievement of annual objectives and goals, determined at the beginning of each calendar year. Participants may earn a +pre-determined percentage of base salary for the achievement of specified goals. The payout opportunity varies for performance above and below the pre-established target performance levels. +2. +Definitions. +Except as otherwise expressly provided or the context otherwise +requires, financial and accounting terms are used as defined for purposes of, and will be determined in accordance with, United States generally accepted accounting principles, as from time to time in effect, as applied and included in the +consolidated financial statements of the Company, prepared in the ordinary course of business. The following terms, as used herein, will have the following meanings: +(a) “ Administrator” means the Board or a committee thereof to which the Board has delegated authority to administer +the Plan in accordance with Section 3. +(b) “Award” means an incentive compensation award, granted pursuant to the Plan, +which is contingent upon the attainment of specific Performance Targets during the Performance Period with respect to a preestablished Performance Factor. +(c) “Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that +in calculating the beneficial ownership of any particular Person, such Person will be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right +is currently exercisable or is exercisable only after the passage of time, the satisfaction of performance goals, or both. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning. +(d) “Board” means the Board of Directors of the Company. +(e) “ Change in Control ” means: +(i) The direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series +of related transactions, of all or substantially all of the properties or assets of the Company to any Person; +A-1 +Table of Contents +(ii) The Incumbent Directors cease for any reason to constitute a majority of the Board; +(iii) The adoption of a plan relating to the liquidation or dissolution of the Company; or +(iv) The consummation of any transaction (including, without limitation, any merger, consolidation or exchange) that results in any Person +becoming the Beneficial Owner of more than 50% of the voting power of the Company. +(v) The foregoing notwithstanding, a transaction will +not constitute a Change in Control if (i) its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the Persons who held the +Company’s securities immediately before such transaction; (ii) it constitutes an initial public offering or a secondary public offering that results in any security of the Company being listed (or approved for listing) on any securities +exchange or designated (or approved for designation) as a security on an interdealer quotation system; or (iii) solely because 50% or more of the total voting power of the Company’s then outstanding securities is acquired by (A) a +trustee or other fiduciary holding securities under one or more employee benefit plans of the Company or any affiliate, or (B) any company that, immediately before such acquisition, is owned directly or indirectly by the stockholders of the +Company in substantially the same proportion as their ownership of stock in the Company immediately before such acquisition. +(f) +“Code” means the Internal Revenue Code of 1986, as amended. +(g) “Company” means, collectively, Gulfport +Energy Corporation and its subsidiaries and their respective successors. +(h) “Covered Employee” has the meaning set +forth in Section 162(m)(3) of the Code. +(i) “Effective Date” means the date of adoption specified in Section 8. +(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended. +(k) “Executive Officer” means an officer of the Company who is an “executive officer” within the meaning of Rule 3b-7 promulgated under the Exchange Act. +(l) “ Incumbent Directors ” means +individuals who, on the Effective Date, constitute the Board, provided that any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of +the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) will be an Incumbent Director. No +individual initially elected or nominated as a Director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any +person other than the Board will be an Incumbent Director. +A-2 +Table of Contents +(m) “Participant” means an officer or employee of the Company who is, pursuant +to Section 4 of the Plan, selected to participate herein. +(n) “Performance Factors” means the criteria and +objectives, determined by the Administrator, used to measure the Performance Targets which must be met during the applicable Performance Period as a condition of the Participant’s receipt of payment with respect to an Award. Performance Factors +may include any or all of the following: revenue; net sales; operating income; earnings before all or any of interest expense, taxes, depreciation and/or amortization (“EBIT”, “EBITA” or “EBITDA”); growth of oil and +natural gas production; growth of estimated or proved reserves; capital efficiency based on revenue per barrel of oil equivalent (“BOE”) produced; lease operating expenses; general and administrative expenses; net cash provided by +operating activities or other cash flow measurements; working capital and components thereof; return on equity or average stockholders’ equity; return on assets; market share; sales (net or gross) measured by product line, territory, +customer(s), or other category; stock price; earnings per share; earnings from continuing operations; net worth; credit rating; levels of expense, cost or liability by category, operating unit or any other delineation; or any increase or decrease of +one or more of the foregoing over a specified period. Such Performance Factors may relate to the performance of the Company, a business unit, product line, territory, or any combination thereof. With respect to Participants who are not Executive +Officers, Performance Factors may also include such objective or subjective performance goals as the Administrator may, from time to time, establish. Subject to Section 5(b) and Section 6(b) hereof, the Administrator will have the sole +discretion to determine whether, or to what extent, Performance Factors are achieved. +(o) “Performance Period” means the +Company’s fiscal year or such other period as may be specified by the Administrator. +(p) “Performance Target” means +the specific performance goals applicable to any Performance Factor specified by the Administrator that are established to determine the amount payable to a Participant as a condition of the Participant’s receipt of payment with respect to an +Award. Such performance goals may be established in absolute terms, as objectives relative to performance in prior periods, as an objective compared to the performance of one or more comparable company or an index covering multiple companies, or +otherwise as the Administrator may determine. +(q) “Person” means an individual, partnership, limited liability company, +corporation, association, joint stock company, trust, joint venture, labor organization, unincorporated organization, governmental entity or political subdivision thereof, or any other entity, and includes a syndicate or group as such terms are used +in Section 13(d)(3) or 14(d)(2) of the Exchange Act. +(r) “Plan” means Gulfport Energy Corporation 2014 Executive +Annual Incentive Compensation Plan. +(s) “Publicly Held Corporation” means a corporation issuing any class of equity +securities required to be registered under Section 12 of the Exchange Act and will have the meaning set forth in Section 162(m)(2) of the Code. +A-3 +Table of Contents +3. +Administration. +The Plan will be administered by the Administrator. The +Administrator will have the authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the +Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards will be granted; to determine the terms, +conditions, restrictions and performance criteria, including Performance Factors and Performance Targets, relating to any Award; to determine whether, to what extent, and under what circumstances an Award may be settled, canceled, forfeited, or +surrendered; to specify and make adjustments in the Performance Targets in recognition of unusual or non-recurring events affecting the Company or the financial statements of the Company, or in response to +changes in applicable laws, regulations, or accounting principles; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Awards; and to +make all other determinations deemed necessary or advisable for the administration of the Plan. +During any period that the Company is a +Publicly Held Corporation, the Board will delegate its authority to administer the Plan to a compensation committee. If the Board delegates its responsibility with respect to the administration of the Plan to a compensation committee thereof, the +Administrator will consist of two or more persons each of whom will be an “outside director” within the meaning of Section 162(m) of the Code. All decisions, determinations and interpretations of the Administrator will be final and +binding on all persons, including the Company and the Participant (or any person claiming any rights under the Plan from or through any Participant). +The Administrator and any members thereof will be entitled to, in good faith, rely or act upon any report or other information furnished to +him or her by any officer or employee of the Company, the Company’s independent certified public accountants, consultants or any other agent assisting in the administration of the Plan. The Administrator, any members of the compensation +committee and any officer or employee of the Company acting at the direction or on behalf of the Administrator will not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and will, to the +extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination. +4. +Eligibility. +Awards may be granted to Participants in the sole discretion of the +Administrator. In determining the persons to whom Awards may be granted, the Performance Factors and Performance Targets relating to each Award, the Administrator will take into account such factors as the Administrator deems relevant in connection +with accomplishing the purposes of the Plan. +A-4 +Table of Contents +5. +Terms of Awards. +Awards granted pursuant to the Plan may be communicated to +Participants in such form as the Administrator from time to time approves and the terms and conditions of such Awards will be set forth therein. +(a) In General. The Administrator will specify with respect to a Performance Period the Performance Factors and the Performance +Targets applicable to each Award. Performance Targets may include a level of performance below which no payment will be made and levels of performance at which specified percentages of the Award will be paid as well as a maximum level of performance +above which no additional Award will be paid. +(b) Time and Form of Payment. Unless otherwise determined by the +Administrator, all payments in respect of Awards granted under this Plan will be made, in cash, within a reasonable period after the end of the Performance Period, but in the case of Awards designed not to be deferred compensation within the meaning +of Section 409A of the Code, not later than the latest date at which such Awards will still qualify for the exemption from Section 409A applicable to short-term deferrals. In the case of Participants who are Covered Employees, unless +otherwise determined by the Administrator, such payments will be made only in accordance with the requirements of Section 6 after achievement of the Performance Targets has been certified by the Administrator. +6. +Awards to Covered Employees. +(a) Additional Conditions. If the +Administrator determines at the time an Award is established for a Participant that the Company is a Publicly Held Corporation and such Participant is, or may be as of the end of the tax year for which the Company would claim a tax deduction in +connection with such Award, a Covered Employee, then the Administrator will provide that this Section 6 is applicable to such Award under such terms as the Administrator may determine. +(b) Establishment of Performance Criteria and Performance Targets. If an Award is subject to this Section 6, then the +payment of cash pursuant thereto will be subject to the Company achieving the applicable Performance Target for the applicable Performance Year set by the Administrator within the time prescribed by Section 162(m) of the Code or the regulations +thereunder in order for the level to be considered “pre-established.” Performance Factors and Performance Targets will be considered pre-established if they are adopted by the Administrator not later +than the earlier of (i) 90 days after the commencement of the Performance Period and (ii) the time when 25 percent of the Performance Period has elapsed. +(c) Required Adjustments . To preserve the intended incentives and benefits of an Award based on revenue, net sales, operating +income, EBIT, EBITA, or EBITDA, growth of oil and natural gas production, growth of estimated or proved reserves, capital efficiency based on revenue per barrel of oil equivalent (“BOE”) produced, lease operating expenses, general and +administrative expenses, cash flow, return on equity or average stockholders’ equity, return on assets, sales (net or gross), earnings per share, earnings from continuing operations, levels of expense, cost or liability, the Administrator will +apply the objective formula or standard with respect to the applicable Performance Target in a manner that will eliminate the effects of the following: +(i) the gain, loss, income or expense resulting from changes in accounting principles that become effective during the Performance Period; +A-5 +Table of Contents +(ii) the gain, loss, income or expense reported by the Company in its public filings with respect +to the performance period that are extraordinary or unusual in nature or infrequent in occurrence, +(iii) the gains or losses resulting +from, and the direct expenses incurred in connection with, any business, leasehold or well disposed of by the Company or any of its subsidiaries during the Performance Period to the extent that such dispositions were not included in the operating +budget for the Performance Period for which the Performance Target was established; +(iv) the Performance Target and the actual results +will be reduced by the pro forma gain, loss, income or expense of any business, leasehold or well disposed of by the Company or any of its subsidiaries during the Performance Period to the extent that such dispositions were not included in the +operating budget for the Performance Period for which the Performance Target was established; and +(v) the Performance Target will be +reduced in the event of a the cessation of operations of any business, leasehold or well as a result of natural disaster by an amount equal to the lost pro forma gain, loss, income or expense attributable to such business, leasehold or well during +such period of ceased operations based upon the operating budget for the Performance Period for which the Performance Target was established. +The +Administrator may, however, provide at the time the Performance Targets are established that one or more of the foregoing adjustments will not be made as to a specific Award. In addition, the Administrator may determine at the time the Performance +Targets are established that other adjustments will apply to the objective formula or standard with respect to the applicable Performance Target to take into account, in whole or in part, in any manner specified by the Administrator, any one or more +of the following with respect to the Performance Period: (1) gain or loss from all or certain claims and/or litigation and all or certain insurance recoveries relating to claims or litigation, (2) the impact of impairment of tangible or +intangible assets, (3) the impact of restructuring activities, including but not limited to reductions in force, that are reported in the Company’s public filings covering the Performance Period and (4) the impact of investments or +acquisitions made during the year or, to the extent provided by the Administrator, any prior year. Each of the adjustments described in this Section 6(c) may relate to the Company as a whole or any part of the Company’s business or +operations, as determined by the Administrator at the time the Performance Targets are established. The adjustments are to be determined in accordance with generally accepted accounting principles and standards, unless another objective method of +measurement is designated by the Administrator. In addition to the foregoing, the Administrator will adjust any Performance Factors, Performance Targets or other features of an Award that relate to or are wholly or partially based on the number of, +or the value of, any shares, to reflect a change in the Company’s capitalization, such as a stock split or dividend, or a corporate transaction, such as a merger, consolidation, separation (including a spin-off or other distribution of stock or +property), or a reorganization of the Company. +A-6 +Table of Contents +(d) Discretionary Adjustments. The Administrator may, in its discretion, at any +time establish (and, once established, rescind, waive or amend) additional conditions and terms of payment of Awards (including but not limited to the achievement of other financial, strategic or individual goals, which may be objective or +subjective) as it may deem desirable in carrying out the purposes of the Plan and may take into account such other factors as it deems appropriate in administering any aspect of the Plan, including to reduce the amount of such an Award at any time +prior to payment based on such criteria as it may determine, including but not limited to individual merit and the attainment of specified levels of one or any combination of the Performance Factors. Notwithstanding any contrary provision of this +Plan, the Administrator may not adjust upwards the amount payable pursuant to any Award subject to this Section 6, nor may it waive the achievement of the Performance Target requirement contained in Section 6(b), except in the case of the +death or disability of the Participant or a change in control of the Company. +(e) Certification. Prior to the payment of +any Award subject to this Section 6, the Administrator must certify in writing that the Performance Target requirement applicable to such Award was met. +(f) Additional Restrictions. The Administrator will have the power to impose such other restrictions on Awards subject to this +Section 6 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the +Code, the regulations promulgated thereunder, and any successors thereto. +(g) Maximum Individual Bonus. +Notwithstanding any other provision hereof, no Covered Employee may receive a payment attributable to an Award under the Plan for any one year in excess of the lesser of: (i) 300% of base salary at the time the Award is established, or +(ii) $6 million dollars. The foregoing limit will be subject to adjustments consistent with Section 6(h) in the event of acceleration or deferral. +(h) Express Authority (and Limitations on Authority) to Change Terms and Conditions of Awards; Acceleration or Deferral of +Payment. Without limiting the Administrator’s authority under other provisions of the Plan, but subject to any express limitations of the Plan and compliance with Section 162(m), the Administrator will have the authority to +accelerate an Award that is designed not to be deferred compensation within the meaning of Section 409A of the Code (after the attainment of the applicable Performance Target(s)) and to waive restrictive conditions for an Award (including any +forfeiture conditions, but not Performance Target(s)), in such circumstances as the Administrator deems appropriate. In the case of any acceleration of an Award after the attainment of the applicable Performance Target(s), the amount payable will be +discounted to its present value using an interest rate equal to Moody’s Average Corporate Bond Yield for the month preceding the month in which such acceleration occurs (or such other rate of interest that is deemed to constitute a +“reasonable rate of interest” for purposes of Section 162(m)). In addition, and notwithstanding anything elsewhere in the Plan to the contrary, the Administrator will have the authority to provide under the terms of an Award that +payment or vesting will be accelerated upon the death or disability of a Participant, a change in control of the Company, or, after the attainment of the applicable Performance Target(s) upon termination of the Participant’s employment without +cause or as a constructive termination, as and in the manner provided by the Administrator, and subject to such provision not causing the Award or the Plan to fail to satisfy the requirements for performance-based compensation under +Section 162(m) generally. +A-7 +Table of Contents +7. +General Provisions. +(a) Compliance with Legal Requirements. The +Plan and the granting and payment of Awards, and the other obligations of the Company under the Plan, will be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as +may be required. +(b) Stockholder Approval. No Award may be paid under this Plan prior to the date that stockholders of the +Company receive disclosure of and approve the material terms of the Performance Factors under the Plan. As and to the extent provided under Section 162(m) of the Code, the material terms of the Performance Factors under the Plan must be +disclosed to and reapproved by the Company’s stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which the stockholders previously approved the Performance Factors under the Plan. +(c) Nontransferability. Awards will not be transferable by a Participant except upon the Participant’s death +following the end of the Performance Period but prior to the date payment is made, in which case the Award will be payable to the Participant’s designated beneficiary or, if no beneficiary has been designated, transferable by will or the laws +of descent and distribution. +(d) No Right to Continued Employment. Nothing in the Plan or in any Award granted +pursuant hereto will confer upon any Participant the right to continue in the employ of the Company or to be entitled to any remuneration or benefits not set forth in the Plan or to interfere with or limit in any way the right of the Company to +terminate such Participant’s employment. +(e) Withholding Taxes. Where a Participant or other person is entitled +to receive a payment pursuant to an Award hereunder, the Company will have the right to withhold or otherwise require the Participant or such other person to pay to the Company the amount of any taxes that the Company may be required to withhold +before delivery to such Participant or other person of such payment. +(f) Amendment, Termination and Duration of the +Plan. The Administrator may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; provided that, no amendment that requires stockholder approval in order for the Plan to continue to comply with +Code Section 162(m) will be effective unless the same is approved by the requisite vote of the stockholders of the Company. +(g) Participant Rights. No Participant will have any claim to be granted any Award under the Plan, and there is no obligation +for uniformity of treatment for Participants. +(h) Termination of Employment. The amount of any Award to a Covered +Employee or an Executive Officer will be forfeited if the Participant’s employment terminates for any reason prior to the date the Administrator certifies in writing that the Performance Target requirement +A-8 +Table of Contents +applicable to such Award was met. Unless otherwise provided by the Administrator in connection with specified terminations of employment, if the employment of a Participant who is not a Covered +Employee or an Executive Officer terminates for any reason prior to the end of a Performance Period prior to the payment of any Award for any reason other than death or disability, no Award will be payable to such Participant for that Performance +Period. A Participant whose termination is due to his or her death or disability will be entitled to receive a prorated Award based on the number of days he or she was employed by the Company during the applicable Performance Period, such Award to +be paid to such Participant (or such Participant’s beneficiary, in the case of such Participant’s death) at the same time such Award would have been paid if such Participant remained employed. +(i) Change in Control. In the event of a Change in Control, each Participant will be paid the target Award amount based on the +assumption that the Performance Target was attained at the target level for the entire Performance Period. The target Award amount will be paid within ten (10) days following the consummation (closing date) of the Change in Control transaction. +For purposes of clarity, references to “target Award” and “target level” mean the mid-point of any specified range of potential Award payment amounts or Performance Targets. +(j) Unfunded Status of Awards. The Plan is intended to constitute an “unfunded” plan for incentive and deferred +compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award will give any such Participant any rights that are greater than those of a general creditor of the Company. +(k) Governing Law. The Plan and all determinations made and actions taken pursuant hereto will be governed by the laws +of the State of Delaware without giving effect to the conflict of laws principles thereof. +(l) Effective Date. The +Plan will take effect upon its adoption by the Board for the fiscal year performance period beginning January 1, 2014; provided, however, that prior to the payment of any amount pursuant to any Award, the Plan will be subject to the requisite +approval of the stockholders of the Company in order to comply with Section 162(m) of the Code. In the absence of such approval, the Plan (and any Awards made pursuant to the Plan prior to the date of such approval) will be null and void. +(m) Beneficiary. A Participant may file with the Administrator a written designation of a beneficiary on such form as +may be prescribed by the Administrator and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant and an Award is payable to the Participant’s beneficiary pursuant to Section 7(b), +the executor or administrator of the Participant’s estate will be deemed to be the grantee’s beneficiary. +(n) +Interpretation. The Plan is designed and intended to comply, to the extent applicable, with Section 162(m) of the Code, and all provisions hereof will be construed in a manner to so comply. Notwithstanding anything to the contrary in +the Plan, the provisions of the plan may at any time be bifurcated by the Administrator in any manner so that certain provisions of the Plan or any Award intended (or required in order) to satisfy the applicable requirements of Section 162(m) +are only applicable to Covered Employees whose compensation is subject to Section 162(m). +A-9 +Table of Contents +(o) No Impairment of Rights. The adoption or administration of the Plan is not +intended, nor will it be interpreted, as having the effect of modifying, altering, adding or impairing any right that a Participant may have under a separate agreement entered into between the Company or any of its subsidiaries and such +Participant. +(p) Section 409A. It is intended that any amounts payable with respect to any Award under this +Plan will to the maximum extent possible be treated as short-term deferrals within the meaning of Treas. Regs. §1.409A-1(b)(4) or other payments that are not treated as nonqualified deferred compensation and will not be aggregated with other +nonqualified deferred compensation plans or payments. To the extent that any amounts payable under this Plan constitute nonqualified deferred compensation it is intended that such payments will comply with and avoid the imputation of any tax, +penalty or interest under Section 409A. This Plan and any Award under the Plan will be construed and interpreted consistent with that intent. Any amount that is paid will be treated as a separate payment. Participants will not, directly or +indirectly designate the taxable year of any payment made under this Plan. Neither Company nor any of its subsidiaries guaranty or warrant the tax consequences of any Award under this Plan and, except as specifically provided to the contrary in this +Plan, each Participant will in all cases, be liable for any taxes due as a result of an Award under this Plan. Neither Company nor any of its subsidiaries will have any obligation to indemnify or otherwise hold any Participant harmless from any or +all taxes, interest or penalties, or liability for any damages related thereto. +8. +Execution. +To record the adoption of the Plan by the Board on April 1, +2014, effective on such date, the Company has caused its authorized officer to execute the Plan as evidence of its adoption. +Gulfport Energy Corporation +By: +/s/ Michael G. Moore +Michael G. Moore, Interim +Chief Executive Officer +A-10 +Table of Contents +PROXY +FOR THE ANNUAL MEETING OF STOCKHOLDERS OF +Gulfport Energy Corporation +This Proxy Is Solicited On Behalf Of The Board Of Directors +The undersigned hereby appoints Michael G. Moore and J. Ross Kirtley (together, the “Proxies”), and each of them, with full power of substitution, +as proxies to vote the shares that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Gulfport Energy Corporation (the “Company”) to be held on June 12, 2014 at 10:00 a.m. Oklahoma City time and at any +adjournments and postponements thereof. Such shares shall be voted as indicated with respect to the proposals listed on the reverse side hereof and in the Proxies’ discretion on such other matters as may properly come before the meeting or any +adjournment or postponement thereof. +The undersigned acknowledges receipt of the 2014 Notice of Annual Meeting and accompanying Proxy Statement and +revokes all prior proxies for said meeting. +THE SHARES REPRESENTED BY THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY +THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION IS GIVEN AS TO THE PROPOSALS ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES NAMED IN PROPOSAL 1, FOR EACH OF THE PROPOSALS 2, 3 AND 4 IN ACCORDANCE WITH THE BOARD OF +DIRECTOR’S RECOMMENDATION. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and +signed on reverse side.) +Detach here from proxy voting card. +GULFPORT ENERGY CORPORATION +Proposal 1 – ELECTION OF DIRECTORS +01 Michael G. Moore +For +¨ +Against +¨ +Abstain +¨ +02 Donald L. Dillingham +For +¨ +Against +¨ +Abstain +¨ +03 Craig Groeschel +For +¨ +Against +¨ +Abstain +¨ +04 David L. Houston +For +¨ +Against +¨ +Abstain +¨ +05 Michael S. Reddin +For +¨ +Against +¨ +Abstain +¨ +06 Scott E. Streller +For +¨ +Against +¨ +Abstain +¨ +Proposal 2 – Proposal to Approve Our 2014 Executive Annual Incentive Compensation Plan +For +¨ +Against +¨ +Abstain +¨ +Proposal 3 – Proposal to Approve, on an Advisory Basis, the Company’s Executive Compensation +For +¨ +Against +¨ +Abstain +¨ +Proposal 4 – Proposal to Ratify the Appointment of Our Independent Auditors, Grant Thornton LLP, for fiscal year 2014 +For +¨ +Against +¨ +Abstain +¨ +This proxy, when properly signed, will be voted in the manner directed herein by the undersigned stockholder. +IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR ELECTION OF DIRECTORS UNDER PROPOSAL 1 AND FOR EACH OF THE PROPOSALS 2, 3 AND 4 IN ACCORDANCE WITH THE BOARD OF DIRECTOR’S RECOMMENDATION. +Table of Contents +IMPORTANT – PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. THANK YOU FOR +VOTING. +Signature +Signature, if held jointly +Dated +, 2014 +When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee, or guardian, please give +full title as such. If a corporation, please sign in full corporate name by the president or another authorized officer. If a partnership, please sign in partnership name by an authorized person. +Proxy – Gulfport Energy Corporation +You are cordially invited to attend the Annual Meeting of Stockholders +To be held on June 12, 2014, at +10:00 a.m. Oklahoma City time, at +14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. \ No newline at end of file diff --git a/raw/proxies/0000874499/0001193125-14-172975/proxy_rpt.txt b/raw/proxies/0000874499/0001193125-14-172975/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..dfb5389ea775bbc89825c0647850bd6236b17c9d --- /dev/null +++ b/raw/proxies/0000874499/0001193125-14-172975/proxy_rpt.txt @@ -0,0 +1,72 @@ +Certain Relationships and Related Transactions +Review and Approval of Related Party Transactions +The Audit Committee, as provided in its charter, reviews and approves related party transactions. The Company does not have a formal set of standards to be +substantively applied to each transaction reviewed by the Audit Committee. Instead of a formalized policy, related party transactions are reviewed and judgment is applied to determine whether such transactions are in the best interests of the +Company. Further, the Company’s Code of Business Conduct and Ethics governs various compliance areas, including conflicts of interest and fair dealings, which are considered in the process of the review and approval of related party +transactions. +The Company’s policy is that all of its employees and directors, as well as their family members, must avoid any activity that is or +has the appearance of conflicting with the Company’s business interest. This policy is included in the Company’s Code of Business Conduct and Ethics posted on its website. Each director and executive officer is instructed to always inform +the designated compliance officer when confronted with any situation that may be perceived as a conflict of interest. Only the board of directors or a committee consisting solely of independent directors may grant waivers of the provisions of the +Code of Business Conduct and Ethics for the Company’s executive officers and directors. In addition, at least annually, each director and executive officer completes a detailed questionnaire specifying any business relationship that may give +rise to a conflict of interest. +Further, under the Audit Committee Charter, the Audit Committee is responsible for reviewing and monitoring compliance +with our Code of Business Conduct and Ethics and recommending any warranted changes to the board of directors. In addition, the board of directors and, pursuant to its written charter, the Audit Committee, reviews and approves all relationships and +transactions in which the Company and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their family members, have a direct or +indirect material interest. The board of directors and the Audit Committee approve only those transactions that, in light of known circumstances, are consistent, or are not inconsistent with, the Company’s best interests, as they determine in +the good faith exercise of their discretion. +Related Party Transactions and Relationships +We contract with Athena Construction, L.L.C., or Athena, to provide barge services in our West Cote Blanche Bay and Hackberry fields located along the +Louisiana Gulf Coast. During 2013, we paid Athena $5.2 million and owed an additional $1.0 million for such services at December 31, 2013. +Caliber +Development Company, LLC, or Caliber, provides building maintenance services for our headquarters in Oklahoma City, Oklahoma. We also lease office space from Caliber. During 2013, we paid Caliber $175,000 and owed $43,000 as of December 31, +2013. +We own a 24.9999% interest in Grizzly Oil Sands ULC, or Grizzly, a Canadian unlimited liability company, through our wholly owned subsidiary +Grizzly Holdings, Inc. The remaining interests in Grizzly are owned by Grizzly Oils Sands Inc. As of December 31, 2013, Grizzly had approximately 830,000 acres under lease in the Athabasca and Peace River oil sands regions located in the +Alberta Province near Fort McMurray. On October 5, 2012, we entered into an agreement with Grizzly in which we committed to make monthly payments from October 2012 to May 2013 in the aggregate amount of approximately $8.5 million to fund our +proportionate share of the construction and development costs of the Algar Lake facility. We also agreed to fund our proportionate share of any unfunded cost overruns in excess of $2.0 million. During 2013, we paid an aggregate of $33.9 million +under this agreement and in cash calls. +We have a 25% ownership interest in Muskie Proppant LLC, or Muskie (formerly known as Muskie Holdings LLC). +Muskie processes and sells sand for use in hydraulic fracturing by the oil and natural gas industry and holds certain assets, real estate and rights in a lease covering land in Wisconsin that is prospective for mining oil and natural gas fracture +grade sand. During the year ended December 31, 2013, we paid $2.2 million in cash calls, increasing our total net investment in Muskie to $7.5 million. We also entered into a loan agreement with Muskie effective July 1, 2013, under which +we have loaned Muskie $0.9 million. Interest accrues at the prime rate plus 2.5%. The loan has a maturity date of July 31, 2014. At December 31, 2013, the outstanding balance of the loan was $0.9 million. +During 2011, we invested in Bison Drilling and Field Services LLC, or Bison. Bison owns and operates drilling rigs. During the year ended December 31, +2013, we paid $2.3 million in cash calls. We entered into a loan agreement with Bison effective May 15, 2012, under which Bison may borrow funds from us. Interest accrues at LIBOR plus 0.28% or 8%, whichever is lower, and is to be paid on a +paid-in-kind basis by increasing the outstanding balance of the loan. The loan has a maturity date of January 31, 2015. We loaned Bison $1.6 million during the first nine months of 2012, all of which was repaid by Bison during the third quarter +of 2012. We have made no loans to Bison since that time. +37 +Table of Contents +During the first quarter of 2012, we, Windsor Ohio LLC, or Windsor Ohio, and Rhino Energy LLC formed Timber Wolf +Terminals LLC, or Timber Wolf. We currently have a 50% interest in Timber Wolf and paid $0.1 million in cash calls during 2013. Timber Wolf was formed to operate a crude/condensate terminal and a sand transloading facility in Ohio. +During the first quarter of 2012, we purchased a 22.5% ownership interest in Windsor Midstream LLC, or Midstream, at a cost of $7.0 million. Midstream owns a +28.4% interest in Coronado Midstream LLC (formerly known as MidMar Gas LLC), a gas processing plant in West Texas. During the year ended December 31, 2013, we paid an immaterial amount in net cash calls. +During the second quarter of 2012, we and Windsor Ohio formed Blackhawk Midstream LLC, or Blackhawk. We are the manager of Blackhawk and have a 50% ownership +interest. Blackhawk coordinates gathering, compression, processing and marketing activities for us in connection with the development of our Utica Shale acreage. During the year ended December 31, 2013, we paid $0.7 million in cash calls to +Blackhawk. On January 28, 2014, Blackhawk closed on the sale of its equity interest in Ohio Gathering Company, LLC and Ohio Condensate Company, LLC for a purchase price of $190.0 million, of which $14.3 million was placed in escrow. We received +$84.8 million in net proceeds from this transaction. +Panther Drilling Systems, LLC, or Panther, performs directional drilling services for the Company. +During the year ended December 31, 2013, we were billed $12.6 million for these services and, at December 31, 2013, we owed Panther approximately $1.8 million. +Redback Directional Services, LLC, or Redback, provides coil tubing and flow back services for the Company. Redback billed us $0.1 million for these services +during the year ended December 31, 2013, and no amounts were owed to Redback at December 31, 2013. +Effective April 1, 2010, we entered +into an area of mutual interest agreement with Windsor Niobrara LLC, or Windsor Niobrara, to jointly acquire oil and gas leases in Northwest Colorado for the purpose of exploring, exploiting and producing oil and gas from the Niobrara Formation. The +agreement provides that each party must offer the other party the right to participate in such acquisitions on a 50/50 basis. The parties also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion to their +respective participating interests and pay certain other fees as provided in the agreement. In connection with this agreement, we and Windsor Niobrara also entered into a development agreement, effective as of April 1, 2010, pursuant to which +we and Windsor Niobrara agreed to jointly develop the contract area, and we agreed to act as the operator under the terms of a joint operating agreement. As operator, we are responsible for daily operations, monthly operation billings and monthly +revenue disbursements for these properties. For the year ended December 31, 2013, we billed Windsor Niobrara $0.9 million and, at December 31, 2013, Windsor Niobrara owed us an immaterial amount for these services. +Windsor Ohio participated with us in the acquisition of certain leasehold interests in acreage located in the Utica Shale in Ohio. We are the operator of this +acreage in the Utica Shale. As operator, we are responsible for daily operations, monthly operation billings and monthly revenue disbursements for these properties. For the year ended December 31, 2013, we billed Windsor Ohio approximately +$73.4 million for these services. At December 31, 2013, Windsor Ohio owed us approximately $1.6 million for these services. +In February 2013, we +entered into a purchase and sale agreement with Windsor Ohio pursuant to which Windsor Ohio agreed to sell to us approximately 22,000 net acres representing 100% of its right, title and interest in and to certain leasehold interests in the Utica +Shale in Eastern Ohio for approximately $220.4 million, subject to certain adjustments. This transaction, which closed on February 15, 2013, excluded Windsor Ohio’s interest in 14 existing wells and 16 proposed future wells together with +certain acreage surrounding those wells. Through this transaction, we acquired an additional approximately 16.2% interest in our Utica Shale leases, increasing our working interest in the acreage to 93.8%. All of the acreage included in this +transaction was nonproducing at the time of the acquisition and we are the operator of all of this acreage, subject to existing development and operating agreements between the parties. Pending the completion of title review after the closing, +approximately $33.6 million of the purchase price was placed in an escrow account. In May 2013, the escrow accounts for both this acquisition and a prior acquisition with Windsor Ohio that was completed in December 2012 were terminated, and an +aggregate of $10.0 million was returned to us. The $77.5 million balance of the escrow accounts was disbursed to Windsor Ohio based on the results of title review. The transaction was approved by a special committee of our board of directors, which +engaged independent counsel and financial advisors to assist with its review. +Mr. Mike Liddell, our former Chairman of the Board and one of our +named executive officers during 2013, is the operating member and/or an officer of each of Windsor Niobrara, Windsor Ohio, Windsor Midstream, Athena, Panther, Redback, Timber Wolf, Bison and Caliber and holds a 10% participation interest in Windsor +Ohio and a direct or indirect contingent participation or profits interest ranging from 2.5% to 10.0% in Windsor Niobrara, Athena, Redback, Caliber, Windsor Midsteam, Muskie, Bison, Panther and Grizzly Oil Sands Inc., none of which interests are +dilutive to the interests, if any, that we hold in such entities. +38 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-01-500081/proxy.txt b/raw/proxies/0000913241/0001019056-01-500081/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..8e2b4193b0db40ad5a93c9a2fc48cf9b98e335d1 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-01-500081/proxy.txt @@ -0,0 +1,1222 @@ +DEF 14A +1 +file001.txt +DEFINITIVE 14A +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +(Amendment No. ) +[X] Filed by Registrant +[ ] Filed by a Party other than the Registrant +Check the appropriate box: +[ ] Preliminary Proxy Statement +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12 +STEVEN MADDEN, LTD. +(Name of Registrant As Specified in its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and +0-11. +1) Title of each class of securities to which transaction applies: +N/A +----------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +N/A +----------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11:(1) +N/A +----------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +N/A +----------------------------------------------------------------------- +(1) Set forth the amount on which the filing fee is calculated and state +how it was determined. +[ ] Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and date of its filing. +1) Amount Previously Paid: +N/A +------------------------------------------------------ +2) Form, Schedule or Registration Statement No.: +N/A +------------------------------------------------------ +3) Filing Party: +N/A +------------------------------------------------------ +4) Date Filed: +N/A +------------------------------------------------------ +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +----------------------------------- +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 25, 2001 +----------------------------------- +TO THE STOCKHOLDERS OF STEVEN MADDEN, LTD.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the +"Annual Meeting") of Steven Madden, Ltd., a Delaware corporation (the +"Company"), will be held on May 25, 2001, at the Company's showroom located at +1370 Avenue of the Americas, 12th Floor, New York, New York at 10:00 a.m., local +time, and thereafter as it may from time to time be adjourned, for the purposes +stated below. +1. To elect eight (8) directors to the Board of the Company for a +one (1) year term; +2. To approve an amendment to the Company's 1999 Stock Plan to +increase the maximum number of shares of the Company's common +stock subject to the plan from 975,000 shares to 1,600,000 +shares; +3. To ratify the appointment of Richard A. Eisner & Company, LLP +as independent auditors of the Company for fiscal year 2001; +and +4. To transact such other business as may properly come before +the Annual Meeting or any adjournments thereof. +All Stockholders are cordially invited to attend the Annual Meeting. +Only those Stockholders of record at the close of business on April 16, 2001 are +entitled to notice of and to vote at the Annual Meeting and any adjournments +thereof. A complete list of stockholders entitled to vote at the Annual Meeting +will be available at the Meeting. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ STEVEN MADDEN +----------------------------------------- +April 25, 2001 Steven Madden, +Chief Executive Officer +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE +ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO AMERICAN +STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +PROXY STATEMENT +INTRODUCTION +This Proxy Statement is furnished in connection with the solicitation +of proxies by the Board of Directors of Steven Madden, Ltd., a Delaware +corporation (the "Company"), for use at the annual meeting of the Company's +stockholders to be held at the Company's showroom located at 1370 Avenue of the +Americas, 12th Floor, New York, New York on May 25, 2001 at 10:00 a.m., local +time, and at any adjournments thereof (the "Annual Meeting"). +The Annual Meeting has been called to consider and take action on the +following proposals: (i) to elect eight (8) directors to the Board of Directors +of the Company for a one (1) year term, (ii) to approve an amendment to the +Company's 1999 Stock Plan to increase the maximum number of shares of Company's +Common Stock subject to the plan from 975,000 shares to 1,600,000 shares, (iii) +to ratify the appointment of Richard A. Eisner & Company, LLP as independent +auditors of the Company for fiscal year 2001, and (iv) to transact such other +business as may properly come before the Annual Meeting or any adjournments +thereof. The Board of Directors knows of no other matters to be presented for +action at the Annual Meeting. However, if any other matters properly come before +the Annual Meeting, the persons named in the proxy will vote on such other +matters and/or for other nominees in accordance with their best judgment. THE +COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF +EACH OF THE PROPOSALS. Only holders of record of common stock, $.0001 par value +(the "Common Stock"), of the Company at the close of business on April 16, 2001 +(the "Record Date") will be entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 +Barnett Avenue, Long Island City, NY 11104 and its telephone number is (718) +446-1800. The approximate date on which this Proxy Statement, the proxy card and +other accompanying materials are first being sent or given to stockholders is +April 25, 2001. The Company's Annual Report for the fiscal year ended December +31, 2000, including audited financial statements, are being sent to stockholders +together with this Proxy Statement and are incorporated herein by reference. +INFORMATION CONCERNING SOLICITATION AND VOTING +As of the Record Date, there were outstanding 11,366,605 shares of +Common Stock held by approximately 72 holders of record and 3,836 beneficial +owners. Only holders of shares of Common Stock on the Record Date will be +entitled to vote at the Annual Meeting. The holders of Common Stock are entitled +to one vote on all matters presented at the meeting for each share held of +record. The presence in person or by proxy of holders of record of a majority of +the shares outstanding and entitled to vote as of the Record Date shall be +required for a quorum to transact business at the Annual Meeting. If a quorum +should not be present, the Annual Meeting may be adjourned until a quorum is +obtained. The nominees to be selected as a Director named in Proposal 1 must +receive a plurality of the eligible votes cast at the Annual Meeting with +respect to such Proposal. The approval of the amendment to the Company's 1999 +2 +Stock Plan described in Proposal 2 and the ratification of the appointment of +Richard A. Eisner & Company, LLP as independent auditors of the Company for +fiscal year 2001 described in Proposal 3 must be approved by the affirmative +vote of the holders of a majority of the total votes cast on such proposal in +person or by proxy. Abstentions and broker non-votes will have no effect with +respect to any of the Proposals. Brokers who hold shares in street name may vote +on behalf of beneficial owners with respect to Proposals 1,2 and 3. The approval +of all other matters to be considered at the Annual Meeting requires the +affirmative vote of a majority of the eligible votes cast at the Annual Meeting +on such matters. +The expense of preparing, printing and mailing this Proxy Statement, +exhibits and the proxies solicited hereby will be borne by the Company. In +addition to the use of the mails, proxies may be solicited by officers and +directors and regular employees of the Company, without additional remuneration, +by personal interviews, telephone, telegraph or facsimile transmission. The +Company will also request brokerage firms, nominees, custodians and fiduciaries +to forward proxy materials to the beneficial owners of shares of capital stock +held of record and will provide reimbursements for the cost of forwarding the +material in accordance with customary charges. +Proxies given by stockholders of record for use at the Annual Meeting +may be revoked at any time prior to the exercise of the powers conferred. In +addition to revocation in any other manner permitted by law, stockholders of +record giving a proxy may revoke the proxy by an instrument in writing, executed +by the stockholder or his attorney authorized in writing or, if the stockholder +is a corporation, under its corporate seal, by an officer or attorney thereof +duly authorized, and deposited either at the corporate headquarters of the +Company at any time up to and including the last business day preceding the day +of the Annual Meeting, or any adjournment thereof, at which the proxy is to be +used, or with the chairman of such Annual Meeting on the day of the Annual +Meeting or adjournment thereof, and upon either of such deposits the proxy is +revoked. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES +SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO +CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE BOARD OF DIRECTORS WITH RESPECT TO ANY OTHER BUSINESS THAT MAY +COME BEFORE THE ANNUAL MEETING. +None of the matters to be acted on at the Annual Meeting give rise to +any statutory right of a Stockholder to dissent and obtain the appraisal of or +payment for such Stockholder's shares. +PROPOSAL ONE +TO ELECT EIGHT DIRECTORS TO SERVE FOR ONE YEAR AND UNTIL THEIR SUCCESSORS HAVE +BEEN DULY ELECTED AND QUALIFIED +Under the By-Laws of the Company (the "By-Laws"), the Board of +Directors of the Company is required to be comprised of a minimum of one (1) +director, subject to which limitation the number of directors may be fixed from +time to time by action of the stockholders or of the directors, with all +3 +directors elected by the stockholders each year at the annual stockholders +meeting. The Company's board presently consists of eight (8) directors whose +terms expire at the Annual Meeting. Officers are elected annually by and serve +at the discretion of the Board of Directors. +The Board has nominated eight (8) candidates to serve as directors all +of whom are currently directors. The names and biographical summaries of the +eight (8) persons who have been nominated by the Board of Directors to stand for +election at the Annual Meeting have been provided below for your information. +The Board of Directors has proposed that these persons be elected at the Annual +Meeting to serve until the next annual meeting of stockholders. The Proxies will +be voted for the election of the eight (8) nominees listed below as directors of +the Company unless otherwise specified on the form provided. The vote of a +majority of the capital stock, present and constituting a quorum at the Annual +Meeting, will be necessary to elect the directors listed below. If, for any +reasons, any of the nominees shall be unable or unwilling to serve, the Proxies +will be voted for a substitute nominee who will be designated by the Board of +Directors at the Annual Meeting. Stockholders may abstain from voting by marking +the appropriate boxes on the enclosed Proxy. Abstentions shall be counted +separately and shall be used for purposes of calculating quorum. +BIOGRAPHICAL SUMMARIES OF NOMINEES FOR THE BOARD OF DIRECTORS +CHARLES KOPPELMAN has been a director of the Company since June 1998 +and acting Chairman of the Board since June 2000. Since February 4, 1998, Mr. +Koppelman has been the Chairman and Chief Executive Officer of CAK Universal +Credit Corp., a joint venture created with Prudential Securities to provide +financing to the entertainment, sports and licensing industries. From 1988 to +1997, Mr. Koppelman served as the Chairman and Chief Executive Officer of EMI +Capital Music, N.A. See "Recent Developments." +STEVEN MADDEN has been the Chief Executive Officer and a director since +the Company's inception. In February 2000, Mr. Madden relinquished the position +of President which he held since the Company's inception, and in June 2000, Mr. +Madden resigned as Chairman of the Board. In 1980, Mr. Madden joined L.J. +Simone, a domestic footwear manufacturer, as an Account Executive. At that time, +L.J. Simone had annual sales of approximately $800,000. Mr. Madden was promoted +to Sales Manager and Director of Product Development and was instrumental in the +company's growth to $28 million in annual sales. After leaving L.J. Simone in +1988, Mr. Madden joined M.C.M. Footwear, where he commenced the design, +development and marketing of the "Souliers" line of footwear for women. In 1990, +Mr. Madden founded the Company. See "Recent Developments." +RHONDA J. BROWN has been the President of the Company since February +2000 and a director of the Company since October 1996. Ms. Brown also served as +Chief Operating Officer of the Company from July 1996 to January 2001. Prior to +joining the Company, Ms. Brown served as President and Chief Executive Officer +of Icing, Inc. from May 1995 to December 1995. Previously, from August 1992 to +December 1994, Ms. Brown served as Merchandise President of Macy's East, a +division of R.H. Macy & Co., Inc. From July 1988 to July 1992. Ms. Brown served +as Senior Vice-President and General Merchandise Manager to Lord & Taylor, a +division of the May Company. Ms. Brown attended the American University, +receiving a BS in Marketing and Public Communications in 1976. See "Recent +Developments." +4 +ARVIND DHARIA has been the Chief Financial Officer of the Company since +October 1992 and a director since December 1993. From December 1988 to September +1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp. +See "Recent Developments." +JAMIESON KARSON has been a director of the Company since January 2, +2001. Mr. Karson has practiced law for over 16 years. He has been a partner in +the real estate department of the law firm Tannenbaum Helpern Syracuse & +Hirshtritt, LLP since January 1, 1997. Previously, he was a partner at Karson +McCormick from February 1992 through December 31, 1996. +JOHN L. MADDEN has been a director of the Company since the Company's +inception. Since April 1998, Mr. Madden has owned and managed a branch office of +Tradeway Securities Group, Inc. in Florida. From May 1996 through December 1996, +Mr. Madden formed JLM Consultants, Inc. which acted as a branch office of Merit +Capital, Inc. for several broker-dealers. From May 1994 to May 1996, Mr. Madden +served as Vice President of Investments for GKN Securities, Inc. From August +1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc. as +Managing Director and registered sales representative. Mr. Madden is the brother +of Steven Madden, the Company's founder and Chief Executive Officer. See "Recent +Developments." +PETER MIGLIORINI has been a director of the Company since October 1996. +From 1994 to present, Mr. Migliorini has served as Sales Manager for Greschlers, +Inc., a major supply company located in Brooklyn, New York. From 1987 to 1994 +Mr. Migliorini served as Director of Operations for Mackroyce Group. Mr. +Migliorini has previously served in a number of capacities, ranging from +Assistant Buyer to Chief Planner/Coordinator for several shoe companies +including Meldico Shoes, Perry Shoes, and Fasco Shoes. See "Recent +Developments". +HEYWOOD WILANSKY has been a director of the Company since January 2, +2001. Mr. Wilansky served as the President and Chief Executive Officer of +Bon-Ton Stores, Inc, from August 1995 to July 2000 and a director of Bon-Ton +Stores, Inc. from August 1995 to present. Prior to that, he was employed by The +May Department Stores Company for more than 19 years, last serving as President +and Chief Executive Officer of the Foley's division from1992 to 1995. Mr. +Wilansky is a director of First Washington Realty Trust, a real estate +organization which principally owns neighborhood shopping centers. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION +OF MS. RHONDA BROWN AND MESSRS. CHARLES KOPPELMAN, STEVEN MADDEN, ARVIND DHARIA, +JAMIESON KARSON, JOHN L. MADDEN, PETER MIGLIORINI, AND HEYWOOD WILANSKY. UNLESS +OTHERWISE INSTRUCTED OR UNLESS AUTHORITY TO VOTE IS WITHHELD, THE ENCLOSED PROXY +WILL BE VOTED FOR THE ELECTION OF THE ABOVE LISTED NOMINEES. +DIRECTOR COMPENSATION +Directors who are also employees of the Company are not paid any fees +or other remuneration, for service on the Board or any of its Committees. Each +non-employee director receives (i) an annual grant of options to purchase 10,000 +shares of Common Stock at an exercise price per share equal to two dollars +($2.00) above the fair market value of the Common Stock on the date of grant and +5 +(ii) twenty thousand dollars ($20,000) in immediately available funds. In +addition, non-employee directors are reimbursed by the Company for all expenses +related to attending meetings. +On July 18, 2000, the Company granted Mr. Koppelman 50,000 options (the +"Options") at an exercise price of $7.00 per share as compensation for assuming +the duties of Chairman of the Board of the Company. These Options vested on July +18, 2000 and will expire on July 18, 2005. Provided that Mr. Koppelman continues +his service as acting Chairman of the Board, he is entitled to receive (i) +75,000 options on May 31, 2001 at an exercise price of $7.00 per share, (ii) +75,000 options on May 31, 2002 at an exercise price per share equal to the +closing bid price of the Company's common stock on May 31, 2002 as quoted on The +Nasdaq Stock Market, (iii) 75,000 options on May 31, 2003, at an exercise price +per share equal to the closing bid price of the Company's common stock on May +31, 2003 as quoted on The Nasdaq Stock Market, and (iv) 75,000 options on May +31, 2004 at an exercise price per share equal to the closing bid price of the +Company's common stock on May 31, 2004 as quoted on The Nasdaq Stock Market. +Each of these options will expire five (5) years following the date of the +grant. In the event there is a change of control transaction requiring the +approval of the Company's stockholders, the Options will be granted and vest +immediately prior to the closing of the change of control transaction at an +exercise price of $7.00 per share. +MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS +The Board of Directors met six (6) times during the fiscal year ended +December 31, 2000. The Board of Directors has standing Audit, Real Estate and +Compensation Committees. +The Audit Committee of the Board of Directors consists of directors +Charles Koppelman, Peter Migliorini and Heywood Wilansky, none of whom was an +employee of the Company during 2000. This Committee is primarily responsible for +reviewing the services performed by the Company's independent auditors, +evaluating the Company's accounting policies and its system of internal +controls, and reviewing significant finance transactions. +The audit functions of the Audit Committee are focused on three areas: +- the adequacy of the Company's internal controls and financial +reporting process and the reliability of the Company's +financial statements. +- the independence and performance of the Company's independent +auditors. +- the Company's compliance with legal and regulatory +requirements. +The Audit Committee meets with management periodically to consider the +adequacy of the Company's internal controls and the objectivity of its financial +reporting. The Audit Committee discusses these matters with the Company's +independent auditors and with appropriate Company financial personnel. Meetings +are held with the independent auditors who have unrestricted access to the +committee. The Audit Committee also recommends to the Board the appointment of +the independent auditors and review periodically their performance and +independence from management. In addition, the committee reviews the Company's +financing plans and reports recommendations to the full Board of Directors for +approval and to authorize action. The Directors who serve on the committee are +6 +all "Independent" for purposes of The Nasdaq Stock Market listing standards. +That is, the Board of Directors has determined that no member of the Audit +Committee has a relationship to the Company that may interfere with its +independence from the Company and its management. The Board has adopted a +written charter setting out the audit related functions the committee is to +perform. A copy of that charter is attached to this proxy statement as Annex B. +Management has primary responsibility for the Company's financial +statements and the overall reporting process, including the Company's system of +internal controls. The independent auditors audit the annual financial +statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of +operations and cash flows of the Company in conformity with generally accepted +accounting principles and discuss with the Audit Committee any issues they +believe should be raised with the Audit Committee. +This year, the committee reviewed the Company's audited financial +statements and met with both management and Richard A. Eisner & Company, LLP, +the Company's independent auditors, to discuss those financial statements. +Management has represented to the committee that the financial statements were +prepared in accordance with generally accepted accounting principles. The +committee has received from and discussed with Richard A. Eisner & Company, LLP +the written disclosure and the letter required by Independence Standards Board +Standard No. 1 (Independence Discussions with Audit Committees). These items +relate to that firm's independence from the company. The committee also +discussed with Richard A. Eisner & Company, LLP any matters required to be +discussed by Statement on Auditing Standards No. 61 (Communication with Audit +Committees). Based on these reviews and discussions, the committee recommended +to the Board that the Company's audited financial statements be included in the +Company's Annual Report on Form 10-K for the fiscal year ended December 31, +2000. +For the year ended December 31, 2000, the Company incurred professional +fees to its auditors in the amount of $356,000, of which $120,000 related to +auditing services and $236,000 related to all other services. The Audit +Committee has considered whether the non-audit services provided by the +Company's auditors in connection with the year ended December 31, 2000 were +compatible with the auditor's independence and has concluded that the Company's +auditors have maintained its independence. +AUDIT COMMITTEE +Charles Koppelman, +Peter Migliorini +Heywood Wilansky +The Compensation Committee of the Board of Directors consists of +directors Charles Koppelman, John Madden and Peter Migliorini. The Compensation +Committee is primarily responsible for approving salaries, bonuses and other +compensation for the Company's Chief Executive Officer and named executive +officers, reviewing management recommendations relating to new incentive +compensation plans and changes to existing incentive compensation plans, and for +administering the Company's stock plans, including granting options and setting +the terms thereof pursuant to such plan (all subject to approval by the Board of +Directors). +7 +The Real Estate Committee of the Board of Directors consists of +directors Steven Madden, Rhonda Brown and Jamieson Karson. This Committee is +primarily responsible for overseeing real estate transactions for the Company. +In light of the Company's aggressive retail store expansion plan, the Real +Estate Committee was formed to consider proposed real estate transactions for +approval. +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Exchange Act of 1934 requires the +Company's directors and executive officers, and persons who own more than ten +percent (10%) of a registered class of the Company's equity securities, to file +with the Securities and Exchange Commission ("SEC") initial reports of ownership +and reports of changes in ownership of common stock and other equity securities +of the Company. Officers, directors and greater than ten percent stockholders +are required by SEC regulation to furnish the Company with copies of all Section +16(a) forms they file. +To the Company's knowledge, based solely on its review of the copies of +such reports furnished to the Company during the year ended December 31, 2000, +all Section 16(a) filing requirements applicable to its officers, directors and +greater than ten percent beneficial owners were satisfied. +RECENT DEVELOPMENTS +On June 20, 2000, Steven Madden, the Company's former Chairman and +current Chief Executive Officer, was indicted in the Southern District and +Eastern District of New York. The indictments allege that Mr. Madden engaged in +securities fraud and money laundering activities. In addition, the Securities +and Exchange Commission filed a complaint in the United States District Court +for the Eastern District of New York alleging that Mr. Madden violated Section +17(a) of the Securities Exchange Act of 1934, as amended. +Neither the indictments nor the SEC complaint alleges any wrongdoing by +the Company or its other officers and directors. Mr. Madden has denied any +improper conduct and has advised the Company that he will vigorously defend +himself against any and all charges. +On June 21, 2000, Steven Madden resigned as Chairman of the Board of +Directors and the Company appointed Charles Koppelman acting Chairman of the +Board. Mr. Koppelman has been a director of the Company since June 1998. Mr. +Madden continues to serve as the Company's Chief Executive Officer. +On March 14, 2001, the Company became aware that the Securities and +Exchange Commission had issued a formal order of investigation with respect to +trading in the Company's securities. The Company has reason to believe that the +Staff is investigating possible securities law violations by persons trading in +the Company's securities prior to June 20, 2000 who may have been in possession +of alleged material, non-public information. As previously disclosed on Form 4's +filed with the Securities and Exchange Commission, certain officers and +directors of the Company sold shares of the Company's common stock during 1999 +and the first half of 2000. Each of such officers and directors denies having +knowledge of any material, non-public information prior to engaging in such +transactions. +8 +DIRECTORS AND EXECUTIVE OFFICERS +Certain information concerning the directors and executive officers of +the Company is set forth below: +Name Age Position(s) with the Company +---- --- ---------------------------- +Charles Koppelman 60 Acting Chairman of the Board(1) +Steven Madden 44 Chief Executive Officer and Director(2) +Rhonda Brown 45 President and Director(3) +Arvind Dharia 51 Chief Financial Officer, Director and +Secretary +Richard Olicker 43 Chief Operating Officer(4) +Gerald Mongeluzo 60 President of Adesso-Madden, Inc. +Mark Jankowski 40 General Merchandise Manager +Robert Schmertz 37 President of Shoe Biz, Inc. and Diva +Acquisition Corp. +Joseph Masella 52 President of l.e.i. Footwear and Stevies, +Inc. +Les Wagner 60 Vice President of Real Estate of Steven +Madden Retail, Inc. and Director(5) +John L. Madden 53 Director +Peter Migliorini 52 Director +Jamieson Karson 43 Director(6) +Heywood Wilansky 52 Director(7) +John Basile 49 Executive Vice President and Director(8) +----------------- +(1) Mr. Koppelman was appointed Acting Chairman of the Board in June 2000. +(2) Mr. Madden held the additional titles of President until February 2000 and +Chairman of the Board until June 2000. See "Recent Developments." +(3) Ms. Brown was appointed President in February 2000 and relinquished her +position as Chief Operating Officer in January 2001. +(4) Mr. Olicker commenced his employment with the Company in January 2001. +(5) Mr. Wagner resigned as officer of Steven Madden Retail, Inc. and a director +of the Company in March 2001. +(6) Mr. Karson was appointed as a director of the Company in January 2001. +(7) Mr. Wilansky was appointed as a director of the Company in January 2001. +(8) Mr. Basile resigned as officer and director of the Company in December +2000. +9 +See "Biographical Summaries of Nominees for the Board of Directors" for +biographical summaries of Ms. R. Brown and Messrs. A. Dharia, J. Karson, C. +Koppelman, J. Madden, S. Madden, P. Migliorini, and H. Wilansky. +RICHARD OLICKER has been Chief Operating Officer of the Company since +January 3, 2001. Prior to joining the Company, Mr. Olicker spent more than 12 +years at AeroGroup International, Inc., marketers of Aerosoles and What's What +shoes. As cofounder of Aerosoles, Mr. Olicker served as President of the +company's private label division and was responsible for managing all aspects of +sourcing, production, pricing, sales, service, systems and finance. Mr. Olicker +began his career in footwear in 1982 as the General Counsel and Licensing +Director at El Greco Leather Products and later held an executive position with +the apparel licensing firm New Retail Concepts, Inc. +GERALD MONGELUZO has been President of Adesso-Madden, Inc., a wholly +owned subsidiary of the Company, since September 1995. Previously, Mr. Mongeluzo +was the founder and President of Adesso Shoes, Inc., a buying agent of private +label shoes. From 1987 through 1991, Mr. Mongeluzo was the President of the +Prima Barabaro Division of Cells Enterprise, Inc. Mr. Mongeluzo founded Prima +Shoes, Inc., a buying agent of private label shoes, and served as President from +1974 to 1987. +MARK JANKOWSKI has been the General Merchandise Manager of the Company +since December 2000. Previously, Mr. Jankowski had been the President of Steve +Madden Retail, Inc. from February 1999 to December 2000 and the Company's Vice +President of Product Development from 1995 to 1999. From 1980 to 1995, Mr. +Jankowski held several positions at Edison Brothers including Head of Buying. +ROBERT SCHMERTZ has been the President of Shoe Biz, Inc., a wholly +owned subsidiary of Steve Madden Retail Inc. since May 1998 and President of +Diva Acquisition Corp. since January 2001. Before joining the Company, Mr. +Schmertz was President of Daniel Scott Inc. from November 1995 to May 1998. +Previously, Mr. Schmertz was the East Coast Sales Manager for Impo International +from January 1993 through November 1995. From April 1990 to December 1992, Mr. +Schmertz served as a sales representative for Espirit de Corp. based in San +Francisco, California. +JOSEPH MASELLA has been President of Stevies, Inc. since April 2000 and +the Company's l.e.i. Footwear since July 1998. Previously, he was Vice +President-Sales of the Company's Adesso-Madden subsidiary since October 1995. +From 1992 to 1995, Mr. Masella served as General Manager-Far East Division of US +Shoe Co. +LES WAGNER was the Vice President-Real Estate for Steven Madden Retail, +Inc. from April 1999 to March 2001 and a Director of the Company from October +1996 to March 2001. Mr. Wagner resigned as officer of Steven Madden Retail, Inc. +and a Director of the Company in March 2001. From 1993 to 1996, Mr. Wagner +served as the President of Baker/Leeds Shoe Store, a Division of Edison Brothers +Stores, Inc. Mr. Wagner has served in a number of other capacities for +Baker/Leeds from 1963 to 1993 which included, General Merchandise Manager from +1989 to 1993; Vice President Real Estate Northeast Area from 1988 to 1989; and +President, Gussini Discount Shoe Division from 1987 to 1988. Mr. Wagner attended +Harvard University, completing the Advanced Management Program (AMP 100). +10 +JOHN BASILE was the Company's Director of Operations from June 1994 +until December 1997 and the Company's Executive Vice President from January 1998 +through December 2000. Mr. Basile was a director of the Company from November +1996 through December 2000. Mr. Basile resigned as officer and Director of the +Company in December 2000. Currently, Mr. Basile is a consultant to the Company. +From 1990 to 1994, Mr. Basile was Executive Vice President of Cougar U.S.A. +responsible for the United States Division of Susan Shoes of Canada. Previously, +Mr. Basile was a Sales Manager at Bellini Imports from 1980 to 1990. +COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS +SUMMARY COMPENSATION TABLE +The following table sets forth for each of the last three fiscal years +ended December 31, 2000, December 31, 1999 and December 31, 1998 the +remuneration paid by the Company to its Chief Executive Officer and the four +other most highly compensated executive officers: +SUMMARY COMPENSATION TABLE +-------------------------------------------------------------------------------- +LONG-TERM COMPENSATION +ANNUAL COMPENSATION +------------------------------------------------------- +NAME AND FISCAL AWARDS OTHER ANNUAL +PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(1) COMPENSATION +-------------------------------------------------------------------------------- +Steven Madden, 2000 $300,000 $400,000 -0- $311,437(2) +Chief Executive Officer 1999 $275,000 $800,000 -0- $318,641(2) +1998 $274,231 $ 0.00 191,189 $315,394(2) +Rhonda Brown, 2000 $270,052 $581,150 190,575 +President 1999 $257,278 $537,920 -0- +1998 $236,888 $242,493 188,811 +John Basile, Executive 2000 $250,000 $614,047 -0- +Vice President 1999 $299,135 $ 88,299 100,000 +1998 $274,711 $189,000 250,000 +Arvind Dharia, 2000 $171,769 $ 80,000 25,000 $ 91,743(3) +Chief Financial Officer 1999 $140,000 $ 39,367 25,000 $ 88,606(3) +1998 $140,000 $ 46,561 32,000 $ 86,891(3) +Gerald Mongeluzo 2000 $257,653 $ 75,000 -0- +President, Adesso- 1999 $249,769 $ 50,000 -0- +Madden, Inc. 1998 $230,992 $ 35,000 50,000 +---------- +(1) Options to purchase shares of Common Stock. +(2) Life insurance premium and other expenses paid on behalf of Mr. Madden. +(3) Life insurance premium paid on behalf of Mr. Dharia. +11 +The following table sets forth certain 2000 information with respect to +options granted during the last fiscal year to the Company's executive officers +named in the above Summary Compensation Table. +OPTION/SAR GRANTS IN LAST FISCAL YEAR +Number of Securities Percent of Total Exercise or +Underlying Options/SARS Granted to Base Price +Name Options/SARS Granted (#) Employees in Fiscal Year % ($/Sh) Expiration Date +---- ------------------------ -------------------------- ------ --------------- +Rhonda Brown 190,575 38.9% $11.63 August 30, 2010 +Arvind Dharia 25,000 5.1% $ 6.57 June 29, 2010 +The following table sets forth certain information with respect to +options exercised during the last fiscal year by the Company's executive +officers named in the Summary Compensation Table, and with respect to +unexercised options held by such persons at the end of the last fiscal year: +AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END +OPTION/SAR VALUES +Shares Number of Securities Value of Unexercised in the +Acquired on Value Realized Underlying Unexercised Money Options/SARS at +Name Exercise (#) $ Options/SARS At FY-End (#) FY-End ($) (1) +---- ------------ - -------------------------- -------------- +Exercisable Unexercisable Exercisable Unexercisable +----------- ------------- ----------- ------------- +Steven Madden 100,000 $ 1,268,943 1,051,189 -- 4,734,238 -- +Rhonda Brown 100,000 $ 1,036,803 230,454 142,931 0 0 +Arvind Dharia 15,000 $ 157,488 95,750 6,250 118,136 6,625 +John Basile 45,000 $ 418,359 470,000 -- 1,601,100 -- +Gerald Mongeluzo -- -- 62,500 -- 25,625 -- +---------- +(1) Based upon a closing price on December 29, 2000 of $7.63 per share as +reported by The Nasdaq Stock Market. +12 +1999 STOCK PLAN +As of March 15, 1999, the Board of Directors of the Company, adopted +the 1999 Stock Plan (the "1999 Plan"), and on June 4, 1999 the Company's +stockholders approved the adoption of the 1999 Plan. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of common stock subject to the plan from 400,000 to 975,000 shares. The +purpose of the 1999 Plan is to provide a means whereby directors and selected +employees, officers, agents, consultants, and independent contractors of the +Company, may be granted incentive stock options and/or nonqualified stock +options to purchase shares of common stock, in order to attract and retain the +services or advice of such directors, employees, officers, agents, consultants, +and independent contractors and to provide additional incentive for such persons +to exert maximum efforts for the success of the Company by encouraging stock +ownership in the Company. The 1999 Plan is expected to provide even greater +flexibility to the Company's compensation methods, after giving due +consideration to competitive conditions and the impact of federal tax laws. See +Proposal Number 2 - Amendment of the 1999 Stock Plan. +OTHER OPTIONS +In March 1995, the Company issued options to purchase 1,000,000 shares +of its Common Stock to a company wholly owned by the Company's Chief Executive +Officer. The options were subsequently transferred to the Chief Executive +Officer. The options which are fully exercisable, have an exercise price of +$1.75 and an exercise period of 10 years. Unearned compensation was recorded in +the amount of $575,000 which represented the difference between the exercise +price and the fair value of the stock on the date of grant and was classified as +a component of stockholders equity. The unamortized portion was charged to +operations in 1997 in connection with the President's amended employment +agreement. +EMPLOYMENT AGREEMENTS +In July 1997, the Company entered into a ten (10) year Employment +Agreement with Steven Madden, the Company's founder, Chief Executive Officer and +Chairman of the Board. In February 2000, the term of the Employment Agreement +with Mr. Madden was extended to December 31, 2009 and Mr. Madden relinquished +his title as President of the Company. The Company agreed to pay Mr. Madden an +annual salary of $275,000 for the two year period commencing January, 1998, +$300,000 for the year commencing January, 2000 and an incremental increase of +ten percent (10%) per annum for each year thereafter. The agreement provided for +payment of a signing bonus of $200,000, and annual non-accountable expense +allowance of $50,000 and use of an automobile having a retail selling price of +no more than $50,000. In addition, in the event of Mr. Madden's total disability +or his death, the Company is obligated to pay to Mr. Madden's estate an amount +equal to the appropriate salary for the twelve (12) month period immediately +subsequent to the date of total disability or his death. In the event Mr. +Madden's employment agreement is terminated for any reason other than "for +cause" or due to his "total disability", the Company is obligated to pay Mr. +Madden the balance of his salary, fifty percent (50%) upon termination and the +remaining fifty percent (50%) in annual installments over the life of the +agreement. Further, in the event of a "change of control" of the Company, Mr. +Madden is entitled to terminate the Employment Agreement and to receive the +balance of his salary upon termination and an amount equal to his bonus (if any) +13 +for the preceding calendar year multiplied by the remaining years left under his +Employment Agreement. Mr. Madden's Employment Agreement contains other customary +provisions. See "Recent Developments." +In July 1996, the Company entered into a three (3) year Employment +Agreement with Rhonda Brown pursuant to which Ms. Brown agreed to serve as the +Company's Chief Operating Officer. The Company agreed to pay Ms. Brown an annual +salary of $200,000 plus a 10% annual increase in the base salary. The agreement +provided that Ms. Brown received options to purchase 66,000 shares of the +Company's Common Stock at an exercise price equal to the closing bid price of +the Company's Common Stock on June 28, 1996, as quoted on The Nasdaq Stock +Market. As of May 1, 1998, the Company and Ms. Brown amended her employment +agreement so that (i) the term of her employment agreement is extended to July +31, 2001 and (ii) her annual base salary increase will be reduced from 10% per +annum to 5% per annum commencing on July 1, 2000. In addition, in the event that +a "change of control" of the Company occurs without Ms. Brown's consent, she is +entitled to receive an amount equal to the greater of (i) the balance of the +Base Salary during the remainder of the Term, and (ii) the Base Salary for two +years and Ms. Brown's most recent annual bonus multiplied by the number of years +remaining under the agreement. As of March 15, 1999, the Company and Ms. Brown +executed a second amendment to her employment agreement. The second amendment +accelerated the reduction in her annual base salary increase from July 1, 2000 +to July 1, 1999 and reduced by one half (1/2) the number of the options issuable +as an Option Bonus. Ms. Brown's Employment Agreement contains other customary +provisions. In February 2000, Ms. Brown was appointed as the President of the +Company and in January, 2001 Ms. Brown relinquished her title as Chief Operating +Officer. +In November 2000, the Company and Ms. Brown amended her employment +agreement to extend the term of her employment agreement to December 31, 2003. +The Company agreed to pay Ms. Brown an annual base salary of (i) two hundred +seventy five thousand dollars ($275,000) through December 31, 2000, (ii) three +hundred fifty thousand dollars ($350,000) from January 1, 2001 through June 30, +2002, and (iii) four hundred thousand dollars ($400,000) from July 1, 2002 +through December 31, 2003. In addition, the most recent amendment provides that +Ms. Brown is entitled to receive a cash bonus equal to four percent (4%) of the +amount by which the aggregate EBIT-D (earnings before the payment of interest or +taxes or a deduction for depreciation) for the four (4) calendar quarters ending +on the most recent December 31st exceeds EBIT-D for the four (4) calendar +quarters ending on the preceding December 31st. The agreement also provides that +on each August 31st during the term of the Agreement, Ms. Brown is entitled to +receive options (the "Performance Options") to purchase 100,000 shares of Common +Stock of the Company. The options comprising the Performance Options are +exercisable at a price equal to the average closing bid price of the Company's +shares of Common Stock for the five trading days ending on August 29th. +In January 1998, the Company entered into a four (4) year Employment +Agreement with Arvind Dharia, pursuant to which Mr. Dharia will serve as the +Company's Chief Financial Officer. The term of the agreement is subject to +automatic extension for one (1) year unless either party terminates the +agreement with ninety (90) days' prior notice. The Company agreed to pay Mr. +Dharia an annual salary of $140,000 subject to annual incremental increases of +ten percent (10%) commencing on the third anniversary of the Employment +Agreement. The agreement provides that Mr. Dharia receive options to purchase +25,000 shares of the Company's Common Stock on June 30 of each year during the +14 +term of the agreement. The options are to vest quarterly over a period of one +(1) year and are exercisable at an exercise price equal to the closing bid price +of the Company's Common Stock on June 30 of each year, as quoted on The Nasdaq +Stock Market. If the Company does not extend the term of Mr. Dharia's Employment +Agreement (other than "for cause" or "total disability"), Mr. Dharia shall +receive severance pay equal to three months salary on the expiration of the +agreement. In addition, in the event of Mr. Dharia's total disability or death +the Company is obligated to pay Mr. Dharia or his estate an amount equal to the +appropriate salary for the twelve (12) month period immediately subsequent to +the date of his total disability or death. In the event Mr. Dharia's employment +agreement is terminated for any reason other than "for cause" or due to his +"total disability", the Company is obligated to pay Mr. Dharia the balance of +his salary and benefits, fifty percent (50%) on January 1 after the date of +termination and the remaining fifty percent (50%) one year after. Further, in +the event of a "change in control" of the Company, Mr. Dharia is entitled to +terminate the Employment Agreement and to receive the balance of his salary upon +termination and an amount equal to his bonus (if any) for the preceding calendar +year multiplied by the remaining years left under his Employment Agreement plus +$200,000 as severance pay. Mr. Dharia's Employment Agreement contains other +customary provisions. +In January 2001, the Company entered into a two (2) year Employment +Agreement with Richard Olicker pursuant to which Mr. Olicker agreed to serve as +the Company's Executive Vice President and Chief Operating Officer. The Company +agreed to pay Mr. Olicker an annual base salary of $225,000 plus a 5% annual +increase in the base salary. The agreement provides that Mr. Olicker receive +options to purchase 75,000 shares of the Company's Common Stock at an exercise +price equal to the closing bid price of the Company's Common Stock on January 2, +2001, as quoted on The Nasdaq Stock Market. Mr. Olicker is entitled to receive a +cash bonus equal to two percent (2%) of the amount by which the aggregate EBIT-D +(earnings before the payment of interest or taxes or a deduction for +depreciation) for the fiscal year ending on the most recent December 31st +exceeds EBIT-D the fiscal year ending on the preceding December 31st. The +agreement also provides that Mr. Olicker receive a one time cash bonus of +$125,000 in the event that the aggregate EBIT-D for any 4 consecutive fiscal +quarters during the term of the agreement equals or exceeds $40,000,000. Mr. +Olicker's Employment Agreement contains other customary provisions. +COMPENSATION COMMITTEE +REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee ("Committee") is responsible for reviewing +and approving the Company's compensation policies and the compensation paid to +its executive officers, including the Chief Executive Officer and the other +named executive officers. The Compensation Committee is comprised of Charles +Koppelman, Peter Migliorini and John Madden each of whom are non-employee +Directors of the Company. +The Compensation Committee's goal is to develop executive compensation +policies and practices that are consistent with and linked to the Company's long +term goal of maximizing shareholder value. The program is designed to facilitate +the long-term success and growth of the Company through the attraction, +motivation, and retention of outstanding executives. +15 +The objectives of the Company's executive compensation programs are to: +(i) attract and retain the highest quality executives, (ii) inspire and motivate +executive officers to increase Company performance, (iii) align executive +officers' financial interest with those of the Company's long-term investors, +and (iv) reward executive officers for exceptional individual contributions to +the achievement of the Company's objectives. +Executive compensation consists of three components: base salary, +annual incentive bonuses and long-term incentive awards (stock options). Each +compensation component is offered to executives in varying combinations, +structured in each case, to meet varying business objectives and to provide a +level of total compensation comparable to similarly situated public companies. +The Company has negotiated employment agreements with respect to base +salary, annual incentive awards and stock option awards for each of the +Company's named executive officers based upon the Company's performance and +individual performance. +Steven Madden, the Company's Chief Executive Officer, is eligible to +participate in the same compensation plans available to the other executive +officers. +The Internal Revenue Code of 1986 prohibits the Company from taking a +tax deduction in any year for compensation paid the persons who would be named +executive officers in that year in excess of $1 million unless such compensation +is "performance-based compensation." The Company did not pay in 2000 any officer +compensation which will be subject to the $1 million deduction limitation; +however, the Company's Chief Executive Officer exercised options which when +combined with other compensation paid by the Company resulted in his total +compensation exceeding the $1 million deduction limitation. The Compensation +Committee will take into consideration the $1 million deduction limitation when +structuring future compensation packages for the Company's executive officers +and, if appropriate and in the best interests of the Company, will conform such +packages to permit the Company to take a deduction for the full amount of all +compensation. +COMPENSATION COMMITTEE +Charles Koppelman +John Madden +Peter Migliorini +16 +STOCK PERFORMANCE GRAPH +The following graph compares the yearly percentage change in the +cumulative total shareholder return on the Common Stock during the period +beginning on December 31, 1996 and ending on December 31, 2000 with the +cumulative total return on the Russell 2000 Index and the Standard & Poor's +Footwear Index. The comparison assumes that $100 was invested on December 31, +1996 in the Company's Common Stock and in the foregoing indices and assumes the +reinvestment of dividends. +GRAPHIC CHART OMITTED +PLOT POINTS FOR GRAPHIC CHART APPEAR BELOW +-------------------------------------------------------------------------------- +12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 +-------------------------------------------------------------------------------- +Steven Madden, Ltd. 100 147.55 165.85 371.94 148.78 +-------------------------------------------------------------------------------- +Russell 2000 Index 100 120.69 116.53 139.40 133.53 +-------------------------------------------------------------------------------- +S&P Footwear Index 100 66.90 64.80 76.23 91.31 +-------------------------------------------------------------------------------- +17 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following table sets forth information as of the Record Date with +respect to the beneficial ownership of the outstanding shares of the Company's +Common Stock by (i) each person known by the Company to beneficially own five +percent or more of the outstanding shares; (ii) the Company's officers and +directors; and (iii) the Company's officers and directors as a group. A person +is deemed to be a beneficial owner of any securities of which that person has +the right to acquire beneficial ownership within sixty (60) days. See +"Compensation of Directors and Executive Officers." +Amount and +Nature of Percentage +Name and Address Beneficial (%) of +of Beneficial Owner(1) Ownership(2) Class(2) +---------------------- ------------- ------------ +Steven Madden(3) 2,241,005(4) 16.5% +BOCAP Corp.(5) 2,241,005(6) 16.5% +John Madden(7) 15,000(8) * +Arvind Dharia(9) 102,000(10) * +John Basile(11) 300,000(12) 2.6% +Les Wagner(13) 20,000(14) * +Rhonda Brown(15) 373,386(16) 3.2% +Gerald Mongeluzo(17) 62,500(18) * +Joseph Masella(19) 90,425(20) * +Mark Jankowski(21) 50,000(22) * +Robert Schmertz(23) 19,000(24) * +Peter Migliorini(25) 20,000(26) * +Charles Koppelman(27) 124,000(28) * +Richard Olicker(29) 1,200 * +Kennedy Capital +Management, Inc.(30) 833,750 6.8% +Directors and Officers +as a Group (13 persons) 3,418,516 25.3% +* indicates beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address of each beneficial owner is c/o +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York +11104. +(2) Beneficial ownership as reported in the table above has been determined +in accordance with Item 403 of Regulation S-K of the Securities Act of +1933 and Rule 13(d)-3 of the Securities Exchange Act, and based upon +11,366,605 shares of Common Stock outstanding. +(3) Mr. Madden is Chief Executive Officer and a director of the Company. +(4) Includes (i) 1,184,816 shares of Common Stock held by BOCAP, a +corporation owned by Mr. Madden, (ii) 1,051,189 shares of Common Stock +issuable upon the exercise of options held by Mr. Madden. See +"Executive Compensation-Employment Agreements." +(5) BOCAP Corp. is a company wholly-owned by Steven Madden, Chief Executive +Officer of the Company. +(6) Includes (i) 1,051,189 shares of Common Stock issuable upon the +exercise of options held by Mr. Madden and (ii) 5,000 shares of Common +Stock held by Mr. Madden. +(7) John Madden, a director of the Company, is the brother of Steven +Madden. +(8) Includes 15,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Madden. +(9) Mr. Dharia is a director and the Chief Financial Officer of the +Company. +18 +(10) Includes 102,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Dharia. +(11) Mr. Basile resigned as a director and Executive Vice President of the +Company in December 2000. +(12) Includes 300,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Basile. +(13) Mr. Wagner resigned as a director of the Company and the Vice +President-Real Estate of Steven Madden Retail, Inc. in March 2001. +(14) Includes 20,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Wagner. +(15) Ms. Brown is a director and the President of the Company. +(16) Includes 373,386 shares of Common Stock issuable upon the exercise of +options held by Ms. Brown. +(17) Mr. Mongeluzo is the President of Adesso-Madden, Inc., a subsidiary of +the Company. +(18) Includes 62,500 shares of Common Stock issuable upon the exercise of +options held by Mr. Mongeluzo. +(19) Mr. Masella is the President of l.e.i. Footwear and Stevies, Inc., a +subsidiary of the Company. +(20) Includes 90,425 shares of Common Stock issuable upon the exercise of +options held by Mr. Masella. +(21) Mr. Jankowski is the General Merchandise Manager of the Company. +(22) Includes 50,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Jankowski. +(23) Mr. Schmertz is the President of Shoe Biz, Inc., a subsidiary of the +Steven Madden Retail, Inc. and the President of Diva Acquisition Corp. +(24) Includes 9,000 shares held by Mr. Schmertz's wife. +(25) Mr. Migliorini is a director of the Company. +(26) Includes 20,000 shares issuable upon the exercise of options held by +Mr. Migliorini. +(27) Mr. Koppelman is acting Chairman of the Board of the Company. +(28) Includes 50,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Koppelman. +(29) Mr. Olicker is the Chief Operating Officer of the Company. +(30) Based upon a Schedule 13G filed with the Securities and Exchange +Commission on February 14, 2001. The address for such stockholder is +10829 Olive Blvd., St. Louis, MO 63141. +19 +PROPOSAL TWO +AMENDMENT OF THE 1999 STOCK PLAN +At the 1999 Annual Meeting of Stockholders, the Company's stockholders +approved the adoption of the Company's 1999 Stock Plan (the "1999 Plan"). The +1999 Plan originally authorized up to 400,000 shares of Company common stock for +grants of non-qualified and incentive stock options. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of common stock subject to the plan from 400,000 to 975,000 shares. The +Board of Directors has amended the 1999 Plan, subject to stockholder approval, +to authorize 625,000 additional shares for future awards (the "1999 Plan +Proposal"). +Because of the limited number of remaining shares that may be granted +under the 1999 Plan, the Board of Directors believes it is appropriate and +necessary at this time to authorize additional shares for future awards. +Authorization of these additional shares will allow grants to employees, +consultants and directors in furtherance of the Company's goal of continuing to +achieve significant gains in stockholder value and operating results. +The Company intends to continue awarding options in order to attract +and retain the services or advice of such directors, employees, officers, +agents, consultants, and independent contractors and to provide additional +incentive for such persons to exert maximum efforts for the success of the +Company and its affiliates. The following is a summary of the principal features +of the 1999 Plan. The summary is qualified in its entirety be reference to the +complete text of the 1999 Plan, as proposed to be amended. The proposed +amendment to the 1999 Plan is set forth as Annex A to this Proxy Statement. +DESCRIPTION OF THE 1999 PLAN +The maximum number of shares of Common Stock with respect to which +awards may be presently granted pursuant to the 1999 Plan is 975,000 shares. The +1999 Plan Proposal would authorize the use of up to an additional 625,000 shares +of the Company's common stock for a total of 1,600,000 shares being subject of +the 1999 Plan. Shares issuable under the 1999 Plan may be either treasury shares +or authorized but unissued shares. The number of shares available for issuance +will be subject to adjustment to prevent dilution in the event of stock splits, +stock dividends or other changes in the capitalization of the Company. +Subject to compliance with Rule 16b-3 of the Securities Exchange Act of +1934, the Plan shall be administered by the Board of Directors of the Company +(the "Board") or, in the event the Board shall appoint and/or authorize a +committee, such as the Compensation Committee, of two or more members of the +Board to administer the Plan, by such committee. The administrator of the Plan +shall hereinafter be referred to as the "Plan Administrator". Except for the +terms and conditions explicitly set forth herein, the Plan Administrator shall +have the authority, in its discretion, to determine all matters relating to the +options to be granted under the Plan, including, without limitation, selection +of whether an option will be an incentive stock option or a nonqualified stock +option, selection of the individuals to be granted options, the number of shares +to be subject to each option, the exercise price per share, the timing of grants +and all other terms and conditions of the options. +20 +Options granted under the 1999 Plan may be "incentive stock options" +("Incentive Options") within the meaning of Section 422 of the Internal Revenue +Code (the "Code") or stock options which are not incentive stock options +("Non-Incentive Options" and, collectively with Incentive Options, hereinafter +referred to as "Options"). Each option may be exercised in whole or in part; +provided, that only whole shares may be issued pursuant to the exercise of any +option. Subject to any other terms and conditions herein, the Plan Administrator +may provide that an option may not be exercised in whole or in part for a stated +period or periods of time during which such option is outstanding; provided, +that the Plan Administrator may rescind, modify, or waive any such limitation +(including by the acceleration of the vesting schedule upon a change in control +of the Company) at any time and from time to time after the grant date thereof. +During an Optionee's lifetime, any incentive stock options granted under the +Plan are personal to such Optionee and are exercisable solely by such Optionee. +The Plan Administrator can determine at the time the option is granted +in the case of incentive stock options, or at any time before exercise in the +case of nonqualified stock options, that additional forms of payment will be +permitted. To the extent permitted by the Plan Administrator and applicable laws +and regulations (including, without limitation, federal tax and securities laws +and regulations and state corporate law), an option may be exercised by: +(a) delivery of shares of Common Stock of the Company held by an +Optionee having a fair market value equal to the exercise price, such fair +market value to be determined in good faith by the Plan Administrator; +(b) delivery of a properly executed Notice of Exercise, together +with irrevocable instructions to a broker, all in accordance with the +regulations of the Federal Reserve Board, to promptly deliver to the Company the +amount of sale or loan proceeds to pay the exercise price and any federal, +state, or local withholding tax obligations that may arise in connection with +the exercise; or +(c) delivery of a properly executed Notice of Exercise, together +with instructions to the Company to withhold from the shares of Common Stock +that would otherwise be issued upon exercise that number of shares of Common +Stock having a fair market value equal to the option exercise price. +Upon a Change in Control of the Company, any award carrying a right to +exercise that was not previously exercisable shall become fully exercisable, the +restrictions, deferral limitations and forfeiture conditions applicable to any +other award granted shall lapse and any performance conditions imposed with +respect to awards shall be deemed to be fully achieved. +Awards under the 1999 Plan may not be transferred, pledged, mortgaged, +hypothecated or otherwise encumbered other than by will or under the laws of +descent and distribution, except that the Committee may permit transfers of +awards for estate planning purposes if, and to the extent, such transfers do not +cause a participant who is then subject to Section 16 of the Exchange Act to +lose the benefit of the exemption under Rule 16b-3 for such transactions. +The Board may amend, alter, suspend, discontinue or terminate the 1999 +Plan at any time, except that any such action shall be subject to stockholder +approval at the annual meeting next following such Board action if such +stockholder approval is required by federal or state law or regulation or the +21 +rules of any exchange or automated quotation system on which the Common Stock +may then be listed or quoted, or if the Board of Directors otherwise determines +to submit such action for stockholder approval. In addition, no amendment, +alteration, suspension, discontinuation or termination to the 1999 Plan may +materially impair the rights of any participant with respect to any award +without such participant's consent. Unless terminated earlier by action of the +Board of Directors, the 1999 Plan shall terminate ten (10) years after adoption +by the shareholders. +RECOMMENDATION OF BOARD OF DIRECTORS +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1999 PLAN +PROPOSAL. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL +BE VOTED IN FAVOR OF THE PROPOSED 1999 PLAN. +PROPOSAL THREE +RATIFICATION OF SELECTION OF THE FIRM OF RICHARD A. EISNER & +COMPANY, LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY +The Board of Directors upon recommendation of the members of the Audit +Committee, concluded that the continued engagement of Richard A. Eisner & +Company, LLP as the Company's independent public accountants for the 2001 fiscal +year was in the best interests of the Company. The Board of Directors recommends +that Stockholders ratify its choice of Richard A. Eisner & Company, LLP. +The Board of Directors unanimously recommends a vote FOR the ratification of the +selection of Richard A. Eisner & Company, LLP as independent public accountants +for the Company. Unless marked to the contrary, proxies received from +Stockholders will be voted in favor of the proposed amendment. +UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED +IN FAVOR OF THE PROPOSED AMENDMENT. +STOCKHOLDER PROPOSALS AND SUBMISSIONS +If any Stockholder wishes to present a proposal for inclusion in the proxy +materials to be solicited by the Company's Board of Directors with respect to +the 2002 Annual Meeting of Stockholders, that proposal must be presented to the +Company's secretary prior to December 1, 2001. +22 +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN AND +RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A +STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, +YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 25, 2001 By: /s/ STEVEN MADDEN +------------------------------------- +Steven Madden, Chief Executive Officer +and Director +23 +ANNEX A +STEVEN MADDEN, LTD. +1999 STOCK PLAN +This Steven Madden, Ltd. 1999 Stock Plan (the "1999 Plan") is hereby +amended as follows: +1. Section 3 of the 1999 Plan is amended to read as follows: +SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan +shall be the Common Stock, presently authorized but unissued or subsequently +acquired by the Company. Subject to adjustment as provided in Section 7 hereof, +the aggregate amount of Common Stock to be delivered upon the exercise of all +options granted under the Plan shall not exceed in the aggregate 1,600,000 +shares as such Common Stock was constituted on the effective date of the Plan. +If any option granted under the Plan shall expire, be surrendered, exchanged for +another option, canceled, or terminated for any reason without having been +exercised in full, the unpurchased shares subject thereto shall thereupon again +be available for purposes of the Plan, including for replacement options which +may be granted in exchange for such surrendered, canceled, or terminated +options. +2. Except as expressly amend, the provisions of the Plan shall remain +in full force and effect. +3. This Amendment shall be effective immediately upon approval by the +Company's Board of Directors and stockholders of the Company. +Adopted by the Board of Directors +this 30th day of March, 2001 +Approved by the Stockholders +this ________ day of May, 2001 +24 +ANNEX B +AUDIT COMMITTEE CHARTER +OF +STEVEN MADDEN, LTD. +The Audit Committee is appointed by the Company's Board of Director to +assist the Board in monitoring (1) the integrity of the financial statements of +the Company, (2) the compliance by the Company with legal and regulatory +requirements and (3) the independence and performance of the Company's auditors. +The members of the Audit Committee shall meet the independence and +experience requirements of The Nasdaq Stock Market. The members of the Audit +Committee shall be appointed by the Board. +The Audit Committee shall have the authority to retain special legal, +accounting or other consultants to advise the Committee. The Audit Committee may +request any officer or employee of the Company or the Company's outside counsel +or independent auditor to attend a meeting of the Committee or to meet with any +members of, or consultants to, the Committee. +The Audit Committee shall make regular reports to the Board. +The Audit Committee shall: +1. Review and reassess the adequacy of this Charter annually and +recommend any proposed changes to the Board for approval. +2. Review the annual audited financial statements with +management, including major issues regarding accounting and +auditing principles and practices as well as the adequacy of +internal controls that could significantly affect the +Company's financial statements. +3. Review an analysis prepared by management and the independent +auditor of significant financial reporting issues and +judgments made in connection with the preparation of the +Company's financial statements. +4. Review with management and the independent auditor the +Company's quarterly financial statements prior to the filing +of its Form 10-Q. +5. Meet periodically with management to review the Company's +major financial risk exposures and the steps management has +taken to monitor and control such exposures. +6. Review major changes to the Company's auditing and accounting +principles and practices as suggested by the independent +auditor or management. +7. Recommend to the Board the appointment of the independent +auditor, which firm is ultimately accountable to the Audit +Committee and the Board. +25 +8. Approve the fees to be paid to the independent auditor. +9. Receive periodic reports from the independent auditor +regarding the auditor's independence, discuss such reports +with the auditor, and if so determined by the Audit Committee, +recommend that the Board replace the independent auditor. +10. Evaluate together with the Board the performance of the +independent auditor and, if so determined by the Audit +Committee, recommend that the Board replace the independent +auditor. +11. Review the appointment and replacement of the senior internal +auditing executive, if any. +12. Review the significant reports to management prepared by the +accounting department and management's responses. +13. Meet with the independent auditor prior to the audit to review +the planning and staffing of the audit. +14. Obtain from the independent auditor assurance that Section 10A +of the Securities Exchange Act of 1934 has not been +implicated. +15. Obtain reports from management, the Company's senior financial +executive and the independent auditor that the Company's +subsidiaries and/or affiliated entities are in conformity with +applicable legal requirements. +16. Discuss with the independent auditor the matters required to +be discussed by Statement on Auditing Standards No. 61 +relating to the conduct of the audit. +17. Review with the independent auditor any problems or +difficulties the auditor may have encountered and any +management letter provided by the auditor and management's +response to that letter. Such review should include: +(a) Any difficulties encountered in the course of the +audit work, including any restrictions on the scope +of activities or access to required information; and +(b) Any changes required in the planned scope of the +audit. +18. Prepare the report required by the rules of the Securities and +Exchange Commission to be included in the Company's annual +proxy statement. +19. Advise the Board with respect to the Company's policies and +procedures regarding compliance with applicable laws and +regulations and with the Company's Employee Handbook and/or +Code of Conduct. +20. Review with the Company's legal counsel legal matters that may +have a material impact on the financial statements, the +Company's compliance policies and any material reports or +inquiries received from regulators or governmental agencies. +21. Meet at least annually with the chief financial officer, the +senior financial executive and the independent auditor in +separate executive sessions. +26 +While the Audit Committee has the responsibilities and powers set forth +in this Charter, it is not the duty of the Audit Committee to plan or conduct +audits or to determine that the Company's financial statements are complete and +accurate and are in accordance with generally accepted accounting principles. +This is the responsibility of management and the independent auditor. Nor is it +the duty of the Audit Committee to conduct investigations, to resolve +disagreements, if any, between management and the independent auditor or to +assure compliance with laws and regulations and the Company's Employee Handbook +and/or Code of Conduct. +27 +STEVEN MADDEN, LTD. PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING EITHER THE PROXY (THE "PROXY") +[FOR] OR [AGAINST] BOX NEXT TO EACH OF THE THREE (3) PROPOSALS +THE UNDERSIGNED HEREBY APPOINT(S) MR. STEVEN MADDEN WITH THE POWER OF +SUBSTITUTION AND RESUBSTITUTION TO VOTE ANY AND ALL SHARES OF CAPITAL STOCK OF +STEVEN MADDEN, LTD. (THE "COMPANY") WHICH THE UNDERSIGNED WOULD BE ENTITLED TO +VOTE AS FULLY AS THE UNDERSIGNED COULD DO IF PERSONALLY PRESENT AT THE ANNUAL +MEETING OF THE COMPANY, TO BE HELD ON MAY 25, 2001, AT 10:00 A.M. LOCAL TIME, +AND AT ANY ADJOURNMENTS THEREOF, HEREBY REVOKING ANY PRIOR PROXIES TO VOTE SAID +STOCK, UPON THE FOLLOWING ITEMS MORE FULLY DESCRIBED IN THE NOTICE OF ANY PROXY +STATEMENT FOR THE ANNUAL MEETING (RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED): +1. ELECTION OF DIRECTORS +VOTE +[ ] FOR ALL NOMINEES LISTED BELOW EXCEPT AS MARKED TO THE CONTRARY +BELOW +[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW +(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL +NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME BELOW.) +[ ] ABSTAIN +RHONDA J. BROWN, ARVIND DHARIA, JAMIESON KARSON, CHARLES KOPPELMAN, JOHN L. +MADDEN, STEVEN MADDEN, PETER MIGLIORINI, AND HEYWOOD WILANSKY +2. AMENDMENT OF THE 1999 STOCK PLAN +[ ] FOR THE AMENDMENT OF THE 1999 STOCK PLAN +[ ] WITHHOLD AUTHORITY +[ ] ABSTAIN +28 +3. RATIFICATION OF THE APPOINTMENT OF RICHARD A. EISNER & COMPANY, LLP. AS +INDEPENDENT AUDITORS OF THE COMPANY FOR FISCAL YEAR 2001. +[ ] FOR THE RATIFICATION OF THE APPOINTMENT OF RICHARD A. EISNER & +COMPANY, LLP. +[ ] WITHHOLD AUTHORITY +[ ] ABSTAIN +THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE +INDICATED, THIS PROXY WILL BE VOTED FOR ELECTION OF THE EIGHT (8) NOMINEES NAMED +IN ITEM 1, THE AMENDMENT OF THE 1999 STOCK PLAN IN ITEM 2, AND THE RATIFICATION +OF THE APPOINTMENT OF RICHARD A. EISNER & CO., LLP. AS INDEPENDENT AUDITORS OF +THE COMPANY FOR FISCAL YEAR 2001 IN ITEM 3. +IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER +BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. +PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE +ACCOMPANYING POSTAGE PRE-PAID ENVELOPE. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +DATED: +----------------------------------- +----------------------------------------- +SIGNATURE +----------------------------------------- +SIGNATURE IF JOINTLY OWNED: +----------------------------------------- +PRINT NAME: +PLEASE SIGN EXACTLY AS THE NAME APPEARS ON YOUR STOCK CERTIFICATE. WHEN SHARES +OF CAPITAL STOCK ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS +ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, OR CORPORATE OFFICER, +PLEASE INCLUDE FULL TITLE AS SUCH. IF THE SHARES OF CAPITAL STOCK ARE OWNED BY A +CORPORATION, SIGN IN THE FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF THE +SHARES OF CAPITAL STOCK ARE OWNED BY A PARTNERSHIP, SIGN IN THE NAME OF THE +PARTNERSHIP BY AN AUTHORIZED OFFICER. +PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY +IN THE ENCLOSED ENVELOPE +29 \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-01-500081/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-01-500081/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000913241/0001019056-02-000300/proxy.txt b/raw/proxies/0000913241/0001019056-02-000300/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..66b25d50bc176d8b4b58198935a050c9e6b8033d --- /dev/null +++ b/raw/proxies/0000913241/0001019056-02-000300/proxy.txt @@ -0,0 +1,1456 @@ +DEF 14A +1 +sm-def14a_v8.txt +DEFINITIVE 14A +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +[X] Filed by Registrant +[ ] Filed by a Party other than the Registrant +Check the appropriate box: +[ ] Preliminary Proxy Statement +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Under Rule 14a-12 +STEVEN MADDEN, LTD. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified in its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) +1) Title of each class of securities to which transaction applies: +N/A +---------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +N/A +---------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined.): +N/A +---------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +N/A +---------------------------------------------------------------------- +5) Total fee paid: +N/A +---------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials: +N/A +---------------------------------------------------------------------- +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and date of its filing. +1) Amount Previously Paid: +N/A +---------------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +N/A +---------------------------------------------------------------------- +3) Filing Party: +N/A +---------------------------------------------------------------------- +4) Date Filed: +N/A +---------------------------------------------------------------------- +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +---------------------------------------- +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 17, 2002 +---------------------------------------- +To the Stockholders of Steven Madden, Ltd.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual +Meeting") of the Company will be held on May 17, 2002, at the Company's showroom +located at 1370 Avenue of the Americas, 12th Floor, New York, New York at 10:00 +a.m., local time, and thereafter as it may from time to time be adjourned, for +the purposes stated below. +1. To elect eight (8) directors to the Board of Directors of the Company +for a one (1) year term; +2. To approve an amendment to the Company's 1999 Stock Plan to increase +the maximum number of shares of the Company's common stock available +for issuance under the plan from 1,600,000 shares to 2,280,000 shares; +3. To ratify the appointment of Richard A. Eisner & Company, LLP as +independent public accountants for the Company for fiscal year 2002; +and +4. To transact such other business as may properly come before the Annual +Meeting or any adjournments thereof. +All stockholders are cordially invited to attend the Annual Meeting. Only +those stockholders of record at the close of business on April 12, 2002 are +entitled to notice of and to vote at the Annual Meeting and any adjournments +thereof. A complete list of stockholders entitled to vote at the Annual Meeting +will be available at the Meeting. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ JAMIESON A. KARSON +April 19, 2002 ---------------------------------------- +Jamieson A. Karson +Chief Executive Officer +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE +AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE +ENCLOSED ENVELOPE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, 40 WALL +STREET, NEW YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, NY 11104 +PROXY STATEMENT +INTRODUCTION +This Proxy Statement is furnished in connection with the solicitation of +proxies by the Board of Directors of Steven Madden, Ltd., a Delaware corporation +(the "Company"), for use at the annual meeting of the Company's stockholders to +be held at the Company's showroom located at 1370 Avenue of the Americas, 12th +Floor, New York, New York on May 17, 2002 at 10:00 a.m., local time, and at any +adjournments thereof (the "Annual Meeting"). +The Annual Meeting has been called to consider and take action on the +following proposals: (i) to elect eight (8) directors to the Board of Directors +of the Company for a one (1) year term, (ii) to approve an amendment to the +Company's 1999 Stock Plan to increase the maximum number of shares of Company's +common stock subject to the plan from 1,600,000 shares to 2,280,000 shares, +(iii) to ratify the selection of Richard A. Eisner & Company, LLP as independent +public accountants for the Company for fiscal year 2002, and (iv) to transact +such other business as may properly come before the Annual Meeting or any +adjournments thereof. The Board of Directors knows of no other matters to be +presented for action at the Annual Meeting. However, if any other matters +properly come before the Annual Meeting, the persons named in the proxy will +vote on such other matters and/or for other nominees in accordance with their +best judgment. The Company's Board of Directors recommends that the stockholders +vote in favor of each of the proposals. Only holders of record of common stock, +$.0001 par value (the "Common Stock"), of the Company at the close of business +on April 12, 2002 (the "Record Date") will be entitled to vote at the Annual +Meeting. +The principal executive offices of the Company are located at 52-16 Barnett +Avenue, Long Island City, NY 11104 and its telephone number is (718) 446-1800. +The approximate date on which this Proxy Statement, the proxy card and other +accompanying materials are first being sent or given to stockholders is April +19, 2002. The Company's Annual Report for the fiscal year ended December 31, +2001, including audited financial statements, is being sent to stockholders +together with this Proxy Statement. +INFORMATION CONCERNING SOLICITATION AND VOTING +As of the Record Date, there were outstanding 12,407,716 shares of Common +Stock (excluding treasury shares) held by approximately 73 holders of record and +3,401 beneficial owners. Only holders of shares of Common Stock on the Record +Date will be entitled to vote at the Annual Meeting. The holders of Common Stock +are entitled to one vote on all matters presented at the meeting for each share +held of record. The presence in person or by proxy of holders of record of a +majority of the shares outstanding and entitled to vote as of the Record Date +shall be required for a quorum to transact business at the Annual Meeting. If a +quorum should not be present, the Annual Meeting may be adjourned until a quorum +is obtained. Each nominee to be elected as a director named in Proposal 1 must +receive a plurality of the votes cast by the holders of Common Stock present in +person or represented by proxy at the Annual Meeting with respect to such +proposal. The amendment to the Company's 1999 Stock Plan described in Proposal 2 +and the ratification of the selection of Richard A. Eisner & Company, LLP as +independent public accountants of the Company for fiscal year 2002 described in +Proposal 3 must be approved by the affirmative vote of the holders of a majority +of the total votes cast on such proposals in person or by proxy. Abstentions and +broker non-votes are counted as present and entitled to vote and are, therefore, +included for purposes of determining whether a quorum of shares is present at +the meeting. An abstention from a vote with respect to Proposal 1 will have no +effect. An abstention from a vote with respect to Proposal 2 or 3 will have the +same practical effect as a vote against such proposal. Broker "non-votes" are +not deemed to be "votes cast." As a result, broker "non-votes" are not included +in the tabulation of the voting result on the election of directors or issues +requiring approval of a majority of the votes cast and, therefore, do not have +the effect of votes in opposition in such tabulations and as such will have the +practical effect of reducing the number of affirmative votes required to achieve +a majority vote for a matter by reducing the total number of shares from which a +majority is calculated. Brokers who hold shares in +street name may vote on behalf of beneficial owners with respect to Proposals 1, +2 and 3. The approval of all other matters to be considered at the Annual +Meeting requires the affirmative vote of a majority of the eligible votes cast +at the Annual Meeting on such matters. +The expense of preparing, printing and mailing this Proxy Statement, the +exhibits hereto and the proxies solicited hereby will be borne by the Company. +In addition to the use of the mails, proxies may be solicited by officers and +directors and regular employees of the Company, without additional remuneration, +by personal interviews, telephone, telegraph or facsimile transmission. The +Company will also request brokerage firms, nominees, custodians and fiduciaries +to forward proxy materials to the beneficial owners of shares of Common Stock +held of record and will provide reimbursements for the cost of forwarding the +material in accordance with customary charges. +Proxies given by stockholders of record for use at the Annual Meeting may +be revoked at any time prior to the exercise of the powers conferred. In +addition to revocation in any other manner permitted by law, stockholders of +record giving a proxy may revoke the proxy by an instrument in writing, executed +by the stockholder or his attorney authorized in writing or, if the stockholder +is a corporation, under its corporate seal, by an officer or attorney thereof +duly authorized, and deposited either at the corporate headquarters of the +Company at any time up to and including the last business day preceding the day +of the Annual Meeting, or any adjournment thereof, at which the proxy is to be +used, or with the chairman of such Annual Meeting on the day of the Annual +Meeting or adjournment thereof, and upon either of such deposits the proxy is +revoked. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED +ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY +SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY COME BEFORE THE ANNUAL MEETING. +None of the matters to be acted on at the Annual Meeting give rise to any +statutory right of a stockholder to dissent and obtain the appraisal of or +payment for such stockholder's shares. +-2- +PROPOSAL ONE +TO ELECT EIGHT DIRECTORS TO SERVE FOR ONE YEAR AND +UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED +Under the Amended and Restated By-Laws of the Company (the "By-Laws"), the +Board of Directors of the Company is required to be comprised of a minimum of +one (1) director. Subject to the foregoing limitation, the number of directors +may be fixed from time to time by action of the directors. The Company's board +presently consists of eight (8) directors whose terms expire at the Annual +Meeting. +The Board has nominated eight (8) candidates to serve as directors. The +names and biographical summaries of the eight (8) persons who have been +nominated by the Board of Directors to stand for election at the Annual Meeting +have been provided below for your information. The Board of Directors has +proposed that these persons be elected at the Annual Meeting to serve until the +next annual meeting of stockholders. Proxies will be voted for the election of +the eight (8) nominees listed below as directors of the Company unless otherwise +specified on the proxy. A plurality of the votes of shares of Common Stock +present in person or represented by proxy at the Annual Meeting will be +necessary to elect the directors listed below. If, for any reason, any of the +nominees shall be unable or unwilling to serve, the proxies will be voted for a +substitute nominee who will be designated by the Board of Directors at the +Annual Meeting. Stockholders may abstain from voting by marking the appropriate +boxes on the enclosed proxy. Abstentions shall be counted separately and shall +be used for purposes of calculating whether a quorum is present at the meeting. +Biographical Summaries of Nominees for the Board of Directors +Charles A. Koppelman has been a director of the Company since June 1998 and +Chairman of the Board since July 1, 2001. Previously Mr. Koppelman was acting +Chairman of the Board from June 2000 to July 2001. Presently, Mr. Koppelman +serves as Chairman of CAK Entertainment, Inc. From 1988 to 1997, Mr. Koppelman +served first as Chairman and Chief Executive Officer of EMI Music Publishing and +then as Chairman and Chief Executive Officer of EMI Records Group, North +America. +Jamieson A. Karson has been the Chief Executive Officer of the Company and +Vice Chairman of the Board of Directors of the Company since July 1, 2001. Mr. +Karson has been a director of the Company since January 2, 2001. Prior to +joining the Company as Chief Executive Officer, Mr. Karson practiced law for +over 17 years. He was a partner in the New York City law firm of Tannenbaum +Helpern Syracuse & Hirshtritt LLP from January 1, 1997 through June 30, 2001, +where he served on the firm's three person Finance Committee. He was a partner +at the law firm of Karson McCormick from February 1992 through December 31, +1996. Prior to that, Mr. Karson was an associate attorney at the law firm of +Shea & Gould. +Arvind Dharia has been the Chief Financial Officer of the Company since +October 1992 and a director since December 1993. From December 1988 to September +1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp. +Gerald Mongeluzo has been a director of the Company since July 2001. Mr. +Mongeluzo has been President of Adesso-Madden, Inc., a wholly owned subsidiary +of the Company, since September 1995. Previously, Mr. Mongeluzo was the founder +and President of Adesso Shoes, Inc., a buying agent of private label shoes. From +1987 through 1991, Mr. Mongeluzo was the President of the Prima Barabaro +Division of Cells Enterprise, Inc. Mr. Mongeluzo founded Prima Shoes, Inc., a +buying agent of private label shoes, and served as its President from 1974 to +1987. +Marc S. Cooper has been a director of the Company since July 2001. Mr. +Cooper has served as a Managing Director of Peter J. Solomon Company in its +Mergers and Acquisitions Department since May 1999. Previously, Mr. Cooper +worked at Barington Capital Group from March 1992 to May 1999, where he was a +founding member and Vice Chairman overseeing its investment banking operations. +Prior to his tenure with Barington Capital Group, Mr. Cooper spent three years +as a partner of Scharf Brothers, a private merchant banking firm. Currently, Mr. +Cooper serves as a director of Thinking Tools, Inc. and North Atlantic Trading +Company, Inc. +-3- +John L. Madden has been a director of the Company since the Company's +inception. Since April 1998, Mr. Madden has owned and managed a branch office of +Tradeway Securities Group, Inc. in Florida. From May 1996 through December 1996, +Mr. Madden formed JLM Consultants, Inc. which acted as a branch office of Merit +Capital, Inc. for several broker-dealers. From May 1994 to May 1996, Mr. Madden +served as Vice President of Investments for GKN Securities, Inc. From August +1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc. as +Managing Director and registered sales representative. Mr. Madden is the brother +of Steven Madden, the Company's former Chief Executive Officer and current +Creative and Design Chief. See "Recent Developments." +Peter Migliorini has been a director of the Company since October 1996. Mr. +Migliorini has served as Sales Manager for Greschlers, Inc., a supply company +located in Brooklyn, New York since 1994. From 1987 to 1994 Mr. Migliorini +served as Director of Operations for Mackroyce Group. Mr. Migliorini has +previously served in a number of capacities, ranging from Assistant Buyer to +Chief Planner/Coordinator for several shoe companies including Meldisco Shoes, +Perry Shoes, and Fasco Shoes. +Heywood Wilansky has been a director of the Company since January 2, 2001. +Since 2001, Mr. Wilansky has served as President and Chief Executive Officer of +Strategic Management Resources, a management consulting firm for the wholesale +and retail trade. Previously, Mr. Wilansky served as the President and Chief +Executive Officer of Bon-Ton Stores, Inc, from August 1995 to July 2000 and a +director of Bon-Ton Stores, Inc. from August 1995 to July 2000. Prior to that, +he was employed by The May Department Stores Company for more than 19 years, +last serving as President and Chief Executive Officer of the Foley's division +from 1992 to 1995. Mr. Wilansky was a director of First Washington Realty Trust +from 1994 to 2001. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the election of +Messrs. Charles A. Koppelman, Jamieson A. Karson, Arvind Dharia, Gerald +Mongeluzo, Marc Cooper, John L. Madden, Peter Migliorini and Heywood Wilansky. +Unless otherwise instructed or unless authority to vote is withheld, the +enclosed proxy will be voted FOR the election of the above listed nominees and +AGAINST any other nominees. +Director Compensation +Directors who are also employees of the Company are not paid any fees or +other remuneration for service on the Board or any of its Committees. Each +non-employee director receives (i) an annual grant of options to purchase 10,000 +shares of Common Stock at an exercise price per share equal to two dollars +($2.00) above the fair market value of the Common Stock on the date of grant and +(ii) twenty thousand dollars ($20,000) in immediately available funds. In +addition, non-employee directors are reimbursed by the Company for all expenses +related to attending meetings. +On July 18, 2000, the Company granted Mr. Koppelman 50,000 options at an +exercise price of $7.00 per share as compensation for assuming the duties of +Chairman of the Board of the Company pursuant to a letter agreement between the +Company and Mr. Koppelman (the "Option Letter"). These options vested on July +18, 2000 and will expire on July 18, 2005. The Option Letter provided that if +Mr. Koppelman continued his service as acting Chairman of the Board, he was +entitled to receive 75,000 options at an exercise price of $7.00 per share which +options were issued on May 31, 2001. In addition, he was also entitled to +receive 75,000 options on each of May 31, 2002, 2003 and 2004 at an exercise +price per share equal to the closing bid price of the Company's common stock on +the date of grant (the "Additional Options"). In connection with the execution +of his current agreement with the Company, Mr. Koppelman surrendered all of the +Additional Options. See "Agreement with the Chairman of the Board." +Meetings and Committees of the Board of Directors +The Board of Directors met six (6) times during the fiscal year ended +December 31, 2001. The Board of Directors has standing Audit, Real Estate and +Compensation Committees. The Board of Directors does not have a standing +Nominating Committee. +-4- +Audit Committee +During the year ended December 31, 2001, the Audit Committee of the Board +of Directors consisted of directors Charles A. Koppelman, Peter Migliorini and +Heywood Wilansky. In January 2002, the Board of Directors appointed Marc Cooper +to the Audit Committee. At the first meeting of the Board of Directors following +the Annual Meeting, Charles A. Koppelman will relinquish his membership on the +Audit Committee. The Audit Committee is comprised of directors who are +"independent" for purposes of The Nasdaq Stock Market listing standards. The +Audit Committee is primarily responsible for reviewing the services performed by +the Company's independent public accountants, evaluating the Company's +accounting policies and its system of internal controls, and reviewing +significant finance transactions. During 2001, the Audit Committee met two (2) +times. +The audit functions of the Audit Committee are focused on three areas: +- the adequacy of the Company's internal controls and financial +reporting process and the reliability of the Company's financial +statements. +- the independence and performance of the Company's independent public +accountants. +- the Company's compliance with legal and regulatory requirements. +The Audit Committee meets with management periodically to consider the +adequacy of the Company's internal controls and the objectivity of its financial +reporting. The Audit Committee discusses these matters with the Company's +independent public accountants and with appropriate Company financial personnel. +Meetings are held with the independent public accountants who have unrestricted +access to the Audit Committee. The Audit Committee also recommends to the Board +the appointment of the independent public accountants and reviews periodically +their performance and independence from management. In addition, the Audit +Committee reviews the Company's financing plans and reports recommendations to +the full Board of Directors for approval and to authorize action. The Board has +adopted a written charter setting out the audit related functions the Audit +Committee is to perform. +Management has primary responsibility for the Company's financial +statements and the overall reporting process, including the Company's system of +internal controls. The independent public accountants audit the annual financial +statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of +operations and cash flows of the Company in conformity with generally accepted +accounting principles and discuss with the Audit Committee any issues they +believe should be raised with the Audit Committee. +The following Audit Committee Report does not constitute soliciting +material and shall not be deemed filed or incorporated by reference into any +other Company filing under the Securities Act of 1933, as amended, or the +Securities Exchange Act of 1934, as amended, except to the extent the Company +specifically incorporates this Audit Committee Report by reference therein. +-5- +Audit Committee Report +The Audit Committee reviewed the Company's audited financial statements for +the fiscal year ended December 31, 2001 and met with both management and Richard +A. Eisner & Company, LLP, the Company's independent public accountants, to +discuss such audited financial statements. Management and the Company's +independent public accountants have represented to the Audit Committee that the +financial statements were prepared in accordance with generally accepted +accounting principles. The Audit Committee has received from and discussed with +Richard A. Eisner & Company, LLP the written disclosure and the letter regarding +the independence of Richard A. Eisner & Company, LLP as required by Independence +Standards Board Standard No. 1. The Audit Committee also discussed with Richard +A. Eisner & Company, LLP any matters required to be discussed by Statement on +Auditing Standards No. 61. Based on these reviews and discussions, the Audit +Committee recommended to the Board that the Company's audited financial +statements be included in the Company's Annual Report on Form 10-K for the +fiscal year ended December 31, 2001. +AUDIT COMMITTEE +Charles A. Koppelman +Peter Migliorini +Marc Cooper +Heywood Wilansky +Compensation Committee +The Compensation Committee of the Board of Directors consists of directors +Charles A. Koppelman, John Madden and Peter Migliorini. The Compensation +Committee is primarily responsible for approving salaries, bonuses and other +compensation for the Company's Chief Executive Officer and named executive +officers, reviewing management recommendations relating to new incentive +compensation plans and changes to existing incentive compensation plans, and +administering the Company's stock plans, including granting options and setting +the terms thereof pursuant to such plans (all subject to approval by the Board +of Directors). During 2001, the Compensation Committee met three (3) times. +Real Estate Committee +The Real Estate Committee of the Board of Directors consists of directors +Jamieson A. Karson and Heywood Wilansky. The Real Estate Committee is primarily +responsible for overseeing real estate transactions for the Company. In light of +the Company's aggressive retail store expansion plan, the Real Estate Committee +was formed to consider proposed real estate transactions for approval. During +2001, the Real Estate Committee met four (4) times. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires +that the Company's directors and executive officers, and persons who own more +than ten percent (10%) of a registered class of the Company's equity securities, +file with the Securities and Exchange Commission ("SEC") reports of initial +ownership of the Company's common stock and subsequent changes in that ownership +and furnish the Company with copies of all forms they file pursuant to Section +16(a). To the Company's knowledge, based solely on its review of the copies of +such reports furnished to the Company during the year ended December 31, 2001, +all Section 16(a) filing requirements applicable to its officers, directors and +greater than ten percent beneficial owners were complied with. +-6- +Recent Developments +On June 20, 2000, Steven Madden, the Company's former Chairman and Chief +Executive Officer, was indicted in the United States District Courts for the +Southern District and Eastern District of New York. The indictments alleged that +Mr. Madden engaged in securities fraud and money laundering activities. In +addition, the Securities and Exchange Commission filed a complaint in the United +States District Court for the Eastern District of New York alleging that Mr. +Madden violated Section 17(a) of the Securities Exchange Act of 1934, as +amended. On May 21, 2001, Steven Madden entered into a plea agreement with the +U.S. Attorney's Office, pursuant to which he pled guilty to four of the federal +charges filed against him. In addition, Mr. Madden reached a separate settlement +agreement with the Securities and Exchange Commission regarding the allegations +contained in its complaint. As a result, Mr. Madden resigned as the Company's +Chief Executive Officer and as a member of the Company's Board of Directors +effective July 1, 2001. Mr. Madden has agreed to serve as the Company's Creative +and Design Chief, a non-executive position. On April 4, 2002 Mr. Madden was +sentenced in the United States District Court for the Southern District of New +York to forty one (41) months imprisonment in connection with two of the federal +charges to which he pled guilty. It is expected that Mr. Madden will be +sentenced in late April 2002 in the United States District Court for the Eastern +District of New York in connection with the other charges to which he pled +guilty, which sentence should run concurrently with the 41 month sentence. Under +the settlement agreement with the Securities and Exchange Commission, Mr. Madden +has agreed to not serve as an officer or director of a publicly traded company +for 7 years. +Neither the indictments nor the Securities and Exchange Commission +complaint allege any wrongdoing by the Company or its other officers and +directors. In connection with Steven Madden relinquishing his position as Chief +Executive Officer of the Company, the Company entered into an amended employment +agreement with Steven Madden and new agreements with Charles A. Koppelman and +Jamieson A. Karson. See "Employment Agreements with Certain Executive Officers," +"Employment Agreement(s) with Other Employee(s)," and "Agreement with the +Chairman of the Board." +On March 14, 2001, the Company became aware that the Securities and +Exchange Commission had issued a formal order of investigation with respect to +trading in the Company's securities. +On or about September 26, 2000, a purported shareholder derivative +complaint was filed in the United States District Court for the Eastern District +of New York, captioned Herrera v. Steven Madden and Steven Madden, Ltd., 00 CV +5803 (JG). The Company is named as a nominal defendant in the action. The +complaint seeks to recover alleged damages on behalf of the Company from Mr. +Madden arising from his June 2000 indictment and to require him to disgorge +certain profits, bonuses and stock option grants he received. On January 3, +2001, plaintiff filed an Amended Shareholder's Derivative Complaint. On February +2, 2001, both the Company and Mr. Madden filed motions to dismiss the Amended +Complaint because of plaintiff's failure to make a pre-litigation demand upon +the Company's board of directors. On October 1, 2001, plaintiff filed a Second +Amended Complaint. On November 2, 2001, the Company filed a motion to dismiss +this pleading on grounds that plaintiff had failed to make a pre-litigation +demand upon the Company's board of directors. On February 7, 2002, the +Magistrate Judge filed a Report recommending that the Company's motion to +dismiss be denied. The Company filed its objections to the Report on March 4, +2002. On March 22, 2002 the District Judge entered an order adopting the +Magistrate Judge's report and recommendation in full. The defendants' responses +to the Second Amended Complaint are due on April 19, 2002. +On or about November 28, 2001, a purported shareholder derivative complaint +was filed in the United States District Court for the Eastern District of New +York, captioned Herrera v. Karson, et al., 00 CV 7868. Named as defendants +therein are the Company (as nominal defendant) and certain of the Company's +present and/or former directors. The complaint alleges that the individual +defendants breached their fiduciary duties to the Company in connection with a +decision by the Board of Directors of the Company to enter into an employment +agreement with Mr. Steven Madden in or about May 2001. The complaint seeks +declaratory and other equitable relief, as well as an unspecified amount of +compensatory damages, costs and expenses. On or about February 1, 2002, +plaintiff filed an Amended Shareholder Derivative Complaint (the "Amended +Complaint"). The Amended Complaint contains substantially the same allegations +and names the same defendants as the original complaint. +-7- +Directors and Executive Officers +Certain information concerning the directors and executive officers of the +Company is set forth below: +Name Age Position(s) with the Company +--------------------------------------- --------- ------------------------------------------------------ +Charles A. Koppelman 61 Chairman of the Board +Jamieson A. Karson 44 Chief Executive Officer and Vice Chairman of the Board +Arvind Dharia 52 Chief Financial Officer, Director and Secretary +Richard Olicker 44 President and Chief Operating Officer +Gerald Mongeluzo 61 President of Adesso-Madden, Inc., Director +Mark Jankowski 41 President of Steve Madden Retail, Inc. +Robert Schmertz 38 President of Steve Madden Womens Wholesale Division +Joseph Masella 53 President of l.e.i. Footwear and Stevies, Inc. +John L. Madden 54 Director +Peter Migliorini 53 Director +Heywood Wilansky 53 Director +Marc Cooper 40 Director +---------------------- +See "Biographical Summaries of Nominees for the Board of Directors" for +biographical summaries of Messrs. Charles A. Koppelman, Jamieson A. Karson, +Arvind Dharia, Gerald Mongeluzo, Marc Cooper, John L. Madden, Peter Migliorini +and Heywood Wilansky. +Richard Olicker has been Chief Operating Officer of the Company since +January 3, 2001. In September 2001 Mr. Olicker was appointed President of the +Company. Prior to joining the Company, Mr. Olicker spent more than 12 years at +AeroGroup International, Inc., marketers of Aerosoles and What's What shoes. As +cofounder of Aerosoles, Mr. Olicker served as President of the company's private +label division and was responsible for managing all aspects of sourcing, +production, pricing, sales, service, systems and finance. Mr. Olicker began his +career in footwear in 1982 as the General Counsel and Licensing Director at El +Greco Leather Products and later held an executive position with the apparel +licensing firm New Retail Concepts, Inc. +Mark Jankowski has been the President of Steve Madden Retail, Inc. since +July 1, 2001. Previously, Mr. Jankowski had been the General Merchandise Manager +of the Company from December 2000 to June 30, 2001. Prior to that, Mr. Jankowski +had been the President of Steve Madden Retail, Inc. from February 1999 to +December 2000 and the Company's Vice President of Product Development from 1995 +to 1999. From 1980 to 1995, Mr. Jankowski held several positions at Edison +Brothers including Head of Buying. +Robert Schmertz has been the President of Steve Madden Womens Wholesale +Division since September 2001, the President of Shoe Biz, Inc., a wholly owned +subsidiary of Steve Madden Retail Inc. since May 1998 and the President of Diva +Acquisition Corp. since January 2001. Before joining the Company, Mr. Schmertz +was President of Daniel Scott Inc. from November 1995 to May 1998. Previously, +Mr. Schmertz was the East Coast Sales Manager for Impo International from +January 1993 through November 1995. From April 1990 to December 1992, Mr. +Schmertz served as a sales representative for Espirit de Corp. based in San +Francisco, California. +Joseph Masella has been President of Stevies, Inc. since April 2000 and the +Company's l.e.i. Footwear Division since July 1998. Previously, he was Vice +President-Sales of the Company's Adesso-Madden subsidiary since October 1995. +From 1992 to 1995, Mr. Masella served as General Manager-Far East Division of US +Shoe Co. +-8- +COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS +Summary Compensation Table +The following table sets forth for each of the last three fiscal years +ended December 31, 2001, December 31, 2000 and December 31, 1999 the +remuneration paid by the Company to its Chief Executive Officer, the four most +highly compensated executive officers (other than the Chief Executive Officer), +and certain other persons for whom information is required to be disclosed: +Summary Compensation Table +Annual compensation Long-term compensation +------------------------------------------ --------------------------------------- +Restricted Other +Awards Stock Awards annual +Name and principal position Fiscal year Salary($) Bonus($) options(1) ($) compensation +----------------------------- ----------- ------------- ------------ ---------- ------------ ------------ +Jamieson A. Karson, 2001 $187,500 $50,000 100,000 $188,000(3) $17,791(4) +Chief Executive Officer(2) 2000 N/A N/A N/A N/A +1999 N/A N/A N/A N/A +Richard Olicker, 2001 $252,723 N/A 150,000 N/A +President and 2000 N/A N/A N/A N/A +Chief Operating Officer 1999 N/A N/A N/A N/A +Arvind Dharia, 2001 $200,000 $50,000 40,000 N/A $92,857(5) +Chief Financial Officer 2000 $171,769 $80,000 25,000 N/A $91,743(5) +1999 $140,000 $39,367 25,000 N/A $88,606(5) +Gerald Mongeluzo, 2001 $299,040 $93,623 -0- N/A +President, Adesso- 2000 $257,653 $75,000 -0- N/A +Madden, Inc. 1999 $249,769 $50,000 -0- N/A +Mark Jankowski 2001 $292,789 $132,071 6,000 N/A $3,462(6) +President, Steve Madden 2000 $261,538 $100,000 -0- N/A +Retail, Inc. 1999 $202,769 $106,250 -0- N/A +Steven Madden, 2001 $524,808 $587,203 -0- N/A $402,398(8) +Creative and Design Chief(7) 2000 $300,000 $400,000 -0- N/A $311,437(8) +1999 $275,000 $800,000 -0- N/A $318,641(8) +Rhonda Brown(9) 2001 $276,884 $98,217 -0- N/A +2000 $270,052 $581,150 190,575 N/A +1999 $257,278 $537,920 -0- N/A +---------------------- +(1) Options to purchase shares of Common Stock. +(2) Mr. Karson has been the Chief Executive Officer of the Company since July +1, 2001. +(3) On July 10, 2001, Mr. Karson was issued 10,000 shares of restricted Common +Stock, 25% of which will become unrestricted at the end of each of the four +quarters following the date of issuance. The closing price of the Company's +Common Stock on July 10, 2001 as reported by The Nasdaq Stock Market was +$18.80. The value of these restricted shares of Common Stock as of December +31, 2001 was $140,700 (based upon a closing price on December 31, 2001 of +$14.07 per share as reported by The Nasdaq Stock Market). To the extent +dividends are paid on the Common Stock, such dividends will be paid on +these restricted shares. +(4) Expenses paid on behalf of Mr. Karson pursuant to his employment agreement. +(5) Life insurance premium and other expenses paid on behalf of Mr. Dharia. +(6) Expenses paid on behalf of Mr. Jankowski pursuant to his employment +agreement. +(7) Mr. Madden resigned as Chief Executive Officer of the Company effective as +of July 1, 2001. He currently holds the position of Creative and Design +Chief of the Company, which is a non-executive position. +(8) Life insurance premium and other expenses paid on behalf of Mr. Madden. +(9) Ms. Brown resigned as President of the Company effective as of September +21, 2001. +-9- +The following table sets forth certain information with respect to options +granted during the last fiscal year to the persons named in the above Summary +Compensation Table. +Option/SAR Grants In Last Fiscal Year +Number of Percent of Total Potential Realizable +Securities Options/SARS Exercise Value at Assumed Annual +Underlying Granted to or Base Rates of Stock Price +Options/SARS Employees in Price Appreciation for Option +Name Granted (#) Fiscal Year % ($/Sh) Expiration Date Term +---------------------- ------------- ---------------- --------- --------------- ------------------------ +5% 10% +--------- ---------- +Jamieson A. Karson 100,000 16.3% $18.80 7/10/06 $519,409 $1,147,759 +Richard Olicker 75,000 12.2% $8.00 1/02/11 $377,337 $956,245 +Richard Olicker 75,000 12.2% $9.12 9/24/11 $430,164 $1,090,120 +Arvind Dharia 40,000 6.5% $9.55 9/25/08 $97,195 $226,506 +Gerald Mongeluzo -0- N/A N/A N/A N/A N/A +Mark Jankowski 5,000 0.1% $19.07 7/16/11 $299,826 $759,817 +Steven Madden -0- N/A N/A N/A N/A N/A +Rhonda Brown -0- N/A N/A N/A N/A N/A +The following table sets forth certain information with respect to options +exercised during the last fiscal year by the persons named in the Summary +Compensation Table, and with respect to unexercised options held by such persons +at the end of the last fiscal year. +Aggregate Option/SAR Exercises In Last Fiscal Year And +Fiscal Year-End Option/SAR Values +Shares Value Number of Securities Value of Unexercised in the +Acquired on Realized Underlying Unexercised Money Options/SARs at +Name Exercise (#) $ Options/SARS at FY-End (#) FY-End ($) (1) +---------------------- ------------ ------------ ------------------------------ ----------------------------- +Exercisable Unexercisable Exercisable Unexercisable +----------- ------------- ----------- ------------- +Jamieson A. Karson -0- N/A 25,000 75,000 -0- -0- +Richard Olicker -0- N/A 75,000 75,000 $433,688 $390,563 +Arvind Dharia -0- N/A 112,000 30,000 722,340 135,600 +Gerald Mongeluzo 12,500 $144,375 50,000 -0- 191,000 -0- +Mark Jankowski 80,000 $703,300 1,250 3,750 -0- -0- +Steven Madden -0- N/A 1,051,189 -0- 11,503,895 -0- +Rhonda Brown 373,386 $1,260,991 -0- -0- -0- -0- +---------------------- +(1) Based upon a closing price on December 31, 2001 of $14.07 per share as +reported by The Nasdaq Stock Market. +-10- +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the "1999 Plan"), and on June 4, 1999 the Company's +stockholders approved the adoption of the 1999 Plan. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of common stock subject to the plan from 400,000 to 975,000 shares. In +July 2001, the Company's stockholders approved an amendment to the 1999 Plan +increasing the number of shares of common stock subject to the plan from 975,000 +to 1,600,000 shares. As of the Record Date, options to purchase 1,565,000 shares +of Common Stock have been granted pursuant to the 1999 Plan. The purpose of the +1999 Plan is to provide a means whereby directors and selected employees, +officers, agents, consultants, and independent contractors of the Company, may +be granted incentive stock options and/or nonqualified stock options to purchase +shares of common stock, in order to attract and retain the services or advice of +such directors, employees, officers, agents, consultants, and independent +contractors and to provide additional incentive for such persons to exert +maximum efforts for the success of the Company by encouraging stock ownership in +the Company. The 1999 Plan Proposal is expected to provide even greater +flexibility to the Company's compensation methods, after giving due +consideration to competitive conditions and the impact of federal tax laws. See +Proposal Number 2--Amendment of the 1999 Stock Plan. +Other Options +In March 1995, the Company issued options to purchase 1,000,000 shares of +its Common Stock to a company wholly owned by Steven Madden. The options were +subsequently transferred to Steven Madden. The options which are fully +exercisable, have an exercise price of $1.75 and an exercise period of 10 years. +As of the Record Date, 500,000 of these options remain unexercised. Unearned +compensation was recorded in the amount of $575,000 which represented the +difference between the exercise price and the fair value of the stock on the +date of grant and was classified as a component of stockholders equity. The +unamortized portion was charged to operations in 1997 in connection with Steven +Madden's then-existing amended employment agreement. +Employment Agreements with Certain Executive Officers +In May 2001, the Company entered into an employment agreement with Jamieson +A. Karson pursuant to which Mr. Karson agreed to serve as the Company's Chief +Executive Officer and Vice Chairman of the Board. The term of Mr. Karson's +employment under the agreement is three (3) years commencing on July 1, 2001 and +ending on June 30, 2004. The term will be automatically extended for successive +one year periods unless the Company timely notifies Mr. Karson of its intention +not to extend the term. In connection with the execution of his Employment +Agreement, Mr. Karson surrendered 5,000 options which had been granted to him +for his service as an outside director. The Company agreed to pay Mr. Karson an +annual salary of $375,000 which base salary will be subject to a 10% annual +increase on each July 1st of the term if the Company's net income for the four +calendar quarters ending on the most recent June 30th is greater than the net +income for the four calendar quarters ending on the preceding June 30th. In +addition, the agreement provides that: (a) Mr. Karson receive a cash bonus equal +to $100,000 for fiscal year 2001 pro-rated for the number of months he serves as +Chief Executive Officer in 2001 and (b) for each succeeding fiscal year that +occurs during the term of employment, Mr. Karson receive a cash bonus, in an +amount determined by the Board, not less than four percent (4%) of the increase +in the Company's EBITDA (earnings before interest, tax, depreciation and +amortization) over the EBITDA of the prior fiscal year. On or about July 10, +2001, Mr. Karson received options to purchase 100,000 shares of the Company's +Common Stock at an exercise price equal to the closing market price on the date +prior to the grant date as quoted on The Nasdaq Stock Market. These options will +vest quarterly over the one year period following the date of grant and will be +exercisable after vesting for a period of five (5) years from the date of grant. +On or about July 10, 2001, the Company issued to Mr. Karson 10,000 shares of +restricted common stock, 25% of which will become unrestricted at the end of +each of the four quarters following the date of issuance. Subject to approval by +the Company's stockholders of the Amendment of the Company's 1999 Stock Plan and +subject to availability of shares under such plan or any other plan designated +by the Board of Directors and approved by the Company's stockholders, on or +about the date of the Company's annual meeting for each year of the term of the +agreement (beginning in 2002), Mr. Karson is entitled to receive, annual options +to purchase shares of the Company's Common Stock equal to the dollar amount of +the annual bonus received by Mr. Karson for the previous fiscal year; provided, +however, that no annual option shall be for greater than 100,000 shares. The +annual options shall vest quarterly over the one year +-11- +period following the date of grant and shall be exercisable after vesting for a +period of five (5) years from the date of grant at an exercise price equal to +the closing price of the Company's Common Stock on the applicable date of grant, +as quoted on The Nasdaq Stock Market (or such other market or exchange on which +the Company's Common Stock is listed or traded). In addition, in the event of +Mr. Karson's total disability or his death, the Company is obligated to continue +to pay Mr. Karson (or Mr. Karson's estate) his base salary for the twelve (12) +month period immediately subsequent to the date of such total disability or +death. In the event Mr. Karson's employment agreement is terminated (or not +extended) for any reason other than For Cause (as defined in the agreement) or +due to his death or his total disability, the Company is obligated to pay Mr. +Karson an amount equal to the product of (i) Mr. Karson's base salary plus the +cash bonus which Mr. Karson was paid for the immediately preceding fiscal year +multiplied by (ii) the greater of (A) the number of years remaining on the term +of the agreement or (B) two. In the event that there is a "change of control" +transaction terminating Mr. Karson's employment, all unvested options to +purchase shares of the Company's Common Stock held by Mr. Karson will vest on +the date of termination and Mr. Karson will be entitled to receive a lump sum +cash payment equal to (a) the amount of compensation that is accrued and unpaid +through the date of termination and (b) three (3) times the total compensation +(base salary and cash bonus) received by Mr. Karson for the preceding 12 month +period ending December 31. Mr. Karson's employment agreement contains other +customary provisions, including provisions regarding confidentiality, +solicitation and competition. +In January 2001, the Company entered into a two (2) year employment +agreement with Richard Olicker pursuant to which Mr. Olicker agreed to serve as +the Company's Executive Vice President and Chief Operating Officer. The Company +agreed to pay Mr. Olicker an annual base salary of $225,000 plus a 5% annual +increase in the base salary. The agreement provides that Mr. Olicker receive +options to purchase 75,000 shares of the Company's Common Stock at an exercise +price equal to the closing bid price of the Company's Common Stock on January 2, +2001, as quoted on The Nasdaq Stock Market. Mr. Olicker is entitled to receive a +cash bonus equal to two percent (2%) of the amount by which the aggregate EBIT-D +(earnings before the payment of interest or taxes or a deduction for +depreciation) for the fiscal year ending on the most recent December 31st +exceeds EBIT-D for the fiscal year ending on the preceding December 31st. The +agreement also provides that Mr. Olicker receive a one time cash bonus of +$125,000 in the event that the aggregate EBIT-D for any 4 consecutive fiscal +quarters during the term of the agreement equals or exceeds $40,000,000. Mr. +Olicker's employment agreement contains other customary provisions. +In January 1998, the Company entered into an employment agreement with +Arvind Dharia, pursuant to which Mr. Dharia agreed to serve as the Company's +Chief Financial Officer, which agreement was amended as of June 29, 2001. The +agreement will expire on December 31, 2005. However, the term of the agreement +is subject to automatic extension for one (1) year unless either party +terminates the agreement with ninety (90) days' prior notice. The Company agreed +to pay Mr. Dharia an annual salary of $169,400 until September 30, 2001, +$200,000 from October 1, 2001 through December 31, 2002, $220,000 from January +1, 2003 through December 31, 2003, $234,000 from January 1, 2004 through +December 31, 2004, and $240,000 from January 1, 2005 through December 31, 2005. +Mr. Dharia received a $50,000 signing bonus upon execution of the amendment to +the agreement on June 29, 2001. The agreement provides that Mr. Dharia receive +options to purchase 40,000 shares of the Company's Common Stock on June 30 of +each year during the term of the agreement (commencing June 30, 2001). The +options are to vest quarterly over a period of one (1) year and are exercisable +at an exercise price equal to the lesser of (i) the average closing bid price of +the Company's Common Stock as quoted on The Nasdaq Stock Market or such other +exchange on which the common stock shall be listed on the date of grant or (ii) +if the date of grant is not June 30th, the average closing bid price of the +Company's Common Stock as quoted on The Nasdaq Stock Market or such other +exchange on which the common stock shall be listed on June 30th of the year in +which the grant shall occur. In addition, the agreement provides that for each +fiscal year that occurs during the term of employment (beginning with the fiscal +year ended December 31, 2001), Mr. Dharia receive a cash bonus, in an amount +equal to one and one-half percent (1.5%) of the increase in the Company's EBITDA +(earnings before interest, tax, depreciation and amortization) over the EBITDA +of the prior fiscal year, provided, however that in no event shall the annual +cash bonus exceed Mr. Dharia's base salary for such fiscal year. Also, Mr. +Dharia shall, at the end of a calendar quarter, receive a bonus of $50,000 if +the Company has had sales of $300,000,000 or more for such calendar quarter and +the immediately preceding three (3) calendar quarters, provided, however, that +Mr. Dharia shall not receive this $50,000 bonus more than once in any given +calendar year. In addition, during the term of the agreement, the Company is +obligated to pay life insurance premiums on behalf of Mr. Dharia of +approximately $80,000 per year. In the event of Mr. Dharia's total disability or +death, the Company is obligated to pay Mr. Dharia or his estate an amount equal +to +-12- +the appropriate salary for the twelve (12) month period immediately subsequent +to the date of his total disability or death. In the event Mr. Dharia's +employment agreement is terminated by the Company for any reason other than "for +cause" or due to his "total disability", the Company is obligated to pay Mr. +Dharia an amount equal to the product of (a) Mr. Dharia's base salary on the +effective date of such termination plus the bonus paid or payable for the fiscal +year ended on the December 31st immediately preceding the date of termination +multiplied by (b) the number of years (and fractions of years) remaining in the +term of the employment agreement. In addition, the Company will be obligated to +continue to pay the life insurance premiums on behalf of Mr. Dharia provided for +above. The payments due Mr. Dharia upon his termination for any reason other +than "for cause" or due to his "total disability" will be payable in two +installments: fifty percent (50%) on January 1 after the date of termination and +the remaining fifty percent (50%) one year after. Further, in the event of a +"change in control" of the Company, Mr. Dharia is entitled to terminate the +employment agreement and to receive (i) accrued and unpaid compensation through +the termination date, (ii) an amount equal to the balance of his base salary +that would have been paid over the term of the employment agreement, (iii) the +life insurance premium payments that would have been made on his behalf by the +Company during the term of the employment agreement, and (iv) an amount equal to +Mr. Dharia's bonus, if any, for the preceding 12-month period ending December +31st, multiplied by the remaining years (including fractional years) remaining +under the employment agreement, provided, however, that in no event will the +amount payable in the event of a "change of control" be greater than three (3) +times the total compensation received by Mr. Dharia for the preceding +twelve-month period ending December 31st or less than one and one-half (1.5) +times the total compensation so received by Mr. Dharia during such period. Mr. +Dharia's employment agreement contains other customary provisions. +Employment Agreement(s) with Other Employee(s) +In May 2001, the Company entered into an employment agreement with Steven +Madden, the Company's founder, pursuant to which Mr. Madden agreed to serve as +the Company's Creative and Design Chief. The employment agreement amends and +restates the prior employment agreement dated July 29, 1997 (and amended +February 28, 2000). The term of Mr. Madden's employment under the agreement is +ten (10) years commencing on July 1, 2001 and ending on June 30, 2011. The +Company has agreed to pay Mr. Madden an annual base salary of $700,000, which +the Board may increase, but not decrease, at any time. For each fiscal year +during the term of the agreement, Mr. Madden is entitled to receive a cash bonus +in an amount determined by the Board, but not less than 2% of the Company's +EBITDA (earnings before interest, tax, depreciation and amortization for such +year); provided however, that the Company is not required to pay such cash bonus +for any fiscal year during which Mr. Madden is not actively engaged in the +duties of Creative and Design Chief for at least six months. Subject to approval +by the Company's stockholders of the Amendment of the Company's 1999 Stock Plan +and subject to availability of shares under such plan or any other plan +designated by the Board of Directors and approved by the Company's stockholders, +on or about the date of the Company's annual meeting for each year of the term +(beginning in 2002), Mr. Madden is eligible to receive, during the term of the +agreement, annual options to purchase shares of the Company's common stock in an +amount equal to not less than 150% of the largest aggregate amount of options +granted to any other continuing full time employee of the Company over the 12 +month period up to and including the applicable grant date; provided that all +annual options shall be subject to final approval of the Board. The annual +options shall vest quarterly over the 1 year period following the date of grant +and shall be exercisable after vesting for a period of 5 years from the grant +date at an exercise price equal to the closing price of the Company's Common +Stock on the grant date as quoted on The Nasdaq Stock Market (or such other +market or exchange on which the Company's Common Stock is listed or traded). The +Company is not required to grant an annual option if Mr. Madden is not actively +engaged in the duties of Creative and Design Chief for at least six months out +of the twelve months immediately preceding the grant date for such annual +option. The Company also agreed to provide Mr. Madden with an annual $200,000 +non-accountable expense allowance which amount will be payable in equal monthly +installments; provided however, that the Company will not be required to pay the +non-accountable expense allowance for any month during which Mr. Madden is not +actively engaged in the duties of Creative and Design Chief. +In addition, in the event of Mr. Madden's total disability or death, the +Company is obligated to continue to pay Mr. Madden (or Mr. Madden's estate) Mr. +Madden's base salary for the twelve (12) month period immediately subsequent to +the date of such total disability or death. In the event Mr. Madden's employment +agreement is terminated for any reason other than "for cause" or due to his +death or his total disability, the Company is obligated to pay Mr. Madden the +balance of his base salary that would have been paid over the full term of the +agreement if +-13- +the agreement had not been terminated, fifty percent (50%) upon termination and +the remaining fifty percent (50%) in equal annual installments until June 30, +2011. The indictment, plea agreement, sentencing and other matters described +above under "Recent Developments" are not grounds for termination "for cause" +under Mr. Madden's employment agreement. In the event there is a "change of +control" transaction terminating Mr. Madden's employment, all unvested options +to purchase shares of the Company's Common Stock held by Mr. Madden will vest on +the date of termination and Mr. Madden will be entitled to receive a lump sum +cash payment equal to (a) the amount of compensation that is accrued and unpaid +through the date of termination and (b) three (3) times the total compensation +(base salary, cash bonus and non-accountable expense allowance) received by Mr. +Madden for the preceding 12 month period ending December 31. +To the extent not previously assigned or consented to, except as provided +below, (i) Mr. Madden sold, assigned and transferred to the Company the +exclusive right and interest to his name and (ii) Mr. Madden consented to the +use of his name as trademarks, service marks, corporate names and/or internet +domain name addresses of the Company (the "Marks"). Mr. Madden also agreed to +never challenge the Company's ownership of his name or the validity of the +Company's ownership of the Marks or of any registration or application for +registration thereof. Mr. Madden may however use his name for all non-commercial +purposes and for use in connection with any business that is not in the design, +manufacture, sale, marketing or distribution of (i) branded or designer +footwear, apparel, accessories and other products in the categories of products +sold by, or under license from, the Company or any of its affiliates, (ii) +jewelry and other giftware, (iii) cosmetics, fragrances and other health and +beauty care items, (iv) housewares, furniture, home furnishings and related +products and (v) other products related to fashion, cosmetics or lifestyle (any +of such activities being a "competitive business"). Further, Mr. Madden agreed +to not directly or indirectly (i) engage in any competitive business in any +relationship or capacity, (ii) solicit any customers of the Company, or (iii) +solicit or employ any employee or agent to the Company, until the later of (a) +June 30, 2011 or (b) the date which is twelve (12) months after the date on +which Mr. Madden is no longer employed by the Company, or until twelve months +after the date of termination should Mr. Madden be terminated in connection with +a change of control. Mr. Madden's Employment Agreement contains other customary +provisions. +Agreement with the Chairman of the Board +In May 2001, the Company entered into an agreement with Charles A. +Koppelman pursuant to which Mr. Koppelman agreed to serve as the Company's +Executive Chairman of the Board. The term of the agreement is two (2) years +commencing on July 1, 2001 and ending on June 30, 2003. The Company agreed to +pay Mr. Koppelman an annual base salary of $125,000. The Company also agreed to +provide Mr. Koppelman with an annual $125,000 non-accountable expense allowance. +Pursuant to the agreement, on or about July 10, 2001 Mr. Koppelman received +options to purchase 100,000 shares of the Company's Common Stock at an exercise +price equal to the closing market price on the date prior to the grant date, as +quoted on The Nasdaq Stock Market. These options will vest quarterly over the +one year period following the date of grant and will be exercisable after +vesting for a period of five (5) years from the date of grant. On or about July +10, 2001, the Company issued to Mr. Koppelman 10,000 shares of restricted common +stock, 25% of which will become unrestricted at the end of each of the four +quarters following the date of issuance. As of May 31, 2001, Mr. Koppelman +received fully-vested options to purchase 75,000 shares of the Company's Common +Stock, which are exercisable for a period of five (5) years from the date of +grant at an exercise price of $7.00. These options were granted pursuant to an +outstanding letter agreement between the Company and Mr. Koppelman (the "Option +Letter"). Mr. Koppelman surrendered the remaining 225,000 options to be granted +to him pursuant to the Option Letter in connection with the execution of his +agreement. Pursuant to the terms of the agreement, Mr. Koppelman is also +entitled to receive annual options to purchase 100,000 shares of the Company's +Common Stock on the date of the Company's annual meeting held in each of 2002, +2003, and 2004. Twenty five percent (25%) of each annual option will vest at the +end of each of the four full calendar quarters after the applicable grant date. +The annual options shall be exercisable after vesting for a period of five (5) +years from the date of grant at an exercise price equal to the lesser of (a) the +closing market price on the applicable grant date, as quoted on The Nasdaq Stock +Market (or such other market or exchange on which the Company's Common Stock is +listed or traded) or (b) $13.50. In the event that Mr. Koppelman ceases to be +either an employee or director of the Company, any annual option not yet granted +shall be forfeited as of the date of termination; provided however, that if the +agreement shall have been terminated (or not extended) by the Company other than +For Cause (as defined in the agreement) or by Mr. Koppelman with Good Reason (as +defined in the agreement) any annual options which were granted prior to such +termination shall be deemed granted as of the date prior to the date of such +termination. The agreement also provides that in the event there is a "change of +control" of +-14- +the Company, (i) all unvested options granted to Mr. Koppelman prior to such +"change of control" shall immediately vest (ii) if Mr. Koppelman is an employee +or director of the Company at the time of such "change of control", any annual +options which have not been granted prior to such change of control shall +immediately be granted and vest, and (iii) the exercise price of all unexercised +options shall be reduced to $7.00. Mr. Koppelman's agreement contains other +customary provisions, including provisions regarding confidentiality, +solicitation and competition. +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with Peter J. +Solomon & Company, a financial advisory firm of which Marc Cooper, one of the +Company's directors, is a managing director. The agreement provides for a fee of +$150,000 over the one year term of the agreement which expires in June 2002. The +firm is to provide financial advisory and investment banking services to the +Company. +Compensation Committee Report On Executive Compensation +The Compensation Committee is responsible for reviewing and approving the +Company's compensation policies and the compensation paid to its executive +officers, including the Chief Executive Officer and the other named executive +officers. The Compensation Committee is comprised of Charles A. Koppelman, Peter +Migliorini and John Madden. Each member of the Compensation Committee was a +non-employee directors of the Company during 2001, however, Mr. Koppelman +received a salary and certain other benefits for serving as the Chairman of the +Board of Directors (see "Agreement with the Chairman of the Board"). +The Compensation Committee's goal is to develop executive compensation +policies and practices that are consistent with and linked to the Company's long +term goal of maximizing stockholder value. The program is designed to facilitate +the long-term success and growth of the Company through the attraction, +motivation, and retention of outstanding executives. +The objectives of the Company's executive compensation programs are to: (i) +attract and retain the highest quality executives, (ii) inspire and motivate +executive officers to increase Company performance, (iii) align executive +officers' financial interest with those of the Company's long-term investors, +and (iv) reward executive officers for exceptional individual contributions to +the achievement of the Company's objectives. +Executive compensation consists of three components: base salary, annual +incentive bonuses and long-term incentive awards (stock options). Each +compensation component is offered to executives in varying combinations, +structured in each case, to meet varying business objectives and to provide a +level of total compensation comparable to similarly situated public companies. +The total compensation of Jamieson A. Karson, the Company's Chief Executive +Officer, is determined pursuant to his employment agreement with the Company. +Mr. Karson was appointed Chief Executive Officer effective as of July 1, 2001. +Under his employment agreement, Mr. Karson received a one-time grant of 10,000 +shares of restricted stock and a one-time grant of options to purchase 100,000 +shares of the Company's common stock. Mr. Karson's compensation for the six +months he served as Chief Executive Officer in 2001 consisted of $187,500 in +base salary payments and a $50,000 bonus, which bonus was fully paid by March +2002. Mr. Karson is also entitled to receive options to purchase 50,000 shares +of common stock for his service as Chief Executive Officer in 2001. The +Compensation Committee believes that Mr. Karson's compensation should be heavily +weighted towards enhancing stockholder value, and accordingly, Mr. Karson's +employment agreement provides that a significant portion of his future +compensation will be based upon the Company's overall performance. See +"Employment Agreements with Certain Executive Officers." +The Company has negotiated employment agreements with respect to base +salary, annual incentive awards and stock option awards for each of the +Company's named executive officers based upon the Company's performance and the +individual performance of such named executives. +The Internal Revenue Code of 1986 prohibits the Company from taking a tax +deduction in any year for compensation paid the persons who would be named +executive officers in that year in excess of $1 million unless such compensation +is "performance-based compensation." The Company did not pay in 2001 any officer +-15- +compensation which will be subject to the $1 million deduction limitation. The +Compensation Committee will take into consideration the $1 million deduction +limitation when structuring future compensation packages for the Company's +executive officers and, if appropriate and in the best interests of the Company, +will conform such packages to permit the Company to take a deduction for the +full amount of all compensation. +Compensation Committee Interlocks and Insider Participation +The Compensation Committee makes all compensation decisions. During 2001, +the following directors served on the Compensation Committee: Charles A. +Koppelman, John Madden and Peter Migliorini. During the fiscal year 2001, no +interlocking relationship existed between the Company's Board of Directors or +Compensation Committee and the board of directors or compensation committee of +any other company. +COMPENSATION COMMITTEE +Charles A. Koppelman +John Madden +Peter Migliorini +-16- +STOCK PERFORMANCE GRAPH +The following graph compares the yearly percentage change in the cumulative +total stockholder return on the Common Stock during the period beginning on +December 31, 1996 and ending on December 31, 2001 with the cumulative total +return on the Russell 2000 Index and the Standard & Poor's Footwear Index. The +comparison assumes that $100 was invested on December 31, 1996 in the Company's +Common Stock and in the foregoing indices and assumes the reinvestment of +dividends. +[Graph Appears Here] +12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 +-------- -------- -------- -------- -------- -------- +Steven Madden, Ltd. 100.00 147.55 165.85 371.94 148.78 274.37 +Russell 2000 Index 100.00 120.69 116.53 139.40 133.53 134.72 +S&P Footwear Index 100.00 66.90 64.80 76.23 91.31 91.62 +-17- +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth information as of the Record Date with +respect to the beneficial ownership of the outstanding shares of the Company's +Common Stock by (i) each person known by the Company to beneficially own five +percent or more of the outstanding shares; (ii) the directors and the persons +named in the Summary Compensation Table; and (iii) the Company's officers and +directors as a group. A person is deemed to be a beneficial owner of any +securities of which that person has the right to acquire beneficial ownership +within sixty (60) days. See "Compensation of Directors and Executive Officers." +Name and Address of Amount and Nature of Percentage (%) +Beneficial Owner(1) Beneficial Ownership(2) of Class(2) +------------------------------------------------- ----------------------- -------------- +Charles A. Koppelman 185,000 (3) 1.47% +Jamieson A. Karson 85,000 (4) * +Arvind Dharia 122,000 (5) * +Gerald Mongeluzo 50,000 (6) * +Richard Olicker 113,700 (7) * +Mark Jankowski 3,750(8) * +Marc Cooper 7,500 (9) * +John Madden 20,000 (10) * +Peter Migliorini 20,000 (11) * +Heywood Wilansky 20,000 (12) * +Rhonda Brown (13) -0- N/A +Steven Madden (14) 1,865,189 (15) 13.86% +BOCAP Corp. 1,865,189 (16) 13.86% +T. Rowe Price Associates, Inc. (17) 820,500 6.61% +T. Rowe Price Small-Cap Value Fund, Inc. (18) 650,000 5.24% +Liberty Wanger Asset Management, L.P. (19) 1,061,900(20) 8.56% +WAM Acquisition GP, Inc. (21) 1,061,900(22) 8.56% +Benson Associates, LLC (23) 640,400 5.16% +Kennedy Capital Management, Inc. (24) 713,800 5.75% +Directors and Officers as a Group (13 persons) 715,675(25) 5.46% +---------------------- +* indicates beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address of each beneficial owner is c/o +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York +11104. +(2) Beneficial ownership as reported in the table above has been determined in +accordance with Item 403 of Regulation S-K of the Securities Act of 1933 +and Rule 13(d)-3 of the Securities Exchange Act, and based upon 12,407,716 +shares of Common Stock outstanding (excluding treasury shares) as of the +Record Date. +(3) Includes (i) 175,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Koppelman, (ii) 7,500 shares of Common Stock held by +Mr. Koppelman and (iii) 2,500 shares of restricted Common Stock held by Mr. +Koppelman. +(4) Includes (i) 75,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Karson and (ii) 7,500 shares of Common Stock held by +Mr. Karson's wife and (iii) 2,500 shares of restricted Common Stock held by +Mr. Karson's wife. +(5) Includes 122,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Dharia. +(6) Includes 50,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Mongeluzo. +(7) Includes 112,500 shares of Common Stock issuable upon the exercise of +options held by Mr. Olicker. +(8) Includes 3,750 shares of Common Stock issuable upon the exercise of options +held by Mr. Jankowski. +(9) Includes 7,500 shares of Common Stock issuable upon the exercise of options +held by Mr. Cooper. +(10) Includes 20,000 shares of Common Stock issuable upon the exercise of +options held by Mr. J. Madden. +(11) Includes 20,000 shares issuable upon the exercise of options held by Mr. +Migliorini. +(12) Includes 20,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Wilansky. +-18- +(13) Ms. Brown resigned as President of the Company effective as of September +21, 2001. +(14) Mr. Madden resigned as Chief Executive Officer of the Company effective as +of July 1, 2001. He currently holds the position of Creative and Design +Chief of the Company, which is a non-executive position. +(15) Includes (i) 809,000 shares of Common Stock held by BOCAP, a corporation +wholly-owned by Mr. S. Madden, (ii) 1,051,189 shares of Common Stock +issuable upon the exercise of options held by Mr. Madden. +(16) Includes (i) 1,051,189 shares of Common Stock issuable upon the exercise of +options held by Mr. Madden and (ii) 5,000 shares of Common Stock held by +Mr. Madden. +(17) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 11, 2002. The address for such stockholder is 100 E. Pratt +Street, Baltimore, MD 21202. +(18) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 11, 2002. The address for such stockholder is 100 E. Pratt +Street, Baltimore, MD 21202. +(19) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 12, 2002. The address for such stockholder is 227 West Monroe +Street, Suite 3000, Chicago, IL 60606. +(20) Includes 1,061,900 shares beneficially owned by WAM Acquisition GP, Inc. +(21) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 12, 2002. The address for such stockholder is 227 West Monroe +Street, Suite 3000, Chicago, IL 60606. +(22) Includes 1,061,900 shares beneficially owned by Liberty Wagner Asset +Management, L.P. +(23) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 13, 2002. The address for such stockholder is 111 S.W. Fifth +Avenue, Suite 2130, Portland, OR 97204. +(24) Based upon a Schedule 13G/A filed with the Securities and Exchange +Commission on February 14, 2002. The address for such stockholder is 10829 +Olive Blvd., St. Louis, MO 63141. +(25) Includes 695,675 shares issuable upon the exercise of options. +-19- +PROPOSAL TWO +AMENDMENT OF THE 1999 STOCK PLAN +At the 1999 Annual Meeting of Stockholders, the Company's stockholders +approved the adoption of the Company's 1999 Stock Plan (the "1999 Plan"). The +1999 Plan originally authorized up to 400,000 shares of Company common stock for +grants of non-qualified and incentive stock options. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of common stock subject to the plan from 400,000 to 975,000 shares. In +July 2001, the Company's stockholders approved an amendment to the 1999 Plan +increasing the number of shares of common stock subject to the plan from 975,000 +to 1,600,000 shares. The Board of Directors has amended the 1999 Plan, subject +to stockholder approval, to authorize 680,000 additional shares for future +awards (the "1999 Plan Proposal"). The affirmative vote of the holders of a +majority of the total votes cast on the 1999 Plan Proposal is needed to approve +the 1999 Plan Proposal. +Because of the limited number of remaining shares that may be granted under +the 1999 Plan, the Board of Directors believes it is appropriate and necessary +at this time to authorize additional shares for future awards. Authorization of +these additional shares will allow grants to employees, consultants and +directors in furtherance of the Company's goal of continuing to achieve +significant gains in stockholder value and operating results. +The Company intends to continue awarding options in order to attract and +retain the services or advice of such directors, employees, officers, agents, +consultants, and independent contractors and to provide additional incentive for +such persons to exert maximum efforts for the success of the Company and its +affiliates. The following is a summary of the principal features of the 1999 +Plan. The summary is qualified in its entirety by reference to the complete text +of the 1999 Plan, as proposed to be amended. The proposed amendment to the 1999 +Plan is set forth as Annex A to this Proxy Statement. +Description of the 1999 Plan +The maximum number of shares of Common Stock with respect to which awards +may be presently granted pursuant to the 1999 Plan is 1,600,000 shares. The 1999 +Plan Proposal would authorize the use of up to an additional 680,000 shares of +the Company's common stock for a total of 2,280,000 shares being available for +issuance under the 1999 Plan. Shares issuable under the 1999 Plan may be either +treasury shares or authorized but unissued shares. The number of shares +available for issuance will be subject to adjustment to prevent dilution in the +event of stock splits, stock dividends or other changes in the capitalization of +the Company. +Subject to compliance with Rule 16b-3 of the Securities Exchange Act of +1934 (the "Exchange Act"), the Plan shall be administered by the Board of +Directors of the Company (the "Board") or, in the event the Board shall appoint +and/or authorize a committee, such as the Compensation Committee, of two or more +members of the Board to administer the Plan, by such committee (the "Plan +Administrator"). Except for the terms and conditions explicitly set forth in the +Plan, the Plan Administrator shall have the authority, in its discretion, to +determine all matters relating to the options to be granted under the Plan, +including, without limitation, selection of whether an option will be an +incentive stock option or a nonqualified stock option, selection of the +individuals to be granted options, the number of shares to be subject to each +option, the exercise price per share, the timing of grants and all other terms +and conditions of the options. +Options granted under the 1999 Plan may be "incentive stock options" +("Incentive Options") within the meaning of Section 422 of the Internal Revenue +Code (the "Code") or stock options which are not incentive stock options +("Non-Incentive Options" and, collectively with Incentive Options, hereinafter +referred to as "Options"). Each Option may be exercised in whole or in part; +provided, that only whole shares may be issued pursuant to the exercise of any +Option. Subject to any other terms and conditions herein, the Plan Administrator +may provide that an Option may not be exercised in whole or in part for a stated +period or periods of time during which such Option is outstanding; provided, +that the Plan Administrator may rescind, modify, or waive any such limitation +(including by the acceleration of the vesting schedule upon a change in control +of the Company) at any time and from time to time after the grant date thereof. +During an optionee's lifetime, any incentive stock options granted under the +Plan are personal to such optionee and are exercisable solely by such optionee. +-20- +The Plan Administrator can determine at the time the Option is granted in +the case of Incentive Options, or at any time before exercise in the case of +Non-Incentive Options, that additional forms of payment will be permitted. To +the extent permitted by the Plan Administrator and applicable laws and +regulations (including, without limitation, federal tax and securities laws and +regulations and state corporate law), an Option may be exercised by: +(a) delivery of shares of Common Stock of the Company held by an +optionee having a fair market value equal to the exercise price, such fair +market value to be determined in good faith by the Plan Administrator; +(b) delivery of a properly executed notice of exercise, together with +irrevocable instructions to a broker, all in accordance with the regulations of +the Federal Reserve Board, to promptly deliver to the Company the amount of sale +or loan proceeds to pay the exercise price and any federal, state, or local +withholding tax obligations that may arise in connection with the exercise; or +(c) delivery of a properly executed notice of exercise, together with +instructions to the Company to withhold from the shares of Common Stock that +would otherwise be issued upon exercise that number of shares of Common Stock +having a fair market value equal to the Option exercise price. +Upon a Change in Control of the Company, any award carrying a right to +exercise that was not previously exercisable shall become fully exercisable, the +restrictions, deferral limitations and forfeiture conditions applicable to any +other award granted shall lapse and any performance conditions imposed with +respect to awards shall be deemed to be fully achieved. +Options granted under the 1999 Plan may not be transferred, pledged, +mortgaged, hypothecated or otherwise encumbered other than by will or under the +laws of descent and distribution, except that the Plan Administrator may permit +transfers of awards for estate planning purposes if, and to the extent, such +transfers do not cause a participant who is then subject to Section 16 of the +Exchange Act to lose the benefit of the exemption under Rule 16b-3 for such +transactions. +For federal income tax purposes, the grant to an optionee of a +Non-Incentive Option will not constitute a taxable event to the optionee or to +the Company. Upon exercise of a Non-Incentive Option (or, in certain cases, a +later tax recognition date), the optionee will recognize compensation income +taxable as ordinary income, measured by the excess of the fair market value of +the Common Stock purchased on the exercise date (or later tax recognition date) +over the amount paid by the optionee for such Common Stock, and will be subject +to tax withholding. The Company may claim a deduction for the amount of such +compensation. The optionee will have a tax basis in the Common Stock purchased +equal to the amount paid plus the amount of ordinary income recognized upon +exercise of the Non-Incentive Option. Upon the subsequent sale of the Common +Stock received upon exercise of the Non-Incentive Option, an optionee will +recognize capital gain or loss equal to the difference between the amount +realized on such sale and his or her tax basis in the Common Stock, which may be +long-term capital gain or loss if the optionee holds the Common Stock for more +than one year from the exercise date. +For federal income tax purposes, neither the grant nor the exercise of an +Incentive Option will constitute a taxable event to the optionee or to the +Company, assuming the Incentive Option qualifies as an "incentive stock option" +under Code ss.422. If an optionee does not dispose of the Common Stock acquired +upon exercise of an Incentive Option during the statutory holding period, any +gain or loss upon subsequent sale of the Common Stock will be long-term capital +gain or loss, assuming the shares represent a capital asset in the optionee's +hands. The statutory holding period is the later of two years from the date the +Incentive Option is granted or one year from the date the Common Stock is +transferred to the optionee pursuant to the exercise of the Incentive Option. If +the statutory holding period requirements are satisfied, the Company may not +claim any federal income tax deduction upon either the exercise of the Incentive +Option or the subsequent sale of the Common Stock received upon exercise +thereof. If the statutory holding period requirement is not satisfied, the +optionee will recognize compensation income taxable as ordinary income on the +date the Common Stock is sold (or later tax recognition date) in an amount equal +to the lesser of (i) the fair market value of the Common Stock on that date less +the amount paid by the optionee for such Common Stock, or (ii) the amount +realized on the disposition of the Common Stock less the amount paid by the +optionee for such Common Stock; the Company may then claim a deduction for the +amount of such compensation income. +-21- +The federal income tax consequences summarized hereinabove are based upon +current law and are subject to change. +The Board may amend, alter, suspend, discontinue or terminate the 1999 Plan +at any time, except that any such action shall be subject to stockholder +approval at the annual meeting next following such Board action if such +stockholder approval is required by federal or state law or regulation or the +rules of any exchange or automated quotation system on which the Common Stock +may then be listed or quoted, or if the Board of Directors otherwise determines +to submit such action for stockholder approval. In addition, no amendment, +alteration, suspension, discontinuation or termination to the 1999 Plan may +materially impair the rights of any participant with respect to any Option +granted before amendment without such participant's consent. Unless terminated +earlier by action of the Board of Directors, the 1999 Plan shall terminate ten +(10) years after adoption by the stockholders. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR approval of the +1999 Plan Proposal. Unless marked to the contrary, proxies received from +Stockholders will be voted in favor of the 1999 Plan Proposal. +-22- +PROPOSAL THREE +RATIFICATION OF THE SELECTION OF THE FIRM OF RICHARD A. EISNER & COMPANY, LLP +AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY +The Board of Directors upon recommendation of the members of the Audit +Committee, concluded that the continued engagement of Richard A. Eisner & +Company, LLP as the Company's independent public accountants for the 2002 fiscal +year was in the best interests of the Company. The affirmative vote of the +holders of a majority of the total votes cast on this proposal is needed to +ratify the selection of the firm of Richard A. Eisner & Company, LLP as +independent public accountants for the Company. Representatives of Richard A. +Eisner & Company, LLP are expected to be present at the Annual Meeting to +respond to questions and to make a statement should they so desire. +Audit Fees +For the year ended December 31, 2001, the Company incurred professional +fees to its independent public accountants in the amount of $130,000 related to +auditing services. +Financial Information Systems Design and Implementation Fees +For the year ended December 31, 2001, there were no fees billed by the +Company's independent public accountants for professional services rendered for +information technology services relating to financial information systems design +and implementation. +All Other Fees +For the year ended December 31, 2001, the Company incurred professional +fees to its independent public accountants in the amount of $84,000 related to +all other services. +The Audit Committee has considered whether the non-audit services provided +by the Company's independent public accountants during the year ended December +31, 2001 were compatible with the independent public accountants' independence +and has concluded that Richard A. Eisner & Company, LLP has maintained its +independence. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the ratification +of the selection of Richard A. Eisner & Company, LLP as independent public +accountants for the Company. Unless marked to the contrary, proxies received +from stockholders will be voted in favor of the ratification of the selection of +Richard A. Eisner & Company LLP as independent public accountants for the +Company for fiscal year 2002. +-23- +STOCKHOLDER PROPOSALS AND SUBMISSIONS +FOR THE COMPANY'S 2003 ANNUAL MEETING +In accordance with rules promulgated by the Securities and Exchange +Commission, any stockholder who wishes to submit a proposal for inclusion in the +proxy material to be distributed by the Company in connection with the 2003 +Annual Meeting must do so no later than December 18, 2002. +In addition, in accordance with Article I, Section 7(f) of the Company's +Amended & Restated By-Laws, in order to be properly brought before the 2003 +Annual Meeting, a matter must be (i) specified in the notice of such meeting +given by or at the direction of the Board of Directors (or any duly authorized +committed thereof), (ii) otherwise properly brought before such meeting by or at +the direction of the Board of Directors (or any duly authorized committed +thereof) or (iii) specified in a written notice given by a stockholder of record +on the date of the giving of the notice and on the record date for such meeting, +which notice conforms to the requirements of Article I, Section 7(f) of the +Amended & Restated By-Laws and is delivered to, or mailed and received at, the +Company's principal executive offices not less than 120 days nor more than 150 +days prior to the first anniversary of the date of the Company's 2002 Annual +Meeting. Accordingly, any written notice given by or on behalf of a stockholder +pursuant to the foregoing clause (iii) in connection with the 2003 Annual +Meeting must be received no later than January 17, 2003. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN +AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A +STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, +YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 19, 2002 By: /s/ JAMIESON A. KARSON +--------------------------------- +Jamieson A. Karson +Chief Executive Officer +ANNEX A +STEVEN MADDEN, LTD. +1999 STOCK PLAN +This Steven Madden, Ltd. 1999 Stock Plan (the "1999 Plan") is hereby +amended as follows: +1. Section 3 of the 1999 Plan is amended by deleting Section 3 in its +entirety and replacing it with the following: +SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan +shall be the Common Stock, presently authorized but unissued or subsequently +acquired by the Company. Subject to adjustment as provided in Section 7 hereof, +the aggregate amount of Common Stock to be delivered upon the exercise of all +options granted under the Plan shall not exceed in the aggregate 2,280,000 +shares as such Common Stock was constituted on the effective date of the Plan. +If any option granted under the Plan shall expire, be surrendered, exchanged for +another option, canceled, or terminated for any reason without having been +exercised in full, the unpurchased shares subject thereto shall thereupon again +be available for purposes of the Plan, including for replacement options which +may be granted in exchange for such surrendered, canceled, or terminated +options. +2. Except as expressly amended hereby, the provisions of the Plan are and +shall remain in full force and effect. 3. This Amendment shall be effective +immediately upon approval by the Company's Board of Directors and stockholders +of the Company. +Adopted by the Board of Directors +as of the 8th day of April, 2002 +Approved by the Stockholders +this ___ day of May, 2002 +STEVEN MADDEN, LTD. PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES ([FOR] [WITHHOLD +AUTHORITY] [AGAINST] OR [ABSTAIN]) NEXT TO EACH OF THE THREE (3) PROPOSALS +The undersigned hereby appoint(s) Charles A. Koppelman as a proxy (the +"Proxy") for the undersigned, with the power of substitution and resubstitution +to vote any and all shares of capital stock of Steven Madden, Ltd. (the +"Company") which the undersigned would be entitled to vote as fully as the +undersigned could do if personally present at the Annual Meeting of the Company, +to be held on May 17, 2002, at 10:00 A.M. local time, and at any adjournments +thereof, hereby revoking any prior proxies to vote said stock, upon the +following items more fully described in the notice of and proxy statement for +the Annual Meeting (receipt of which is hereby acknowledged): +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1, 2 AND 3. +1) ELECTION OF DIRECTORS +--------------------- +VOTE +[ ] FOR ALL nominees listed below EXCEPT as marked to the contrary below +[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed below (INSTRUCTION: +To withhold authority to vote for any individual nominee strike a line +through the nominee's name below.) +[ ] ABSTAIN +Charles A. Koppelman, Jamieson A. Karson, Arvind Dharia, Gerald Mongeluzo, Marc +Cooper, John L. Madden, Peter Migliorini and Heywood Wilansky +2) AMENDMENT OF THE 1999 STOCK PLAN +-------------------------------- +[ ] FOR the Amendment of the 1999 Stock Plan +[ ] AGAINST +[ ] ABSTAIN +3) RATIFICATION OF THE SELECTION OF RICHARD A. EISNER & COMPANY, LLP. AS +INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR FISCAL YEAR 2002. +--------------------------------------------------------------------- +[ ] FOR the ratification of the selection of Richard A. Eisner & Company, +LLP. +[ ] AGAINST +[ ] ABSTAIN +THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED, +THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE EIGHT (8) NOMINEES NAMED IN +ITEM 1, (2) FOR THE AMENDMENT OF THE 1999 STOCK PLAN IN ITEM 2, (3) FOR THE +RATIFICATION OF THE SELECTION OF RICHARD A. EISNER & CO., LLP AS INDEPENDENT +PUBLIC ACCOUNTANTS FOR THE COMPANY FOR FISCAL YEAR 2002 IN ITEM 3 AND (4) IN THE +DISCRETION OF THE PROXY ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE +MEETING. +In his discretion, Charles A. Koppelman (or his substitute(s)) is +authorized to vote upon such other business as may properly come before the +meeting. +Please mark, sign date and return this Proxy promptly using the +accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +Dated: _____________________ +------------------------------------- +Signature +------------------------------------- +Signature if jointly owned: +------------------------------------- +Print name: +Please sign exactly as the name appears on your stock certificate. When +shares of capital stock are held by joint tenants, both should sign. When +signing as attorney, executor, administrator, trustee, guardian, or corporate +officer, please include full title as such. If the shares of capital stock are +owned by a corporation, sign in the full corporate name by an authorized +officer. If the shares of capital stock are owned by a partnership, sign in the +name of the partnership by an authorized officer. +PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY +IN THE ENCLOSED ENVELOPE \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-02-000300/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-02-000300/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..660fcbbbd66176ef82b375be5e71d5cfa0ff9c89 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-02-000300/proxy_rpt.txt @@ -0,0 +1,15 @@ +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with Peter J. +Solomon & Company, a financial advisory firm of which Marc Cooper, one of the +Company's directors, is a managing director. The agreement provides for a fee of +$150,000 over the one year term of the agreement which expires in June 2002. The +firm is to provide financial advisory and investment banking services to the +Company. +Compensation Committee Report On Executive Compensation +The Compensation Committee is responsible for reviewing and approving the +Company's compensation policies and the compensation paid to its executive +officers, including the Chief Executive Officer and the other named executive +officers. The Compensation Committee is comprised of Charles A. Koppelman, Peter +Migliorini and John Madden. Each member of the Compensation Committee was a +non-employee directors of the Company during 2001, however, Mr. Koppelman +received a salary and certain other benefits for serving as the Chairman of the \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-03-000352/proxy.txt b/raw/proxies/0000913241/0001019056-03-000352/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..09c87213bf486c85181c728f0e213e30edf6683e --- /dev/null +++ b/raw/proxies/0000913241/0001019056-03-000352/proxy.txt @@ -0,0 +1,1671 @@ +DEF 14A +1 +smadden_def14a.txt +DEFINITIVE 14A +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +[X] Filed by Registrant +[ ] Filed by a Party other than the Registrant +Check the appropriate box: +[ ] Preliminary Proxy Statement +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Under Rule 14a-12 +STEVEN MADDEN, LTD. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified in its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +1) Title of each class of securities to which transaction +applies: +N/A +-------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +N/A +-------------------------------------------------------------- +3) Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined.): +N/A +-------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +N/A +-------------------------------------------------------------- +5) Total fee paid: +N/A +-------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials: +N/A +-------------------------------------------------------------- +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and date of its filing. +1) Amount Previously Paid: +N/A +-------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +N/A +-------------------------------------------------------------- +3) Filing Party: +N/A +-------------------------------------------------------------- +4) Date Filed: +N/A +-------------------------------------------------------------- +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +---------------------------------------- +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 23, 2003 +---------------------------------------- +To the Stockholders of Steven Madden, Ltd.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual +Meeting") of the Company will be held on May 23, 2003, at the Company's showroom +located at 1370 Avenue of the Americas, 12th Floor, New York, New York at 10:00 +a.m., local time, and thereafter as it may from time to time be adjourned, for +the purposes stated below. +1. To elect nine (9) directors to the Board of Directors of the Company +for a one (1) year term; +2. To approve an amendment to the Company's 1999 Stock Plan (i) to +increase the maximum number of shares of the Company's common stock +available for issuance under the plan from 2,280,000 shares to +2,920,000 shares; (ii) to provide that the exercise price of an option +granted under the plan shall be no less than the fair market value of +the Company's common stock on the date of grant (except to the extent +otherwise provided in agreements with the Company dated prior to the +effective date of the amendment) and (iii) to prohibit the Board from +amending the terms of any option granted pursuant to the plan to +reduce the option price; +3. To ratify the appointment of Eisner LLP as independent public +accountants for the Company for fiscal year 2003; and +4. To transact such other business as may properly come before the Annual +Meeting or any adjournments thereof. +All stockholders are cordially invited to attend the Annual Meeting. Only +those stockholders of record at the close of business on April 22, 2003 are +entitled to notice of and to vote at the Annual Meeting and any adjournments +thereof. A complete list of stockholders entitled to vote at the Annual Meeting +will be available at the Meeting. +BY ORDER OF THE BOARD OF DIRECTORS +April 23, 2003 /s/ JAMIESON A. KARSON +----------------------------------------- +Jamieson A. Karson +Chief Executive Officer +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND +SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED +ENVELOPE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW +YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, NY 11104 +PROXY STATEMENT +INTRODUCTION +This Proxy Statement is furnished in connection with the solicitation of +proxies by the Board of Directors of Steven Madden, Ltd., a Delaware corporation +(the "Company"), for use at the annual meeting of the Company's stockholders to +be held at the Company's showroom located at 1370 Avenue of the Americas, 12th +Floor, New York, New York on May 23, 2003 at 10:00 a.m., local time, and at any +adjournments thereof (the "Annual Meeting"). +The Annual Meeting has been called to consider and take action on the +following proposals: (i) to elect nine (9) directors to the Board of Directors +of the Company for a one (1) year term, (ii) to approve an amendment to the +Company's 1999 Stock Plan (the "Plan") (x) to increase the maximum number of +shares of the Company's common stock available for issuance under the plan from +2,280,000 shares to 2,920,000 shares; (y) to provide that the exercise price of +an option granted under the plan shall be no less than the fair market value of +the Company's common stock on the date of grant (except to the extent otherwise +provided in agreements with the Company dated prior to the effective date of the +amendment) and (z) to prohibit the Board from amending the terms of any option +granted pursuant to the plan to reduce the option price, (iii) to ratify the +selection of Eisner LLP as independent public accountants for the Company for +fiscal year 2003, and (iv) to transact such other business as may properly come +before the Annual Meeting or any adjournments thereof. The Board of Directors +knows of no other matters to be presented for action at the Annual Meeting. +However, if any other matters properly come before the Annual Meeting, the +persons named in the proxy will vote on such other matters and/or for other +nominees in accordance with their best judgment. The Company's Board of +Directors recommends that the stockholders vote in favor of each of the +proposals. Only holders of record of common stock, $.0001 par value (the "Common +Stock"), of the Company at the close of business on April 22, 2003 (the "Record +Date") will be entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 Barnett +Avenue, Long Island City, NY 11104 and its telephone number is (718) 446-1800. +The approximate date on which this Proxy Statement, the proxy card and other +accompanying materials are first being sent or given to stockholders is April +28, 2003. The Company's Annual Report for the fiscal year ended December 31, +2002, including audited financial statements, is being sent to stockholders +together with this Proxy Statement. +INFORMATION CONCERNING SOLICITATION AND VOTING +As of the Record Date, there were outstanding 12,858,705 shares of Common +Stock (excluding treasury shares) held by approximately 68 holders of record and +2,636 beneficial owners. Only holders of shares of Common Stock on the Record +Date will be entitled to vote at the Annual Meeting. The holders of Common Stock +are entitled to one vote on all matters presented at the meeting for each share +held of record. The presence in person or by proxy of holders of record of a +majority of the shares outstanding and entitled to vote as of the Record Date +shall be required for a quorum to transact business at the Annual Meeting. If a +quorum should not be present, the Annual Meeting may be adjourned until a quorum +is obtained. Each nominee to be elected as a director named in Proposal 1 must +receive a plurality of the votes cast by the holders of Common Stock present in +person or represented by proxy at the Annual Meeting with respect to such +proposal. Each of the amendment to the Company's 1999 Stock Plan described in +Proposal 2 and the ratification of the selection of Eisner LLP as independent +public accountants of the Company for fiscal year 2003 described in Proposal 3 +must be approved by the affirmative vote of the holders of a majority of the +total votes cast on such proposals in person or by proxy. Abstentions and broker +non-votes are counted as present and entitled to vote and are, therefore, +included for purposes of determining whether a quorum of shares is present at +the meeting. An abstention from a vote with respect to Proposal 1 will have no +effect. An abstention from a vote with respect to Proposal 2 or 3 will have the +same practical effect as a vote against such proposal. Broker "non-votes" are +not deemed to be "votes cast." As a result, broker "non-votes" are not included +-1- +in the tabulation of the voting result on the election of directors or issues +requiring approval of a majority of the votes cast and, therefore, do not have +the effect of votes in opposition in such tabulations and as such will have the +practical effect of reducing the number of affirmative votes required to achieve +a majority vote for a matter by reducing the total number of shares from which a +majority is calculated. Brokers who hold shares in street name may vote on +behalf of beneficial owners with respect to Proposals 1, 2, 3 and 4. The +approval of all other matters to be considered at the Annual Meeting requires +the affirmative vote of a majority of the eligible votes cast at the Annual +Meeting on such matters. +The expense of preparing, printing and mailing this Proxy Statement, the +exhibits hereto and the proxies solicited hereby will be borne by the Company. +In addition to the use of the mails, proxies may be solicited by officers and +directors and regular employees of the Company, without additional remuneration, +by personal interviews, telephone, telegraph or facsimile transmission. The +Company will also request brokerage firms, nominees, custodians and fiduciaries +to forward proxy materials to the beneficial owners of shares of Common Stock +held of record and will provide reimbursements for the cost of forwarding the +material in accordance with customary charges. The Company has entered into an +agreement with The Proxy Advisory Group of Strategic Stock Surveillance, LLC to +assist the Company in the solicitation of proxies for the Annual Meeting. Under +the agreement, the Company has agreed to pay The Proxy Advisory Group of +Strategic Stock Surveillance, LLC a fee of approximately $7,500 plus +disbursements. +Proxies given by stockholders of record for use at the Annual Meeting may +be revoked at any time prior to the exercise of the powers conferred. In +addition to revocation in any other manner permitted by law, stockholders of +record giving a proxy may revoke the proxy by an instrument in writing, executed +by the stockholder or his attorney authorized in writing or, if the stockholder +is a corporation, under its corporate seal, by an officer or attorney thereof +duly authorized, and deposited either at the corporate headquarters of the +Company at any time up to and including the last business day preceding the day +of the Annual Meeting, or any adjournment thereof, at which the proxy is to be +used, or with the chairman of such Annual Meeting on the day of the Annual +Meeting or adjournment thereof, and upon either of such deposits the proxy is +revoked. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED +ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY +SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY COME BEFORE THE ANNUAL MEETING. +None of the matters to be acted on at the Annual Meeting give rise to any +statutory right of a stockholder to dissent and obtain the appraisal of or +payment for such stockholder's shares. +-2- +PROPOSAL ONE +TO ELECT NINE DIRECTORS TO SERVE FOR ONE YEAR AND +UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED +Under the Amended and Restated By-Laws of the Company (the "By-Laws"), the +Board of Directors of the Company is required to be comprised of a minimum of +one (1) director. Subject to the foregoing limitation, the number of directors +may be fixed from time to time by action of the directors. The Company's board +presently consists of ten (10) directors whose terms expire at the Annual +Meeting. +The Board has nominated nine (9) candidates to serve as directors. The +names and biographical summaries of the nine (9) persons who have been nominated +by the Board of Directors to stand for election at the Annual Meeting have been +provided below for your information. The Board of Directors has proposed that +these persons be elected at the Annual Meeting to serve until the next annual +meeting of stockholders. Proxies will be voted for the election of the nine (9) +nominees listed below as directors of the Company unless otherwise specified on +the proxy. A plurality of the votes of shares of Common Stock present in person +or represented by proxy at the Annual Meeting will be necessary to elect the +directors listed below. If, for any reason, any of the nominees shall be unable +or unwilling to serve, the proxies will be voted for a substitute nominee who +will be designated by the Board of Directors at the Annual Meeting. Stockholders +may abstain from voting by marking the appropriate boxes on the enclosed proxy. +Abstentions shall be counted separately and shall be used for purposes of +calculating whether a quorum is present at the meeting. +Biographical Summaries of Nominees for the Board of Directors +Charles A. Koppelman has been a director of the Company since June 1998 and +Chairman of the Board since July 1, 2001. Previously Mr. Koppelman was acting +Chairman of the Board from June 2000 to July 2001. Presently, Mr. Koppelman +serves as Chairman of CAK Entertainment, Inc. From 1988 to 1997, Mr. Koppelman +served first as Chairman and Chief Executive Officer of EMI Music Publishing and +then as Chairman and Chief Executive Officer of EMI Records Group, North +America. +Jamieson A. Karson has been the Chief Executive Officer of the Company and +Vice Chairman of the Board of Directors of the Company since July 1, 2001. Mr. +Karson has been a director of the Company since January 2, 2001. Prior to +joining the Company as Chief Executive Officer, Mr. Karson practiced law for +over 17 years. He was a partner in the New York City law firm of Tannenbaum +Helpern Syracuse & Hirshtritt LLP from January 1, 1997 through June 30, 2001, +where he served on the firm's three person Finance Committee. He was a partner +at the law firm of Karson McCormick from February 1992 through December 31, +1996. Prior to that, Mr. Karson was an associate attorney at the law firm of +Shea & Gould. +Arvind Dharia has been the Chief Financial Officer of the Company since +October 1992 and a director since December 1993. From December 1988 to September +1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp. +Gerald Mongeluzo has been a director of the Company since July 2001. Mr. +Mongeluzo has been President of Adesso-Madden, Inc., a wholly owned subsidiary +of the Company, since September 1995. Previously, Mr. Mongeluzo was the founder +and President of Adesso Shoes, Inc., a buying agent of private label shoes. From +1987 through 1991, Mr. Mongeluzo was the President of the Prima Barabaro +Division of Cells Enterprise, Inc. Mr. Mongeluzo founded Prima Shoes, Inc., a +buying agent of private label shoes, and served as its President from 1974 to +1987. +Marc S. Cooper has been a director of the Company since July 2001. Mr. +Cooper has served as a Managing Director of Peter J. Solomon Company in its +Mergers and Acquisitions Department since May 1999. Previously, Mr. Cooper +worked at Barington Capital Group from March 1992 to May 1999, where he was a +founding member and Vice Chairman overseeing its investment banking operations. +Prior to his tenure with Barington Capital Group, Mr. Cooper spent three years +as a partner of Scharf Brothers, a private merchant banking firm. Currently, Mr. +Cooper serves as a director of Thinking Tools, Inc. and North Atlantic Trading +Company, Inc. +-3- +Roger Gladstone has been a director of the Company since February 2003. +Since 1998, Mr. Gladstone has served as Co-Chairman of Firebrand Financial +Group, Inc., a brokerage and investment banking firm, and has served as a +registered representative with EarlyBirdCapital, Inc., an online investment +bank, since 2001. In addition, Mr. Gladstone has served as Chairman of Premium +Asset Recovery Corporation, an adjustment and collection services company, since +1997. Previously, Mr. Gladstone has served as President of Shochet Securities, a +brokerage firm, from 1999 to 2001. +John L. Madden has been a director of the Company since the Company's +inception. Since April 1998, Mr. Madden has owned and managed a branch office of +Tradeway Securities Group, Inc. in Florida. From May 1996 through December 1996, +Mr. Madden formed JLM Consultants, Inc. which acted as a branch office of Merit +Capital, Inc. for several broker-dealers. From May 1994 to May 1996, Mr. Madden +served as Vice President of Investments for GKN Securities, Inc. From August +1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc. as +Managing Director and registered sales representative. Mr. Madden is the brother +of Steven Madden, the Company's former Chief Executive Officer and current +Creative and Design Chief. See "Certain Legal Proceedings". +Peter Migliorini has been a director of the Company since October 1996. Mr. +Migliorini has served as Sales Manager for Greschlers, Inc., a supply company +located in Brooklyn, New York since 1994. From 1987 to 1994 Mr. Migliorini +served as Director of Operations for Mackroyce Group. Mr. Migliorini has +previously served in a number of capacities, ranging from Assistant Buyer to +Chief Planner/Coordinator for several shoe companies including Meldisco Shoes, +Perry Shoes, and Fasco Shoes. +Awadhesh Sinha has been a director of the Company since October 2002. Mr. +Sinha has served as Chief Operating Officer and Chief Financial Officer of +Salant Corporation, a company that designs, manufactures and markets men's +clothing, since 1998. Mr. Sinha has worked for Salant Corporation for 22 years. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the election of +Messrs. Charles A. Koppelman, Jamieson A. Karson, Arvind Dharia, Gerald +Mongeluzo, Marc Cooper, Roger Gladstone, John L. Madden, Peter Migliorini and +Awadhesh Sinha. Unless otherwise instructed or unless authority to vote is +withheld, the enclosed proxy will be voted FOR the election of the above listed +nominees and AGAINST any other nominees. +Director Compensation +Directors who are also employees of the Company are not paid any fees or +other remuneration for service on the Board or any of its Committees. In 2002 +each non-employee director received the following compensation: (i) a grant of +options to purchase 10,000 shares of Common Stock at an exercise price per share +equal to two dollars ($2.00) above the fair market value of the Common Stock on +the date of grant and (ii) thirty five thousand dollars ($35,000) in immediately +available funds. As of January 1, 2003, each non-employee director is entitled +to the following annual compensation: (i) a grant of options to purchase 10,000 +shares of Common Stock at an exercise price per share equal to the fair market +value of the Common Stock on the date of grant and (ii) fifty thousand dollars +($50,000) in immediately available funds; however, the chairperson of the Audit +Committee will receive sixty thousand dollars ($60,000) in immediately available +funds. In addition, non-employee directors are reimbursed by the Company for all +expenses related to attending meetings. +On July 18, 2000, the Company granted Mr. Koppelman 50,000 options at an +exercise price of $7.00 per share as compensation for assuming the duties of +Chairman of the Board of the Company pursuant to a letter agreement between the +Company and Mr. Koppelman (the "Option Letter"). These options vested on July +18, 2000 and will expire on July 18, 2005. The Option Letter provided that if +Mr. Koppelman continued his service as acting Chairman of the Board, he was +entitled to receive 75,000 options at an exercise price of $7.00 per share which +options were issued on May 31, 2001. In addition, he was also entitled to +receive 75,000 options on each of May 31, 2002, 2003 and 2004 at an exercise +price per share equal to the closing bid price of the Company's common stock on +the date of grant (the "Additional Options"). In connection with the execution +of his current agreement with the Company, Mr. Koppelman surrendered all of the +Additional Options. In October 2002, the Compensation Committee of the Board of +Directors determined that it was in the best interests of the Company that Mr. +-4- +Koppelman's current agreement not be extended beyond its June 30, 2003 +expiration date. Therefore, as of July 1, 2003, Mr. Koppelman will be +compensated for his services as a director in the same manner as the other +outside directors on the Board. See "Agreement with the Chairman of the Board." +Meetings and Committees of the Board of Directors +The Board of Directors met four (4) times during the fiscal year ended +December 31, 2002. The Board of Directors has standing Audit, Real Estate and +Compensation Committees. In addition, the Company has an Ad Hoc Committee made +up of certain board members and executive officers which meets bi-monthly to +discuss general issues regarding the business and strategic growth of the +Company. The Board of Directors does not have a standing Nominating Committee. +After over two years of valued service, Heywood Wilansky, a member of the Audit, +Compensation and Real Estate Committees for the year ended December 31, 2002, +will not be standing for re-election. As of February 1, 2003, Mr. Wilansky was +appointed as the President and Chief Executive Officer of Filene's Basement Inc. +and, given his new duties and responsibilities, Mr. Wilansky decided to retire +from his position as a Director of the Company after the Company's 2003 Annual +Meeting. +Audit Committee +During the year ended December 31, 2002, the Audit Committee of the Board +of Directors consisted of directors Peter Migliorini, Heywood Wilansky, Marc +Cooper and Awadhesh Sinha. The Audit Committee is comprised of directors who are +"independent" for purposes of The Nasdaq Stock Market listing standards. The +Audit Committee is primarily responsible for reviewing the services performed by +the Company's independent public accountants, evaluating the Company's +accounting policies and its system of internal controls, and reviewing +significant finance transactions. During 2002, the Audit Committee met five (5) +times. +The audit functions of the Audit Committee are focused on the following +areas: +- the adequacy of the Company's internal controls and financial +reporting process and the reliability of the Company's financial +statements, +- review of the financial statements and the accounting principles +applied in their preparation, +- the appointment, compensation, independence and performance of the +Company's independent public accountants, +- the scope of the audit, and +- the Company's compliance with legal and regulatory requirements. +The Audit Committee meets with management periodically to consider the +adequacy of the Company's internal controls and the objectivity of its financial +reporting. The Audit Committee discusses these matters with the Company's +independent public accountants and with appropriate Company financial personnel. +Meetings are held with the independent public accountants who have unrestricted +access to the Audit Committee. In addition, the Audit Committee reviews the +Company's financing plans and reports recommendations to the full Board of +Directors for approval and to authorize action. The Board has adopted a written +charter setting out the audit related functions the Audit Committee is to +perform. +Management has primary responsibility for the Company's financial +statements and the overall reporting process, including the Company's system of +internal controls. The independent public accountants audit the annual financial +statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of +operations and cash flows of the Company in conformity with accounting +principles generally accepted in the United States of America and discuss with +the Audit Committee any issues they believe should be raised with the Audit +Committee. +The following Audit Committee Report does not constitute soliciting +material and shall not be deemed filed or incorporated by reference into any +other Company filing under the Securities Act of 1933, as amended, or the +-5- +Securities Exchange Act of 1934, as amended, except to the extent the Company +specifically incorporates this Audit Committee Report by reference therein. +AUDIT COMMITTEE REPORT +The Audit Committee reviewed the Company's audited financial statements for +the fiscal year ended December 31, 2002 and met with both management and Eisner +LLP, the Company's independent public accountants, to discuss such audited +financial statements. Management and the Company's independent public +accountants have represented to the Audit Committee that the financial +statements were prepared in accordance with accounting principles generally +accepted in the United States of America. The Audit Committee has received from +and discussed with Eisner LLP the written disclosure and the letter regarding +the independence of Eisner LLP as required by Independence Standards Board +Standard No. 1. The Audit Committee also discussed with Eisner LLP any matters +required to be discussed by Statement on Auditing Standards No. 61. Based on +these reviews and discussions, the Audit Committee recommended to the Board that +the Company's audited financial statements be included in the Company's Annual +Report on Form 10-K for the fiscal year ended December 31, 2002. +AUDIT COMMITTEE +Peter Migliorini +Marc Cooper +Heywood Wilansky +Awadhesh Sinha +Compensation Committee +The Compensation Committee of the Board of Directors for the year ended +December 31, 2002 consisted of directors Peter Migliorini and Heywood Wilansky. +The Compensation Committee is primarily responsible for approving salaries, +bonuses and other compensation for the Company's Chief Executive Officer and +named executive officers, reviewing management recommendations relating to new +incentive compensation plans and changes to existing incentive compensation +plans, and administering the Company's stock plans, including granting options +and setting the terms thereof pursuant to such plans (all subject to approval by +the Board of Directors). During 2002, the Compensation Committee met two (2) +times. +Real Estate Committee +The Real Estate Committee of the Board of Directors for the year ended +December 31, 2002 consisted of directors Jamieson A. Karson and Heywood +Wilansky. The Real Estate Committee is primarily responsible for overseeing real +estate transactions for the Company. In light of the Company's aggressive retail +store expansion plan, the Real Estate Committee was formed to consider proposed +real estate transactions for approval. During 2002, the Real Estate Committee +met four (4) times. +Ad Hoc Committee +During 2002, the Board appointed an Ad Hoc Committee which consists of +Jamieson A. Karson, Charles Koppelman, John Madden, Richard Olicker and Robert +Schmertz. The Ad Hoc Committee meets bi-monthly to discuss general issues +regarding the business and strategic growth of the Company. The Ad Hoc Committee +was formed in October 2002 and met three (3) times in 2002. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires +that the Company's directors and executive officers, and persons who own more +than ten percent (10%) of a registered class of the Company's equity securities, +file with the Securities and Exchange Commission ("SEC") reports of initial +ownership of the Company's common stock and subsequent changes in that ownership +and furnish the Company with copies of all forms they file pursuant to Section +16(a). To the Company's knowledge, based solely on its review of the copies of +-6- +such reports furnished to the Company during the year ended December 31, 2002, +all Section 16(a) filing requirements applicable to its officers, directors and +greater than ten percent beneficial owners were complied with, except that: (i) +Mr. Koppelman failed to timely file a Form 4 relating to the exercise of stock +options that were previously granted to him and (ii) Mr. Schmertz failed to +timely file a Form 4 relating to the exercise of stock options that were +previously granted to him and the sale of the underlying shares of the Common +Stock of the Company. +Equity Compensation Plan Information +The following table provides information as of December 31, 2002 with +respect to the Company's Common Stock that may be issued under its existing +equity compensation plans: The table shows the number of securities to be issued +under compensation plans that have been approved by stockholders and those that +have not been so approved. The footnotes and other information following the +table are intended to provide additional detail on the compensation plans. +Number of securities remaining +Number of securities to available for future issuance +be issued upon exercise of Weighted-average exercise under equity compensation +outstanding options, price of outstanding options, plans (excluding securities +Plan category warrants and rights warrants and rights reflected in column (a)) +---------------------------- -------------------------- ----------------------------- ------------------------------ +Equity compensation plans +approved by security holders +Equity Stock Option Plans (1) 1,845,000 12.41 30,000 +Equity compensation plans not +approved by security holders +Non-Qualified Options (2) 500,000 1.75 0 +Other (3) 210,000 N/A 0 +Total 2,555,000 10.14 30,000 +------------------ +1) Consists of the 1993 Incentive Stock Option Plan, the 1995 Stock Plan, +the 1996 Stock Plan and the 1999 Stock Plan, as amended. +2) In March 1995, the Company issued options to purchase 1,000,000 shares +of its Common Stock to a company wholly owned by Steven Madden, the +Company's former Chief Executive Officer and current Creative and +Design Chief. The options were subsequently transferred to Steven +Madden. The options, which are fully exercisable, have an exercise +price of $1.75 and an exercise period of 10 years. As of the Record +Date, 500,000 of these options remain unexercised. Unearned +compensation was recorded in the amount of $575,000 which represented +the difference between the exercise price and the fair value of the +stock on the date of grant and was classified as a component of +stockholders equity. The unamortized portion was charged to operations +in 1997 in connection with Steven Madden's then-existing amended +employment agreement. +3) (a) In 2002 the Company entered into agreements with eight employees +and independent contractors which agreements provide that, if such +employees and independent contractors continue to be employed with the +Company through specified future dates (ranging from January 1, 2004 +through December 31, 2005), they each will be entitled to receive +20,000 shares of the Company's Common Stock. +(b) In April 2002 the Company entered into an agreement with Robert +Schmertz which provides that, subject to shareholder approval, if Mr. +Schmertz is employed by the Company through June 30, 2005 he will be +entitled to receive 50,000 shares of the Company's Common Stock. See +Employment Agreements with Certain Executive Officers. +-7- +Certain Legal Proceedings +On March 14, 2001, the Company became aware that the Securities and +Exchange Commission had issued a formal order of investigation with respect to +trading in the Company's securities. The Company has had no communications with +the SEC with regards to this matter since it filed its Annual Report on Form +10-K for 2001. +Between June and August 2000, eight putative securities fraud class action +lawsuits have been commenced in the United States District Court for the Eastern +District of New York against the Company, Steven Madden and, in five of the +actions, Rhonda J. Brown (the former President and a former director of the +Company) and Arvind Dharia. These actions are captioned: Wilner v. Steven +Madden, Ltd., et al., 00 CV 3676 (filed June 21, 2000); Connor v. Steven Madden, +et al., 00 CV 3709 (filed June 22, 2000); Blumenthal v. Steven Madden, Ltd., et +al., 00 CV 3709 (filed June 23, 2000); Curry v. Steven Madden, Ltd., et al., 00 +CV 3766 (filed June 26, 2000); Dempster v. Steven Madden Ltd., et al., 00 CV +3702 (filed June 30, 2000); Salafia v. Steven Madden, Ltd., et al., 00 CV 4289 +(filed July 24, 2000); Fahey v. Steven Madden, Ltd., et al., 00 CV 4712 (filed +August 11, 2000); Process Engineering Services, Inc. v. Steven Madden, Ltd., et +al., 00 CV 5002 (filed August 22, 2000). By Order dated December 8, 2000, the +Court consolidated these eight actions, appointed Process Engineering, Inc., +Michael Fasci and Mark and Libby Adams as lead plaintiffs and approved their +selection of lead counsel. On February 26, 2001, Plaintiffs served a +Consolidated Amended Complaint. On or about October 31, 2001, plaintiffs filed a +Second Consolidated Amended Class Action Complaint. The pleading names the +Company, Steven Madden, Rhonda J. Brown and Arvind Dharia as defendants. It +principally alleges that the Company and the individual defendants violated +Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 +promulgated under the 1934 Act by issuing false and misleading statements, and +failing to disclose material adverse information, generally relating to matters +arising from Mr. Madden's June 2000 indictment. The plaintiffs seek an +unspecified amount of damages, costs and expenses on behalf of themselves and +all other purchasers of the Company's common stock during the period June 21, +1997 through June 20, 2000. On November 30, 2001, all of the defendants served +motions to dismiss the Consolidated Amended Complaint. The motions were fully +briefed on January 14, 2002. Since that time, a settlement in principle of these +actions has been reached, subject to execution of definitive settlement +documentation, notices to class members, a hearing and approval by the District +Court. The tentative settlement is within the limits of the Company's insurance +coverage. +On or about September 26, 2000, a purported shareholder derivative +complaint was filed in the United States District Court for the Eastern District +of New York, captioned Herrera v. Steven Madden and Steven Madden, Ltd., 00 CV +5803 (JG). The Company is named as a nominal defendant in the action. The +complaint seeks to recover alleged damages on behalf of the Company from Mr. +Madden arising from his June 2000 indictment and to require him to disgorge +certain profits, bonuses and stock option grants he received. On January 3, +2001, plaintiff filed an Amended Shareholder's Derivative Complaint. On February +2, 2001, both the Company and Mr. Madden filed motions to dismiss the Amended +Complaint because of plaintiff's failure to make a pre-litigation demand upon +the Company's board of directors. On October 1, 2001, plaintiff filed a Second +Amended Complaint. On November 2, 2001, the Company filed a motion to dismiss +this pleading on grounds that plaintiff had failed to make a pre-litigation +demand upon the Company's board of directors. On February 7, 2002, the +Magistrate Judge filed a Report recommending that the Company's motion to +dismiss be denied. The Company filed its objections to the Report on March 4, +2002. On March 22, 2002 the District Judge entered an order adopting the +Magistrate Judge's report and recommendation in full. Since that time, an +agreement in principle has been reached to resolve all claims in this action, +subject to execution of definitive documentation, such notice to the Company's +shareholders (if any) as may be required by the District Court, and approval by +the District Court. The Company believes that its defense costs and certain +attorneys fees in connection with this action will be subject to coverage by the +Company's insurance. +On or about November 28, 2001, a purported shareholder derivative complaint +was filed in the United States District Court for the Eastern District of New +York, captioned Herrera v. Karson, et al., 00 CV 7868. Named as defendants +therein are the Company (as nominal defendant) and certain of the Company's +present and/or former directors. The complaint alleges that the individual +defendants breached their fiduciary duties to the Company in connection with a +decision by the Board of Directors of the Company to enter into an employment +agreement with Mr. Steven Madden in or about May 2001. The complaint seeks +declaratory and other equitable relief, as well as an unspecified amount of +compensatory damages, costs and expenses. On or about February 1, 2002, +plaintiff filed an Amended Shareholder Derivative Complaint (the "Amended +Complaint"). The Amended Complaint contains substantially the same allegations +and names the same defendants as the original complaint. Since that time, an +-8- +agreement in principle has been reached to resolve all claims in this action, +subject to execution of definitive documentation, such notice to the Company's +shareholders (if any) as may be required by the District Court, and approval by +the District Court. The Company believes that its defense costs and certain +attorneys fees in connection with this action will be subject to coverage by the +Company's insurance. +The Company and certain of the Company's present and/or former directors +have been named in an action commenced in the United States District Court for +the Eastern District of New York by the Safeco Surplus Lines Insurance Company +captioned, Safeco Surplus Lines Ins. Co. v. Steven Madden Ltd., et al., 02 CV +1151 (JG). The complaint principally seeks rescission of the excess insurance +policy issued by Safeco to the Company for the February 4, 2000 to June 13, 2001 +period and an order declaring that Safeco does not owe any indemnity obligation +to the Company or any of its officers and directors in connection with the +putative shareholder class action and derivative cases described in the Form +10-Q filed by the Company for the quarter ended March 31, 2002. No subsequent +proceedings have occurred in this action as the parties are engaged in +discussions directed at resolving Safeco's claims. +On September 12, 2001, the State of Florida, Department of Banking and +Finance, Division of Securities and Investor Protection (the "Department") +issued a Final Order adopting the Stipulation and Consent Agreement to Final +Order dated May 15, 2001 ("Stipulation and Consent Agreement") between John +Madden and the Department relating to the Department's investigation of alleged +sales of unregistered securities in 1997. Under the Stipulation and Consent +Agreement, Mr. J. Madden neither admitted nor denied the allegations against +him; however, Mr. J. Madden agreed to pay an administrative fine in the amount +of $5,000 and agreed to abide by certain limitations related to his employment +in the securities or investment advisory industry for a period of five years, +including Mr. J. Madden's agreement to not act in any principal, supervisory, or +managerial capacity in the securities industry and to not exercise discretionary +authority in any account of any person. +Directors and Executive Officers +Certain information concerning the directors and executive officers of the +Company is set forth below: +Name Age Position(s) with the Company +-------------------- --- ----------------------------------------------- +Charles A. Koppelman 62 Chairman of the Board +Jamieson A. Karson 45 Chief Executive Officer and Vice-Chairman of +the Board +Arvind Dharia 53 Chief Financial Officer, Director and Secretary +Richard Olicker 45 President and Chief Operating Officer +Mark Jankowski 42 Executive Vice-President of Production for +Steven Madden, Ltd. +Gerald Mongeluzo 62 President of Adesso-Madden, Inc., and Director +Robert Schmertz 39 President of Steve Madden Womens Wholesale +Division and Brand Manager +Joseph Masella 54 Executive Chairman of l.e.i. Footwear and +Stevies, Inc. +John McCann 41 President of l.e.i. Footwear +Glenn Spencer 56 President of Stevies, Inc. +Harry Chen 53 President of Madden Mens and Union Bay Mens +Footwear, Inc. +Jay Litvack 52 President of Diva Acquisition Corporation +John L. Madden 55 Director +Peter Migliorini 54 Director +Heywood Wilansky 54 Director +Marc Cooper 41 Director +Awadhesh Sinha 57 Director +Roger Gladstone 49 Director +------------------ +See "Biographical Summaries of Nominees for the Board of Directors" for +biographical summaries of Messrs. Charles A. Koppelman, Jamieson A. Karson, +Arvind Dharia, Gerald Mongeluzo, Marc Cooper, Roger Gladstone, John L. Madden, +Peter Migliorini and Awadhesh Sinha. +-9- +Richard Olicker has been Chief Operating Officer of the Company since +January 3, 2001. In September 2001 Mr. Olicker was appointed President of the +Company. Prior to joining the Company, Mr. Olicker spent more than 12 years at +AeroGroup International, Inc., which markets Aerosoles and What's What shoes. As +cofounder of Aerosoles, Mr. Olicker served as President of the company's private +label division and was responsible for managing all aspects of sourcing, +production, pricing, sales, service, systems and finance. Mr. Olicker began his +career in footwear in 1982 as the General Counsel and Licensing Director at El +Greco Leather Products and later held an executive position with New Retail +Concepts, Inc., an apparel licensing firm. +Mark Jankowski became the Executive Vice President of Production for Steven +Madden, Ltd. in 2002 after serving as the President of Steve Madden Retail, Inc. +since July 1, 2001. Previously, Mr. Jankowski had been the General Merchandise +Manager of the Company from December 2000 to June 30, 2001. Prior to that, Mr. +Jankowski had been the President of Steve Madden Retail, Inc. from February 1999 +to December 2000 and the Company's Vice President of Product Development from +1995 to 1999. From 1980 to 1995, Mr. Jankowski held several positions at Edison +Brothers, including Head of Buying. +Robert Schmertz has been the President of Steve Madden Womens Wholesale +Division and Brand Manager since September 2001, the President of Shoe Biz, +Inc., a wholly owned subsidiary of Steve Madden Retail Inc. since May 1998 and +the President of Diva Acquisition Corp. since January 2001. Before joining the +Company, Mr. Schmertz was President of Daniel Scott Inc. from November 1995 to +May 1998. Previously, Mr. Schmertz was the East Coast Sales Manager for Impo +International from January 1993 through November 1995. From April 1990 to +December 1992, Mr. Schmertz served as a sales representative for Espirit de +Corp. based in San Francisco, California. +Joseph Masella has been the Executive Chairman of l.e.i. Footwear Division +and Stevies, Inc. since June 2002. Prior to that, he was President of Stevies, +Inc. since April 2000 and President of l.e.i. Footwear Division since July 1998. +Prior to that, he was Vice President-Sales of the Company's Adesso-Madden +subsidiary since October 1995. From 1992 to 1995, Mr. Masella served as General +Manager-Far East Division of US Shoe Co. +John McCann has been President of l.e.i. Footwear since June 2002. +Previously, he was the line builder of l.e.i. Footwear. Before joining the +Company, Mr. McCann served as the District Merchandise Manager of Baker shoes +from 1995 to 1998. +Glenn Spencer has been President of Stevies, Inc. since June 2002. +Previously, he was the Vice President of Sales of Stevies, Inc. from January +2000 to June 2002. Before joining the Company, Mr. Spencer served as the General +Manager of Esprit Children's Shoe Division from 1995 to 2000. +Harry Chen has been the President of Union Bay Mens Footwear, Inc. since +January 2003 and the President of Madden Men since November 2002. Before joining +the Company, Mr. Chen served as Chief Executive Officer of XES Appeal, Inc. from +1997 to 2002. +Jay Litvack has been President of Diva Acquisition Corporation since May +2002. Before joining the Company, Mr. Litvack served as the President of Me Too +from 1996 to 2002. +Heywood Wilansky will not be standing for re-election as a director of the +Company at the Company's 2003 Annual Meeting. Mr. Wilansky has been a director +of the Company since January 2, 2001. Since February 1, 2003, Mr. Wilansky has +served as President and Chief Executive Officer of Filene's Basement. From 2001 +to 2003, Mr. Wilansky served as President and Chief Executive Officer of +Strategic Management Resources, a management consulting firm for the wholesale +and retail trade. From August 1995 to July 2000, Mr. Wilansky served as the +President and Chief Executive Officer and Director of Bon-Ton Stores, Inc. Also, +he was employed by The May Department Stores Company for more than 19 years, +last serving as President and Chief Executive Officer of the Foley's division +from 1992 to 1995. Mr. Wilansky was a director of First Washington Realty Trust +from 1994 to 2001. +-10- +COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS +Summary Compensation Table +The following table sets forth for each of the last three fiscal years +ended December 31, 2002, December 31, 2001 and December 31, 2000 the +remuneration paid by the Company to its Chief Executive Officer, the four most +highly compensated executive officers (other than the Chief Executive Officer), +and certain other persons for whom information is required to be disclosed: +Summary Compensation Table +Annual compensation Long-term compensation +-------------------------------------- -------------------------------------------- +Restricted +Fiscal Awards Stock Awards Other annual +Name and principal position year Salary($) Bonus($) options(1) ($) compensation +--------------------------- ------ ----------- ----------- ---------- ------------ ------------ +Jamieson A. Karson, 2002 $400,000(2) $286,319(3) 45,000(4) N/A $ 32,268(5) +Chief Executive Officer 2001 $187,500 $ 50,000 100,000 $188,000(6) $ 17,791(5) +2000 N/A N/A N/A N/A N/A +Richard Olicker, 2002 $350,000 $564,319 75,000 $374,800(7) N/A +President and 2001 $252,723 N/A 150,000 N/A N/A +Chief Operating Officer 2000 N/A N/A N/A N/A N/A +Arvind Dharia, 2002 $200,000 $250,000 40,000 $338,400(8) $113,411(9) +Chief Financial Officer 2001 $200,000 $ 50,000 40,000 N/A $ 92,857(9) +2000 $171,769 $ 80,000 25,000 N/A $ 91,743(9) +Gerald Mongeluzo, 2002 $311,538 $ 69,401 33,000 N/A $ 5,155(10) +President, Adesso- 2001 $299,040 $ 93,623 -0- N/A N/A +Madden, Inc. 2000 $257,653 $ 75,000 -0- N/A N/A +Robert Schmertz 2002 $363,750 $150,000 100,000 $850,000(11) $ 5,769(12) +President, Steve Madden 2001 $300,000 $115,000 -0- N/A N/A +Womens Wholesale Division 2000 $175,000 $ 32,000 -0- N/A N/A +and Brand Manager +------------------ +(1) Options to purchase shares of Common Stock. +(2) Mr. Karson's employment agreement was amended to provide for a base salary +of $425,000 as of July 1, 2002. See "Employment Agreements with Certain +Executives" +(3) In exchange for the increase in base salary described in note (2) above, +Mr. Karson agreed to waive his right to collect the portion of his cash +bonus for 2002 that is allocable to the payment by the Company of the loss +mitigation insurance premium that the Company purchased in the fourth +quarter of fiscal year 2001. The amount waived by Mr. Karson was +approximately $278,000. See "Employment Agreements with Certain Executives" +(4) Although, under his employment agreement Mr. Karson was entitled to receive +an option to purchase 50,000 shares of Common Stock in 2002, on June 24, +2002, Mr. Karson agreed to accept an option to purchase only 45,000 shares +of Common Stock so that an option to purchase 5,000 shares of Common Stock +could be awarded to a key employee. +(5) Expenses paid on behalf of Mr. Karson pursuant to his employment agreement. +(6) On July 10, 2001, Mr. Karson was issued 10,000 shares of restricted Common +Stock, 25% of which became unrestricted at the end of each of the four +quarters following the date of issuance. The closing price of the Company's +Common Stock on July 10, 2001 as reported by The Nasdaq Stock Market was +$18.80. The value of these restricted shares of Common Stock as of December +31, 2001 was $140,700 (based upon a closing price on December 31, 2001 of +$14.07 per share as reported by The Nasdaq Stock Market). To the extent +dividends are paid on the Common Stock, such dividends will be paid on +these restricted shares. +(7) On July 1, 2002, the Company agreed to grant Mr. Olicker 20,000 shares of +Common Stock on January 1, 2005 if Mr. Olicker is employed by the Company +on such date. The closing price of the Company's Common Stock on July 1, +2002 as reported by The Nasdaq Stock Market was $18.74. The value of these +restricted shares of Common Stock as of December 31, 2002 was $361,400 +(based upon a closing price on December 31, 2002 of $18.07 per share as +reported by The Nasdaq Stock Market). These shares have not been issued to +-11- +Mr. Olicker and Mr. Olicker will not be entitled to any rights with respect +to the ownership of these shares (including voting rights and dividends) +until they are issued to Mr. Olicker. +(8) On October 30, 2002, the Company agreed to grant Mr. Dharia 20,000 shares +of Common Stock on December 31, 2005 if Mr. Dharia is employed by the +Company on such date. The closing price of the Company's Common Stock on +October 30, 2002 as reported by The Nasdaq Stock Market was $16.92. The +value of these restricted shares of Common Stock as of December 31, 2002 +was $361,400 (based upon a closing price on December 31, 2002 of $18.07 per +share as reported by The Nasdaq Stock Market). These shares have not been +issued to Mr. Dharia and Mr. Dharia will not be entitled to any rights with +respect to the ownership of these shares (including voting rights and +dividends) until they are issued to Mr. Dharia. +(9) Life insurance premium and other expenses paid on behalf of Mr. Dharia. +(10) Expenses paid on behalf of Mr. Mongeluzo pursuant to his employment +agreement. +(11) On April 2, 2002, the Company agreed to grant Mr. Schmertz 50,000 shares of +Common Stock on June 30, 2005 if Mr. Schmertz is employed by the Company on +such date. The grant of these shares is subject to approval of the +Company's shareholders. The closing price of the Company's Common Stock on +April 2, 2002 as reported by The Nasdaq Stock Market was $17.00. The value +of these restricted shares of Common Stock as of December 31, 2002 was +$903,500 (based upon a closing price on December 31, 2002 of $18.07 per +share as reported by The Nasdaq Stock Market). These shares have not been +issued to Mr. Schmertz and Mr. Schmertz will not be entitled to any rights +with respect to the ownership of these shares (including voting rights and +dividends) until they are issued to Mr. Schmertz. +(12) Expenses paid on behalf of Mr. Schmertz pursuant to his employment +agreement. +The following table sets forth certain information with respect to options +granted during the last fiscal year to the persons named in the above Summary +Compensation Table. +Option/SAR Grants In Last Fiscal Year +Number of Percent of Total +Securities Options/SARS Potential Realizable Value at +Underlying Granted to Exercise or Assumed Annual Rates of +Options/SARS Employees in Base Price Stock Price Appreciation for +Name Granted (#) Fiscal Year % ($/Sh) Expiration Date Option Term +------------------ ------------ ---------------- ----------- --------------- ----------------------------- +5% 10% +--------- --------- +Jamieson A. Karson 45,000 6.5 18.98 5/17/2007 253,972 521,457 +Richard Olicker 75,000 10.8 15.15 9/30/2012 714,582 1,810,890 +Arvind Dharia 40,000 5.7 18.00 8/16/2009 293,112 683,076 +Gerald Mongeluzo 33,000 4.7 18.98 5/17/2009 254,983 594,219 +Robert Schmertz 100,000 14.4 18.98 5/17/2012 1,193,042 3,024,923 +The following table sets forth certain information with respect to options +exercised during the last fiscal year by the persons named in the Summary +Compensation Table, and with respect to unexercised options held by such persons +at the end of the last fiscal year. +Aggregate Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End Option/SAR Values +Shares Value Number of Securities Underlying Value of Unexercised in the Money +Acquired on Realized Unexercised Options/SARS at FY- Options/SARs at +Name Exercise (#) $ End (#) FY-End ($) (1) +------------------ ------------ -------- ------------------------------- --------------------------------- +Exercisable Unexercisable Exercisable Unexercisable +----------- ------------- ----------- ------------- +Jamieson A. Karson 0 0 111,250 33,750 0 0 +Richard Olicker 50,000 415,221 100,000 75,000 923,000 219,000 +Arvind Dharia 40,000 583,051 112,000 30,000 936,340 2,100 +Gerald Mongeluzo 8,000 70,155 50,250 24,750 328,440 0 +Robert Schmertz 12,500 97,075 37,500 75,000 100,875 0 +------------------ +(1) Based upon a closing price on December 31, 2002 of $18.07 per share as +reported by The Nasdaq Stock Market. +-12- +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the "1999 Plan"), and on June 4, 1999 the Company's +stockholders approved the adoption of the 1999 Plan. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of Common Stock subject to the plan from 400,000 to 975,000 shares. In +July 2001, the Company's stockholders approved an amendment to the 1999 Plan +increasing the number of shares of Common Stock subject to the plan from 975,000 +to 1,600,000 shares. In May 2002, the Company's stockholders approved an +amendment to the 1999 Plan increasing the number of shares of Common Stock +subject to the plan from 1,600,000 to 2,280,000. As of the Record Date, options +to purchase 2,271,000 shares of Common Stock have been granted pursuant to the +1999 Plan. The purpose of the 1999 Plan is to provide a means whereby directors +and selected employees, officers, agents, consultants, and independent +contractors of the Company, may be granted incentive stock options and/or +nonqualified stock options to purchase shares of common stock, in order to +attract and retain the services or advice of such directors, employees, +officers, agents, consultants, and independent contractors and to provide +additional incentive for such persons to exert maximum efforts for the success +of the Company by encouraging stock ownership in the Company. The 1999 Plan +Proposal is expected to provide even greater flexibility to the Company's +compensation methods, after giving due consideration to competitive conditions +and the impact of federal tax laws. See Proposal Number 2--Amendment of the 1999 +Stock Plan. +Employment Agreements with Certain Executive Officers +In May 2001, the Company entered into an employment agreement with Jamieson +A. Karson pursuant to which Mr. Karson agreed to serve as the Company's Chief +Executive Officer and Vice Chairman of the Board. The term of Mr. Karson's +employment under the agreement is three (3) years commencing on July 1, 2001 and +ending on June 30, 2004. The term will be automatically extended for successive +one year periods unless the Company timely notifies Mr. Karson of its intention +not to extend the term. In connection with the execution of his Employment +Agreement, Mr. Karson surrendered 5,000 options which had been granted to him +for his service as an outside director. The Company agreed to pay Mr. Karson an +annual salary of $375,000 which base salary is subject to a 10% annual increase +on each July 1st of the term if the Company's net income for the four calendar +quarters ending on the most recent June 30th is greater than the net income for +the four calendar quarters ending on the preceding June 30th. In addition, the +agreement provides that: (a) Mr. Karson receive a cash bonus equal to $100,000 +for fiscal year 2001 pro-rated for the number of months he serves as Chief +Executive Officer in 2001 and (b) for each succeeding fiscal year that occurs +during the term of employment, Mr. Karson receive a cash bonus, in an amount +determined by the Board, not less than four percent (4%) of the increase in the +Company's EBITDA (earnings before interest, tax, depreciation and amortization) +over the EBITDA of the prior fiscal year. On or about July 10, 2001, Mr. Karson +received options to purchase 100,000 shares of the Company's Common Stock at an +exercise price equal to the closing market price on the date prior to the grant +date as quoted on The Nasdaq Stock Market. These options will vest quarterly +over the one year period following the date of grant and will be exercisable +after vesting for a period of five (5) years from the date of grant. On or about +July 10, 2001, the Company issued to Mr. Karson 10,000 shares of restricted +common stock, 25% of which became unrestricted at the end of each of the four +quarters following the date of issuance. Subject to approval by the Company's +stockholders of the Amendment of the Company's 1999 Stock Plan and subject to +availability of shares under such plan or any other plan designated by the Board +of Directors and approved by the Company's stockholders, on or about the date of +the Company's annual meeting for each year of the term of the agreement +(beginning in 2002), Mr. Karson is entitled to receive, annual options to +purchase shares of the Company's Common Stock equal to the dollar amount of the +annual bonus received by Mr. Karson for the previous fiscal year; provided, +however, that no annual option shall be for greater than 100,000 shares. The +annual options shall vest quarterly over the one year period following the date +of grant and shall be exercisable after vesting for a period of five (5) years +from the date of grant at an exercise price equal to the closing price of the +Company's Common Stock on the applicable date of grant, as quoted on The Nasdaq +Stock Market (or such other market or exchange on which the Company's Common +Stock is listed or traded). In addition, in the event of Mr. Karson's total +disability or his death, the Company is obligated to continue to pay Mr. Karson +(or Mr. Karson's estate) his base salary for the twelve (12) month period +immediately subsequent to the date of such total disability or death. In the +event Mr. Karson's employment agreement is terminated (or not extended) for any +reason other than For Cause (as defined in the agreement) or due to his death or +his total disability, the Company is obligated to pay Mr. Karson an amount equal +to the product of (i) Mr. Karson's base salary plus the cash bonus which Mr. +-13- +Karson was paid for the immediately preceding fiscal year multiplied by (ii) the +greater of (A) the number of years remaining on the term of the agreement or (B) +two. In the event that there is a "change of control" transaction terminating +Mr. Karson's employment, all unvested options to purchase shares of the +Company's Common Stock held by Mr. Karson will vest on the date of termination +and Mr. Karson will be entitled to receive a lump sum cash payment equal to (a) +the amount of compensation that is accrued and unpaid through the date of +termination and (b) three (3) times the total compensation (base salary and cash +bonus) received by Mr. Karson for the preceding 12 month period ending December +31. Mr. Karson's employment agreement contains other customary provisions, +including provisions regarding confidentiality, solicitation and competition. +Pursuant to a letter amendment, Mr. Karson's salary was increased to $425,000 as +of July 1, 2002 and Mr. Karson agreed to decrease the amount of the cash bonus +he would receive for 2002 by approximately $278,000, which represents the +portion of such cash bonus allocable to the payment by the Company of the loss +mitigation insurance premium that the Company purchased in the fourth quarter of +fiscal year 2001. +The Company entered into an employment agreement with Richard Olicker, the +Company's President and Chief Operating Officer on January 3, 2001, which +agreement was amended as of July 1, 2002. The term of Mr. Olicker's employment +ends on January 1, 2005. The Company agreed to pay Mr. Olicker an annual base +salary of $375,000, which, subject to certain net income requirements, will be +increased annually by 10%. In addition, Mr. Olicker is entitled to receive a +cash bonus equal to four percent (4%) of the amount by which the aggregate +EBIT-D (earnings before the payment of interest or taxes or a deduction for +depreciation) for the fiscal year ending on the most recent December 31st +exceeds EBIT-D for the fiscal year ending on the preceding December 31st. The +agreement provides that Mr. Olicker receive a one time cash bonus of $125,000 in +the event that the aggregate EBIT-D for any 4 consecutive fiscal quarters during +the term of the agreement equals or exceeds $40,000,000. The agreement also +provides that, on each June 30th during the term of the agreement, Mr. Olicker +receive an option bonus to purchase a number of shares of common stock equal to +thirty percent (30%) of the dollar amount of the annual cash bonus due for the +fiscal year ending on the preceding December 31st. The options comprising the +option bonus shall vest quarterly over a one (1) year period commencing on the +September 30th following the date of grant and be exercisable at a price equal +to the closing bid price of the Company's shares of Common Stock on the date of +grant, as reported by The Nasdaq National Market. Pursuant to the amendment to +Mr. Olicker's agreement, in September 2002, Mr. Olicker received options to +purchase 75,000 shares of the Company's Common Stock and on or about the date of +the Company's annual meeting for each year of the term of the agreement +(beginning in 2003), Mr. Olicker is entitled to receive, annual options to +purchase 75,000 shares of the Company's Common Stock, which options shall vest +quarterly over the one year period following the date of grant and shall have an +exercise price equal to the closing bid price of the Company's Common Stock on +the applicable date of grant, as quoted on The Nasdaq Stock Market. In the event +that Mr. Olicker's employment is terminated for any reason other than (i) the +Company terminating employment for cause or (ii) Mr. Olicker terminating +employment without good reason, Mr. Olicker shall receive a pro rata option +bonus based on the performance of the Company for the full fiscal year in which +his employment was terminated. In addition, if Mr. Olicker is employed by the +Company on January 1, 2005, he will be entitled to 20,000 unrestricted shares of +the Company's Common Stock. Mr. Olicker also received a signing bonus of one +hundred thousand dollars ($100,000). Mr. Olicker's employment agreement contains +other customary provisions. +In January 1998, the Company entered into an employment agreement with +Arvind Dharia, pursuant to which Mr. Dharia agreed to serve as the Company's +Chief Financial Officer, which agreement was amended as of June 29, 2001 and as +of October 30, 2002. The agreement will expire on December 31, 2005. However, +the term of the agreement is subject to automatic extension for one (1) year +unless either party terminates the agreement with ninety (90) days' prior +notice. The Company agreed to pay Mr. Dharia an annual salary of $169,400 until +September 30, 2001, $200,000 from October 1, 2001 through December 31, 2002, +$220,000 from January 1, 2003 through December 31, 2003, $234,000 from January +1, 2004 through December 31, 2004, and $240,000 from January 1, 2005 through +December 31, 2005. Mr. Dharia received a $50,000 signing bonus upon execution of +the amendment to the agreement on June 29, 2001. The agreement provides that Mr. +Dharia receive options to purchase 40,000 shares of the Company's Common Stock +on June 30 of each year during the term of the agreement (commencing June 30, +2001). The options are to vest quarterly over a period of one (1) year and are +exercisable at an exercise price equal to the lesser of (i) the average closing +bid price of the Company's Common Stock as quoted on The Nasdaq Stock Market or +such other exchange on which the common stock shall be listed on the date of +grant or (ii) if the date of grant is not June 30th, the average closing bid +price of the Company's Common Stock as quoted on The Nasdaq Stock Market or such +other exchange on which the common stock shall be listed on June 30th of the +-14- +year in which the grant shall occur. In addition, the agreement provides that +for each fiscal year that occurs during the term of employment (beginning with +the fiscal year ended December 31, 2001), Mr. Dharia receive a cash bonus, in an +amount equal to one and one-half percent (1.5%) of the increase in the Company's +EBITDA (earnings before interest, tax, depreciation and amortization) over the +EBITDA of the prior fiscal year, provided, however that in no event shall the +annual cash bonus exceed Mr. Dharia's base salary for such fiscal year. Also, +Mr. Dharia shall, at the end of a calendar quarter, receive a bonus of $50,000 +if the Company has had sales of $300,000,000 or more for such calendar quarter +and the immediately preceding three (3) calendar quarters, provided, however, +that Mr. Dharia shall not receive this $50,000 bonus more than once in any given +calendar year. In addition, during the term of the agreement, the Company is +obligated to pay life insurance premiums on behalf of Mr. Dharia of +approximately $80,000 per year. Also, if Mr. Dharia is employed by the Company +on January 1, 2005, he will be entitled to 20,000 unrestricted shares of the +Company's Common Stock. In the event of Mr. Dharia's total disability or death, +the Company is obligated to pay Mr. Dharia or his estate an amount equal to the +appropriate salary for the twelve (12) month period immediately subsequent to +the date of his total disability or death. In the event Mr. Dharia's employment +agreement is terminated by the Company for any reason other than "for cause" or +due to his "total disability", the Company is obligated to pay Mr. Dharia an +amount equal to the product of (a) Mr. Dharia's base salary on the effective +date of such termination plus the bonus paid or payable for the fiscal year +ended on the December 31st immediately preceding the date of termination +multiplied by (b) the number of years (and fractions of years) remaining in the +term of the employment agreement. In addition, the Company will be obligated to +continue to pay the life insurance premiums on behalf of Mr. Dharia provided for +above. The payments due Mr. Dharia upon his termination for any reason other +than "for cause" or due to his "total disability" will be payable in two +installments: fifty percent (50%) on January 1 after the date of termination and +the remaining fifty percent (50%) one year after. Further, Mr. Dharia may +terminate the agreement in the event of a "change in control" of the Company +without Mr. Dharia's prior written consent, and within ten (10) days of +termination Mr. Dharia is entitled to receive an amount equal to three (3) times +the total compensation (including base salary, cash bonus, and other employee +benefits) received by Mr. Dharia for the preceding twelve (12) month period +ending on the most recent December 31st, provided that Mr. Dharia's then-current +Base Salary shall be used in determining the foregoing. Mr. Dharia's employment +agreement contains other customary provisions. +In April 2002, the Company entered into an employment agreement with Robert +Schmertz pursuant to which Mr. Schmertz agreed to serve as President of Steve +Madden Wholesale Womens Division and Brand Manager for Steven Madden, Ltd. The +term of Mr. Schmertz's employment commenced on April 1, 2002 and ends on June +30, 2005. Mr. Schmertz received a signing bonus of $150,000. The Company agreed +to pay Mr. Schmertz an annual salary of $375,000, which will be increased to +$412,500 on July 1, 2003 and will be further increased to $453,750 on July 1, +2005. Pursuant to the agreement, on May 17, 2002 Mr. Schmertz received 100,000 +options to purchase the Company's Common Stock at an exercise price equal to the +closing market price on such date. These options vest quarterly beginning with +the first 25,000 vesting on September 30, 2002 and the last on June 30, 2003. In +addition, on the date of the Company's annual meeting in each of 2003 and 2004, +Mr. Schmertz will be entitled to receive an option to purchase 100,000 shares of +the Company's Common Stock. These options will have an exercise price equal to +the closing market price on the date of the grant and will vest quarterly +beginning with the first 25,000 vesting on the September 30th immediately +following the grant. In the event of a change in control, all unvested options +will vest on the date of the change of control, priced as of the closing market +price on the date of transfer as quoted on The Nasdaq National Market. Subject +to the approval of the Company's shareholders, if Mr. Schmertz is employed by +the Company through June 30, 2005, he will be entitled to receive 50,000 shares +of Common Stock. +In April 2001, Adesso-Madden, Inc. ("Adesso"), a wholly-owned subsidiary of +the Company, entered into an employment agreement with Gerald Mongeluzo pursuant +to which Mr. Mongeluzo agreed to serve as President of Adesso. The term of Mr. +Mongeluzo's employment is three (3) years commencing on April 1, 2001 and ending +on March 31, 2004. Mr. Mongeluzo received a signing bonus of $35,000. Adesso +agreed to pay Mr. Mongeluzo an annual salary of $300,000 for the first year of +the term, $315,000 for the second year of the term and $330,000 for the third +year of the term. The agreement provides that by April 15th of 2002, 2003 and +2004, Mr. Mongeluzo shall receive a cash bonus equal to four percent (4%) of the +amount by which net profit for the fiscal year ending on the most recent +December 31st exceeds net profit for the fiscal year ending on the preceding +December 31st. In addition, the agreement provides that on each of June 30, +2001, 2002, and 2003, Mr. Mongeluzo shall receive an option to purchase 34,000, +33,000 and 33,000 shares of the Company's Common Stock, respectively. These +options shall vest quarterly over the one year period following the date of +grant and shall be exercisable after vesting for a period of seven (7) years +-15- +from the date of grant at an exercise price equal to the closing price of the +Company's Common Stock on the applicable date of grant, as quoted on The Nasdaq +Stock Market (or other principal exchange on which shares of the Company's +Common Stock are traded). In the event that Mr. Mongeluzo terminates his +employment for `good reason' or Mr. Mongeluzo's employment is terminated by the +Company for any reason other than "for cause" or due to his disability, the +Company is obligated to pay Mr. Mongeluzo an amount equal to Mr. Mongeluzo's +base salary for the greater of (i) twelve (12) months or (b) the remaining term +of his agreement (as if it had not been terminated). Further, Mr. Mongeluzo may +terminate the agreement in the event of a "change in control" of the Company, +and upon such termination Mr. Mongeluzo is entitled to receive an amount equal +to the greater of (a) Mr. Mongeluzo's base salary for the remaining term of his +agreement (as if it had not been terminated) or (b) Mr. Mongeluzo's base salary +as then in effect for a period of twelve (12) months. Mr. Mongeluzo's employment +agreement contains other customary provisions. +Agreement with the Chairman of the Board +In May 2001, the Company entered into an agreement with Charles A. +Koppelman pursuant to which Mr. Koppelman agreed to serve as the Company's +Executive Chairman of the Board. The term of the agreement is two (2) years +commencing on July 1, 2001 and ending on June 30, 2003. The Company agreed to +pay Mr. Koppelman an annual base salary of $125,000. The Company also agreed to +provide Mr. Koppelman with an annual $125,000 non-accountable expense allowance. +Pursuant to the agreement, on or about July 10, 2001 Mr. Koppelman received +options to purchase 100,000 shares of the Company's Common Stock at an exercise +price equal to the closing market price on the date prior to the grant date, as +quoted on The Nasdaq Stock Market. These options will vest quarterly over the +one year period following the date of grant and will be exercisable after +vesting for a period of five (5) years from the date of grant. On or about July +10, 2001, the Company issued to Mr. Koppelman 10,000 shares of restricted common +stock, 25% of which will become unrestricted at the end of each of the four +quarters following the date of issuance. As of May 31, 2001, Mr. Koppelman +received fully-vested options to purchase 75,000 shares of the Company's Common +Stock, which are exercisable for a period of five (5) years from the date of +grant at an exercise price of $7.00. These options were granted pursuant to an +outstanding letter agreement between the Company and Mr. Koppelman (the "Option +Letter"). Mr. Koppelman surrendered the remaining 225,000 options to be granted +to him pursuant to the Option Letter in connection with the execution of his +agreement. Pursuant to the terms of the agreement, Mr. Koppelman is also +entitled to receive annual options to purchase 100,000 shares of the Company's +Common Stock on the date of the Company's annual meeting held in each of 2002, +2003, and 2004. Twenty five percent (25%) of each annual option will vest at the +end of each of the four full calendar quarters after the applicable grant date. +The annual options shall be exercisable after vesting for a period of five (5) +years from the date of grant at an exercise price equal to the lesser of (a) the +closing market price on the applicable grant date, as quoted on The Nasdaq Stock +Market (or such other market or exchange on which the Company's Common Stock is +listed or traded) or (b) $13.50. In the event that Mr. Koppelman ceases to be +either an employee or director of the Company, any annual option not yet granted +shall be forfeited as of the date of termination; provided however, that if the +agreement shall have been terminated (or not extended) by the Company other than +For Cause (as defined in the agreement) or by Mr. Koppelman with Good Reason (as +defined in the agreement) any annual options which were granted prior to such +termination shall be deemed granted as of the date prior to the date of such +termination. The agreement also provides that in the event there is a "change of +control" of the Company, (i) all unvested options granted to Mr. Koppelman prior +to such "change of control" shall immediately vest (ii) if Mr. Koppelman is an +employee or director of the Company at the time of such "change of control", any +annual options which have not been granted prior to such change of control shall +immediately be granted and vest, and (iii) the exercise price of all unexercised +options shall be reduced to $7.00. Mr. Koppelman's agreement contains other +customary provisions, including provisions regarding confidentiality, +solicitation and competition. In October 2002, the Compensation Committee of the +Board of Directors determined that it was in the best interests of the Company +that Mr. Koppelman's current agreement not be extended beyond its June 30, 2003 +expiration date. Therefore, as of July 1, 2003, Mr. Koppelman will be +compensated for his services as a director in the same manner as the other +outside directors on the Board. +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with Peter J. +Solomon & Company, a financial advisory firm of which Marc Cooper, one of the +Company's directors, is a managing director. Under this agreement, the firm +provided financial advisory and investment banking services to the Company. +Pursuant to this agreement, the Company paid fees to Peter J. Solomon & Company +in the amount of $75,000 during 2001 and $150,000 during 2002. +-16- +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee is responsible for reviewing and approving the +Company's compensation policies and the compensation paid to its executive +officers, including the Chief Executive Officer and the other named executive +officers. During 2002, the Compensation Committee was comprised of directors +Heywood Wilansky and Peter Migliorini. Each member of the Compensation Committee +was a non-employee director of the Company during 2002. +The Compensation Committee's goal is to develop executive compensation +policies and practices that are consistent with and linked to the Company's long +term goal of maximizing stockholder value. The program is designed to facilitate +the long-term success and growth of the Company through the attraction, +motivation, and retention of outstanding executives. +The objectives of the Company's executive compensation programs are to: (i) +attract and retain the highest quality executives, (ii) inspire and motivate +executive officers to increase Company performance, (iii) align executive +officers' financial interest with those of the Company's long-term investors, +and (iv) reward executive officers for exceptional individual contributions to +the achievement of the Company's objectives. +Executive compensation consists of three components: base salary, annual +incentive bonuses and long-term incentive awards (stock options). Each +compensation component is offered to executives in varying combinations, +structured in each case, to meet varying business objectives and to provide a +level of total compensation comparable to similarly situated public companies. +The total compensation of Jamieson A. Karson, the Company's Chief Executive +Officer, is determined pursuant to his employment agreement with the Company. +Mr. Karson was appointed Chief Executive Officer effective as of July 1, 2001. +In 2002, Mr. Karson's compensation consisted of $400,000 in base salary payments +and a $286,319 bonus, which bonus was fully paid by March 12, 2003. Karson is +also entitled to receive options to purchase an additional 100,000 shares of +Common Stock for his service as Chief Executive Officer in 2002. The +Compensation Committee believes that Mr. Karson's compensation should be heavily +weighted towards enhancing stockholder value, and accordingly, Mr. Karson's +employment agreement provides that a significant portion of his future +compensation will be based upon the Company's overall performance. See +"Employment Agreements with Certain Executive Officers." +The Company has negotiated employment agreements with respect to base +salary, annual incentive awards and stock option awards for each of the +Company's named executive officers based upon the Company's performance and the +individual performance of such named executives. +The Internal Revenue Code of 1986 prohibits the Company from taking a tax +deduction in any year for compensation paid the persons who would be named +executive officers in that year in excess of $1 million unless such compensation +is "performance-based compensation." The Company did not pay in 2002 any officer +compensation which will be subject to the $1 million deduction limitation. The +Compensation Committee will take into consideration the $1 million deduction +limitation when structuring future compensation packages for the Company's +executive officers and, if appropriate and in the best interests of the Company, +will conform such packages to permit the Company to take a deduction for the +full amount of all compensation. +-17- +Compensation Committee Interlocks and Insider Participation +The Compensation Committee makes all compensation decisions. During 2002, +the following directors served on the Compensation Committee: Peter Migliorini +and Heywood Wilansky. During the fiscal year 2002, no interlocking relationship +existed between the Company's Board of Directors or Compensation Committee and +the board of directors or compensation committee of any other company. +COMPENSATION COMMITTEE +Peter Migliorini +Heywood Wilansky +-18- +STOCK PERFORMANCE GRAPH +The following graph compares the yearly percentage change in the cumulative +total stockholder return on the Common Stock during the period beginning on +December 31, 1997 and ending on December 31, 2002 with the cumulative total +return on the Russell 2000 Index and the S&P Footwear Index. The comparison +assumes that $100 was invested on December 31, 1997 in the Company's Common +Stock and in the foregoing indices and assumes the reinvestment of dividends. +[Graphic Omitted] +12/31/97 12/31/98 12/31/99 12/29/00 12/31/01 12/31/02 +-------- -------- -------- -------- -------- -------- +Steven Madden, Ltd. 100.00 112.40 252.07 100.83 186.06 238.96 +Russell 2000 Index 100.00 95.55 115.50 110.64 111.78 87.66 +S&P Footwear Index 100.00 98.87 113.95 136.95 112.76 112.42 +-19- +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth information as of the Record Date with +respect to the beneficial ownership of the outstanding shares of the Company's +Common Stock by (i) each person known by the Company to beneficially own five +percent or more of the outstanding shares; (ii) the directors and the persons +named in the Summary Compensation Table; and (iii) the Company's officers and +directors as a group. A person is deemed to be a beneficial owner of any +securities of which that person has the right to acquire beneficial ownership +within sixty (60) days. See "Compensation of Directors and Executive Officers." +Name and Address of Amount and Nature of Percentage (%) +Beneficial Owner(1) Beneficial Ownership(2) of Class(2) +---------------------------------------------- ----------------------- -------------- +Charles A. Koppelman 165,500 (3) 1.27% +Jamieson A. Karson 132,500 (4) 1.02% +Arvind Dharia 122,000 (5) * +Gerald Mongeluzo 58,500 (6) * +Richard Olicker 118,750 (7) * +Robert Schmertz 50,000 (8) * +Marc Cooper 15,000 (9) * +John Madden 25,000 (10) * +Peter Migliorini 25,000 (11) * +Heywood Wilansky 20,000 (12) * +Awadhesh Sinha 0 N/A +Roger Gladstone 0 N/A +Steven Madden (13) 1,779,000 (14) 12.87% +BOCAP Corp. 1,779,000 (15) 12.87% +T. Rowe Price Associates, Inc. (16) 1,165,100 9.06% +T. Rowe Price Small-Cap Value Fund, Inc. (17) 1,000,000 7.78% +Liberty Wanger Asset Management, L.P. (18) 1,623,000 12.62% +Benson Associates, LLC (19) 741,180 5.76% +Wellington Management Company, LLP (20) 839,690 6.53% +Directors and Officers as a Group (12 persons) 732,250 (21) 5.40% +------------------ +* indicates beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address of each beneficial owner is c/o +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York +11104. +(2) Beneficial ownership as reported in the table above has been determined in +accordance with Item 403 of Regulation S-K of the Securities Act of 1933 +and Rule 13(d)-3 of the Securities Exchange Act, and based upon 12,858,705 +shares of Common Stock outstanding (excluding treasury shares) as of the +Record Date. +(3) Includes (i) 150,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Koppelman and (ii) 15,500 shares of Common Stock held +by Mr. Koppelman. +(4) Includes (i) 122,500 shares of Common Stock issuable upon the exercise of +options held by Mr. Karson and (ii) 10,000 shares of Common Stock held by +Mr. Karson's wife. +(5) Includes 122,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Dharia. +(6) Includes 58,500 shares of Common Stock issuable upon the exercise of +options held by Mr. Mongeluzo. +(7) Includes 118,750 shares of Common Stock issuable upon the exercise of +options held by Mr. Olicker. +(8) Includes 50,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schmertz. +(9) Includes 15,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Cooper. +(10) Includes 25,000 shares of Common Stock issuable upon the exercise of +options held by Mr. J. Madden. +(11) Includes 25,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Migliorini. +(12) Includes 20,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Wilansky. +-20- +(13) Mr. Madden resigned as Chief Executive Officer of the Company effective as +of July 1, 2001. He currently holds the position of Creative and Design +Chief of the Company, which is a non-executive position. +(14) Includes (i) 809,000 shares of Common Stock held by BOCAP, a corporation +wholly-owned by Mr. S. Madden, (ii) 965,000 shares of Common Stock issuable +upon the exercise of options held by Mr. Madden. +(15) Includes (i) 965,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Madden and (ii) 5,000 shares of Common Stock held by +Mr. Madden. +(16) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 4, 2003. The address for such stockholder is 100 E. Pratt +Street, Baltimore, MD 21202. +(17) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 4, 2003. The address for such stockholder is 100 E. Pratt +Street, Baltimore, MD 21202. +(18) Based upon a Schedule 13G/A filed with the Securities and Exchange +Commission on February 12, 2003. The address for such stockholder is 227 +West Monroe Street, Suite 3000, Chicago, IL 60606. +(19) Based upon a Schedule 13G/A filed with the Securities and Exchange +Commission on February 5, 2003. The address for such stockholder is 111 +S.W. Fifth Avenue, Suite 2130, Portland, OR 97204. +(20) Based upon a Schedule 13G filed with the Securities and Exchange Commission +on February 12, 2003. The address for such stockholder is 75 State Street, +Boston, MA 02109. +(21) Includes 706,750 shares issuable upon the exercise of options. +-21- +PROPOSAL TWO +AMENDMENT OF THE 1999 STOCK PLAN +At the 1999 Annual Meeting of Stockholders, the Company's stockholders +approved the adoption of the Company's 1999 Stock Plan (the "1999 Plan"). The +Board of Directors has amended the 1999 Plan, subject to stockholder approval, +(x) to authorize 640,000 additional shares for future awards; (y) to provide +that the exercise price of an option granted under the plan shall be no less +than the fair market value of the Company's common stock on the date of grant +(except to the extent otherwise provided in agreements with the Corporation +dated prior to the effective date of the amendment) and (z) to prohibit the +Board from amending the terms of any option granted pursuant to the plan to +reduce the option price, (the "1999 Plan Proposal"). The affirmative vote of the +holders of a majority of the total votes cast on the 1999 Plan Proposal is +needed to approve the 1999 Plan Proposal. +Because of the limited number of remaining shares that may be granted under +the 1999 Plan, the Board of Directors believes it is appropriate and necessary +at this time to authorize additional shares for future awards. Authorization of +these additional shares will allow grants to employees, consultants and +directors in furtherance of the Company's goal of continuing to achieve +significant gains in stockholder value and operating results. The amendments +described under clauses (y) and (z) above reflect the current practice of the +Board of Directors and the Board of Directors believes it is in the best +interests of the stockholders to have that practice formalized in a written +amendment to the 1999 Plan. Currently, the only outstanding agreement that +obligates the Company to grant options with an exercise price less than the fair +market value of the Company's common stock on the date of grant is the Company's +agreement with its Chairman. See "Agreement with the Chairman of the Board." +The Company intends to continue awarding options in order to attract and +retain the services or advice of such directors, employees, officers, agents, +consultants, and independent contractors and to provide additional incentive for +such persons to exert maximum efforts for the success of the Company and its +affiliates. The following is a summary of the principal features of the 1999 +Plan. The summary is qualified in its entirety by reference to the complete text +of the 1999 Plan, as proposed to be amended. The proposed amendment to the 1999 +Plan is set forth as Annex A to this Proxy Statement. +Description of the 1999 Plan +The maximum number of shares of Common Stock with respect to which awards +may be presently granted pursuant to the 1999 Plan is 2,280,000 shares. The 1999 +Plan Proposal would authorize the use of up to an additional 640,000 shares of +the Company's common stock for a total of 2,920,000 shares being available for +issuance under the 1999 Plan. Shares issuable under the 1999 Plan may be either +treasury shares or authorized but unissued shares. The number of shares +available for issuance will be subject to adjustment to prevent dilution in the +event of stock splits, stock dividends or other changes in the capitalization of +the Company. +Subject to compliance with Rule 16b-3 of the Securities Exchange Act of +1934 (the "Exchange Act"), the Plan shall be administered by the Board of +Directors of the Company (the "Board") or, in the event the Board shall appoint +and/or authorize a committee, such as the Compensation Committee, of two or more +members of the Board to administer the Plan, by such committee (the "Plan +Administrator"). Except for the terms and conditions explicitly set forth in the +Plan, the Plan Administrator shall have the authority, in its discretion, to +determine all matters relating to the options to be granted under the Plan, +including, without limitation, selection of whether an option will be an +incentive stock option or a nonqualified stock option, selection of the +individuals to be granted options, the number of shares to be subject to each +option, the exercise price per share, the timing of grants and all other terms +and conditions of the options. +Options granted under the 1999 Plan may be "incentive stock options" +("Incentive Options") within the meaning of Section 422 of the Internal Revenue +Code (the "Code") or stock options which are not incentive stock options +("Non-Incentive Options" and, collectively with Incentive Options, hereinafter +referred to as "Options"). Each Option may be exercised in whole or in part; +provided, that only whole shares may be issued pursuant to the exercise of any +Option. Subject to any other terms and conditions herein, the Plan Administrator +may provide that an Option may not be exercised in whole or in part for a stated +period or periods of time during which such Option is outstanding; provided, +-22- +that the Plan Administrator may rescind, modify, or waive any such limitation +(including by the acceleration of the vesting schedule upon a change in control +of the Company) at any time and from time to time after the grant date thereof. +During an optionee's lifetime, any incentive stock options granted under the +Plan are personal to such optionee and are exercisable solely by such optionee. +The Plan Administrator can determine at the time the Option is granted in +the case of Incentive Options, or at any time before exercise in the case of +Non-Incentive Options, that additional forms of payment will be permitted. To +the extent permitted by the Plan Administrator and applicable laws and +regulations (including, without limitation, federal tax and securities laws and +regulations and state corporate law), an Option may be exercised by: +(a) delivery of shares of Common Stock of the Company held by an +optionee having a fair market value equal to the exercise price, such fair +market value to be determined in good faith by the Plan Administrator; +(b) delivery of a properly executed notice of exercise, together +with irrevocable instructions to a broker, all in accordance with the +regulations of the Federal Reserve Board, to promptly deliver to the Company the +amount of sale or loan proceeds to pay the exercise price and any federal, +state, or local withholding tax obligations that may arise in connection with +the exercise; or +(c) delivery of a properly executed notice of exercise, together +with instructions to the Company to withhold from the shares of Common Stock +that would otherwise be issued upon exercise that number of shares of Common +Stock having a fair market value equal to the Option exercise price. +Upon a Change in Control of the Company, any award carrying a right to +exercise that was not previously exercisable shall become fully exercisable, the +restrictions, deferral limitations and forfeiture conditions applicable to any +other award granted shall lapse and any performance conditions imposed with +respect to awards shall be deemed to be fully achieved. +Options granted under the 1999 Plan may not be transferred, pledged, +mortgaged, hypothecated or otherwise encumbered other than by will or under the +laws of descent and distribution, except that the Plan Administrator may permit +transfers of awards for estate planning purposes if, and to the extent, such +transfers do not cause a participant who is then subject to Section 16 of the +Exchange Act to lose the benefit of the exemption under Rule 16b-3 for such +transactions. +For federal income tax purposes, the grant to an optionee of a +Non-Incentive Option will not constitute a taxable event to the optionee or to +the Company. Upon exercise of a Non-Incentive Option (or, in certain cases, a +later tax recognition date), the optionee will recognize compensation income +taxable as ordinary income, measured by the excess of the fair market value of +the Common Stock purchased on the exercise date (or later tax recognition date) +over the amount paid by the optionee for such Common Stock, and will be subject +to tax withholding. The Company may claim a deduction for the amount of such +compensation. The optionee will have a tax basis in the Common Stock purchased +equal to the amount paid plus the amount of ordinary income recognized upon +exercise of the Non-Incentive Option. Upon the subsequent sale of the Common +Stock received upon exercise of the Non-Incentive Option, an optionee will +recognize capital gain or loss equal to the difference between the amount +realized on such sale and his or her tax basis in the Common Stock, which may be +long-term capital gain or loss if the optionee holds the Common Stock for more +than one year from the exercise date. +For federal income tax purposes, neither the grant nor the exercise of an +Incentive Option will constitute a taxable event to the optionee or to the +Company, assuming the Incentive Option qualifies as an "incentive stock option" +under Code ss.422. If an optionee does not dispose of the Common Stock acquired +upon exercise of an Incentive Option during the statutory holding period, any +gain or loss upon subsequent sale of the Common Stock will be long-term capital +gain or loss, assuming the shares represent a capital asset in the optionee's +hands. The statutory holding period is the later of two years from the date the +Incentive Option is granted or one year from the date the Common Stock is +transferred to the optionee pursuant to the exercise of the Incentive Option. If +the statutory holding period requirements are satisfied, the Company may not +claim any federal income tax deduction upon either the exercise of the Incentive +Option or the subsequent sale of the Common Stock received upon exercise +thereof. If the statutory holding period requirement is not satisfied, the +optionee will recognize compensation income taxable as ordinary income on the +date the Common Stock is sold (or later tax recognition date) in an amount equal +-23- +to the lesser of (i) the fair market value of the Common Stock on that date less +the amount paid by the optionee for such Common Stock, or (ii) the amount +realized on the disposition of the Common Stock less the amount paid by the +optionee for such Common Stock; the Company may then claim a deduction for the +amount of such compensation income. +The federal income tax consequences summarized hereinabove are based upon +current law and are subject to change. +The Board may amend, alter, suspend, discontinue or terminate the 1999 Plan +at any time, except that any such action shall be subject to stockholder +approval at the annual meeting next following such Board action if such +stockholder approval is required by federal or state law or regulation or the +rules of any exchange or automated quotation system on which the Common Stock +may then be listed or quoted, or if the Board of Directors otherwise determines +to submit such action for stockholder approval. In addition, no amendment, +alteration, suspension, discontinuation or termination to the 1999 Plan may +materially impair the rights of any participant with respect to any Option +granted before amendment without such participant's consent. Unless terminated +earlier by action of the Board of Directors, the 1999 Plan shall terminate ten +(10) years after adoption by the stockholders. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR approval of the +1999 Plan Proposal. Unless marked to the contrary, proxies received from +Stockholders will be voted in favor of the 1999 Plan Proposal. +-24- +PROPOSAL THREE +RATIFICATION OF THE SELECTION OF THE FIRM OF EISNER LLP AS INDEPENDENT PUBLIC +ACCOUNTANTS FOR THE COMPANY +The Board of Directors upon recommendation of the members of the Audit +Committee, concluded that the continued engagement of Eisner LLP as the +Company's independent public accountants for the 2003 fiscal year was in the +best interests of the Company. The affirmative vote of the holders of a majority +of the total votes cast on this proposal is needed to ratify the selection of +the firm of Eisner LLP as independent public accountants for the Company. +Representatives of Eisner LLP are expected to be present at the Annual Meeting +to respond to questions and to make a statement should they so desire. +Audit Fees +The aggregate fees billed or expected to be billed by Eisner LLP for +professional services rendered for the audit of the Company's annual financial +statements for the fiscal year ended December 31, 2002, for the reviews of the +financial statements included in the Company's Quarterly Reports on Form 10-Q +for that fiscal year, other statutory and regulatory filings and consents +related to registration statements filed with the SEC for the 2002 fiscal year +were $152,000. The comparable amount for the fiscal year ended December 31, 2001 +was $130,000. +Audit-Related Fees +In addition to Audit Fees, Eisner LLP has billed the Company $60,000, in +the aggregate, for Audit Related Fees related to assurance and related services +for the fiscal year ended December 31, 2002. These services include, among +others, the audit of the Company's employee benefit plans and other accounting +related consultations. The comparable amount for the fiscal year ended December +31, 2001 was $17,000. +Tax Fees +During the fiscal year ended December 31, 2002, Eisner LLP billed the +Company $154,000, in the aggregate, for services rendered to the Company for tax +compliance, tax advice and tax planning. Eisner LLP billed $66,000 for similar +services in the 2001 fiscal year. +All Other Fees +There were no fees billed by Eisner LLP for services rendered to the +Company, other than the services described above under Audit Fees, Audit Related +Fees and Tax Fees, for the fiscal year ended December 31, 2002 and 2001. +The Audit Committee has considered whether the non-audit services provided +by the Company's independent public accountants during the year ended December +31, 2002 were compatible with the independent public accountants' independence +and has concluded that Eisner LLP has maintained its independence. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the ratification +of the selection of Eisner LLP as independent public accountants for the +Company. Unless marked to the contrary, proxies received from stockholders will +be voted in favor of the ratification of the selection of Eisner LLP as +independent public accountants for the Company for fiscal year 2003. +-25- +STOCKHOLDER PROPOSALS AND SUBMISSIONS +FOR THE COMPANY'S 2003 ANNUAL MEETING +In accordance with rules promulgated by the Securities and Exchange +Commission, any stockholder who wishes to submit a proposal for inclusion in the +proxy material to be distributed by the Company in connection with the 2004 +Annual Meeting must do so no later than December 24, 2003. +In addition, in accordance with Article I, Section 7(f) of the Company's +Amended & Restated By-Laws, in order to be properly brought before the 2004 +Annual Meeting, a matter must be (i) specified in the notice of such meeting +given by or at the direction of the Board of Directors (or any duly authorized +committed thereof), (ii) otherwise properly brought before such meeting by or at +the direction of the Board of Directors (or any duly authorized committed +thereof) or (iii) specified in a written notice given by a stockholder of record +on the date of the giving of the notice and on the record date for such meeting, +which notice conforms to the requirements of Article I, Section 7(f) of the +Amended & Restated By-Laws and is delivered to, or mailed and received at, the +Company's principal executive offices not less than 120 days nor more than 150 +days prior to the first anniversary of the date of the Company's 2003 Annual +Meeting. Accordingly, any written notice given by or on behalf of a stockholder +pursuant to the foregoing clause (iii) in connection with the 2004 Annual +Meeting must be received no later than January 22, 2004 and no earlier than +December 23, 2003. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN +AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A +STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, +YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 23, 2003 By: /s/ JAMIESON A. KARSON +------------------------------------- +Jamieson A. Karson +Chief Executive Officer +ANNEX A +STEVEN MADDEN, LTD. +1999 STOCK PLAN +This Steven Madden, Ltd. 1999 Stock Plan (the "1999 Plan") is hereby +amended as follows: +1. Section 3 of the 1999 Plan is amended by deleting Section 3 +in its entirety and replacing it with the following: +SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan +shall be the Common Stock, presently authorized but unissued or subsequently +acquired by the Company. Subject to adjustment as provided in Section 7 hereof, +the aggregate amount of Common Stock to be delivered upon the exercise of all +options granted under the Plan shall not exceed in the aggregate 2,920,000 +shares as such Common Stock was constituted on the effective date of the Plan. +If any option granted under the Plan shall expire, be surrendered, exchanged for +another option, canceled, or terminated for any reason without having been +exercised in full, the unpurchased shares subject thereto shall thereupon again +be available for purposes of the Plan, including for replacement options which +may be granted in exchange for such surrendered, canceled, or terminated +options. +2. Section 5 of the 1999 Plan is amended in by inserting the +following new paragraph 5.1: +5.1 EXERCISE PRICE. Except to the extent otherwise provided +in agreements with the Company dated prior to the date hereof, the exercise +price of an Option granted under the Plan shall be no less than the fair market +value of the Common Stock of the Company subject to such Option on the date of +grant as determined in good faith by the Plan Administrator. +3. Section 10.1 of the 1999 Plan is amended by adding the +following to the end thereof: +"Notwithstanding the foregoing, the Board may not amend the +terms of any Option to reduce the option price. Neither may the Board, without +the approval of shareholders, cancel any Option and grant a new Option with a +lower option price such that the effect would be the same as reducing the option +price." +4. Except as expressly amended hereby, the provisions of the +Plan are and shall remain in full force and effect. +5. This Amendment shall be effective immediately upon approval +by the Company's Board of Directors and stockholders of the Company. +Adopted by the Board of Directors +as of the 18th day of April, 2003 +Approved by the Stockholders +this ____ day of May, 2003 +Annex A - Page 1 +STEVEN MADDEN, LTD. PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES ([FOR] [WITHHOLD +AUTHORITY] [AGAINST] OR [ABSTAIN]) NEXT TO EACH OF THE THREE (3) PROPOSALS +The undersigned stockholder of Steven Madden, Ltd. (the "Company") hereby +appoint(s) Jamieson A. Karson, Arvind Dharia and Charles A. Koppelman, and each +of them, as attorneys and proxies, each with power of substitution and +revocation, to represent the undersigned at the Annual Meeting of Stockholders +of the Company to be held at the Company's showroom located at 1370 Avenue of +the Americas, 12th Floor, New York, New York at 10:00 a.m., local time, on May +23, 2003, and at any adjournments or postponements thereof, with authority to +vote all shares of Common Stock of the Company held or owned by the undersigned +on April 22, 2003, in accordance with the directions indicated herein. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1, 2 AND 3. +1) ELECTION OF DIRECTORS +--------------------- +VOTE +[ ] FOR ALL nominees listed below EXCEPT as marked to the contrary +below +[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed below +(INSTRUCTION: To withhold authority to vote for any individual +nominee strike a line through the nominee's name below.) +[ ] ABSTAIN +Charles A. Koppelman, Jamieson A. Karson, Arvind Dharia, Gerald Mongeluzo, Marc +Cooper, Roger Gladstone, John L. Madden, Peter Migliorini and Awadhesh Sinha. +2) AMENDMENT OF THE 1999 STOCK PLAN +-------------------------------- +[ ] FOR the Amendment of the 1999 Stock Plan +[ ] AGAINST +[ ] ABSTAIN +3) RATIFICATION OF THE SELECTION OF EISNER LLP AS INDEPENDENT PUBLIC +----------------------------------------------------------------- +ACCOUNTANTS FOR THE COMPANY FOR FISCAL YEAR 2003 +------------------------------------------------ +[ ] FOR the ratification of the selection of Eisner LLP +[ ] AGAINST +[ ] ABSTAIN +THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED, +THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE NINE (9) NOMINEES NAMED IN +ITEM 1, (2) FOR THE AMENDMENT OF THE 1999 STOCK PLAN IN ITEM 2, (3) FOR THE +RATIFICATION OF THE SELECTION OF EISNER LLP AS INDEPENDENT PUBLIC ACCOUNTANTS +FOR THE COMPANY FOR FISCAL YEAR 2003 IN ITEM 3 AND (4) IN THE DISCRETION OF THE +PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +In their discretion, the proxies are authorized to vote upon such other +business as may properly be presented at the meeting or any adjournments or +postponements thereof. +Please mark, sign, date and return this Proxy promptly using the +accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +Dated: +------------------------- +----------------------------------------- +Signature +----------------------------------------- +Signature if jointly owned: +----------------------------------------- +Print name: +Please sign exactly as the name appears on your stock certificate. When +shares of capital stock are held by joint tenants, both should sign. When +signing as attorney, executor, administrator, trustee, guardian, or corporate +officer, please include full title as such. If the shares of capital stock are +owned by a corporation, sign in the full corporate name by an authorized +officer. If the shares of capital stock are owned by a partnership, sign in the +name of the partnership by an authorized officer. +PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY +IN THE ENCLOSED ENVELOPE \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-03-000352/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-03-000352/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..bde598d557d841760619910e2317be298421578a --- /dev/null +++ b/raw/proxies/0000913241/0001019056-03-000352/proxy_rpt.txt @@ -0,0 +1,8 @@ +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with Peter J. +Solomon & Company, a financial advisory firm of which Marc Cooper, one of the +Company's directors, is a managing director. Under this agreement, the firm +provided financial advisory and investment banking services to the Company. +Pursuant to this agreement, the Company paid fees to Peter J. Solomon & Company +in the amount of $75,000 during 2001 and $150,000 during 2002. +-16- \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-04-000597/proxy.txt b/raw/proxies/0000913241/0001019056-04-000597/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..fdb30d60112e0e987ee2c4ee5b1b38e370f9e41d --- /dev/null +++ b/raw/proxies/0000913241/0001019056-04-000597/proxy.txt @@ -0,0 +1,2740 @@ +DEF 14A +1 +smadden_def14a.txt +DEFINITIVE 14A +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +[X] Filed by Registrant +[ ] Filed by a Party other than the Registrant +Check the appropriate box: +[ ] Preliminary Proxy Statement +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Under Rule 14a-12 +STEVEN MADDEN, LTD. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified in its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +N/A +----------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +N/A +----------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined.): +N/A +----------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +N/A +----------------------------------------------------------------------- +5) Total fee paid: +N/A +----------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials: +N/A +----------------------------------------------------------------------- +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and date of its filing. +1) Amount Previously Paid: +N/A +----------------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +N/A +----------------------------------------------------------------------- +3) Filing Party: +N/A +----------------------------------------------------------------------- +4) Date Filed: +N/A +----------------------------------------------------------------------- +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +---------------------------------------- +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 21, 2004 +---------------------------------------- +To the Stockholders of Steven Madden, Ltd.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the +"Annual Meeting") of the Company will be held on May 21, 2004, at the Company's +showroom located at 1370 Avenue of the Americas, 12th Floor, New York, New York +at 10:00 a.m., local time, and thereafter as it may from time to time be +adjourned, for the purposes stated below. +1. To elect seven (7) directors to the Board of Directors of the +Company to serve until the next annual meeting of the +Company's stockholders or until their successors are duly +elected and qualified; +2. To approve an amendment to the Company's 1999 Stock Plan to +increase the maximum number of shares of the Company's common +stock available for issuance under the plan from 2,920,000 +shares to 3,220,000 shares; +3. To ratify the appointment of Eisner LLP as the Company's +independent auditors for the fiscal year ending December 31, +2004; and +4. To transact such other business as may properly come before +the Annual Meeting or any adjournments thereof. +All stockholders are cordially invited to attend the Annual Meeting. +Only those stockholders of record at the close of business on April 8, 2004 are +entitled to notice of and to vote at the Annual Meeting and any adjournments +thereof. A complete list of stockholders entitled to vote at the Annual Meeting +will be available at the Annual Meeting and for ten days prior to the meeting +for ay purpose germane to the meeting, between the hours of 9:00 a.m. and 4:30 +p.m. at our principal executive offices at 52-16 Barnett Avenue, Long Island +City, NY 11104, by contacting the Secretary of the Company. +BY ORDER OF THE BOARD OF DIRECTORS +April 27, 2004 /s/ JAMIESON A. KARSON +----------------------------------------- +Jamieson A. Karson +Chief Executive Officer +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE +ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO AMERICAN +STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, NY 11104 +PROXY STATEMENT +INTRODUCTION +This Proxy Statement and the accompanying Notice of Annual Meeting of +Stockholders and form of proxy are being furnished to the holders of common +stock of Steven Madden, Ltd., a Delaware corporation (the "Company") in +connection with the solicitation of proxies by the Board of Directors of the +Company (the "Board of Directors") for use at the 2004 Annual Meeting of +Stockholders of the Company (the "Annual Meeting") to be held at the Company's +showroom located at 1370 Avenue of the Americas, 12th Floor, New York, New York +on Friday, May 21, 2004 at 10:00 a.m, Eastern Daylight Time, and at any +adjournments thereof. These proxy materials are being sent on or about April 28, +2004 to holders of record of common stock, $.0001 par value (the "Common +Stock"), of the Company at the close of business on April 8, 2004 (the "Record +Date"). The Company's Annual Report for the fiscal year ended December 31, 2003, +including audited financial statements, is being sent to stockholders together +with these proxy materials. +The Annual Meeting has been called to consider and take action on the +following proposals: (i) to elect seven (7) directors to the Board of Directors +of the Company to serve until the next annual meeting of the Company's +stockholders or until their successors are duly elected and qualified, (ii) to +approve an amendment to the Company's 1999 Stock Plan (the "Plan") to increase +the maximum number of shares of the Company's common stock available for +issuance under the plan from 2,920,000 shares to 3,220,000 shares, (iii) to +ratify the appointment of Eisner LLP as the Company's independent auditors for +the fiscal year ending December 31, 2004, and (iv) to transact such other +business as may properly come before the Annual Meeting or any adjournments +thereof. The Board of Directors knows of no other matters to be presented for +action at the Annual Meeting. However, if any other matters properly come before +the Annual Meeting, the persons named in the proxy will vote on such other +matters and/or for other nominees in accordance with their best judgment. The +Company's Board of Directors recommends that the stockholders vote in favor of +each of the proposals. Only holders of record of common stock, $.0001 par value +(the "Common Stock"), of the Company at the close of business on the Record Date +will be entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 +Barnett Avenue, Long Island City, NY 11104 and its telephone number is (718) +446-1800. +INFORMATION CONCERNING SOLICITATION AND VOTING +As of the Record Date, there were outstanding 13,333,905 shares of +Common Stock (excluding treasury shares) held by approximately 70 holders of +record and 3,400 beneficial owners. Only holders of shares of Common Stock on +the Record Date will be entitled to vote at the Annual Meeting. The holders of +Common Stock are entitled to one vote on all matters presented at the meeting +for each share held of record. The presence in person or by proxy of holders of +record of a majority of the shares outstanding and entitled to vote as of the +Record Date shall be required for a quorum to transact business at the Annual +Meeting. If a quorum should not be present, the Annual Meeting may be adjourned +until a quorum is obtained. Each nominee to be elected as a director named in +Proposal 1 must receive a plurality of the votes cast by the holders of Common +Stock present in person or represented by proxy at the Annual Meeting with +respect to such proposal. Each of the amendments to the Company's 1999 Stock +Plan described in Proposal 2 and the ratification of the appointment of Eisner +LLP as the Company's independent auditors for the fiscal year ending December +31, 2004 described in Proposal 3 must be approved by the affirmative vote of the +holders of a majority of the total votes cast on such proposals in person or by +proxy. Abstentions and broker non-votes are counted as present and entitled to +vote and are, therefore, included for purposes of determining whether a quorum +of shares is present at the meeting. An abstention from a vote with respect to +Proposal 1 will have no effect. An abstention from a vote with respect to +Proposal 2 or 3 will have the same practical effect as a vote against such +proposal. Broker "non-votes" are not deemed to be "votes cast." As a result, +broker "non-votes" are not included in the tabulation of the voting result on +the election of directors or issues requiring approval of a majority of the +-1- +votes cast and, therefore, do not have the effect of votes in opposition in such +tabulations and as such will have the practical effect of reducing the number of +affirmative votes required to achieve a majority vote for a matter by reducing +the total number of shares from which a majority is calculated. Brokers who hold +shares in street name who have not been given specific voting instructions may +not vote on behalf of beneficial owners with respect to Proposal 2. Brokers who +hold shares in street name may vote on behalf of beneficial owners with respect +to Proposals 1, 3 and 4. The approval of all other matters to be considered at +the Annual Meeting requires the affirmative vote of a majority of the eligible +votes cast at the Annual Meeting on such matters. +The expense of preparing, printing and mailing this Proxy Statement, +the exhibits hereto and the proxies solicited hereby will be borne by the +Company. In addition to the use of the mails, proxies may be solicited by +officers and directors and regular employees of the Company, without additional +remuneration, by personal interviews, telephone, telegraph or facsimile +transmission. The Company will also request brokerage firms, nominees, +custodians and fiduciaries to forward proxy materials to the beneficial owners +of shares of Common Stock held of record and will provide reimbursements for the +cost of forwarding the material in accordance with customary charges. The +Company has entered into an agreement with The Proxy Advisory Group of Strategic +Stock Surveillance, LLC to assist the Company in the solicitation of proxies for +the Annual Meeting. Under the agreement, the Company has agreed to pay The Proxy +Advisory Group of Strategic Stock Surveillance, LLC a fee of approximately +$15,000 plus disbursements. +Proxies given by stockholders of record for use at the Annual Meeting +may be revoked at any time prior to the exercise of the powers conferred. In +addition to revocation in any other manner permitted by law, stockholders of +record giving a proxy may revoke the proxy by an instrument in writing, executed +by the stockholder or his attorney authorized in writing or, if the stockholder +is a corporation, under its corporate seal, by an officer or attorney thereof +duly authorized, and deposited either at the corporate headquarters of the +Company at any time up to and including the last business day preceding the day +of the Annual Meeting, or any adjournment thereof, at which the proxy is to be +used, or with the chairman of such Annual Meeting on the day of the Annual +Meeting or adjournment thereof, and upon either of such deposits the proxy is +revoked. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES +SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO +CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY COME BEFORE THE ANNUAL MEETING. +None of the matters to be acted on at the Annual Meeting give rise to +any statutory right of a stockholder to dissent and obtain the appraisal of or +payment for such stockholder's shares. +-2- +PROPOSAL ONE +TO ELECT SEVEN DIRECTORS TO SERVE UNTIL THE NEXT ANNUAL MEETING +OF THE COMPANY'S STOCKHOLDERS OR UNTIL THEIR SUCCESSORS +ARE DULY ELECTED AND QUALIFIED +Under the Amended and Restated By-Laws of the Company (the "By-Laws"), +the Board of Directors of the Company is required to be comprised of a minimum +of one (1) director. Subject to the foregoing limitation, the number of +directors may be fixed from time to time by action of the directors. The +Company's board presently consists of ten (10) directors whose terms expire at +the Annual Meeting. +The Nominating/Corporate Governance Committee of the Board and the +Board have nominated and are recommending the election of each of the seven (7) +nominees set forth below to serve as a director of the Company until the next +annual meeting of the Company's stockholders or until his successor is duly +elected and qualified. The names and biographical summaries of the seven (7) +persons who have been nominated by the Nominating/Corporate Governance Committee +of the Board and the Board to stand for election at the Annual Meeting have been +provided below for your information. Proxies will be voted for the election of +the seven (7) nominees listed below as directors of the Company unless otherwise +specified on the proxy. A plurality of the votes of shares of Common Stock +present in person or represented by proxy at the Annual Meeting will be +necessary to elect the directors listed below. If, for any reason, any of the +nominees shall be unable or unwilling to serve, the proxies will be voted for a +substitute nominee who will be designated by the Board of Directors at the +Annual Meeting. Stockholders may abstain from voting by marking the appropriate +boxes on the enclosed proxy. Abstentions shall be counted separately and shall +be used for purposes of calculating whether a quorum is present at the meeting. +Biographical Summaries of Nominees for the Board of Directors +Jamieson A. Karson has been the Chief Executive Officer of the Company +and Vice Chairman of the Board of Directors of the Company since July 1, 2001. +Mr. Karson has been a director of the Company since January 2, 2001. Prior to +joining the Company as Chief Executive Officer, Mr. Karson practiced law for +over 17 years. He was a partner in the New York City law firm of Tannenbaum +Helpern Syracuse & Hirshtritt LLP from January 1, 1997 through June 30, 2001, +where he served on the firm's three person Finance Committee. He was a partner +at the law firm of Karson McCormick from February 1992 through December 31, +1996. Prior to that, Mr. Karson was an associate attorney at the law firm of +Shea & Gould. +Jeffrey Birnbaum has been a director of the Company since June 2003. +Mr. Birnbaum has been the Product Development Manager of Dolphin Shoe Company +since August 1982. +Marc S. Cooper has been a director of the Company since July 2001. Mr. +Cooper has served as a Managing Director of Peter J. Solomon Company in its +Mergers and Acquisitions Department since May 1999. Previously, Mr. Cooper +worked at Barington Capital Group from March 1992 to May 1999, where he was a +founding member and Vice Chairman overseeing its investment banking operations. +Currently, Mr. Cooper serves as a director of Maxcor Financial Group Inc. and +North Atlantic Trading Company, Inc. +John L. Madden has been a director of the Company since the Company's +inception. Since April 1998, Mr. Madden has owned and managed a branch office of +Tradeway Securities Group, Inc. in Florida. From May 1996 through December 1996, +Mr. Madden formed JLM Consultants, Inc. which acted as a branch office of Merit +Capital, Inc. for several broker-dealers. From May 1994 to May 1996, Mr. Madden +served as Vice President of Investments for GKN Securities, Inc. From August +1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc. as +Managing Director and registered sales representative. Mr. Madden is the brother +of Steven Madden, the Company's former Chief Executive Officer. +Peter Migliorini has been a director of the Company since October 1996. +Mr. Migliorini has served as Sales Manager for Greschlers, Inc., a supply +company located in Brooklyn, New York since 1994. From 1987 to 1994 Mr. +Migliorini served as Director of Operations for Mackroyce Group. Mr. Migliorini +has previously served in a number of capacities, ranging from Assistant Buyer to +Chief Planner/Coordinator for several shoe companies including Meldisco Shoes, +Perry Shoes, and Fasco Shoes. +-3- +Thomas H. Schwartz is a new nominee for director. Mr. Schwartz has been +a managing director of Helmsley-Spear, Inc. since 1984, where he was also a +salesman since 1973. As managing director, among other things, Mr. Schwartz is +responsible for the leasing and sales brokerage of real estate, management of +real estate leasing and supervising managers of properties. +Awadhesh Sinha has been a director of the Company since October 2002. +Mr. Sinha has served as Chief Operating Officer and Chief Financial Officer of +WEAR ME Apparel Inc., a company that designs, manufactures and markets branded +and non-branded children's clothing, since 2003. Prior to that, Mr. Sinha worked +for Salant Corporation, a company that designs, manufactures and markets men's +clothing, for 22 years, and held the position of Chief Operating Officer and +Chief Financial Officer of Salant Corporation from 1998 to 2003. +Recommendation of the Board of Directors +The Nominating/Corporate Governance Committee of the Board and the +Board unanimously recommend a vote FOR the election of Messrs. Jamieson A. +Karson, Jeffrey Birnbaum, Marc Cooper, John L. Madden, Peter Migliorini, Thomas +H. Schwartz and Awadhesh Sinha. Unless otherwise instructed or unless authority +to vote is withheld, the enclosed proxy will be voted FOR the election of the +above listed nominees and AGAINST any other nominees. +Director Independence +The Board of directors is currently comprised of ten (10) members. +Messrs. Koppelman, Dharia, Gladstone and Mongeluzo will not stand for reelection +to the Board at the Annual Meeting. The Board has determined that the following +director nominees are "independent" for purposes of The Nasdaq National Market +listing standards: Messrs. Cooper, Migliorini, Schwartz and Sinha. If the seven +(7) nominees set forth above are elected, the Board will be comprised of a +majority of independent directors. The Board has adopted a policy whereby the +independent directors have regularly-scheduled executive sessions at least twice +a year. +Directors' Attendance at Annual Meetings +The Company encourages all of its directors to attend annual meetings +of the Company's stockholders. Six directors attended the Company's 2003 annual +meeting of stockholders. +Communications with Directors +The Company has adopted a procedure by which stockholders may send +communications as defined within Item 7(h) of Schedule 14A under the Exchange +Act to one or more members of the Board of Directors by writing to such +director(s) or to the whole Board of Directors in care of the Corporate +Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, NY +11104. Any such communications will be promptly distributed by the Corporate +Secretary to such individual director(s) or to all directors if addressed to the +whole Board of Directors. +Director Compensation +Directors who are also employees of the Company are not paid any fees +or other remuneration for service on the Board or any of its Committees. In 2003 +each non-employee director (other than Mr. Koppelman) received the following +compensation: (i) a grant of options to purchase 10,000 shares of Common Stock +at an exercise price per share equal to the fair market value of the Common +Stock on the date of grant and (ii) fifty thousand dollars ($50,000) in +immediately available funds; however, the chairperson of the Audit Committee +received sixty-five thousand dollars ($65,000) in immediately available funds. +In addition, non-employee directors are reimbursed by the Company for all +expenses related to attending meetings. +In May 2001, the Company entered into an agreement with Charles A. +Koppelman pursuant to which Mr. Koppelman agreed to serve as the Company's +Executive Chairman of the Board. On June 30, 2003, this agreement expired in +accordance with its terms; however under the agreement on the date of the Annual +Meeting Mr. Koppelman is entitled to receive an option to purchase 100,000 +-4- +shares of the Company's Common Stock at an exercise price equal to the lesser of +(a) the closing market price on the grant date or (b) $13.50. As of July 1, +2003, Mr. Koppelman was compensated for his services as a director in the same +manner as the other outside directors on the Board. See "Agreement with the +Chairman of the Board." +Meetings and Committees of the Board of Directors +The Board of Directors met four (4) times during the fiscal year ended +December 31, 2003. The Board of Directors has the following standing committees: +Audit Committee, Compensation Committee, Nominating/Corporate Governance +Committee, Real Estate Committee and Cash Investment Committee. In addition, the +Company has an Ad Hoc Committee made up of certain board members and executive +officers which meets to discuss general issues regarding the business and +strategic growth of the Company. +Audit Committee +During the year ended December 31, 2003, the Audit Committee of the +Board of Directors consisted of directors Awadhesh Sinha (chairman), Roger +Gladstone and Peter Migliorini. The Audit Committee is comprised of directors +who are "independent" for purposes of The Nasdaq National Market listing +standards and who meet the independence requirements contained in Exchange Act +Rule 10A-3(b)(1). The Board has determined that Awadhesh Sinha meets the SEC +criteria of an "audit committee financial expert." The Audit Committee is +primarily responsible for reviewing the services performed by the Company's +independent public accountants, evaluating the Company's accounting policies and +its system of internal controls, and reviewing significant finance transactions. +During 2003, the Audit Committee met nine (9) times. +The Audit Committee is responsible for reviewing and helping to ensure +the integrity of the Company's financial statements. Among other matters, the +Audit Committee, with management and independent and internal auditors, reviews +the adequacy of the Company's internal accounting controls that could +significantly affect the Company's financial statements. The Audit Committee is +also directly and solely responsible for the appointment, retention, +compensation, oversight and termination of the Company's independent +accountants. In addition, the Audit Committee also functions as the Company's +Qualified Legal Compliance Committee (the "QLCC"). The purpose of the QLCC is to +receive, retain and investigate reports made directly, or otherwise made known, +of evidence of material violations of any United States federal or state law, +including any breach of fiduciary duty by the Company, its officers, directors, +employees or agents, and if the QLCC believes appropriate, to recommend courses +of action to the Company. +The Audit Committee meets with management periodically to consider the +adequacy of the Company's internal controls and the objectivity of its financial +reporting. The Audit Committee discusses these matters with the Company's +independent public accountants and with appropriate Company financial personnel. +Meetings are held with the independent public accountants who have unrestricted +access to the Audit Committee. In addition, the Audit Committee reviews the +Company's financing plans and reports recommendations to the full Board of +Directors for approval and to authorize action. The Board has adopted a written +charter setting out the audit related functions the Audit Committee is to +perform. A copy of the Audit Committee Charter is attached as Annex A to this +Proxy Statement. +Management has primary responsibility for the Company's financial +statements and the overall reporting process, including the Company's system of +internal controls. The independent public accountants audit the annual financial +statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of +operations and cash flows of the Company in conformity with accounting +principles generally accepted in the United States of America and discuss with +the Audit Committee any issues they believe should be raised with the Audit +Committee. +The following Audit Committee Report does not constitute soliciting +material and shall not be deemed filed or incorporated by reference into any +other Company filing under the Securities Act of 1933, as amended, or the +Securities Exchange Act of 1934, as amended, except to the extent the Company +specifically incorporates this Audit Committee Report by reference therein. +-5- +Audit Committee Report +The Audit Committee reviewed the Company's audited financial statements +for the fiscal year ended December 31, 2003 and met with both management and +Eisner LLP, the Company's independent public accountants, to discuss such +audited financial statements. Management and the Company's independent public +accountants have represented to the Audit Committee that the financial +statements were prepared in accordance with accounting principles generally +accepted in the United States of America. The Audit Committee has received from +and discussed with Eisner LLP the written disclosure and the letter regarding +the independence of Eisner LLP as required by Independence Standards Board +Standard No. 1. The Audit Committee also discussed with Eisner LLP any matters +required to be discussed by Statement on Auditing Standards No. 61. Based on +these reviews and discussions, the Audit Committee recommended to the Board that +the Company's audited financial statements be included in the Company's Annual +Report on Form 10-K for the fiscal year ended December 31, 2003. +AUDIT COMMITTEE +Roger Gladstone +Peter Migliorini +Awadhesh Sinha, Chairman +Nominating/Corporate Governance Committee +In April 2004 the Board of Directors created a Nominating/Corporate +Governance Committee and appointed Peter Migliorini and Awadhesh Sinha as the +initial members of such committee. The Nominating/Corporate Governance Committee +is comprised of directors who are "independent" for purposes of The Nasdaq +National Market listing standards. The Nominating/Corporate Governance Committee +considers and makes recommendations to the Board of Directors with respect to +the size and composition of the Board of Directors and identifies potential +candidates to serve as directors. The Nominating/Corporate Governance Committee +identifies candidates to the Board of Directors by introduction from management, +members of the Board of Directors, employees or other sources and stockholders +that satisfy the Company's policy regarding stockholder recommended candidates. +The Nominating/Corporate Governance Committee does not evaluate director +candidates recommended by stockholders differently than director candidates +recommended by other sources. A copy of the Nominating/Corporate Governance +Committee Charter is attached as Annex B to this Proxy Statement. +Stockholders wishing to submit recommendations for the 2005 Annual +Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. Any such stockholder must (x) comply +with the director nomination provisions of the Company's By-Laws, (y) meet and +evidence the minimum eligibility requirements specified in Exchange Act Rule +14a-8 and (z) submit, within the same timeframe for submitting a stockholder +proposal required by Rule 14a-8: (1) evidence in accordance with Rule 14a-8 of +compliance with the stockholder eligibility requirements, (2) the written +consent of the candidate(s) for nomination as a director, (3) a resume or other +written statement of the qualifications of the candidate(s) for nomination as a +director, and (4) all information regarding the candidate(s) and the submitting +stockholder that would be required to be disclosed in a proxy statement filed +with the SEC if the candidate(s) were nominated for election to the Board of +Directors. +In considering Board of Directors candidates, the Nominating/Corporate +Governance Committee takes into consideration the Company's Board Candidate +Guidelines, attached as Annex C to this Proxy Statement, the Company's policy +regarding stockholder recommended director candidates, as set forth above, and +all other factors that they deem appropriate, including, but not limited to, the +individual's character, education, experience, knowledge and skills. In +addition, the Nominating/Corporate Governance Committee develops and recommends +corporate governance principles for the Company; makes recommendations to the +Board of Directors in support of such principles; takes a leadership role in the +shaping of the corporate governance of the Company; and oversees the evaluation +of the Board of Directors and management. +Since the Company's Nominating/Corporate Governance Committee was +established in April 2004, it did not have any meetings during 2003. +-6- +Compensation Committee +The Compensation Committee of the Board of Directors for the year ended +December 31, 2003 consisted of directors Peter Migliorini (chairman) and Roger +Gladstone. The Compensation Committee is comprised of directors who are +"independent" for purposes of The Nasdaq National Market listing standards. The +Compensation Committee is primarily responsible for approving salaries, bonuses +and other compensation for the Company's Chief Executive Officer and named +executive officers, reviewing management recommendations relating to new +incentive compensation plans and changes to existing incentive compensation +plans, and administering the Company's stock plans, including granting options +and setting the terms thereof pursuant to such plans (all subject to approval by +the Board of Directors). During 2003, the Compensation Committee met four (4) +times. +Real Estate Committee +The Real Estate Committee of the Company for the year ended December +31, 2003 consisted of Jamieson A. Karson, Arvind Dharia and Mark Jankowski. The +Real Estate Committee is primarily responsible for overseeing real estate +transactions for the Company. In light of the Company's aggressive retail store +expansion plan, the Real Estate Committee was formed to consider proposed real +estate transactions for approval. +Cash Investment Committee +In February 2004 the Board of Directors created a Cash Investment +Committee and appointed Jamieson Karson, John Madden and Marc Cooper as the +initial members of such committee. The Cash Investment Committee is primarily +responsible for setting the Company's policy with respect to cash investments. +Since the Company's Cash Investment Committee was established in February 2004, +it did not have any meetings during 2003. +Ad Hoc Committee +During 2002, the Board appointed an Ad Hoc Committee which consists of +Jamieson A. Karson, Charles Koppelman, John Madden, Richard Olicker and Robert +Schmertz. The Ad Hoc Committee meets to discuss general issues regarding the +business and strategic growth of the Company. The Ad Hoc Committee met three (3) +times in 2003. +Code of Business Conduct and Ethics +All of the Company's employees, officers (including senior executive, +financial and accounting officers) and directors are held accountable for +adherence to the Company's Code of Business Conduct and Ethics (the "Code"). The +Code is intended to establish standards necessary to deter wrongdoing and to +promote compliance with applicable governmental laws, rules and regulations and +honest and ethical conduct. The Code covers all areas of professional conduct, +including conflicts of interest, fair dealing, financial reporting and +disclosure, protection of Company assets and confidentiality. Employees have an +obligation to promptly report any known or suspected violation of the Code +without fear of retaliation. Waiver of any provision of the Code for executive +officers and directors may only be granted by the Board of Directors or one of +its committees and any such waiver or modification of the Code relating to such +individuals will be disclosed by the Company. A copy of the Code is attached as +Annex D to this Proxy Statement and may also be obtained by any stockholder upon +request without charge by writing to the Corporate Secretary, Steven Madden, +Ltd., 52-16 Barnett Avenue, Long Island City, NY 11104. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, +requires that the Company's directors and executive officers, and persons who +own more than ten percent (10%) of a registered class of the Company's equity +securities, file with the Securities and Exchange Commission ("SEC") reports of +initial ownership of the Company's common stock and subsequent changes in that +ownership and furnish the Company with copies of all forms they file pursuant to +Section 16(a). To the Company's knowledge, based solely on its review of the +copies of such reports furnished to the Company during the year ended December +31, 2003, all Section 16(a) filing requirements applicable to its officers, +directors and greater than ten percent beneficial owners were complied with, +except that: (i) Charles Koppelman failed to file a Form 4 relating to the +-7- +exercise of stock options that were previously granted to him and failed to +timely file a Form 4 relating to the exercise of stock options that were +previously granted to him, (ii) John Madden failed to timely file a Form 4 +relating to the exercise of stock options that were previously granted to him +and (iii) Mark Jankowski failed to timely file a Form 4 relating to the exercise +of stock options that were previously granted to him and the sale of the +underlying shares of the Common Stock of the Company. +Equity Compensation Plan Information +The following table provides information as of December 31, 2003 with +respect to the Company's Common Stock that may be issued under its existing +equity compensation plans: The table shows the number of securities to be issued +under compensation plans that have been approved by stockholders and those that +have not been so approved. The footnotes and other information following the +table are intended to provide additional detail on the compensation plans. +Number of securities +Number of securities remaining available for +to be issued upon Weighted-average exercise future issuance under +exercise of price of outstanding equity compensation plans +outstanding options, options, warrants and (excluding securities +Plan category warrants and rights rights reflected in column (a)) +----------------------------------- --------------------- ------------------------- -------------------------- +Equity compensation plans approved +by security holders +Equity Stock Option Plans (1) 1,774,000 14.06 277,000 +Equity compensation plans not +approved by security holders +Non-Qualified Options (2) 500,000 1.75 0 +Other (3) 290,000 N/A 0 +Total 2,564,000 11.35 277,000 +-------------------- +1) Consists of the 1993 Incentive Stock Option Plan, the 1995 Stock Plan, the +1996 Stock Plan and the 1999 Stock Plan, as amended. +2) In March 1995, the Company issued options to purchase 1,000,000 shares of +its Common Stock to a company wholly owned by Steven Madden, the Company's +former Chief Executive Officer. The options were subsequently transferred +to Steven Madden. The options, which are fully exercisable, have an +exercise price of $1.75 and an exercise period of 10 years. As of the +Record Date, 500,000 of these options remain unexercised. Unearned +compensation was recorded in the amount of $575,000 which represented the +difference between the exercise price and the fair value of the stock on +the date of grant and was classified as a component of stockholders equity. +The unamortized portion was charged to operations in 1997 in connection +with Steven Madden's then-existing amended employment agreement. +3) (a) In 2002 and 2003 the Company entered into agreements with eighteen +employees and independent contractors which agreements provide that, if +such employees and independent contractors continue to be employed with the +Company through specified future dates (ranging from January 1, 2004 +through March 31, 2007), they each will be entitled to receive shares of +the Company's Common Stock in amounts ranging from 500 shares to 20,000 +shares. +(b) In April 2002 the Company entered into an agreement with Robert +Schmertz which provides that, subject to shareholder approval, if Mr. +Schmertz is employed by the Company through June 30, 2005 he will be +entitled to receive 50,000 shares of the Company's Common Stock. See +Employment Agreements with Certain Executive Officers. +-8- +(c) In October 2002 the Company entered into an agreement with Harry Chen +which provides that, subject to shareholder approval, if Mr. Chen is +employed by the Company through June 30, 2005 he will be entitled to +receive 50,000 shares of the Company's Common Stock. +Certain Legal Proceedings +Between June and August 2000, eight putative securities fraud class +action lawsuits have been commenced in the United States District Court for the +Eastern District of New York against the Company, Steven Madden and, in five of +the actions, Rhonda J. Brown (the former President and a former director of the +Company) and Arvind Dharia. These actions are captioned: Wilner v. Steven +Madden, Ltd., et al., 00 CV 3676 (filed June 21, 2000); Connor v. Steven Madden, +et al., 00 CV 3709 (filed June 22, 2000); Blumenthal v. Steven Madden, Ltd., et +al., 00 CV 3709 (filed June 23, 2000); Curry v. Steven Madden, Ltd., et al., 00 +CV 3766 (filed June 26, 2000); Dempster v. Steven Madden Ltd., et al., 00 CV +3702 (filed June 30, 2000); Salafia v. Steven Madden, Ltd., et al., 00 CV 4289 +(filed July 24, 2000); Fahey v. Steven Madden, Ltd., et al., 00 CV 4712 (filed +August 11, 2000); Process Engineering Services, Inc. v. Steven Madden, Ltd., et +al., 00 CV 5002 (filed August 22, 2000). By Order dated December 8, 2000, the +Court consolidated these eight actions, appointed Process Engineering, Inc., +Michael Fasci and Mark and Libby Adams as lead plaintiffs and approved their +selection of lead counsel. On February 26, 2001, Plaintiffs served a +Consolidated Amended Complaint. On or about October 31, 2001, plaintiffs filed a +Second Consolidated Amended Class Action Complaint. The pleading names the +Company, Steven Madden, Rhonda J. Brown and Arvind Dharia as defendants. It +principally alleges that the Company and the individual defendants violated +Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 +promulgated under the 1934 Act by issuing false and misleading statements, and +failing to disclose material adverse information, generally relating to matters +arising from Mr. Madden's June 2000 indictment. The plaintiffs seek an +unspecified amount of damages, costs and expenses on behalf of themselves and +all other purchasers of the Company's common stock during the period June 21, +1997 through June 20, 2000. On November 30, 2001, all of the defendants served +motions to dismiss the Consolidated Amended Complaint. The motions were fully +briefed on January 14, 2002. Since that time, an agreement has been reached to +resolve all claims in this action, subject to notices to the putative class +members, a hearing and approval by the District Court. The tentative settlement +is within the limits of the Company's insurance coverage. +On or about September 26, 2000, a putative shareholders derivative +action was commenced in the United States District Court for the Eastern +District of New York, captioned Herrera v. Steven Madden and Steven Madden, +Ltd., 00 CV 5803 (JG). The Company is named as a nominal defendant in the +action. The complaint seeks to recover alleged damages on behalf of the Company +from Mr. Madden arising from his June 2000 indictment and to require him to +disgorge certain profits, bonuses and stock option grants he received. On +January 3, 2001, plaintiff filed an Amended Shareholder's Derivative Complaint. +On February 2, 2001, both the Company and Mr. Madden filed motions to dismiss +the Amended Complaint because of plaintiff's failure to make a pre-litigation +demand upon the Company's board of directors. On October 1, 2001, plaintiff +filed a Second Amended Complaint. On November 2, 2001, the Company filed a +motion to dismiss this pleading on grounds that plaintiff had failed to make a +pre-litigation demand upon the Company's board of directors. On February 7, +2002, the Magistrate Judge filed a Report recommending that the Company's motion +to dismiss be denied. The Company filed its objections to the Report on March 4, +2002. On March 22, 2002, the District Judge entered an order adopting the +Magistrate Judge's report and recommendation in full. Since that time, an +agreement has been reached to resolve all claims in this action, subject to such +notice to the Company's shareholders (if any) as may be required by the District +Court, a hearing and approval by the District Court. The Company believes, after +consultation with counsel, that its defense costs and certain attorneys fees in +connection with this action will be subject to coverage by the Company's +insurance. +On or about November 28, 2001, a purported shareholder derivative +complaint was filed in the United States District Court for the Eastern District +of New York, captioned Herrera v. Karson, et al., 00 CV 7868. Named as +defendants therein are the Company (as nominal defendant) and certain of the +Company's present and/or former directors. The complaint alleges that the +individual defendants breached their fiduciary duties to the Company in +connection with a decision by the Board of Directors of the Company to enter +into an employment agreement with Mr. Steven Madden in or about May 2001 that, +among other things, entitles Mr. Madden to receive an annual base salary of +$700,000 during periods that Mr. Madden is not actively engaged in the duties of +Creative and Design Chief (including during the period of his incarceration). +The complaint seeks declaratory and other equitable relief, as well as an +unspecified amount of compensatory damages, costs and expenses. On or about +February 1, 2002, plaintiff filed an Amended Shareholder Derivative Complaint +-9- +(the "Amended Complaint"). The Amended Complaint contains substantially the same +allegations and names the same defendants as the original complaint. Since that +time, an agreement has been reached to resolve all claims in this action, +subject to such notice to the Company's shareholders (if any) as may be required +by the District Court, a hearing and approval by the District Court. The Company +believes, after consultation with counsel, that its defense costs and certain +attorneys fees in connection with this action will be subject to coverage by the +Company's insurance. +The Company and certain of the Company's present and/or former +directors have been named in an action commenced in the United States District +Court for the Eastern District of New York by the Safeco Surplus Lines Insurance +Company captioned, Safeco Surplus Lines Ins. Co. v. Steven Madden Ltd., et al., +02 CV 1151 (JG). The complaint principally seeks rescission of the excess +insurance policy issued by Safeco to the Company for the February 4, 2000 to +June 13, 2001 period and an order declaring that Safeco does not owe any +indemnity obligation to the Company or any of its officers and directors in +connection with the putative shareholder class action and derivative cases +described in the Form 10Q filed by the Company for the quarter ended March 31, +2002. The parties have agreed to a resolution of Safeco's claims, the +implementation of which is conditioned upon judicial approval of the settlements +of the shareholder class action and derivative claims discussed above. +On September 12, 2001, the State of Florida, Department of Banking and +Finance, Division of Securities and Investor Protection (the "Department") +issued a Final Order adopting the Stipulation and Consent Agreement to Final +Order dated May 15, 2001 ("Stipulation and Consent Agreement") between John +Madden and the Department relating to the Department's investigation of alleged +sales of unregistered securities in 1997. Under the Stipulation and Consent +Agreement, Mr. Madden neither admitted nor denied the allegations against him; +however, Mr. Madden agreed to pay an administrative fine in the amount of $5,000 +and agreed to abide by certain limitations related to his employment in the +securities or investment advisory industry for a period of five years, including +Mr. Madden's agreement to not act in any principal, supervisory, or managerial +capacity in the securities industry and to not exercise discretionary authority +in any account of any person. +-10- +Directors, Director Nominees and Executive Officers +Certain information concerning the directors, director nominees and +executive officers of the Company is set forth below: +Name Age Position(s) with the Company +---------------------- ----- -------------------------------------- +Charles A. Koppelman 63 Chairman of the Board +Jamieson A. Karson 46 Chief Executive Officer and +Vice-Chairman of the Board +Arvind Dharia 54 Chief Financial Officer, Director and +Secretary +Richard Olicker 46 President and Chief Operating Officer +Mark Jankowski 43 Executive Vice-President of Production +for Steven Madden, Ltd. +Gerald Mongeluzo 63 President of Adesso-Madden, Inc., and +Director +Robert Schmertz 40 President of Steve Madden Womens +Wholesale Division and Brand Manager +Joseph Masella 55 President of Candie's Division +Harry Chen 54 Chairman and Lead Designer of Madden +Mens Division +John McCann 42 President of l.e.i. Footwear Division +Andrew Shames 46 President of Madden Mens Division +Larry Paparo 36 President of Candie's Kids and +Stevies, Inc. +Jay Litvack 53 President of Diva Acquisition +Corporation +John L. Madden 56 Director +Peter Migliorini 55 Director +Marc Cooper 42 Director +Awadhesh Sinha 58 Director +Roger Gladstone 50 Director +Jeffrey Birnbaum 43 Director +Thomas H. Schwartz 56 Director Nominee +-------------------- +See "Biographical Summaries of Nominees for the Board of Directors" for +biographical summaries of Messrs. Jamieson A. Karson, Jeffrey Birnbaum, Marc +Cooper, John L. Madden, Peter Migliorini, Thomas H. Schwartz and Awadhesh Sinha. +Charles A. Koppelman will not be standing for re-election as a director +of the Company at the Company's 2004 Annual Meeting. Mr. Koppelman has been a +director of the Company since June 1998 and Chairman of the Board since July 1, +2001. Previously Mr. Koppelman was acting Chairman of the Board from June 2000 +to July 2001. Presently, Mr. Koppelman serves as Chairman of CAK Entertainment, +Inc. From 1988 to 1997, Mr. Koppelman served first as Chairman and Chief +Executive Officer of EMI Music Publishing and then as Chairman and Chief +Executive Officer of EMI Records Group, North America. +Arvind Dharia will not be standing for re-election as a director of the +Company at the Company's 2004 Annual Meeting. Mr. Dharia has been the Chief +Financial Office and Secretary of the Company since October 1992 and a director +since December 1993. From December 1988 to September 1992, Mr. Dharia was +Assistant Controller of Millennium III Real Estate Corp. +Richard Olicker has been Chief Operating Officer of the Company since +January 3, 2001. In September 2001 Mr. Olicker was appointed President of the +Company. Prior to joining the Company, Mr. Olicker spent more than 12 years at +AeroGroup International, Inc., which markets Aerosoles and What's What shoes. As +cofounder of Aerosoles, Mr. Olicker served as President of the company's private +label division and was responsible for managing all aspects of sourcing, +production, pricing, sales, service, systems and finance. Mr. Olicker began his +career in footwear in 1982 as the General Counsel and Licensing Director at El +Greco Leather Products and later held an executive position with New Retail +Concepts, Inc., an apparel licensing firm. +Mark Jankowski became the Executive Vice President of Production for +Steven Madden, Ltd. in 2002 after serving as the President of Steve Madden +Retail, Inc. since July 1, 2001. Previously, Mr. Jankowski had been the General +-11- +Merchandise Manager of the Company from December 2000 to June 30, 2001. Prior to +that, Mr. Jankowski had been the President of Steve Madden Retail, Inc. from +February 1999 to December 2000 and the Company's Vice President of Product +Development from 1995 to 1999. From 1980 to 1995, Mr. Jankowski held several +positions at Edison Brothers, including Head of Buying. +Gerald Mongeluzo will not be standing for re-election as a director of +the Company at the Company's 2004 Annual Meeting. Mr. Mongeluzo has been a +director of the Company since July 2001. Mr. Mongeluzo has been President of +Adesso-Madden, Inc., a wholly owned subsidiary of the Company, since September +1995. Previously, Mr. Mongeluzo was the founder and President of Adesso Shoes, +Inc., a buying agent of private label shoes. From 1987 through 1991, Mr. +Mongeluzo was the President of the Prima Barabaro Division of Cells Enterprise, +Inc. Mr. Mongeluzo founded Prima Shoes, Inc., a buying agent of private label +shoes, and served as its President from 1974 to 1987. +Robert Schmertz has been the President of Steve Madden Womens Wholesale +Division and Brand Manager since September 2001, the President of Shoe Biz, +Inc., a wholly owned subsidiary of Steve Madden Retail Inc. since May 1998 and +the President of Diva Acquisition Corp. since January 2001. Before joining the +Company, Mr. Schmertz was President of Daniel Scott Inc. from November 1995 to +May 1998. Previously, Mr. Schmertz was the East Coast Sales Manager for Impo +International from January 1993 through November 1995. From April 1990 to +December 1992, Mr. Schmertz served as a sales representative for Espirit de +Corp. based in San Francisco, California. +Joseph Masella has been the President of the Candie's Division since +March 2004. Previously, he was the Executive Chairman of the l.e.i. Footwear +Division and Stevies, Inc. since June 2002. Prior to that, he was President of +Stevies, Inc. since April 2000 and President of l.e.i. Footwear Division since +July 1998. Prior to that, he was Vice President-Sales of the Company's +Adesso-Madden subsidiary since October 1995. From 1992 to 1995, Mr. Masella +served as General Manager-Far East Division of US Shoe Co. +John McCann has been President of l.e.i. Footwear since June 2002. +Previously, he was the line builder of l.e.i. Footwear. Before joining the +Company, Mr. McCann served as the District Merchandise Manager of Baker shoes +from 1995 to 1998. +Harry Chen has been the Chairman of the Madden Mens Division since +March 2004. Previously, he was the President of Union Bay Mens Footwear, Inc. +since January 2003 and the President of Madden Men since November 2002. Before +joining the Company, Mr. Chen served as Chief Executive Officer of XES Appeal, +Inc. from 1997 to 2002. +Jay Litvack has been President of Diva Acquisition Corporation since +May 2002. Before joining the Company, Mr. Litvack served as the President of Me +Too from 1996 to 2002. +Andrew Shames has been the President of Madden Mens since March 2004. +Before joining the Company, Mr. Shames was an executive at Harbor Footwear Group +Ltd. from 1997 to 2004. Mr. Shames began his career at J.P. Marks International, +one of the first importers of men's dress and casual product from Asia, and +occupied the role of Vice President of Sales. +Larry Paparo has been the President of Candie's Kids and Stevies, Inc. +since March 2004. Prior to that, Mr. Paparo served as the Vice President of +Sales for Candie's Division since November 2003. Before joining the Company, Mr. +Paparo held sales and management positions with both Nine West and Kenneth Cole. +Roger Gladstone will not be standing for re-election as a director of +the Company at the Company's 2004 Annual Meeting. Mr. Gladstone has been a +director of the Company since February 2003. Since 1998, Mr. Gladstone has +served as Chairman of Firebrand Financial Group, Inc., a brokerage and +investment banking firm, and has served as a registered representative with +EarlyBirdCapital, Inc., an online investment bank, since 2002. In addition, Mr. +Gladstone has served as Chairman of Premium Asset Recovery Corporation, an +adjustment and collection services company, since 1998. Previously, Mr. +Gladstone has served as President of Shochet Securities, a brokerage firm, from +1999 to 2002. +-12- +COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS +Summary Compensation Table +The following table sets forth for each of the last three fiscal years +ended December 31, 2003, December 31, 2002 and December 31, 2001 the +remuneration paid by the Company to its Chief Executive Officer and the four +most highly compensated executive officers (other than the Chief Executive +Officer): +Summary Compensation Table +Annual compensation Long-term compensation +----------------------------------- -------------------------------------------- +Restricted +Fiscal Awards Stock Awards All other +Name and principal position year Salary($) Bonus($) options(1) ($) compensation +--------------------------- ------ ---------- ---------- ----------- ---------- ------------ +Jamieson A. Karson, 2003 $ 467,500 $ 108,056(2) -0- N/A $ 287,963(3) +Chief Executive Officer 2002 $ 400,000(4) $ 286,319(5) 45,000(6) N/A $ 32,268(7) +2001 $ 187,500 $ 50,000 100,000 $ 188,000(8) $ 17,791(7) +Richard Olicker, 2003 $ 393,749 $ 183,056 70,000 N/A $ 4,657 +President and 2002 $ 350,000 $ 564,319 75,000 $ 374,800(9) N/A +Chief Operating Officer 2001 $ 252,723 N/A 150,000 N/A N/A +Arvind Dharia, 2003 $ 220,000 $ 71,771 40,000 N/A $ 113,443(10) +Chief Financial Officer 2002 $ 200,000 $ 250,000 40,000 $ 338,400(11) $ 113,411(10) +2001 $ 200,000 $ 50,000 40,000 N/A $ 92,857(10) +Gerald Mongeluzo, 2003 $ 326,250 -0- -0- N/A $ 87,776(12) +President, Adesso- 2002 $ 311,538 $ 69,401 33,000 N/A $ 5,155(13) +Madden, Inc. 2001 $ 299,040 $ 93,623 -0- N/A N/A +Robert Schmertz, 2003 $ 393,750 -0- -0- N/A $ 256,000(14) +President, Steve Madden 2002 $ 363,750 $ 150,000 100,000 $ 850,000(15) $ 5,769(16) +Womens Wholesale Division 2001 $ 300,000 $ 115,000 -0- N/A N/A +and Brand Manager +-------------------- +(1) Options to purchase shares of Common Stock. +(2) Mr. Karson was paid cash bonuses totaling $108,056 for 2003. +(3) In 2003, the Company paid expenses in the amount of $37,963 on behalf of +Mr. Karson pursuant to his employment agreement. In addition, in 2003 the +Company paid Mr. Karson $250,000 in lieu of granting him the option to +purchase 100,000 shares to purchase Common Stock that he was entitled to +under his employment agreement. +(4) Mr. Karson's employment agreement was amended to provide for a base salary +of $425,000 as of July 1, 2002. See "Employment Agreements with Certain +Executives" +(5) In exchange for the increase in base salary described in note (4) above, +Mr. Karson agreed to waive his right to collect the portion of his cash +bonus for 2002 that is allocable to the payment by the Company of the loss +mitigation insurance premium that the Company purchased in the fourth +quarter of fiscal year 2001. The amount waived by Mr. Karson was +approximately $278,000. See "Employment Agreements with Certain Executives" +(6) Although, under his employment agreement Mr. Karson was entitled to receive +an option to purchase 50,000 shares of Common Stock in 2002, on June 24, +2002, Mr. Karson agreed to accept an option to purchase only 45,000 shares +of Common Stock so that an option to purchase 5,000 shares of Common Stock +could be awarded to a key employee. +(7) Expenses paid on behalf of Mr. Karson pursuant to his employment agreement. +(8) On July 10, 2001, Mr. Karson was issued 10,000 shares of restricted Common +Stock, 25% of which became unrestricted at the end of each of the four +quarters following the date of issuance. The closing price of the Company's +Common Stock on July 10, 2001 as reported by The Nasdaq National Market was +$18.80. The value of these restricted shares of Common Stock as of December +31, 2001 was $140,700 (based upon a closing price on December 31, 2001 of +$14.07 per share as reported by The Nasdaq National Market). To the extent +dividends are paid on the Common Stock, such dividends will be paid on +these restricted shares. +-13- +(9) On July 1, 2002, the Company agreed to grant Mr. Olicker 20,000 shares of +Common Stock on January 1, 2005 if Mr. Olicker is employed by the Company +on such date. The closing price of the Company's Common Stock on July 1, +2002 as reported by The Nasdaq National Market was $18.74. The value of +these restricted shares of Common Stock as of December 31, 2002 was +$361,400 (based upon a closing price on December 31, 2002 of $18.07 per +share as reported by The Nasdaq National Market). These shares have not +been issued to Mr. Olicker and Mr. Olicker will not be entitled to any +rights with respect to the ownership of these shares (including voting +rights and dividends) until they are issued to Mr. Olicker. +(10) Life insurance premium and other expenses paid on behalf of Mr. Dharia. +(11) On October 30, 2002, the Company agreed to grant Mr. Dharia 20,000 shares +of Common Stock on December 31, 2005 if Mr. Dharia is employed by the +Company on such date. The closing price of the Company's Common Stock on +October 30, 2002 as reported by The Nasdaq National Market was $16.92. The +value of these restricted shares of Common Stock as of December 31, 2002 +was $361,400 (based upon a closing price on December 31, 2002 of $18.07 per +share as reported by The Nasdaq National Market). These shares have not +been issued to Mr. Dharia and Mr. Dharia will not be entitled to any rights +with respect to the ownership of these shares (including voting rights and +dividends) until they are issued to Mr. Dharia. +(12) In 2003, the Company paid expenses in the amount of $5,726 on behalf of Mr. +Mongeluzo pursuant to his employment agreement. In addition, in 2003 the +Company paid Mr. Mongeluzo $82,500 in lieu of granting him the option to +purchase 33,000 shares to purchase Common Stock that he was entitled to +under his employment agreement. +(13) Expenses paid on behalf of Mr. Mongeluzo pursuant to his employment +agreement. +(14) In 2003, the Company paid expenses in the amount of $6,000 on behalf of Mr. +Schmertz pursuant to his employment agreement. In addition, in 2003 the +Company paid Mr. Schmertz $250,000 in lieu of granting him the option to +purchase 100,000 shares to purchase Common Stock that he was entitled to +under his employment agreement. +(15) On April 2, 2002, the Company agreed to grant Mr. Schmertz 50,000 shares of +Common Stock on June 30, 2005 if Mr. Schmertz is employed by the Company on +such date. The grant of these shares is subject to approval of the +Company's shareholders. The closing price of the Company's Common Stock on +April 2, 2002 as reported by The Nasdaq National Market was $17.00. The +value of these restricted shares of Common Stock as of December 31, 2002 +was $903,500 (based upon a closing price on December 31, 2002 of $18.07 per +share as reported by The Nasdaq National Market). These shares have not +been issued to Mr. Schmertz and Mr. Schmertz will not be entitled to any +rights with respect to the ownership of these shares (including voting +rights and dividends) until they are issued to Mr. Schmertz. +(16) Expenses paid on behalf of Mr. Schmertz pursuant to his employment +agreement. +-14- +The following table sets forth certain information with respect to +options granted during the last fiscal year to the persons named in the above +Summary Compensation Table. +Option/SAR Grants In Last Fiscal Year +Number of Percent of Total Potential Realizable +Securities Options/SARS Exercise Value at Assumed Annual +Underlying Granted to or Base Rates of Stock Price +Options/SARS Employees in Price Appreciation for Option +Name Granted (#) Fiscal Year % ($/Sh) Expiration Date Term +--------------------- ------------- ------------- ---------- ---------------- ------------------------ +5% 10% +---------- ---------- +Jamieson A. Karson -0- NA NA NA NA NA +Richard Olicker 70,000 17.3 19.00 05/23/13 836,430 2,119,677 +Arvind Dharia 40,000 9.9 20.85 09/09/10 339,522 791,230 +Gerald Mongeluzo -0- NA NA NA NA NA +Robert Schmertz -0- NA NA NA NA NA +The following table sets forth certain information with respect to +options exercised during the last fiscal year by the persons named in the +Summary Compensation Table, and with respect to unexercised options held by such +persons at the end of the last fiscal year. +Aggregate Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End Option/SAR Values +Shares Value Number of Securities Value of Unexercised in +Acquired on Realized Underlying Unexercised the Money Options/SARs at +Name Exercise (#) $ Options/SARS at FY-End (#) FY-End ($) (1) +--------------------- ------------- ------------- ----------------------------- -------------------------- +Exercisable Unexercisable Exercisable Unexercisable +----------- -------------- ----------- ------------- +Jamieson A. Karson -0- NA 145,000 -0- 223,900 -0- +Richard Olicker 25,000 299,000 185,000 35,000 1,288,750 49,000 +Arvind Dharia 60,000 625,840 92,000 30,000 557,660 -0- +Gerald Mongeluzo 17,000 146,275 33,000 -0- 46,860 -0- +Robert Schmertz 12,500 86,000 100,000 -0- 142,000 -0- +-------------------- +(1) Based upon a closing price on December 31, 2003 of $20.40 per share as +reported by The Nasdaq National Market. +-15- +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the "1999 Plan"), and on June 4, 1999 the Company's +stockholders approved the adoption of the 1999 Plan. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of Common Stock subject to the plan from 400,000 to 975,000 shares. In +July 2001, the Company's stockholders approved an amendment to the 1999 Plan +increasing the number of shares of Common Stock subject to the plan from 975,000 +to 1,600,000 shares. In May 2002, the Company's stockholders approved an +amendment to the 1999 Plan increasing the number of shares of Common Stock +subject to the plan from 1,600,000 to 2,280,000. In May 2003, the Company's +stockholders approved an amendment to the 1999 Plan (i) increasing the maximum +number of shares of the Company's common stock available for issuance under the +plan from 2,280,000 shares to 2,920,000 shares; (ii) providing that the exercise +price of an option granted under the plan shall be no less than the fair market +value of the Company's common stock on the date of grant (except to the extent +otherwise provided in agreements with the Company dated prior to the effective +date of the amendment) and (iii) prohibiting the Board from amending the terms +of any option granted pursuant to the plan to reduce the option price. As of the +Record Date, options to purchase 2,674,500 shares of Common Stock have been +granted pursuant to the 1999 Plan. The purpose of the 1999 Plan is to provide a +means whereby directors and selected employees, officers, agents, consultants, +and independent contractors of the Company, may be granted incentive stock +options and/or nonqualified stock options to purchase shares of common stock, in +order to attract and retain the services or advice of such directors, employees, +officers, agents, consultants, and independent contractors and to provide +additional incentive for such persons to exert maximum efforts for the success +of the Company by encouraging stock ownership in the Company. The 1999 Plan +Proposal is expected to provide even greater flexibility to the Company's +compensation methods, after giving due consideration to competitive conditions +and the impact of federal tax laws. See Proposal Number 2--Amendment of the 1999 +Stock Plan. +Employment Agreements with Certain Executive Officers +In May 2001, the Company entered into an employment agreement with +Jamieson A. Karson pursuant to which Mr. Karson agreed to serve as the Company's +Chief Executive Officer and Vice Chairman of the Board. This agreement was +amended in February 2004. The term of Mr. Karson's employment under the +agreement (as amended) is five (5) years commencing on July 1, 2001 and ending +on June 30, 2006. The term will be automatically extended for successive one +year periods unless the Company timely notifies Mr. Karson of its intention not +to extend the term. In connection with the execution of his Employment +Agreement, Mr. Karson surrendered 5,000 options which had been granted to him +for his service as an outside director. The agreement (as amended) provides that +the Company pay Mr. Karson an annual salary of $467,500 which base salary is +subject to a 10% annual increase on each July 1st of the term if the Company's +net income for the four calendar quarters ending on the most recent June 30th is +greater than the net income for the four calendar quarters ending on the +preceding June 30th. In addition, the agreement provides that for each fiscal +year (beginning with 2002) that occurs during the term of employment, Mr. Karson +receive a cash bonus, in an amount determined by the Board, not less than four +percent (4%) of the increase in the Company's EBITDA (earnings before interest, +tax, depreciation and amortization) over the EBITDA of the prior fiscal year. On +or about July 10, 2001, Mr. Karson received options to purchase 100,000 shares +of the Company's Common Stock at an exercise price equal to the closing market +price on the date prior to the grant date as quoted on The Nasdaq National +Market. These options vested quarterly over the one year period following the +date of grant and are exercisable for a period of five (5) years from the date +of grant. On or about July 10, 2001, the Company issued to Mr. Karson 10,000 +shares of restricted common stock, 25% of which became unrestricted at the end +of each of the four quarters following the date of issuance. Subject to approval +by the Company's stockholders of the Amendment of the Company's 1999 Stock Plan +and subject to availability of shares under such plan or any other plan +designated by the Board of Directors and approved by the Company's stockholders, +on or about the date of the Company's annual meeting for each year of the term +of the agreement (beginning in 2002), Mr. Karson is entitled to receive, annual +options to purchase shares of the Company's Common Stock equal to the dollar +amount of the annual bonus received by Mr. Karson for the previous fiscal year; +provided, however, that no annual option shall be for greater than 100,000 +shares. The annual options shall vest quarterly over the one year period +following the date of grant and shall be exercisable after vesting for a period +of five (5) years from the date of grant at an exercise price equal to the +closing price of the Company's Common Stock on the applicable date of grant, as +quoted on The Nasdaq National Market (or such other market or exchange on which +-16- +the Company's Common Stock is listed or traded). In addition, in the event of +Mr. Karson's total disability or his death, the Company is obligated to continue +to pay Mr. Karson (or Mr. Karson's estate) his base salary for the twelve (12) +month period immediately subsequent to the date of such total disability or +death. In the event Mr. Karson's employment agreement is terminated (or not +extended) for any reason other than For Cause (as defined in the agreement) or +due to his death or his total disability, the Company is obligated to pay Mr. +Karson an amount equal to the product of (i) Mr. Karson's base salary plus the +cash bonus which Mr. Karson was paid for the immediately preceding fiscal year +multiplied by (ii) the greater of (A) the number of years remaining on the term +of the agreement or (B) two. In the event that there is a "change of control" +transaction terminating Mr. Karson's employment, all unvested options to +purchase shares of the Company's Common Stock held by Mr. Karson will vest on +the date of termination and Mr. Karson will be entitled to receive a lump sum +cash payment equal to (a) the amount of compensation that is accrued and unpaid +through the date of termination and (b) three (3) times the total compensation +(base salary and cash bonus) received by Mr. Karson for the preceding 12 month +period ending December 31. Mr. Karson's employment agreement contains other +customary provisions, including provisions regarding confidentiality, +solicitation and competition. +The Company entered into an employment agreement with Richard Olicker, +the Company's President and Chief Operating Officer on January 3, 2001, which +agreement was amended as of July 1, 2002. The term of Mr. Olicker's employment +ends on January 1, 2005. The Company agreed to pay Mr. Olicker an annual base +salary of $375,000, which, subject to certain net income requirements, will be +increased annually by 10%. In addition, Mr. Olicker is entitled to receive a +cash bonus equal to four percent (4%) of the amount by which the aggregate +EBIT-D (earnings before the payment of interest or taxes or a deduction for +depreciation) for the fiscal year ending on the most recent December 31st +exceeds EBIT-D for the fiscal year ending on the preceding December 31st. The +agreement provides that Mr. Olicker receive a one time cash bonus of $125,000 in +the event that the aggregate EBIT-D for any 4 consecutive fiscal quarters during +the term of the agreement equals or exceeds $40,000,000. The agreement also +provides that, on each June 30th during the term of the agreement, Mr. Olicker +receive an option bonus to purchase a number of shares of common stock equal to +thirty percent (30%) of the dollar amount of the annual cash bonus due for the +fiscal year ending on the preceding December 31st. The options comprising the +option bonus shall vest quarterly over a one (1) year period commencing on the +September 30th following the date of grant and be exercisable at a price equal +to the closing bid price of the Company's shares of Common Stock on the date of +grant, as reported by The Nasdaq National Market. Pursuant to the amendment to +Mr. Olicker's agreement, in September 2002, Mr. Olicker received options to +purchase 75,000 shares of the Company's Common Stock and on or about the date of +the Company's annual meeting for each year of the term of the agreement +(beginning in 2003), Mr. Olicker is entitled to receive, annual options to +purchase 75,000 shares of the Company's Common Stock, which options shall vest +quarterly over the one year period following the date of grant and shall have an +exercise price equal to the closing bid price of the Company's Common Stock on +the applicable date of grant, as quoted on The Nasdaq National Market. In the +event that Mr. Olicker's employment is terminated for any reason other than (i) +the Company terminating employment for cause or (ii) Mr. Olicker terminating +employment without good reason, Mr. Olicker shall receive a pro rata option +bonus based on the performance of the Company for the full fiscal year in which +his employment was terminated. In addition, if Mr. Olicker is employed by the +Company on January 1, 2005, he will be entitled to 20,000 unrestricted shares of +the Company's Common Stock. Mr. Olicker also received a signing bonus of one +hundred thousand dollars ($100,000). Mr. Olicker's employment agreement contains +other customary provisions. +In January 1998, the Company entered into an employment agreement with +Arvind Dharia, pursuant to which Mr. Dharia agreed to serve as the Company's +Chief Financial Officer, which agreement was amended as of June 29, 2001 and as +of October 30, 2002. The agreement will expire on December 31, 2005. However, +the term of the agreement is subject to automatic extension for one (1) year +unless either party terminates the agreement with ninety (90) days' prior +notice. The Company agreed to pay Mr. Dharia an annual salary of $169,400 until +September 30, 2001, $200,000 from October 1, 2001 through December 31, 2002, +$220,000 from January 1, 2003 through December 31, 2003, $234,000 from January +1, 2004 through December 31, 2004, and $240,000 from January 1, 2005 through +December 31, 2005. Mr. Dharia received a $50,000 signing bonus upon execution of +the amendment to the agreement on June 29, 2001. The agreement provides that Mr. +Dharia receive options to purchase 40,000 shares of the Company's Common Stock +on June 30 of each year during the term of the agreement (commencing June 30, +2001). The options are to vest quarterly over a period of one (1) year and are +exercisable at an exercise price equal to the lesser of (i) the average closing +bid price of the Company's Common Stock as quoted on The Nasdaq National Market +or such other exchange on which the common stock shall be listed on the date of +grant or (ii) if the date of grant is not June 30th, the average closing bid +-17- +price of the Company's Common Stock as quoted on The Nasdaq National Market or +such other exchange on which the common stock shall be listed on June 30th of +the year in which the grant shall occur. In addition, the agreement provides +that for each fiscal year that occurs during the term of employment (beginning +with the fiscal year ended December 31, 2001), Mr. Dharia receive a cash bonus, +in an amount equal to one and one-half percent (1.5%) of the increase in the +Company's EBITDA (earnings before interest, tax, depreciation and amortization) +over the EBITDA of the prior fiscal year, provided, however that in no event +shall the annual cash bonus exceed Mr. Dharia's base salary for such fiscal +year. Also, Mr. Dharia shall, at the end of a calendar quarter, receive a bonus +of $50,000 if the Company has had sales of $300,000,000 or more for such +calendar quarter and the immediately preceding three (3) calendar quarters, +provided, however, that Mr. Dharia shall not receive this $50,000 bonus more +than once in any given calendar year. In addition, during the term of the +agreement, the Company is obligated to pay life insurance premiums on behalf of +Mr. Dharia of approximately $80,000 per year. Also, if Mr. Dharia is employed by +the Company on January 1, 2005, he will be entitled to 20,000 unrestricted +shares of the Company's Common Stock. In the event of Mr. Dharia's total +disability or death, the Company is obligated to pay Mr. Dharia or his estate an +amount equal to the appropriate salary for the twelve (12) month period +immediately subsequent to the date of his total disability or death. In the +event Mr. Dharia's employment agreement is terminated by the Company for any +reason other than "for cause" or due to his "total disability", the Company is +obligated to pay Mr. Dharia an amount equal to the product of (a) Mr. Dharia's +base salary on the effective date of such termination plus the bonus paid or +payable for the fiscal year ended on the December 31st immediately preceding the +date of termination multiplied by (b) the number of years (and fractions of +years) remaining in the term of the employment agreement. In addition, the +Company will be obligated to continue to pay the life insurance premiums on +behalf of Mr. Dharia provided for above. The payments due Mr. Dharia upon his +termination for any reason other than "for cause" or due to his "total +disability" will be payable in two installments: fifty percent (50%) on January +1 after the date of termination and the remaining fifty percent (50%) one year +after. Further, Mr. Dharia may terminate the agreement in the event of a "change +in control" of the Company without Mr. Dharia's prior written consent, and +within ten (10) days of termination Mr. Dharia is entitled to receive an amount +equal to three (3) times the total compensation (including base salary, cash +bonus, and other employee benefits) received by Mr. Dharia for the preceding +twelve (12) month period ending on the most recent December 31st, provided that +Mr. Dharia's then-current Base Salary shall be used in determining the +foregoing. Mr. Dharia's employment agreement contains other customary +provisions. +In April 2002, the Company entered into an employment agreement with +Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as President of +Steve Madden Wholesale Womens Division and Brand Manager for Steven Madden, Ltd. +The term of Mr. Schmertz's employment commenced on April 1, 2002 and ends on +June 30, 2005. Mr. Schmertz received a signing bonus of $150,000. The Company +agreed to pay Mr. Schmertz an annual salary of $375,000, which will be increased +to $412,500 on July 1, 2003 and will be further increased to $453,750 on July 1, +2005. Pursuant to the agreement, on May 17, 2002 Mr. Schmertz received 100,000 +options to purchase the Company's Common Stock at an exercise price equal to the +closing market price on such date. These options vest quarterly beginning with +the first 25,000 vesting on September 30, 2002 and the last on June 30, 2003. In +addition, on the date of the Company's annual meeting in each of 2003 and 2004, +Mr. Schmertz will be entitled to receive an option to purchase 100,000 shares of +the Company's Common Stock. These options will have an exercise price equal to +the closing market price on the date of the grant and will vest quarterly +beginning with the first 25,000 vesting on the September 30th immediately +following the grant. In the event of a change in control, all unvested options +will vest on the date of the change of control, priced as of the closing market +price on the date of transfer as quoted on The Nasdaq National Market. Subject +to the approval of the Company's shareholders, if Mr. Schmertz is employed by +the Company through June 30, 2005, he will be entitled to receive 50,000 shares +of Common Stock. +In April 2001, Adesso-Madden, Inc. ("Adesso"), a wholly-owned +subsidiary of the Company, entered into an employment agreement with Gerald +Mongeluzo pursuant to which Mr. Mongeluzo agreed to serve as President of +Adesso. The term of Mr. Mongeluzo's employment is three (3) years commencing on +April 1, 2001 and ending on March 31, 2004. Mr. Mongeluzo received a signing +bonus of $35,000. Adesso agreed to pay Mr. Mongeluzo an annual salary of +$300,000 for the first year of the term, $315,000 for the second year of the +term and $330,000 for the third year of the term. The agreement provides that by +April 15th of 2002, 2003 and 2004, Mr. Mongeluzo shall receive a cash bonus +equal to four percent (4%) of the amount by which net profit for the fiscal year +ending on the most recent December 31st exceeds net profit for the fiscal year +ending on the preceding December 31st. In addition, the agreement provides that +on each of June 30, 2001, 2002, and 2003, Mr. Mongeluzo shall receive an option +to purchase 34,000, 33,000 and 33,000 shares of the Company's Common Stock, +-18- +respectively. These options shall vest quarterly over the one year period +following the date of grant and shall be exercisable after vesting for a period +of seven (7) years from the date of grant at an exercise price equal to the +closing price of the Company's Common Stock on the applicable date of grant, as +quoted on The Nasdaq National Market (or other principal exchange on which +shares of the Company's Common Stock are traded). In the event that Mr. +Mongeluzo terminates his employment for `good reason' or Mr. Mongeluzo's +employment is terminated by the Company for any reason other than "for cause" or +due to his disability, the Company is obligated to pay Mr. Mongeluzo an amount +equal to Mr. Mongeluzo's base salary for the greater of (i) twelve (12) months +or (b) the remaining term of his agreement (as if it had not been terminated). +Further, Mr. Mongeluzo may terminate the agreement in the event of a "change in +control" of the Company, and upon such termination Mr. Mongeluzo is entitled to +receive an amount equal to the greater of (a) Mr. Mongeluzo's base salary for +the remaining term of his agreement (as if it had not been terminated) or (b) +Mr. Mongeluzo's base salary as then in effect for a period of twelve (12) +months. Mr. Mongeluzo's employment agreement contains other customary +provisions. +Agreement with the Chairman of the Board +In May 2001, the Company entered into an agreement with Charles A. +Koppelman pursuant to which Mr. Koppelman agreed to serve as the Company's +Executive Chairman of the Board. The term of the agreement is two (2) years +commencing on July 1, 2001 and ending on June 30, 2003. The Company agreed to +pay Mr. Koppelman an annual base salary of $125,000. The Company also agreed to +provide Mr. Koppelman with an annual $125,000 non-accountable expense allowance. +Pursuant to the agreement, on or about July 10, 2001 Mr. Koppelman received +options to purchase 100,000 shares of the Company's Common Stock at an exercise +price equal to the closing market price on the date prior to the grant date, as +quoted on The Nasdaq National Market. These options vested quarterly over the +one year period following the date of grant and are exercisable for a period of +five (5) years from the date of grant. On or about July 10, 2001, the Company +issued to Mr. Koppelman 10,000 shares of restricted common stock, 25% of which +became unrestricted at the end of each of the four quarters following the date +of issuance. As of May 31, 2001, Mr. Koppelman received fully-vested options to +purchase 75,000 shares of the Company's Common Stock, which are exercisable for +a period of five (5) years from the date of grant at an exercise price of $7.00. +These options were granted pursuant to an outstanding letter agreement between +the Company and Mr. Koppelman (the "Option Letter"). Mr. Koppelman surrendered +the remaining 225,000 options to be granted to him pursuant to the Option Letter +in connection with the execution of his agreement. Pursuant to the terms of the +agreement, Mr. Koppelman is also entitled to receive annual options to purchase +100,000 shares of the Company's Common Stock on the date of the Company's annual +meeting held in each of 2002, 2003, and 2004. Twenty five percent (25%) of each +annual option will vest at the end of each of the four full calendar quarters +after the applicable grant date. The annual options shall be exercisable after +vesting for a period of five (5) years from the date of grant at an exercise +price equal to the lesser of (a) the closing market price on the applicable +grant date, as quoted on The Nasdaq National Market (or such other market or +exchange on which the Company's Common Stock is listed or traded) or (b) $13.50. +In the event that Mr. Koppelman ceases to be either an employee or director of +the Company, any annual option not yet granted shall be forfeited as of the date +of termination; provided however, that if the agreement shall have been +terminated (or not extended) by the Company other than For Cause (as defined in +the agreement) or by Mr. Koppelman with Good Reason (as defined in the +agreement) any annual options which were granted prior to such termination shall +be deemed granted as of the date prior to the date of such termination. The +agreement also provides that in the event there is a "change of control" of the +Company, (i) all unvested options granted to Mr. Koppelman prior to such "change +of control" shall immediately vest (ii) if Mr. Koppelman is an employee or +director of the Company at the time of such "change of control", any annual +options which have not been granted prior to such change of control shall +immediately be granted and vest, and (iii) the exercise price of all unexercised +options shall be reduced to $7.00. Mr. Koppelman's agreement contains other +customary provisions, including provisions regarding confidentiality, +solicitation and competition. In October 2002, the Compensation Committee of the +Board of Directors determined that it was in the best interests of the Company +that Mr. Koppelman's current agreement not be extended beyond its June 30, 2003 +expiration date. As of July 1, 2003, Mr. Koppelman was compensated for his +services as a director in the same manner as the other outside directors on the +Board. +-19- +Agreement with Steven Madden +In May 2001, the Company entered into an agreement with Steven Madden, +the Company's founder, pursuant to which Mr. Madden agreed to serve as the +Company's Creative and Design Chief. The agreement amends and restates the prior +agreement dated July 29, 1997 (and amended February 28, 2000). The term of Mr. +Madden's employment under the agreement is ten (10) years commencing on July 1, +2001 and ending on June 30, 2011. The Company has agreed to pay Mr. Madden an +annual base salary of $700,000, which the Board may increase, but not decrease, +at any time. Mr. Madden is entitled to receive base salary payments during +periods that he is not actively engaged in the duties of Creative and Design +Chief. For each fiscal year during the term of the agreement, Mr. Madden is +entitled to receive a cash bonus in an amount determined by the Board, but not +less than 2% of the Company's EBITDA (earnings before interest, tax, +depreciation and amortization) for such year; provided however, that the Company +is not required to pay such cash bonus for any fiscal year during which Mr. +Madden is not actively engaged in the duties of Creative and Design Chief for at +least six months. Subject to availability of shares under the Company's 1999 +Stock Plan or any other plan designated by the Board of Directors and approved +by the Company's stockholders, on or about the date of the Company's annual +meeting for each year of the term (beginning in 2002), Mr. Madden is eligible to +receive, during the term of the agreement, annual options to purchase shares of +the Company's common stock in an amount equal to not less than 150% of the +largest aggregate amount of options granted to any other continuing full time +employee of the Company over the 12 month period up to and including the +applicable grant date; provided that all annual options shall be subject to +final approval of the Board. The annual options will vest quarterly over the 1 +year period following the date of grant and will be exercisable after vesting +for a period of 5 years from the grant date at an exercise price equal to the +closing price of the Company's Common Stock on the grant date as quoted on The +Nasdaq National Market (or such other market or exchange on which the Company's +Common Stock is listed or traded). The Company is not required to grant an +annual option if Mr. Madden is not actively engaged in the duties of Creative +and Design Chief for at least six months out of the twelve months immediately +preceding the grant date for such annual option. The Company also agreed to +provide Mr. Madden with an annual $200,000 non-accountable expense allowance +which amount is payable in equal monthly installments; however, the Company is +not required to pay the non-accountable expense allowance for any month during +which Mr. Madden is not actively engaged in the duties of Creative and Design +Chief. +In addition, in the event of Mr. Madden's total disability or death, +the Company is obligated to continue to pay Mr. Madden (or Mr. Madden's estate) +Mr. Madden's base salary for the twelve (12) month period immediately subsequent +to the date of such total disability or death. In the event Mr. Madden's +agreement is terminated for any reason other than "for cause" or due to his +death or his total disability, the Company is obligated to pay Mr. Madden the +balance of his base salary that would have been paid over the full term of the +agreement if the agreement had not been terminated, fifty percent (50%) upon +termination and the remaining fifty percent (50%) in equal annual installments +until June 30, 2011. In the event there is a "change of control" transaction +terminating Mr. Madden's employment, all unvested options to purchase shares of +the Company's Common Stock held by Mr. Madden will vest on the date of +termination and Mr. Madden will be entitled to receive a lump sum cash payment +equal to (a) the amount of compensation that is accrued and unpaid through the +date of termination and (b) three (3) times the total compensation (base salary, +cash bonus and non-accountable expense allowance) received by Mr. Madden for the +preceding 12 month period ending December 31. +To the extent not previously assigned or consented to, except as +provided below, (i) Mr. Madden sold, assigned and transferred to the Company the +exclusive right and interest to his name and (ii) Mr. Madden consented to the +use of his name as trademarks, service marks, corporate names and/or internet +domain name addresses of the Company (the "Marks"). Mr. Madden also agreed to +never challenge the Company's ownership of his name or the validity of the +Company's ownership of the Marks or of any registration or application for +registration thereof. Mr. Madden may however use his name for all non-commercial +purposes and for use in connection with any business that is not in the design, +manufacture, sale, marketing or distribution of (i) branded or designer +footwear, apparel, accessories and other products in the categories of products +sold by, or under license from, the Company or any of its affiliates, (ii) +jewelry and other giftware, (iii) cosmetics, fragrances and other health and +beauty care items, (iv) housewares, furniture, home furnishings and related +products and (v) other products related to fashion, cosmetics or lifestyle (any +of such activities being a "competitive business"). Further, Mr. Madden agreed +to not directly or indirectly (i) engage in any competitive business in any +relationship or capacity, (ii) solicit any customers of the Company, or (iii) +solicit or employ any employee or agent to the Company, until the later of (a) +June 30, 2011 or (b) the date which is twelve (12) months after the date on +-20- +which Mr. Madden is no longer employed by the Company, or until twelve months +after the date of termination should Mr. Madden be terminated in connection with +a change of control. Mr. Madden's agreement contains other customary provisions. +In May 2001, Mr. Madden entered into a plea agreement with the U.S. +Attorney's Office, pursuant to which he pled guilty to four securities fraud and +money laundering charges that had been previously filed against him. In 2002, +Mr. Madden was sentenced to forty-one (41) months' imprisonment in connection +with the charges. Mr. Madden began serving his sentence in September of 2002. +While serving his sentence, Mr. Madden is not actively engaged in the duties of +Creative and Design Chief and is therefore only entitled to receive base salary +payments under the agreement. +On April 26, 2004, the SEC sent the Company a letter requesting +information and documents relating to, among other things, Mr. Madden's +employment by the Company and the officer and director bar against Mr. Madden. +The Company intends to fully comply with the SEC's request. +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with +Peter J. Solomon & Company, a financial advisory firm of which Marc Cooper, one +of the Company's directors, is a managing director. Under this agreement, the +firm provided financial advisory and investment banking services to the Company. +Pursuant to this agreement, the Company paid fees to Peter J. Solomon & Company +in the amount of $75,000 during 2001 and $150,000 during 2002. During 2003, the +Company paid $32,866 to Peter J. Solomon & Company for research and other +expenses. This agreement was amended in March 2004. Under the amended agreement, +the Company will pay fees to Peter J. Solomon & Company in the amount of +$200,000 during 2004. +The Company and Jeffrey Birnbaum, one of the Company's directors, have +entered into an agreement whereby Mr. Birnbaum provides design consultation +services to the Company. Pursuant to this agreement, Mr. Birnbaum received a fee +of $200,000 from the Company in 2003. +The Company paid John Madden, one of the Company's directors, $15,000 +in 2003 for investment consulting advice provided by Mr. Madden to the Company +in 2002. In addition, in January 2004 the Company entered into an agreement with +JLM Consultants, a company wholly-owned by Mr. Madden, whereby JLM Consultants +will provide consulting services with respect to the development of +international sales of the Company. Pursuant to this agreement, JLM Consultants +will receive a monthly fee of $16,000. +The Company had an agreement with Charles Koppelman, its Chairman, +which expired on June 30, 2003. See "Agreement with the Chairman of the Board." +The Company has an agreement with Steven Madden, a beneficial holder of +more than 10% of the Company's outstanding shares of common stock. See +"Agreement with Steven Madden." +Compensation Committee Report On Executive Compensation +The Compensation Committee is responsible for reviewing and approving +the Company's compensation policies and the compensation paid to its executive +officers, including the Chief Executive Officer and the other named executive +officers. During 2003, the Compensation Committee was comprised of directors +Peter Migliorini (chairman) and Roger Gladstone. Each member of the Compensation +Committee was a non-employee director of the Company during 2003. +The Compensation Committee's goal is to develop executive compensation +policies and practices that are consistent with and linked to the Company's long +term goal of maximizing stockholder value. The program is designed to facilitate +the long-term success and growth of the Company through the attraction, +motivation, and retention of outstanding executives. +-21- +The objectives of the Company's executive compensation programs are to: +(i) attract and retain the highest quality executives, (ii) inspire and motivate +executive officers to increase Company performance, (iii) align executive +officers' financial interest with those of the Company's long-term investors, +and (iv) reward executive officers for exceptional individual contributions to +the achievement of the Company's objectives. +Executive compensation consists of three components: base salary, +annual incentive bonuses and long-term incentive awards (stock options). Each +compensation component is offered to executives in varying combinations, +structured in each case, to meet varying business objectives and to provide a +level of total compensation comparable to similarly situated public companies. +The total compensation of Jamieson A. Karson, the Company's Chief +Executive Officer, is determined pursuant to his employment agreement with the +Company. Mr. Karson was appointed Chief Executive Officer effective as of July +1, 2001. In 2003, Mr. Karson's compensation consisted of $467,500 in base salary +payments and a total of $108,056 in bonus payments, which total bonus amount was +fully paid by April 21, 2004. In addition, in 2003 the Company paid Mr. Karson +$250,000 in lieu of granting him the option to purchase 100,000 shares to +purchase Common Stock that he was entitled to under his employment agreement. +Mr. Karson is also entitled to receive options to purchase an additional 58,056 +shares of Common Stock for his service as Chief Executive Officer in 2003. In +February 2004, the Compensation Committee approved an amendment to Mr. Karson's +employment agreement which extended the term of the agreement to June 30, 2006. +The Compensation Committee believes that Mr. Karson's compensation should be +heavily weighted towards enhancing stockholder value, and accordingly, Mr. +Karson's employment agreement provides that a significant portion of his future +compensation will be based upon the Company's overall performance. See +"Employment Agreements with Certain Executive Officers." +The Company has negotiated employment agreements with respect to base +salary, annual incentive awards and stock option awards for each of the +Company's named executive officers based upon the Company's performance and the +individual performance of such named executives. +The Internal Revenue Code of 1986 prohibits the Company from taking a +tax deduction in any year for compensation paid the persons who would be named +executive officers in that year in excess of $1 million unless such compensation +is "performance-based compensation." The Company did not pay in 2003 any officer +compensation which will be subject to the $1 million deduction limitation. The +Compensation Committee will take into consideration the $1 million deduction +limitation when structuring future compensation packages for the Company's +executive officers and, if appropriate and in the best interests of the Company, +will conform such packages to permit the Company to take a deduction for the +full amount of all compensation. +Compensation Committee Interlocks and Insider Participation +The Compensation Committee makes all compensation decisions. During +2003, the following directors served on the Compensation Committee: Peter +Migliorini (chairman) and Roger Gladstone. During the fiscal year 2003, no +interlocking relationship existed between the Company's Board of Directors or +Compensation Committee and the board of directors or compensation committee of +any other company. +COMPENSATION COMMITTEE +Peter Migliorini (chairman) +Roger Gladstone +-22- +STOCK PERFORMANCE GRAPH +The following graph compares the yearly percentage change in the +cumulative total stockholder return on the Common Stock during the period +beginning on December 31, 1998 and ending on December 31, 2003 with the +cumulative total return on the Russell 2000 Index and the S&P 500 Footwear +Index. The comparison assumes that $100 was invested on December 31, 1998 in the +Company's Common Stock and in the foregoing indices and assumes the reinvestment +of dividends. +[GRAPHIC CHART OMITTED] +12/31/98 12/31/99 12/29/00 12/31/01 12/31/02 12/31/03 +-------- -------- -------- -------- -------- -------- +Steven Madden, Ltd. 100.00 224.24 89.65 165.53 212.59 240.00 +Russell 2000 Index 100.00 119.62 114.59 115.77 90.79 131.98 +S&P 500 Footwear Index 100.00 117.64 140.92 141.39 116.06 175.63 +-23- +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth information as of the Record Date with +respect to the beneficial ownership of the outstanding shares of the Company's +Common Stock by (i) each person known by the Company to beneficially own five +percent or more of the outstanding shares; (ii) the directors and the persons +named in the Summary Compensation Table; and (iii) the Company's officers and +directors as a group. A person is deemed to be a beneficial owner of any +securities of which that person has the right to acquire beneficial ownership +within sixty (60) days. See "Compensation of Directors and Executive Officers." +Name and Address of Amount and Nature of Percentage (%) +Beneficial Owner(1) Beneficial Ownership(2) of Class(2) +---------------------------------------------- ---------------------- ------------ +Charles A. Koppelman 211,250(3) 1.56 +Jamieson A. Karson 155,000(4) 1.15 +Arvind Dharia 102,000(5) * +Gerald Mongeluzo 33,000(6) * +Richard Olicker 220,000(7) 1.62 +Robert Schmertz 100,000(8) * +Marc Cooper 30,000(9) * +John Madden 30,000(10) * +Peter Migliorini 30,000(11) * +Jeffrey Birnbaum -0- * +Awadhesh Sinha 10,000(12) * +Roger Gladstone 10,000(13) * +Steven Madden (14) 1,854,000(15) 13.00 +BOCAP Corp. 1,854,000(16) 13.00 +T. Rowe Price Associates, Inc. (17) 1,115,600 8.37 +T. Rowe Price Small-Cap Value Fund, Inc. (18) 950,000 7.13 +Columbia Wanger Asset Management, L.P. (19) 1,746,800(20) 13.11 +WAM Acquisition GP, Inc. (19) 1,746,800(20) 13.11 +Columbia Acorn Trust (19) 1,025,600(20) 7.70 +Wells Fargo & Company (21) 964,700 7.24 +Wells Capital Management Incorporated (22) 964,700 7.24 +Wellington Management Company, LLP (23) 635,200 4.76 +Royce & Associates, LLC (24) 1,584,700 6.55 +Directors and Officers as a Group (12 persons) 931,250(25) 6.55 +-------------------- +* indicates beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address of each beneficial owner is c/o +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York +11104. +(2) Beneficial ownership as reported in the table above has been determined in +accordance with Item 403 of Regulation S-K of the Securities Act of 1933 +and Rule 13(d)-3 of the Securities Exchange Act, and based upon 13,333,905 +shares of Common Stock outstanding (excluding treasury shares) as of the +Record Date. +(3) Includes 211,250 shares of Common Stock issuable upon the exercise of +options held by Mr. Koppelman. +(4) Includes (i) 145,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Karson and (ii) 10,000 shares of Common Stock held by +Mr. Karson's wife. +(5) Includes 102,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Dharia. +(6) Includes 33,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Mongeluzo. +(7) Includes 220,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Olicker. +(8) Includes 100,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schmertz. +(9) Includes 30,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Cooper. +(10) Includes 30,000 shares of Common Stock issuable upon the exercise of +options held by Mr. J. Madden. +-24- +(11) Includes 30,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Migliorini. +(12) Includes 10,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Sinha. +(13) Includes 10,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Gladstone. +(14) Mr. Madden resigned as Chief Executive Officer of the Company effective as +of July 1, 2001. +(15) Includes (i) 809,000 shares of Common Stock held by BOCAP, a corporation +wholly-owned by Mr. S. Madden, (ii) 940,000 shares of Common Stock issuable +upon the exercise of options held by Mr. Madden. +(16) Includes (i) 940,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Madden and (ii) 105,000 shares of Common Stock held by +Mr. Madden. +(17) Based upon a Schedule 13G/A filed with the SEC on February 6, 2004. The +address for such stockholder is 100 E. Pratt Street, Baltimore, MD 21202. +(18) Based upon a Schedule 13G filed with the SEC on February 6, 2004. The +address for such stockholder is 100 E. Pratt Street, Baltimore, MD 21202. +(19) Based upon a Schedule 13G/A filed with the SEC on February 6, 2004. The +address for such stockholder is 227 West Monroe Street, Suite 3000, +Chicago, IL 60606. +(20) As disclosed in the Schedule 13G/A filed with the SEC on February 6, 2004, +the 1,746,800 shares beneficially owned by Columbia Wanger Asset +Management, L.P. include the 1,746,800 shares beneficially owned by its +general partner, WAM Acquisition GP, Inc. and the 1,025,600 shares owned by +its discretionary client, Columbia Acorn Trust. +(21) Based upon a Schedule 13G/A filed with the SEC on February 13, 2004. The +address for such stockholder is 420 Montgomery Street, San Francisco, CA +94104. As disclosed in the Schedule 13G/A, Wells Capital Management +Incorporated is a subsidiary of such stockholder. +(22) Based upon a Schedule 13G/A filed with the SEC on February 13, 2004. The +address for such stockholder is 525 Market Street, 10th Floor, San +Francisco, CA 94105. As disclosed in the Schedule 13G/A, such stockholder +is a subsidiary of Wells Fargo & Company. +(23) Based upon a Schedule 13/A filed with the SEC on February 12, 2004. The +address for such stockholder is 75 State Street, Boston, MA 02109. +(24) Based upon a Schedule 13G/A filed with SEC on March 8, 2004. The address +for such stockholder is 1414 Avenue of the Americas, New York, NY 10019. +(25) Includes 921,250 shares issuable upon the exercise of options. +-25- +PROPOSAL TWO +AMENDMENT OF THE 1999 STOCK PLAN +At the 1999 Annual Meeting of Stockholders, the Company's stockholders +approved the adoption of the Company's 1999 Stock Plan (the "1999 Plan"). The +Board of Directors has amended the 1999 Plan, subject to stockholder approval, +to authorize 300,000 additional shares for future awards (the "1999 Plan +Proposal"). The affirmative vote of the holders of a majority of the total votes +cast on the 1999 Plan Proposal is needed to approve the 1999 Plan Proposal. +Because of the limited number of remaining shares that may be granted +under the 1999 Plan, the Board of Directors believes it is appropriate and +necessary at this time to authorize additional shares for future awards. +Authorization of these additional shares will allow grants to employees, +consultants and directors in furtherance of the Company's goal of continuing to +achieve significant gains in stockholder value and operating results. +As of March 31, 2004, options to purchase 2,174,000 shares of the +Company's common stock were outstanding. These options had a weighted average +exercise price of $11.74 and a weighted average remaining contractual life of +5.93 years. +The Company intends to continue awarding options in order to attract +and retain the services or advice of such directors, employees, officers, +agents, consultants, and independent contractors and to provide additional +incentive for such persons to exert maximum efforts for the success of the +Company and its affiliates. The following is a summary of the principal features +of the 1999 Plan. The summary is qualified in its entirety by reference to the +complete text of the 1999 Plan, as proposed to be amended. The proposed +amendment to the 1999 Plan is set forth as Annex E to this Proxy Statement. +Description of the 1999 Plan +The maximum number of shares of Common Stock with respect to which +awards may be presently granted pursuant to the 1999 Plan is 2,920,000 shares. +The 1999 Plan Proposal would authorize the use of up to an additional 300,000 +shares of the Company's common stock for a total of 3,220,000 shares being +available for issuance under the 1999 Plan. Shares issuable under the 1999 Plan +may be either treasury shares or authorized but unissued shares. The number of +shares available for issuance will be subject to adjustment to prevent dilution +in the event of stock splits, stock dividends or other changes in the +capitalization of the Company. +Subject to compliance with Rule 16b-3 of the Securities Exchange Act of +1934 (the "Exchange Act"), the Plan shall be administered by the Board of +Directors of the Company (the "Board") or, in the event the Board shall appoint +and/or authorize a committee, such as the Compensation Committee, of two or more +members of the Board to administer the Plan, by such committee (the "Plan +Administrator"). Except for the terms and conditions explicitly set forth in the +Plan, the Plan Administrator shall have the authority, in its discretion, to +determine all matters relating to the options to be granted under the Plan, +including, without limitation, selection of whether an option will be an +incentive stock option or a nonqualified stock option, selection of the +individuals to be granted options, the number of shares to be subject to each +option, the exercise price per share, the timing of grants and all other terms +and conditions of the options. In May 2003 the stockholders of the Company +approved an amendment to the Plan which provided that (i) the exercise price of +an option granted under the plan shall be no less than the fair market value of +the Company's common stock on the date of grant (except to the extent otherwise +provided in agreements with the Company dated prior to the effective date of the +amendment) and (ii) prohibited the Board from amending the terms of any option +granted pursuant to the Plan to reduce the option price. +Options granted under the 1999 Plan may be "incentive stock options" +("Incentive Options") within the meaning of Section 422 of the Internal Revenue +Code (the "Code") or stock options which are not incentive stock options +("Non-Incentive Options" and, collectively with Incentive Options, hereinafter +referred to as "Options"). Each Option may be exercised in whole or in part; +provided, that only whole shares may be issued pursuant to the exercise of any +Option. Subject to any other terms and conditions herein, the Plan Administrator +may provide that an Option may not be exercised in whole or in part for a stated +period or periods of time during which such Option is outstanding; provided, +-26- +that the Plan Administrator may rescind, modify, or waive any such limitation +(including by the acceleration of the vesting schedule upon a change in control +of the Company) at any time and from time to time after the grant date thereof. +During an optionee's lifetime, any incentive stock options granted under the +Plan are personal to such optionee and are exercisable solely by such optionee. +The Plan Administrator can determine at the time the Option is granted +in the case of Incentive Options, or at any time before exercise in the case of +Non-Incentive Options, that additional forms of payment will be permitted. To +the extent permitted by the Plan Administrator and applicable laws and +regulations (including, without limitation, federal tax and securities laws and +regulations and state corporate law), an Option may be exercised by: +(a) delivery of shares of Common Stock of the Company held by an +optionee having a fair market value equal to the exercise price, such fair +market value to be determined in good faith by the Plan Administrator; +(b) delivery of a properly executed notice of exercise, together +with irrevocable instructions to a broker, all in accordance with the +regulations of the Federal Reserve Board, to promptly deliver to the Company the +amount of sale or loan proceeds to pay the exercise price and any federal, +state, or local withholding tax obligations that may arise in connection with +the exercise; or +(c) delivery of a properly executed notice of exercise, together +with instructions to the Company to withhold from the shares of Common Stock +that would otherwise be issued upon exercise that number of shares of Common +Stock having a fair market value equal to the Option exercise price. +Upon a Change in Control of the Company, any award carrying a right to +exercise that was not previously exercisable shall become fully exercisable, the +restrictions, deferral limitations and forfeiture conditions applicable to any +other award granted shall lapse and any performance conditions imposed with +respect to awards shall be deemed to be fully achieved. +Options granted under the 1999 Plan may not be transferred, pledged, +mortgaged, hypothecated or otherwise encumbered other than by will or under the +laws of descent and distribution, except that the Plan Administrator may permit +transfers of awards for estate planning purposes if, and to the extent, such +transfers do not cause a participant who is then subject to Section 16 of the +Exchange Act to lose the benefit of the exemption under Rule 16b-3 for such +transactions. +For federal income tax purposes, the grant to an optionee of a +Non-Incentive Option will not constitute a taxable event to the optionee or to +the Company. Upon exercise of a Non-Incentive Option, in general, the optionee +will recognize compensation income taxable as ordinary income, measured by the +excess of the fair market value of the Common Stock purchased on the exercise +date over the amount paid by the optionee for such Common Stock, and will be +subject to tax withholding. The Company may claim a deduction for the amount of +such compensation. The optionee will have a tax basis in the Common Stock +purchased equal to the amount paid plus the amount of ordinary income recognized +upon exercise of the Non-Incentive Option. Upon the subsequent sale of the +Common Stock received upon exercise of the Non-Incentive Option, an optionee +will recognize capital gain or loss equal to the difference between the amount +realized on such sale and his or her tax basis in the Common Stock, which may be +long-term capital gain or loss if the optionee holds the Common Stock for more +than one year from the exercise date. +For federal income tax purposes, neither the grant nor the exercise of +an Incentive Option will constitute a taxable event to the optionee or to the +Company, assuming the Incentive Option qualifies as an "incentive stock option" +under Code ss.422. If an optionee does not dispose of the Common Stock acquired +upon exercise of an Incentive Option during the statutory holding period, any +gain or loss upon subsequent sale of the Common Stock will be long-term capital +gain or loss, assuming the shares represent a capital asset in the optionee's +hands. The statutory holding period is the later of two years from the date the +Incentive Option is granted or one year from the date the Common Stock is +transferred to the optionee pursuant to the exercise of the Incentive Option. If +the statutory holding period requirements are satisfied, the Company may not +claim any federal income tax deduction upon either the exercise of the Incentive +Option or the subsequent sale of the Common Stock received upon exercise +thereof. If the statutory holding period requirement is not satisfied, the +optionee will recognize compensation income taxable as ordinary income on the +date the Common Stock is sold, in general, in an amount equal to the lesser of +-27- +(i) the fair market value of the Common Stock on that date less the amount paid +by the optionee for such Common Stock, or (ii) the amount realized on the +disposition of the Common Stock less the amount paid by the optionee for such +Common Stock; the Company may then claim a deduction for the amount of such +compensation income. +The federal income tax consequences summarized hereinabove are based +upon current law and are subject to change. +The Board may amend, alter, suspend, discontinue or terminate the 1999 +Plan at any time, except that any such action shall be subject to stockholder +approval at the annual meeting next following such Board action if such +stockholder approval is required by federal or state law or regulation or the +rules of any exchange or automated quotation system on which the Common Stock +may then be listed or quoted, or if the Board of Directors otherwise determines +to submit such action for stockholder approval. In addition, no amendment, +alteration, suspension, discontinuation or termination to the 1999 Plan may +materially impair the rights of any participant with respect to any Option +granted before amendment without such participant's consent. Unless terminated +earlier by action of the Board of Directors, the 1999 Plan shall terminate ten +(10) years after adoption by the stockholders. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR approval of +the 1999 Plan Amendment Proposal. Unless marked to the contrary, proxies +received from Stockholders will be voted in favor of the 1999 Plan Proposal. +-28- +PROPOSAL THREE +RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S INDEPENDENT +AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2004 +The Audit Committee has appointed Eisner LLP as the Company's +independent auditors to conduct the audit of the Company's books and records for +the fiscal year ending December 31, 2004. Eisner LLP also served as the +Company's independent auditors for the previous fiscal year. Representatives of +Eisner LLP are expected to be present at the Annual Meeting to respond to +questions and to make a statement should they so desire. +The affirmative vote of a majority of the shares of Common Stock +represented at the meeting and entitled to vote is required for the ratification +of the appointment of Eisner LLP as the Company's independent auditors. The +Audit Committee is directly responsible for the appointment and retention of the +Company's independent auditors. Although ratification by stockholders is not +required by our organizational documents or other applicable law, the Audit +Committee has determined that requesting ratification by stockholders of its +appointment of Eisner LLP as the Company's independent auditors is a matter of +good corporate practice. If stockholders do not ratify the selection, the Audit +Committee will reconsider whether or not to retain Eisner LLP, but may still +retain them. Even if the selection is ratified, the Audit Committee, in its +discretion, may change the appointment at any time during the year if it +determines that such a change would be in the best interest of the Company and +its stockholders. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the +ratification of the appointment of Eisner LLP as the Company's independent +auditors for the fiscal year ending December 31, 2004. Unless marked to the +contrary, proxies received from stockholders will be voted in favor of the +appointment of Eisner LLP as the Company's independent auditors for the fiscal +year ending December 31, 2004. +FEES PAID TO INDEPENDENT AUDITORS +Audit Fees +The aggregate fees billed by Eisner LLP for professional services +rendered for the audit of the Company's annual financial statements for the +fiscal year ended December 31, 2003, for the reviews of the financial statements +included in the Company's Quarterly Reports on Form 10-Q for that fiscal year, +other statutory and regulatory filings and consents related to registration +statements filed with the SEC for the 2003 fiscal year were $196,000. The +comparative amount for the fiscal year ended December 31, 2002 was $152,000. +Audit-Related Fees +In addition to Audit Fees, Eisner LLP has billed the Company $85,000, +in the aggregate, for Audit Related Fees related to assurance and related +services for the fiscal year ended December 31, 2003. These services include, +among others, the audit of the Company's employee benefit plans and other +accounting related consultations. The comparative amount for the fiscal year +ended December 31, 2002 was $60,000. +Tax Fees +During the fiscal year ended December 31, 2003, Eisner LLP billed the +Company $98,000, in the aggregate, for services rendered to the Company for tax +compliance, tax advice and tax planning. Eisner LLP billed $154,000 for similar +services in the 2001 fiscal year. +All Other Fees +There were no fees billed by Eisner LLP for services rendered to the +Company, other than the services described above under Audit Fees, Audit Related +Fees and Tax Fees, for the fiscal year ended December 31, 2003 and 2002. +-29- +AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES +Consistent with SEC policies regarding auditor independence, the Audit +Committee has responsibility for appointing, setting compensation and overseeing +the work of the independent auditor. In recognition of this responsibility, the +Audit Committee has established a policy to review and pre-approve all audit and +permissible non-audit services provided by the independent auditor. These +services may include audit services, audit-related services, tax services and +other services. +Prior to engagement of the independent auditor for next year's audit, +the Audit Committee will pre-approve all auditing services and all permitted +non-audit services (including the fees and terms thereof), except those excluded +from requiring pre-approval based upon the de minimus exception set forth in +Section 10A(i)(1)(b) of the Exchange Act. +The Audit Committee's pre-approval policies and procedures are as +follows: (a) prior to each fiscal year, the Audit Committee pre-approves a +schedule of estimated fees for proposed non-prohibited audit and non-audit +services and (b) actual amounts paid are monitored by financial management of +the Company and reported to the Audit Committee. +All work performed by Eisner LLP as described above under the captions +Audit Fees, Audit Related Fees, Tax Fees and All Other Fees has been approved or +pre-approved by the Audit Committee pursuant to the provisions of the Audit +Committee charter attached as Annex A. The Audit Committee has considered and +concluded that the provision of non-audit services is compatible with +maintaining the principal accountant's independence. +-30- +OTHER MATTERS +At the date of this Proxy Statement, the Company has no knowledge of +any business other than that described above that will be presented at the +Annual Meeting. If any other business should properly come before the Annual +Meeting in connection therewith, it is intended that the persons named in the +enclosed proxy will have discretionary authority to vote the shares which they +represent. +STOCKHOLDER PROPOSALS AND SUBMISSIONS +FOR THE COMPANY'S 2005 ANNUAL MEETING +In accordance with rules promulgated by the SEC, any stockholder who +wishes to submit a proposal for inclusion in the proxy material to be +distributed by the Company in connection with the 2005 Annual Meeting must do so +no later than December 24, 2004. +In addition, in accordance with Article I, Section 7(f) of the +Company's Amended & Restated By-Laws, in order to be properly brought before the +2005 Annual Meeting, a matter must be (i) specified in the notice of such +meeting given by or at the direction of the Board of Directors (or any duly +authorized committed thereof), (ii) otherwise properly brought before such +meeting by or at the direction of the Board of Directors (or any duly authorized +committed thereof) or (iii) specified in a written notice given by a stockholder +of record on the date of the giving of the notice and on the record date for +such meeting, which notice conforms to the requirements of Article I, Section +7(f) of the Amended & Restated By-Laws and is delivered to, or mailed and +received at, the Company's principal executive offices not less than 120 days +nor more than 150 days prior to the first anniversary of the date of the +Company's 2004 Annual Meeting. Accordingly, any written notice given by or on +behalf of a stockholder pursuant to the foregoing clause (iii) in connection +with the 2004 Annual Meeting must be received no later than January 21, 2005 and +no earlier than December 22, 2004. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE +SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE +A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN +PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 27, 2004 By: /s/ JAMIESON A. KARSON +------------------------------------- +Jamieson A. Karson +Chief Executive Officer +-31- +ANNEX A +STEVEN MADDEN, LTD. +AMENDED & RESTATED AUDIT COMMITTEE CHARTER +Purpose +The Audit Committee (the "Committee") is a committee of the Board of +Directors (the "Board") of Steven Madden, Ltd. (the "Corporation"). The purpose +of the Committee is to assist the Board in the Board's oversight of (1) the +integrity of the financial statements of the Corporation, (2) the Corporation's +compliance with legal and regulatory requirements, (3) the qualifications, +performance and independence of the Corporation's independent auditor(s) (the +"Auditor(s)"), and (4) the performance of the Corporation's internal audit +function. +In addition, the Committee shall prepare the report required by the +rules of the Securities and Exchange Commission (the "SEC") to be included in +the Corporation's annual proxy statement. +Membership +The Committee shall consist of at least three directors who shall be +appointed by the Board on the recommendation of the Nominating/Corporate +Governance Committee of the Board. Each member of the Committee, in the judgment +of the Board, shall be an "independent director" of the Corporation as that term +is defined by the Sarbanes-Oxley Act of 2002 (the "Act"), Section 10A(m)(3) of +the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the rules +of the The Nasdaq National Market ("Nasdaq") and any other law, rule or +regulation applicable to the Corporation. No Committee member shall have +participated in the preparation of the financial statements of the Corporation +or any of its subsidiaries at any time during the past three years. +Each member of the Committee shall have the ability to read and +understand the Corporation's financial statements, including its balance sheet, +income statement and cash flow statement. In addition, at least one member of +the Committee shall have past employment experience in finance or accounting, +requisite professional certification in accounting or any other comparable +experience or background which results in the individual's financial +sophistication, including being or having been a chief executive officer, chief +financial officer or other senior officer with financial oversight +responsibilities. Also, at least one member of the Committee shall qualify as a +"financial expert" as that term is defined in the Act and the final rules +promulgated thereunder and as determined by the Board. A Committee member may be +removed with or without cause by action taken by a majority of the whole Board. +Responsibilities +The Committee's responsibilities include: +A) Financial Statement/Reporting Related: +-------------------------------------- +1. Resolving disagreements, if any, between management and the Auditor(s) +regarding financial reporting. +2. Reviewing with management and the Auditor(s): +a. Significant financial reporting issues and judgments made in +connection with the preparation of the Corporation's financial +statements; and +b. The adequacy of internal controls that could significantly +affect the Corporation's financial statements. +3. Discussing the Corporation's annual audited financial statements and +quarterly financial statements, including the Corporation's disclosures +under "Management's Discussion and Analysis of Financial Condition and +Results of Operations," with management and the Auditor(s). +A-1 +4. Reviewing major issues regarding accounting principles and financial +statement presentations, including: +(a) any significant or major changes in the Corporation's +selection or application of accounting principles and +practices; +(b) any major issues as to the adequacy of the Corporation's +internal controls; and +(c) any special audit steps adopted in light of material control +deficiencies. +5. Reviewing analyses prepared by management and/or the Auditor(s) setting +forth significant financial reporting issues and judgments made in +connection with the preparation of the financial statements, including +analyses of the effects of alternative generally accepted accounting +principles ("GAAP") methods on the Corporation's financial statements, +and reviewing the effect of regulatory and accounting initiatives, as +well as off-balance sheet structures, on the financial statements of +the Corporation. +6. Ensuring review by the Auditor(s) of the Corporation's interim +financial information prior to the filing of the Corporation's +Quarterly Report on Form 10-Q. +7. Discussing generally (i.e., the types of information to be discussed +and the type of presentation to be made) the Corporation's earnings +press releases, as well as financial information and earnings guidance +provided to analysts and rating agencies, particularly any use of +"proforma" or "adjusted" non-GAAP information. +8. Discussing the Corporation's policies regarding risk assessment and +risk management, including the Corporation's major financial risk +exposures and the steps management has taken to monitor and control +such exposures. +9. Reviewing regularly with the Auditor(s) any audit problems or +difficulties encountered in the course of the audit work (and +management's responses thereto), including: +(a) any restrictions on the scope of the Auditor(s)' activities or +on access to requested information; +(b) any significant disagreements with management; +(c) any accounting adjustments that were noted or proposed by the +Auditor(s) but were "passed" on; +(d) any communications between the audit team and the Auditor(s)' +national office regarding auditing or accounting issues +presented by the engagement; and +(e) any "management" or "internal control" letter issued, or +proposed to be issued, by the Auditor(s) to the Corporation, +and management's response. +10. Requesting that the Auditor(s) performing the Corporation's audit +timely report to the Committee the following: +(a) all critical accounting policies and practices to be used; +(b) all alternative treatments of financial information within +GAAP that have been discussed with the Corporation's +management, potential ramifications of their use, and the +treatment preferred by the Auditor(s); +(c) other material written communications between the Auditor(s) +and the Corporation's management, such as any management +letter or schedule of unadjusted differences; and +(d) significant disagreements with management, if any. +A-2 +11. Requesting that the officers certifying the Corporation's periodic +reports filed under Sections 13(a) and 15(d) of the Exchange Act +disclose the following to the Auditor(s) and the Committee on a +quarterly basis: +(a) all significant deficiencies and material weaknesses in the +design or operation of internal controls; +(b) any fraud that involves management or other employees who have +a significant role in the Corporation's internal controls; +(c) any significant changes in internal controls or in other +factors that could significantly affect internal controls; and +(d) any corrective actions taken with regard to such deficiencies +and weaknesses. +12. Discussing with the Auditor(s) the matters required to be discussed by +Statement on Auditing Standards No. 61 relating to the conduct of the +audit. Such review should include: any changes required in the planned +scope of the audit and any matters communicated by the Auditor(s) to +management which the Auditor(s) view as material weaknesses and +reportable conditions of material inadequacies as those terms are +generally understood by the accounting profession or regulators. +13. Reviewing legal matters that may have a material impact on the +financial statements, the Corporation's compliance policies and any +material reports or inquiries received from regulators or governmental +agencies with the Corporation's management and outside counsel. +14. Meeting, as necessary, with management to review the Corporation's +major financial risk exposures and the steps management has taken to +monitor and control such exposures. +B) Oversight of External Auditor(s): +-------------------------------- +1. Being directly and solely responsible for the appointment, retention +and termination, compensation and oversight of the Auditor(s) engaged +to prepare or issue an audit report on the Corporation's financial +statements or perform other audit, review or attest services for the +Corporation, and if applicable, subject to shareholder ratification. +2. Having ultimate authority to approve all audit engagement fees and +terms of the Auditor(s), who shall report directly to the Committee. +3. Reviewing and pre-approving all audit, review, attest and non-audit +services not prohibited by Section 201 of the Act (as codified in +Section 10A(g) of the Exchange Act) and the final rules promulgated +thereunder to be provided by the Auditor(s) (except those services that +satisfy the de minimus exception set forth in Section 10A(i) of the +Exchange Act). +4. Reviewing the Auditor(s)' responsibilities, budget and staffing. +5. At least annually, evaluating the qualifications, performance and +independence of the Auditor(s), including the lead partner of the +audit, after gathering information from management and those +responsible for performing the internal audit function and present the +results of such evaluation to the Board. +6. At least annually, obtaining and reviewing a report by the Auditor(s) +describing: +(a) the Auditor(s)' internal quality-control procedures; +(b) any material issues raised by the most recent internal +quality-control review, or peer review, of the Auditor(s), or +by any inquiry or investigation by governmental or +professional authorities within the preceding five years, +regarding one or more audits carried out by the Auditor(s) and +any steps taken to deal with such issues; and +A-3 +(c) all relationships between the Auditor(s) and the Corporation, +in order to evaluate the Auditor(s)' independence. +7. Confirming that the Corporation's chief executive officer, controller, +chief financial officer, chief accounting officer, or any person +serving in an equivalent position for the Corporation, were not +previously employed by the Auditor(s) and did not participate, as an +employee of the Auditor(s), in the Corporation's audit during the +one-year period preceding the date of the initiation of the audit and, +if necessary, take appropriate action regarding the Auditor(s), +including removal and replacement. +8. Periodically reviewing the Auditor(s) to assure that all partners who +perform audit services for the Corporation have not performed audit +services for the Corporation in any of the years prohibited by +applicable laws and regulations and, if necessary, take appropriate +action regarding the Auditor(s), including removal and replacement. +9. Considering whether, in order to assure continuing independence of the +Auditor(s), it is appropriate for the Corporation to adopt a policy of +rotating the Auditor(s) on a regular basis. +C) Internal Audit: +--------------- +1. Reviewing the responsibilities, budget and staffing of the +Corporation's internal audit function with the Auditor(s) prior to the +audit. +2. Reviewing the appointment and replacement of the senior internal +auditing executive. +3. Reviewing significant reports to management prepared by the staff of +the Corporation that performs the internal audit function and +management's responses thereto, if any. +D) Reporting and Other: +-------------------- +1. Preparing the report required by the rules of the SEC to be included in +the Corporation's annual proxy statement and any other required +reports. +2. Reviewing and reassessing the adequacy of this Charter as necessary, +but not less than annually, and recommending any proposed changes to +the Board for approval. +3. Ensuring inclusion of this Charter in the Corporation's annual proxy +statement at least once every three years or as required by SEC rules. +4. Establishing procedures for the receipt, retention and confidential +treatment of complaints received by the Corporation regarding +accounting, internal accounting controls or auditing matters and the +confidential, anonymous submission by employees of the Corporation of +concerns regarding questionable accounting or auditing matters. +5. Establishing clear hiring policies for employees and former employees +of the Auditor(s). +6. Reviewing any issues that arise with respect to the quality or +integrity of the Corporation's financial statements, the Corporation's +compliance with legal and regulatory requirements, the performance and +independence of the Auditor(s) and the performance of the internal +audit function with the full Board. +7. Timely reporting any non-audit service(s) being performed by the +Auditor(s) to the Corporation's controller (or such employee of the +Corporation that performs a similar function) so that such information +may be disclosed in the Corporation's annual and proxy statements. +8. Discussing with management the compliance of the Corporation's +subsidiaries and controlled affiliated entities with applicable +significant legal requirements and advising the Board of such +compliance. +9. Meeting separately, periodically with management, those responsible for +the internal audit function and the Auditor(s). +10. Reporting regularly to the Board. +A-4 +Qualified Legal Compliance Committee +The Committee shall also serve as the Qualified Legal Compliance +Committee ("QLCC"), as such term is defined by the Securities and Exchange +Commission in 17 CFR 205, and perform the duties set forth on Attachment 1 to +this Charter. +Committee Structure and Operations +A majority of the Committee shall constitute a quorum. The Board shall +designate a member of the Committee as its chairman. The Committee may act by a +majority vote of the members present at a duly constituted meeting of the +Committee. In the absence or disqualification of a member of the Committee, the +members present, whether or not they constitute a quorum, may unanimously +appoint another independent member of the Board to act at the meeting in the +place of an absent or disqualified member. In the event of a "tie" vote on any +issue voted upon by the Committee, the Committee chairman's vote shall decide +the issue. +The Committee shall meet in person or telephonically at least four +times a year at a time and place determined by the Committee chairman, with +additional meetings called when deemed necessary or desirable by the Committee +or its chairman. The Committee shall make regular reports to the Board. +The Committee shall have the authority to retain and pay legal, +accounting or other advisors as it deems necessary, at the Corporation's +expense, to fulfill its duties. The Corporation shall provide for appropriate +funding, as determined by the Committee, for payment of compensation to the +Auditor(s) for the purpose of rendering or issuing an audit report or performing +other audit, review or attest services and to any advisors employed by the +Committee and for ordinary administrative expenses of the Committee that are +necessary or appropriate in carrying out its duties. +The Committee shall have the authority to delegate to one or more +members of the Committee the authority to pre-approve audit and permitted +non-audit services. Such members must report grants of pre-approval to the full +Committee at its next scheduled meeting. In addition, the Committee may ask +members of management or others whose advice and counsel are relevant to the +issues then being considered by the Committee to attend a Committee meeting and +to provide such pertinent information as may be requested by the Committee. +Annual Performance Evaluation +Each year, the Audit Committee shall conduct a self-evaluation. In this +regard, the Committee shall compare its performance with the provisions of this +Charter, set forth its objectives for the following year, and recommend to the +Board changes to the Charter, when deemed appropriate or necessary by the +Committee. +General +The Committee shall have and may exercise all powers, authority and +responsibilities as the Board shall determine and as may be properly granted to +the Committee under the laws of the State of Delaware and the Corporation's +Certificate of Incorporation and By-laws. While the Committee has the +responsibilities and powers set forth in this Charter, it is not the duty of the +Committee to plan or conduct audits or to determine that the Corporation's +financial statements are presented fairly in accordance with GAAP. This is the +responsibility of management as to the Corporation's financial statements and +the Auditor(s) as to the plan, extent and execution of the audit. Furthermore, +it is not the duty of the Committee to assure compliance with laws and +regulations. +Approved and adopted by the Audit Committee on April 13, 2004 +Approved and adopted by the Board of Directors on April 13, 2004 +A-5 +Attachment 1 +Qualified Legal Compliance Committee ("QLCC") +DUTIES AND RESPONSIBILITIES +The QLCC has the authority and responsibility to: +1) Adopt written procedures for the confidential receipt, retention and +treatment of any report of evidence of a material violation of any +applicable United States federal or state securities law, a material +breach of fiduciary duty arising under United States federal or state +law or a similar material violation of any United States federal or +state law ("Material Violation"); +2) Inform the Corporation's chief legal officer and chief executive +officer (or the equivalents thereof) of any report of evidence of a +Material Violation, except if the QLCC believes that to do so would be +futile; +3) Determine whether an investigation is necessary regarding any report of +evidence of a Material Violation by the Corporation, its officers, +directors, employees or agents and, if it determines an investigation +is necessary or appropriate, to: +a. notify the full Board of Directors; +b. initiate an investigation, which may be conducted either by +the chief legal officer (or equivalent) or by outside +attorneys; and +c. retain such additional expert personnel as the QLCC deems +necessary; +4) If such investigation was necessary, then at the conclusion, to: +a. recommend, by a majority vote, that the Corporation implement +an appropriate response to evidence of a Material Violation; +and +b. Inform the chief legal officer, the chief executive officer +(or the equivalents thereof) and the Board of Directors of the +results of any such investigation and the appropriate remedial +measures to be adopted; and +5) By majority vote, to take all other appropriate action, including +notifying the authority to notify the Securities and Exchange +Commission in the event that the Corporation fails in any material +respect to implement an appropriate response that the QLCC has +recommended. +ANNEX B +STEVEN MADDEN, LTD. +NOMINATING/CORPORATE GOVERNANCE COMMITTEE CHARTER +Status +------ +There shall be a committee of the Board of Directors of Steven Madden, +Ltd. (the "Corporation") to be known as the Nominating/Corporate Governance +Committee (the "Committee"). The Committee shall be governed by this Charter. +Membership +---------- +The Committee shall consist of at least two members of the Board of +Directors (the "Board"). Each member shall be independent in accordance with the +requirements of the National Association of Security Dealers ("NASD"), subject +to any NASD exceptions. +Members of the Committee shall be appointed by the Board of Directors +and may be removed by the Board in its discretion. The Committee shall have the +authority to delegate any of its responsibilities to subcommittees as the +Committee may deem appropriate, provided any such subcommittee is composed +entirely of independent directors as defined under the listing standards of the +NASD. +Meetings +-------- +The Committee shall meet as often as its members deem necessary to +perform the Committee's responsibilities. The Committee may meet in person or +telephonically and at such times and places as the Committee shall determine. +The Committee shall make regular reports to the Board regarding corporate +governance matters and the activities of the Committee. +Purpose and Responsibilities +---------------------------- +The Committee is responsible for considering and making recommendations +to the Board of Directors concerning the appropriate size, functions and needs +of the Board of Directors. These responsibilities include: +o Establish the criteria and qualifications for membership on +the Board and ensure the disclosure of such criteria and +qualifications in the Corporation's proxy statement. +o Identify and recruit individuals qualified to become Board +members. +o Conduct the appropriate and necessary inquiries into the +backgrounds and qualifications of possible Board candidates. +o Evaluate the suitability of potential nominees, taking into +consideration the criteria and qualifications established by +the Committee in the Board of Director Candidate Guidelines. +o Recommend the director nominees for approval by the Board. +o Review the direct and indirect relationships of members of the +Board with the Company or its management and assist the Board +with its determination of the independence of its members. +o Establish a policy regarding the consideration of any director +candidates nominated by stockholders, including the procedures +that stockholders will need to follow to submit their +recommendations and whether nominees recommended by +stockholders will be evaluated differently. This policy must +be disclosed in the Corporation's proxy statement. +B-1 +o Review the candidates recommended by the stockholders. +o Review this Charter at least annually, and make any changes +deemed appropriate, subject to review and approval of the +Board. +o Prepare a report each year concerning its compliance with this +charter for inclusion in the Corporation's proxy statement. +The Committee's additional functions are: +o to consider questions of possible conflicts of interest of +Board members and of the Company's senior executives; +o to monitor and recommend the functions of the various +committees of the Board; +o to oversee the evaluation of the Board and its committees and +the Company's senior executives; +o to recommend members of the various committees of the Board; +o to advise on changes in Board compensation; +o to make recommendations on the structure of Board meetings; +o to recommend matters for consideration by the Board; +o to consider matters of corporate governance and to develop and +recommend to the Board a set of Corporate Governance +Principles applicable to the Company, and review and assess +the adequacy of such guidelines annually and recommend to the +Board any changes deemed appropriate; +o to review and recommend to the Board retirement and other +tenure policies for directors; +o to review the functions of the Company's senior executives and +to make recommendations on changes; +o to review annually with the Chairman and the Chief Executive +Officer of the Company the job performance of elected +corporate officers and other senior executives; +o to review the outside activities of the Board and the +Company's senior executives and such persons' membership on +outside boards of directors; +o to review periodically with the Chairman and the Chief +Executive Officer of the Company the succession plans relating +to positions held by elected corporate officers and other +senior executives, and to make recommendations to the Board +with respect to the selection of individuals to occupy these +positions; and +o to perform any other activities consistent with this Charter, +the Company's by-laws and governing law as the Committee or +the Board deems appropriate. +Nominations by Stockholders +--------------------------- +Stockholders may recommend director candidates to the Committee by +following the procedures set forth in the Company's bylaws. In addition, such +stockholders must (a) meet and evidence the minimum eligibility requirements +specified in Rule 14a-8 under the Exchange Act and (b) submit within the same +timeframe for submitting a shareholder proposal required by Rule 14a-8 under the +Exchange Act (i) evidence in accordance with Rule 14a-8 of compliance with the +shareholder eligibility requirements; (ii) the written consent of the +candidate(s) for nomination as a director; (iii) a resume or other written +statement of the qualifications of the candidate(s) for nomination as a director +and (iv) all information regarding the candidate(s) and the security holder that +B-2 +would be required to be disclosed in a proxy statement filed with the SEC if the +candidate(s) were nominated for election to the Board. The Committee will +consider nominating director candidates recommended by stockholders who meet the +criteria established in the Board of Director Candidate Guidelines. +Performance Evaluation +---------------------- +The Committee shall conduct an annual performance evaluation of itself. +Committee Resources +------------------- +The Committee shall have the authority to obtain advice and assistance +from internal or external legal, accounting, financial or other advisors. The +Committee shall have sole authority to retain and terminate any search firm to +be used to identify director candidates, including sole authority to approve +such search firm's fees and other terms of retention. The Company shall provide +for appropriate funding, as determined by the Committee, for payment of +compensation to any consulting firm or other advisors employed by the Committee. +Committee Charter Review +------------------------ +The Committee shall review at least annually the adequacy of this +Charter and recommend any changes to the Board for approval. +B-3 +ANNEX C +STEVEN MADDEN, LTD. +BOARD OF DIRECTOR CANDIDATE GUIDELINES +The Nominating/Corporate Governance Committee of Steven Madden, Ltd. +("Corporation") identifies, evaluates and recommends candidates to become +members of the Board of Directors ("Board") with the goal of creating a balance +of knowledge, experience and diversity. Nominations to the Board may also be +submitted to the Nominating/Corporate Governance Committee by the Corporation's +stockholders in accordance with Corporation's bylaws. Candidates are reviewed in +the context of current composition of the Board, the operating requirements of +the Corporation and the long-term interests of the Corporation's stockholders. +In conducting this assessment, the Committee will consider and evaluate +director-candidates based upon the following factors: +o Whether the candidate is independent pursuant to the +requirements of the National Association of Security Dealers +("NASD"). +o Candidates should be at least 21 years of age. +o Candidates should be accomplished in their respective fields +and have reputations, both personal and professional, that are +consistent with the image and reputation of the Corporation. +o Candidates should generally be, or have been, chief executive +officers, chief operating officers or chief financial officers +or have other high-level managerial experience in a relatively +complex organization. +o Candidates should have the ability to read and understand +basic financial statements. The Nominating/Governance +Committee will also determine if any of the candidates satisfy +the criteria for being an "audit committee financial expert," +as defined by the Securities and Exchange Commission. +o Candidates should have relevant experience and expertise and +be able to provide insights and practical wisdom based on that +experience and expertise. +o Candidates should have knowledge of the Corporation and issues +affecting the Corporation. +o Candidates should be committed to enhancing stockholder value. +o Candidates should understand, or have the capacity to +understand, fully the legal responsibilities of a director and +the governance processes of a public company. +o Candidates should be of high moral and ethical character and +should be willing to apply sound, objective and independent +business judgment, and to assume broad, fiduciary +responsibility. +o Candidates should have, and be willing to commit, the required +hours necessary to discharge the duties of Board membership. +o Candidates should not have any prohibitive interlocking +relationships or conflicts of interest. +o Candidates should be able to develop a good working +relationship with other Board members and contribute to the +Board's working relationship with the senior management of the +Corporation. +C-1 +ANNEX D +STEVEN MADDEN, LTD. +CODE OF BUSINESS CONDUCT AND ETHICS +Introduction +------------ +All employees, officers and directors of Steven Madden, Ltd. (the +"Company") are responsible for conducting themselves in compliance with this +Code of Business Conduct and Ethics (the "Code"), other policies of the Company +and applicable laws, rules and regulations. The Company adopted the Code in +order to assist the Company and its employees, officers and directors with the +Company's goals of conducting its business and affairs in accordance with +applicable laws, rules and regulations and maintaining the highest standards of +ethical conduct, fair dealing and honesty. +The Company also expects that any consultants or other service +providers it retains will adhere to the Code. In addition, for purposes of +Section 406 of the Sarbanes-Oxley Act of 2002 and the rules of the Securities +and Exchange Commission (the "Commission") promulgated thereunder, Sections I +through IV of the Code shall constitute the Company's code of ethics for "Senior +Financial Officers" (as defined in Section I below). +I. Compliance and Reporting +------------------------ +Employees, officers and directors should strive to identify +and raise potential issues before they lead to problems for the Company and +should ask about the application of the Code whenever there is a question as to +whether a violation of the Code has occurred or will occur. Any employee or +officer who becomes aware of any existing or potential violation of the Code +should promptly notify the Chief Operating Officer (COO). Should the Chief +Executive Officer (CEO), the Chief Financial Officer (CFO) and the Principal +Accounting Officer (collectively, the "Senior Financial Officers") or any +director become aware of an existing or potential violation of the Code, he or +she should promptly notify the Company's COO. Notifications or reports required +under this Code should be made to the Company's CEO instead of the Company's COO +if the issue or activity requiring such notification or report involves the +Company's COO. The Company shall take such disciplinary, corrective or +preventative action as it deems appropriate to address any existing or potential +violation of this Code brought to its attention. +Confidentiality regarding those who make compliance reports +and those potentially involved is maintained to the extent possible during a +compliance investigation. The Company does not tolerate retribution, retaliation +or adverse personnel action of any kind against any person for lawfully +reporting a situation of potential noncompliance with the Code, or providing to +the Company or any law enforcement or other governmental agency any information +or assistance relating to the commission or possible commission of any federal +or state offense. +The Senior Financial Officers have a responsibility to create +an environment within the Company in which compliance with the Code is treated +as a serious obligation and in which violations of the Code are not tolerated. +The Senior Financial Officers will establish and, if necessary, modify the +procedures by which violations of the Code are to be reported. +After reading the Code, every employee and officer of the +Company must submit a signed acknowledgement indicating that he or she has read, +understands and, to the best of his or her knowledge, is in compliance with the +Code. Senior Financial Officers must submit a written certification regarding +their responsibilities under the Code in lieu of the acknowledgement. +II. Conflicts of Interest +--------------------- +All business decisions must be made in the Company's best +interest. A "conflict of interest" arises when an individual's judgment is or +may be influenced considerations of improper personal gain or benefit to the +individual or another person. Even if no actual conflict of interest occurs, +situations that create the appearance of a conflict may harm the Company's +D-1 +public relations or cause other problems damaging to the Company, and, as such, +also should be avoided. Conflicts of interest are prohibited as a matter of +Company policy, unless they have been approved in advance by the Company. +For example, an employee, officer or director must never use +or attempt to use his or her position at the Company to obtain any improper +personal benefit for himself or herself, for his or her family members or for +any other person, including loans or guarantees of obligations, from any other +person or entity. In this regard, service to the Company should never be +subordinated to personal gain and advantage. To the extent possible, conflicts +of interest always should be avoided. Any employee, officer or director who is +aware of a material transaction or relationship that could reasonably be +expected to give rise to a conflict of interest should promptly discuss the +matter with the Company's COO. +In addition, as a result of their close relationships to the +Company and its business, the Senior Financial Officers have a special +responsibility to: +o refrain, without the approval of the Board of Directors, from +transacting business with the Company through any entity in +which the officer or a member of his or her immediate family +owns all or a controlling interest; +o refrain, without the approval of the Board of Directors, from +participating in other employment or serving as a director for +other organizations if such activity reasonably could be +expected to interfere with the officer's ability to act in the +best interests of the Company or reasonably could be expected +to require the officer to use proprietary, confidential or +non-public information of the Company; +o refuse gifts, favors or hospitality that would influence or +appear to influence the recipient to act other than in the +best interests of the Company; and +o report to the Audit Committee or to the Board of Directors any +existing or potential director positions they hold, including +positions on non-profit or charitable organization boards of +directors. +III. Public Disclosure +----------------- +It is the Company's policy that the information in its public +communications and disclosures, including its filings with the SEC, be full, +fair, accurate, timely and understandable. All employees, officers and directors +who are involved in the Company's disclosure process, including the Senior +Financial Officers, are responsible for acting in furtherance of this policy. +Specifically, these individuals are required to maintain familiarity with the +disclosure requirements applicable to the Company and are prohibited from +knowingly misrepresenting, omitting or causing others to misrepresent or omit, +material facts regarding the Company to others, whether within or outside the +Company, including the Company's independent accountants. In addition, any +employee, officer or director who has a supervisory role in the Company's +disclosure process has an obligation to diligently discharge his or her +responsibilities. +The Senior Financial Officers, in particular, must act in good +faith and with due care and diligence in connection with the preparation of the +Company's public disclosures. The Senior Financial Officers must ensure that the +financial statements and reports submitted to the SEC are full, fair, accurate, +timely and understandable. The Senior Financial Officers must also promptly +report any irregularities or deficiencies in the Company's internal controls for +financial reporting to the Audit Committee or the Board of Directors. +IV. Compliance with Laws, Rules and Regulations +------------------------------------------- +As noted, it is the Company's policy to comply with all +applicable laws, rules and regulations. It is the personal responsibility of +each employee, officer and director to adhere to the standards and restrictions +imposed by those laws, rules and regulations. +It is both illegal and against Company policy for any +employee, officer or director who is aware of material, nonpublic information +relating to the Company, any of the Company's customers or clients or any other +D-2 +private or governmental issuer or securities to purchase or sell any securities +of those issuers, or recommend that another person purchase, sell or hold the +securities of those issuers. +In general, information is "material" if it could affect a +person's decision to purchase, sell or hold a company's securities. Material +information includes, for example, a company's anticipated earnings, plans to +acquire or sell significant assets and changes in senior executives. Employees, +officers and directors should try to limit transactions to times when it can +reasonably be assumed that all material information about a company has been +disclosed. Officers and directors of the Company, in particular, should consult +with the Company's COO regarding the safest times to trade in the Company's +securities. +In addition, employees, officers and directors may not +disclose material, nonpublic information about the Company or another company to +any person (i) inside the Company, unless they need to know the information for +legitimate business purposes, or (ii) outside of the Company, unless prior +approval is obtained from management in consultation with the Company's COO. +Bear in mind that this information belongs to the Company and no person may +misappropriate it for anyone's benefit. Providing a "tip" based on material, +nonpublic information is unethical and illegal, and is prohibited, even if you +do not profit from it. Certain persons who regularly have access to material, +nonpublic information or who hold certain positions within the Company must +obtain clearance from the Company's COO prior to trading in the Company's +securities. All affected individuals will be personally notified about this +clearance requirement. +More detailed rules governing the trading of Company +securities by employees, officers and directors are set forth in the Company's +Insider Trading Policy. You may obtain a copy of this policy by contacting the +Company's COO. +Other laws, rules, regulations and Company policies to which +employees, officers and directors are subject relate to business practices. For +example, employees, officers and directors may not misrepresent facts, +contractual terms or Company policies to a stockholder, service provider or +regulator. Even if done inadvertently, you must correct the misrepresentation as +soon as possible after consulting with the Company's COO. In addition, +employees, officers and directors must adhere to appropriate procedures +governing the retention and destruction of the Company's records, consistent +with applicable laws, regulations, Company policies and business needs. No +person should destroy, alter or falsify any document that may be relevant to a +threatened or pending lawsuit or governmental investigation. You should consult +with, and follow the instructions of, the Company's COO in these situations. +Employees, officers and directors must also comply with the +U.S. Foreign Corrupt Practices Act, which prohibits American businesses, and in +many cases their foreign subsidiaries, from offering, paying or authorizing +payment to foreign government officials, political parties or their officials, +or political candidates. +The Senior Financial Officers, in particular, have a +responsibility to ensure compliance with the applicable rules and regulations of +federal, state and local governments and of appropriate public and private +regulatory agencies or organizations. In addition to adhering to established +Company policies and procedures, these individuals must take steps to ensure +that other employees and officers follow such policies and procedures. +Any employee, officer or director who is uncertain about the +legal rules and regulations to which he or she or the Company is subject should +consult with the Company's COO. +V. Employment Practices +-------------------- +In making employment and personnel decisions, the Company +employment decisions must be based only on an employee's or applicant's +qualifications, demonstrated skills and achievements without regard to race, +color, sex, religion, national origin, age, disability, veteran status, +citizenship, sexual orientation, gender identity or marital status. +All employees are entitled to be treated with respect and +dignity. Management must not tolerate harassment of, or by, any employee in +situations involving another employee, stockholder, service provider or business +associate. Employees, officers and directors must not engage in conduct that +could be construed as sexual harassment, which may include, for example, +D-3 +unwelcome sexual advances, offensive touching, sexually suggestive statements, +offensive jokes, requests for sexual favors or other verbal or physical conduct +of a sexual nature. +Any person who believes he or she has been harassed in the +course of performing his or her employment with the Company should notify the +Company's COO. Company policy prohibits retaliation against any individual who +complains of, or reports an instance of, harassment or participates in an +investigation of a harassment complaint. +More detailed information governing the Company's employment +practices is set forth in the Company's Employee Handbook. You may obtain a copy +of this handbook by contacting the Company's Director of Human Resources. +VI. Corporate Opportunities +----------------------- +Employees, officers and directors owe a duty to the Company to +advance the Company's legitimate business interests when the opportunity to do +so arises. In this regard, employees, officers and directors are prohibited from +(i) taking for themselves personally (or directing to a third party) business +opportunities that are discovered through the use of Company property, +information or position (unless the Company has already been offered the +opportunity and rejected it); (ii) using Company property, information or +position for improper personal gain; and (iii) competing with the Company. +It may be difficult to decipher whether or not a particular +personal benefit is proper, as sometimes both personal and Company benefits may +be derived from certain activities. The best course of action in these +circumstances is to consult with the Company's COO. +VII. Confidentiality +--------------- +In carrying out the Company's business, employees, officers +and directors may learn confidential or proprietary information about the +Company or third parties. Employees, officers and directors must maintain the +confidentiality of all information entrusted to them, except when disclosure is +authorized or legally mandated. Confidential or proprietary information +includes, for example, any nonpublic information concerning the Company, +including its business, properties, financial performance, results or prospects, +and any nonpublic information provided by a third party with the expectation or +contractual agreement that the information will be kept confidential and used +solely for the business purpose for which it was conveyed. Employees, officers +and directors are required to secure from unauthorized access and public view +documents under their control that contain confidential or proprietary +information. When such information is discarded, appropriate steps must be taken +to ensure proper and complete destruction. +In addition, employees, officers and directors are prohibited +from taking confidential or proprietary information with them upon termination +of employment with the Company or from using or disclosing such information for +any purpose elsewhere, including with a different employer or company. Any +confidential or proprietary information must be promptly returned to the Company +upon termination of employment or affiliation with the Company. +VIII. Fair Dealing +------------ +Company policy is to conduct business fairly through honest +business competition and the Company does not seek competitive advantages +through unethical or illegal business practices. Each employee, officer and +director should endeavor to deal fairly with the Company's stockholders, service +providers, competitors and employees. No employee, officer or director should +take unfair advantage of anyone through manipulation, concealment, abuse of +privileged information, misrepresentation or omission of material facts or any +other practice involving unfair dealing. +D-4 +IX. Protection and Proper Use of Company Assets +------------------------------------------- +All employees, officers and directors should protect the +Company's assets and ensure their efficient use. It is important to bear in mind +that theft, carelessness and waste have a direct impact on the Company's +profitability. Thus, all assets of the Company should be used only for +legitimate business purposes. +X. Waivers of the Code +------------------- +The Company may elect to waive certain provisions of the Code +on a case-by-case basis. Any employee, officer or director who would like to +request a waiver of one or more of the Code's provisions must discuss the matter +with the Company's COO. Waivers for executive officers and directors of the +Company only may be granted by the Board of Directors or a committee of the +Board. +D-5 +Acknowledgment of Employees +--------------------------- +I have read and understand the Code of Business Conduct and Ethics (the +"Code") of Steven Madden, Ltd. (the "Company"). To the best of my knowledge, I +am in compliance with the Code. I understand that if I violate the Code, or if I +fail to report a violation of this Code by any officer or employee of the +Company, I may be subject to disciplinary action up to and including dismissal +from my employment with the Company. I understand that it is my obligation to +implement this Code and to use my best efforts to ensure that employees of the +Company comply with its provisions. I know of no reason why I would not be able +to abide by this Code. +By: _____________________________________ +Name: +Title: +Date:____________________________________ +D-6 +Certification of Senior Financial Officers +------------------------------------------ +I have read the Code of Business Conduct and Ethics (the "Code") of +Steven Madden, Ltd. (the "Company") and have been provided an opportunity to ask +questions and to consult counsel. I understand that if I violate the Code, or if +I fail to report a violation of this Code by any other officer or employee of +the Company, I may be subject to disciplinary action up to and including +dismissal from my employment with the Company. I understand that it is my +obligation to implement this Code and to use my best efforts to ensure that +other officers and employees of the Company comply with its provisions. I know +of no reason why I would not be able to abide by this Code. +By: _____________________________________ +Name: +Title: +Date:____________________________________ +D-7 +ANNEX E +STEVEN MADDEN, LTD. +1999 STOCK PLAN +This Steven Madden, Ltd. 1999 Stock Plan (the "1999 Plan") is hereby +amended as follows: +1. The second sentence of Section 3 of the 1999 Plan shall be +deleted and replaced with the following: +"Subject to adjustment as provided in Section 7 hereof, +the aggregate amount of Common Stock to be delivered upon the +exercise of all options granted under the Plan shall not exceed in +the aggregate 3,220,000 shares as such Common Stock was +constituted on the effective date of the Plan." +2. Except as expressly amended hereby, the provisions of the Plan +are and shall remain in full force and effect. +3. This Amendment shall be effective immediately upon approval by +the Company's Board of Directors and stockholders of the Company. +Adopted by the Board of Directors +as of the __ day of April, 2004 +Approved by the Stockholders +this __ day of May, 2004 +E-1 +STEVEN MADDEN, LTD. PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES ([FOR] [WITHHOLD +AUTHORITY] [AGAINST] OR [ABSTAIN]) NEXT TO EACH OF THE THREE (3) PROPOSALS +The undersigned stockholder of Steven Madden, Ltd. (the "Company") +hereby appoint(s) Jamieson A. Karson and Arvind Dharia, and each of them, as +attorneys and proxies, each with power of substitution and revocation, to +represent the undersigned at the Annual Meeting of Stockholders of the Company +to be held at the Company's showroom located at 1370 Avenue of the Americas, +12th Floor, New York, New York at 10:00 a.m., local time, on May 21, 2004, and +at any adjournments or postponements thereof, with authority to vote all shares +of Common Stock of the Company held or owned by the undersigned on April 8, +2004, in accordance with the directions indicated herein. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1, 2 AND 3. +1) ELECTION OF DIRECTORS +--------------------- +VOTE +[ ] FOR ALL nominees listed below EXCEPT as marked to the contrary +below +[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed below +(INSTRUCTION: To withhold authority to vote for any individual +nominee strike a line through the nominee's name below.) +[ ] ABSTAIN +Jamieson A. Karson, Jeffrey Birnbaum, Marc Cooper, John L. Madden, Peter +Migliorini, Thomas H. Schwartz and Awadhesh Sinha +2) AMENDMENT OF THE 1999 STOCK PLAN +-------------------------------- +[ ] FOR the Amendment of the 1999 Stock Plan +[ ] AGAINST +[ ] ABSTAIN +3) RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S +INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2004 +----------------------------------------------------------------- +[ ] FOR the ratification of the selection of Eisner LLP +[ ] AGAINST +[ ] ABSTAIN +THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE +INDICATED, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE SEVEN (7) +NOMINEES NAMED IN ITEM 1, (2) FOR THE AMENDMENT OF THE 1999 STOCK PLAN IN ITEM +2, (3) FOR THE RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S +INDEPENDENT AUDITORS FOR FISCAL YEAR 2004 IN ITEM 3 AND (4) IN THE DISCRETION OF +THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +In their discretion, the proxies are authorized to vote upon such other +business as may properly be presented at the meeting or any adjournments or +postponements thereof. +Please mark, sign, date and return this Proxy promptly using the +accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +Dated: _____________________ +_________________________________________ +Signature +_________________________________________ +Signature if jointly owned: +_________________________________________ +Print name: +Please sign exactly as the name appears on your stock certificate. When +shares of capital stock are held by joint tenants, both should sign. When +signing as attorney, executor, administrator, trustee, guardian, or corporate +officer, please include full title as such. If the shares of capital stock are +owned by a corporation, sign in the full corporate name by an authorized +officer. If the shares of capital stock are owned by a partnership, sign in the +name of the partnership by an authorized officer. +PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY +IN THE ENCLOSED ENVELOPE \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-04-000597/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-04-000597/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..82898cd243d3e477b4709030e2ded2e2db3b3453 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-04-000597/proxy_rpt.txt @@ -0,0 +1,42 @@ +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with +Peter J. Solomon & Company, a financial advisory firm of which Marc Cooper, one +of the Company's directors, is a managing director. Under this agreement, the +firm provided financial advisory and investment banking services to the Company. +Pursuant to this agreement, the Company paid fees to Peter J. Solomon & Company +in the amount of $75,000 during 2001 and $150,000 during 2002. During 2003, the +Company paid $32,866 to Peter J. Solomon & Company for research and other +expenses. This agreement was amended in March 2004. Under the amended agreement, +the Company will pay fees to Peter J. Solomon & Company in the amount of +$200,000 during 2004. +The Company and Jeffrey Birnbaum, one of the Company's directors, have +entered into an agreement whereby Mr. Birnbaum provides design consultation +services to the Company. Pursuant to this agreement, Mr. Birnbaum received a fee +of $200,000 from the Company in 2003. +The Company paid John Madden, one of the Company's directors, $15,000 +in 2003 for investment consulting advice provided by Mr. Madden to the Company +in 2002. In addition, in January 2004 the Company entered into an agreement with +JLM Consultants, a company wholly-owned by Mr. Madden, whereby JLM Consultants +will provide consulting services with respect to the development of +international sales of the Company. Pursuant to this agreement, JLM Consultants +will receive a monthly fee of $16,000. +The Company had an agreement with Charles Koppelman, its Chairman, +which expired on June 30, 2003. See "Agreement with the Chairman of the Board." +The Company has an agreement with Steven Madden, a beneficial holder of +more than 10% of the Company's outstanding shares of common stock. See +"Agreement with Steven Madden." +Compensation Committee Report On Executive Compensation +The Compensation Committee is responsible for reviewing and approving +the Company's compensation policies and the compensation paid to its executive +officers, including the Chief Executive Officer and the other named executive +officers. During 2003, the Compensation Committee was comprised of directors +Peter Migliorini (chairman) and Roger Gladstone. Each member of the Compensation +Committee was a non-employee director of the Company during 2003. +The Compensation Committee's goal is to develop executive compensation +policies and practices that are consistent with and linked to the Company's long +term goal of maximizing stockholder value. The program is designed to facilitate +the long-term success and growth of the Company through the attraction, +motivation, and retention of outstanding executives. +-21- +The objectives of the Company's executive compensation programs are to: +(i) attract and retain the highest quality executives, (ii) inspire and motivate \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-06-000476/proxy.txt b/raw/proxies/0000913241/0001019056-06-000476/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..55df4e493dbf6e0ef5259ba49e8f4a31c425ba5e --- /dev/null +++ b/raw/proxies/0000913241/0001019056-06-000476/proxy.txt @@ -0,0 +1,3851 @@ +DEF 14A +1 +smadden_def14a2006.txt +DEFINITIVE 14A +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +(Amendment No. ) +Filed by Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Under Rule 14a-12 +STEVEN MADDEN, LTD. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified in its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +----------------------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +----------------------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined.): +----------------------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +----------------------------------------------------------------------- +5) Total fee paid: +----------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials: +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and date of its filing. +1) Amount Previously Paid: +----------------------------------------------------------------------- +2) Form, Schedule or Registration Statement No.: +----------------------------------------------------------------------- +3) Filing Party: +----------------------------------------------------------------------- +4) Date Filed: +----------------------------------------------------------------------- +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +---------------------------------------------- +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 26, 2006 +---------------------------------------------- +To the Stockholders of Steven Madden, Ltd.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the +"Annual Meeting") of the Company will be held on May 26, 2006, at the Company's +showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York +at 10:00 a.m., local time, and thereafter as it may from time to time be +adjourned, for the purposes stated below. +1. To elect nine (9) directors to the Board of Directors of the +Company to serve until the next annual meeting of the +Company's stockholders or until their successors are duly +elected and qualified; +2. To approve the adoption of the Company's 2006 Stock Incentive +Plan; +3. To ratify the appointment of Eisner LLP as the Company's +independent auditors for the fiscal year ending December 31, +2006; and +4. To transact such other business as may properly come before +the Annual Meeting or any adjournments thereof. +All stockholders are cordially invited to attend the Annual Meeting. +Only those stockholders of record at the close of business on April 26, 2006 are +entitled to notice of and to vote at the Annual Meeting and any adjournments +thereof. A complete list of stockholders entitled to vote at the Annual Meeting +will be available at the Annual Meeting and for ten days prior to the meeting +for any purpose germane to the meeting, between the hours of 9:00 a.m. and 4:30 +p.m. at our principal executive offices at 52-16 Barnett Avenue, Long Island +City, NY 11104, by contacting the Secretary of the Company. +BY ORDER OF THE BOARD OF DIRECTORS +April 28, 2006 +/s/ JAMIESON A. KARSON +------------------------------------------------- +Jamieson A. Karson +Chairman of the Board and Chief Executive Officer +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE +ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO AMERICAN +STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, NY 11104 +---------------------------------------------- +PROXY STATEMENT +---------------------------------------------- +INTRODUCTION +This Proxy Statement and the accompanying Notice of Annual Meeting of +Stockholders and form of proxy are being furnished to the holders of common +stock of Steven Madden, Ltd., a Delaware corporation (the "Company"), in +connection with the solicitation of proxies by the Board of Directors of the +Company (the "Board of Directors") for use at the 2006 Annual Meeting of +Stockholders of the Company (the "Annual Meeting") to be held at the Company's +showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York +on Friday, May 26, 2006 at 10:00 a.m., Eastern Daylight Time, and at any +adjournments thereof. These proxy materials are being sent on or about May 1, +2006 to holders of record of common stock, $.0001 par value (the "Common +Stock"), of the Company at the close of business on April 26, 2006 (the "Record +Date"). The Company's Annual Report for the fiscal year ended December 31, 2005, +including audited financial statements, is being sent to stockholders together +with these proxy materials. +The Annual Meeting has been called to consider and take action on the +following proposals: (i) to elect nine (9) directors to the Board of Directors +of the Company to serve until the next annual meeting of the Company's +stockholders or until their successors are duly elected and qualified, (ii) to +approve the adoption of the Company's 2006 Stock Incentive Plan, (iii) to ratify +the appointment of Eisner LLP as the Company's independent auditors for the +fiscal year ending December 31, 2006, and (iv) to transact such other business +as may properly come before the Annual Meeting or any adjournments thereof. The +Board of Directors knows of no other matters to be presented for action at the +Annual Meeting. However, if any other matters properly come before the Annual +Meeting, the persons named in the proxy will vote on such other matters and/or +for other nominees in accordance with their best judgment. The Company's Board +of Directors recommends that the stockholders vote in favor of each of the +proposals. Only holders of record of the Common Stock of the Company at the +close of business on the Record Date will be entitled to vote at the Annual +Meeting. +The principal executive offices of the Company are located at 52-16 +Barnett Avenue, Long Island City, NY 11104 and its telephone number is (718) +446-1800. +INFORMATION CONCERNING SOLICITATION AND VOTING +As of the Record Date, there were outstanding 13,873,667 shares of +Common Stock (excluding treasury shares) held by approximately 67 holders of +record and 2,162 beneficial owners. Only holders of shares of Common Stock on +the Record Date will be entitled to vote at the Annual Meeting. The holders of +Common Stock are entitled to one vote on all matters presented at the meeting +for each share held of record. The presence in person or by proxy of holders of +record of a majority of the shares outstanding and entitled to vote as of the +Record Date shall be required for a quorum to transact business at the Annual +Meeting. If a quorum should not be present, the Annual Meeting may be adjourned +until a quorum is obtained. Each nominee to be elected as a director named in +Proposal 1 must receive a plurality of the votes cast by the holders of Common +Stock present in person or represented by proxy at the Annual Meeting with +respect to such proposal. The approval of the 2006 Stock Incentive Plan +-1- +described in Proposal 2 and the ratification of the appointment of Eisner LLP as +the Company's independent auditors for the fiscal year ending December 31, 2006 +described in Proposal 3 must be approved by the affirmative vote of the holders +of a majority of the total votes cast on such proposals in person or by proxy. +Abstentions and broker non-votes are counted as present and entitled to vote and +are, therefore, included for purposes of determining whether a quorum of shares +is present at the meeting. An abstention from a vote with respect to Proposal 1 +will have no effect. An abstention from a vote with respect to Proposal 2 or +Proposal 3 will have the same practical effect as a vote against such proposal. +Broker "non-votes" are not deemed to be "votes cast." As a result, broker +"non-votes" are not included in the tabulation of the voting result on the +election of directors or issues requiring approval of a majority of the votes +cast and, therefore, do not have the effect of votes in opposition in such +tabulations and as such will have the practical effect of reducing the number of +affirmative votes required to achieve a majority vote for a matter by reducing +the total number of shares from which a majority is calculated. Brokers who hold +shares in street name may vote on behalf of beneficial owners with respect to +Proposals 1, 2 and 3. The approval of all other matters to be considered at the +Annual Meeting requires the affirmative vote of a majority of the eligible votes +cast at the Annual Meeting on such matters. +The expense of preparing, printing and mailing this Proxy Statement, +the exhibits hereto and the proxies solicited hereby will be borne by the +Company. In addition to the use of the mails, proxies may be solicited by +officers and directors and regular employees of the Company, without additional +remuneration, by personal interviews, telephone, telegraph or facsimile +transmission. The Company will also request brokerage firms, nominees, +custodians and fiduciaries to forward proxy materials to the beneficial owners +of shares of Common Stock held of record and will provide reimbursements for the +cost of forwarding the material in accordance with customary charges. The +Company has entered into an agreement with D.F. King & Co., Inc. to assist in +the solicitation of proxies and provide related advice and informational +support. The total expense of this engagement, including customary +disbursements, is not expected to exceed $10,000 in the aggregate. +Proxies given by stockholders of record for use at the Annual Meeting +may be revoked at any time prior to the exercise of the powers conferred. In +addition to revocation in any other manner permitted by law, stockholders of +record giving a proxy may revoke the proxy by an instrument in writing, executed +by the stockholder or his attorney authorized in writing, or, if the stockholder +is a corporation, under its corporate seal, by an officer or attorney thereof +duly authorized, and deposited either at the corporate headquarters of the +Company at any time up to and including the last business day preceding the day +of the Annual Meeting, or any adjournment thereof, at which the proxy is to be +used, or with the chairman of such Annual Meeting on the day of the Annual +Meeting or adjournment thereof, and upon either of such deposits the proxy shall +be revoked. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES +SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO +CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY COME BEFORE THE ANNUAL MEETING. +None of the matters to be acted on at the Annual Meeting give rise to +any statutory right of a stockholder to dissent and obtain the appraisal of or +payment for such stockholder's shares. +-2- +MATTERS TO BE CONSIDERED AT ANNUAL MEETING +PROPOSAL ONE - ELECTION OF DIRECTORS +Under the Amended and Restated By-Laws of the Company (the "By-Laws"), +the Board of Directors of the Company is required to be comprised of a minimum +of one (1) director. Subject to the foregoing limitation, the number of +directors may be fixed from time to time by action of the directors. The +Company's board presently consists of nine directors whose terms expire at the +Annual Meeting. +The Nominating/Corporate Governance Committee of the Board of Directors +and the Board of Directors have nominated and are recommending the election of +each of the nine (9) nominees set forth below to serve as a director of the +Company until the next annual meeting of the Company's stockholders or until his +successor is duly elected and qualified. The names and biographical summaries of +the nine (9) persons who have been nominated by the Nominating/Corporate +Governance Committee of the Board of Directors and the Board of Directors to +stand for election at the Annual Meeting have been provided below for your +information. +Biographical Summaries of Nominees for the Board of Directors +Jamieson A. Karson has been the Chief Executive Officer of the Company +since July 1, 2001 and Chairman of the Board of Directors since July 22, 2004. +Mr. Karson was the Vice Chairman of the Board of Directors of the Company from +July 1, 2001 until such time that he became the Chairman of the Board of +Directors. Mr. Karson has been a director of the Company since January 2, 2001. +Prior to joining the Company as Chief Executive Officer, Mr. Karson practiced +law for over 17 years. He was a partner in the New York City law firm of +Tannenbaum Helpern Syracuse & Hirshtritt LLP from January 1, 1997 through June +30, 2001, where he served on the firm's three person Finance Committee. He was a +partner at the law firm of Karson McCormick from February 1992 through December +31, 1996. Prior to that, Mr. Karson was an associate attorney at the law firm of +Shea & Gould. +Jeffrey Birnbaum has been a director of the Company since June 2003. +Mr. Birnbaum has been the Product Development Manager of Dolphin Shoe Company +since August 1982. Dolphin is one of the Company's domestic suppliers. +Marc S. Cooper has been a director of the Company since July 2001. Mr. +Cooper has served as a Managing Director of Peter J. Solomon Company in its +Mergers and Acquisitions Department since May 1999. Previously, Mr. Cooper +worked at Barington Capital Group from March 1992 to May 1999, where he was a +founding member and Vice Chairman overseeing its investment banking operations. +Harold Kahn has been a director of the Company since December 2004. Mr. +Kahn currently heads HDK Associates, a consulting company that advises financial +and investment groups. Mr. Kahn served as the Chief Executive Officer of Macy's +East from January 1994 through March 2004. Currently, Mr. Kahn also serves as a +Director of The Wet Seal, Inc. and Ronco Corporation. +John L. Madden has been a director of the Company since the Company's +inception. From April 1998 through September 2003, Mr. Madden owned a branch +office of Tradeway Securities Group, Inc. in Florida. From May 1996 through +December 1996, Mr. Madden's consulting company, JLM Consultants, Inc., acted as +a branch office of Merit Capital, Inc. for several broker-dealers. From May 1994 +to May 1996, Mr. Madden served as Vice President of Investments for GKN +Securities, Inc. From August 1993 to April 1994, Mr. Madden was employed by +Biltmore Securities, Inc. as Managing Director and registered sales +representative. Mr. Madden is the brother of Steven Madden, the Company's +founder and Creative and Design Chief. +-3- +Peter Migliorini has been a director of the Company since October 1996. +Mr. Migliorini has served as Sales Manager for Greschlers, Inc., a supply +company located in Brooklyn, New York, since 1994. From 1987 to 1994, Mr. +Migliorini served as Director of Operations for Mackroyce Group. Mr. Migliorini +has previously served in a number of capacities, ranging from Assistant Buyer to +Chief Planner/Coordinator, for several shoe companies, including Meldisco Shoes, +Perry Shoes and Fasco Shoes. +Richard P. Randall has been a director of the Company since April 2006. +Mr. Randall was the Executive Vice President and Chief Financial Officer of +Direct Holdings Worldwide, LLC, the parent company of Lillian Vernon Corp. and +TimeLife, from 2002 until his retirement in June 2005. Previously, Mr. Randall +served as Senior Vice President and Chief Financial Officer of Coach, Inc. and +the Chief Operating Officer and Chief Financial Officer of Lillian Vernon Corp. +from 2000 to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves +as a Director of The Burke Rehabilitation Hospital. +Thomas H. Schwartz has been a director of the Company since May 2004. +Mr. Schwartz has been a Managing Director of Helmsley-Spear, Inc. since 1984, +where he was also a salesman since 1973. As Managing Director, among other +things, Mr. Schwartz is responsible for the leasing and sales brokerage of real +estate, management of real estate leasing and supervising the managers of +properties in which he has ownership interests. +Walter Yetnikoff has been a director of the Company since May 2005. Mr. +Yetnikoff has served as Chief Executive Officer of Commotion Records, a company +he co-founded, since 2003. From 2001 through 2003, Mr. Yetnikoff was +self-employed as a researcher and writer. Mr. Yetnikoff served as President of +CBS Records from 1975 to 1990 and served on the Board of Directors of CBS, Inc. +from 1975 through 1988. +Required Vote +Proxies will be voted for the election of the nine (9) nominees as +directors of the Company unless otherwise specified on the proxy. A plurality of +the votes of shares of Common Stock present in person or represented by proxy at +the Annual Meeting will be necessary to elect the nominees as directors. If, for +any reason, any of the nominees shall be unable or unwilling to serve, the +proxies will be voted for a substitute nominee who will be designated by the +Board of Directors at the Annual Meeting. Stockholders may abstain from voting +by marking the appropriate boxes on the enclosed proxy. Abstentions shall be +counted separately and shall be used for purposes of calculating whether a +quorum is present at the meeting. +Recommendation of the Board of Directors +The Nominating/Corporate Governance Committee of the Board and the +Board unanimously recommend a vote FOR the election of Messrs. Jamieson A. +Karson, Jeffrey Birnbaum, Marc S. Cooper, Harold Kahn, John L. Madden, Peter +Migliorini, Richard P. Randall, Thomas H. Schwartz and Walter Yetnikoff. Unless +otherwise instructed or unless authority to vote is withheld, the enclosed proxy +will be voted FOR the election of the above listed nominees and AGAINST any +other nominees. +Director Independence +The Board of Directors is currently comprised of nine members. The +Board has determined that the following director nominees are "independent" for +purposes of The Nasdaq National Market listing standards: Messrs. Kahn, +Migliorini, Randall, Schwartz and Yetnikoff. If the nine nominees set forth +-4- +above are elected, the Board will be comprised of a majority of independent +directors. The Board has adopted a policy whereby the independent directors have +regularly scheduled executive sessions at least twice a year. On February 28, +2005, the Board appointed Peter Migliorini to serve as Presiding Director of the +executive sessions. +Directors' Attendance at Annual Meetings +The Company encourages all of its directors to attend annual meetings +of the Company's stockholders. Three directors attended the Company's 2005 +annual meeting of stockholders. +Communications with Directors +The Company has adopted a procedure by which stockholders may send +communications as defined within Item 7(h) of Schedule 14A under the Exchange +Act to one or more members of the Board of Directors by writing to such +director(s) or to the whole Board of Directors in care of the Corporate +Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, NY +11104. Any such communications will be promptly distributed by the Corporate +Secretary to such individual director(s) or to all directors if addressed to the +whole Board of Directors. +Director Compensation +Directors who are also employees of the Company are not paid any fees +or other remuneration for service on the Board or any of its committees. In +2005, each non-employee director received the following compensation: (i) a +grant of options to purchase 10,000 shares of Common Stock at an exercise price +per share equal to the fair market value of the Common Stock on the date of +grant and (ii) fifty thousand dollars ($50,000). In 2006, each non-employee +director shall receive the following compensation: (i) a grant of (A) 1,000 +shares of Common Stock for independent directors or (B) 500 shares for +non-independent directors and (ii) forty thousand dollars ($40,000). In 2005, +members of the Audit Committee, Nominating/Corporate Governance Committee and +Compensation Committee each received an additional ten thousand dollars +($10,000) for service on such committees, except that the audit committee +financial expert received twenty-five thousand dollars ($25,000) and the +chairperson of the Compensation Committee received fifteen thousand dollars +($15,000). In 2006, members of the Audit Committee, Nominating/Corporate +Governance Committee and Compensation Committee each will receive an additional +ten thousand dollars ($10,000) for service on such committees, except that the +audit committee financial expert will receive fifteen thousand dollars ($15,000) +and the chairperson of the Compensation Committee will receive fifteen thousand +dollars ($15,000). +Meetings and Committees of the Board of Directors +The Board of Directors met seven times during the fiscal year ended +December 31, 2005. The Board of Directors has a standing Audit Committee, +Compensation Committee and Nominating/Corporate Governance Committee. In 2005, +each director attended at least 75% of the aggregate of the number of Board +meetings and the number of meetings held by all committees on which he then +served. +Audit Committee +At the beginning of the year ended December 31, 2005, the Audit +Committee of the Board of Directors consisted of directors Awadhesh Sinha, +Thomas H. Schwartz and Peter Migliorini. During fiscal year 2005, Mr. Sinha +became the Company's Chief Operating Officer and as a result resigned from his +position on the Audit Committee because he no longer qualified as independent +under The Nasdaq National Market independence requirements. Mr. Sinha was +-5- +replaced on the Audit Committee by Marc S. Cooper. In February 2006, Marc S. +Cooper resigned from the Audit Committee because he no longer qualified as +independent under The Nasdaq National Market independence requirements and was +replaced by Harold Kahn. In April 2006, the Audit Committee was reconstituted +with its members being Richard P. Randall (Chairman), Peter Migliorini and +Harold Kahn. The Audit Committee is comprised of directors who are "independent" +for purposes of The Nasdaq National Market listing standards and who meet the +independence requirements contained in Exchange Act Rule 10A-3(b)(1). The Board +has determined that Richard P. Randall meets the SEC criteria of an "audit +committee financial expert" and he is currently serving as such. The Audit +Committee is primarily responsible for reviewing the services performed by the +Company's independent public accountants, evaluating the Company's accounting +policies and its system of internal controls, and reviewing significant finance +transactions. During 2005, the Audit Committee met nine times. +The Audit Committee is responsible for reviewing and helping to ensure +the integrity of the Company's financial statements. Among other matters, the +Audit Committee, with management and independent and internal auditors, reviews +the adequacy of the Company's internal accounting controls that could +significantly affect the Company's financial statements. The Audit Committee is +also directly and solely responsible for the appointment, retention, +compensation, oversight and termination of the Company's independent +accountants. In addition, the Audit Committee also functions as the Company's +Qualified Legal Compliance Committee (the "QLCC"). The purpose of the QLCC is to +receive, retain and investigate reports made directly, or otherwise made known, +of evidence of material violations of any United States federal or state law, +including any breach of fiduciary duty by the Company, its officers, directors, +employees or agents, and if the QLCC believes appropriate, to recommend courses +of action to the Company. +The Audit Committee meets with management periodically to consider the +adequacy of the Company's internal controls and the objectivity of its financial +reporting. The Audit Committee discusses these matters with the Company's +independent public accountants and with appropriate Company financial personnel. +Meetings are held with the independent public accountants who have unrestricted +access to the Audit Committee. In addition, the Audit Committee reviews the +Company's financing plans and reports recommendations to the full Board of +Directors for approval and to authorize action. The Board has adopted a written +charter setting out the functions the Audit Committee is to perform. A copy of +the Audit Committee Charter is attached as Annex A to the Company's 2004 Proxy +Statement and is available on the Company's website at www.stevemadden.com. +Management has primary responsibility for the Company's financial +statements and the overall reporting process, including the Company's system of +internal controls. The independent public accountants audit the annual financial +statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of +operations and cash flows of the Company in conformity with accounting +principles generally accepted in the United States of America and discuss with +the Audit Committee any issues they believe should be raised with the Audit +Committee. +The following Audit Committee Report does not constitute soliciting +material and shall not be deemed filed or incorporated by reference into any +other Company filing under the Securities Act of 1933, as amended, or the +Securities Exchange Act of 1934, as amended, except to the extent the Company +specifically incorporates this Audit Committee Report by reference therein. +-6- +AUDIT COMMITTEE REPORT +The Audit Committee reviewed the Company's audited financial statements +for the fiscal year ended December 31, 2005 and met with both management and +Eisner LLP, the Company's independent public accountants, to discuss such +audited financial statements. Management and the Company's independent public +accountants have represented to the Audit Committee that the financial +statements were prepared in accordance with accounting principles generally +accepted in the United States of America. The Audit Committee has received from +and discussed with Eisner LLP the written disclosure and the letter regarding +the independence of Eisner LLP as required by Independence Standards Board +Standard No. 1. The Audit Committee also discussed with Eisner LLP any matters +required to be discussed by Statement on Auditing Standards No. 61. Based on +these reviews and discussions, the Audit Committee recommended to the Board that +the Company's audited financial statements be included in the Company's Annual +Report on Form 10-K for the fiscal year ended December 31, 2005. +Submitted by the Audit Committee of the Company's Board of Directors: +Peter Migliorini +Thomas H. Schwartz +Harold Kahn +Nominating/Corporate Governance Committee +The Nominating/Corporate Governance Committee of the Board of Directors +for the year ended December 31, 2005 consisted of Peter Migliorini and Walter +Yetnikoff. The Nominating/Corporate Governance Committee is comprised of +directors who are "independent" for purposes of The Nasdaq National Market +listing standards. The Nominating/Corporate Governance Committee considers and +makes recommendations to the Board of Directors with respect to the size and +composition of the Board of Directors and identifies potential candidates to +serve as directors. The Nominating/Corporate Governance Committee identifies +candidates to the Board of Directors by introductions from management, members +of the Board of Directors, employees or other sources and stockholders that +satisfy the Company's policy regarding stockholder recommended candidates. The +Nominating/Corporate Governance Committee does not evaluate director candidates +recommended by stockholders differently than director candidates recommended by +other sources. A copy of the Nominating/Corporate Governance Committee Charter +is attached as Annex B to the Company's 2004 Proxy Statement and is available on +the Company's website at www.stevemadden.com. +Stockholders wishing to submit recommendations for the 2007 Annual +Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. Any such stockholder must (x) comply +with the director nomination provisions of the Company's By-Laws, (y) meet and +evidence the minimum eligibility requirements specified in Exchange Act Rule +14a-8 and (z) submit, within the same timeframe for submitting a stockholder +proposal required by Rule 14a-8: (1) evidence in accordance with Rule 14a-8 of +compliance with the stockholder eligibility requirements, (2) the written +consent of the candidate(s) for nomination as a director, (3) a resume or other +written statement of the qualifications of the candidate(s) for nomination as a +director, and (4) all information regarding the candidate(s) and the submitting +stockholder that would be required to be disclosed in a proxy statement filed +with the SEC if the candidate(s) were nominated for election to the Board of +Directors. +In considering Board of Directors candidates, the Nominating/Corporate +Governance Committee takes into consideration the Company's Board Candidate +Guidelines, attached as Annex C to the Company's 2004 Proxy Statement and +available on the Company's website at www.stevemadden.com, the Company's policy +-7- +regarding stockholder recommended director candidates, as set forth above, and +all other factors that they deem appropriate, including, but not limited to, the +individual's character, education, experience, knowledge and skills. In +addition, the Nominating/Corporate Governance Committee develops and recommends +corporate governance principles for the Company; makes recommendations to the +Board of Directors in support of such principles; takes a leadership role in the +shaping of the corporate governance of the Company; and oversees the evaluation +of the Board of Directors and management. +During 2005, the Nominating/Corporate Governance Committee met three +times. +Compensation Committee +The Compensation Committee of the Board of Directors for the year ended +December 31, 2005 consisted of directors Peter Migliorini (Chairman) and Thomas +H. Schwartz. The Compensation Committee is comprised of directors who are +"independent" for purposes of The Nasdaq National Market listing standards. The +Compensation Committee is primarily responsible for approving salaries, bonuses +and other compensation for the Company's Chief Executive Officer and named +executive officers, reviewing management recommendations relating to new +incentive compensation plans and changes to existing incentive compensation +plans, and administering the Company's stock plans, including granting options +and setting the terms thereof pursuant to such plans (all subject to approval by +the Board of Directors). During 2005, the Compensation Committee met four times. +Code of Business Conduct and Ethics +All of the Company's employees, officers (including senior executive, +financial and accounting officers) and directors are held accountable for +adherence to the Company's Code of Business Conduct and Ethics (the "Code"). The +Code is intended to establish standards necessary to deter wrongdoing and to +promote compliance with applicable governmental laws, rules and regulations and +honest and ethical conduct. The Code covers all areas of professional conduct, +including conflicts of interest, fair dealing, financial reporting and +disclosure, protection of Company assets and confidentiality. Employees have an +obligation to promptly report any known or suspected violation of the Code +without fear of retaliation. Waiver of any provision of the Code for executive +officers and directors may only be granted by the Board of Directors or one of +its committees and any such waiver or modification of the Code relating to such +individuals will be disclosed by the Company. A copy of the Code is attached as +Annex D to the Company's 2004 Proxy Statement, is available on the Company's +website at www.stevemadden.com and may also be obtained by any stockholder +without charge upon request by writing to the Corporate Secretary, Steven +Madden, Ltd., 52-16 Barnett Avenue, Long Island City, NY 11104. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, +requires that the Company's directors and executive officers, and persons who +own more than ten percent (10%) of a registered class of the Company's equity +securities, file with the Securities and Exchange Commission reports of initial +ownership of the Company's common stock and subsequent changes in that ownership +and furnish the Company with copies of all forms they file pursuant to Section +16(a). Form 4s were not filed on a timely basis to report (i) grants of stock +options on May 27, 2005 to each of Jeffrey Birnbaum, Marc S. Cooper, Peter +Migliorini, Harold Kahn, Thomas H. Schwartz, John L. Madden and Walter +Yetnikoff; (ii) a grant of stock options on June 30, 2005 to Arvind Dharia; and +(iii) the exercise of stock options and sale of Common Stock on November 7, 2005 +by Marc S. Cooper. Each of these reports has now been filed. In making this +disclosure, the Company has relied solely on copies of the reports that they +-8- +have filed with the SEC and written representations received from our directors +and executive officers that no annual Form 5 reports were required to by filed +for the 2005 fiscal year. +Equity Compensation Plan Information +The following table provides information as of December 31, 2005 with +respect to the Common Stock that may be issued under the Company's existing +equity compensation plans. The table shows the number of securities to be issued +under compensation plans that have been approved by stockholders and those that +have not been so approved. The footnotes and other information following the +table are intended to provide additional detail on the compensation plans. +Number of securities +Number of securities remaining available for +to be issued upon Weighted-average exercise future issuance under +exercise of price of outstanding equity compensation plans +outstanding options, options, warrants and (excluding securities +Plan category warrants and rights rights reflected in column (a)) +----------------------------------- --------------------- ------------------------- -------------------------- +Equity compensation plans +approved by security +holders (1) 1,300,100 $14.68 5,100 +Equity compensation plans +not approved by security +holders -- -- -- +Other (2) 20,000 -- -- +--------------------- ------------------------- -------------------------- +Total 1,320,100 $14.68 5,100 +------------------ +(1) Consists of the 1993 Incentive Stock Option Plan, the 1995 Stock Plan, the +1996 Stock Plan and the 1999 Stock Plan, as amended. +(2) In 2002 and 2003, the Company entered into agreements with eight employees +and one independent contractor, which agreements provide that, if such +individuals continue to be employed by, or in the case of the independent +contractor, provide services to, the Company through specified future dates +(ranging form January 1, 2004 through March 31, 2007), they each will be +entitled to receive shares of the Company's Common Stock in amounts ranging from +20,000 shares to 50,000 shares. Such shares were registered by the Company on +Form S-8 in August 2004. As of December 31, 2005, all but 20,000 of such shares +have been issued. +Certain Legal Proceedings +On or about January 23, 2006, the Company and Steven Madden, +Jamieson Karson, Arvind Dharia and Amelia Varela were named as defendants in a +lawsuit filed by Jojeli, Inc. ("Jojeli") and Alan Rick Friedman in the United +States District Court for the Southern District of New York. In their complaint, +Jojeli and Mr. Friedman assert claims arising from the Company's decision to +terminate Jojeli's services on or about November 28, 2005. Mr. Friedman, +Jojeli's principal, served as a senior salesperson for the Company, and provided +his services to the Company pursuant to an April 26, 2004 written agreement. In +their complaint, Jojeli and Mr. Friedman allege eight claims against the Company +and/or four of its executives, including breach of contract, violation of the +New York Labor Law, tortuous interference with contract, civil conspiracy, +-9- +defamation, and prima facie tort. They seek damages on their various claims in +differing amounts, ranging from $500,000 to $5.0 million and they also seek a +declaration that they are not bound by the restrictive covenant in the parties' +contract. On or about March 1, 2006, the individual defendants and the Company +moved to dismiss the tort claims contained in the complaint and to strike Mr. +Friedman's claim for punitive damages in connection with his contract claims. +More specifically, the defendants moved to dismiss the claims alleging +defamation, interference with contract, prima facie tort and civil conspiracy. +If the motion is granted in its entirety, the individual defendants would be +dismissed from the suit and Mr. Friedman's remaining claims would consist of +breach of contract and alleged violations of the New York Labor Law. On or about +April 13, 2006, Mr. Friedman filed an amended complaint in the action. In his +amended complaint, Mr. Friedman (i) dropped his defamation claim against the +Company's Executive Vice President of Wholesale Sales, Amelia Newton Varela, +(ii) dropped all claim(s) against the Company's Chief Financial Officer, Arvind +Dharia, and (iii) supplemented certain allegations concerning the remaining +defendants in an effort to strengthen or preserve his remaining tort claims. On +April 13th, Mr. Friedman also filed his opposition to the motion to dismiss +previously filed by the Company and the individual defendants, who, under the +current court schedule, have until April 27, 2006 to respond, although the +Company's attorneys have asked the court for a brief extension. +On April 26, 2004, the SEC sent the Company a letter requesting +information and documents relating to, among other things, Steven Madden's +employment with the Company. The Company has responded to this request. +On September 12, 2001, the State of Florida, Department of Banking and +Finance, Division of Securities and Investor Protection (the "Department") +issued a Final Order adopting the Stipulation and Consent Agreement to Final +Order dated May 15, 2001 ("Stipulation and Consent Agreement") between John +Madden and the Department relating to the Department's investigation of alleged +sales of unregistered securities in 1997. Under the Stipulation and Consent +Agreement, Mr. Madden neither admitted nor denied the allegations against him; +however, Mr. Madden agreed to pay an administrative fine in the amount of $5,000 +and agreed to abide by certain limitations related to his employment in the +securities or investment advisory industry for a period of five years, including +Mr. Madden's agreement to not act in any principal, supervisory, or managerial +capacity in the securities industry and to not exercise discretionary authority +in any account of any person. +Directors and Executive Officers +The Company's directors and executive officers as of the date hereof +are listed below: +Name Age Position(s) with the Company +-------------------------------------- --------------- ----------------------------------------------------- +Jamieson A. Karson................... 48 Chief Executive Officer and Chairman of the Board +Arvind Dharia........................ 56 Chief Financial Officer +Awadhesh Sinha....................... 60 Chief Operating Officer +Robert Schmertz...................... 42 Brand Director +Amelia Newton Varela................. 34 Executive Vice President - Wholesale Sales +Jeffrey Birnbaum..................... 45 Director +Marc S. Cooper....................... 44 Director +Harold Kahn.......................... 60 Director +John L. Madden....................... 58 Director +Peter Migliorini..................... 57 Director +Richard P. Randall................... 68 Director +Thomas H. Schwartz................... 58 Director +Walter Yetnikoff..................... 72 Director +-10- +See "Proposal 1: Election of Directors - Biographical Summaries of Nominees for +the Board of Directors" for the biographies of the Company's directors. +Arvind Dharia has been the Chief Financial Officer of the Company since +October 1992 and was a director of the Company from December 1993 through May +2004. From December 1988 to September 1992, Mr. Dharia was Assistant Controller +of Millennium III Real Estate Corp. +Awadhesh Sinha became the Chief Operating Officer of the Company in +July 2005. Mr. Sinha had been a director of the Company from October 2002 to +July 2005. Mr. Sinha was the Chief Operating Officer and Chief Financial Officer +of WEAR ME Apparel Inc., a company that designs, manufactures and markets +branded and non-branded children's clothing, from 2003 to July 2005. Prior to +that, Mr. Sinha worked for Salant Corporation, a company that designs, +manufactures and markets men's clothing, for 22 years, and held the position of +Chief Operating Officer and Chief Financial Officer of Salant Corporation from +1998 to 2003. +Robert Schmertz has been the Brand Director since January 2006. Mr. +Schmertz served as President of Steve Madden Womens Wholesale Division and Brand +Manager from September 2001 through January 2006. Additionally, Mr. Schmertz has +been the President of Shoe Biz, Inc., a wholly owned subsidiary of Steve Madden +Retail Inc. since May 1998 and the President of Diva Acquisition Corp. since +January 2001. Before joining the Company, Mr. Schmertz was President of Daniel +Scott Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the East +Coast Sales Manager for Impo International from January 1993 through November +1995. From April 1990 to December 1992, Mr. Schmertz served as a sales +representative for Espirit de Corp. based in San Francisco, California. +Amelia Newton Varela has been Executive Vice President of Wholesale +Sales since November 2004. Previously, she was Vice President of Sales for the +Steve Madden Women's division since January 2000. Prior to that, she was Account +Executive for the Women's division since 1998. Before joining the Company, Ms. +Varela was the sales assistant to the EVEP of Sales for Merrin Financial. She +graduated from the FIT in 1995. +COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS +Summary Compensation Table +The following table sets forth for each of the last three fiscal years +ended December 31, 2005, December 31, 2004 and December 31, 2003 the +remuneration paid by the Company to its Chief Executive Officer and the four +most highly compensated executive officers (other than the Chief Executive +Officer): +-11- +Annual compensation Long-term compensation +------------------------ ------------------------- +Number of +Securities +Restricted Underlying +Name and principal Fiscal Stock Options/SARs All other +position year Salary Bonus Awards (1) compensation +--------------------------- ------ -------- --------- ----------- ------------ --------------- +Jamieson A. Karson, 2005 $467,500 $543,771 -- -- $ 494,509(2) +Chief Executive 2004 $467,500 -- -- -- $ 146,226(3) +Officer 2003 $467,500 $108,056 -- -- $ 287,963(4) +Arvind Dharia, 2005 $240,000 $253,914 -- 40,000 $ 312,986(5) +Chief Financial 2004 $234,000 $ 50,000 -- 40,000 $ 287,570(6) +Officer 2003 $220,000 $ 71,771 -- 40,000 $ 739,283(7) +Awadhesh Sinha, 2005(8) $187,981 $477,673(9) -- 7,500 $ 49,146(10) +Chief Operating 2004 -- -- -- 10,000 $ 80,000(11) +Officer 2003 -- -- -- 10,000 $ 65,139(11) +Robert Schmertz, 2005 $464,745 $250,000 -- -- $1,095,367(12) +Brand Director 2004 $432,649 $ 50,000 -- -- $ 205,769(13) +2003 $393,750 -- -- -- $ 342,000(14) +Amelia Newton Varela, 2005 $300,000 $260,765 $375,200(15) 23,000 $ 15,000(16) +Executive Vice 2004 $247,000 -- -- -- $ 15,000(16) +President - 2003 $205,557 $ 50,000 -- -- $ 46,911(17) +Wholesale Division +------------------ +(1) Options to purchase shares of Common Stock. +(2) In 2005, Mr. Karson sold 100,000 shares of Common Stock for a gain of +$464,975 and $29,541 of expenses were paid by the Company on behalf of Mr. +Karson pursuant to his employment agreement. +(3) In 2004, the Company paid Mr. Karson $116,112 in lieu of granting him +the option to purchase 58,056 shares to purchase Common Stock that he was +entitled to under his employment agreement and $30,114 of expenses were +paid by the Company on behalf of Mr. Karson pursuant to his employment +agreement. +(4) In 2003, the Company paid expenses in the amount of $37,963 on behalf +of Mr. Karson pursuant to his employment agreement. In addition, in 2003 +the Company paid Mr. Karson $250,000 in lieu of granting him the option to +purchase 100,000 shares to purchase Common Stock that he was entitled to +under his employment agreement. +(5) In 2005, Mr. Dharia sold 13,000 shares of Common Stock for a gain of +$225,290 and the Company paid expenses in the amount of $87,700 on behalf +of Mr. Dharia pursuant to his employment agreement. +-12- +(6) In 2004, Mr. Dharia sold 20,172 shares of Common Stock for a gain of +$192,349 and the Company paid expenses in the amount of $95,221 on behalf +of Mr. Dharia pursuant to his employment agreement. +(7) In 2003, Mr. Dharia sold 60,000 shares of Common Stock for a gain of +$625,840 and the Company paid expenses in the amounts of $113,443 on behalf +of Mr. Dharia pursuant to his employment agreement. +(8) Mr. Sinha has been the Chief Operating Officer of the Company since +June 15, 2005. +(9) In 2005, pursuant to his employment agreement, Mr. Sinha received a +one-time $100,000 signing bonus, as well as a $377,673 performance bonus. +(10) In 2005, the Company paid expenses in the amount of $6,646 on behalf +of Mr. Sinha pursuant to his employment agreement and $42,500 as +compensation for his service as a director on the Board of Directors and +for his membership on Board committees. +(11) In 2003 and 2004, the Company paid Mr. Sinha $65,139 and $80,000, +respectively, for his service as a director on the Board of Directors and +for his membership on Board committees. +(12) On April 2, 2002, the Company agreed to grant, subject to stockholder +approval, Mr. Schmertz 50,000 shares of Common Stock on June 30, 2005 if +Mr. Schmertz was employed by the Company on such date. The grant to Mr. +Schmertz was not approved by the Company's stockholders. Therefore, in +2005, the Company's paid Mr. Schmertz $888,000 in lieu of granting him the +option to purchase 50,000 shares of Common Stock. Additionally, in 2005, +Mr. Schmertz sold 20,000 shares of Common Stock for a gain of $201,367 and +the Company paid $6,000 of expenses on behalf of Mr. Schmertz pursuant to +employment agreement. +(13) In 2004, the Company paid expenses in the amount of $5,769 on behalf +of Mr. Schmertz pursuant to his employment agreement. In addition, in 2004, +the Company paid Mr. Schmertz $200,000 in lieu of granting him the option +to purchase 100,000 shares of Common Stock that he was entitled to under +his employment agreement. +(14) In 2003, Mr. Schmertz sold 12,500 shares of Common Stock for a gain of +$86,000 and the Company paid expenses in the amount of $6,000 on behalf of +Mr. Schmertz pursuant to his employment agreement. In addition, in 2003 the +Company paid Mr. Schmertz $250,000 in lieu of granting him the option to +purchase 100,000 shares to purchase Common Stock that he was entitled to +under his employment agreement. +(15) Represents 20,000 cliff vested shares granted in 2002; such shares +vested at the end of 2004 pursuant to Ms. Varela's employment agreement. +(16) In 2004 and 2005, the Company paid $15,000 of expenses on behalf of +Ms. Varela pursuant to her employment agreement. +(17) In 2003, Ms. Varela sold 3,000 shares of Common Stock for a gain of +$30,930 and the Company paid expenses in the amount of $15,981 on behalf of +Ms. Varela pursuant to her employment agreement. +-13- +The following table sets forth certain information with respect to +options granted during the last fiscal year to the persons named in the Summary +Compensation Table above. +Option/SAR Grants In Last Fiscal Year +Number of Percent of Total +Securities Options/SARS Exercise Potential Realizable Value +Underlying Granted to or Base at Assumed Annual Rates +Options/SARS Employees in Price of Stock Price Appreciation +Name Granted (#) Fiscal Year % ($/Sh) Expiration Date for Option Term +--------------------- ------------- ------------- ---------- ---------------- --------------------------- +5% 10% +----------- ------------ +Jamieson A. Karson...... -- -- -- -- -- -- +Arvind Dharia........... 40,000 12.5% $17.76 5/27/15 $1,203,427 $1,916,257 +Awadhesh Sinha.......... 5,000 1.6% $18.47 7/6/15 $ 150,428 $ 239,532 +2,500 0.8% $17.42 5/27/15 $ 75,214 $ 119,766 +Robert Schmertz......... -- -- -- -- -- -- +Amelia Newton Varela.... 23,000 7.2% $18.47 7/6/15 $ 691,971 $1,101,848 +The following table sets forth certain information with respect to +options exercised during the last fiscal year by the persons named in the +Summary Compensation Table, and with respect to unexercised options held by such +persons at the end of the last fiscal year. +Aggregate Option/SAR Exercises In Last Fiscal Year And +Fiscal Year-End Option/SAR Values +Shares Value Number of Securities Value of Unexercised in the +Acquired on Realized Underlying Unexercised Money Options/SARs at +Name Exercise (#) $ Options/SARS at FY-End (#) FY-End ($) (1) +---------------------- --------------- ----------- ----------------------------- ----------------------------- +Exercisable Unexercisable Exercisable Unexercisable +----------- ------------- ----------- ------------- +Jamieson A. Karson...... 100,000 $464,975 45,000 -- $ 461,250 -- +Arvind Dharia........... 13,000 $225,290 148,828 20,000 $1,573,535 $229,400 +Awadhesh Sinha.......... -- -- 27,500 -- $ 287,325 -- +Robert Schmertz......... 20,000 $208,600 80,000 -- $ 820,000 -- +Amelia Newton Varela.... -- -- 23,000 -- $ 247,480 -- +------------------ +(1) Based upon a closing price on December 31, 2005 of $29.23 per share as +reported by The Nasdaq National Market. +-14- +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the "1999 Plan"), and on June 4, 1999 the Company's +stockholders approved the adoption of the 1999 Plan. In May 2000, the Company's +stockholders approved an amendment to the 1999 Plan increasing the number of +shares of Common Stock subject to the plan from 400,000 to 975,000 shares. In +July 2001, the Company's stockholders approved an amendment to the 1999 Plan +increasing the number of shares of Common Stock subject to the plan from 975,000 +to 1,600,000 shares. In May 2002, the Company's stockholders approved an +amendment to the 1999 Plan increasing the number of shares of Common Stock +subject to the plan from 1,600,000 to 2,280,000. In May 2003, the Company's +stockholders approved an amendment to the 1999 Plan (i) increasing the maximum +number of shares of the Company's common stock available for issuance under the +plan from 2,280,000 shares to 2,920,000 shares; (ii) providing that the exercise +price of an option granted under the plan shall be no less than the fair market +value of the Company's common stock on the date of grant (except to the extent +otherwise provided in agreements with the Company dated prior to the effective +date of the amendment); and (iii) prohibiting the Board from amending the terms +of any option granted pursuant to the plan to reduce the option price. In May +2004, the Company's stockholders approved an amendment to the 1999 Plan +increasing the maximum number of shares of the Company's common stock available +for issuance under the plan from 2,920,000 shares to 3,220,000 shares. As of the +Record Date, options to purchase 873,103 shares of Common Stock have been +granted pursuant to the 1999 Plan. The purpose of the 1999 Plan is to provide a +means whereby directors and selected employees, officers, agents, consultants, +and independent contractors of the Company, may be granted incentive stock +options and/or nonqualified stock options to purchase shares of common stock, in +order to attract and retain the services or advice of such directors, employees, +officers, agents, consultants, and independent contractors and to provide +additional incentive for such persons to exert maximum efforts for the success +of the Company by encouraging stock ownership in the Company. If the 2006 Stock +Incentive Plan is approved by stockholders, no additional options will be +granted under the 1999 Plan. +Employment and Consulting Agreements with Certain Executive Officers and +Significant Employees +In May 2001, the Company entered into an employment agreement with +Jamieson A. Karson pursuant to which Mr. Karson agreed to serve as the Company's +Chief Executive Officer and Vice Chairman of the Board. On July 22, 2004 at a +regularly scheduled meeting of the Board of Directors of the Company, Mr. Karson +was appointed Chairman of the Board of Directors. Mr. Karson's employment +agreement was amended and restated in January 2006. The term of Mr. Karson's +employment under his amended and restated employment agreement is three (3) +years commencing on January 1, 2006 and ending on December 31, 2008. The term +will be automatically extended for successive one-year periods unless the +Company timely notifies Mr. Karson of its intention not to extend the term. The +amended and restated agreement provides that the Company pay Mr. Karson an +annual salary of $500,000. In addition, the agreement provides that Mr. Karson +receive an annual bonus in such amount, if any, and at such time or times, as +the Board of Directors may determine in its absolute discretion. Subject to +approval by the Company's stockholders of the 2006 Stock Incentive Plan and +subject to availability of shares under such plan or any other plan designated +by the Board of Directors and approved by the Company's stockholders, Mr. Karson +is entitled to awards under such plan as may be determined by the Board of +Directors, or a committee thereof, from time to time in its absolute discretion. +In addition, in the event of Mr. Karson's total disability or his death, the +Company is obligated to continue to pay Mr. Karson (or Mr. Karson's estate) his +base salary for the twelve (12)-month period immediately subsequent to the date +of such total disability or death. In the event Mr. Karson's employment +agreement is terminated (or not extended) for any reason other than "for cause" +(as defined in the agreement) or due to his death or his total disability, the +Company is obligated to pay Mr. Karson (i) the amount of compensation that is +-15- +accrued and unpaid through the date of termination; plus (ii) an amount equal to +the lesser of (A) the sum of three (3) times Executive's highest "total +compensation" (as defined in the agreement) in any given fiscal year of his +employment with the Company and (B) Four Million Dollars ($4,000,000). In the +event that there is a "change of control" transaction, all unvested options to +purchase shares of the Common Stock or restricted stock awards or other +equity-related awards under the 1999 Plan and/or the 2006 Stock Incentive plan +held by Mr. Karson will vest on the date of the change of control and Mr. Karson +will be entitled to receive a lump sum cash payment equal to the amount +described above. Mr. Karson's employment agreement contains other customary +provisions, including provisions regarding confidentiality, solicitation and +competition. +In January 1998, the Company entered into an employment agreement with +Arvind Dharia, which has been amended from time to time, pursuant to which Mr. +Dharia agreed to serve as the Company's Chief Financial Officer. The term of Mr. +Dharia's employment under his agreement as amended commenced on January 1, 1998 +and ends on December 31, 2009. The term will be automatically extended for an +additional one-year period unless either party timely notifies the other of its +intention not to extend the term. The amended agreement provides that the +Company pay Mr. Dharia an annual salary of $240,000 from January 1, 2005 through +December 31, 2005 and $425,000 per annum from and after January 1, 2006, subject +to the following increases: (i) on January 1, 2007, his base salary shall be +increased by 2.5% of the then-current base salary; (ii) on January 1, 2008, his +base salary shall be increased by 5% of the then-current base salary; and (iii) +on January 1, 2009, his base salary shall be increased by 5% of the then-current +base salary. In addition, the agreement provides that Mr. Dharia receive an +annual bonus in such amount, if any, and at such time or times, as the Board of +Directors may determine in its absolute discretion. Subject to approval by the +Company's stockholders of the 2006 Stock Incentive Plan and subject to +availability of shares under such plan or any other plan designated by the Board +of Directors and approved by the Company's stockholders, Mr. Dharia is entitled +to awards under such plan as may be determined by the Board of Directors, or a +committee thereof, from time to time in its absolute discretion. The agreement +provides for, in the event of Mr. Dharia's death, the payment to Mr. Dharia's +estate of his base salary for the 12-month period immediately subsequent to the +date of Mr. Dharia's death. In the event Mr. Dharia's employment agreement is +terminated due to Mr. Dharia's total disability (as defined in the agreement) or +"for cause" (as defined in the agreement), the Company is obligated to pay Mr. +Dharia the amount of compensation that is accrued and unpaid through the date of +termination. In the event Mr. Dharia's employment agreement is terminated for +any reason other than "for cause", due to his death or his total disability, the +Company is obligated to pay Mr. Dharia, in two installments, an amount equal the +product of (x) his base salary on the effective date of such termination plus +the bonus paid or payable, if any, for the fiscal year ended on the December +31st immediately preceding the termination date, multiplied by (y) the number of +years (and fraction of years) remaining in the term. If the Company decides not +to renew the agreement (other than "for cause" or total disability), then Mr. +Dharia shall be entitled to receive severance compensation in cash in an amount +equal to his then-current base salary for the 90-day period commencing on the +expiration of the term. In the event that there is a "change of control" +transaction and Mr. Dharia's employment has been terminated by the Company other +than "for cause" or by Mr. Dharia "for good reason" (as defined in the +agreement), Mr. Dharia shall receive an amount equal to three times the total +compensation he was entitled to receive under the agreement for the preceding +12-month period ending on the last previous December 31, except that in lieu of +the actual base salary component received during such period, there shall be +substituted the annual base salary to which Mr. Dharia was entitled to as of the +date of termination. +In June 2005, the Company entered into an employment agreement with +Awadhesh Sinha, pursuant to which Mr. Sinha agreed to serve as the Company's +Chief Operating Officer. The term of Mr. Sinha's employment under his employment +agreement is three (3) years commencing on July 1, 2005 and ending on June 30, +2008. The term will be automatically extended for successive one-year periods +unless either party timely notifies the other of its intention not to extend the +term. The agreement provides that the Company pay Mr. Sinha an annual salary of +-16- +$425,000, subject to a 5% annual increase or a 10% annual increase if the +Company's EBIT for the 12-month period from July 1 to June 30 increases by at +least 5% over the preceding 12-month period. Upon entering the agreement, Mr. +Sinha received a signing bonus of $100,000. In addition, Mr. Sinha is entitled +to an annual bonus equal to the greater of (i) $50,000 and (ii) 3% of the +increase in the Company's EBIT for such fiscal year over the EBIT of the +immediately prior fiscal year. The agreement provides for, in the event of Mr. +Sinha's death, the payment to Mr. Sinha's estate of his base salary for the +12-month period immediately subsequent to the date of Mr. Sinha's death. In the +event Mr. Sinha's employment agreement is terminated due to Mr. Sinha's total +disability (as defined in the agreement), "for cause" (as defined in the +agreement) or due to Mr. Sinha's resignation, the Company is obligated to pay +Mr. Sinha the amount of compensation that is accrued and unpaid through the date +of termination. Mr. Sinha shall be required to repay to the Company the full +amount of his signing bonus if he is discharged "for cause" and a pro rata +portion of the signing bonus for the portion of the term that he did not fulfill +if he resigns. In the event Mr. Sinha's employment agreement is terminated for +any reason other than "for cause" or due to his death or his total disability, +the Company is obligated to pay Mr. Sinha an amount equal to the sum of (x) the +base salary that would have been paid by the Company pursuant to the agreement +for the longer of the remainder of the then-current term or 6 months and (y) the +cash bonus payable to Mr. Sinha prorated from the commencement of the +then-current term through the termination date. In the event that there is a +"change of control" transaction, the Company or Mr. Sinha may terminate the +agreement and Mr. Sinha shall be entitled to an amount equal to three times the +total compensation received by Mr. Sinha under the agreement for the preceding +12-month period ending on the last previous December 31st, except that in lieu +of the actual base salary component received during such period, there shall be +substituted the annual base salary to which Mr. Sinha was entitled to as of the +date of his termination. +In April 2002, the Company entered into an employment agreement with +Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as President of +Steve Madden Wholesale Womens Division and Brand Manager for Steven Madden, Ltd. +The agreement was extended in March 2005. The term of Mr. Schmertz's employment +under his employment agreement (as extended) commenced on April 1, 2002 and ends +on June 30, 2007. Mr. Schmertz received a signing bonus of $50,000 upon the +execution of the extension. The Company agreed to pay Mr. Schmertz an annual +salary of $476,438.00 on July 1, 2005 and to be increased to $500,260.00 on July +1, 2006. Under the terms of the agreement as extended, the Company shall pay Mr. +Schmertz a discretionary bonus in an amount determined solely by the Company's +Board of Directors. In the event of a "change of control", Mr. Schmertz shall be +entitled to terminate the agreement and upon such termination will be entitled +to receive three times the compensation received in the prior year (capped at +the maximum allowed under Section 4999 of the Internal Revenue Code of 1986). +Mr. Schmertz's employment agreement contains other customary provisions. +In October 2004, the Company entered into an employment agreement with +Amelia Newton Varela, pursuant to which Ms. Varela agreed to serve as Executive +Vice President of Wholesale Sales. Ms. Varela's employment under her employment +agreement commenced on October 2004. The Company agreed to pay Ms. Varela an +annual salary of $300,000. Under the terms of the agreement, the Company shall +pay Ms. Varela an annual bonus in an amount equal to 2% of the increase in the +Company's wholesale divisions' EBIT of the fiscal year over the Company's +wholesale divisions' EBIT of the prior fiscal year. In addition, if Ms. Varela +is still employed by the Company on December 31, 2007, she is entitled to a cash +payment in the amount of $225,000. Ms. Varela's employment agreement contains +other customary provisions. +Effective as of July 1, 2005, the Company amended its employment +agreement with Steven Madden, pursuant to which Mr. Madden agreed to serve as +the Company's Creative and Design Chief. The term of Mr. Madden's employment +under his amended employment agreement commenced July 1, 2005 and ends on June +-17- +30, 2015. The agreement provides for an annual salary of $600,000, with a 7% +increase of base salary on a compound basis in each of the third, fifth, seventh +and ninth years of the agreement. The agreement also provides for an annual +bonus in an amount determined by the Board of Directors, which will be at least +2% of the Company's EBITDA (the "Annual Bonus"). Additionally, the Company shall +pay Mr. Madden an annual cash bonus in relation to new business (as defined in +the agreement) in an amount to be determined by the Board of Directors, which +will be at least (i) 2.5% of new business gross direct revenues and (ii) 10% of +all license or other fee income above $2,000,000.00 (the "New Business Bonus"). +In addition, Mr. Madden is eligible to receive annually an option grant to +purchase shares of Common Stock in an amount equal to not less than 100% of the +largest aggregate amount of options granted to any other continuing full-time +employee of the Company during the annual period; provided, however, a grant in +excess of 150% of the options grant to such other continuing full-time employee +shall require shareholder approval. The agreement provides for, in the event of +Mr. Madden's death, the payment to Mr. Madden's estate of his base salary for +the 12-month period immediately subsequent to the date of Mr. Madden's death. In +the event that Mr. Madden's employment agreement is terminated due to Mr. +Madden's total disability (as defined in the agreement), "for cause" (as defined +in the agreement) or due to Mr. Madden's resignation, the Company is obligated +to pay Mr. Madden the amount of compensation that is accrued and unpaid through +the date of termination. In the event Mr. Madden's employment agreement is +terminated for any reason other than "for cause", due to his death or his total +disability or due to Mr. Madden's resignation, the Company is obligated to pay +Mr. Madden, in installments, the balance of his base salary that would have been +paid by the Company under the agreement for the full term of the agreement. In +the event that there is a "change of control" transaction, all unvested options +to purchase shares of the Common Stock held by Mr. Madden will vest on the date +of termination and Mr. Madden will be entitled to receive a lump sum cash +payment equal to (1) the amount of compensation that is accrued and unpaid +through the date of termination, (2) an amount equal to the product of (A) the +number of years remaining in the term of the agreement (but not less than 5) and +(B) the sum of (w) the base salary for the 12-month period ended on the +preceding December 31 (or for the 12-month period ending on December 31, 2002, +if greater), (x) the amount of the Annual Bonus earned (paid or accrued or which +should have been paid or accrued) for the 12-month period ended on the preceding +December 31 (or for the 12-month period ended on December 31, 2002, if greater), +(y) the non-accountable expense allowance provided for under the agreement for +the 12-month period ended on the preceding December 31, and (z) the amount of +the New Business Bonus earned (paid or accrued or which should have been paid or +accrued) for the 12-month period ended on the preceding December 31 (or for the +12-month period ending on December 31 during the agreement in which Mr. Madden +received the greatest New Business Bonus, if greater). Mr. Madden's employment +agreement contains other customary provisions, including provisions regarding +expenses reimbursement, confidentiality, solicitation and competition. +In March 2004, the Company entered into a consulting agreement with +Andrew Shames, pursuant to which Mr. Shames agreed to serve as President of the +Company's men's footwear business. The term of Mr. Shames' consultancy commenced +on March 8, 2004 and ends on March 31, 2007. The Company agreed to pay Mr. +Shames an annual base salary of $150,000. The agreement provides that Mr. Shames +is to receive options to purchase 25,000 shares of the Company's Common Stock on +March 31 of each year with a grant price based on the fair market value on such +date, during the term of the agreement (commencing March 31, 2004). The options +are to vest quarterly over a period of one (1) year from the grant date. If Mr. +Shames is employed by the Company through March 31, 2007, he will be entitled to +receive $100,000 on such date. Mr. Shames' employment agreement contains other +customary provisions. +In March 2004, the Company also entered into a commission agreement +between the Steven Madden Mens Wholesale Division and Hev Sales, Inc. Mr. Shames +is the President of Hev Sales Inc. The term of the commission agreement +commenced on March 8, 2004 and ends on March 31, 2007. Under the commission +agreement, Hev Sales serves as sales organization for the Steven Madden Mens +-18- +Wholesale Division and receives commissions on sales by Hev Sales, Inc. in the +amount of (i) 0.75% of the first $35 million net sales of Madden Mens and 2% of +net sales of $35 million or greater, (ii) 1.25% of the net sales of Unionbay or +other men's mid-tier brands and (iii) 1.25% of the net sales of any private +label direct from the factory. Hev Sales, Inc. receives a biweekly draw in the +amount of $17,308 against commissions earned with an annual guaranteed +commission of $450,000. Commissions earned on the first sales generating +commission of $150,000 are not deemed earned commissions to Hev Sales, Inc. +Under the terms of the commission agreement Hev Sales, Inc. also received a +one-time start-up fee from the Company in the amount of $150,000. +In January 2006, the Company entered into a consulting agreement +between the Company and Joseph Masella, which amended and restated a consulting +agreement between the Company, Mr. Masella and T.J.M Sales Corporation. Mr. +Masella is the president of T.J.M Sales Corporation. Under the terms of the +amended and restated agreement, Mr. Masella agreed to serve as Co-President of +Adesso Madden, Inc. The term of Mr. Masella's consultancy under the agreement +commenced on January 1, 2006 and ends on December 31, 2007. Under the agreement, +Mr Masella receives commissions based on annual sales for (i) Adesso Madden in +the amount of 1% of net sales on his accounts, 0.5% on net sales on other +accounts (excluding sales in the children's department), (ii) the Rule division +of the Company in the amount of 1% of net sales and a one time $100,000 bonus if +the contribution margin of this division is greater than or equal to $5.0 +million for four consecutive quarters during the term of the agreement, and +(iii) SM New York in the amount of 1% of net sales for sales to Famous Footwear, +Mervyns or Sears. In addition, T.J.M. Sales Corporation receives a biweekly draw +in the amount of $20,000 against commissions earned by Mr. Masella. In the event +of a change of control, Mr. Masella shall receive the compensation provided for +under the agreement for the duration of the agreement's term. +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with +Peter J. Solomon & Company, a financial advisory firm of which Marc S. Cooper, +one of the Company's directors, is a managing director. Under this agreement, +the firm provided financial advisory and investment banking services to the +Company. This agreement was amended in March 2004. The amended agreement expired +on March 31, 2005, but pursuant to its terms has been automatically renewed +until such time that the Company terminates it. Pursuant to this agreement, the +Company paid fees and expenses to Peter J. Solomon & Company of $161,000, +$33,000 and $150,000 for 2004, 2003 and 2002 respectively. Under the amended +agreement, the Company paid fees to Peter J. Solomon & Company in the amount of +$161,000 during 2004 and $50,000 plus expenses incurred during 2005. In +addition, the Company retained Peter J. Solomon & Company as an advisor in +connection with the Company's acquisition of all the capital stock of each of +Daniel M. Friedman & Associates, Inc. and DMF International, Ltd. In February +2006, the Company paid Peter J. Solomon & Company an advisory fee in the amount +equal to $412,000 for services and expenses provided in connection with such +acquisition. +In October 2002, the Company entered into an agreement with Jeffrey +Birnbaum, one of the Company's directors. Under this agreement, Mr. Birnbaum +provided consulting services with respect to the designing and manufacturing of +shoes and general consulting services to the Company, pursuant to which, Mr. +Birnbaum received a fee of $200,000 in 2005. In addition, Mr. Birnbaum received +fees for service to the Company as a director in the amount of $50,000 in 2005. +Mr. Birnbaum has been a partner and the Product Development Manager of Dolphin +Shoe Company since August 1982. Dolphin Shoe Company is one of the Company's +domestic suppliers. +In January 2004, the Company entered into an agreement with John Madden +and JLM Consultants, a company wholly-owned by John Madden, one of the Company's +directors, which was amended in 2005. Under this agreement, Mr. Madden provided +consulting services with respect to the development of international sales of +-19- +the Company. Under the agreement, in 2005, JLM Consultants received a monthly +draw with recourse in the amount of $20,000 against sales commissions earned by +Mr. Madden. Mr. Madden also received a $1,000 per month travel allowance and +$1,700 per month toward health insurance premiums. Pursuant to this agreement, +JLM Consultants received a total of $232,000 in 2005. In addition, in 2005 Mr. +Madden received fees for service to the Company as a director in the amount of +$50,000 and use of the Company's leased corporate apartment, a benefit valued at +$40,253. This agreement expired on December 31, 2005 but the parties have +continued the consulting arrangement under the same terms of the expired +agreement. +In January 2006, the Company entered into a consulting agreement with +Joseph Masella, which amended and restated a consulting agreement between the +Company, Mr. Masella and T.J.M Sales Corporation. Mr. Masella is the president +of T.J.M Sales Corporation. Under the amended and restated agreement, Mr. +Masella receives commissions on certain sales of Adesso Madden, Inc., the +Company and SM New York and T.J.M. Sales Corporation receives a biweekly draw in +the amount of $20,000 against these commissions. See "Employment and Consulting +Agreements with Certain Executive Officers." Mr. Masella, either directly or +through T.J.M. Sales Corporation, received commissions in the amount of +$1,545,391 in 2005. +In March 2004, the Company entered into a commission agreement between +the Steven Madden Mens Wholesale Division and Hev Sales, Inc. Mr. Andrew Shames +is the President of Hev Sales Inc. Under the agreement, Hev Sales serves as +sales organization for the Steven Madden Mens Wholesale Division and receives an +annual guaranteed commission of $450,000. Hev Sales, Inc. received commissions +in the amount of $450,008 in 2005. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee is responsible for reviewing and approving +the Company's compensation policies and the compensation paid to its executive +officers, including the Chief Executive Officer and the other named executive +officers. During 2005, the Compensation Committee was comprised of directors +Peter Migliorini (chairman) and Thomas H. Schwartz. Each member of the +Compensation Committee was a non-employee director of the Company during 2005. +The Compensation Committee's goal is to develop executive compensation +policies and practices that are consistent with and linked to the Company's +long-term goal of maximizing stockholder value. The program is designed to +facilitate the long-term success and growth of the Company through the +attraction, motivation, and retention of outstanding executives. +The objectives of the Company's executive compensation programs are to: +(i) attract and retain the highest quality executives, (ii) inspire and motivate +executive officers to increase Company performance, (iii) align executive +officers' financial interests with those of the Company's long-term investors, +and (iv) reward executive officers for exceptional individual contributions to +the achievement of the Company's objectives. +Executive compensation consists of three components: base salary, +annual incentive bonuses and long-term incentive awards (stock options and +restricted stock). While previous long-term incentive awards have been made in +the form of stock options, the Company intends to make its long-term incentive +awards in 2006 in the form of restricted stock under 2006 Stock Incentive Plan, +which is subject to stockholder approval. Each compensation component is offered +to executives in varying combinations, structured in each case, to meet varying +business objectives and to provide a level of total compensation comparable to +similarly situated public companies. +-20- +The total compensation of Jamieson A. Karson, the Company's Chief +Executive Officer, is determined pursuant to his employment agreement with the +Company. Mr. Karson was appointed Chief Executive Officer effective as of July +1, 2001. In 2005, Mr. Karson's compensation consisted of $467,500 in base salary +payments and a $543,771 bonus payment and $464,975 from the sale of options. In +addition, in 2004, the Company paid Mr. Karson $116,112 in lieu of granting him +the option to purchase 58,056 shares of Common Stock that he was entitled to +under his employment agreement. Under Mr. Karson's employment agreement, Mr. +Karson was entitled to receive certain stock option grants in 2005 based on +performance criteria that were met for the 2005 fiscal year. Instead, the +Company made a grant of 20,000 shares of restricted stock under the 2006 Stock +Incentive Plan (subject to stockholder approval of the plan) in lieu of such +stock options (1/5th of one share of restricted stock was granted under 2006 +Stock Incentive Plan for each such stock option). On January 1, 2006, the +Compensation Committee approved an amendment to Mr. Karson's employment +agreement which extended the term of the agreement to December 31, 2008 and +raised his annual base salary to $500,000 with a discretionary bonus. The +Compensation Committee believes that Mr. Karson's compensation should be based +upon the Company's overall performance. See "Employment Agreements with Certain +Executive Officers." +The Company has negotiated agreements with respect to base salary, +annual incentive awards and long-term incentive awards for each of the Company's +named executive officers based upon the Company's performance and the individual +performance of such named executives. +The Internal Revenue Code of 1986 prohibits the Company from taking a +tax deduction in any year for compensation paid the persons who would be named +executive officers in that year in excess of $1 million unless such compensation +is "performance-based compensation." The Company did not pay in 2005 any officer +compensation which will be subject to the $1 million deduction limitation. The +Compensation Committee will take into consideration the $1 million deduction +limitation when structuring future compensation packages for the Company's +executive officers and, if appropriate and in the best interests of the Company, +will conform such packages to permit the Company to take a deduction for the +full amount of all compensation. +Submitted by the Compensation Committee of the Company's Board of +Directors: +Peter Migliorini (chairman) +Thomas H. Schwartz +Compensation Committee Interlocks and Insider Participation +During 2005, the following directors served on the Compensation +Committee: Peter Migliorini (chairman) and Thomas Schwartz. During the fiscal +year 2005, no interlocking relationship existed between the Company's Board of +Directors or Compensation Committee and the board of directors or compensation +committee of any other company. +-21- +STOCK PERFORMANCE GRAPH +The following graph compares the yearly percentage change in the +cumulative total stockholder return on the Common Stock during the period +beginning on December 31, 2000 and ending on December 31, 2005 with the +cumulative total return on the Russell 2000 Index and the S&P 500 Footwear +Index. The comparison assumes that $100 was invested on December 31, 2000 in the +Company's Common Stock and in the foregoing indices and assumes the reinvestment +of dividends. +[GRAPHIC OMITTED] +12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 +------------------------ ---------- ---------- ---------- ---------- ---------- ---------- +Steven Madden, Ltd. $100.00 $ 73.82 $94.81 $107.03 $ 98.95 $397.43 +Russell 2000 Index $100.00 $ 96.78 $75.90 $110.33 $129.09 $148.99 +S&P 500 Footwear Index $100.00 $120.19 $98.66 $149.30 $194.23 $170.05 +-22- +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth information as of the Record Date with +respect to the beneficial ownership of the outstanding shares of the Company's +Common Stock by (i) each person known by the Company to beneficially own five +percent or more of the outstanding shares; (ii) the directors and the persons +named in the Summary Compensation Table; and (iii) the Company's executive +officers and directors as a group. A person is deemed to be a beneficial owner +of any securities of which that person has the right to acquire beneficial +ownership within sixty (60) days. See "Compensation of Directors and Executive +Officers." +Name and Address of Amount and Nature of Percentage ($) +Beneficial Owner (1) Beneficial Ownership(2) of Class(2) +----------------------------------------------------------- -------------------------- ------------------ +Jamieson A. Karson........................................ 55,000 (3) * +Arvind Dharia............................................. 161,828 (4) 1.16 +Awadhesh Sinha............................................ 27,500 (5) * +Robert Schmertz........................................... 80,000 (6) * +Amelia Newton Varela...................................... 43,000 (7) * +Jeffrey Birnbaum.......................................... 50,000 (8) * +Marc S. Cooper............................................ 5,000 (9) * +Harold Kahn............................................... 8,500 (10) * +John Madden............................................... 30,000 (11) * +Peter Migliorini.......................................... 30,000 (12) * +Richard P. Randall........................................ -- * +Thomas Schwartz........................................... 20,000 (13) * +Walter Yetnikoff.......................................... 10,000 (14) * +Steven Madden ............................................ 1,704,000 (15) 11.86 +BOCAP Corp................................................ 809,000 (16) 5.83 +Wells Fargo & Company (17)................................ 925,600 6.76 +Wells Capital Management Incorporated (18)................ 925,600 6.76 +Systematic Financial Management, L.P. (19)................ 766,400 5.59 +Directors and Executive Officers as a Group (13 persons).. 520,828 (20) 3.64 +------------------ +* indicates beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address of each beneficial owner is c/o +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +(2) Beneficial ownership as reported in the table above has been determined in +accordance with Item 403 of Regulation S-K of the Securities Act of 1933 and +Rule 13d-3 of the Securities Exchange Act, and based upon 13,873,667 shares of +Common Stock outstanding (excluding treasury shares) as of the Record Date. +(3) Includes (i) 45,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Karson and (ii) 10,000 shares of Common Stock held by Mr. +Karson's wife. +(4) Includes 128,828 shares of Common Stock issuable upon the exercise of +options held by Mr. Dharia. +-23- +(5) Includes 27,500 shares of Common Stock issuable upon the exercise of options +held by Mr. Sinha. +(6) Represents 80,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schmertz. +(7) Includes 23,000 shares of Common Stock issuable upon the exercise of options +held by Ms. Varela. +(8) Includes 20,000 shares of Common Stock issuable upon the exercise of options +held by Mr. Birnbaum. +(9) Includes 5,000 shares of Common Stock issuable upon the exercise of options +held by Mr. Cooper. +(10) Includes 5,000 shares of Common Stock issuable upon the exercise of options +held by Mr. Kahn. +(11) Includes 30,000 shares of Common Stock issuable upon the exercise of +options held by Mr. J. Madden. +(12) Includes 30,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Migliorini. +(13) Includes 20,000 shares of Common Stock issuable upon the exercise of +options held by Mr. Schwartz. +(14) Includes 10,000 shares of Common Stock issuable upon exercise of options +held by Mr. Yetnikoff. +(15) Includes (i) 809,000 shares of Common Stock held by BOCAP, a corporation +wholly-owned by Mr. S. Madden, (ii) 405,000 shares of Common Stock held by Mr. +S. Madden and (iii) 490,000 shares of Common Stock issuable upon the exercise of +options held by Mr. S. Madden. +(16) BOCAP is wholly-owned by Steven Madden. +(17) Based upon a Schedule 13G filed with the SEC on February 2, 2006. The +address for such stockholder is 420 Montgomery Street, San Francisco, CA 94104. +As disclosed in the Schedule 13G, Wells Capital Management Incorporated is a +subsidiary of such stockholder. +(18) Based upon a Schedule 13G filed with the SEC on February 2, 2006. The +address for such stockholder is 525 Market Street, 10th Floor, San Francisco, CA +94105. As disclosed in the Schedule 13G, such stockholder is a subsidiary of +Wells Fargo & Company. +(19) Based on Schedule 13G filed with the SEC on February 14, 2006. The address +for such stockholder is 300 Frank W. Burr Boulevard, Glenpointe East, 7th Floor, +Teaneck, NJ 07666. +(20) Includes 424,328 shares issuable upon the exercise of options. +-24- +PROPOSAL TWO +PROPOSAL FOR THE APPROVAL OF THE +STEVEN MADDEN, LTD. 2006 STOCK INCENTIVE PLAN +Our board of directors (the "Board") has approved the Steven Madden, +Ltd. 2006 Stock Incentive Plan (the "Plan") in order to enhance the +profitability and value of the Company for the benefit of its stockholders by +enabling us to offer eligible employees, consultants and non-employee directors +cash and stock-based incentives in the Company to attract, retain and reward +such individuals and strengthen the mutuality of interests between such +individuals and the Company's stockholders. The Board's adoption of the Plan is +subject to the approval of the Company's stockholders, including the material +terms of the performance goals under the Plan. +The affirmative vote of the holders of at least a majority of the +outstanding shares of our common stock present or represented by proxy and +entitled to vote at the annual meeting is required to approve the Plan. The +Board recommends that the stockholders vote "for" the approval of the Plan. +The following description of the Plan is a summary and is qualified in +its entirety by reference to the Plan, a copy of which is attached as Exhibit A. +Administration +The Plan is administered by a committee, which is intended to consist +of two or more non-employee directors, each of whom will be, to the extent +required, a non-employee director as defined in Rule 16b-3 of the Exchange Act, +an outside director as defined under Section 162(m) of the Internal Revenue Code +and an independent director as defined under NASD Rule 4200(a)(15) (the +"Committee"); provided that with respect to the application of the Plan to +non-employee directors, the Plan will be administered by the Board (and +references to the Committee include the Board for this purpose). Currently, the +compensation committee of the Board serves as the Committee under the Plan. +The Committee has full authority to administer and interpret the Plan, +to grant discretionary awards under the Plan, to determine the persons to whom +awards will be granted, to determine the types of awards to be granted, to +determine the terms and conditions of each award, to determine the number of +shares of common stock to be covered by each award and to make all other +determinations in connection with the Plan and the awards thereunder as the +Committee, in its sole discretion, deems necessary or desirable. The Committee +has delegated to the Chief Executive Officer of the Company the authority to +grant awards under the Plan to eligible employees and consultants who are not +subject to Section 16(b) of the Exchange Act or Section 162(m) of the Code; +provided that in no event will the number of shares of common stock that may be +granted exceed 1,000 shares to any such individual during any fiscal year. The +terms and conditions of individual awards are set forth in written agreements +that are consistent with the terms of the Plan. Awards under the Plan may not be +made on or after March 20, 2016, except that awards (other than stock options or +stock appreciation rights) that are intended to be "performance-based" under +Section 162(m) of the Code will not be made after the fifth anniversary of the +Plan's approval by the Company's stockholders unless the performance goals are +re-approved by the stockholders. +Eligibility and Types of Awards +All of our employees, consultants and non-employee directors are +eligible to be granted nonqualified stock options, stock appreciation rights, +performance shares, restricted stock, other stock-based awards and +-25- +performance-based cash awards. In addition, our employees and employees of our +affiliates that qualify as subsidiaries or parent corporations (as defined under +Section 424 of the Internal Revenue Code) are eligible to be granted incentive +stock options under the Plan. +Available Shares +The aggregate number of shares of common stock which may be issued or +used for reference purposes under the Plan or with respect to which awards may +be granted may not exceed 800,000 shares, which may be either authorized and +unissued common stock or common stock held in or acquired for the treasury of +the Company; provided, however, that 420,000 shares of this aggregate limit may +be used for awards that are not "appreciation awards" (including restricted +stock, performance shares, stock-settled stock appreciation rights or certain +other stock-based awards). With respect to stock appreciation rights settled in +common stock, only the number shares of common stock delivered to a participant +(based on the difference between fair market value of the shares of common stock +subject to such stock appreciation right on the date such stock appreciation +right is exercised and the fair market value of the shares of common stock +subject to such stock appreciation right on the date such stock appreciation +right was awarded) will count against the aggregate and individual share +limitations set forth under the Plan. In general, if awards under the Plan are +for any reason cancelled, or expire or terminate unexercised, the shares covered +by such awards will again be available for the grant of awards under the Plan. +The maximum number of shares of common stock with respect to which any +stock option, stock appreciation right or shares of restricted stock that are +subject to the attainment of specified performance goals and intended to satisfy +Section 162(m) of the Internal Revenue Code and may be granted under the Plan +during any fiscal year to any eligible employee or consultant will be 400,000 +shares (per type of award). The total number of shares of common stock with +respect to all awards that may be granted under the Plan during any fiscal year +to any eligible employee or consultant will be 500,000 shares. There are no +annual limits on the number of shares of common stock with respect to an award +of restricted stock that are not subject to the attainment of specified +performance goals to eligible employees or consultants. The maximum number of +shares of common stock with respect to any award of performance shares to an +eligible employee or consultant during any fiscal year is 200,000 shares. The +maximum number of shares of common stock with respect to which any stock option +(other than incentive stock options), stock appreciation right, performance +share or other stock-based award that may be granted under the Plan during any +fiscal year to any non-employee director will be 100,000 shares (per type of +award). The total number of shares of common stock with respect to all awards +that may be granted under the Plan during any fiscal year to any non-employee +director will be 200,000 shares. The maximum payment that may be made to an +eligible employee or consultant under any performance-based cash award during +any fiscal year and subject to the attainment of specified performance goals +will be $10,000,000. +The Committee may appropriately adjust the above individual maximum +share limitations, the aggregate number of shares of common stock available for +the grant of awards and the exercise price of an award to reflect any change in +our capital structure or business by reason of certain corporate transactions or +events. +The Company commits to limit its "burn rate" (i.e., the rate at which +it grants equity awards under the Plan) to a three- year annual average burn +rate limit of 3.26%, which is within industry norms and is intended to be +calculated using Institutional Shareholder Services methodology. +Awards Under the Plan +The following types of awards are available under the Plan: +-26- +Stock Options +The Committee may grant nonqualified stock options and incentive stock +options (only to eligible employees) to purchase shares of common stock. The +Committee will determine the number of shares of common stock subject to each +option, the term of each option (which may not exceed seven years (or five years +in the case of an incentive stock option granted to a 10% stockholder)), the +exercise price, the vesting schedule (if any), and the other material terms of +each option. No incentive stock option or nonqualified stock option may have an +exercise price less than the fair market value of the common stock at the time +of grant (or, in the case of an incentive stock option granted to a 10% +stockholder, 110% of fair market value). +Options will be exercisable at such time or times and subject to such +terms and conditions as determined by the Committee at grant and the +exercisability of such options may be accelerated by the Committee in its sole +discretion. Upon the exercise of an option, the participant must make payment of +the full exercise price, either (i) in cash, check, bank draft or money order; +(ii) solely to the extent permitted by law, through the delivery of irrevocable +instructions to a broker reasonably acceptable to the Company to deliver +promptly to the Company an amount equal to the purchase price; or (iii) on such +other terms and condition as a may be acceptable to the Committee. +Stock Appreciation Rights +The Committee may grant stock appreciation rights ("SARs") either with +a stock option which may be exercised only at such times and to the extent the +related option is exercisable ("Tandem SAR") or independent of a stock option +("Non-Tandem SARs"). A SAR is a right to receive a payment in common stock or +cash (as determined by the Committee) equal in value to the excess of the fair +market value of one share of common stock on the date of exercise over the +exercise price per share established in connection with the grant of the SAR. +The exercise price per share covered by a SAR will be the exercise price per +share of the related option in the case of a Tandem SAR and will be the fair +market value of the common stock on the date of grant in the case of a +Non-Tandem SAR. The Committee may also grant "limited SARs," either as Tandem +SARs or Non-Tandem SARs, which may become exercisable only upon the occurrence +of a change in control (as defined in the Plan) or such other event as the +Committee may, in its sole discretion, designate at the time of grant or +thereafter. +Restricted Stock +The Committee may award shares of restricted stock. Except as otherwise +provided by the Committee upon the award of restricted stock, the recipient +generally has the rights of a stockholder with respect to the shares, including +the right to receive dividends, the right to vote the shares of restricted stock +and, conditioned upon full vesting of shares of restricted stock, the right to +tender such shares, subject to the conditions and restrictions generally +applicable to restricted stock or specifically set forth in the recipient's +restricted stock agreement. The Committee may determine at the time of award, +that the payment of dividends, if any, will be deferred until the expiration of +the applicable restriction period. +Recipients of restricted stock are required to enter into a restricted +stock agreement with the Company which states the restrictions to which the +shares are subject, which may include satisfaction of pre-established +performance goals, and the criteria or date or dates on which such restrictions +will lapse. +-27- +If the grant of restricted stock or the lapse of the relevant +restrictions is based on the attainment of performance goals, the Committee will +establish for each recipient the applicable performance goals, formulae or +standards and the applicable vesting percentages with reference to the +attainment of such goals or satisfaction of such formulas or standards while the +outcome of the performance goals are substantially uncertain. Such performance +goals may incorporate provisions for disregarding (or adjusting for) changes in +accounting methods, corporate transactions (including, without limitation, +dispositions and acquisitions) and other similar events or circumstances. +Section 162(m) of the Internal Revenue Code requires that performance awards be +based upon objective performance measures. The performance goals for +performance-based restricted stock will be based on one or more of the objective +criteria set forth on Exhibit A to the Plan, included in Exhibit A hereto and +discussed in general below. +Performance Shares +The Committee may award performance shares. A performance share is the +equivalent of one share of common stock. The recipient of a grant of performance +shares will specify one or more performance criteria to meet within a specified +period determined by the Committee at the time of grant. The performance goals +for performance shares will be based on one or more of the objective criteria +set forth on Exhibit A to the Plan, included in Exhibit A hereto and discussed +in general below. A minimum level of acceptable achievement will also be +established by the Committee. If, by the end of the performance period, the +recipient has achieved the specified performance goals, he or she will be deemed +to have fully earned the performance shares. To the extent earned, the +performance shares will be paid to the recipient at the time and in the manner +determined by the Committee in cash, shares of common stock or any combination +thereof. +Other Stock-Based Awards +The Committee may, subject to limitations under applicable law, make a +grant of such other stock-based awards (including, without limitation, +performance units, dividend equivalent units, stock equivalent units, restricted +stock units and deferred stock units) under the Plan that are payable in cash or +denominated or payable in or valued by shares of common stock or factors that +influence the value of such shares. The Committee shall determine the terms and +conditions of any such other awards, which may include the achievement of +certain minimum performance goals for purposes of compliance with Section 162(m) +of the Internal Revenue Code and/or a minimum vesting period. The performance +goals for performance-based other stock-based awards will be based on one or +more of the objective criteria set forth on Exhibit A to the Plan, included in +Exhibit A hereto and discussed in general below. +Performance-Based Cash Awards +The Committee may, subject to limitations under applicable law, make a +grant of individual target awards either alone or in tandem with stock options, +SARs or restricted stock under this Plan that are contingent upon the +satisfaction of certain pre-established performance goals that are reached +within a specified performance period, each of which, together with any other +terms and conditions, shall be determined by the Committee in its sole +discretion at the time of grant. At the time the performance goals are +established, the Committee will prescribe a formula to determine the percentages +(which may be greater than 100%) of the individual target award which may be +payable based upon the degree of attainment of the performance goals during the +calendar year. The Committee may, in its sole discretion, elect to pay a +participant an amount that is less than the participant's individual target +award regardless of the degree of attainment of the performance goals; provided +that no such discretion to reduce a performance-based cash award earned based on +achievement of the applicable performance goals will be permitted for a calendar +year in which a change in control occurs. The performance goals for +performance-based cash awards will be based on one or more of the objective +criteria set forth on Exhibit A to the Plan, included in Exhibit A hereto and +discussed in general below. +-28- +Performance Goals +The Committee may grant awards of restricted stock, performance shares, +performance-based cash awards and other stock-based awards that are intended to +qualify as "performance-based compensation" for purposes of Section 162(m) of +the Internal Revenue Code. These awards may be granted, vest and be paid based +on attainment of specified performance goals established by the Committee. These +performance goals will be based on the attainment of a certain target level of, +or a specified increase or decrease in, one or more of the following criteria +selected by the Committee: +o earnings per share, earnings before interest and taxes or +earnings before interest, tax, depreciation and +amortization; +o gross profit or gross profit return on investment; +o gross margin or gross margin return on investment; +o operating income, net income, cash flow or economic value +added; +o revenue growth; +o working capital; +o specified objectives with regard to limiting the level of +increase in all or a portion of, the Company's bank debt or +other long-term or short-term public or private debt or +other similar financial obligations of the Company, which +may be calculated net of cash balances and/or other offsets +and adjustments as may be established by the Committee; +o return on equity, assets or capital; +o total shareholder return; +o fair market value of the shares of the common stock; +o market share and/or market segment share; +o the growth in the value of an investment in the common stock +assuming the reinvestment of dividends; +o customer satisfaction, customer loyalty, brand recognition +and/or brand acceptance; +o style indexes; +o employee retention; +o number of new patents, new product innovation and/or +introduction; +o product release schedules and/or ship targets; or +o reduction in expenses and/or product cost reduction through +advanced technology. +To the extent permitted by law, the Committee may also exclude the +impact of an event or occurrence which the Committee determines should be +appropriately excluded, including: +o restructurings, discontinued operations, extraordinary items +and other unusual or non-recurring charges; +o an event either not directly related to the operations of +the Company or not within the reasonable control of the +Company's management; or +o a change in accounting standards required by generally +accepted accounting principles. +Performance goals may also be based on individual participant +performance goals, as determined by the Committee, in its sole discretion. +In addition, all performance goals may be based upon the attainment of +specified levels of Company (or subsidiary, division or other operational unit +of the Company) performance under one or more of the measures described above +relative to the performance of other corporations. The Committee may designate +-29- +additional business criteria on which the performance goals may be based or +adjust, modify or amend those criteria. +Change in Control +Unless otherwise determined by the Committee at the time of grant or in +a written employment agreement, awards subject to vesting and/or restrictions +will not accelerate and vest or cause the lapse of restrictions upon a change in +control (as defined in the Plan) of the Company. Instead, such awards will be, +in the discretion of the Committee, (i) assumed and continued or substituted in +accordance with applicable law, (ii) purchased by the Company for an amount +equal to the excess of the price of the Company's common stock paid in a change +in control over the exercise price of the award(s), or (iii) cancelled if the +price of the Company's common stock paid in a change in control is less than the +exercise price of the award. The Committee may also, in its sole discretion, +provide for accelerated vesting or lapse of restrictions of an award at any +time. +Amendment and Termination +Notwithstanding any other provision of the Plan, the Board may at any +time amend any or all of the provisions of the Plan, or suspend or terminate it +entirely, retroactively or otherwise; provided, however, that, unless otherwise +required by law or specifically provided in the Plan, the rights of a +participant with respect to awards granted prior to such amendment, suspension +or termination may not be adversely affected without the consent of such +participant and, provided further that the approval of our stockholders will be +obtained to the extend required by Delaware law, Sections 162(m) and 422 of the +Internal Revenue Code, The Nasdaq Stock Market or the rules of such other +applicable stock exchange, as specified in the Plan. +Miscellaneous +Awards granted under the Plan are generally nontransferable (other than +by will or the laws of descent and distribution), except that the Committee may +provide for the transferability of nonqualified stock options at the time of +grant or thereafter to certain family members. +Certain U.S. Federal Income Tax Consequences +The rules concerning the federal income tax consequences with respect +to options granted and to be granted pursuant to the Plan are quite technical. +Moreover, the applicable statutory provisions are subject to change, as are +their interpretations and applications which may vary in individual +circumstances. Therefore, the following is designed to provide a general +understanding of the federal income tax consequences. In addition, the following +discussion does not set forth any gift, estate, social security or state or +local tax consequences that may be applicable and is limited to the U.S. federal +income tax consequences to individuals who are citizens or residents of the +U.S., other than those individuals who are taxed on a residence basis in a +foreign country. +Incentive Stock Options +In general, an employee will not realize taxable income upon either the +grant or the exercise of an incentive stock option and the Company will not +realize an income tax deduction at either such time. In general, however, for +purposes of the alternative minimum tax, the excess of the fair market value of +the shares of common stock acquired upon exercise of an incentive stock option +(determined at the time of exercise) over the exercise price of the incentive +stock option will be considered income. If the recipient was continuously +employed on the date of grant until the date three months prior to the date of +-30- +exercise and such recipient does not sell the common stock received pursuant to +the exercise of the incentive stock option within either (i) two years after the +date of the grant of the incentive stock option or (ii) one year after the date +of exercise, a subsequent sale of the common stock will result in long-term +capital gain or loss to the recipient and will not result in a tax deduction to +the Company. +If the recipient is not continuously employed on the date of grant +until the date three months prior to the date of exercise or such recipient +disposes of the common stock acquired upon exercise of the incentive stock +option within either of the above mentioned time periods, the recipient will +generally realize as ordinary income an amount equal to the lesser of (i) the +fair market value of the common stock on the date of exercise over the exercise +price, or (ii) the amount realized upon disposition over the exercise price. In +such event, subject to the limitations under Section 162(m) and 280G of the +Internal Revenue Code (as described below), we generally will be entitled to an +income tax deduction equal to the amount recognized as ordinary income. Any gain +in excess of such amount realized by the recipient as ordinary income would be +taxed at the rates applicable to short-term or long-term capital gains +(depending on the holding period). +Nonqualified Stock Options +A recipient will not realize any taxable income upon the grant of a +nonqualified stock option and the Company will not receive a deduction at the +time of such grant unless such option has a readily ascertainable fair market +value (as determined under applicable tax law) at the time of grant. Upon +exercise of a nonqualified stock option, the recipient generally will realize +ordinary income in an amount equal to the excess of the fair market value of the +common stock on the date of exercise over the exercise price. Upon a subsequent +sale of the common stock by the recipient, the recipient will recognize +short-term or long-term capital gain or loss depending upon his or her holding +period for the common stock. Subject to the limitations under Section 162(m) and +280G of the Internal Revenue Code (as described below), we will generally be +allowed a deduction equal to the amount recognized by the recipient as ordinary +income. +All Options +With regard to both incentive stock options and nonqualified stock +options, the following also apply: (i) any of our officers and directors subject +to Section 16(b) of the Exchange Act may be subject to special tax rules +regarding the income tax consequences concerning their stock options, (ii) any +entitlement to a tax deduction on the part of the Company is subject to the +applicable tax rules (including, without limitation, Section 162(m) of the +Internal Revenue Code regarding the $1,000,000 limitation on deductible +compensation), and (iii) in the event that the exercisability or vesting of any +award is accelerated because of a change in control, payments relating to the +awards (or a portion thereof), either alone or together with certain other +payments, may constitute parachute payments under Section 280G of the Internal +Revenue Code, which excess amounts may be subject to excise taxes and may be +nondeductible by the Company. +In general, Section 162(m) of the Internal Revenue Code denies a +publicly held corporation a deduction for federal income tax purposes for +compensation in excess of $1,000,000 per year per person to its chief executive +officer and four other executive officers whose compensation is disclosed in its +proxy statement, subject to certain exceptions. Options will generally qualify +under one of these exceptions if they are granted under a plan that states the +maximum number of shares with respect to which options may be granted to any +recipient during a specified period of the plan under which the options are +granted is approved by stockholders and is administered by a committee comprised +of outside directors. The Plan is intended to satisfy these requirements with +respect to options. +-31- +The Plan is not subject to any of the requirements of the Employee +Retirement Income Security Act of 1974, as amended. The Plan is not, nor is it +intended to be, qualified under Section 401(a) of the Internal Revenue Code. +Future Plan Awards +Except as stated below under the section entitled "New Plan Benefits," +no new equity-based awards have been approved at this time to any employee, +officer, non-employee director or consultant. We anticipate that other +equity-based awards may be granted to the named individuals as well as to other +employees, officers, non-employee directors and consultants under the Plan. +However, the amount of shares of common stock that may be granted to the named +individuals will be based upon various prospective factors, including, the +nature of services to be rendered by our employees, officers, non-employee +directors and consultants, and their potential contributions to our success. +Accordingly, actual awards cannot be determined at this time. +New Plan Benefits with respect to 2006 +The table below presents certain information with respect to new shares +of restricted stock granted under the Plan (subject to approval by stockholders +of the Plan) with respect to the 2006 calendar year to certain of our executive +officers (for whom executive compensation information is provided under the +section entitled "Compensation of Directors and Executive Officers") as follows: +Number of +Shares +Subject to +Name and Position Dollar Value Restriction +----------------- ------------ ----------- +Robert Schmertz - Brand Director.................................. $ 704,400(1) 20,000 +Amelia Newton Varela - Executive Vice President of Wholesale +Sales............................................................. $ 704,400(1) 20,000 +All Executive Officers as a Group................................. $1,408,800 40,000 +Non-Employee Directors as a Group................................. $ 193,710 5,500 +Non-Executive Officer Employees as a Group........................ $2,652,066 75,300 +Total for all Participants under the Plan......................... $4,254,576 120,800 +New Plan Benefits for Prior Awards +Under their respective employment agreements, the Company's Chief +Executive Officer, its Chief Financial Officer and its Design and Creative Chief +were entitled to receive certain option grants in 2005 (under a plan subject to +stockholder approval) based on performance criteria which were met for the 2005 +fiscal year. Instead, the Company made the following grants of restricted stock +under the Plan in 2006 (subject to stockholder approval of the Plan) in lieu of +such options (1/5th of one share of restricted stock under the Plan was granted +for each such option): +----------------------- +(1) Calculated based upon the closing price of the Company's stock on March +20, 2006, the date of Board approval of the grant, subject to stockholder +approval of the Plan. +-32- +Number of +Shares Subject +Name and Position Dollar Value to Restriction +----------------- ------------ -------------- +Jamieson A. Karson - Chief Executive Officer and Chairman +of the Board............................................................. $721,200(2) 20,000 +Arvind Dharia - Chief Financial Officer.................................. $288,480(2) 8,000 +Steven Madden - Design and Creative Chief................................ $721,200(2) 20,000 +THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING +SHARES OF OUR COMMON STOCK PRESENT OR REPRESENTED BY PROXY AND ENTITLED TO VOTE +AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE PLAN. THE BOARD RECOMMENDS THAT +THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE PLAN. +----------------------- +(2) Calculated based upon the closing price of the Company's stock on March +20, 2006, the date of Board approval of the grant, subject to stockholder +approval of the Plan. +-33- +PROPOSAL THREE +RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S +INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2006 +The Audit Committee has appointed Eisner LLP as the Company's +independent auditors to conduct the audit of the Company's books and records for +the fiscal year ending December 31, 2006. Eisner LLP also served as the +Company's independent auditors for the previous fiscal year. +Although ratification by stockholders is not required by our +organizational documents or other applicable law, the Audit Committee has +determined that requesting ratification by stockholders of its appointment of +Eisner LLP as the Company's independent auditors is a matter of good corporate +practice. If stockholders do not ratify the selection, the Audit Committee will +reconsider whether or not to retain Eisner LLP, but may still retain them. Even +if the selection is ratified, the Audit Committee, in its discretion, may change +the appointment at any time during the year if it determines that such a change +would be in the best interest of the Company and its stockholders. +Representatives of Eisner LLP are expected to be present at the Annual +Meeting to respond to questions and to make a statement should they so desire. +Required Vote +The affirmative vote of the holders of a majority of the shares of +Common Stock represented and voting at the Annual Meeting is required to ratify +the Audit Committee's selection of Eisner LLP. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the +ratification of the appointment of Eisner LLP as the Company's independent +auditors for the fiscal year ending December 31, 2006. Unless marked to the +contrary, proxies received from stockholders will be voted in favor of the +appointment of Eisner LLP as the Company's independent auditors for the fiscal +year ending December 31, 2006. +Fees Paid To Independent Auditors +Audit Fees +The aggregate fees billed by Eisner LLP for professional services +rendered for the audit of the Company's annual financial statements for the +fiscal year ended December 31, 2005, for the reviews of the financial statements +included in the Company's Quarterly Reports on Form 10-Q for that fiscal year, +other statutory and regulatory filings, consents related to registration +statements filed with the SEC and the audit of the Company's internal controls +over financial reporting for the 2005 fiscal year were $460,000. The comparative +amount for the fiscal year ended December 31, 2004 was $625,000. +Audit-Related Fees +In addition to Audit Fees, Eisner LLP has billed the Company $93,000, +in the aggregate, for Audit Related Fees related to assurance and related +services for the fiscal year ended December 31, 2005. These services include, +among others, the audit of the Company's employee benefit plans and other +-34- +accounting related consultations. The comparative amount for the fiscal year +ended December 31, 2004 was $39,000. +Tax Fees +During the fiscal year ended December 31, 2005, Eisner LLP billed the +Company $122,000, in the aggregate, for services rendered to the Company for tax +compliance, tax advice and tax planning. Eisner LLP billed $116,000 for similar +services in the 2004 fiscal year. +All Other Fees +There were no fees billed by Eisner LLP for services rendered to the +Company, other than the services described above under Audit Fees, Audit Related +Fees and Tax Fees, for the fiscal years ended December 31, 2005 and 2004. +Audit Committee's Pre-Approval Policies and Procedures +Consistent with SEC policies regarding auditor independence, the Audit +Committee has responsibility for appointing, setting compensation and overseeing +the work of the independent auditor. In recognition of this responsibility, the +Audit Committee has established a policy to review and pre-approve all audit and +permissible non-audit services provided by the independent auditor. These +services may include audit services, audit-related services, tax services and +other services. +Prior to engagement of the independent auditor for next year's audit, +the Audit Committee will pre-approve all auditing services and all permitted +non-audit services (including the fees and terms thereof), except those excluded +from requiring pre-approval based upon the de minimus exception set forth in +Section 10A(i)(1)(B) of the Exchange Act. +The Audit Committee's pre-approval policies and procedures are as +follows: (a) prior to each fiscal year, the Audit Committee pre-approves a +schedule of estimated fees for proposed non-prohibited audit and non-audit +services and (b) actual amounts paid are monitored by financial management of +the Company and reported to the Audit Committee. +All work performed by Eisner LLP as described above under the captions +Audit Fees, Audit Related Fees, Tax Fees and All Other Fees has been approved or +pre-approved by the Audit Committee pursuant to the provisions of the Audit +Committee's charter. The Audit Committee has considered and concluded that the +provision of non-audit services is compatible with maintaining the principal +accountant's independence. +-35- +OTHER MATTERS +At the date of this Proxy Statement, the Company has no knowledge of +any business other than that described above that will be presented at the +Annual Meeting. If any other business should properly come before the Annual +Meeting in connection therewith, it is intended that the persons named in the +enclosed proxy will have discretionary authority to vote the shares which they +represent. +STOCKHOLDER PROPOSALS AND SUBMISSIONS FOR THE COMPANY'S 2007 ANNUAL MEETING +In accordance with rules promulgated by the SEC, any stockholder who +wishes to submit a proposal for inclusion in the proxy material to be +distributed by the Company in connection with the 2007 Annual Meeting must do so +no later than December 30, 2006. +In addition, in accordance with Article I, Section 7(f) of the +Company's Amended & Restated By-Laws, in order to be properly brought before the +2007 Annual Meeting, a matter must be (i) specified in the notice of such +meeting given by or at the direction of the Board of Directors (or any duly +authorized committed thereof), (ii) otherwise properly brought before such +meeting by or at the direction of the Board of Directors (or any duly authorized +committed thereof) or (iii) specified in a written notice given by a stockholder +of record on the date of the giving of the notice and on the record date for +such meeting, which notice conforms to the requirements of Article I, Section +7(f) of the Amended & Restated By-Laws and is delivered to, or mailed and +received at, the Company's principal executive offices not less than 120 days +nor more than 150 days prior to the first anniversary of the date of the +Company's 2006 Annual Meeting. Accordingly, any written notice given by or on +behalf of a stockholder pursuant to the foregoing clause (iii) in connection +with the 2007 Annual Meeting must be received no later than January 26, 2007 and +no earlier than December 28, 2006. +-36- +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE +SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE +A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN +PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 28, 2006 By: /s/ JAMIESON A. KARSON +------------------------------ +Jamieson A. Karson +Chief Executive Officer +-37- +EXHIBIT A +STEVEN MADDEN, LTD. +-------------------------- +2006 STOCK INCENTIVE PLAN +-------------------------- +ARTICLE I +PURPOSE +The purpose of this Plan is to enhance the profitability and value of +the Company for the benefit of its stockholders by enabling the Company to offer +Eligible Employees, Consultants and Non-Employee Directors cash and stock-based +incentives in the Company to attract, retain and reward such individuals and +strengthen the mutuality of interests between such individuals and the Company's +stockholders. +ARTICLE II +DEFINITIONS +For purposes of this Plan, the following terms shall have the following +meanings: +2.1 "Acquisition Event" means a merger or consolidation in which +the Company is not the surviving entity, any transaction that results in the +acquisition of all or substantially all of the Company's outstanding Common +Stock by a single person or entity or by a group of persons and/or entities +acting in concert, or the sale or transfer of all or substantially all of the +Company's assets. +2.2 "Affiliate" means each of the following: (a) any Subsidiary; +(b) any Parent; (c) any corporation, trade or business (including, without +limitation, a partnership or limited liability company) which is directly or +indirectly controlled 50% or more (whether by ownership of stock, assets or an +equivalent ownership interest or voting interest) by the Company; (d) any +corporation, trade or business (including, without limitation, a partnership or +limited liability company) which directly or indirectly controls 50% or more +(whether by ownership of stock, assets or an equivalent ownership interest or +voting interest) of the Company; and (e) any other entity in which the Company +or any of its Affiliates has a material equity interest and which is designated +as an "Affiliate" by resolution of the Committee; provided that the Common Stock +subject to any Award constitutes "service recipient stock" for purposes of +Section 409A of the Code or otherwise does not subject the Award to Section 409A +of the Code. +2.3 "Appreciation Award" means any Award under this Plan of any +Stock Option, cash-settled Stock Appreciation Right or Other Stock-Based Award, +provided that such Other Stock-Based Award is based on the appreciation in value +of a share of Common Stock in excess of an amount equal to at least the Fair +Market Value of the Common Stock on the date such Other Stock-Based Award is +granted. +2.4 "Award" means any award under this Plan of any Stock Option, +Stock Appreciation Right, Restricted Stock, Performance Share, Other Stock-Based +Award or Performance-Based Cash Awards. All Awards shall be granted by, +confirmed by, and subject to the terms of, a written agreement executed by the +Company and the Participant. +2.5 "Board" means the Board of Directors of the Company. +2.6 "Cause" means with respect to a Participant's Termination of +Employment or Termination of Consultancy from and after the date hereof, the +following: (a) in the case where there is no employment agreement, consulting +agreement, change in control agreement or similar agreement in effect between +the Company or an Affiliate and the Participant at the time of the grant of the +Award (or where there is such an agreement but it does not define "cause" (or +words of like import)), termination due to: (i) a Participant's conviction of, +or plea of guilty or nolo contendere to, a felony; (ii) perpetration by a +Participant of an illegal act, or fraud which could cause significant economic +injury to the Company; (iii) continuing willful and deliberate failure by the +Participant to perform the Participant's duties in any material respect, +provided that the Participant is given notice and an opportunity to effectuate a +cure as determined by the Committee; or (iv) a Participant's willful misconduct +with regard to the Company that could have a material adverse effect on the +Company; or (b) in the case where there is an employment agreement, consulting +agreement, change in control agreement or similar agreement in effect between +the Company or an Affiliate and the Participant at the time of the grant of the +Award that defines "cause" (or words of like import), "cause" as defined under +such agreement; provided, however, that with regard to any agreement under which +the definition of "cause" only applies on occurrence of a change in control, +such definition of "cause" shall not apply until a change in control actually +takes place and then only with regard to a termination thereafter. With respect +to a Participant's Termination of Directorship, "cause" means an act or failure +to act that constitutes cause for removal of a director under applicable +Delaware law. +2.7 "Change in Control" has the meaning set forth in Section 13.2. +2.8 "Change in Control Price" has the meaning set forth in Section +13.1. +2.9 "Code" means the Internal Revenue Code of 1986, as amended. +Any reference to any section of the Code shall also be a reference to any +successor provision and any Treasury Regulation promulgated thereunder. +2.10 "Committee" means: (a) with respect to the application of this +Plan to Eligible Employees and Consultants, a committee or subcommittee of the +Board appointed from time to time by the Board, which committee or subcommittee +shall consist of two or more non-employee directors, each of whom shall be (i) a +"non-employee director" as defined in Rule 16b-3; (ii) to the extent required by +Section 162(m) of the Code, an "outside director" as defined under Section +162(m) of the Code; and (iii) an "independent director" as defined under NASD +Rule 4200(a)(15) or such other applicable stock exchange rule; and (b) with +respect to the application of this Plan to Non-Employee Directors, the Board. To +the extent that no Committee exists that has the authority to administer this +Plan, the functions of the Committee shall be exercised by the Board. If for any +reason the appointed Committee does not meet the requirements of Rule 16b-3 or +2 +Section 162(m) of the Code, such noncompliance shall not affect the validity of +Awards, grants, interpretations or other actions of the Committee. +2.11 "Common Stock" means the Common Stock, $0.0001 par value per +share, of the Company. +2.12 "Company" means Steven Madden, Ltd., a Delaware corporation, +and its successors by operation of law. +2.13 "Consultant" means any natural person who provides bona fide +consulting or advisory services to the Company or its Affiliates pursuant to a +written agreement, which are not in connection with the offer and sale of +securities in a capital-raising transaction. +2.14 "Disability" means with respect to a Participant's +Termination, a permanent and total disability as defined in Section 22(e)(3) of +the Code. A Disability shall only be deemed to occur at the time of the +determination by the Committee of the Disability. Notwithstanding the foregoing, +for Awards that are subject to Section 409A of the Code, Disability shall mean +that a Participant is disabled under Section 409A(a)(2)(C)(i) or (ii) of the +Code. +2.15 "Effective Date" means the effective date of this Plan as +defined in Article XVII. +2.16 "Eligible Employees" means each employee of the Company or an +Affiliate. +2.17 "Exchange Act" means the Securities Exchange Act of 1934, as +amended. Any references to any section of the Exchange Act shall also be a +reference to any successor provision. +2.18 "Fair Market Value" means, unless otherwise required by any +applicable provision of the Code or any regulations issued thereunder, as of any +date and except as provided below, the last sales price reported for the Common +Stock on the applicable date: (a) as reported on the principal national +securities exchange in the United States on which it is then traded or The +Nasdaq Stock Market; or (b) if not traded on any such national securities +exchange or The Nasdaq Stock Market, as quoted on an automated quotation system +sponsored by the National Association of Securities Dealers, Inc. or if the +Common Stock shall not have been reported or quoted on such date, on the first +day prior thereto on which the Common Stock was reported or quoted. For purposes +of the grant of any Award, the applicable date shall be the trading day +immediately prior to the date on which the Award is granted. For purposes of the +exercise of any Award, the applicable date shall be the date a notice of +exercise is received by the Committee or, if not a day on which the applicable +market is open, the next day that it is open. +2.19 "Family Member" means "family member" as defined in Section +A.1.(5) of the general instructions of Form S-8. +2.20 "GAAP" has the meaning set forth in Section 11.2(c)(ii). +2.21 "Incentive Stock Option" means any Stock Option awarded to an +Eligible Employee of the Company, its Subsidiaries and its Parent (if any) under +this Plan intended to be and designated as an "Incentive Stock Option" within +the meaning of Section 422 of the Code. +3 +2.22 "Non-Employee Director" means a director of the Company who is +not an active employee of the Company or an Affiliate. +2.23 "Non-Qualified Stock Option" means any Stock Option awarded +under this Plan that is not an Incentive Stock Option. +2.24 "Other Stock-Based Award" means an Award under Article X of +this Plan that is valued in whole or in part by reference to, or is payable in +or otherwise based on, Common Stock, including, without limitation, a restricted +stock unit or an Award valued by reference to an Affiliate. +2.25 "Parent" means any parent corporation of the Company within +the meaning of Section 424(e) of the Code. +2.26 "Participant" means an Eligible Employee, Non-Employee +Director or Consultant to whom an Award has been granted pursuant to this Plan. +2.27 "Performance-Based Cash Award" means a cash Award under +Article XI of this Plan that is payable or otherwise based on the attainment of +certain pre-established performance goals during a Performance Period. +2.28 "Performance Period" means the duration of the period during +which receipt of an Award is subject to the satisfaction of performance +criteria, such period as determined by the Committee in its sole discretion. +2.29 "Performance Share" means an Award made pursuant to Article IX +of this Plan of the right to receive Common Stock or cash of an equivalent value +at the end of a specified Performance Period. +2.30 "Person" means any individual, corporation, partnership, +limited liability company, firm, joint venture, association, joint-stock +company, trust, incorporated organization, governmental or regulatory or other +entity. +2.31 "Plan" means this Steven Madden, Ltd. 2006 Stock Incentive +Plan, as amended from time to time. +2.32 "Reference Stock Option" has the meaning set forth in Section +7.1. +2.33 "Restricted Stock" means an Award of shares of Common Stock +under this Plan that is subject to restrictions under Article VIII. +2.34 "Restriction Period" has the meaning set forth in Subsection +8.3(a). +2.35 "Retirement" means a voluntary Termination of Employment at or +after age 65 or such earlier date after age 50 as may be approved by the +Committee, in its sole discretion at the time of grant or thereafter provided +that the exercise of such discretion does not make the applicable Award subject +to Section 409A of the Code, except that Retirement shall not include any +Termination with or without Cause. With respect to a Participant's Termination +4 +of Directorship, Retirement means the failure to stand for reelection or the +failure to be reelected on or after a Participant has attained age 65 or, with +the consent of the Board, before age 65 but after age 50. +2.36 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the +Exchange Act as then in effect or any successor provision. +2.37 "Section 162(m) of the Code" means the exception for +performance-based compensation under Section 162(m) of the Code and any +applicable Treasury regulations thereunder. +2.38 "Section 409A of the Code" means the nonqualified deferred +compensation rules under Section 409A of the Code and any applicable Treasury +regulations thereunder. +2.39 "Securities Act" means the Securities Act of 1933, as amended +and all rules and regulations promulgated thereunder. Any reference to any +section of the Securities Act shall also be a reference to any successor +provision. +2.40 "Stock Appreciation Right" means the right pursuant to an +Award granted under Article VII. A Tandem Stock Appreciation Right shall mean +the right to surrender to the Company all (or a portion) of a Stock Option in +exchange for cash or a number of shares of Common Stock (as determined by the +Committee, in its sole discretion, on the date of grant) equal to the difference +between (a) the Fair Market Value on the date such Stock Option (or such portion +thereof) is surrendered, of the Common Stock covered by such Stock Option (or +such portion thereof), and (b) the aggregate exercise price of such Stock Option +(or such portion thereof). A Non-Tandem Stock Appreciation Right shall mean the +right to receive cash or a number of shares of Common Stock (as determined by +the Committee, in its sole discretion, on the date of grant) equal to the +difference between (i) the Fair Market Value of a share of Common Stock on the +date such right is exercised, and (ii) the aggregate exercise price of such +right, otherwise than on surrender of a Stock Option. +2.41 "Stock Option" or "Option" means any option to purchase shares +of Common Stock granted to Eligible Employees, Non-Employee Directors or +Consultants granted pursuant to Article VI. +2.42 "Subsidiary" means any subsidiary corporation of the Company +within the meaning of Section 424(f) of the Code. +2.43 "Ten Percent Stockholder" means a person owning stock +possessing more than 10% of the total combined voting power of all classes of +stock of the Company, its Subsidiaries or its Parent. +2.44 "Termination" means a Termination of Consultancy, Termination +of Directorship or Termination of Employment, as applicable. +2.45 "Termination of Consultancy" means: (a) that the Consultant is +no longer acting as a consultant to the Company or an Affiliate; or (b) when an +entity which is retaining a Participant as a Consultant ceases to be an +Affiliate unless the Participant otherwise is, or thereupon becomes, a +5 +Consultant to the Company or another Affiliate at the time the entity ceases to +be an Affiliate. In the event that a Consultant becomes an Eligible Employee or +a Non-Employee Director upon the termination of his or her consultancy, unless +otherwise determined by the Committee, in its sole discretion, no Termination of +Consultancy shall be deemed to occur until such time as such Consultant is no +longer a Consultant, an Eligible Employee or a Non-Employee Director. +Notwithstanding the foregoing, the Committee may, in its sole discretion, +otherwise define Termination of Consultancy in the Award agreement or, if no +rights of a Participant are reduced, may otherwise define Termination of +Consultancy thereafter. +2.46 "Termination of Directorship" means that the Non-Employee +Director has ceased to be a director of the Company; except that if a +Non-Employee Director becomes an Eligible Employee or a Consultant upon the +termination of his or her directorship, his or her ceasing to be a director of +the Company shall not be treated as a Termination of Directorship unless and +until the Participant has a Termination of Employment or Termination of +Consultancy, as the case may be. +2.47 "Termination of Employment" means: (a) a termination of +employment (for reasons other than a military or personal leave of absence +granted by the Company) of a Participant from the Company and its Affiliates; or +(b) when an entity which is employing a Participant ceases to be an Affiliate, +unless the Participant otherwise is, or thereupon becomes, employed by the +Company or another Affiliate at the time the entity ceases to be an Affiliate. +In the event that an Eligible Employee becomes a Consultant or a Non-Employee +Director upon the termination of his or her employment, unless otherwise +determined by the Committee, in its sole discretion, no Termination of +Employment shall be deemed to occur until such time as such Eligible Employee is +no longer an Eligible Employee, a Consultant or a Non-Employee Director. +Notwithstanding the foregoing, the Committee may, in its sole discretion, +otherwise define Termination of Employment in the Award agreement or, if no +rights of a Participant are reduced, may otherwise define Termination of +Employment thereafter. +2.48 "Transfer" means: (a) when used as a noun, any direct or +indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or other +disposition (including the issuance of equity in a Person), whether for value or +no value and whether voluntary or involuntary (including by operation of law), +and (b) when used as a verb, to directly or indirectly transfer, sell, assign, +pledge, encumber, charge, hypothecate or otherwise dispose of (including the +issuance of equity in a Person) whether for value or for no value and whether +voluntarily or involuntarily (including by operation of law). "Transferred" and +"Transferrable" shall have a correlative meaning. +ARTICLE III +ADMINISTRATION +3.1 The Committee. The Plan shall be administered and interpreted +by the Committee. +6 +3.2 Grants of Awards. The Committee shall have full authority to +grant, pursuant to the terms of this Plan, to Eligible Employees, Consultants +and Non-Employee Directors: (i) Stock Options, (ii) Stock Appreciation Rights, +(iii) Restricted Stock, (iv) Performance Shares; (v) Other Stock-Based Awards, +and (vi) Performance-Based Cash Awards. In particular, the Committee shall have +the authority: +(a) to select the Eligible Employees, Consultants and +Non-Employee Directors to whom Awards may from time +to time be granted hereunder; +(b) to determine whether and to what extent Awards, or +any combination thereof, are to be granted hereunder +to one or more Eligible Employees, Consultants or +Non-Employee Directors; +(c) to determine the number of shares of Common Stock to +be covered by each Award granted hereunder; +(d) to determine the terms and conditions, not +inconsistent with the terms of this Plan, of any +Award granted hereunder (including, but not limited +to, the exercise or purchase price (if any), any +restriction or limitation, any vesting schedule or +acceleration thereof, or any forfeiture restrictions +or waiver thereof, regarding any Award and the shares +of Common Stock relating thereto, based on such +factors, if any, as the Committee shall determine, in +its sole discretion); +(e) to determine whether, to what extent and under what +circumstances grants of Options and other Awards +under this Plan are to operate on a tandem basis +and/or in conjunction with or apart from other awards +made by the Company outside of this Plan; +(f) to determine whether and under what circumstances a +Stock Option may be settled in cash, Common Stock +and/or Restricted Stock under Section 6.3(d); +(g) to determine whether, to what extent and under what +circumstances Common Stock and other amounts payable +with respect to an Award under this Plan shall be +deferred either automatically or at the election of +the Participant in any case, subject to, and in +accordance with, Section 409A of the Code; +(h) to determine whether a Stock Option is an Incentive +Stock Option or Non-Qualified Stock Option; +(i) to determine whether to require a Participant, as a +condition of the granting of any Award, to not sell +or otherwise dispose of shares acquired pursuant to +the exercise of an Award for a period of time as +determined by the Committee, in its sole discretion, +following the date of the acquisition of such Award; +and +7 +(j) to offer to buy out an Award previously granted, +based on such terms and conditions as the Committee +shall establish and communicate to the Participant at +the time such offer is made; provided that any such +purchase of an Award shall be limited to no more than +the fair market value of the Award on the date of +such purchase. +3.3 Guidelines. Subject to Article XIV hereof, the Committee +shall, in its sole discretion, have the authority to adopt, alter and repeal +such administrative rules, guidelines and practices governing this Plan and +perform all acts, including the delegation of its responsibilities (to the +extent permitted by applicable law and applicable stock exchange rules), as it +shall, from time to time, deem advisable; to construe and interpret the terms +and provisions of this Plan and any Award issued under this Plan (and any +agreements relating thereto); and to otherwise supervise the administration of +this Plan. The Committee may, in its sole discretion, correct any defect, supply +any omission or reconcile any inconsistency in this Plan or in any agreement +relating thereto in the manner and to the extent it shall deem necessary to +effectuate the purpose and intent of this Plan. The Committee may, in its sole +discretion, adopt special guidelines and provisions for persons who are residing +in or employed in, or subject to, the taxes of, any domestic or foreign +jurisdictions to comply with applicable tax and securities laws of such domestic +or foreign jurisdictions. This Plan is intended to comply with the applicable +requirements of Rule 16b-3 and with respect to Awards intended to be +"performance-based," the applicable provisions of Section 162(m) of the Code, +and this Plan shall be limited, construed and interpreted in a manner so as to +comply therewith. +3.4 Decisions Final. Any decision, interpretation or other action +made or taken in good faith by or at the direction of the Company, the Board or +the Committee (or any of its members) arising out of or in connection with this +Plan shall be within the absolute discretion of all and each of them, as the +case may be, and shall be final, binding and conclusive on the Company and all +employees and Participants and their respective heirs, executors, +administrators, successors and assigns. +3.5 Procedures. If the Committee is appointed, the Board shall +designate one of the members of the Committee as chairman and the Committee +shall hold meetings, subject to the By-Laws of the Company, at such times and +places as it shall deem advisable, including, without limitation, by telephone +conference or by written consent to the extent permitted by applicable law. A +majority of the Committee members shall constitute a quorum. All determinations +of the Committee shall be made by a majority of its members. Any decision or +determination reduced to writing and signed by all the Committee members in +accordance with the By-Laws of the Company shall be fully effective as if it had +been made by a vote at a meeting duly called and held. The Committee shall keep +minutes of its meetings and shall make such rules and regulations for the +conduct of its business as it shall deem advisable. +3.6 Designation of Consultants/Liability. +(a) The Committee may, in its sole discretion, designate +employees of the Company and professional advisors to +assist the Committee in the administration of this +Plan and (to the extent permitted by applicable law +and applicable exchange rules) may grant authority to +8 +officers to grant Awards and/or execute agreements or +other documents on behalf of the Committee. +(b) The Committee may, in its sole discretion, employ +such legal counsel, consultants and agents as it may +deem desirable for the administration of this Plan +and may rely upon any opinion received from any such +counsel or consultant and any computation received +from any such consultant or agent. Expenses incurred +by the Committee or the Board in the engagement of +any such counsel, consultant or agent shall be paid +by the Company. The Committee, its members and any +person designated pursuant to sub-section (a) above +shall not be liable for any action or determination +made in good faith with respect to this Plan. To the +maximum extent permitted by applicable law, no +officer of the Company or member or former member of +the Committee or of the Board shall be liable for any +action or determination made in good faith with +respect to this Plan or any Award granted under it. +3.7 Indemnification. To the maximum extent permitted by applicable +law and the Certificate of Incorporation and By-Laws of the Company and to the +extent not covered by insurance directly insuring such person, each officer or +employee of the Company or any Affiliate and member or former member of the +Committee or the Board shall be indemnified and held harmless by the Company +against any cost or expense (including reasonable fees of counsel reasonably +acceptable to the Committee) or liability (including any sum paid in settlement +of a claim with the approval of the Committee), and advanced amounts necessary +to pay the foregoing at the earliest time and to the fullest extent permitted, +arising out of any act or omission to act in connection with the administration +of this Plan, except to the extent arising out of such officer's, employee's, +member's or former member's fraud. Such indemnification shall be in addition to +any rights of indemnification the officers, employees, directors or members or +former officers, directors or members may have under applicable law or under the +Certificate of Incorporation or By-Laws of the Company or any Affiliate. +Notwithstanding anything else herein, this indemnification will not apply to the +actions or determinations made by an individual with regard to Awards granted to +him or her under this Plan. +ARTICLE IV +SHARE LIMITATION +4.1 Shares. +(a) General Limitations. The aggregate number of shares +of Common Stock that may be issued or used for +reference purposes or with respect to which Awards +may be granted under this Plan shall not exceed +800,000 shares (subject to any increase or decrease +pursuant to Section 4.2), which may be either +authorized and unissued Common Stock or Common Stock +held in or acquired for the treasury of the Company +or both; provided, however, that only 420,000 shares +of the 800,000 shares of Common Stock available +hereunder may be issued or used for Awards that are +9 +not Appreciation Awards. With respect to Stock +Appreciation Rights settled in Common Stock, only the +number shares of Common Stock delivered to a +Participant (based on the difference between Fair +Market Value of the shares of Common Stock subject to +such Stock Appreciation Right on the date such Stock +Appreciation Right is exercised and the Fair Market +Value of the shares of Common Stock subject to such +Stock Appreciation Right on the date such Stock +Appreciation Right was awarded) shall count against +the aggregate and individual share limitations set +forth under Sections 4.1(a) and (b). If any Award +granted under this Plan expires, terminates, is +canceled or is forfeited for any reason, the number +of shares of Common Stock underlying any such Award +shall again be available for the purpose of Awards +under the Plan, as provided in this Section 4.1(a). +If a Tandem Stock Appreciation Right or a Limited +Stock Appreciation Right is granted in tandem with an +Option, such grant shall only apply once against the +maximum number of shares of Common Stock which may be +issued under this Plan. Notwithstanding anything +herein to the contrary, other than with respect to +Incentive Stock Options, any share of Common Stock +subject to an Award that again becomes available for +grant pursuant to this Section 4.1(a) shall be added +back to the aggregate maximum limit. +(b) Individual Participant Limitations. +(i) The maximum number of shares of +Common Stock subject to any Award of Stock Options, +Stock Appreciation Rights or shares of Restricted +Stock for which the grant of such Award or the lapse +of the relevant Restriction Period is subject to the +attainment of Performance Goals in accordance with +Section 8.3(a)(ii) herein which may be granted under +this Plan during any fiscal year of the Company to +each Eligible Employee or Consultant shall be 400,000 +shares per type of Award (which shall be subject to +any further increase or decrease pursuant to Section +4.2), provided that the maximum number of shares of +Common Stock for all types of Awards does not exceed +500,000 (which shall be subject to any further +increase or decrease pursuant to Section 4.2) with +respect to any fiscal year of the Company. If a +Tandem Stock Appreciation Right is granted or a +Limited Stock Appreciation Right is granted in tandem +with a Stock Option, it shall apply against the +Eligible Employee's or Consultant's individual share +limitations for both Stock Appreciation Rights and +Stock Options. +(ii) The maximum number of shares of +Common Stock subject to any Award of Stock Options +(other than Incentive Stock Options), Stock +Appreciation Rights, Performance Shares or Other +Stock-Based Awards which may be granted under this +Plan during any fiscal year of the Company to each +Non-Employee Director shall be 100,000 shares per +type of Award (which shall be subject to any further +increase or decrease pursuant to Section 4.2), +provided that the maximum number of shares of Common +10 +Stock for all types of Awards does not exceed 200,000 +(which shall be subject to any further increase or +decrease pursuant to Section 4.2) with respect to any +fiscal year of the Company. If a Tandem Stock +Appreciation Right is granted or a Limited Stock +Appreciation Right is granted in tandem with a Stock +Option, it shall apply against the Non-Employee +Director's individual share limitations for both +Stock Appreciation Rights and Stock Options. +(iii) There are no annual individual +Eligible Employee or Consultant share limitations on +Restricted Stock for which the grant of such Award or +the lapse of the relevant Restriction Period is not +subject to attainment of Performance Goals in +accordance with Section 8.3(a)(ii) hereof. +(iv) The maximum number of shares of +Common Stock subject to any Award of Performance +Shares which may be granted under this Plan during +any fiscal year of the Company to each Eligible +Employee or Consultant shall be 200,000 (which shall +be subject to any further increase or decrease +pursuant to Section 4.2) with respect to any fiscal +year of the Company. Each Performance Share shall be +referenced to one share of Common Stock and shall be +charged against the available shares under this Plan +at the time the unit value measurement is converted +to a referenced number of shares of Common Stock in +accordance with Section 9.1. +(v) The maximum payment under any +Performance-Based Cash Award payable with respect to +any fiscal year of the Company and for which the +grant of such Award is subject to the attainment of +Performance Goals in accordance with Section 11.2(c) +herein which may be granted under this Plan with +respect to any fiscal year of the Company to each +Eligible Employee or Consultant shall be $10,000,000. +(vi) The individual Participant +limitations set forth in this Section 4.1(b) shall be +cumulative; that is, to the extent that shares of +Common Stock for which Awards are permitted to be +granted to an Eligible Employee or a Consultant +during a fiscal year are not covered by an Award to +such Eligible Employee or Consultant in a fiscal +year, the number of shares of Common Stock available +for Awards to such Eligible Employee or Consultant +shall automatically increase in the subsequent fiscal +years during the term of the Plan until used. +4.2 Changes. +(a) The existence of this Plan and the Awards granted +hereunder shall not affect in any way the right or +power of the Board or the stockholders of the Company +to make or authorize (i) any adjustment, +recapitalization, reorganization or other change in +the Company's capital structure or its business, (ii) +11 +any merger or consolidation of the Company or any +Affiliate, (iii) any issuance of bonds, debentures, +preferred or prior preference stock ahead of or +affecting the Common Stock, (iv) the dissolution or +liquidation of the Company or any Affiliate, (v) any +sale or transfer of all or part of the assets or +business of the Company or any Affiliate or (vi) any +other corporate act or proceeding. +(b) Subject to the provisions of Section 4.2(d), in the +event of any such change in the capital structure or +business of the Company by reason of any stock split, +reverse stock split, stock dividend, extraordinary +dividend (whether cash or stock), combination or +reclassification of shares, recapitalization, merger, +consolidation, spin-off, reorganization, partial or +complete liquidation, issuance of rights or warrants +to purchase any Common Stock or securities +convertible into Common Stock, any sale or transfer +of all or part of the Company's assets or business, +or any other corporate transaction or event having an +effect similar to any of the foregoing and effected +without receipt of consideration by the Company and +the Committee determines in its sole discretion that +an adjustment is necessary or appropriate under the +Plan to prevent substantial dilution or enlargement +of the rights granted to, or available for, +Participants under the Plan, then the aggregate +number and kind of shares that thereafter may be +issued under this Plan, the number and kind of shares +or other property (including cash) to be issued upon +exercise of an outstanding Award or under other +Awards granted under this Plan and the purchase price +thereof shall be appropriately adjusted consistent +with such change in such manner as the Committee may, +in its sole discretion, deem equitable to prevent +substantial dilution or enlargement of the rights +granted to, or available for, Participants under this +Plan, and any such adjustment determined by the +Committee shall be final, binding and conclusive on +the Company and all Participants and employees and +their respective heirs, executors, administrators, +successors and assigns. In connection with any event +described in this paragraph, the Committee may +provide, in its sole discretion, for the cancellation +of any outstanding Awards and payment in cash or +other property in exchange therefor. Except as +provided in this Section 4.2 or in the applicable +Award agreement, a Participant shall have no rights +by reason of any issuance by the Company of any class +or securities convertible into stock of any class, +any subdivision or consolidation of shares of stock +of any class, the payment of any stock dividend, any +other increase or decrease in the number of shares of +stock of any class, any sale or transfer of all or +part of the Company's assets or business or any other +change affecting the Company's capital structure or +business. +(c) Fractional shares of Common Stock resulting from any +adjustment in Awards pursuant to Section 4.2(a) or +(b) shall be aggregated until, and eliminated at, the +time of exercise by rounding-down for fractions less +than one-half and rounding-up for fractions equal to +or greater than one-half. No cash settlements shall +12 +be made with respect to fractional shares eliminated +by rounding. Notice of any adjustment shall be given +by the Committee to each Participant whose Award has +been adjusted and such adjustment (whether or not +such notice is given) shall be effective and binding +for all purposes of this Plan. +(d) In the event of an Acquisition Event, the Committee +may, in its sole discretion, terminate all +outstanding and unexercised Stock Options or Stock +Appreciation Rights or any Other Stock Based Award +that provides for a Participant elected exercise +effective as of the date of the Acquisition Event, by +delivering notice of termination to each Participant +at least 20 days prior to the date of consummation of +the Acquisition Event, in which case during the +period from the date on which such notice of +termination is delivered to the consummation of the +Acquisition Event, each such Participant shall have +the right to exercise in full all of his or her Stock +Options or Stock Appreciation Rights that are then +outstanding (without regard to any limitations on +exercisability otherwise contained in the Award +agreements), but any such exercise shall be +contingent on the occurrence of the Acquisition +Event, and, provided that, if the Acquisition Event +does not take place within a specified period after +giving such notice for any reason whatsoever, the +notice and exercise pursuant thereto shall be null +and void. +If an Acquisition Event occurs but the Committee does not +terminate the outstanding Awards pursuant to this Section +4.2(d), then the provisions of Section 4.2(b) and Article XIII +shall apply. +4.3 Minimum Purchase Price. Notwithstanding any provision of this +Plan to the contrary, if authorized but previously unissued shares of Common +Stock are issued under this Plan, such shares shall not be issued for a +consideration that is less than as permitted under applicable law. +ARTICLE V +ELIGIBILITY - GENERAL REQUIREMENTS FOR AWARDS +5.1 General Eligibility. All Eligible Employees, Consultants, +Non-Employee Directors and prospective employees and consultants are eligible to +be granted Awards, subject to the terms and conditions of this Plan. Eligibility +for the grant of Awards and actual participation in this Plan shall be +determined by the Committee in its sole discretion. +5.2 Incentive Stock Options. Notwithstanding anything herein to +the contrary, only Eligible Employees of the Company, its Subsidiaries and its +Parent (if any) are eligible to be granted Incentive Stock Options under this +Plan. Eligibility for the grant of an Incentive Stock Option and actual +participation in this Plan shall be determined by the Committee in its sole +discretion. +13 +5.3 General Requirement. The vesting and exercise of Awards +granted to a prospective employee or consultant are conditioned upon such +individual actually becoming an Eligible Employee or Consultant. +ARTICLE VI +STOCK OPTIONS +6.1 Options. Stock Options may be granted alone or in addition to +other Awards granted under this Plan. Each Stock Option granted under this Plan +shall be of one of two types: (a) an Incentive Stock Option or (b) a +Non-Qualified Stock Option. +6.2 Grants. The Committee shall, in its sole discretion, have the +authority to grant to any Eligible Employee (subject to Section 5.2) Incentive +Stock Options, Non-Qualified Stock Options, or both types of Stock Options. The +Committee shall, in its sole discretion, have the authority to grant any +Consultant or Non-Employee Director Non-Qualified Stock Options. To the extent +that any Stock Option does not qualify as an Incentive Stock Option (whether +because of its provisions or the time or manner of its exercise or otherwise), +such Stock Option or the portion thereof which does not qualify shall constitute +a separate Non-Qualified Stock Option. +6.3 Terms of Options. Options granted under this Plan shall be +subject to the following terms and conditions and shall be in such form and +contain such additional terms and conditions, not inconsistent with the terms of +this Plan, as the Committee, in its sole discretion, shall deem desirable: +(a) Exercise Price. The exercise price per share of +Common Stock subject to a Stock Option shall be +determined by the Committee at the time of grant, +provided that the per share exercise price of a Stock +Option shall not be less than 100% (or, in the case +of an Incentive Stock Option granted to a Ten Percent +Stockholder, 110%) of the Fair Market Value of the +Common Stock at the time of grant. +(b) Stock Option Term. The term of each Stock Option +shall be fixed by the Committee, provided that no +Stock Option shall be exercisable more than 7 years +after the date the Option is granted; and provided +further that the term of an Incentive Stock Option +granted to a Ten Percent Stockholder shall not exceed +five years. +(c) Exercisability. Stock Options shall be exercisable at +such time or times and subject to such terms and +conditions or as shall be determined by the Committee +at grant. If the Committee provides, in its +discretion, that any Stock Option is exercisable +subject to certain limitations (including, without +limitation, that such Stock Option is exercisable +only in installments or within certain time periods), +the Committee may waive such limitations on the +exercisability at any time at or after grant in whole +or in part (including, without limitation, waiver of +the installment exercise provisions or acceleration +of the time at which such Stock Option may be +14 +exercised), based on such factors, if any, as the +Committee shall determine, in its sole discretion. In +the event that a written employment agreement between +the Company and a Participant provides for a vesting +schedule that is more favorable than the vesting +schedule provided in the form of Award Agreement, the +vesting schedule in such employment agreement shall +govern, provided that such agreement is in effect on +the date of grant and applicable to the specific +Award. +(d) Method of Exercise. Subject to whatever installment +exercise and waiting period provisions apply under +subsection (c) above, to the extent vested, Stock +Options may be exercised in whole or in part at any +time during the Option term, by giving written notice +of exercise to the Company specifying the number of +shares of Common Stock to be purchased. Such notice +shall be accompanied by payment in full of the +purchase price as follows: (i) in cash or by check, +bank draft or money order payable to the order of the +Company; (ii) solely to the extent permitted by +applicable law, if the Common Stock is traded on a +national securities exchange, the Nasdaq Stock Market +or quoted on a national quotation system sponsored by +the National Association of Securities Dealers, and +the Committee authorizes, through a procedure whereby +the Participant delivers irrevocable instructions to +a broker reasonably acceptable to the Committee to +deliver promptly to the Company an amount equal to +the purchase price; or (iii) on such other terms and +conditions as may be acceptable to the Committee +(including, without limitation, the relinquishment of +Stock Options or by payment in full or in part in the +form of Common Stock owned by the Participant based +on the Fair Market Value of the Common Stock on the +payment date as determined by the Committee, in its +sole discretion). No shares of Common Stock shall be +issued until payment therefor, as provided herein, +has been made or provided for. +(e) Non-Transferability of Options. No Stock Option shall +be Transferable by the Participant otherwise than by +will or by the laws of descent and distribution, and +all Stock Options shall be exercisable, during the +Participant's lifetime, only by the Participant. +Notwithstanding the foregoing, the Committee may +determine, in its sole discretion, at the time of +grant or thereafter that a Non-Qualified Stock Option +that is otherwise not Transferable pursuant to this +Section is Transferable to a Family Member in whole +or in part and in such circumstances, and under such +conditions, as determined by the Committee, in its +sole discretion. A Non-Qualified Stock Option that is +Transferred to a Family Member pursuant to the +preceding sentence (i) may not be subsequently +Transferred otherwise than by will or by the laws of +descent and distribution and (ii) remains subject to +the terms of this Plan and the applicable Award +agreement. Any shares of Common Stock acquired upon +the exercise of a Non-Qualified Stock Option by a +permissible transferee of a Non-Qualified Stock +Option or a permissible transferee pursuant to a +15 +Transfer after the exercise of the Non-Qualified +Stock Option shall be subject to the terms of this +Plan and the applicable Award agreement. +(f) Incentive Stock Option Limitations. To the extent +that the aggregate Fair Market Value (determined as +of the time of grant) of the Common Stock with +respect to which Incentive Stock Options are +exercisable for the first time by an Eligible +Employee during any calendar year under this Plan +and/or any other stock option plan of the Company, +any Subsidiary or any Parent exceeds $100,000, such +Options shall be treated as Non-Qualified Stock +Options. Should any provision of this Plan not be +necessary in order for the Stock Options to qualify +as Incentive Stock Options, or should any additional +provisions be required, the Committee may, in its +sole discretion, amend this Plan accordingly, without +the necessity of obtaining the approval of the +stockholders of the Company. +(g) Form, Modification, Extension and Renewal of Stock +Options. Subject to the terms and conditions and +within the limitations of this Plan, Stock Options +shall be evidenced by such form of agreement or grant +as is approved by the Committee, and the Committee +may, in its sole discretion (i) modify, extend or +renew outstanding Stock Options granted under this +Plan (provided that the rights of a Participant are +not reduced without his or her consent and provided +further that such action does not subject the Stock +Options to Section 409A of the Code), and (ii) accept +the surrender of outstanding Stock Options (up to the +extent not theretofore exercised) and authorize the +granting of new Stock Options in substitution +therefor (to the extent not theretofore exercised). +Notwithstanding the foregoing, an outstanding Option +may not be modified to reduce the exercise price +thereof nor may a new Option at a lower price be +substituted for a surrendered Option (other than +adjustments or substitutions in accordance with +Section 4.2), unless such action is approved by the +stockholders of the Company. +(h) Buyout and Settlement Provisions. The Committee may +at any time offer to buy out an Option previously +granted, based on such terms and conditions as the +Committee shall establish and communicate to the +Participant at the time that such offer is made; +provided that such purchase of an Option shall be +limited to no more than the fair market value of the +Award on the date of such purchase. +(i) Early Exercise. The Committee may provide that a +Stock Option include a provision whereby the +Participant may elect at any time before the +Participant's Termination to exercise the Stock +Option as to any part or all of the shares of Common +Stock subject to the Stock Option prior to the full +vesting of the Stock Option and such shares shall be +subject to the provisions of Article VIII and treated +as Restricted Stock. Any unvested shares of Common +Stock so purchased may be subject to a repurchase +16 +option in favor of the Company or to any other +restriction the Committee determines to be +appropriate. +(j) Other Terms and Conditions. Stock Options may contain +such other provisions, which shall not be +inconsistent with any of the terms of this Plan, as +the Committee shall, in its sole discretion, deem +appropriate. +ARTICLE VII +STOCK APPRECIATION RIGHTS +7.1 Tandem Stock Appreciation Rights. Stock Appreciation Rights +may be granted in conjunction with all or part of any Stock Option (a "Reference +Stock Option") granted under this Plan ("Tandem Stock Appreciation Rights"). In +the case of a Non-Qualified Stock Option, such rights may be granted either at +or after the time of the grant of such Reference Stock Option. In the case of an +Incentive Stock Option, such rights may be granted only at the time of the grant +of such Reference Stock Option. +7.2 Terms and Conditions of Tandem Stock Appreciation Rights. +Tandem Stock Appreciation Rights granted hereunder shall be subject to such +terms and conditions, not inconsistent with the provisions of this Plan, as +shall be determined from time to time by the Committee in its sole discretion, +and the following: +(a) Exercise Price. The exercise price per share of +Common Stock subject to a Tandem Stock Appreciation +Right shall be determined by the Committee at the +time of grant, provided that the per share exercise +price of a Tandem Stock Appreciation Right shall not +be less than 100% of the Fair Market Value of the +Common Stock at the time of grant. +(b) Term. A Tandem Stock Appreciation Right or applicable +portion thereof granted with respect to a Reference +Stock Option shall terminate and no longer be +exercisable upon the termination or exercise of the +Reference Stock Option, except that, unless otherwise +determined by the Committee, in its sole discretion, +at the time of grant, a Tandem Stock Appreciation +Right granted with respect to less than the full +number of shares covered by the Reference Stock +Option shall not be reduced until and then only to +the extent the exercise or termination of the +Reference Stock Option causes the number of shares +covered by the Tandem Stock Appreciation Right to +exceed the number of shares remaining available and +unexercised under the Reference Stock Option. +(c) Exercisability. Tandem Stock Appreciation Rights +shall be exercisable only at such time or times and +to the extent that the Reference Stock Options to +which they relate shall be exercisable in accordance +with the provisions of Article VI, and shall be +subject to the provisions of Section 6.3(c). +17 +(d) Method of Exercise. A Tandem Stock Appreciation Right +may be exercised by the Participant by surrendering +the applicable portion of the Reference Stock Option. +Upon such exercise and surrender, the Participant +shall be entitled to receive an amount determined in +the manner prescribed in this Section 7.2. Stock +Options which have been so surrendered, in whole or +in part, shall no longer be exercisable to the extent +the related Tandem Stock Appreciation Rights have +been exercised. +(e) Payment. Upon the exercise of a Tandem Stock +Appreciation Right, a Participant shall be entitled +to receive up to, but no more than, an amount in cash +or a number of shares of Common Stock (as determined +by the Committee, in its sole discretion, on the date +of grant) equal in value to the excess of the Fair +Market Value of one share of Common Stock over the +Option exercise price per share specified in the +Reference Stock Option agreement, multiplied by the +number of shares in respect of which the Tandem Stock +Appreciation Right shall have been exercised. +(f) Deemed Exercise of Reference Stock Option. Upon the +exercise of a Tandem Stock Appreciation Right, the +Reference Stock Option or part thereof to which such +Stock Appreciation Right is related shall be deemed +to have been exercised for the purpose of the +limitation set forth in Article IV of the Plan on the +number of shares of Common Stock to be issued under +the Plan. +(g) Non-Transferability. Tandem Stock Appreciation Rights +shall be Transferable only when and to the extent +that the underlying Stock Option would be +Transferable under Section 6.3(e) of the Plan. +7.3 Non-Tandem Stock Appreciation Rights. Non-Tandem Stock +Appreciation Rights may also be granted without reference to any Stock Options +granted under this Plan. +7.4 Terms and Conditions of Non-Tandem Stock Appreciation Rights. +Non-Tandem Stock Appreciation Rights granted hereunder shall be subject to such +terms and conditions, not inconsistent with the provisions of this Plan, as +shall be determined from time to time by the Committee in its sole discretion, +and the following: +(a) Exercise Price. The exercise price per share of +Common Stock subject to a Non-Tandem Stock +Appreciation Right shall be determined by the +Committee at the time of grant, provided that the per +share exercise price of a Non-Tandem Stock +Appreciation Right shall not be less than 100% of the +Fair Market Value of the Common Stock at the time of +grant. +(b) Term. The term of each Non-Tandem Stock Appreciation +Right shall be fixed by the Committee, but shall not +be greater than 10 years after the date the right is +granted. +(c) Exercisability. Non-Tandem Stock Appreciation Rights +shall be exercisable at such time or times and +subject to such terms and conditions as shall be +18 +determined by the Committee at grant. If the +Committee provides, in its discretion, that any such +right is exercisable subject to certain limitations +(including, without limitation, that it is +exercisable only in installments or within certain +time periods), the Committee may waive such +limitations on the exercisability at any time at or +after grant in whole or in part (including, without +limitation, waiver of the installment exercise +provisions or acceleration of the time at which such +right may be exercised), based on such factors, if +any, as the Committee shall determine, in its sole +discretion. In the event that a written employment +agreement between the Company and a Participant +provides for a vesting schedule that is more +favorable than the vesting schedule provided in the +form of Award Agreement, the vesting schedule in such +employment agreement shall govern, provided that such +agreement is in effect on the date of grant and +applicable to the specific Award. +(d) Method of Exercise. Subject to whatever installment +exercise and waiting period provisions apply under +subsection (c) above, Non-Tandem Stock Appreciation +Rights may be exercised in whole or in part at any +time in accordance with the applicable Award +agreement, by giving written notice of exercise to +the Company specifying the number of Non-Tandem Stock +Appreciation Rights to be exercised. +(e) Payment. Upon the exercise of a Non-Tandem Stock +Appreciation Right a Participant shall be entitled to +receive, for each right exercised, up to, but no more +than, an amount in cash or a number of shares of +Common Stock (as determined by the Committee, in its +sole discretion, on the date of grant) equal in value +to the excess of the Fair Market Value of one share +of Common Stock on the date the right is exercised +over the Fair Market Value of one share of Common +Stock on the date the right was awarded to the +Participant. +(f) Non-Transferability. No Non-Tandem Stock Appreciation +Rights shall be Transferable by the Participant +otherwise than by will or by the laws of descent and +distribution, and all such rights shall be +exercisable, during the Participant's lifetime, only +by the Participant. +7.5 Limited Stock Appreciation Rights. The Committee may, in its +sole discretion, grant Tandem and Non-Tandem Stock Appreciation Rights either as +a general Stock Appreciation Right or as a Limited Stock Appreciation Right. +Limited Stock Appreciation Rights may be exercised only upon the occurrence of a +Change in Control or such other event as the Committee may, in its sole +discretion, designate at the time of grant or thereafter. Upon the exercise of +Limited Stock Appreciation Rights, except as otherwise provided in an Award +agreement, the Participant shall receive in cash or Common Stock, as determined +by the Committee, an amount equal to the amount (a) set forth in Section 7.2(e) +with respect to Tandem Stock Appreciation Rights, or (b) set forth in Section +7.4(e) with respect to Non-Tandem Stock Appreciation Rights, as applicable. +19 +ARTICLE VIII +RESTRICTED STOCK +8.1 Awards of Restricted Stock. Shares of Restricted Stock may be +issued either alone or in addition to other Awards granted under the Plan. The +Committee shall, in its sole discretion, determine the Eligible Employees, +Consultants and Non-Employee Directors, to whom, and the time or times at which, +grants of Restricted Stock shall be made, the number of shares to be awarded, +the price (if any) to be paid by the Participant (subject to Section 8.2), the +time or times within which such Awards may be subject to forfeiture, the vesting +schedule and rights to acceleration thereof, and all other terms and conditions +of the Awards. The Committee may condition the grant or vesting of Restricted +Stock upon the attainment of specified performance targets (including, the +Performance Goals specified in Exhibit A attached hereto) or such other factors +as the Committee may determine, in its sole discretion, including to comply with +the requirements of Section 162(m) of the Code. +8.2 Awards and Certificates. Eligible Employees, Consultants and +Non-Employee Directors selected to receive Restricted Stock shall not have any +rights with respect to such Award, unless and until such Participant has +delivered a fully executed copy of the agreement evidencing the Award to the +Company and has otherwise complied with the applicable terms and conditions of +such Award. Further, such Award shall be subject to the following conditions: +(a) Purchase Price. The purchase price of Restricted +Stock shall be fixed by the Committee. Subject to +Section 4.3, the purchase price for shares of +Restricted Stock may be zero to the extent permitted +by applicable law, and, to the extent not so +permitted, such purchase price may not be less than +par value. +(b) Acceptance. Awards of Restricted Stock must be +accepted within a period of 60 days (or such other +period as the Committee may specify) after the grant +date, by executing a Restricted Stock agreement and +by paying whatever price (if any) the Committee has +designated thereunder. +(c) Legend. Each Participant receiving Restricted Stock +shall be issued a stock certificate in respect of +such shares of Restricted Stock, unless the Committee +elects to use another system, such as book entries by +the transfer agent, as evidencing ownership of shares +of Restricted Stock. Such certificate shall be +registered in the name of such Participant, and +shall, in addition to such legends required by +applicable securities laws, bear an appropriate +legend referring to the terms, conditions, and +restrictions applicable to such Award, substantially +in the following form: +"The anticipation, alienation, attachment, sale, +transfer, assignment, pledge, encumbrance or charge +of the shares of stock represented hereby are subject +to the terms and conditions (including forfeiture) of +the Steven Madden, Ltd. (the "Company") 2006 Stock +Incentive Plan (the "Plan") and an agreement entered +into between the registered owner and the Company +20 +dated __________. Copies of such Plan and agreement +are on file at the principal office of the Company." +(d) Custody. If stock certificates are issued in respect +of shares of Restricted Stock, the Committee may +require that any stock certificates evidencing such +shares be held in custody by the Company until the +restrictions thereon shall have lapsed, and that, as +a condition of any grant of Restricted Stock, the +Participant shall have delivered a duly signed stock +power, endorsed in blank, relating to the Common +Stock covered by such Award. +8.3 Restrictions and Conditions. The shares of Restricted Stock +awarded pursuant to this Plan shall be subject to the following restrictions and +conditions: +(a) Restriction Period. (i) The Participant shall not be +permitted to Transfer shares of Restricted Stock +awarded under this Plan during the period or periods +set by the Committee (the "Restriction Period") +commencing on the date of such Award, as set forth in +a Restricted Stock Award agreement and such agreement +shall set forth a vesting schedule and any events +which would accelerate vesting of the shares of +Restricted Stock. Within these limits, based on +service, attainment of performance goals pursuant to +Section 8.3(a)(ii) below and/or such other factors or +criteria as the Committee may determine in its sole +discretion, the Committee may condition the grant or +provide for the lapse of such restrictions in +installments in whole or in part, or may accelerate +the vesting of all or any part of any Restricted +Stock Award and/or waive the deferral limitations for +all or any part of any Restricted Stock Award. In the +event that a written employment agreement between the +Company and a Participant provides for a vesting +schedule that is more favorable than the vesting +schedule provided in the form of Award Agreement, the +vesting schedule in such employment agreement shall +govern, provided that such agreement is in effect on +the date of grant and applicable to the specific +Award. +(ii) Objective Performance Goals, +Formulae or Standards. If the grant of shares of +Restricted Stock or the lapse of restrictions is +based on the attainment of Performance Goals, the +Committee shall establish the Performance Goals and +the applicable vesting percentage of the Restricted +Stock Award applicable to each Participant or class +of Participants in writing prior to the beginning of +the applicable fiscal year or at such later date as +otherwise determined by the Committee and while the +outcome of the Performance Goals are substantially +uncertain. Such Performance Goals may incorporate +provisions for disregarding (or adjusting for) +changes in accounting methods, corporate transactions +(including, without limitation, dispositions and +acquisitions) and other similar type events or +circumstances. With regard to a Restricted Stock +Award that is intended to comply with Section 162(m) +of the Code, to the extent any such provision would +create impermissible discretion under Section 162(m) +of the Code or otherwise violate Section 162(m) of +21 +the Code, such provision shall be of no force or +effect. The applicable Performance Goals shall be +based on one or more of the performance criteria set +forth in Exhibit A hereto. +(b) Rights as a Stockholder. Except as provided in this +subsection (b) and subsection (a) above and as +otherwise determined by the Committee, the +Participant shall have, with respect to the shares of +Restricted Stock, all of the rights of a holder of +shares of Common Stock of the Company including, +without limitation, the right to receive any +dividends, the right to vote such shares and, subject +to and conditioned upon the full vesting of shares of +Restricted Stock, the right to tender such shares. +The Committee may, in its sole discretion, determine +at the time of grant that the payment of dividends +shall be deferred until, and conditioned upon, the +expiration of the applicable Restriction Period. +(c) Lapse of Restrictions. If and when the Restriction +Period expires without a prior forfeiture of the +Restricted Stock, the certificates for such shares +shall be delivered to the Participant. All legends +shall be removed from said certificates at the time +of delivery to the Participant, except as otherwise +required by applicable law or other limitations +imposed by the Committee. +ARTICLE IX +PERFORMANCE SHARES +9.1 Award of Performance Shares. Performance Shares may be awarded +either alone or in addition to other Awards granted under this Plan. The +Committee shall, in its sole discretion, determine the Eligible Employees, +Consultants and Non-Employee Directors, to whom, and the time or times at which, +Performance Shares shall be awarded, the number of Performance Shares to be +awarded to any person, the Performance Period during which, and the conditions +under which, receipt of the Shares will be deferred, and the other terms and +conditions of the Award in addition to those set forth in Section 9.2. +Except as otherwise provided herein, the Committee shall condition the +right to payment of any Performance Share upon the attainment of objective +performance goals established pursuant to Section 9.2(c) below. +9.2 Terms and Conditions. Performance Shares awarded pursuant to +this Article IX shall be subject to the following terms and conditions: +(a) Earning of Performance Share Award. At the expiration +of the applicable Performance Period, the Committee +shall determine the extent to which the performance +goals established pursuant to Section 9.2(c) are +achieved and the percentage of each Performance Share +Award that has been earned. +22 +(b) Non-Transferability. Subject to the applicable +provisions of the Award agreement and this Plan, +Performance Shares may not be Transferred during the +Performance Period. +(c) Objective Performance Goals, Formulae or Standards. +The Committee shall establish the objective +Performance Goals for the earning of Performance +Shares based on a Performance Period applicable to +each Participant or class of Participants in writing +prior to the beginning of the applicable Performance +Period or at such later date as permitted under +Section 162(m) of the Code and while the outcome of +the Performance Goals are substantially uncertain. +Such Performance Goals may incorporate, if and only +to the extent permitted under Section 162(m) of the +Code, provisions for disregarding (or adjusting for) +changes in accounting methods, corporate transactions +(including, without limitation, dispositions and +acquisitions) and other similar type events or +circumstances. To the extent any such provision would +create impermissible discretion under Section 162(m) +of the Code or otherwise violate Section 162(m) of +the Code, such provision shall be of no force or +effect. The applicable Performance Goals shall be +based on one or more of the performance criteria set +forth in Exhibit A hereto. +(d) Dividends. Unless otherwise determined by the +Committee at the time of grant, amounts equal to any +dividends declared during the Performance Period with +respect to the number of shares of Common Stock +covered by a Performance Share will not be paid to +the Participant. +(e) Payment. Following the Committee's determination in +accordance with subsection (a) above, shares of +Common Stock or, as determined by the Committee in +its sole discretion, the cash equivalent of such +shares shall be delivered to the Eligible Employee, +Consultant or Non-Employee Director, or his legal +representative, in an amount equal to such +individual's earned Performance Share. +Notwithstanding the foregoing, the Committee may, in +its sole discretion, award an amount less than the +earned Performance Share and/or subject the payment +of all or part of any Performance Share to additional +vesting, forfeiture and deferral conditions as it +deems appropriate. +(f) Accelerated Vesting. Based on service, performance +and/or such other factors or criteria, if any, as the +Committee may determine, the Committee may, in its +sole discretion, at or after grant, accelerate the +vesting of all or any part of any Performance Share +Award and/or waive the deferral limitations for all +or any part of such Award. +23 +ARTICLE X +OTHER STOCK-BASED AWARDS +10.1 Other Awards. The Committee, in its sole discretion, is +authorized to grant to Eligible Employees, Consultants and Non-Employee +Directors Other Stock-Based Awards that are payable in, valued in whole or in +part by reference to, or otherwise based on or related to shares of Common +Stock, including, but not limited to, shares of Common Stock awarded purely as a +bonus and not subject to any restrictions or conditions, shares of Common Stock +in payment of the amounts due under an incentive or performance plan sponsored +or maintained by the Company or an Affiliate, performance units, dividend +equivalent units, stock equivalent units, restricted stock units and deferred +stock units. To the extent permitted by law, the Committee may, in its sole +discretion, permit Eligible Employees and/or Non-Employee Directors to defer all +or a portion of their cash compensation in the form of Other Stock-Based Awards +granted under this Plan, subject to the terms and conditions of any deferred +compensation arrangement established by the Company, which shall be intended to +comply with Section 409A of the Code. Other Stock-Based Awards may be granted +either alone or in addition to or in tandem with other Awards granted under the +Plan. +Subject to the provisions of this Plan, the Committee shall, in its +sole discretion, have authority to determine the Eligible Employees, Consultants +and Non-Employee Directors, to whom, and the time or times at which, such Awards +shall be made, the number of shares of Common Stock to be awarded pursuant to +such Awards, and all other conditions of the Awards. The Committee may also +provide for the grant of Common Stock under such Awards upon the completion of a +specified performance period. +The Committee may condition the grant or vesting of Other Stock-Based +Awards upon the attainment of specified Performance Goals set forth on Exhibit A +as the Committee may determine, in its sole discretion; provided that to the +extent that such Other Stock-Based Awards are intended to comply with Section +162(m) of the Code, the Committee shall establish the objective Performance +Goals for the vesting of such Other Stock-Based Awards based on a performance +period applicable to each Participant or class of Participants in writing prior +to the beginning of the applicable performance period or at such later date as +permitted under Section 162(m) of the Code and while the outcome of the +Performance Goals are substantially uncertain. Such Performance Goals may +incorporate, if and only to the extent permitted under Section 162(m) of the +Code, provisions for disregarding (or adjusting for) changes in accounting +methods, corporate transactions (including, without limitation, dispositions and +acquisitions) and other similar type events or circumstances. To the extent any +such provision would create impermissible discretion under Section 162(m) of the +Code or otherwise violate Section 162(m) of the Code, such provision shall be of +no force or effect. The applicable Performance Goals shall be based on one or +more of the performance criteria set forth in Exhibit A hereto. +10.2 Terms and Conditions. Other Stock-Based Awards made pursuant +to this Article X shall be subject to the following terms and conditions: +(a) Non-Transferability. Subject to the applicable +provisions of the Award agreement and this Plan, +shares of Common Stock subject to Awards made under +this Article X may not be Transferred prior to the +date on which the shares are issued, or, if later, +the date on which any applicable restriction, +performance or deferral period lapses. +24 +(b) Dividends. Unless otherwise determined by the +Committee at the time of Award, subject to the +provisions of the Award agreement and this Plan, the +recipient of an Award under this Article X shall not +be entitled to receive, currently or on a deferred +basis, dividends or dividend equivalents with respect +to the number of shares of Common Stock covered by +the Award. +(c) Vesting. Any Award under this Article X and any +Common Stock covered by any such Award shall vest or +be forfeited to the extent so provided in the Award +agreement, as determined by the Committee, in its +sole discretion. In the event that a written +employment agreement between the Company and a +Participant provides for a vesting schedule that is +more favorable than the vesting schedule provided in +the form of Award Agreement, the vesting schedule in +such employment agreement shall govern, provided that +such agreement is in effect on the date of grant and +applicable to the specific Award. +(d) Price. Common Stock issued on a bonus basis under +this Article X may be issued for no cash +consideration; Common Stock purchased pursuant to a +purchase right awarded under this Article X shall be +priced, as determined by the Committee in its sole +discretion. +(e) Payment. Form of payment for the Other Stock-Based +Award shall be specified in the Award agreement. +ARTICLE XI +PERFORMANCE-BASED CASH AWARDS +11.1 Performance-Based Cash Awards. Performance-Based Cash Awards +may be granted either alone or in addition to or in tandem with Stock Options, +Stock Appreciation Rights, or Restricted Stock. Subject to the provisions of +this Plan, the Committee shall, in its sole discretion, have authority to +determine the Eligible Employees, Consultants and Non-Employee Directors to +whom, and the time or times at which, such Awards shall be made, the dollar +amount to be awarded pursuant to such Awards, and all other conditions of the +Awards. The Committee may also provide for the payment of dollar amount under +such Awards upon the completion of a specified Performance Period. +For each Participant, the Committee may specify a targeted performance +award. The individual target award may be expressed, at the Committee's +discretion, as a fixed dollar amount, a percentage of base pay or total pay +(excluding payments made under the Plan), or an amount determined pursuant to an +objective formula or standard. Establishment of an individual target award for a +Participant for a calendar year shall not imply or require that the same level +individual target award (if any such award is established by the Committee for +the relevant Participant) be set for any subsequent calendar year. At the time +the Performance Goals are established, the Committee shall prescribe a formula +to determine the percentages (which may be greater than 100%) of the individual +target award which may be payable based upon the degree of attainment of the +25 +Performance Goals during the calendar year. Notwithstanding anything else +herein, the Committee may, in its sole discretion, elect to pay a Participant an +amount that is less than the Participant's individual target award (or attained +percentage thereof) regardless of the degree of attainment of the Performance +Goals; provided that no such discretion to reduce an Award earned based on +achievement of the applicable Performance Goals shall be permitted for the +calendar year in which a Change in Control of the Company occurs, or during such +calendar year with regard to the prior calendar year if the Awards for the prior +calendar year have not been made by the time of the Change in Control of the +Company, with regard to individuals who were Participants at the time of the +Change in Control of the Company. +11.2 Terms and Conditions. Performance-Based Awards made pursuant +to this Article XI shall be subject to the following terms and conditions: +(a) Vesting of Performance-Based Cash Award. At the +expiration of the applicable Performance Period, the +Committee shall determine and certify in writing the +extent to which the Performance Goals established +pursuant to Section 11.2(c) are achieved and the +percentage of the Participant's individual target +award has been vested and earned. +(b) Waiver of Limitation. In the event of the +Participant's Retirement, Disability or death, or in +cases of special circumstances, the Committee may, in +its sole discretion, waive in whole or in part any or +all of the limitations imposed hereunder (if any) +with respect to any or all of an Award under this +Article XI. +(c) Objective Performance Goals, Formulae or Standards. +(i) The Committee shall establish the +objective Performance Goals and the individual target +award (if any) applicable to each Participant or +class of Participants in writing prior to the +beginning of the applicable Performance Period or at +such later date as permitted under Section 162(m) of +the Code and while the outcome of the Performance +Goals are substantially uncertain. Such Performance +Goals may incorporate, if and only to the extent +permitted under Section 162(m) of the Code, +provisions for disregarding (or adjusting for) +changes in accounting methods, corporate transactions +(including, without limitation, dispositions and +acquisitions) and other similar type events or +circumstances. To the extent any Performance-Based +Award is intended to comply with the provisions of +Section 162(m) of the Code, if any provision would +create impermissible discretion under Section 162(m) +of the Code or otherwise violate Section 162(m) of +the Code, such provision shall be of no force or +effect. The applicable Performance Goals shall be +based on one or more of the performance criteria set +forth in Exhibit A hereto. +(ii) The measurements used in +Performance Goals set under the Plan shall be +determined in accordance with Generally Accepted +26 +Accounting Principles ("GAAP"), except, to the extent +that any objective Performance Goals are used, if any +measurements require deviation from GAAP, such +deviation shall be at the discretion of the Committee +at the time the Performance Goals are set or at such +later time to the extent permitted under Section +162(m) of the Code. +(d) Payment. Following the Committee's determination and +certification in accordance with subsection (a) +above, the Performance-Based Cash Award amount shall +be delivered to the Eligible Employee, Consultant or +Non-Employee Director, or his legal representative, +in accordance with the terms and conditions of the +Award agreement. +ARTICLE XII +TERMINATION +12.1 Termination. The following rules apply with regard to the +Termination of a Participant. +(a) Rules Applicable to Stock Option and Stock +Appreciation Rights. Unless otherwise determined by the +Committee at grant (or, if no rights of the Participant are +reduced, thereafter): +(i) Termination by Reason of Death, +Disability or Retirement. If a Participant's +Termination is by reason of death, Disability or the +Participant's Retirement, all Stock Options or Stock +Appreciation Rights that are held by such Participant +that are vested and exercisable at the time of the +Participant's Termination may be exercised by the +Participant (or, in the case of death, by the legal +representative of the Participant's estate) at any +time within a one-year period from the date of such +Termination, but in no event beyond the expiration of +the stated term of such Stock Options or Stock +Appreciation Rights; provided, however, if the +Participant dies within such exercise period, all +unexercised Stock Options or Stock Appreciation +Rights held by such Participant shall thereafter be +exercisable, to the extent to which they were +exercisable at the time of death, for a period of one +year from the date of such death, but in no event +beyond the expiration of the stated term of such +Stock Options or Stock Appreciation Rights. +(ii) Involuntary Termination Without +Cause. If a Participant's Termination is by +involuntary termination without Cause, all Stock +Options or Stock Appreciation Rights that are held by +such Participant that are vested and exercisable at +the time of the Participant's Termination may be +exercised by the Participant at any time within a +period of 90 days from the date of such Termination, +but in no event beyond the expiration of the stated +term of such Stock Options or Stock Appreciation +Rights. +27 +(iii) Voluntary Termination. If a +Participant's Termination is voluntary (other than a +voluntary termination described in Section +12.2(a)(iv)(2) below), all Stock Options or Stock +Appreciation Rights that are held by such Participant +that are vested and exercisable at the time of the +Participant's Termination may be exercised by the +Participant at any time within a period of 30 days +from the date of such Termination, but in no event +beyond the expiration of the stated terms of such +Stock Options or Stock Appreciation Rights. +(iv) Termination for Cause. If a +Participant's Termination: (1) is for Cause or (2) is +a voluntary Termination (as provided in sub-section +(iii) above) after the occurrence of an event that +would be grounds for a Termination for Cause, all +Stock Options or Stock Appreciation Rights, whether +vested or not vested, that are held by such +Participant shall thereupon terminate and expire as +of the date of such Termination. +(v) Unvested Stock Options and Stock +Appreciation Rights. Stock Options or Stock +Appreciation Rights that are not vested as of the +date of a Participant's Termination for any reason +shall terminate and expire as of the date of such +Termination. +(b) Rules Applicable to Restricted Stock, Performance +Shares, Other Stock-Based Awards and +Performance-Based Cash Awards. Unless otherwise +determined by the Committee at grant or thereafter, +upon a Participant's Termination for any reason: (i) +during the relevant Restriction Period, all +Restricted Stock still subject to restriction shall +be forfeited; and (ii) any unvested Performance +Shares, Other Stock-Based Awards or Performance-Based +Cash Awards shall be forfeited. +ARTICLE XIII +CHANGE IN CONTROL PROVISIONS +13.1 Benefits. In the event of a Change in Control of the Company, +and except as otherwise provided by the Committee in an Award agreement or in a +written employment agreement between the Company and a Participant, a +Participant's unvested Award shall not vest and a Participant's Award shall be +treated in accordance with one of the following methods as determined by the +Committee in its sole discretion: +(a) Awards, whether or not then vested, shall be +continued, assumed, have new rights substituted +therefor or be treated in accordance with Section +4.2(d) hereof, as determined by the Committee in its +sole discretion, and restrictions to which any shares +of Restricted Stock or any other Award granted prior +to the Change in Control are subject shall not lapse +upon a Change in Control and the Restricted Stock or +other Award shall, where appropriate in the sole +discretion of the Committee, receive the same +distribution as other Common Stock on such terms as +determined by the Committee; provided that, the +28 +Committee may, in its sole discretion, decide to +award additional Restricted Stock or other Award in +lieu of any cash distribution. Notwithstanding +anything to the contrary herein, for purposes of +Incentive Stock Options, any assumed or substituted +Stock Option shall comply with the requirements of +Treasury Regulation ss. 1.424-1 (and any amendments +thereto). +(b) The Committee, in its sole discretion, may provide +for the purchase of any Awards by the Company or an +Affiliate for an amount of cash equal to the excess +of the Change in Control Price (as defined below) of +the shares of Common Stock covered by such Awards, +over the aggregate exercise price of such Awards. For +purposes of this Section 13.1, "Change in Control +Price" shall mean the highest price per share of +Common Stock paid in any transaction related to a +Change in Control of the Company. +(c) The Committee may, in its sole discretion, provide +for the cancellation of any Awards without payment, +if the Change in Control Price is less than the Fair +Market Value of such Award on the date of grant. +(d) Notwithstanding anything else herein, the Committee +may, in its sole discretion, provide for accelerated +vesting or lapse of restrictions, of an Award at the +time of grant or at any time thereafter. +13.2 Change in Control. Unless otherwise determined by the +Committee in the applicable Award agreement (or other written agreement approved +by the Committee including, without limitation, an employment agreement), a +"Change in Control" shall be deemed to occur following any transaction if: (a) +any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange +Act (other than the Company, any trustee or other fiduciary holding securities +under any employee benefit plan of the Company, or any company owned, directly +or indirectly, by the stockholders of the Company in substantially the same +proportions as their ownership of Common Stock of the Company), becomes the +"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly +or indirectly, of 50% or more of the combined voting power of the then +outstanding securities of the Company (or its successor corporation); provided, +however, that a merger or consolidation effected solely to implement a +recapitalization of the Company shall not constitute a Change in Control of the +Company; or (b) the stockholders of the Company approve a plan of complete +liquidation of the Company or the consummation of the sale or disposition by the +Company of all or substantially all of the Company's assets other than (i) the +sale or disposition of all or substantially all of the assets of the Company to +a person or persons who beneficially own, directly or indirectly, at least 50% +or more of the combined voting power of the outstanding voting securities of the +Company at the time of the sale or (ii) pursuant to a spinoff type transaction, +directly or indirectly, of such assets to the stockholders of the Company. +29 +ARTICLE XIV +TERMINATION OR AMENDMENT OF PLAN +14.1 Termination or Amendment. Notwithstanding any other provision +of this Plan, the Board or the Committee may at any time, and from time to time, +amend, in whole or in part, any or all of the provisions of this Plan (including +any amendment deemed necessary to ensure that the Company may comply with any +regulatory requirement referred to in Article XVI), or suspend or terminate it +entirely, retroactively or otherwise; provided, however, that, unless otherwise +required by law or specifically provided herein, the rights of a Participant +with respect to Awards granted prior to such amendment, suspension or +termination, may not be impaired without the consent of such Participant and, +provided further, without the approval of the stockholders of the Company in +accordance with the laws of the State of Delaware, to the extent required by the +applicable provisions of Rule 16b-3 or Section 162(m) of the Code, pursuant to +the requirements of NASD Rule 4350(i)(1)(A) or such other applicable stock +exchange rule, or, to the extent applicable to Incentive Stock Options, Section +422 of the Code, no amendment may be made which would: +(a) increase the aggregate number of shares of Common +Stock that may be issued under this Plan pursuant to +Section 4.1 (except by operation of Section 4.2); +(b) increase the maximum individual Participant +limitations for a fiscal year under Section 4.1(b) +(except by operation of Section 4.2); +(c) change the classification of Eligible Employees or +Consultants eligible to receive Awards under this +Plan; +(d) decrease the minimum option price of any Stock Option +or Stock Appreciation Right; +(e) extend the maximum option period under Section 6.3; +(f) alter the Performance Goals for the Award of +Restricted Stock, Performance Shares or Other +Stock-Based Awards subject to satisfaction of +Performance Goals as set forth in Exhibit A; +(g) award any Stock Option or Stock Appreciation Right in +replacement of a canceled Stock Option or Stock +Appreciation Right with a higher exercise price, +except in accordance with Section 6.3(g); or +(h) require stockholder approval in order for this Plan +to continue to comply with the applicable provisions +of Section 162(m) of the Code or, to the extent +applicable to Incentive Stock Options, Section 422 of +the Code. In no event may this Plan be amended +without the approval of the stockholders of the +Company in accordance with the applicable laws of the +State of Delaware to increase the aggregate number of +shares of Common Stock that may be issued under this +Plan, decrease the minimum exercise price of any +Stock Option or Stock Appreciation Right, or to make +any other amendment that would require stockholder +approval under NASD Rule 4350(i)(1)(A) or other such +30 +rules of any exchange or system on which the +Company's securities are listed or traded at the +request of the Company. +The Committee may amend the terms of any Award theretofore granted, +prospectively or retroactively, but, subject to Article IV above or as otherwise +specifically provided herein, no such amendment or other action by the Committee +shall impair the rights of any holder without the holder's consent. +ARTICLE XV +UNFUNDED PLAN +15.1 Unfunded Status of Plan. This Plan is an "unfunded" plan for +incentive and deferred compensation. With respect to any payments as to which a +Participant has a fixed and vested interest but that are not yet made to a +Participant by the Company, nothing contained herein shall give any such +Participant any rights that are greater than those of a general unsecured +creditor of the Company. +ARTICLE XVI +GENERAL PROVISIONS +16.1 Legend. The Committee may require each person receiving shares +of Common Stock pursuant to a Stock Option or other Award under the Plan to +represent to and agree with the Company in writing that the Participant is +acquiring the shares without a view to distribution thereof. In addition to any +legend required by this Plan, the certificates for such shares may include any +legend that the Committee, in its sole discretion, deems appropriate to reflect +any restrictions on Transfer. +All certificates for shares of Common Stock delivered under the Plan +shall be subject to such stop transfer orders and other restrictions as the +Committee may, in its sole discretion, deem advisable under the rules, +regulations and other requirements of the Securities and Exchange Commission, +The Nasdaq Stock Market or any national securities exchange system upon whose +system the Common Stock is then quoted, any applicable Federal or state +securities law, and any applicable corporate law, and the Committee may cause a +legend or legends to be put on any such certificates to make appropriate +reference to such restrictions. +16.2 Other Plans. Nothing contained in this Plan shall prevent the +Board from adopting other or additional compensation arrangements, subject to +stockholder approval if such approval is required; and such arrangements may be +either generally applicable or applicable only in specific cases. +16.3 No Right to Employment/Directorship/Consultancy. Neither this +Plan nor the grant of any Option or other Award hereunder shall give any +Participant or other employee, Consultant or Non-Employee Director any right +with respect to continuance of employment, consultancy or directorship by the +Company or any Affiliate, nor shall they be a limitation in any way on the right +of the Company or any Affiliate by which an employee is employed or a Consultant +or Non-Employee Director is retained to terminate his or her employment, +consultancy or directorship at any time. +31 +16.4 Withholding of Taxes. The Company shall have the right to +deduct from any payment to be made pursuant to this Plan, or to otherwise +require, prior to the issuance or delivery of any shares of Common Stock or the +payment of any cash hereunder, payment by the Participant of, any Federal, state +or local taxes required by law to be withheld. Upon the vesting of Restricted +Stock (or other Award that is taxable upon vesting), or upon making an election +under Section 83(b) of the Code, a Participant shall pay all required +withholding to the Company. Any statutorily required withholding obligation with +regard to any Participant may be satisfied, subject to the advance consent of +the Committee, by reducing the number of shares of Common Stock otherwise +deliverable or by delivering shares of Common Stock already owned. Any fraction +of a share of Common Stock required to satisfy such tax obligations shall be +disregarded and the amount due shall be paid instead in cash by the Participant. +16.5 No Assignment of Benefits. No Award or other benefit payable +under this Plan shall, except as otherwise specifically provided by law or +permitted by the Committee, be Transferable in any manner, and any attempt to +Transfer any such benefit shall be void, and any such benefit shall not in any +manner be liable for or subject to the debts, contracts, liabilities, +engagements or torts of any person who shall be entitled to such benefit, nor +shall it be subject to attachment or legal process for or against such person. +16.6 Listing and Other Conditions. +(a) Unless otherwise determined by the Committee, as long +as the Common Stock is listed on a national +securities exchange or system sponsored by a national +securities association, the issue of any shares of +Common Stock pursuant to an Award shall be +conditioned upon such shares being listed on such +exchange or system. The Company shall have no +obligation to issue such shares unless and until such +shares are so listed, and the right to exercise any +Option or other Award with respect to such shares +shall be suspended until such listing has been +effected. +(b) If at any time counsel to the Company shall be of the +opinion that any sale or delivery of shares of Common +Stock pursuant to an Option or other Award is or may +in the circumstances be unlawful or result in the +imposition of excise taxes on the Company under the +statutes, rules or regulations of any applicable +jurisdiction, the Company shall have no obligation to +make such sale or delivery, or to make any +application or to effect or to maintain any +qualification or registration under the Securities +Act or otherwise, with respect to shares of Common +Stock or Awards, and the right to exercise any Option +or other Award shall be suspended until, in the +opinion of said counsel, such sale or delivery shall +be lawful or will not result in the imposition of +excise taxes on the Company. +(c) Upon termination of any period of suspension under +this Section 16.6, any Award affected by such +suspension which shall not then have expired or +32 +terminated shall be reinstated as to all shares +available before such suspension and as to shares +which would otherwise have become available during +the period of such suspension, but no such suspension +shall extend the term of any Award. +(d) A Participant shall be required to supply the Company +with any certificates, representations and +information that the Company requests and otherwise +cooperate with the Company in obtaining any listing, +registration, qualification, exemption, consent or +approval the Company deems necessary or appropriate. +16.7 Governing Law. This Plan and actions taken in connection +herewith shall be governed and construed in accordance with the laws of the +State of Delaware (regardless of the law that might otherwise govern under +applicable Delaware principles of conflict of laws). +16.8 Construction. Wherever any words are used in this Plan in the +masculine gender they shall be construed as though they were also used in the +feminine gender in all cases where they would so apply, and wherever any words +are used herein in the singular form they shall be construed as though they were +also used in the plural form in all cases where they would so apply. +16.9 Other Benefits. No Award granted or paid out under this Plan +shall be deemed compensation for purposes of computing benefits under any +retirement plan of the Company or its Affiliates nor affect any benefits under +any other benefit plan now or subsequently in effect under which the +availability or amount of benefits is related to the level of compensation. +16.10 Costs. The Company shall bear all expenses associated with +administering this Plan, including expenses of issuing Common Stock pursuant to +any Awards hereunder. +16.11 No Right to Same Benefits. The provisions of Awards need not +be the same with respect to each Participant, and such Awards to individual +Participants need not be the same in subsequent years. +16.12 Death/Disability. The Committee may in its sole discretion +require the transferee of a Participant to supply it with written notice of the +Participant's death or Disability and to supply it with a copy of the will (in +the case of the Participant's death) or such other evidence as the Committee +deems necessary to establish the validity of the transfer of an Award. The +Committee may, in its discretion, also require the agreement of the transferee +to be bound by all of the terms and conditions of the Plan. +16.13 Section 16(b) of the Exchange Act. All elections and +transactions under this Plan by persons subject to Section 16 of the Exchange +Act involving shares of Common Stock are intended to comply with any applicable +exemptive condition under Rule 16b-3. The Committee may, in its sole discretion, +establish and adopt written administrative guidelines, designed to facilitate +compliance with Section 16(b) of the Exchange Act, as it may deem necessary or +proper for the administration and operation of this Plan and the transaction of +business thereunder. +33 +16.14 Section 409A of the Code. The Plan is intended to comply with +the applicable requirements of Section 409A of the Code and shall be limited, +construed and interpreted in accordance with such intent. To the extent that any +Award is subject to Section 409A of the Code, it shall be paid in a manner that +will comply with Section 409A of the Code, including proposed, temporary or +final regulations or any other guidance issued by the Secretary of the Treasury +and the Internal Revenue Service with respect thereto. Notwithstanding anything +herein to the contrary, any provision in the Plan that is inconsistent with +Section 409A of the Code shall be deemed to be amended to comply with Section +409A of the Code and to the extent such provision cannot be amended to comply +therewith, such provision shall be null and void. +16.15 Successor and Assigns. The Plan shall be binding on all +successors and permitted assigns of a Participant, including, without +limitation, the estate of such Participant and the executor, administrator or +trustee of such estate. +16.16 Severability of Provisions. If any provision of the Plan shall +be held invalid or unenforceable, such invalidity or unenforceability shall not +affect any other provisions hereof, and the Plan shall be construed and enforced +as if such provisions had not been included. +16.17 Payments to Minors, Etc. Any benefit payable to or for the +benefit of a minor, an incompetent person or other person incapable of receipt +thereof shall be deemed paid when paid to such person's guardian or to the party +providing or reasonably appearing to provide for the care of such person, and +such payment shall fully discharge the Committee, the Board, the Company, its +Affiliates and their employees, agents and representatives with respect thereto. +16.18 Headings and Captions. The headings and captions herein are +provided for reference and convenience only, shall not be considered part of the +Plan, and shall not be employed in the construction of the Plan. +ARTICLE XVII +EFFECTIVE DATE OF PLAN +The Plan shall become effective upon the date specified by the Board in +its resolution adopting the Plan, subject to the approval of the Plan by the +stockholders of the Company in accordance with the requirements of the laws of +the State of Delaware. +ARTICLE XVIII +TERM OF PLAN +No Award shall be granted pursuant to the Plan on or after the tenth +anniversary of the earlier of the date the Plan is adopted or the date of +stockholder approval, but Awards granted prior to such tenth anniversary may +extend beyond that date; provided that no Award (other than a Stock Option or +Stock Appreciation Right) that is intended to be "performance-based" under +Section 162(m) of the Code shall be granted on or after the fifth anniversary of +the stockholder approval of the Plan unless the Performance Goals set forth on +Exhibit A are reapproved (or other designated performance goals are approved) by +the stockholders no later than the first stockholder meeting that occurs in the +fifth year following the year in which stockholders approve the Performance +Goals set forth on Exhibit A. +34 +ARTICLE XIX +NAME OF PLAN +This Plan shall be known as "The Steven Madden, Ltd. 2006 Stock +Incentive Plan." +35 +EXHIBIT A TO THE 2006 STOCK INCENTIVE PLAN +PERFORMANCE GOALS +1. Performance goals established for purposes of the grant or +vesting of Awards of Restricted Stock, Other Stock-Based +Awards, Performance Shares and/or Performance-Based Cash +Awards, each intended to be "performance-based" under Section +162(m) of the Code, shall be based on the attainment of +certain target levels of, or a specified increase or decrease +(as applicable) in one or more of the following performance +goals ("Performance Goals"): +(a) earnings per share; +(b) operating income; +(c) net income; +(d) cash flow; +(e) gross profit; +(f) gross profit return on investment; +(g) gross margin return on investment; +(h) gross margin; +(i) working capital; +(j) earnings before interest and taxes; +(k) earnings before interest, tax, depreciation and +amortization; +(l) return on equity; +(m) return on assets; +(n) return on capital; +(o) revenue growth; +(p) total shareholder return; +(q) economic value added; +(r) specified objectives with regard to limiting the +level of increase in all or a portion of the +Company's bank debt or other long-term or short-term +public or private debt or other similar financial +A +obligations of the Company, which may be calculated +net of cash balances and/or other offsets and +adjustments as may be established by the Committee in +its sole discretion; +(s) the fair market value of the shares of the Company's +Common Stock; +(t) the growth in the value of an investment in the +Company's Common Stock assuming the reinvestment of +dividends; +(u) reduction in expenses; +(v) customer satisfaction; +(w) customer loyalty; +(x) style indexes; +(y) number of new patents; +(z) employee retention; +(aa) market share; +(bb) market segment share; +(cc) product release schedules; +(dd) new product innovation; +(ee) new product introduction; +(ff) product cost reduction through advanced technology; +(gg) brand recognition and/or acceptance; or +(hh) ship targets. +2. To the extent permitted under Section 162(m) of the Code, the +Committee may, in its sole discretion, also exclude, or adjust +to reflect, the impact of an event or occurrence which the +Committee determines should be appropriately excluded or +adjusted, including: +(a) restructurings, discontinued operations, +extraordinary items or events, and other unusual or +non-recurring charges as described in Accounting +Principles Board Opinion No. 30 and/or management's +discussion and analysis of financial condition and +results of operations appearing or incorporated by +reference in the Company's Form 10-K for the +applicable year; +B +(b) an event either not directly related to the +operations of the Company or not within the +reasonable control of the Company's management; or +(c) a change in tax law or accounting standards required +by generally accepted accounting principles. +3. Performance goals may also be based upon individual +Participant performance goals, as determined by the Committee, +in its sole discretion. +4. In addition, such Performance Goals may be based upon the +attainment of specified levels of Company (or subsidiary, +division, other operational unit or administrative department +of the Company) performance under one or more of the measures +described above relative to the performance of other +corporations. To the extent permitted under Section 162(m) of +the Code, but only to the extent permitted under Section +162(m) of the Code (including, without limitation, compliance +with any requirements for stockholder approval), the Committee +may: +(a) designate additional business criteria on which the +performance goals may be based; or +(b) adjust, modify or amend the aforementioned business +criteria. +C +TABLE OF CONTENTS +----------------- +ARTICLE I PURPOSE.............................................................1 +ARTICLE II DEFINITIONS........................................................1 +ARTICLE III ADMINISTRATION....................................................6 +ARTICLE IV SHARE LIMITATION...................................................9 +ARTICLE V ELIGIBILITY - GENERAL REQUIREMENTS FOR AWARDS......................13 +ARTICLE VI STOCK OPTIONS.....................................................14 +ARTICLE VII STOCK APPRECIATION RIGHTS........................................17 +ARTICLE VIII RESTRICTED STOCK................................................20 +ARTICLE IX PERFORMANCE SHARES................................................22 +ARTICLE X OTHER STOCK-BASED AWARDS...........................................23 +ARTICLE XI PERFORMANCE-BASED CASH AWARDS.....................................25 +ARTICLE XII TERMINATION......................................................27 +ARTICLE XIII CHANGE IN CONTROL PROVISIONS....................................28 +ARTICLE XIV TERMINATION OR AMENDMENT OF PLAN.................................29 +ARTICLE XV UNFUNDED PLAN.....................................................31 +ARTICLE XVI GENERAL PROVISIONS...............................................31 +ARTICLE XVII EFFECTIVE DATE OF PLAN..........................................34 +ARTICLE XVIII TERM OF PLAN...................................................34 +ARTICLE XIX NAME OF PLAN.....................................................35 +EXHIBIT A PERFORMANCE GOALS...................................................A +i +STEVEN MADDEN, LTD. PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES ([FOR] +[WITHHOLD AUTHORITY] [AGAINST] OR [ABSTAIN]) NEXT TO EACH OF THE PROPOSALS +The undersigned stockholder of Steven Madden, Ltd. (the "Company") +hereby appoint(s) Jamieson A. Karson and Arvind Dharia, and each of them, as +attorneys and proxies, each with power of substitution and revocation, to +represent the undersigned at the Annual Meeting of Stockholders of the Company +to be held at the Company's showroom located at 1370 Avenue of the Americas, +14th Floor, New York, New York at 10:00 a.m., local time, on May 26, 2006, and +at any adjournments or postponements thereof, with authority to vote all shares +of Common Stock of the Company held or owned by the undersigned on April 26, +2006, in accordance with the directions indicated herein. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1, 2 and 3. +1) ELECTION OF DIRECTORS VOTE +-------------------------- +VOTE +[ ] FOR ALL nominees listed below EXCEPT as marked to the contrary +below +[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed below +(INSTRUCTION: To withhold authority to vote for any individual +nominee strike a line through the nominee's name below.) +Jamieson A. Karson, Jeffrey Birnbaum, Marc S. Cooper, Harold Kahn, John L. +Madden, Peter Migliorini, Richard P. Randall, Thomas H. Schwartz and Walter +Yetnikoff. +2) APPROVAL OF THE ADOPTION OF THE 2006 STOCK INCENTIVE PLAN +--------------------------------------------------------- +[ ] FOR the adoption of the 2006 Stock Incentive Plan +[ ] AGAINST the adoption of the 2006 Stock Incentive Plan +[ ] ABSTAIN.. +3) RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY'S +-------------------------------------------------------------- +INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2006 +----------------------------------------------------------------- +[ ] FOR the ratification of the selection of Eisner LLP +[ ] AGAINST +[ ] ABSTAIN +i +THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE +INDICATED, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE NINE (9) +NOMINEES NAMED IN ITEM 1, (2) FOR THE ADOPTION OF THE 2006 STOCK INCENTIVE PLAN +IN ITEM 2, (3) FOR THE RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE +COMPANY'S INDEPENDENT AUDITORS FOR FISCAL YEAR 2006 IN ITEM 3, AND (4) IN THE +DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE +MEETING. +In their discretion, the proxies are authorized to vote upon such other +business as may properly be presented at the meeting or any adjournments or +postponements thereof. +Please mark, sign, date and return this Proxy promptly using the +accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +Dated: +---------------- +--------------------------------- +Signature +--------------------------------- +Signature if jointly owned: +--------------------------------- +Print name: +Please sign exactly as the name appears on your stock certificate. When +shares of capital stock are held by joint tenants, both should sign. When +signing as attorney, executor, administrator, trustee, guardian, or corporate +officer, please include full title as such. If the shares of capital stock are +owned by a corporation, sign in the full corporate name by an authorized +officer. If the shares of capital stock are owned by a partnership, sign in the +name of the partnership by an authorized officer. +PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY +IN THE ENCLOSED ENVELOPE \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-06-000476/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-06-000476/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ba40f405a83e9fa5e3bf19f2cb8bd12eca8f42ab --- /dev/null +++ b/raw/proxies/0000913241/0001019056-06-000476/proxy_rpt.txt @@ -0,0 +1,58 @@ +Certain Relationships and Related Transactions +In July 2001, the Company entered into a consulting agreement with +Peter J. Solomon & Company, a financial advisory firm of which Marc S. Cooper, +one of the Company's directors, is a managing director. Under this agreement, +the firm provided financial advisory and investment banking services to the +Company. This agreement was amended in March 2004. The amended agreement expired +on March 31, 2005, but pursuant to its terms has been automatically renewed +until such time that the Company terminates it. Pursuant to this agreement, the +Company paid fees and expenses to Peter J. Solomon & Company of $161,000, +$33,000 and $150,000 for 2004, 2003 and 2002 respectively. Under the amended +agreement, the Company paid fees to Peter J. Solomon & Company in the amount of +$161,000 during 2004 and $50,000 plus expenses incurred during 2005. In +addition, the Company retained Peter J. Solomon & Company as an advisor in +connection with the Company's acquisition of all the capital stock of each of +Daniel M. Friedman & Associates, Inc. and DMF International, Ltd. In February +2006, the Company paid Peter J. Solomon & Company an advisory fee in the amount +equal to $412,000 for services and expenses provided in connection with such +acquisition. +In October 2002, the Company entered into an agreement with Jeffrey +Birnbaum, one of the Company's directors. Under this agreement, Mr. Birnbaum +provided consulting services with respect to the designing and manufacturing of +shoes and general consulting services to the Company, pursuant to which, Mr. +Birnbaum received a fee of $200,000 in 2005. In addition, Mr. Birnbaum received +fees for service to the Company as a director in the amount of $50,000 in 2005. +Mr. Birnbaum has been a partner and the Product Development Manager of Dolphin +Shoe Company since August 1982. Dolphin Shoe Company is one of the Company's +domestic suppliers. +In January 2004, the Company entered into an agreement with John Madden +and JLM Consultants, a company wholly-owned by John Madden, one of the Company's +directors, which was amended in 2005. Under this agreement, Mr. Madden provided +consulting services with respect to the development of international sales of +-19- +the Company. Under the agreement, in 2005, JLM Consultants received a monthly +draw with recourse in the amount of $20,000 against sales commissions earned by +Mr. Madden. Mr. Madden also received a $1,000 per month travel allowance and +$1,700 per month toward health insurance premiums. Pursuant to this agreement, +JLM Consultants received a total of $232,000 in 2005. In addition, in 2005 Mr. +Madden received fees for service to the Company as a director in the amount of +$50,000 and use of the Company's leased corporate apartment, a benefit valued at +$40,253. This agreement expired on December 31, 2005 but the parties have +continued the consulting arrangement under the same terms of the expired +agreement. +In January 2006, the Company entered into a consulting agreement with +Joseph Masella, which amended and restated a consulting agreement between the +Company, Mr. Masella and T.J.M Sales Corporation. Mr. Masella is the president +of T.J.M Sales Corporation. Under the amended and restated agreement, Mr. +Masella receives commissions on certain sales of Adesso Madden, Inc., the +Company and SM New York and T.J.M. Sales Corporation receives a biweekly draw in +the amount of $20,000 against these commissions. See "Employment and Consulting +Agreements with Certain Executive Officers." Mr. Masella, either directly or +through T.J.M. Sales Corporation, received commissions in the amount of +$1,545,391 in 2005. +In March 2004, the Company entered into a commission agreement between +the Steven Madden Mens Wholesale Division and Hev Sales, Inc. Mr. Andrew Shames +is the President of Hev Sales Inc. Under the agreement, Hev Sales serves as +sales organization for the Steven Madden Mens Wholesale Division and receives an +annual guaranteed commission of $450,000. Hev Sales, Inc. received commissions +in the amount of $450,008 in 2005. \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-07-000409/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-07-000409/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..94c79964105bd9dcb8e0c9770dbb4617958cce05 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-07-000409/proxy_rpt.txt @@ -0,0 +1,138 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +In July 2001, the Company entered into a consulting agreement with +Peter J. Solomon & Company, a financial advisory firm of which Marc S. Cooper, +one of the Company's directors, is a managing director. Under this agreement, +the firm provides financial advisory and investment banking services to the +Company. This agreement was amended in March 2004. The amended agreement expired +on March 31, 2005, but pursuant to its terms has been automatically renewed +until such time that the Company terminates it. The Company terminated the +agreement on July 11, 2006. During 2006, the Company retained Peter J. Solomon & +Company as an advisor in connection with the Company's acquisition of all the +capital stock of each of Daniel M. Friedman & Associates, Inc. and DMF +International, Ltd. In February 2006, the Company paid Peter J. Solomon & +Company an advisory fee in the amount equal to $412,000 for services provided +and expenses incurred in connection with such acquisition. No other fees were +paid to Peter J. Solomon & Company in 2006. +In October 2002, the Company entered into an agreement with Jeffrey +Birnbaum, one of the Company's directors. Under this agreement, Mr. Birnbaum +provides consulting services with respect to the designing and manufacturing of +shoes and general consulting services to the Company, pursuant to which, Mr. +Birnbaum received a fee of $200,000 in 2006. Mr. Birnbaum has been a partner and +the Product Development Manager of Dolphin Footwear Company since August 1982. +Dolphin Footwear Company is one of the Company's largest domestic and foreign +suppliers. In 2006, the Company paid Dolphin Footwear Company and Ming Well, +Dolphin's Hong Kong affiliate, approximately $77.7 million for the purchase of +goods. +24 +In January 2004, the Company entered into an agreement with John Madden +and JLM Consultants, a company wholly-owned by John Madden, one of the Company's +directors, which was amended in 2005. Under this agreement, Mr. Madden provided +consulting services with respect to the development of international sales of +the Company. This agreement expired on December 31, 2005 but the parties have +continued the consulting arrangement under the terms of the expired agreement. +Under the agreement, JLM Consultants receives a commission equal to 4% on +International Sales (as defined in the Agreement) up to $6.0 million and 3% on +International Sales in excess of $6.0 million. The agreement provides for a +monthly draw in the amount of $20,000 with recourse against such commissions, as +well as a $1,000 per month travel allowance and $1,700 per month toward health +insurance premiums. Pursuant to this arrangement, JLM Consultants received a +total of $478,865 in 2006. +Effective as of July 1, 2005, the Company amended its employment +agreement with Steven Madden, pursuant to which Mr. Madden agreed to serve as +the Company's Creative and Design Chief. The term of Mr. Madden's employment +under his amended employment agreement commenced July 1, 2005 and ends on June +30, 2015. The agreement provides for an annual salary of $600,000, with a 7% +increase of base salary on a compound basis in each of the third, fifth, seventh +and ninth years of the agreement. The agreement also provides for an annual +bonus in an amount determined by the Board of Directors, which will be at least +2% of the Company's EBITDA (the "Annual Bonus"). Additionally, the Company shall +pay Mr. Madden an annual cash bonus in relation to "new business" (as defined in +the agreement) in an amount to be determined by the Board of Directors, which +will be at least (i) 2.5% of new business gross direct revenues and (ii) 10% of +all license or other fee income above $2,000,000.00 (the "New Business Bonus"). +In addition, Mr. Madden is eligible to receive annually an option grant to +purchase shares of Common Stock in an amount equal to not less than 100% of the +largest aggregate amount of options granted to any other continuing full-time +employee of the Company during the annual period; provided, however, a grant in +excess of 150% of the options grant to such other continuing full-time employee +shall require shareholder approval. The agreement provides for, in the event of +Mr. Madden's death, the payment to Mr. Madden's estate of his base salary for +the 12-month period immediately subsequent to the date of Mr. Madden's death. In +the event that Mr. Madden's employment agreement is terminated due to Mr. +Madden's total disability (as defined in the agreement), "for cause" (as defined +in the agreement) or due to Mr. Madden's resignation, the Company is obligated +to pay Mr. Madden the amount of compensation that is accrued and unpaid through +the date of termination. In the event Mr. Madden's employment agreement is +terminated for any reason (other than "for cause" or due to his death or total +disability or due to Mr. Madden's resignation), the Company is obligated to pay +Mr. Madden, in installments, the balance of his base salary that would have been +paid by the Company under the agreement for the full term of the agreement. In +the event that there is a "change of control" (as defined in the agreement) +transaction, all unvested options to purchase shares of Common Stock held by Mr. +Madden will vest on the date of termination and Mr. Madden will be entitled to +receive a lump sum cash payment equal to (1) the amount of compensation that is +accrued and unpaid through the date of termination, (2) an amount equal to the +product of (A) the number of years remaining in the term of the agreement (but +not less than 5) and (B) the sum of (w) the base salary for the 12-month period +ended on the preceding December 31 (or for the 12-month period ending on +December 31, 2002, if greater), (x) the amount of the Annual Bonus earned (paid +or accrued or which should have been paid or accrued) for the 12-month period +ended on the preceding December 31 (or for the 12-month period ended on December +31, 2002, if greater), (y) the non-accountable expense allowance provided for +under the agreement for the 12-month period ended on the preceding December 31, +and (z) the amount of the New Business Bonus earned (paid or accrued or which +should have been paid or accrued) for the 12-month period ended on the preceding +December 31 (or for the 12-month period ending on December 31 during the +agreement in which Mr. Madden received the greatest New Business Bonus, if +greater). Mr. Madden's employment agreement contains other customary provisions, +including provisions regarding expenses reimbursement, confidentiality, +solicitation and competition. For the fiscal year ending December 31, 2006, Mr. +Madden +25 +earned (i) $600,000 in base salary, (ii) $200,000 in non-accountable expense +allowance, (iii) a bonus of $1,700,060 representing 2% of the Company's earnings +before interest, tax, depreciation and amortization (iv) a bonus of $2,526,868 +earned based on 2.5% of the Company's new business and (v) a bonus of $92,462 +based on 10% of Royalty/Licensing income over $2,000,000. In addition, Mr. +Madden was awarded 30,000 shares of restricted stock with a market value of +$1,081,800 on the date of the award which vests one fourth per year over a four +year period and 135,000 shares of restricted stock with a market value of +$3,800,250 on the date of the award which vests one-fifth per year over a five +year period. +REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS +The Company's Conduct Code and "Employee Handbook" prohibit all +conflicts of interest. Under the Conduct Code, conflicts of interest occur when +private or family interests interfere in any way, or even appear to interfere, +with the interests of the Company. The Company's prohibition on conflicts of +interest under the Conduct Code includes any related person transaction. +Related person transactions must be approved by the Board, or by a +committee of the Board consisting solely of independent directors, who will +approve the transaction only if they determine that it is in the best interests +of the Company. In considering the transaction, the Board or committee will +consider all relevant factors, including as applicable (i) the Company's +business rationale for entering into the transaction; (ii) the alternatives to +entering into a related person transaction; (iii) whether the transaction is on +terms comparable to those available to third parties or, in the case of +employment relationships, to employees generally; (iv) the potential for the +transaction to lead to an actual or apparent conflict of interest and any +safeguards imposed to prevent such actual or apparent conflicts; and (v) the +overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of +interests, including related person transactions. Under the Conduct Code, all +employees are required to report any actual or apparent conflict of interest, or +potential conflict of interest, to management. The chief financial officer +quarterly distributes a questionnaire to the Company's executive officers and +management personnel and annually distributes a questionnaire to the members of +the Board of Directors requesting certain information regarding, among other +things, their immediate family members, employment and beneficial ownership +interests, which information is then reviewed for any conflicts of interest +under the Conduct Code. +The Audit Committee, Disclosure Committee and Board of Directors +discuss the related party transactions and they are reviewed as part of the +Forms 10-K and 10-Q review process, including related party transaction +disclosures. +If a director is involved in the transaction, he will be recused from +all discussions and decisions about the transaction. The transaction must be +approved in advance whenever practicable, and if not practicable, must be +ratified as promptly as practicable. +26 \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-08-000564/proxy.txt b/raw/proxies/0000913241/0001019056-08-000564/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6572258719e69231730b4b2764d14e300f68ad52 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-08-000564/proxy.txt @@ -0,0 +1,2917 @@ +DEF 14A +1 +sm_def14a2008.htm +DEFINITIVE 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. 1) +Filed by the +Registrant x +Filed by a +Party other than the Registrant o +Check the +appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule +14a-6(e)(2)) +x +Definitive +Proxy Statement +o +Definitive +Additional Materials +o +Soliciting +Material Pursuant to § 240.14a-12 +STEVEN MADDEN, LTD. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of +Filing Fee (Check the appropriate box): +x +No fee +required +o +Fee computed +on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of +each class of securities to which transaction applies: +(2) +Aggregate +number of securities to which transaction applies: +(3) +Per unit +price or other underlying value of transaction computed pursuant to Exchange +Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed +maximum aggregate value of transaction: +(5) +Total fee +paid: +o +Fee paid +previously with preliminary materials. +o +Check box if +any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and +identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount +Previously Paid: +(2) +Form, +Schedule or Registration Statement No.: +(3) +Filing +Party: +(4) +Date Filed: +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 23, 2008 +To the +Stockholders of Steven Madden, Ltd.: +NOTICE +IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) +of the Company will be held on May 23, 2008, at the Company’s showroom located +at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., +local time, and thereafter as it may from time to time be adjourned, for the purposes +stated below. +1. +To elect six +directors to the Board of Directors of the Company to serve until the next +annual meeting of the Company’s stockholders or until their successors are +duly elected and qualified; +2. +To ratify +the appointment of Eisner LLP as the Company’s independent registered public +accounting firm for the fiscal year ending December 31, 2008; and +3. +To transact +such other business as may properly come before the Annual Meeting or any +adjournments thereof. +All +stockholders are cordially invited to attend the Annual Meeting. Only those +stockholders of record at the close of business on April 15, 2008 +are entitled to notice of and to vote at the Annual Meeting and any +adjournments thereof. A complete list of stockholders entitled to vote at the +Annual Meeting will be available for ten days prior to the Annual Meeting for +any purpose germane to the meeting, between the hours of 9:00 a.m. and 4:30 +p.m., local time, at the Company’s principal executive offices at 52-16 Barnett +Avenue, Long Island City, NY 11104, by contacting the Secretary of the Company, +and will be available at the Annual Meeting. +BY ORDER OF +THE BOARD OF DIRECTORS +April 29, 2008 +/s/ Arvind +Dharia +Arvind +Dharia +Secretary +WHETHER OR NOT +YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE ENCLOSED FORM +OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO AMERICAN STOCK +TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW YORK, NEW YORK 10005. +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +PROXY STATEMENT +INTRODUCTION +This +Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders +and form of proxy are being furnished to the holders of common stock of Steven +Madden, Ltd., a Delaware corporation (the “Company”), in connection with the +solicitation of proxies by the Board of Directors of the Company (the “Board of +Directors” or the “Board”) for use at the 2008 Annual Meeting of Stockholders +of the Company (the “Annual Meeting”) to be held at the Company’s showroom +located at 1370 Avenue of the Americas, 14th Floor, New York, New York on +Friday, May 23, 2008 at 10:00 a.m., local time, and at any adjournments +thereof. These proxy materials are being sent on or about April 29, 2008 +to holders of record of common stock, $.000067 par value, of the Company (the +“Common Stock”) at the close of business on April 15, 2008 (the “Record Date”). The Company’s Annual Report +for the fiscal year ended December 31, 2007 (“2007 Fiscal Year”), including +audited financial statements, is being sent to stockholders together with these +proxy materials. +The +Annual Meeting has been called to consider and take action on the following +proposals: (i) to elect six directors to the Board of Directors of the Company +to serve until the next annual meeting of the Company’s stockholders or until +their successors are duly elected and qualified, (ii) to ratify the appointment +of Eisner LLP as the Company’s independent registered public accounting firm +for the fiscal year ending December 31, 2008, and (iii) to transact such other +business as may properly come before the Annual Meeting or any adjournments +thereof. The Board of Directors knows of no other matters to be presented for +action at the Annual Meeting. However, if any other matters properly come +before the Annual Meeting, the persons named in the proxy will vote on such +other matters and/or for other nominees in accordance with their best judgment. +The Company’s Board of Directors recommends that the stockholders vote in favor +of each of the proposals. Only holders of record of Common Stock of the Company +at the close of business on the Record Date will be entitled to vote at the +Annual Meeting. +The +principal executive offices of the Company are located at 52-16 Barnett Avenue, +Long Island City, New York 11104 and its telephone number is (718) 446-1800. +INFORMATION CONCERNING SOLICITATION AND +VOTING +As +of the Record Date, there were outstanding 17,643,357 shares of +Common Stock (excluding treasury shares) held by approximately 115 holders of record and 3,200 beneficial owners. Only holders +of shares of Common Stock on the Record Date will be entitled to vote at the +Annual Meeting. The holders of Common Stock are entitled to one vote on each +matter presented at the meeting for each share held of record. +The +presence, in person or by proxy, of the holders of a majority of the shares +eligible to vote is necessary to constitute a quorum in connection with the +transaction of business at the Annual Meeting. Abstentions and broker non-votes +(i.e., proxies from brokers or nominees indicating that such persons have not +received instructions from the beneficial owner or other persons eligible to +vote shares as to a matter with respect to which the brokers or nominees do not +have discretionary power to vote) are counted as present for purposes of +determining the presence or absence of a quorum for the transaction of +business. If a quorum should not be present, the Annual Meeting may be +adjourned until a quorum is obtained. +Abstentions +and broker non-votes will have no effect on the election of directors (Proposal +1), which is by plurality vote. +Abstentions +will, in effect, be votes against the ratification of the selection of the +independent registered public accounting firm (Proposal 2), as this item +requires the affirmative vote of a majority of the shares present and entitled +to vote on such item. Broker non-votes will not be considered votes cast on Proposal +2, and the shares represented by broker non-votes with respect to this proposal +will be considered present but not entitled to vote on this proposal. Broker +non-votes will therefore have no effect on the ratification of +the selection of the independent registered public accounting firm (Proposal +2). +Brokers +who hold shares in street name may vote in their discretion on behalf of +beneficial owners from whom they have not received instruction with respect to +routine matters. Proposals 1 and 2 should be treated as routine matters. +1 +The +expense of preparing, printing and mailing this Proxy Statement, the exhibits +hereto and the proxies solicited hereby will be borne by the Company. In +addition to the use of the mails, proxies may be solicited by officers and +directors and regular employees of +the Company, without additional remuneration, by personal interviews, +telephone, telegraph or facsimile transmission. The Company will also request +brokerage firms, nominees, custodians and fiduciaries to forward proxy +materials to the beneficial owners of shares of Common Stock held of record by +them and will provide reimbursements for the cost of forwarding the material in +accordance with customary charges. The Company has entered into an agreement +with D.F. King & Co., Inc. to assist in the solicitation of proxies and +provide related advice and informational support. The total expense of this +engagement, including customary disbursements, is not expected to exceed $20,000 +in the aggregate. +Proxies +given by stockholders of record for use at the Annual Meeting may be revoked at +any time prior to the exercise of the powers conferred. In addition to +revocation in any other manner permitted by law, stockholders of record giving +a proxy may revoke the proxy by an instrument in writing, executed by the +stockholder or his attorney authorized in writing, or, if the stockholder is a +corporation by an officer or attorney thereof duly authorized, and deposited +either at the principal executive offices of the Company at any time up to and +including the last business day preceding the day of the Annual Meeting, or any +adjournment thereof, at which the proxy is to be used, or with the chairman of +such Annual Meeting on the day of the Annual Meeting or adjournment thereof and +prior to the vote upon such matters, and upon either of such deposits the proxy +shall be revoked. +ALL +PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH +PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY +SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOUNMENTS OR POSTPONEMENTS +THEREOF. +None of the +matters to be acted on at the Annual Meeting give rise to any statutory right +of a stockholder to dissent and obtain the appraisal of or payment for such +stockholders shares. +2 +MATTERS TO BE CONSIDERED AT ANNUAL MEETING +PROPOSAL ONE - ELECTION OF DIRECTORS +Under +the Amended and Restated By-Laws of the Company (the “By-Laws”), the Board of +Directors of the Company is required to be comprised of a minimum of one +director. Subject to the foregoing limitation, the number of directors may be +fixed from time to time by action of the directors. The Company’s Board of +Directors presently consists of six directors whose terms expire at the Annual +Meeting. +The +Nominating/Corporate Governance Committee of the Board of Directors and the +Board of Directors have nominated and are recommending the election of each of +the six nominees set forth below to serve as a director of the Company until +the next annual meeting of the Company’s stockholders or until his successor is +duly elected and qualified. The names and biographical summaries of the six +persons who have been nominated by the Nominating/Corporate Governance +Committee of the Board of Directors and the Board of Directors to stand for +election at the Annual Meeting have been provided below for your information. +BIOGRAPHICAL +SUMMARIES OF NOMINEES FOR THE BOARD OF DIRECTORS +Walter +Yetnikoff has served as Chairman of the Board of Directors of the Company since +March 24, 2008. Mr. Yetnikoff has been a director of the Company since May +2005. Mr. Yetnikoff has served as Chief Executive Officer of Commotion Records, +a company he co-founded, since 2003. From 2001 through 2003, Mr. Yetnikoff was +self-employed as a researcher and writer. Mr. Yetnikoff served as President of +CBS Records from 1975 to 1990 and served on the Board of Directors of CBS, Inc. +from 1975 through 1988. +Edward +Rosenfeld has served as interim Chief Executive Officer of the Company since +March 24, 2008. Mr. Rosenfeld was formerly the Executive Vice President +of Strategic Planning and Finance and has been a member of the executive +management team since joining the Company in May 2005. Mr. Rosenfeld has also +been serving as a member of the Board of Directors since February 2008. Prior +to joining the Company, Mr. Rosenfeld was a Vice President in the mergers and +acquisitions group at Peter J. Solomon Company, an investment banking boutique, +where he focused on the retail and apparel industries. Mr. Rosenfeld graduated +cum laude from Amherst College. +John +L. Madden has been a director of the Company since the Company’s inception. +From April 1998 through September 2003, Mr. Madden owned a branch office of +Tradeway Securities Group, Inc. in Florida. From May 1996 through December +1996, Mr. Madden’s consulting company, JLM Consultants, Inc., acted as a branch +office of Merit Capital, Inc. for several broker-dealers. From May 1994 to May +1996, Mr. Madden served as Vice President of Investments for GKN Securities, +Inc. From August 1993 to April 1994, Mr. Madden was employed by Biltmore +Securities, Inc. as Managing Director and registered sales representative. Mr. +Madden is the brother of Steven Madden, the Company’s founder and Creative and +Design Chief. See “--Certain Relationships and Related Transactions.” +Peter +Migliorini has been a director of the Company since October 1996. Mr. +Migliorini has served as Sales Manager for Greschlers, Inc., a supply company +located in Brooklyn, New York, since 1994. From 1987 to 1994, Mr. Migliorini +served as Director of Operations for Mackroyce Group. Mr. Migliorini has +previously served in a number of capacities, ranging from Assistant Buyer to +Chief Planner/Coordinator, for several shoe companies, including Meldisco +Shoes, Perry Shoes and Fasco Shoes. +Richard +P. Randall has been a director of the Company since April 2006. Mr. Randall was +the Executive Vice President and Chief Financial Officer of Direct Holdings +Worldwide, LLC, the parent company of Lillian Vernon Corp. and TimeLife, from +2002 until his retirement in June 2005. Previously, Mr. Randall served as +Senior Vice President and Chief Financial Officer of Coach, Inc. and the Chief +Operating Officer and Chief Financial Officer of Lillian Vernon Corp. from 2000 +to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves as a +Director, and chairs the Audit Committee, of The Burke Rehabilitation Hospital, +Universal Travel Group and Home System Group. +Thomas +H. Schwartz has been a director of the Company since May 2004. Since March +2007, Mr. Schwartz has been the Chief Executive Officer and sole owner of +Summer and Forge Investors LLC, a company that invests in real estate and +manages properties in which it has ownership interests. Previously, Mr. +Schwartz was a Managing Director of Helmsley-Spear, Inc. from 1984 to March +2007. +REQUIRED VOTE +Proxies +will be voted for the election of the six nominees as directors of the Company +unless otherwise specified on the proxy. A plurality of the votes cast by the +holders of shares of Common Stock present in person or represented by proxy at +the Annual Meeting will be necessary to elect the nominees as directors. If, +for any reason, any of the nominees shall be unable or unwilling to serve, the +proxies will be voted for a substitute nominee who will be designated by the +Board of Directors at the Annual Meeting. Stockholders +may abstain from voting by marking the appropriate boxes on the enclosed proxy. +Abstentions shall be counted separately and shall be used for purposes of +calculating whether a quorum is present at the meeting. +3 +RECOMMENDATION +OF THE BOARD OF DIRECTORS +The +Nominating/Corporate Governance Committee of the Board and the Board +unanimously recommend a vote FOR the election of Messrs. John L. Madden, Peter +Migliorini, Richard P. Randall, Edward R. Rosenfeld, Thomas H. Schwartz and +Walter Yetnikoff. Unless otherwise instructed or unless authority to vote is +withheld, the enclosed proxy will be voted FOR the election of the above listed +nominees and AGAINST any other nominees. +DIRECTOR +INDEPENDENCE +The +Board of Directors is currently comprised of six members. The Board of +Directors has determined that the following director nominees are “independent” +for purposes of the criteria of the Securities and Exchange Commission (“SEC”) +and The Nasdaq Global Select Market listing standards: Messrs. Migliorini, +Randall, Schwartz and Yetnikoff. If the six nominees set forth above are +elected, the Board will be comprised of a majority of independent directors. +The Board of Directors has held regularly scheduled executive sessions, with +Peter Migliorini serving as Presiding Director of such executive sessions. +DIRECTORS’ +ATTENDANCE AT ANNUAL MEETINGS +The +Company encourages all of its directors to attend annual meetings of the +Company’s stockholders. Two directors attended the Company’s 2007 annual +meeting of stockholders. +COMMUNICATIONS +WITH DIRECTORS +The +Company has adopted a procedure by which stockholders may send communications +as defined within Item 7(d) of Schedule 14A under the Securities Exchange Act +of 1934, as amended (the “Exchange Act”) to one or more members of the Board of +Directors by writing to such director(s) or to the whole Board of Directors in +care of the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, +Long Island City, NY 11104. The Board has instructed the Corporate Secretary to +review all communications so received and to exercise his discretion not to +forward to the Board correspondence that is inappropriate such as business +solicitations, frivolous communications and advertising, routine business +matters (i.e. business inquiries, complaints, or suggestions) and personal +grievances. However, any director may at any time request the Corporate +Secretary to forward any and all communications received by the Corporate +Secretary but not forwarded to the directors. +MEETINGS AND +COMMITTEES OF THE BOARD OF DIRECTORS +The +Board of Directors met thirteen times during the 2007 Fiscal Year. In 2007 each +director attended at least 75% of the aggregate of the number of Board meetings +and the number of meetings held by all committees on which he then served. The +Board of Directors has a standing Audit Committee, Compensation Committee and +Nominating/Corporate Governance Committee. +AUDIT +COMMITTEE +From +January 1 to September 7, 2007, the members of the Audit Committee were Richard +P. Randall (Chairman), Peter Migliorini and Harold D. Kahn. On September 7, +2007, Mr. Kahn resigned from his position as a director of the Company. On October 9, 2007, Walter Yetnikoff became a member of the Audit Committee, such +that the members of the Audit Committee were Messrs. Randall +(Chairman), Migliorini and Yetnikoff. The current members of the Audit Committee +are Messrs. Randall (Chairman), Migliorini and Yetnikoff. The Audit Committee is comprised of directors +who are “independent” for purposes of The Nasdaq Global Select Market listing +standards and who meet the independence requirements contained in Exchange Act +Rule 10A-3(b)(1). The Board has determined that Richard P. Randall meets the +SEC criteria of an “audit committee financial expert” and he is currently +serving as such. The Audit Committee is primarily responsible for reviewing the +services performed by the Company’s independent registered public accountants, +evaluating the Company’s accounting policies and its system of internal +controls, and reviewing significant finance transactions. During 2007, the +Audit Committee met eight times. +The +Audit Committee is responsible for reviewing and helping to ensure the +integrity of the Company’s financial statements. Among other matters, the Audit +Committee, with management and independent and internal auditors, reviews the +adequacy of the Company’s internal accounting controls that could significantly +affect the Company’s financial statements. The Audit Committee is also directly +and solely responsible for the appointment, retention, compensation, oversight +and termination of the Company’s independent registered public accountants. In +addition, the Audit Committee also functions as the Company’s Qualified Legal +Compliance Committee (the “QLCC”). The purpose of the QLCC is to receive, +retain and investigate reports made directly, or otherwise made known, of +evidence of material violations of any United States federal or state law, +including any breach of fiduciary duty by the +Company, its officers, directors, employees or agents, and if the QLCC believes +appropriate, to recommend courses of action to the Company. +4 +The +Audit Committee meets with management periodically to consider the adequacy of +the Company’s internal controls and the objectivity of its financial reporting. +The Audit Committee discusses these matters with the Company’s independent +registered public accountants and with appropriate Company financial personnel. +Meetings are held with the independent registered public accountants who have +unrestricted access to the Audit Committee. In addition, the Audit Committee +reviews the Company’s financing plans and reports recommendations to the full +Board of Directors for approval and to authorize action. The Board has adopted +a written charter setting out the functions the Audit Committee is to perform. +A copy of the Audit Committee Charter is available on the Company’s website at +www.stevemadden.com. +Management +has primary responsibility for the Company’s financial statements and the +overall reporting process, including the Company’s system of internal controls. +The independent registered public accountants audit the annual financial +statements prepared by management, express an opinion as to whether those +financial statements present fairly the financial position, results of +operations and cash flows of the Company in conformity with accounting +principles generally accepted in the United States of America and discuss with +the Audit Committee any issues they believe should be raised with the Audit +Committee. +AUDIT COMMITTEE REPORT +The +Audit Committee reviewed the Company’s audited financial statements for the +2007 Fiscal Year and met with both management and Eisner LLP, the Company’s +independent registered public accountants, to discuss such audited financial +statements. Management and the Company’s independent registered public +accountants have represented to the Audit Committee that the financial +statements were prepared in accordance with accounting principles generally +accepted in the United States of America. The Audit Committee has received from +and discussed with Eisner LLP the written disclosure and the letter regarding +the independence of Eisner LLP as required by Independence Standards Board +Standard No. 1. The Audit Committee also discussed with Eisner LLP any matters +required to be discussed by Statement on Auditing Standards No. 61, as amended. +Based on these reviews and discussions, the Audit Committee recommended to the +Board that the Company’s audited financial statements be included in the +Company’s Annual Report on Form 10-K for the 2007 Fiscal Year. +Submitted by the Audit Committee of the +Company’s Board of Directors: +Richard P. +Randall (Chairman) +Peter +Migliorini +Walter +Yetnikoff +NOMINATING/CORPORATE +GOVERNANCE COMMITTEE +The +Nominating/Corporate Governance Committee of the Board of Directors for the +year ended December 31, 2007 consisted of Peter Migliorini and Walter +Yetnikoff. The Nominating/Corporate Governance Committee is comprised of +directors who are “independent” for purposes of The Nasdaq Global Select Market +listing standards. The Nominating/Corporate Governance Committee considers and +makes recommendations to the Board of Directors with respect to the size and +composition of the Board of Directors and identifies potential candidates to +serve as directors. The Nominating/Corporate Governance Committee identifies +candidates to the Board of Directors by introductions from management, members +of the Board of Directors, employees or other sources and stockholders that +satisfy the Company’s policy regarding stockholder recommended candidates. The +Nominating/Corporate Governance Committee does not evaluate director candidates +recommended by stockholders differently than director candidates recommended by +other sources. A copy of the Nominating/Corporate Governance Committee Charter +is available on the Company’s website at www.stevemadden.com. +Stockholders +wishing to submit recommendations for director nominations for the 2009 Annual +Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. Any such stockholder must +(x) comply with the director nomination provisions of the Company’s +By-Laws, (y) meet and evidence the minimum eligibility requirements specified +in Exchange Act Rule 14a-8, and (z) submit, within the same timeframe for +submitting a stockholder proposal required by Rule 14a-8: (1) evidence in +accordance with Rule 14a-8 of compliance with the stockholder eligibility +requirements, (2) the written consent of the candidate(s) for nomination +as a director, (3) a resume or other written statement of the qualifications of +the candidate(s) for nomination as a director, and (4) all information +regarding the candidate(s) and the submitting stockholder that would be +required to be disclosed in a proxy statement filed with the SEC if the +candidate(s) were nominated for election to the Board of Directors. +In +considering Board of Directors candidates, the Nominating/Corporate Governance +Committee takes into consideration the Company’s Board Candidate Guidelines, +available on the Company’s website at www.stevemadden.com , the Company’s policy +regarding stockholder recommended director candidates, as set forth above, and +all other factors that they deem appropriate, including, but not limited to, +the individual’s character, education, experience, knowledge and skills. In +addition, the Nominating/Corporate Governance Committee develops and recommends +corporate governance principles for the Company; makes recommendations to the Board of +Directors in support of such principles; takes a leadership role in the shaping +of the corporate governance of the Company; and oversees the evaluation of the +Board of Directors and management. +5 +During +2007, the Nominating/Corporate Governance Committee did not meet, but acted once by unanimous written consent. +COMPENSATION +COMMITTEE +The +Compensation Committee of the Board of Directors for the year ended December +31, 2007 consisted of directors Peter Migliorini (Chairman) and Thomas H. +Schwartz. The Compensation Committee is comprised of directors who are +“independent” for purposes of The Nasdaq Global Select Market listing standards +and applicable tax and securities rules. The Compensation Committee is +primarily responsible for approving salaries, bonuses and other compensation +for the Company’s Named Executive Officers, reviewing management +recommendations relating to new incentive compensation plans and changes to +existing incentive compensation plans, and administering the Company’s stock +plans, including granting options and restricted stock and setting the terms +thereof pursuant to such plans (all subject to approval by the Board of +Directors). During 2007, the Compensation Committee met once, and acted six times by unanimous written consent. The +Company does not currently have a Compensation Committee charter. +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION +OBJECTIVES AND STRATEGY +The +Company’s executive officer compensation program is designed to attract and +retain the caliber of officers needed to ensure the Company’s continued growth +and profitability and to reward them for their performance, the Company’s +performance and for creating longer term value for stockholders. The primary +objectives of the program are to: +• +align +rewards with performance that creates stockholder value; +• +support the +Company’s strong team orientation; +• +encourage +high-potential team players to build a career at the Company; and +• +provide +rewards that are cost-efficient, competitive with other organizations and +fair to employees and stockholders. +The +Company’s executive compensation programs are approved and administered by the +Compensation Committee of the Board of Directors. Working with management and +outside advisors, the Compensation Committee has developed a compensation and +benefits strategy that rewards performance and reinforces a culture that the +Compensation Committee believes will drive long-term success. +The +compensation program rewards team accomplishments while promoting individual +accountability. The executive officer compensation program depends in +significant measure on Company results, but business unit results and +individual accomplishments are also very important factors in determining each +executive’s compensation. The Company has a robust planning and goal-setting +process that is fully integrated into the compensation system, enhancing a +strong relationship between individual efforts, Company results, and financial +rewards. +A +major portion of total compensation is placed at risk through annual and +long-term incentives. As shown in the Summary Compensation Table, in 2007 the +sum of restricted stock awards and bonus represented between 26% and 60% +of the Total Compensation for the Named Executive Officers (as defined herein). +The combination of incentives is designed to balance annual operating +objectives and Company earnings performance with longer-term stockholder value +creation. +The +Company seeks to provide competitive compensation that is commensurate with +performance. The Company targets compensation at the median of the market, and +calibrates both annual and long-term incentive opportunities to generate +less-than-median awards when goals are not fully achieved and +greater-than-median awards when goals are exceeded. +The +Company seeks to promote a long-term commitment to the Company by its senior +executives. The Company believes that there is great value to the Company in +having a team of long-tenured, seasoned managers. The Company’s team-focused +culture and management processes are designed to foster this commitment. In +addition, the vesting schedules attached to restricted stock (4- to 5-year +vesting) reinforce this long-term orientation. +6 +ROLE OF THE +COMPENSATION COMMITTEE +General +The +Compensation Committee provides overall guidance for the Company’s executive +compensation policies and determines the amounts and elements of compensation +for the Company’s executive officers. The Compensation Committee currently +consists of two members of the Company’s Board of Directors, Messrs. Migliorini +and Schwartz, each of whom is an independent director under Nasdaq’s Rule 4200, +a “non-employee director” as defined under the SEC’s rules and an “outside +director” as defined under Section 162(m) of the Internal Revenue Code (the +“Code”). +When +considering decisions concerning the compensation of executives, other than the +Chief Executive Officer, the Compensation Committee asks for the +recommendations of the Chief Executive Officer, including his detailed +evaluation of each executive’s performance. No executive has a role in +recommending compensation for outside directors. With respect to the +application of the 2006 Stock Incentive Plan (the “2006 Plan”), as amended, to +non-employee directors, the Board of Directors functions as the Compensation +Committee. +Use of Outside +Advisors +In +making its determinations with respect to executive compensation, the +Compensation Committee has historically engaged the services of an independent +compensation consulting firm. In 2005, the Compensation Committee retained the +services of James F. Reda & Associates, LLC to assist with its review of +the compensation package of the Chief Executive Officer and other executive +officers for 2006. In 2007, James F. Reda & Associates, LLC was retained to +assist the Compensation Committee with several special projects, including +advice on director compensation and advice relating to the 2006 Plan, as +amended, including the use of restricted stock under the Company’s long term +incentive program. +The +Compensation Committee retains James F. Reda & Associates, LLC directly, +although in carrying out assignments, James F. Reda & Associates, LLC also +interacts with Company management when necessary and appropriate in order to +obtain compensation and performance data for the executives and the Company. In +addition, James F. Reda & Associates, LLC may, in its discretion, seek +input and feedback from management regarding its consulting work product prior +to presentation to the Compensation Committee in order to confirm alignment +with the Company’s business strategy and identify data questions or other +similar issues, if any, prior to presentation to the Compensation Committee. +The +Compensation Committee has the authority to retain, terminate and set the terms +of the Company’s relationship with any outside advisors who assist the +Committee in carrying out its responsibilities. +COMPENSATION +STRUCTURE +Pay Elements - +Overview +The Company +utilizes four main components of compensation: +• +Base Salary +• +Annual +Performance-based Cash Bonuses +• +Long-term +Equity Incentives (consisting of stock options and restricted stock) +• +Benefits and +Perquisites +Pay Elements - +Details +Base +Salary. The Company paid base salaries to each of the Named Executive Officers +to provide them with fixed pay that takes into account the Named Executive +Officer’s role and responsibilities, experience, expertise and individual +performance. As more fully described in “--Employment Arrangements,” as of +December 31, 2007, the Company had employment agreements with each of the Named +Executive Officers. (1) You should refer to that +section of this Proxy Statement for a full description of each +(1) Effective +March 24, 2008, Mr. Karson resigned from his position as Chief Executive +Officer, director and Chairman of the Board of Directors of the Company. See +“-- Employment Arrangements.” +7 +Named +Executive Officer’s base salary. The Compensation Committee, as constituted at +the time the parties entered into the employment agreements, reviewed and +approved the salary established in each such agreement. The Compensation +Committee took into account each of the employee’s historic salary, value in the +marketplace and performance (including at the Company and previous employment). +Under their respective employment agreements, the base salaries of Jamieson A. +Karson, Robert Schmertz and Amelia Newton Varela remain constant during the +term of their employment agreements. Under Mr. Dharia’s employment agreement, +his base salary increased from $425,000 in 2006 to $435,625 in 2007 and is scheduled to increase by 5% in each of +2008 and 2009. Under Mr. Sinha’s employment agreement, his base salary is +subject to an annual 5% increase, and if the Company’s earnings before interest +and taxes (“EBIT”) for a 12-month period increases more than 5% over the +Company’s EBIT for the preceding 12-month period, then he is entitled to a 10% +increase of base salary in lieu of the annual 5% increase. See “--Summary +Compensation Table” and “--Employment Arrangements.” Salary increases for +officers are generally consistent with those of other management employees. +Annual +Performance-based Cash Bonus. Each Named Executive Officer’s annual +performance-based cash bonus is established in their respective employment +agreement. The Compensation Committee reviewed and approved the bonus +provisions set in each such employment agreement at the time the parties +entered into such agreements. Such bonus provisions generally provide for +variable or discretionary bonuses designed to reward attainment of business +goals. The amount, if any, of the annual performance-based cash bonuses of +Messrs. Karson, (1) Dharia and Schmertz is entirely +within the discretion of the Board of Directors or the Compensation Committee. +The Board of Directors and/or the Compensation Committee consider various +criteria. Mr. Sinha’s and Ms. Varela’s annual performance-based cash bonuses +are each tied to increases in the Company’s EBIT from the preceding year. Mr. +Sinha is entitled to an annual performance-based cash bonus equal to 3% of the +increase in the Company’s EBIT for such fiscal year over the EBIT of the +immediately prior fiscal year. Ms. Varela is entitled to an annual +performance-based cash bonus for each fiscal year in an amount equal to 2% of +the increase in the Company’s wholesale division’s EBIT for such fiscal year +over the Company’s wholesale division’s EBIT for the prior fiscal year. Each of +Mr. Sinha’s and Ms. Varela’s annual performance-based cash bonus targets were +set to drive the business of their respective divisions. See “--Employment +Arrangements.” +Long-term +Equity Incentives. Management and the Compensation Committee believe that +equity-based awards are an important factor in aligning the long-term financial +interest of the officers and stockholders. The Compensation Committee +continually evaluates the use of equity-based awards and intends to continue to +use such awards in the future as part of designing and administering the +Company’s compensation program. Beginning in 2006, the Compensation Committee +replaced its practice of granting equity incentives solely in the form of stock +options with restricted stock awards in order to grant awards that contain both +substantial incentive and retention characteristics. These awards are designed +to provide emphasis on preserving stockholder values generated in recent years +while providing significant incentives for continuing growth in stockholder +value. All grants are issued on the date they are approved by the Compensation +Committee. The committee will continue to review the ideal equity mix for +influencing performance and retention. With respect to stock options, the +exercise price is always the grant date closing market price per share. The +restricted stock uses time-based vesting and vests in four or five equal annual +installments beginning on the first anniversary of the grant date, provided +that, with the exception of grants to Mr. Karson or as may otherwise be +indicated in individual grants, no termination of service has occurred by each +applicable vesting date. All shares of restricted stock granted to Mr. Karson +vest and cease to be restricted stock if the Company does not renew Mr. +Karson’s employment agreement or if Mr. Karson is terminated by the Company +without “cause.” Effective March 24, 2008, Mr. Karson resigned from his +position as Chief Executive Officer, director and Chairman of the Board of +Directors of the Company. For the purposes of determining any payments +to which Mr. Karson will be +entitled following his resignation, the Company and Mr. Karson have agreed to treat his resignation as a termination +without “cause” (as defined +under his amended and restated employment agreement) by the Company. See “-- Employment Arrangements.” Any +dividends paid on the restricted stock are held by the Company uninvested and +without interest until delivered to the holder at the end of the restricted +period of the underlying shares of restricted stock that relates to such +dividends. +Other Benefits +and Perquisites. The Company’s executive compensation program also includes +other benefits and perquisites. These benefits include annual matching +contributions to executive officers’ 401(k) plan accounts, company-paid medical +benefits, automobile allowances and life insurance coverage. The Compensation +Committee annually reviews these other benefits and perquisites and makes +adjustments as warranted based on competitive practices, the Company’s +performance and the individual’s responsibilities and performance. In addition +to the executive benefits and perquisites provided to other senior executives, +Mr. Karson was reimbursed for, or the Company directly paid, certain membership +dues for social or professional organizations that Mr. Karson chose to join. +The Compensation Committee has approved these other benefits and perquisites as +a reasonable component of the Company’s executive officer compensation program. +(See the “All Other Compensation” column and corresponding footnotes in the +Summary Compensation Table.) +(1) +Effective March 24, 2008, Mr. Karson resigned +from his position as Chief Executive Officer, director and Chairman of the +Board of Directors of the Company. See “-- Employment Arrangements.” +8 +Pay +Mix +The +Company utilizes the particular elements of compensation described above +because the Company believes that it provides a well-proportioned mix of secure +compensation, retention value and at-risk compensation which produces +short-term and long-term performance incentives and rewards. By following this +approach, the Company provides the executive a measure of security in the +minimum expected level of compensation, while motivating the executive to focus +on business metrics and other variables within their particular sector which +will increase sales and margins and at the same time lower costs so as to +produce a high level of short-term and long-term performance for the Company +and long-term wealth creation for the executive, as well as reducing the risk +of recruitment of top executive talent by competitors. The mix of metrics used +for the annual performance bonuses and the Company’s long-term incentive +program likewise provides an appropriate balance between short-term financial +performance and long-term financial and stock performance. +For +Named Executive Officers, the mix of compensation is weighted heavily toward +at-risk pay (annual incentives and long-term incentives). Maintaining this pay +mix results fundamentally in a pay-for-performance orientation for the +Company’s executives, which is aligned with the Company’s stated compensation +philosophy of providing compensation commensurate with performance. +Pay Levels and +Benchmarking +Pay +levels for executives are determined based on a number of factors, including +the individual’s roles and responsibilities within the Company, the +individual’s experience and expertise, the pay levels for peers within the +Company, pay levels in the marketplace for similar positions and performance of +the individual and the Company as a whole. The Compensation Committee is +responsible for approving pay levels for the Named Executive Officers. In +determining the pay levels, the Compensation Committee considers all forms of +compensation and benefits. +The +Compensation Committee assesses “competitive market” compensation using a +number of sources. The primary data source used in setting competitive market +levels for the Named Executive Officers is the information publicly disclosed +by a peer group of the Company, which will be reviewed annually and may change +from year to year. The peer group of companies is Nine West Group Inc., Kenneth +Cole Production, Inc., Guess?, Inc., bebe stores, inc., Brown Shoe Company, +Inc., Genesco Inc., The Stride Rite Corporation and SKECHERS USA, Inc. +After +consideration of the data collected on external competitive levels of +compensation and internal needs, the Compensation Committee makes decisions +regarding the Named Executive Officer’s target total compensation opportunities +based on the need to attract, motivate and retain an experienced and effective +management team. +Relative +to the competitive market data, the Compensation Committee generally intends +that the base salary and target annual incentive compensation for each Named +Executive Officer will be at the median of the competitive market. +As +noted above, notwithstanding the Company’s overall pay positioning objectives, +pay opportunities for specific individuals vary based on a number of factors +such as scope of duties, tenure, institutional knowledge and/or difficulty in +recruiting a new executive. Actual total compensation in a given year will vary +above or below the target compensation levels based primarily on the attainment +of operating goals and the creation of stockholder value. +Compensation +Committee Discretion +The +Compensation Committee retains the discretion to decrease all forms of +incentive payouts based on significant individual or Company performance +shortfalls, with the exception of the bonuses paid to Mr. Sinha and Ms. Varela, +which are tied to the Company’s EBIT for the preceding year pursuant to their +respective employment agreements. Likewise, the Compensation Committee retains +the discretion to increase payouts and/or consider special awards for +significant achievements, including, but not limited to, superior asset +management, investment or strategic accomplishments and/or consummation of +acquisitions, divestitures, capital improvements to existing properties, or +sales made by certain of the Company’s divisions. +Conclusion +The +level and mix of compensation that is finally decided upon is considered within +the context of both the objective data from the Company’s competitive assessment +of compensation and performance, as well as discussion of the subjective +factors as outlined above. The Compensation Committee believes that each of the +compensation packages for the Named Executive Officers is within the +competitive range of practices when compared to the objective comparative data +even where subjective factors have influenced the compensation decisions. +9 +POST +TERMINATION, CHANGE IN CONTROL AND NON-COMPETE/NON-SOLICITATION +The +Company’s employment agreements with each of the Named Executive Officers +contain provisions governing payments to be made upon a termination upon a +change-in-control of the Company. Ms. Varela’s employment agreement provides +for no payment upon a termination upon a change-in-control of the Company. The +employment agreements of the other Named Executive Officers provide for payment +upon a termination upon a change-in-control of the Company. The Company’s +employment agreements with the Named Executive Officers generally provide for +severance payments to the executive if the Company terminates the executive’s +employment without cause or if the Company gives the executive good reason to +terminate employment. The Company’s employment agreements with Ms. Varela and +Mr. Schmertz do not contain such severance provisions. You should refer to the +section of this Proxy Statement titled “Employment Arrangements” for a summary +description of the agreements and such severance and change-in-control +provisions. These benefits are described and quantified in the section entitled +“Potential Payments Upon Termination or Change-In-Control” under Directors and +Executive Officers, below. +The +Company believes that the severance payments and payments made upon +change-in-control provisions in the employment agreements provide appropriate +protection to the Company’s executives, comparable to that available at peer +companies, and, with regard to the enhanced severance following a +change-in-control, protects the Company from losing key executives during a +period when a change-in-control may be threatened or pending. These benefits +are described and quantified in the section entitled “Potential Payments Upon +Termination or Change-In-Control” under Directors and Executive Officers, +below. +Mr. +Karson has agreed in his amended and restated employment agreement not to +compete with the Company for two years following the termination of employment +and not to hire Company employees during that same period. Mr. Schmertz and Ms. +Varela have agreed to the same restriction for a one-year period. In addition, +Mr. Sinha has agreed to the same restriction for a six month period, unless he +is terminated other than “for cause,” death or due to total disability, in +which case his non-compete and non-solicitation period shall last the lesser of +six months or the number of months he is entitled to payment following such +termination. Mr. Dharia does not have a non-compete or non-solicitation +provision in his employment agreement. +IMPACT OF TAX +AND ACCOUNTING +As +a general matter, the Compensation Committee considers the various tax and +accounting implications of compensation vehicles employed by the Company. +While +the Compensation Committee reviews and considers both the accounting and tax +effects of various components of compensation, these effects are not a +significant factor in the Compensation Committee’s allocation of compensation +among the different components. In general, the Company believes that +compensation paid to executive officers should be deductible for U.S. tax +purposes. In certain instances, however, the Compensation Committee also +believes that it is in the Company’s best interests, and that of its +shareholders, to have the flexibility to pay compensation that is not +deductible under the limitations of Section 162(m) of the Code in order to +provide a compensation package consistent with the Company’s objectives. +COMPENSATION +COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +During +the 2007 Fiscal Year, the following directors served on the Compensation +Committee: Peter Migliorini (chairman) and Thomas H. Schwartz. During the 2007 +Fiscal Year: +• +none of the +members of the Compensation Committee was an officer (or former officer) or +employee of the Company or any of its subsidiaries; +• +none of the +members of the Compensation Committee had a direct or indirect material +interest in any transaction in which the Company was a participant and the +amount involved exceeded $120,000; +• +none of the +Company’s executive officers served on the compensation committee (or another +board committee with similar functions or, if none, the entire board of +directors) of another entity where one of that entity’s executive officers +served on the Company’s Compensation Committee; +• +none of the +Company’s executive officers was a director of another entity where one of +that entity’s executive officers served on the Company’s Compensation +Committee; and +• +none of the +Company’s executive officers served on the compensation committee (or another +board committee with similar functions or, if none, the entire board of +directors) of another entity where one of that entity’s executive officers +served as a director on the Board of Directors. +10 +COMPENSATION +COMMITTEE REPORT +The +Compensation Committee has reviewed and discussed the Compensation Discussion +and Analysis with management, and based on the review and discussions, the +Compensation Committee recommended to the Board of Directors that the +Compensation Discussion and Analysis be included in this Proxy Statement. +Submitted by the Compensation Committee of +the Company’s Board of Directors: +Peter +Migliorini (Chairman) +Thomas H. +Schwartz +CODE OF +BUSINESS CONDUCT AND ETHICS +All +of the Company’s employees, officers (including senior executive, financial and +accounting officers) and directors are held accountable for adherence to the +Company’s Code of Business Conduct and Ethics (the “Conduct Code”). The Conduct +Code is intended to establish standards necessary to deter wrongdoing and to +promote compliance with applicable governmental laws, rules and regulations and +honest and ethical conduct. The Conduct Code covers all areas of professional +conduct, including conflicts of interest, fair dealing, financial reporting and +disclosure, protection of Company assets and confidentiality. Employees have an +obligation to promptly report any known or suspected violation of the Conduct +Code without fear of retaliation. Waiver of any provision of the Conduct Code +for executive officers and directors may only be granted by the Board of +Directors or one of its committees and any such waiver or modification of the +Conduct Code relating to such individuals will be disclosed by the Company. A +copy of the Conduct Code is available on the Company’s website at +www.stevemadden.com and may also be obtained by any stockholder without charge +upon request by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. +SECTION 16(a) +BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section +16(a) of the Exchange Act requires that the Company’s directors and executive +officers, and persons who own more than 10% of a registered class of the +Company’s equity securities, file with the Securities and Exchange Commission +reports of initial ownership of Common Stock and subsequent changes in that +ownership and furnish the Company with copies of all forms they file pursuant +to Section 16(a). Form 4s were not filed on a timely basis to report (i) the +exercise of stock options on April 23, 2007 by Jamieson Karson; (ii) a grant of +Common Stock on May 25, 2007 to Peter Migliorini; (iii) a grant of Common Stock +on May 25, 2007 to Thomas H. Schwartz; (iv) a grant of Common Stock on May 25, +2007 to Walter Yetnikoff; (v) a grant of Common Stock on May 25, 2007 to +Marc S. Cooper; and (vi) a grant of Common Stock on May 25, 2007 to John L. +Madden. Each of these reports has now been filed. In making this disclosure, +the Company has relied solely on copies of the reports that have been filed +with the SEC by the Company’s directors and executive officers, and written +representations received from the Company’s directors and executive officers +that no annual Form 5 reports were required to by filed for the 2007 Fiscal +Year. +DIRECTORS AND +EXECUTIVE OFFICERS +The +directors, executive officers and certain significant employees of the Company, +and their ages and positions as of April 5, 2008, are: +NAME +AGE +POSITION +Walter +Yetnikoff +74 +Chairman of +the Board +Edward R. +Rosenfeld +32 +Chief +Executive Officer and Director +Arvind +Dharia +58 +Chief +Financial Officer and Secretary +Awadhesh +Sinha +62 +Chief +Operating Officer +Robert +Schmertz +44 +Brand +Director +Amelia +Newton Varela +36 +Executive +Vice President-Wholesales Sales +John L. +Madden +60 +Director +Peter +Migliorini +59 +Director +Richard P. +Randall +70 +Director +Thomas H. +Schwartz +60 +Director +See +“Proposal 1: Election of Directors - Biographical Summaries of Nominees for the +Board of Directors” for the biographies of the Company’s directors. +11 +Arvind +Dharia has been the Chief Financial Officer of the Company since October 1992 +and was a director of the Company from December 1993 through May 2004. Mr. +Dharia has been Secretary of the Company since 1993. From December 1988 to September +1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp. +Awadhesh +Sinha became the Chief Operating Officer of the Company in July 2005. Mr. Sinha +had been a director of the Company from October 2002 to July 2005. Mr. Sinha +was the Chief Operating Officer and Chief Financial Officer of WEAR ME Apparel +Inc., a company that designs, manufactures and markets branded and non-branded +children’s clothing, from 2003 to July 2005. Prior to that, Mr. Sinha worked +for Salant Corporation, a company that designs, manufactures and markets men’s +clothing, for 22 years, and held the position of Chief Operating Officer and +Chief Financial Officer of Salant Corporation from 1998 to 2003. +Robert +Schmertz has been the Brand Director since January 2006. Mr. Schmertz served as +President of Steve Madden Women’s Wholesale Division and Brand Manager from +September 2001 through January 2006. Additionally, Mr. Schmertz has been the +President of Shoe Biz, Inc., a wholly owned subsidiary of Steve Madden Retail +Inc. since May 1998 and the President of Diva Acquisition Corp. since January +2001. Before joining the Company, Mr. Schmertz was President of Daniel Scott +Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the East +Coast Sales Manager for Impo International from January 1993 through November +1995. From April 1990 to December 1992, Mr. Schmertz served as a sales +representative for Espirit de Corp. based in San Francisco, California. +Amelia +Newton Varela has been Executive Vice President of Wholesale Sales since +November 2004. Previously, she was Vice President of Sales for Steve Madden +Women’s Wholesale Division from January 2000. Prior to that, she was Account +Executive for Steve Madden Women’s Wholesale Division from 1998. Before joining +the Company, Ms. Varela was the sales assistant to the Executive Vice President +of Sales for Merrin Financial. She graduated from The Fashion Institute +of Technology in 1995. +SUMMARY +COMPENSATION TABLE +The +following table sets forth the compensation earned for all services rendered to +the Company in all capacities in the 2007 and 2006 Fiscal Years, respectively, +by the Company’s Chief Executive Officer, Chief Financial Officer and the three +most highly compensated executive officers other than the CEO and CFO who were +serving at the end of 2007 and 2006, respectively. In this Proxy Statement, the +Company refers to this group of five people as the Company’s “Named Executive +Officers”. +Following +the table is a discussion of material factors related to the information +disclosed in the table. +NAME AND +PRINCIPAL POSITION +YEAR +SALARY +($) +BONUS +($) +STOCK +AWARDS +($) +NON-EQUITY +INCENTIVE PLAN +COMPENSATION +($) +ALL OTHER +COMPENSATION +($) (1) +TOTAL +($) +Jamieson A. Karson +Chief Executive Officer +(2) +2007 +500,000 +— +322,856 +— +33,787 +(3) +856,643 +2006 +500,000 +450,000 +180,312 +(4) +— +29,585 +(5) +2,061,385 +Arvind Dharia +Chief Financial Officer +2007 +435,625 +— +188,696 +— +91,115 +(6) +715,436 +2006 +425,000 +350,000 +72,125 +(4) +— +90,173 +(7) +1,297,893 +Awadhesh Sinha +Chief Operating Officer +2007 +489,976 +— +278,126 +— +7,431 +(8) +775,533 +2006 +446,250 +— +— +1,401,840 +(9) +13,458 +(10) +1,861,548 +Robert Schmertz +Brand Director +2007 +578,901 +175,000 +696,090 +— +12,692 +(11) +1,462,683 +2006 +488,350 +— +180,312 +(4) +— +5,769 +(12) +1,550,719 +Amelia Newton Varela +Executive Vice +President-Wholesale Sales +2007 +300,000 +— +240,416 +225,000 +(13) +15,000 +(14) +780,416 +2006 +300,000 +— +180,312 +(4) +570,166 +(15) +15,000 +(16) +1,941,766 +(1) +The amounts in this column +reflect the dollar amount recognized for financial statement reporting +purposes for the fiscal years ended December 31, 2007 and December 31, 2006, +respectively, in accordance with FAS 123R. Assumptions used in the calculation +of these amounts are included in footnote G to the Company’s audited +financial statements for the fiscal year ended December 31, 2007, +included in the Company’s Annual Report on Form 10-K filed with the +Securities and Exchange Commission on March 12, 2008, and included in +footnote 13 to the Company’s audited financial statements for the fiscal year +ended December 31, 2006, included in the Company’s Annual Report on Form 10-K +filed with the Securities and Exchange Commission on March 9, 2007, +respectively. +12 +(2) +Effective March 24, 2008, +Mr. Karson resigned from his position as Chief Executive Officer, director +and Chairman of the Board of Directors of the Company. See “-- Employment +Arrangements.” +(3) +Includes the following: +$6,081 automobile allowance and reimbursement of $27,706 for membership dues +pursuant to Mr. Karson’s amended and restated employment agreement. +(4) +Adjusted to reflect FAS +123R expense incurred by the Company. +(5) +Includes the following: +$6,271 automobile allowance and reimbursement of $23,314 for membership dues +pursuant to Mr. Karson’s amended and restated employment agreement. +(6) +Includes the following: +$7,789 automobile allowance and $83,326 life insurance premiums. +(7) +Includes the following: +$7,196 automobile allowance and $82,977 life insurance premiums. +(8) +Represents $7,431 +automobile allowance. +(9) +Represents non-equity +incentive payment made pursuant to a bonus formula in Mr. Sinha’s employment +agreement. See “-Employment Arrangements.” +(10) +Represents $13,458 +automobile allowance. +(11) +Represents $12,692 +automobile allowance. +(12) +Represents $5,769 +automobile allowance. +(13) +Represents deferred +compensation paid for the period ended December 31, 2007, pursuant to employment +agreement. +(14) +Represents $15,000 +automobile allowance. +(15) +Represents non-equity +incentive payment made pursuant to a bonus formula in Ms. Varela’s employment +agreement. See “-Employment Arrangements.” +(16) +Represents $15,000 +automobile allowance. +13 +EMPLOYMENT +ARRANGEMENTS +Jamieson +A. Karson. In May 2001, the Company entered into an employment agreement with +Jamieson A. Karson pursuant to which Mr. Karson agreed to serve as the +Company’s Chief Executive Officer and Vice Chairman of the Board. On July 22, +2004, at a regularly scheduled meeting of the Board of Directors of the +Company, Mr. Karson was appointed Chairman of the Board of Directors. Mr. +Karson’s employment agreement was amended and restated in January 2006. The +term of Mr. Karson’s employment under his amended and restated employment +agreement was three years commencing on January 1, 2006 and ending on December +31, 2008. The amended and restated employment agreement provided that the term +would be automatically extended for successive one-year periods unless the +Company timely notified Mr. Karson of its intention not to extend the term. The +amended and restated employment agreement provided that the Company pay Mr. +Karson an annual salary of $500,000. In addition, the amended and restated +employment agreement provided that Mr. Karson receive an annual bonus in such +amount, if any, and at such time or times, as the Board of Directors, or a +committee thereof, may determine in its absolute discretion. Subject to +availability of shares under the 2006 Plan, as amended, or any other plan +designated by the Board of Directors and approved by the Company’s +stockholders, Mr. Karson was entitled to awards under such plan as determined +by the Board of Directors, or a committee thereof, from time to time in its +absolute discretion. In addition, in the event of Mr. Karson’s total disability +or his death, the Company was obligated to continue to pay Mr. Karson (or Mr. +Karson’s estate) his base salary for the 12-month period immediately subsequent +to the date of such total disability or death. The amended and restated employment +agreement provided that, in the event Mr. Karson’s employment was terminated +(or not extended) by the Company for any reason other than “for cause” (as +defined in the amended and restated employment agreement) or due to his death +or his total disability, the Company would be obligated to pay Mr. Karson +(i) the amount of compensation that is accrued and unpaid through the date +of termination; plus (ii) an amount equal to the lesser of (A) the sum of three +times Mr. Karson’s highest “total compensation” (as defined in the amended and +restated employment agreement) in any given fiscal year of his employment with +the Company, and (B) $4,000,000. In the event that there was a “change of +control” (as defined in the amended and restated employment agreement) +transaction, all unvested options to purchase shares of Common Stock or +restricted stock awards or other equity-related awards under the 1999 Stock +Plan and/or the 2006 Plan, as amended, held by Mr. Karson would vest on the +date of the change of control and Mr. Karson would be entitled to receive a +lump sum cash payment equal to the amount described in the immediately +preceding sentence. Mr. Karson’s amended and restated employment agreement also +contained provisions regarding confidentiality, solicitation and competition. +Effective March 24, 2008, Mr. Karson resigned from his position as Chief +Executive Officer, director and Chairman of the Board of Directors of the +Company, and entered into a Mutual Release with the Company (the “Mutual +Release”). Pursuant to the Mutual Release, the Company shall consider Mr. +Karson’s resignation to be a termination without “cause” (as defined under Mr. +Karson’s amended and restated employment agreement), and shall (1) pay Mr. +Karson, on April 1, 2008, the sum of $4,000,000, less such deductions as shall +be required to be withheld by applicable law and regulations; (2) vest Mr. +Karson’s restricted stock awards granted under the Restricted Stock Agreements +dated as of March 24, 2006 and March 27, 2007 such that all restrictions on +such shares shall lapse; (3) in connection with the vesting of Mr. Karson’s +restricted stock award granted under the Restricted Stock Agreement dated as of +March 24, 2006, pay Mr. Karson, promptly following such vesting, the sum of +$22,500 in respect of the $1.00 per share special dividend paid by the Company +in November 2006 applicable to the remaining 22,500 shares being vested +pursuant to the Mutual Release; and (4) continue, pursuant to the terms of Mr. +Karson’s amended and restated employment agreement, to pay all costs of Mr. Karson’s use of the automobile +currently leased for Mr. Karson +through the end of the current lease term. Pursuant to the terms of the Mutual +Release, the Company releases Mr. Karson from certain claims, and Mr. Karson releases +the Company from certain claims. +Arvind +Dharia. In January 1998, the Company entered into an employment agreement with +Arvind Dharia, which has been amended from time to time, pursuant to which Mr. +Dharia agreed to serve as the Company’s Chief Financial Officer. The term of +Mr. Dharia’s employment under his agreement, as amended, commenced on January +1, 1998 and ends on December 31, 2009. The term will be automatically extended +for an additional one-year period unless either party timely notifies the other +of its intention not to extend the term. The amended agreement provides that +the Company pay Mr. Dharia an annual salary of $435,625 for the 2007 +Fiscal Year, with the following increases thereafter: (i) on January 1, 2008, his base salary shall +be increased by 5% of the +then-current base salary; and (ii) on January 1, 2009, his base salary shall be increased by 5% of the +then-current base salary. In addition, the agreement provides that Mr. Dharia +receive an annual bonus in such amount, if any, and at such time or times, as +the Board of Directors may determine in its absolute discretion. Subject to +availability of shares under the 2006 Plan, as amended, or any other plan +designated by the Board of Directors and approved by the Company’s stockholders, +Mr. Dharia is entitled to awards under such plan as may be determined by the +Board of Directors, or a committee thereof, from time to time in its absolute +discretion. The agreement provides, in the event of Mr. Dharia’s death, for the +payment to Mr. Dharia’s estate of his base salary for the 12-month period +immediately subsequent to the date of Mr. Dharia’s death. In the event Mr. +Dharia’s employment agreement is terminated due to Mr. Dharia’s total +disability (as defined in the agreement) or “for cause” (as defined in the +agreement), the Company is obligated to pay Mr. Dharia the amount of +compensation that is accrued and unpaid through the date of termination. In the +event Mr. Dharia’s employment agreement is terminated for any reason (other +than “for cause” or due to his death or total disability), the Company is +obligated to pay Mr. Dharia, in two installments, (a) an amount equal to the +product of (x) his base salary on the effective date of such termination plus +the bonus paid or payable, if any, for the fiscal year ended on the December +31st immediately preceding the termination date, multiplied by (y) the number +of years (and fraction of years) remaining in the term; and (b) the amount +payable to him, or on his account, for what would have been the balance of the +term of his employment agreement with respect to certain benefits and plans as +set forth in his employment agreement. If the Company decides not to renew the +agreement (other than “for cause” or due to his total disability), then Mr. Dharia +will be entitled to receive severance compensation in cash in an amount equal +to his then-current base salary for the 90-day period commencing on the +expiration of the term. In the event that there is a “change of control” +transaction and Mr. Dharia’s employment has been terminated by the Company +other than “for cause” or by Mr. Dharia “for good reason” (as such terms are +defined in the agreement), Mr. Dharia will receive an amount equal to three +times the total compensation he was entitled to receive under the agreement for +the preceding 12-month period ending on the last previous December 31, except +that in lieu of the actual base salary component received during such period, +there shall be substituted the annual base salary to which Mr. Dharia was entitled +to as of the date of termination, unless said amount (or portion +thereof) is determined to constitute an “excess parachute payment” under +Sections 280G and 4999 of the Code, in which case the payment to Mr. Dharia +shall be reduced to the maximum amount that is tax deductible to the Company +under Section 280G of the Code. +14 +Awadhesh +Sinha. In June 2005, the Company entered into an employment agreement with +Awadhesh Sinha, pursuant to which Mr. Sinha agreed to serve as the Company’s +Chief Operating Officer. Mr. Sinha’s employment agreement was amended in +November 2007. The term of Mr. Sinha’s employment under his employment +agreement, as amended, commences on July 1, 2005 and ends on December 31, 2008. The term will be +automatically extended for successive one-year periods unless either party +timely notifies the other of its intention not to extend the term. The +agreement, as amended, provides that the Company pay Mr. Sinha an annual salary +of $425,000, subject to a 5% annual increase or, if the Company’s EBIT for the +12-month period from July 1 to June 30 increases by at least 5% over the +preceding 12-month period, a 10% annual increase in lieu of the annual 5% +increase. Upon entering the agreement, Mr. Sinha received a signing +bonus of $100,000. In addition, with respect to the fiscal year ended December +31, 2005, Mr. Sinha was entitled to an annual bonus equal to the greater of (i) +$50,000, and (ii) 3% of the increase in the Company’s EBIT for such fiscal year +over the EBIT of the immediately prior fiscal year; with respect to each of the +Company’s remaining fiscal years during the term of Mr. Sinha’s employment, the +Company shall pay Mr. Sinha an annual bonus equal to 3% of the increase in the +Company’s EBIT for such fiscal year over the EBIT of the immediately prior +fiscal year. The agreement, as amended, provides for, in the event of +Mr. Sinha’s death, the payment to Mr. Sinha’s estate of his base salary for the +12-month period immediately subsequent to the date of Mr. Sinha’s death. In the +event Mr. Sinha’s employment agreement, as amended, is terminated due to Mr. +Sinha’s total disability (as defined in the agreement, as amended,), “for +cause” (as defined in the agreement, as amended,) or due to Mr. Sinha’s +resignation, the Company is obligated to pay Mr. Sinha the amount of +compensation that is accrued and unpaid through the date of termination. Mr. +Sinha shall be required to repay to the Company the full amount of his signing +bonus if he is discharged “for cause” and a pro rata portion of the signing bonus +for the portion of the term that he did not fulfill if he resigns. In the event +Mr. Sinha’s employment agreement, as amended, is terminated by the Company for +any reason (other than “for cause” or due to his death or total disability), +the Company is obligated to pay Mr. Sinha an amount equal to the sum of +(x) the base salary that would have been paid by the Company pursuant to +the agreement, as amended, for the longer of the remainder of the then-current +term or 6 months, and (y) the cash bonus payable to Mr. Sinha prorated from the +commencement of the then-current term through the termination date. In the +event that there is a “change of control” transaction, the Company or Mr. Sinha +may terminate the agreement, as amended, and Mr. Sinha shall be entitled to an +amount equal to three times the +total compensation received by Mr. Sinha under the agreement, as amended, for +the preceding 12-month period ending on the last previous December 31st, except +that in lieu of the actual base salary component received during such period, +there shall be substituted the annual base salary to which Mr. Sinha was +entitled to as of the date of his termination, unless said amount (or portion +thereof) is determined to constitute an “excess parachute payment” under +Sections 280G and 4999 of the Code, in which case the payment to Mr. Sinha +shall be reduced to the maximum amount that is tax deductible to the Company +under Section 280G of the Code. +Robert +Schmertz. In April 2002, the Company entered into an employment agreement with +Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as President of +Steve Madden Wholesale Women’s Division and Brand Manager for Steven Madden, +Ltd. The agreement was extended in March 2005 and again in March 2007. The term +of Mr. Schmertz’s employment under his employment agreement (as extended) +commenced on April 1, 2002 and ends on December 31, 2009. Mr. Schmertz received +a signing bonus of $500,000 upon the execution of the March 2007 extension and +100,000 shares of restricted stock, which vests in equal parts on each of the +first five anniversaries of February 27, 2007, pursuant to the 2006 Plan, as +amended. The Company agreed to pay Mr. Schmertz an annual salary of $600,000. +Under the terms of the agreement as extended, the Company shall pay Mr. +Schmertz a discretionary bonus in an amount determined solely by the Company’s +Board of Directors. In the event of a “change of control” and the termination +of Mr. Schmertz thereafter other than “for cause” (as defined in the +agreement), Mr. Schmertz will be entitled to receive an amount equal to the +lesser of (i) the average amount of total compensation actually received by Mr. +Schmertz for the preceding three calendar years multiplied by 3 or (ii) the +maximum amount which is tax deductible to the Company under Section 280G of the +Code. +Amelia +Newton Varela. In October 2004, the Company entered into an employment +agreement with Amelia Newton Varela, pursuant to which Ms. Varela agreed to +serve as Executive Vice President of Wholesale Sales. Ms. Varela’s employment +under her employment agreement commenced in October 2004. The Company agreed to +pay Ms. Varela an annual salary of $300,000. Under the terms of the agreement, +the Company shall pay Ms. Varela an annual bonus for each fiscal year in an amount +equal to 2% of the increase in the Company’s wholesale division’s EBIT for such +fiscal year over the Company’s wholesale division’s EBIT for the prior fiscal +year. +15 +GRANTS OF +PLAN-BASED AWARDS IN THE 2007 FISCAL YEAR +The +following table sets forth information concerning awards under the Company’s +equity and non-equity incentive plans granted to each of the Named Executive +Officers in the 2007 Fiscal Year, including performance-based awards and those +using time-based vesting. +Following +the table is a discussion of material factors related to the information +disclosed in the table. +ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS +ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS +ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS (#) +ALL OTHER OPTION AWARDS: NUMBER OF SECURITIES OPTIONS (#) +EXERCISE OR BASE PRICE OF OPTION AWARDS ($/SH) +GRANT DATE FAIR VALUE OF STOCK AND OPTION AWARDS +NAME +GRANT DATE +THRESHOLD ($) +TARGET ($) +MAXIMUM ($) +THRESHOLD ($) +TARGET (#) +MAXIMUM (#) +Jamieson +A. Karson(1) +03/27/07 +— +— +— +— +— +— +20,000 +— +— +590,800 +Arvind +Dharia +03/06/07 +— +— +— +— +— +— +20,000 +(2) +— +— +596,800 +Awadhesh +Sinha +04/25/07 +— +— +— +— +— +— +30,000 +(3) +— +— +933,900 +Robert +Schmertz +03/09/07 +— +— +— +— +— +— +100,000 +(4) +— +— +2,939,000 +(1) +Effective March 24, 2008, Jamieson A. Karson resigned from his position as +Chief Executive Officer, director and Chairman of the Board of Directors of the Company, and +entered into a Mutual Release with the Company (the “Mutual Release”). Pursuant to the +Mutual Release, the Company shall vest Mr. Karson’s restricted stock awards granted under +the Restricted Stock Agreements dated as of March 24, 2006 and March 27, 2007 such that all +restrictions on such shares shall lapse. See “-- +Employment Arrangements.” +(2) +Mr. Dharia was awarded +20,000 shares of restricted stock on March 6, 2007. One-fifth of such +shares of restricted stock shall vest and cease to be restricted stock on +each of the first five anniversaries of March 6, 2007. +(3) +Mr. Sinha was awarded +30,000 shares of restricted stock on April 25, 2007. One-fourth of +such shares of restricted stock shall vest and cease to be restricted stock on each of September 19, 2007 and the next +three anniversaries of September 19, 2007. +(4) +Mr. Schmertz was awarded +100,000 shares of restricted stock on March 9, 2007. One-fifth of such +shares of restricted stock shall vest and cease to be restricted stock on +each of the first five anniversaries of March 9, 2007. +Plan-Based +Awards +1999 +Stock Plan +As +of March 15, 1999, the Board of Directors of the Company adopted the 1999 Stock +Plan (the “1999 Plan”), and on June 4, 1999 the Company’s stockholders approved +the adoption of the 1999 Plan. Since its adoption, the 1999 Plan has been +amended, with stockholder approval, to (i) increase the number of shares +subject to the plan, (ii) provide that the exercise price of an option granted +under the 1999 Plan shall be no less than the fair market value of the Common +Stock on the date of grant (except to the extent otherwise provided in +agreements with the Company dated prior to the effective date of the +amendment), and (iii) prohibit the Board from amending the terms of any option +granted pursuant to the 1999 Plan to reduce the option price. The purpose of +the 1999 Plan is to provide a means whereby directors and selected employees, +officers, agents, consultants, and independent contractors of the Company may be +granted incentive stock options and/or nonqualified stock options to purchase +shares of Common Stock, in order to attract and retain the services or advice +of such directors, employees, officers, agents, consultants, and independent +contractors and to provide additional incentive for such persons to exert +maximum efforts for the success of the Company by encouraging stock ownership +in the Company. As of April 22, 2008, options to purchase 524,285 shares +of Common Stock were outstanding. No additional options will be granted +under the 1999 Plan. +2006 Stock +Incentive Plan +As +of March 10, 2006, the Board of Directors of the Company adopted the 2006 Plan, +and on May 26, 2006 the Company’s stockholders approved the adoption of the +2006 Plan. Amendment number one to the 2006 Plan was adopted by +the Board of Directors on April 25, 2007, subject to stockholder approval at +the 2007 annual meeting of the Company’s stockholders. On May 25, 2007, the +Company’s stockholders approved amendment number one to the 2006 Plan. The +purpose of the 2006 Plan, as amended, is to enhance the profitability and value +of the Company for the benefit of its stockholders by enabling the Company to +offer eligible employees, consultants and non-employee directors cash and +stock-based incentives in the Company to attract, retain and reward such +individuals and +strengthen the mutuality of interests between such individuals and the +Company’s stockholders. The maximum number of shares of Common Stock available +for issuance under the 2006 Plan, as amended, is 1,550,000 shares. As of April 22, 2008, there were outstanding +338,000 unvested shares of restricted stock and options to purchase 105,000 +shares of Common Stock; options have been exercised, or restricted stock has +vested, with respect to 276,487 shares of Common Stock; and 830,513 shares of +Common Stock remained available for grant under the 2006 plan. +16 +OUTSTANDING +EQUITY AWARDS AT END OF THE 2007 FISCAL YEAR +The +following table sets forth information concerning unexercised stock options, +restricted stock that has not vested and stock awards outstanding for each of +the Named Executive Officers as of the end of the 2007 Fiscal Year. (1) +OPTION +AWARDS +STOCK +AWARDS +NAME +NUMBER OF +SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE +NUMBER OF +SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE +EQUITY +INCENTIVE PLAN AWARDS: NUMBER OF SECURITIES UNDERLYING UNEXERCISED UNEARNED +OPTIONS (#) +OPTION +EXERCISE PRICE ($) +OPTION +EXPIRATION DATE +NUMBER OF +SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) +MARKET +VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED ($) +EQUITY +INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT +HAVE NOT VESTED (#) +EQUITY INCENTIVE +PLAN AWARDS: MARKET OR PAYOUT VALUE OF UNEARNED SHARES, UNITS OR OTHER RIGHTS +THAT HAVE NOT VESTED ($) +Arvind Dharia +13,242 +— +— +6.3667 +09/25/08 +— +— +29,000 +(2) +580,000 +60,000 +— +— +13.9000 +09/09/10 +— +— +— +— +60,000 +— +— +13.0533 +07/06/11 +— +— +— +— +60,000 +— +— +11.8400 +05/27/15 +— +— +— +— +Awadhesh Sinha +— +— +— +— +— +— +— +22,500 +(3) +450,000 +Robert Schmertz +50,000 +— +— +12.6533 +05/17/12 +— +— +122,500 +(4) +2,450,000 +Amelia Newton Varela +— +— +— +— +— +— +— +22,500 +(5) +450,000 +(1) +Effective +March 24, 2008, Jamieson A. Karson resigned from his position +as Chief Executive Officer, director and Chairman of the Board of Directors +of the Company, and entered into a Mutual Release with the Company (the +“Mutual Release”). Pursuant to the Mutual Release, the Company shall vest Mr. +Karson’s restricted stock awards granted under the Restricted Stock +Agreements dated as of March 24, 2006 and March 27, 2007 such that all +restrictions on such shares shall lapse. See “-- Employment Arrangements.” +(2) +Mr. Dharia +was awarded 12,000 shares of restricted stock on March 24, 2006. One-fourth +of such shares of restricted stock shall vest and cease to be restricted +stock on each of the first four anniversaries of March 24, 2006. Mr. +Dharia was awarded 20,000 shares of restricted stock on March 6, 2007. One-fifth +of such shares of restricted stock shall vest and cease to be restricted +stock on each of the first five anniversaries of March 6, 2007. +(3) +Mr. Sinha was awarded +30,000 shares of restricted stock on April 25, 2007. One-fourth of +such shares of restricted stock shall vest and cease to be restricted stock on each of September 19, 2007 and the next +three anniversaries of September 19, 2007. +(4) +Mr. Schmertz +was awarded 30,000 shares of restricted stock on March 20, 2006. One-fourth +of such shares of restricted stock shall vest and cease to be restricted +stock on each of the first four anniversaries of March 20, 2006. Mr. +Schmertz was awarded 100,000 shares of restricted stock on March 9, 2007. One-fifth +of such shares of restricted stock shall vest and cease to be restricted +stock on each of the first five anniversaries of March 9, 2007. +(5) +Ms. Varela +was awarded 30,000 shares of restricted stock on March 20, 2006. One-fourth +of such shares of restricted stock shall vest and cease to be restricted +stock on each of the first four anniversaries of March 20, 2006. +OPTION +EXERCISES AND STOCK VESTED IN THE 2007 FISCAL YEAR +The +following table sets forth information concerning stock options exercised and +restricted stock vested during the 2007 Fiscal Year by each of the Named +Executive Officers. The value realized from exercised options is deemed to be +the market value of the Common Stock on the date of exercise, less the exercise +price of the option, multiplied by the number of shares underlying the option. +The value realized from vested restricted stock is deemed to be the market +value of the Common Stock on the date of vesting multiplied by the number of +shares. +17 +OPTION +AWARDS +STOCK +AWARDS +NAME +NUMBER OF +SHARES ACQUIRED +ON EXERCISE +(#) +VALUE +REALIZED ON +EXERCISE +($) +NUMBER OF +SHARES ACQUIRED +ON VESTING +(#) +VALUE +REALIZED ON +VESTING +($) +Jamieson A. Karson(1) +56,200 +1,044,537 +7,500 +221,175 +Arvind Dharia +— +— +3,000 +88,470 +Awadhesh Sinha +— +— +7,500 +137,025 +Robert Schmertz +— +— +7,500 +226,725 +Amelia Newton Varela +— +— +7,500 +226,725 +(1) +Effective +March 24, 2008, Mr. Karson resigned from his position as Chief Executive +Officer, director and Chairman of the Board of Directors of the Company, and +entered into a Mutual Release with the Company (the “Mutual Release”). +Pursuant to the Mutual Release, the Company shall vest Mr. Karson’s +restricted stock awards granted under the Restricted Stock Agreements dated +as of March 24, 2006 and March 27, 2007 such that all restrictions on such +shares shall lapse. See “-- Employment Arrangements.” +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The +Company’s employment agreements with the Named Executive Officers provide for +payments to such persons upon termination or a change in control of the +Company. See “--Employment Arrangements.” +The +amounts set forth in the table below shall be paid to the respective Named +Executive Officer if such Named Executive Officer’s employment is terminated by +the Company under the various scenarios set forth below. +NAME AND PRINCIPAL POSITION +CASH +PAYMENT +($) +CONTINUATION +OF +MEDICAL/WELFARE +BENEFITS (PRESENT +VALUE) +($) +ACCELERATION +AND +CONTINUATION OF +EQUITY AWARDS +($) +TOTAL +TERMINATION +BENEFITS +($) +TERMINATION DUE TO DEATH: +Jamieson A. Karson(1) +500,000 +— +500,000 +Arvind Dharia +435,625 +10,000 +445,625 +Awadhesh Sinha +514,250 +10,000 +524,250 +Robert Schmertz +300,000 +— +300,000 +Amelia Newton Varela(2) +— +— +— +TERMINATION DUE TO TOTAL +DISABILITY: +Jamieson A. Karson(1) +500,000 +500,000 +Arvind Dharia +435,625 +435,625 +Awadhesh Sinha +514,250 +514,250 +Robert Schmertz +— +— +Amelia Newton Varela(2) +— +— +TERMINATION FOR CAUSE; +RESIGNATION: +Jamieson A. Karson(1) +— +— +Arvind Dharia +— +— +Awadhesh Sinha(3) +— +— +Robert Schmertz +— +— +Amelia Newton Varela(2) +— +— +TERMINATION OTHER THAN FOR +CAUSE, DEATH OR DUE TO TOTAL DISABILITY: +Jamieson A. Karson(1) +4,000,000 +— +4,000,000 +Arvind Dharia +871,250 +(4) +180,000 +(5) +1,051,250 +Awadhesh Sinha +514,250 +(6) +— +514,250 +Robert Schmertz +— +— +— +Amelia Newton Varela(2) +— +— +— +TERMINATION UPON A +CHANGE-OF-CONTROL: +Jamieson A. Karson(1) +4,000,000 +(7) +— +268,290 +4,268,290 +Arvind Dharia +1,910,601 +(8) +270,000 +(9) +2,032,940 +4,213,540 +Awadhesh Sinha +3,788,185 +(10) +40,500 +(11) +450,000 +4,278,685 +Robert Schmertz +2,929,819 +(12) +— +2,817,333 +5,747,152 +Amelia Newton Varela(2) +— +— +450,000 +450,000 +18 +(1) +Effective +March 24, 2008, Mr. Karson resigned from his position as Chief Executive +Officer, director and Chairman of the Board of Directors of the Company, and +entered into a Mutual Release with the Company (the “Mutual Release”). +Pursuant the Mutual Release, the Company shall consider Mr. Karson’s +resignation to be a termination without “cause” (as defined under Mr. +Karson’s amended and restated employment agreement) by the Company. See +“-- Employment Arrangements.” +(2) +Upon any +termination, Ms. Varela shall forfeit and surrender any unpaid compensation +without further liability to the Company. +(3) +If Mr. Sinha +is terminated for Cause, he will have to repay to the Company the full amount +of his signing bonus and if he resigns for any reason, Mr. Sinha will be required +to repay to the Company a pro rata portion of his signing bonus. +(4) +Consists of two times Mr. +Dharia’s 2007 base salary of $435,625. +(5) +Consists of two times the +sum of Mr. Dharia’s life insurance payment ($80,000 per year) plus medical +benefits ($10,000 per year). +(6) +Consists of Mr. Sinha’s +one year salary at December 31, 2007 ($514,250). +(7) +In the event +of a termination upon a change of control, Mr. Karson’s amended and restated +employment agreement states that the Company and Mr. Karson will use their +respective best efforts to work together so that Mr. Karson and the Company +will not be subject to adverse tax consequences under Sections 280G and 4999 +of the Code, as applicable. The figure in the table does not reflect any cutback +or gross-up of the excise tax upon a change of control payment owed to Mr. +Karson under his amended and restated employment agreement. +(8) +Consists of three times +Mr. Dharia’s 2007 total compensation reduced by the sum of (i) continuation +of medical and life insurance benefits, and (ii) acceleration of equity +compensation. +(9) +Consists of three times +the sum of Mr. Dharia’s life insurance payment ($80,000 per year) plus +medical benefits ($10,000 per year). +(10) +Per Mr. Sinha’s employment +agreement, the termination payment is equal to the lesser of (A) the amount +due based on the calculation described below, and (B) the maximum amount +which is tax deductible to the Company under Section 280G of the Code. The +calculation under Mr. Sinha’s employment agreement is three times the sum of +Mr. Sinha’s (i) salary at December 31, 2007 ($514,250), (ii) 2006 bonus +($1,401,840), and (iii) life insurance payment ($3,500 per year) plus medical +benefits ($10,000 per year). This amount would equal $5,758,770, which +exceeds the maximum amount which is tax deductible to the Company under +Section 280G of the Code. The figure in the table reflects the amount that +would be paid to Mr. Sinha, as limited by Section 280G. This amount could be +lower if there is an actual change-in-control, because the estimate above +does not reflect a potential reduction associated with reasonable +compensation for restrictive covenants in Mr. Sinha’s employment agreement. +(11) +Consists of +three times the sum of Mr. Sinha’s life insurance payment ($3,500 per year) +plus medical benefits ($10,000 per year). +(12) +Per Mr. +Schmertz’s employment agreement, the termination payment is equal to the +lesser of (A) the amount due based on the calculation described below, and +(B) the maximum amount which is tax deductible to the Company under Section +280G of the Code. The calculation is the average amount of total +compensation received under Mr. Schmertz’s employment agreement for the past three years times three. +This amount would equal $4,871,718, +which exceeds the maximum amount which is tax deductible to the Company under +Section 280G of the Code. The figure in the table reflects the amount that +would be paid to Mr. Schmertz, as limited by Section 280G. This amount could +be lower if there is an actual change-in-control, because the estimate above +does not reflect a potential reduction associated with reasonable +compensation for restrictive covenants in Mr. Schmertz’s employment +agreement. +19 +COMPENSATION +OF DIRECTORS IN THE 2007 FISCAL YEAR +The +following table sets forth information concerning the compensation of the +Company’s non-employee directors in the 2007 Fiscal Year. +Following +the table is a discussion of material factors related to the information +disclosed in the table. +NAME +FEES +EARNED +OR PAID +IN CASH +($) +STOCK +AWARDS +($) +OPTION +AWARDS +($) +NON-EQUITY +INCENTIVE PLAN +COMPENSATION +($) +CHANGE IN +PENSION VALUE +AND +NONQUALIFIED +DEFERRED +COMPENSATION +EARNINGS +ALL OTHER +COMPENSATION +($) +TOTAL +($) +Walter Yetnikoff +77,500 +32,953 +(1) +— +— +— +— +110,453 +Jeffrey Birnbaum(2) +40,000 +16,476 +(3) +— +— +— +554,150 +(4) +610,626 +Marc S. Cooper(5) +40,000 +16,476 +(6) +— +— +— +66,663 +(7) +123,139 +Harold D. Kahn(8) +81,833 +48,975 +(9) +— +— +55,925 +(10) +186,733 +John L. Madden +40,000 +16,476 +(11) +— +— +— +690,440 +(12) +746,916 +Peter Migliorini +95,000 +32,953 +(13) +— +— +— +— +127,953 +Richard P Randall +82,500 +32,953 +(14) +— +— +— +— +115,453 +Thomas H Schwartz +50,000 +32,953 +(15) +— +— +— +— +82,953 +(1) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 1,500, and the aggregate number of stock +options outstanding was 15,000. +(2) +On October +8, 2007, Mr. Birnbaum resigned from his position as a director of the +Company. +(3) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$24,488. At December 31, 2007, Mr. Birnbaum had no restricted stock +outstanding, and no stock options outstanding. +(4) +Represents (i) fees of +$200,000 paid to Mr. Birnbaum for consulting services with respect to the +designing and manufacture of shoes and general consulting to the Company (see +“--Certain Relationships and Related Transactions.”); (ii) $353,400 from a sale of Common +Stock; and (iii) a $750 dividend paid on restricted stock. +(5) +On February +25, 2008, Mr. Cooper resigned from his position as a director of the Company. +(6) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$24,488. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 750, and Mr. Cooper had no stock options outstanding. +(7) +Represents $66,663 in consulting fees paid +during 2007 to Peter J. Solomon & Company, a financial advisory firm of +which Mr. Cooper is a Managing Director. See “--Certain Relationships and +Related Transactions.” +(8) +On September +7, 2007, Mr. Kahn resigned from his position as a director of the Company. +(9) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, Mr. Kahn had no restricted stock outstanding, and +no stock options outstanding. +(10) +Represents (i) $54,425 +from a sale of Common Stock; and (ii) a $1,500 dividend paid on restricted +stock. +(11) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$24,488. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 750, and the aggregate number of stock +options outstanding was 40,000. +(12) +Represents (i) $631,266 +in fees, travel and insurance allowance paid to JLM Consultants, a company +wholly owned by Mr. Madden, in connection with consulting services for the +development of the Company’s international business; (ii) $58,424 for the use of a +corporate apartment; and (iii) a $750 +dividend paid on restricted stock. See “--Certain Relationships and +Related Transactions.” +(13) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 1,500, and the aggregate number of stock +options outstanding was 15,000. +20 +(14) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 1,500, and Mr. Randall had no stock options outstanding. +(15) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 1,500, and the aggregate number of stock +options outstanding was 30,000. +Directors +who are also employees of the Company are not paid any fees or other +remuneration for service on the Board or any of its committees. In 2007, +each non-employee director received the following compensation: (i) (A) for +independent directors, a grant of 1,500 shares of restricted stock, vesting on +the first anniversary of the grant date, and (B) for non-independent directors, +a grant of 750 shares of restricted stock, vesting on the first anniversary of +the grant date; and (ii) $40,000. In 2007, members of the Audit +Committee, Nominating/Corporate Governance Committee and Compensation Committee +each received an additional +$10,000 for services on such committees, except that the audit committee +financial expert received $15,000 and the chairperson of the Compensation +Committee received $15,000. The Company reimburses directors for any +out-of-pocket expenses incurred by them in connection with services provided in +such capacity. +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS +In +July 2001, the Company entered into a consulting agreement with Peter J. +Solomon & Company, a financial advisory firm of which Marc S. Cooper, a +director of the Company until his resignation on February 25, 2008, is a +managing director. Under this agreement, the firm provided financial advisory +and investment banking services to the Company. This agreement was amended in +March 2004. The amended agreement expired on March 31, 2005, but pursuant to +its terms was automatically renewed until the Company terminated it on July 11, +2006. In June 2007, the Company entered into a new consulting agreement with +Peter J. Solomon & Company, pursuant to which the firm is to provide +financial advisory and investment banking services to the Company. This agreement was amended in February 2008, +and, as amended, expires on December 31, 2008. During 2007, the Company paid +Peter J. Solomon & Company $66,663 in consulting fees. +In +October 2002, the Company entered into an agreement with Jeffrey Birnbaum, a +director of the Company until his resignation on October 8, 2007. Under this +agreement, Mr. Birnbaum provides consulting services with respect to the +designing and manufacturing of shoes and general consulting services to the +Company, pursuant to which Mr. Birnbaum received a fee of $200,000 in 2007. Mr. Birnbaum has +been a partner and the Product Development Manager of Dolphin Footwear Company +since August 1982. Dolphin Footwear Company is one of the Company’s largest +domestic and foreign suppliers. In +2007, the Company paid Dolphin Footwear Company and Ming Well, Dolphin’s +Hong Kong affiliate, approximately $52.9 +million for the purchase of goods. +In +January 2004, the Company entered into an agreement with John Madden and JLM +Consultants, a company wholly-owned by John Madden, one of the Company’s +directors, which was amended in 2005. Under this agreement, Mr. Madden provided +consulting services with respect to the development of international sales of +the Company. This agreement expired on December 31, 2005 but Mr. Madden has +continued to provide consulting services and the Company has continued to make +payments consistent with those that would have been required under the expired +consulting agreement. In accordance with the foregoing, JLM Consultants +received a commission equal to 4% on International Sales (as defined in the +Agreement) up to $6.0 million and 3% on International Sales in excess of $6.0 +million. JLM Consultants received a monthly draw in the amount of $20,000 with +recourse against such commissions, as well as a $1,000 per month travel +allowance and $2,231 per month toward health insurance premiums. Pursuant to +this arrangement, JLM Consultants received a total of $631,266 in +2007. +Effective +as of July 1, 2005, the Company amended its employment agreement with Steven +Madden, pursuant to which Mr. Madden agreed to serve as the Company’s Creative +and Design Chief. The term of Mr. Madden’s employment under his amended +employment agreement commenced July 1, 2005 and ends on June 30, 2015. The +agreement provides for an annual salary of $600,000, with a 7% increase of base +salary on a compound basis in each of the third, fifth, seventh and ninth years +of the agreement. The agreement also provides for an annual bonus in an amount +determined by the Board of Directors, which will be at least 2% of the +Company’s EBITDA (the “Annual Bonus”). Additionally, the Company shall pay Mr. +Madden an annual cash bonus in relation to “new business” (as defined in the +agreement) in an amount to be determined by the Board of Directors, which will +be at least (i) 2.5% of new business gross direct revenues, and (ii) 10% of all +license or other fee income above $2,000,000.00 (the “New Business Bonus”). In +addition, Mr. Madden is eligible to receive annually an option grant to +purchase shares of Common Stock in an amount equal to not less than 100% of the +largest aggregate amount of options granted to any other continuing full-time +employee of the Company during the annual period; provided, however, a grant in +excess of 150% of the options grant to such other continuing full-time employee +shall require shareholder approval. The agreement provides, in the event of Mr. +Madden’s death, for the payment to Mr. Madden’s estate of his base salary for +the 12-month period immediately subsequent to the date of Mr. Madden’s death. +In the event that Mr. Madden’s employment agreement is terminated due to Mr. +Madden’s total disability (as defined in the agreement), “for cause” (as +defined in the agreement) or due to Mr. Madden’s resignation, the Company is +obligated to pay Mr. Madden the amount of compensation that is accrued and +unpaid through the date of termination. In the event Mr. Madden’s employment +agreement is terminated for any reason (other than “for cause” or due to his +death or total disability or due to Mr. Madden’s resignation), the Company is +obligated to pay Mr. Madden, in installments, the balance of his base salary +that would have been paid by the Company under the agreement for the full term +of the agreement. In the event that there is a “change of control” (as defined +in the agreement) transaction, all unvested options to purchase shares of +Common Stock held by Mr. Madden will vest on the date of termination and Mr. +Madden will be entitled to receive a lump sum cash payment equal to (1) the +amount of compensation that is accrued and unpaid through the date of +termination, (2) an amount equal to the product of (A) the number of years +remaining in the term of the agreement (but not less than 5), and (B) the sum +of (w) the base salary for the 12-month period ended on the preceding December +31 (or for the 12-month period ending on December 31, 2002, if greater), (x) +the amount of the Annual Bonus earned (paid or accrued or which should have +been paid or accrued) for the 12-month period ended on the preceding December +31 (or for the 12-month period ended on December 31, 2002, if greater), (y) the +non-accountable expense allowance provided for under the agreement for the +12-month period ended on the preceding December 31, and (z) the amount of the +New Business Bonus earned (paid or accrued or which should have been paid or +accrued) for the 12-month period ended on the preceding December 31 (or for the +12-month period ending on December 31 during the agreement in which Mr. Madden +received the greatest New Business Bonus, if greater). Mr. Madden’s employment +agreement contains other customary provisions, including provisions regarding +expense reimbursement, confidentiality, solicitation and competition. For the +fiscal year ending December 31, 2007, +Mr. Madden earned (i) $600,000 +in base salary, (ii) $200,000 in +non-accountable expense allowance, (iii) a bonus of $1,227,105 representing 2% of the Company’s earnings before +interest, tax, depreciation and amortization, (iv) a bonus of $2,398,493 earned based on 2.5% of the +Company’s new business, and (v) a bonus of $167,678 based on 10% of Royalty/Licensing income over $2,000,000. +21 +On +June 25, 2007, the Company made a loan to Steve Madden, its Creative and Design +Chief and a principal shareholder of the Company, in the amount of $3,000,000, +in order for Mr. Madden to exercise options that were due to expire and hold +the underlying Company stock. Mr. Madden executed a secured promissory note in +favor of the Company that bears interest at an annual rate of 8% and is due on +the earlier of the date Mr. Madden ceases to be employed by the Company or +December 31, 2007. An amendment to the note dated December 19, 2007 extended +the due date to March 31, 2009. As of December 31, 2007, $126,000 of interest +has accrued on the note. Pursuant to a pledge agreement between the Company and +Mr. Madden, the note is secured by 510,000 shares of the Company’s common stock. +On +May 16, 2007, the Company entered into a Membership Interest Purchase Agreement +(the “Purchase Agreement”) whereby it purchased all of the outstanding +membership interests of Compo Enhancements, LLC, a provider of e-commerce +services to the Company (“Compo”), from its owners Jeffrey Silverman, James +Randel, Ron Offir, Godfrey Baker, Alyse Nathan and Andrew Rosca (collectively, +the “Owners”). Jeffrey Silverman became President of the Company on May 16, +2007. +In +connection with the Purchase Agreement, on May 16, 2007, the Company also +entered into an Earn-Out Agreement with the Owners (the “Earn-Out Agreement”). +Pursuant to the Earn-Out Agreement, as additional consideration for their +membership interests in Compo, the Owners collectively have the right to two +contingent purchase price payments of 168,000 shares of the Company’s common +stock, which shall be paid (if at all) if and when the Company achieves (or +exceeds), in two consecutive years, beginning with fiscal year 2008 and ending +with fiscal year 2012, certain EBIT Goals (as defined in the Earn-Out +Agreement) and certain Diluted EPS Goals (as defined in the Earn-Out +Agreement), all as specified in the Earn-Out Agreement. Promptly following the +execution of the Earn-Out Agreement, the Company purchased, for $200,000, +20.875% of any future earn-out payment from Mr. Randel. +On +December 21, 2007, the Company and Mr. Silverman, and the Company and Mr. +Randel, each entered into a Settlement and Release Agreement, dated as of +December 18, 2007 (each, a “Settlement Agreement”, and together, the +“Settlement Agreements”). Each of the Settlement Agreements provides for: the +settlement of all disputes between the parties relating to the pre-May 16, 2007 +arrangement between Compo and the Company (the “Pre-Transaction Arrangement”); +the forgiveness by the Company of all amounts in respect of the Working Capital +Refund (as such term is defined in the Purchase Agreement) that Messrs. +Silverman and Randel may be obligated to pay under the Purchase Agreement; and the +payment by the Company of certain amounts owed by Compo to the U.S. Customs +Service and several vendors to Compo. In addition, the Company and Mr. +Silverman agreed that the Company will have no further obligation to Mr. +Silverman under the Earn-Out Agreement, and the Company will pay $600,000 to +Mr. Silverman on June 30, 2008. Mr. Randel released the Company and others from +any claims arising from or related to the Pre-Transaction Arrangement. Mr. +Silverman and Mr. Randel released the Company and others (and the Company +released Mr. Silverman, Mr. Randel and others) from any claims arising from or +related to the Earn-Out Agreement, the Purchase Agreement, the Pre-Transaction +Arrangement and all other matters and events arising prior to the date of the +Settlement Agreement. +Pursuant +to the terms and conditions of a Termination Agreement, dated April 11, 2008, +between Mr. Silverman and the Company, Mr. Silverman resigned from his position +as President of the Company effective as of April 4, 2008. Pursuant to such +Termination Agreement, (i) the Company agreed to accelerate to April 19, 2008 +the $600,000 payment due to Mr. Silverman on June 30, 2008 pursuant to the +terms and conditions of the Settlement Agreement between the Company and Mr. +Silverman, and (ii) the Company and Mr. Silverman agreed to release each +other from claims which may arise from events occurring prior to the date of +the Termination Agreement. In addition, the Company has retained Mr. +Silverman to act as a consultant to the Company in connection with the +Company’s on-line and internet business operations for the period beginning +April 19, 2008 and ending June 30, 2008. In consideration of such +services, Mr. Silverman is entitled to receive $140,769.23. +22 +Effective +March 24, 2008, Jamieson A. Karson resigned from his position as Chief +Executive Officer, director and Chairman of the Board of Directors of the +Company, and entered into the Mutual Release with the Company. See “-- +Employment Arrangements.” +REVIEW, +APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS +The +Company’s Conduct Code and “Employee Handbook” prohibit all conflicts of +interest. Under the Conduct Code, conflicts of interest occur when private or +family interests interfere in any way, or even appear to interfere, with the +interests of the Company. The Company’s prohibition on conflicts of interest +under the Conduct Code includes any related person transaction. +Related +person transactions must be approved by the Board, or by a committee of the +Board consisting solely of independent directors, who will approve the +transaction only if they determine that it is in the best interests of the +Company. In considering the transaction, the Board or committee will consider +all relevant factors, including as applicable (i) the Company’s business +rationale for entering into the transaction; (ii) the alternatives to entering +into a related person transaction; (iii) whether the transaction is on terms +comparable to those available to third parties or, in the case of employment +relationships, to employees generally; (iv) the potential for the transaction +to lead to an actual or apparent conflict of interest and any safeguards +imposed to prevent such actual or apparent conflicts; and (v) the overall +fairness of the transaction to the Company. +The +Company has multiple processes for reporting conflicts of interests, including +related person transactions. Under the Conduct Code, all employees are required +to report any actual or apparent conflict of interest, or potential conflict of +interest, to management. The chief financial officer quarterly distributes a +questionnaire to the Company’s executive officers and management personnel and +annually distributes a questionnaire to the members of the Board of Directors +requesting certain information regarding, among other things, their immediate +family members, employment and beneficial ownership interests, which +information is then reviewed for any conflicts of interest under the Conduct +Code. +The +Audit Committee, Disclosure Committee and Board of Directors discuss the +related party transactions and they are reviewed as part of the Forms 10-K and +10-Q review process, including related party transaction disclosures. +If +a director is involved in the transaction, he will be recused from all +discussions and decisions about the transaction. The transaction must be +approved in advance whenever practicable, and if not practicable, must be +ratified as promptly as practicable. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The +following table sets forth information as of the Record Date with respect to +the beneficial ownership of Common Stock by (i) each person known by the +Company to beneficially own five percent or more of the outstanding shares; +(ii) the directors and the Named Executive Officers; and (iii) the Company’s +executive officers and directors as a group. A person is deemed to be a +beneficial owner of any securities which that person has the right to acquire +within 60 days. See “Compensation of Directors and Executive Officers.” +23 +SHARES BENEFICIAL OWNED +NAME AND +ADDRESS OF +BENEFICIAL OWNER (1) +AMOUNT +AND NATURE OF +BENEFICIAL OWNERSHIP(2) +PERCENTAGE +OF CLASS(2) +Jamieson A. Karson +121,200 +(3) +* +Walter Yetnikoff +18,000 +(4) +* +Edward R. Rosenfeld +82,500 +(5) +* +Arvind Dharia +225,243 +(6) +1.26 +Awadhesh Sinha +30,000 +(7) +* +Robert Schmertz +180,000 +(8) +1.02 +Amelia Newton Varela +30,000 +(9) +* +John Madden +41,500 +(10) +* +Peter Migliorini +18,000 +(11) +* +Richard P. Randall +3,000 +(12) +* +Thomas H. Schwartz +53,900 +(13) +* +Steven Madden +2,171,500 +(14) +12.31 +BOCAP Corp +1,214,000 +(15) +6.88 +Directors and Executive +Officers as a Group (10 persons)(16) +682,143 +(17) +3.78 +* +indicates +beneficial ownership of less than 1%. +(1) +Unless +otherwise indicated, the address of each beneficial owner is c/o Steven +Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +(2) +Beneficial +ownership as reported in the table above has been determined in accordance +with Item 403 of Regulation S-K of the Securities Act of 1933 and Rule 13d-3 +of the Securities Exchange Act, and based upon 17,643,357 +shares of Common Stock outstanding (excluding treasury shares) as of the +Record Date. +(3) +Includes (i) 106,200 +shares of Common Stock held by Mr. Karson, and (ii) 15,000 shares of Common +Stock held by Mr. Karson’s wife. Effective March 24, 2008, Mr. Karson +resigned from his position as Chief Executive Officer, director and Chairman +of the Board of Directors of the Company. See “-- Employment Arrangements.” +(4) +Includes (i) 15,000 shares +of Common Stock issuable upon the exercise of options held by Mr. Yetnikoff, +and (ii) 1,500 shares of restricted stock awarded on May 25, 2007, which shares +of restricted stock shall vest and cease to be restricted stock on the first anniversary of May 25, 2007. +(5) +Effective +March 24, 2008, the Company appointed Edward Rosenfeld to serve as interim +Chief Executive Officer. Mr. Rosenfeld has also been serving as a member of +the Board of Directors since February 2008. Includes (i) 47,500 shares +of Common Stock issuable upon the exercise of options held by Mr. Rosenfeld, (ii) 7,500 shares of restricted stock +awarded on March 20, 2006, one-half of which shares of restricted +stock shall vest and cease to be restricted stock on each of the next two +anniversaries of March 20, 2006, and +(iii) 16,000 shares of restricted stock awarded on March 6, 2007, one-fourth +of which shares of restricted stock shall vest and cease to be +restricted stock on each of the next four anniversaries of March 6, 2007. +(6) +Includes +(i) 193,243 shares of Common Stock issuable upon the exercise of options held +by Mr. Dharia, (ii) 9,000 shares of restricted stock awarded on March 24, +2006, one-half of which shares of restricted stock shall vest and +cease to be restricted stock on each of the next two anniversaries of March 24, 2006, and (iii) 16,000 shares of +restricted stock awarded on March 6, 2007, one-fourth of which shares +of restricted stock shall vest and cease to be restricted stock on each of +the next four anniversaries of March +6, 2007. +(7) +Includes +22,500 shares of restricted stock which Mr. Sinha was awarded on April 25, +2007. One-third of such shares of restricted stock shall vest and +cease to be restricted stock +on each of the next three anniversaries of September 19, 2007. +(8) +Includes (i) 50,000 shares +of Common Stock issuable upon the exercise of options held by Mr. Schmertz, +(ii) 15,000 shares of restricted stock awarded on March 20, 2006, one-half of +which shares of restricted stock shall vest and cease to be restricted +stock on each of the next two anniversaries of March 20, 2006, and (iii) 80,000 shares of restricted stock awarded +on March 9, 2007, one-fourth of which shares of restricted stock shall +vest and cease to be restricted stock on each of the next four anniversaries +of March 9, 2007. +24 +(9) +Includes 15,000 shares of +restricted stock awarded on March 20, 2006, one-half of which shares +of restricted stock shall vest and cease to be restricted stock on each of +the next two anniversaries of March +20, 2006. +(10) +Includes (i) 40,000 shares +of Common Stock issuable upon the exercise of options held by Mr. J. Madden, +and (ii) 750 shares of restricted stock awarded on May 25, 2007, which shares +of restricted stock shall vest and cease to be restricted stock on the first anniversary of May 25, 2007. +(11) +Includes (i) 15,000 shares +of Common Stock issuable upon the exercise of options held by Mr. Migliorini, +and (ii) 1,500 shares of restricted stock awarded on May 25, 2007, which shares +of restricted stock shall vest and cease to be restricted stock on the first anniversary of May 25, 2007. +(12) +Includes 1,500 shares of +restricted stock awarded on May 25, 2007, which shares of restricted +stock shall vest and cease to be restricted stock on the first anniversary of May 25, 2007. +(13) +Includes (i) 30,000 shares +of Common Stock issuable upon the exercise of options held by Mr. Schwartz, +and (ii) 1,500 shares of restricted stock awarded on May 25, 2007, which shares +of restricted stock shall vest and cease to be restricted stock on the first anniversary of May 25, 2007. +(14) +Includes (i) 1,214,000 +shares of Common Stock held by BOCAP Corp, a corporation wholly owned by Mr. +S. Madden, (ii) 15,000 shares of restricted stock awarded on March 24, 2006, +one-half of which shares of restricted stock shall vest and cease to +be restricted stock on each of the next two anniversaries of March 24, 2006, and (iii) 108,000 shares of +restricted stock awarded on June 9, 2007, one-fourth of which shares +of restricted stock shall vest and cease to be restricted stock on each of +the next four anniversaries of June +9, 2007. +(15) +BOCAP Corp +is wholly-owned by Steven Madden. +(16) +Does not +include Jamieson A. Karson, who resigned from his position as Chief Executive +Officer, director and Chairman of the Board of Directors of the Company, +effective March 24, 2008. +(17) +Includes 390,743 +shares issuable upon the exercise of options and 188,500 shares of restricted stock. +25 +PROPOSAL TWO +RATIFICATION OF THE APPOINTMENT OF EISNER LLP +AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING +DECEMBER 31, 2008 +The +Audit Committee has appointed Eisner LLP as the Company’s independent +registered public accounting firm to conduct the audit of the Company’s books +and records for the fiscal year ending December 31, 2008. Eisner LLP also +served as the Company’s independent registered public accountants for the +previous fiscal year. +Although +ratification by stockholders is not required by the Company’s organizational +documents or other applicable law, the Audit Committee has determined that +requesting ratification by stockholders of its appointment of Eisner LLP as the +Company’s independent registered public accountants is a matter of good +corporate practice. If stockholders do not ratify the selection, the Audit +Committee will reconsider whether or not to retain Eisner LLP, but may still +retain them. Even if the selection is ratified, the Audit Committee, in its +discretion, may change the appointment at any time during the year if it determines +that such a change would be in the best interest of the Company and its +stockholders. +Representatives +of Eisner LLP are expected to be present at the Annual Meeting to respond to +appropriate questions and to make a statement should they so desire. +REQUIRED VOTE +The +affirmative vote of the holders of a majority of the shares of Common Stock +present or represented by proxy and entitled to vote at the Annual Meeting is +required to ratify the Audit Committee’s selection of Eisner LLP. +RECOMMENDATION +OF THE BOARD OF DIRECTORS +The +Board of Directors unanimously recommends a vote FOR the ratification of the +appointment of Eisner LLP as the Company’s independent registered public +accountants for the fiscal year ending December 31, 2008. Unless marked to the +contrary, proxies received from stockholders will be voted in favor of +ratifying the appointment of Eisner LLP as the Company’s independent registered +public accountants for the fiscal year ending December 31, 2008. +AUDIT FEES +The +aggregate fees billed by Eisner LLP for professional services rendered for the +audit of the Company’s annual financial statements for the 2007 Fiscal Year, +for the reviews of the financial statements included in the Company’s Quarterly +Reports on Form 10-Q for the 2007 Fiscal Year, other statutory and regulatory +filings or engagements and the audit of the Company’s internal controls over +financial reporting for the 2007 Fiscal Year were $529,000. The +comparative amount for the fiscal year ended December 31, 2006 (the “2006 Fiscal +Year”) was $436,000. +AUDIT-RELATED +FEES +In +addition to Audit Fees, Eisner LLP has billed the Company $105,000, +in the aggregate, for Audit Related Fees related to assurance and related +services for the 2007 Fiscal Year. These services include, among others, the +audit of the Company’s employee benefit plans and other accounting related +consultations. The comparative amount for the 2006 Fiscal Year was $26,000. +TAX FEES +During +the 2007 Fiscal Year, Eisner LLP billed the Company $239,000, in +the aggregate, for services rendered to the Company for tax compliance, tax +advice and tax planning. Eisner LLP billed $138,000 for similar services in the +2006 Fiscal Year. These professional services include assistance in the preparation of the +Company’s +various federal, state and local tax returns, tax consultation and various +amendments. +ALL OTHER FEES +There +were no fees billed by Eisner LLP for services rendered to the Company, other +than the services described above under Audit Fees, Audit Related Fees and Tax +Fees, for the 2007 Fiscal Year or the 2006 Fiscal Year. +AUDIT +COMMITTEE’S PRE-APPROVAL POLICIES AND PROCEDURES +Consistent +with SEC policies regarding auditor independence, the Audit Committee has +responsibility for appointing, setting compensation and overseeing the work of +the independent registered public accountants. In recognition of this +responsibility, the Audit Committee has established a policy to review and +pre-approve all audit and permissible non-audit services provided by the +independent registered public accountants. These services may include audit +services, audit-related services, tax services and other services. +26 +Prior +to engagement of the independent auditor for next year’s audit, the Audit +Committee will pre-approve all auditing services and all permitted non-audit services +(including the fees and terms thereof), except those excluded from requiring +pre-approval based upon the de minimus exception set forth in Section +10A(i)(1)(B) of the Exchange Act. +The +Audit Committee’s pre-approval policies and procedures are as follows: (a) +prior to each fiscal year, the Audit Committee pre-approves a schedule of +estimated fees for proposed non-prohibited audit and non-audit services, and +(b) actual amounts paid are monitored by financial management of the Company +and reported to the Audit Committee. +All +work performed by Eisner LLP as described above under the captions Audit Fees, +Audit Related Fees, Tax Fees and All Other Fees has been approved or +pre-approved by the Audit Committee pursuant to the provisions of the Audit +Committee’s charter. The Audit Committee has considered and concluded that the +provision of non-audit services is compatible with maintaining the independence +of Eisner LLP. +THE +AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK +PRESENT OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL MEETING IS +REQUIRED TO RATIFY THE APPOINTMENT OF EISNER LLP AS THE COMPANY’S INDEPENDENT +REGISTERED PUBLIC ACCOUNTANTS. THE BOARD OF DIRECTORS RECOMMENDS THAT THE +STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS +THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR +ENDING DECEMBER 31, 2008. +OTHER MATTERS +At +the date of this Proxy Statement, the Company has no knowledge of any business +other than that described above that will be presented at the Annual Meeting. +If any other business should properly come before the Annual Meeting in +connection therewith, it is intended that the persons named in the enclosed +proxy will have discretionary authority to vote the shares which they +represent. +STOCKHOLDER +NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2009 ANNUAL MEETING +In accordance with Article II, Section 5 of the Company’s By-Laws, director +nominations for the 2009 Annual Meeting can only be made by a stockholder of +the Company who (A) is a stockholder of record on the date of the giving of the +notice of such director nominations and on the record date for the +determination of stockholders entitled to vote at such meeting, and (B) +complies with the notice requirements and procedures set forth in Article II, +Section 5 of the Company’s By-Laws. A stockholder’s notice to the Corporate +Secretary with respect to any such nominations must be timely and in proper written +form pursuant to Article II, Section 5 of the Company’s By-Laws, including +containing certain information concerning the nominating or proposing +stockholder and certain information concerning the nominee, and must be +delivered to, or mailed and received at, the Company’s principal executive +offices not less than 120 days nor more than 150 days prior to the first +anniversary of the date of the Company’s 2008 Annual Meeting. Accordingly, any +written notice given by or on behalf of a stockholder pursuant to Article II, +Section 5 of the Company’s By-Laws in connection with the 2009 Annual Meeting +must be received no later than January 23, 2009 and no earlier than December +24, 2008. +In +accordance with rules promulgated by the SEC, any stockholder who wishes to +submit a proposal for inclusion in the proxy material to be distributed by the +Company in connection with the 2009 Annual Meeting must do so no later than +December 30, 2008. In addition, in accordance with Article I, Section 7(f) of +the Company’s By-Laws, in order to be properly brought before the 2009 Annual +Meeting, a matter must be either (i) specified in the notice of such meeting +given by or at the direction of the Board of Directors (or any duly authorized +committed thereof), (ii) otherwise properly brought before such meeting by or +at the direction of the Board of Directors (or any duly authorized committed +thereof) or (iii) specified in a notice in proper written form given by a +stockholder of record on the date of the giving of the notice and on the record +date for such meeting, which notice conforms to the requirements of Article I, +Section 7(f) of the By-Laws and is delivered to, or mailed and received at, the +Company’s principal executive offices not less than 120 days nor more than 150 +days prior to the first anniversary of the date of the Company’s 2008 Annual +Meeting. Accordingly, any written notice given by or on behalf of a stockholder +pursuant to the foregoing clause (iii) in connection with the 2009 Annual +Meeting must be received no later than January 23, 2009 and no earlier than +December 24, 2008. In addition, for +business to be properly brought before the 2009 Annual Meeting by a stockholder +pursuant to the foregoing clause (iii), such stockholder shall have complied +with any other applicable requirements, including, but not limited to, the +requirements of Rule 14a-8 promulgated by the SEC. +A +copy of the applicable provisions of the Company’s By-Laws may be obtained by +any stockholder, without charge, upon written request to the Secretary of the +Company at the address set forth above. +27 +WHETHER +OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN AND RETURN +THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER +OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY +WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN +MADDEN, LTD. +April 29, +2008 +By: +/s/ Arvind +Dharia +Arvind +Dharia +Secretary +28 +ANNUAL MEETING OF STOCKHOLDERS OF +STEVEN MADDEN, LTD. +May 23, 2008 +Please sign, date and mail +your proxy card in the +envelope provided as soon +as possible. +Please detach along perforated line and mail +in the envelope provided. +THE BOARD OF +DIRECTORS RECOMMENDS A VOTE “FOR” ITEMS NO. 1 AND 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE +IN BLUE OR BLACK INK AS SHOWN HERE x +1. +ELECTION OF DIRECTORS +NOMINEES: +c +FOR ALL NOMINEES +Edward R. Rosenfeld +John L. Madden +Peter Migliorini +Richard P. Randall +Thomas H. Schwartz +Walter Yetnikoff +c +WITHHOLD AUTHORITY +FOR ALL NOMINEES +c +FOR ALL EXCEPT +(See instructions below) +INSTRUCTIONS: +To withhold authority to vote for any individual nominee(s), +mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: +To change the address on your account, please +check the box at right and indicate your new address in the address space above. Please note that changes to the +registered name(s) on the account may not be submitted via this method. +c +FOR +AGAINST +ABSTAIN +2. +RATIFICATION OF THE APPOINTMENT OF EISNER +LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING +DECEMBER 31, 2008. +c +c +c +In their discretion, the +proxies are authorized to vote upon such other business as may properly be presented +at the meeting or any adjournments or postponements thereof. +THIS PROXY WILL BE VOTED AS +SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF +THE SIX (6) NOMINEES NAMED IN ITEM 1, (2) FOR THE RATIFICATION OF THE APPOINTMENT OF EISNER LLP +AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2008 IN +ITEM 2, AND (3) IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +Please mark, sign, date and return +this Proxy promptly using the accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON +BEHALF OF THE BOARD OF DIRECTORS OF STEVEN MADDEN, LTD. +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name +or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as +executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is +a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer +is a partnership, please sign in partnership name by authorized person. +PROXY +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES +([FOR] [WITHHOLD AUTHORITY] [AGAINST] OR [ABSTAIN]) +NEXT TO EACH OF THE PROPOSALS +The undersigned +stockholder of Steven Madden, Ltd. (the “Company”) hereby appoint(s) Edward R. Rosenfeld and +Arvind Dharia, and each of them, as attorneys and proxies, each with power of substitution and revocation, to +represent the undersigned at the Annual Meeting of Stockholders of the Company to be held at the Company’s +showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., local time, on +May 23, 2008, and at any adjournments or postponements thereof, with authority to vote all shares of Common Stock +of the Company held or owned by the undersigned on April 15, 2008, in accordance with the directions indicated herein. +(Continued and to be signed on the reverse side.) \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-08-000564/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-08-000564/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a30ed67120552ab26bf04dd380fdc0fc240a9d6a --- /dev/null +++ b/raw/proxies/0000913241/0001019056-08-000564/proxy_rpt.txt @@ -0,0 +1,75 @@ +“--Certain Relationships and Related Transactions.”); (ii) $353,400 from a sale of Common +Stock; and (iii) a $750 dividend paid on restricted stock. +(5) +On February +25, 2008, Mr. Cooper resigned from his position as a director of the Company. +(6) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$24,488. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 750, and Mr. Cooper had no stock options outstanding. +(7) +Represents $66,663 in consulting fees paid +during 2007 to Peter J. Solomon & Company, a financial advisory firm of +which Mr. Cooper is a Managing Director. See “--Certain Relationships and +Related Transactions.” +(8) +On September +7, 2007, Mr. Kahn resigned from his position as a director of the Company. +(9) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, Mr. Kahn had no restricted stock outstanding, and +no stock options outstanding. +(10) +Represents (i) $54,425 +from a sale of Common Stock; and (ii) a $1,500 dividend paid on restricted +stock. +(11) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$24,488. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 750, and the aggregate number of stock +options outstanding was 40,000. +(12) +Represents (i) $631,266 +in fees, travel and insurance allowance paid to JLM Consultants, a company +wholly owned by Mr. Madden, in connection with consulting services for the +development of the Company’s international business; (ii) $58,424 for the use of a +corporate apartment; and (iii) a $750 +dividend paid on restricted stock. See “--Certain Relationships and +Related Transactions.” +(13) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 1,500, and the aggregate number of stock +options outstanding was 15,000. +20 +(14) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 1,500, and Mr. Randall had no stock options outstanding. +(15) +The grant +date fair value of such stock award computed in accordance with FAS 123R was +$48,975. At December 31, 2007, the aggregate number of shares of +restricted stock outstanding was 1,500, and the aggregate number of stock +options outstanding was 30,000. +Directors +who are also employees of the Company are not paid any fees or other +remuneration for service on the Board or any of its committees. In 2007, +each non-employee director received the following compensation: (i) (A) for +independent directors, a grant of 1,500 shares of restricted stock, vesting on +the first anniversary of the grant date, and (B) for non-independent directors, +a grant of 750 shares of restricted stock, vesting on the first anniversary of +the grant date; and (ii) $40,000. In 2007, members of the Audit +Committee, Nominating/Corporate Governance Committee and Compensation Committee +each received an additional +$10,000 for services on such committees, except that the audit committee +financial expert received $15,000 and the chairperson of the Compensation +Committee received $15,000. The Company reimburses directors for any +out-of-pocket expenses incurred by them in connection with services provided in +such capacity. +CERTAIN \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-09-000432/proxy.txt b/raw/proxies/0000913241/0001019056-09-000432/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..40e94e954844696f0bfa7723a207722effa2c8b2 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-09-000432/proxy.txt @@ -0,0 +1,5840 @@ +DEF 14A +1 +smadden_def14a.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 +Filed by the +Registrant x +Filed by a +Party other than the Registrant o +Check the +appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule +14a-6(e)(2)) +x +Definitive +Proxy Statement +o +Definitive +Additional Materials +o +Soliciting +Material Pursuant to § 240.14a-12 +STEVEN MADDEN, LTD. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of +Filing Fee (Check the appropriate box): +x +No fee +required +Fee computed +on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of +each class of securities to which transaction applies: +(2) +Aggregate +number of securities to which transaction applies: +(3) +Per unit +price or other underlying value of transaction computed pursuant to Exchange +Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed +maximum aggregate value of transaction: +(5) +Total fee +paid: +o +Fee paid +previously with preliminary materials: +o +Check box if +any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and +identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount +Previously Paid: +(2) +Form, +Schedule or Registration Statement No.: +(3) +Filing +Party: +(4) +Date Filed: +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 22, 2009 +To the +Stockholders of Steven Madden, Ltd.: +NOTICE IS +HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of +the Company will be held on May 22, 2009, at the Company’s showroom located at +1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., +local time, and thereafter as it may from time to time be adjourned, for the +purposes stated below. +1. +To elect six +directors to the Board of Directors of the Company to serve until the next +annual meeting of the Company’s stockholders and until their successors are +duly elected and qualified or until their earlier death, resignation or +removal from office; +2. +To approve +the amendment and restatement of the Company’s 2006 Stock Incentive Plan to +increase by 2,514,000 the number of shares available under the plan, approve +the plan’s performance goals and make other amendments, as described in the +Company’s Proxy Statement; +3. +To ratify +the appointment of Eisner LLP as the Company’s independent registered public +accounting firm for the fiscal year ending December 31, 2009; and +4. +To transact +such other business as may properly come before the Annual Meeting or any +adjournments thereof. +All +stockholders are cordially invited to attend the Annual Meeting. Only those +stockholders of record at the close of business on March 23, 2009 are entitled +to notice of and to vote at the Annual Meeting and any adjournments thereof. A +complete list of stockholders entitled to vote at the Annual Meeting will be +available for ten days prior to the Annual Meeting for any purpose germane to +the meeting, between the hours of 9:00 a.m. and 4:30 p.m., local time, at the +Company’s principal executive offices at 52-16 Barnett Avenue, Long Island +City, NY 11104, by contacting the Secretary of the Company, and will be +available at the Annual Meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY +OF PROXY MATERIALS +FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 22, 2009 +Our notice of annual meeting and proxy statement, +annual report, electronic proxy card and any other annual meeting materials are +available on the Internet at www.proxyvote.com together with any amendments to +any of these materials. +BY ORDER OF +THE BOARD OF DIRECTORS +April 9, +2009 +/s/ Arvind +Dharia +Arvind +Dharia +Secretary +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND +SIGN THE ACCOMPANYING FORM OF +PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE +PROVIDED TO VOTE PROCESSING, C/O BROADRIDGE, 51 MERCEDES WAY, EDGEWOOD, +NEW YORK 11717. ALTERNATIVELY, YOU MAY +VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE +ACCOMPANYING PROXY CARD. +-2- +STEVEN MADDEN, LTD. +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +PROXY STATEMENT +INTRODUCTION +This Proxy +Statement and the accompanying Notice of Annual Meeting of Stockholders and +form of proxy are being furnished to the holders of common stock of Steven +Madden, Ltd., a Delaware corporation (the “Company”), in connection with the +solicitation of proxies by the Board of Directors of the Company (the “Board of +Directors” or the “Board”) for use at the 2009 Annual Meeting of Stockholders +of the Company (the “Annual Meeting”) to be held at the Company’s showroom +located at 1370 Avenue of the Americas, 14th Floor, New York, New York on +Friday, May 22, 2008 at 10:00 a.m., local time, and at any adjournments +thereof. These proxy materials are being sent on or about April 9, 2009 to +holders of record of common stock, $.0001 par value, of the Company (the +“Common Stock”) at the close of business on March 23, 2009 (the “Record Date”). +The Company’s Annual Report for the fiscal year ended December 31, 2008 (“2008 +Fiscal Year”), including audited financial statements, is being sent to +stockholders together with these proxy materials. +The Annual +Meeting has been called to consider and take action on the following proposals: +(i) to elect six directors to the Board of Directors of the Company to serve +until the next annual meeting of the Company’s stockholders and until their +successors are duly elected and qualified or until their earlier death, +resignation or removal from office, (ii) to approve the amendment and +restatement of the Company’s 2006 Stock Incentive Plan to increase by 2,514,000 +the number of shares available under the plan, approve the plan’s performance +goals and make other amendments, as described in this Proxy Statement, (iii) to +ratify the appointment of Eisner LLP as the Company’s independent registered +public accounting firm for the fiscal year ending December 31, 2009, and (iv) +to transact such other business as may properly come before the Annual Meeting +or any adjournments thereof. The Board of Directors knows of no other matters +to be presented for action at the Annual Meeting. However, if any other matters +properly come before the Annual Meeting, the persons named in the proxy will +vote on such other matters and/or for other nominees in accordance with their +best judgment. The Company’s Board of Directors recommends that the +stockholders vote in favor of each of the proposals. Only holders of record of +Common Stock of the Company at the close of business on the Record Date will be +entitled to vote at the Annual Meeting. +The +principal executive offices of the Company are located at 52-16 Barnett Avenue, +Long Island City, New York 11104 and its telephone number is (718) 446-1800. +INFORMATION CONCERNING SOLICITATION AND +VOTING +As of the +Record Date, there were outstanding 17,938,562 shares of Common Stock +(excluding treasury shares) held by approximately 115 holders of record and +33,091 beneficial owners. Only holders of shares of Common Stock on the Record +Date will be entitled to vote at +-3- +the Annual Meeting. The holders of Common Stock are entitled to one +vote on each matter presented at the meeting for each share held of record. +The +presence, in person or by proxy, of the holders of a majority of the shares +eligible to vote is necessary to constitute a quorum in connection with the +transaction of business at the Annual Meeting. Abstentions and broker non-votes +(i.e., proxies from brokers or nominees indicating that such persons have not +received instructions from the beneficial owner or other persons eligible to +vote shares as to a matter with respect to which the brokers or nominees do not +have discretionary power to vote) are counted as present for purposes of +determining the presence or absence of a quorum for the transaction of +business. If a quorum should not be present, the Annual Meeting may be +adjourned until a quorum is obtained. +Abstentions +and broker non-votes will have no effect on the election of directors (Proposal +One), which is by plurality vote. +Abstentions +will, in effect, be votes against the approval of the amendment and restatement +of the Company’s 2006 Stock Incentive Plan (Proposal Two), as this item +requires the affirmative vote of a majority of the shares present and entitled +to vote on such item. Broker non-votes will not be considered votes cast on +Proposal Two, and the shares represented by broker non-votes with respect to +this proposal will be considered present but not entitled to vote on this proposal. +Broker non-votes will therefore have no effect on the approval of the amendment +and restatement of the Company’s 2006 Stock Incentive Plan (Proposal Two). +Abstentions +will, in effect, be votes against the ratification of the selection of the +independent registered public accounting firm (Proposal Three), as this item +requires the affirmative vote of a majority of the shares present and entitled +to vote on such item. Broker non-votes will not be considered votes cast on +Proposal Three, and the shares represented by broker non-votes with respect to +this proposal will be considered present but not entitled to vote on this +proposal. Broker non-votes will therefore have no effect on the ratification of +the selection of the independent registered public accounting firm (Proposal +Three). +Brokers who +hold shares in street name may vote in their discretion on behalf of beneficial +owners from whom they have not received instruction with respect to routine +matters. Proposals One and Three should be treated as routine matters. Proposal +Two should be treated as a non-routine matter. +The expense +of preparing, printing and mailing this Proxy Statement, the exhibits hereto +and the proxies solicited hereby will be borne by the Company. In addition to +the use of the mails, proxies may be solicited by officers and directors and +regular employees of the Company, without additional remuneration, by personal +interviews, telephone, telegraph or facsimile transmission. The Company will +also request brokerage firms, nominees, custodians and fiduciaries to forward +proxy materials to the beneficial owners of shares of Common Stock held of +record by them and will provide reimbursements for the cost of forwarding the +material in accordance with customary charges. The Company has entered into an +agreement with D.F. King & Co., Inc. to assist in the solicitation of +proxies and provide related advice and informational support. The total expense +of this engagement, which will be borne by the Company, including customary +disbursements, is not expected to exceed $20,000 in the aggregate. +-4- +Proxies +given by stockholders of record for use at the Annual Meeting may be revoked at +any time prior to the exercise of the powers conferred. In addition to revocation +in any other manner permitted by law, stockholders of record giving a proxy may +revoke the proxy by an instrument in writing, executed by the stockholder or +his attorney authorized in writing, or, if the stockholder is a corporation by +an officer or attorney thereof duly authorized, and deposited either at the +principal executive offices of the Company at any time up to and including the +last business day preceding the day of the Annual Meeting, or any adjournment +thereof, at which the proxy is to be used, or with the chairman of such Annual +Meeting on the day of the Annual Meeting or adjournment thereof and prior to +the vote upon such matters, and upon either of such deposits the proxy shall be +revoked. In addition, you can revoke your proxy by completing and submitting a +later-dated proxy, by voting again by Internet or telephone, or by attending +the annual meeting and voting in person, provided that attendance at the Annual +Meeting will not have the effect of revoking your properly executed or authorized +proxy unless you deposit a written revocation as described in the preceding +sentence before your proxy is voted. If you have instructed a broker to vote +your shares and wish to change your vote, you must follow directions received +from your broker to change those instructions. +ALL PROXIES +RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH +PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY +SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE +DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS +THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOUNMENTS OR +POSTPONEMENTS THEREOF. +None of the matters to be acted on at the Annual Meeting give rise to +any statutory right of a stockholder to dissent and obtain the appraisal of or +payment for such stockholder’s shares. +MATTERS TO BE CONSIDERED AT ANNUAL MEETING +PROPOSAL ONE +ELECTION OF DIRECTORS +Under the +Amended and Restated By-Laws of the Company (the “By-Laws”), the Board of +Directors of the Company is required to be comprised of a minimum of one +director. Subject to the foregoing limitation, the number of directors may be +fixed from time to time by action of the directors. The Company’s Board of Directors +presently consists of six directors whose terms expire at the Annual Meeting. +The +Nominating/Corporate Governance Committee of the Board of Directors and the +Board of Directors have nominated and are recommending the election of each of +the six nominees set forth below to serve as a director of the Company until +the next annual meeting of the Company’s stockholders and until his successor +is duly elected and qualified or until his earlier death, resignation or +removal from office. The names and biographical summaries of the six persons +who have been nominated by the Nominating/Corporate Governance Committee of the +Board of Directors and the Board of Directors to stand for election at the +Annual Meeting have been provided below for your information. +-5- +BIOGRAPHICAL SUMMARIES OF NOMINEES FOR THE BOARD OF DIRECTORS +Edward R. +Rosenfeld has served as Chief Executive Officer and Chairman of the Board of +Directors of the Company since August 8, 2008. Mr. Rosenfeld had served as +interim Chief Executive Officer of the Company from March 24, 2008 until August +8, 2008. Mr. Rosenfeld was formerly the Executive Vice President of Strategic +Planning and Finance and has been a member of the executive management team +since joining the Company in May 2005. Mr. Rosenfeld has also been serving as a +member of the Board of Directors since February 2008. Prior to joining the +Company, Mr. Rosenfeld was a Vice President in the mergers and acquisitions +group at Peter J. Solomon Company, an investment banking boutique, where he +focused on the retail and apparel industries. +John L. +Madden has been a director of the Company since the Company’s inception. From +June 2004, Mr. Madden’s consulting company, JLM Consultants, Inc., has provided +consulting services with respect to international sales of the Company. From +April 1998 through September 2003, Mr. Madden owned a branch office of Tradeway +Securities Group, Inc. in Florida. From May 1996 through December 1996, Mr. +Madden’s consulting company, JLM Consultants, Inc., acted as a branch office of +Merit Capital, Inc. for several broker-dealers. From May 1994 to May 1996, Mr. +Madden served as Vice President of Investments for GKN Securities, Inc. From +August 1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc. +as Managing Director and registered sales representative. Mr. Madden is the +brother of Steven Madden, the Company’s founder and Creative and Design Chief. +See “--Certain Relationships and Related Transactions.” +Peter Migliorini +has been a director of the Company since October 1996. Mr. Migliorini has +served as Sales Manager for Greschlers, Inc., a supply company located in +Brooklyn, New York, since 1994. From 1987 to 1994, Mr. Migliorini served as +Director of Operations for Mackroyce Group. Mr. Migliorini has previously +served in a number of capacities, ranging from Assistant Buyer to Chief +Planner/Coordinator, for several shoe companies, including Meldisco Shoes, +Perry Shoes and Fasco Shoes. +Richard P. +Randall has been a director of the Company since April 2006. Mr. Randall was +the Executive Vice President and Chief Financial Officer of Direct Holdings +Worldwide, LLC, the parent company of Lillian Vernon Corp. and TimeLife, from +2002 until his retirement in June 2005. Previously, Mr. Randall served as +Senior Vice President and Chief Financial Officer of Coach, Inc. and the Chief +Operating Officer and Chief Financial Officer of Lillian Vernon Corp. from 2000 +to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves as a +Director, and chairs the Audit Committee, of The Burke Rehabilitation Hospital. +Ravi +Sachdev has been a director of the Company since September 2008. Mr. Sachdev +has served as a Managing Director at Deutsche Bank Securities, Inc. since +January 2009. From January 2007 until January 2009, Mr. Sachdev was a Director +at Deutsche Bank Securities, Inc. Mr. Sachdev joined Deutsche Bank Securities, +Inc. in 2006 as a Vice President. At Deutsche Bank Securities, Inc., Mr. +Sachdev has focused on the healthcare services subsector. From 1998 to 2006, +Mr. Sachdev was a Vice President at Peter J. Solomon Company, specializing in +Mergers & Acquisitions within the healthcare sector. +-6- +Thomas H. +Schwartz has been a director of the Company since May 2004. Since March 2007, +Mr. Schwartz has been the Chief Executive Officer and sole owner of Sumner and +Forge Investors LLC, a company that invests in real estate and manages +properties in which it has ownership interests. Previously, Mr. Schwartz was a +Managing Director of Helmsley-Spear, Inc. from 1984 to March 2007. +REQUIRED VOTE +Proxies +will be voted for the election of the six nominees as directors of the Company +unless otherwise specified on the proxy. A plurality of the votes cast by the +holders of shares of Common Stock present in person or represented by proxy at +the Annual Meeting will be necessary to elect the nominees as directors. If, +for any reason, any of the nominees shall be unable or unwilling to serve, the +proxies will be voted for a substitute nominee who will be designated by the +Board of Directors at the Annual Meeting. Stockholders may abstain from voting +by marking the appropriate boxes on the accompanying proxy. Abstentions shall +be counted separately and shall be used for purposes of calculating whether a +quorum is present at the meeting. +RECOMMENDATION OF THE BOARD OF DIRECTORS +The +Nominating/Corporate Governance Committee of the Board and the Board +unanimously recommend a vote FOR the election of Messrs. John L. Madden, Peter +Migliorini, Richard P. Randall, Edward R. Rosenfeld, Ravi Sachdev and Thomas H. +Schwartz. Unless otherwise instructed or unless authority to vote is withheld, +the accompanying proxy will be voted FOR the election of the above listed +nominees and AGAINST any other nominees. +DIRECTOR INDEPENDENCE +The Board +of Directors is currently comprised of six members. The Board of Directors has +determined that the following director nominees are “independent” for purposes +of the criteria of the Securities and Exchange Commission (“SEC”) and The +Nasdaq Global Select Market listing standards: Messrs. Migliorini, Randall, +Sachdev and Schwartz. The Board of Directors had also determined that Walter +Yetnikoff, who retired from his position as a director on August 8, 2008, was +“independent” for purposes of the same criteria. If the six nominees set forth +above are elected, the Board will be comprised of a majority of independent +directors. The Board of Directors has held regularly scheduled executive +sessions, with Peter Migliorini serving as Presiding Director of such executive +sessions. +DIRECTORS’ ATTENDANCE AT ANNUAL MEETINGS +The Company +encourages all of its directors to attend annual meetings of the Company’s +stockholders. Four directors attended the Company’s 2008 annual meeting of +stockholders. +COMMUNICATIONS WITH DIRECTORS +The Company +has adopted a procedure by which stockholders may send communications as +defined within Item 7(d) of Schedule 14A under the Securities Exchange Act of +1934, as amended (the “Exchange Act”) to one or more members of the Board of +Directors by writing to such director(s) or to the whole Board of Directors in +care of the Corporate Secretary, Steven +-7- +Madden, Ltd., 52-16 Barnett Avenue, Long Island City, NY 11104. The +Board has instructed the Corporate Secretary to review all communications so +received and to exercise his discretion not to forward to the Board +correspondence that is inappropriate such as business solicitations, frivolous +communications and advertising, routine business matters (i.e. business +inquiries, complaints, or suggestions) and personal grievances. However, any +director may at any time request the Corporate Secretary to forward any and all +communications received by the Corporate Secretary but not forwarded to the +directors. +MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS +The Board +of Directors met eight times during the 2008 Fiscal Year. In 2008 each director +attended at least 75% of the aggregate of the number of Board meetings and the +number of meetings held by all committees on which he then served. The Board of +Directors has a standing Audit Committee, Compensation Committee and +Nominating/Corporate Governance Committee. +AUDIT COMMITTEE +From +January 1 to August 8, 2008, the members of the Audit Committee were Richard P. +Randall (Chairman), Peter Migliorini and Walter Yetnikoff. Effective August 8, +2008, Mr. Yetnikoff retired from his position as a director of the Company. On +September 11, 2008, Ravi Sachdev became a member of the Audit Committee, such +that the members of the Audit Committee were Messrs. Randall (Chairman), +Migliorini and Sachdev. The current members of the Audit Committee are Messrs. +Randall (Chairman), Migliorini and Sachdev. The Audit Committee is comprised of +directors who are “independent” for purposes of The Nasdaq Global Select Market +listing standards and who meet the independence requirements contained in +Exchange Act Rule 10A-3(b)(1). The Board has determined that Richard P. Randall +meets the SEC criteria of an “audit committee financial expert” and he is +currently serving as such. The Audit Committee is primarily responsible for +reviewing the services performed by the Company’s independent registered public +accountants, evaluating the Company’s accounting policies and its system of +internal controls, and reviewing significant finance transactions. During 2008, +the Audit Committee met eight times. +The Audit +Committee is responsible for reviewing and helping to ensure the integrity of +the Company’s financial statements. Among other matters, the Audit Committee, +with management and independent and internal auditors, reviews the adequacy of +the Company’s internal accounting controls that could significantly affect the +Company’s financial statements. The Audit Committee is also directly and solely +responsible for the appointment, retention, compensation, oversight and +termination of the Company’s independent registered public accountants. In +addition, the Audit Committee also functions as the Company’s Qualified Legal +Compliance Committee (the “QLCC”). The purpose of the QLCC is to receive, +retain and investigate reports made directly, or otherwise made known, of +evidence of material violations of any United States federal or state law, +including any breach of fiduciary duty by the Company, its officers, directors, +employees or agents, and if the QLCC believes appropriate, to recommend courses +of action to the Company. +The Audit +Committee meets with management periodically to consider the adequacy of the +Company’s internal controls and the objectivity of its financial reporting. The +Audit +-8- +Committee discusses these matters with the Company’s independent +registered public accountants and with appropriate Company financial personnel. +Meetings are held with the independent registered public accountants who have +unrestricted access to the Audit Committee. In addition, the Audit Committee +reviews the Company’s financing plans and reports recommendations to the full +Board of Directors for approval and to authorize action. The Board has adopted +a written charter setting out the functions the Audit Committee is to perform. +A copy of the Audit Committee Charter is available on the Company’s website at +www.stevemadden.com. +Management +has primary responsibility for the Company’s financial statements and the +overall reporting process, including the Company’s system of internal controls. +The independent registered public accountants audit the annual financial statements +prepared by management, express an opinion as to whether those financial +statements present fairly the financial position, results of operations and +cash flows of the Company in conformity with accounting principles generally +accepted in the United States of America and discuss with the Audit Committee +any issues they believe should be raised with the Audit Committee. +AUDIT +COMMITTEE REPORT +The Audit +Committee reviewed the Company’s audited financial statements for the 2008 Fiscal +Year and met with both management and Eisner LLP, the Company’s independent +registered public accountants, to discuss such audited financial statements. +Management and the Company’s independent registered public accountants have +represented to the Audit Committee that the financial statements were prepared +in accordance with accounting principles generally accepted in the United +States of America. The Audit Committee has received from and discussed with +Eisner LLP the written disclosures and the letter regarding Eisner LLP’s +communications with the Audit Committee concerning independence as required by +applicable requirements of the Public Company Accounting Oversight Board, and +discussed Eisner LLP’s independence. The Audit Committee also discussed with +Eisner LLP any matters required to be discussed by Statement on Auditing +Standards No. 61, as amended, as adopted by the Public Company Accounting +Oversight Board in Rule 3200T. Based on these reviews and discussions, the +Audit Committee recommended to the Board that the Company’s audited financial +statements be included in the Company’s Annual Report on Form 10-K for the 2008 +Fiscal Year. +Submitted by the Audit Committee of the +Company’s Board of Directors: +Richard P. +Randall (Chairman) +Peter Migliorini +Ravi Sachdev +NOMINATING/CORPORATE GOVERNANCE COMMITTEE +From +January 1 to August 8, 2008, the members of the Nominating/Corporate Governance +Committee of the Board of Directors were Peter Migliorini and Walter Yetnikoff. +Effective August 8, 2008, Mr. Yetnikoff retired from his position as a director +of the Company. +-9- +On September 5, 2008, Richard P. Randall became a member of the +Nominating/Corporate Governance Committee, such that the members of the +Nominating/Corporate Governance Committee were Messrs. Migliorini and Randall. +The current members of the Nominating/Corporate Governance Committee are +Messrs. Migliorini and Randall. The Nominating/Corporate Governance Committee +is comprised of directors who are “independent” for purposes of The Nasdaq +Global Select Market listing standards. The Nominating/Corporate Governance +Committee considers and makes recommendations to the Board of Directors with +respect to the size and composition of the Board of Directors and identifies +potential candidates to serve as directors. The Nominating/Corporate Governance +Committee identifies candidates to the Board of Directors by introductions from +management, members of the Board of Directors, employees or other sources and +stockholders that satisfy the Company’s policy regarding stockholder +recommended candidates. The Nominating/Corporate Governance Committee does not +evaluate director candidates recommended by stockholders differently than +director candidates recommended by other sources. A copy of the +Nominating/Corporate Governance Committee Charter is available on the Company’s +website at www.stevemadden.com. +Stockholders +wishing to submit recommendations for director nominations for the 2010 Annual +Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. Any such stockholder must (x) +comply with the director nomination provisions of the Company’s By-Laws, (y) +meet and evidence the minimum eligibility requirements specified in Exchange +Act Rule 14a-8, and (z) submit, within the same timeframe for submitting a +stockholder proposal required by Rule 14a-8: (1) evidence in accordance with +Rule 14a-8 of compliance with the stockholder eligibility requirements, (2) the +written consent of the candidate(s) for nomination as a director, (3) a resume +or other written statement of the qualifications of the candidate(s) for +nomination as a director, and (4) all information regarding the candidate(s) +and the submitting stockholder that would be required to be disclosed in a +proxy statement filed with the SEC if the candidate(s) were nominated for +election to the Board of Directors. +In +considering Board of Directors candidates, the Nominating/Corporate Governance +Committee takes into consideration the Company’s Board Candidate Guidelines, +available on the Company’s website at www.stevemadden.com, the Company’s policy +regarding stockholder recommended director candidates, as set forth above, and +all other factors that they deem appropriate, including, but not limited to, +the individual’s character, education, experience, knowledge and skills. In +addition, the Nominating/Corporate Governance Committee develops and recommends +corporate governance principles for the Company; makes recommendations to the +Board of Directors in support of such principles; takes a leadership role in +the shaping of the corporate governance of the Company; and oversees the +evaluation of the Board of Directors and management. +During +2008, the Nominating/Corporate Governance Committee met once and acted once by +unanimous written consent. +COMPENSATION COMMITTEE +The +Compensation Committee of the Board of Directors for the year ended December +31, 2008 consisted of directors Peter Migliorini (Chairman) and Thomas H. +Schwartz. The Compensation Committee is comprised of directors who are +“independent” for purposes of The +-10- +Nasdaq Global Select Market listing standards and applicable tax and +securities rules. The Compensation Committee is responsible for establishing +and modifying the Company’s compensation and incentive plans and programs; +determining and approving compensation for the Company’s executive officers, +including salaries, bonuses, perquisites and equity awards; reviewing and +approving compensation and awards for the Company’s executive officers under +the Company’s compensation and incentive plans and programs; administering the +Company’s equity compensation plans; reviewing and approving a compensation +program for outside members of the Board; and assisting the Board in +discharging the Board’s responsibilities relating to management organization, +performance, compensation and succession. +The +Compensation Committee operates under a formal charter adopted by the Board of +Directors that governs its composition, powers and responsibilities. A copy of +the Compensation Committee Charter is available on the Company’s website at +www.stevemadden.com. During 2008, the Compensation Committee met once, and +acted six times by unanimous written consent. +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION +OBJECTIVES AND STRATEGY +The +Company’s executive officer compensation program is designed to attract and +retain the caliber of officers needed to ensure the Company’s continued growth +and profitability and to reward them for their performance, the Company’s +performance and for creating longer term value for stockholders. The primary +objectives of the program are to: +· +align +rewards with performance that creates stockholder value; +· +support the +Company’s strong team orientation; +· +encourage +high-potential team players to build a career at the Company; and +· +provide +rewards that are cost-efficient, competitive with other organizations and +fair to employees and stockholders. +The +Company’s executive compensation programs are approved and administered by the +Compensation Committee of the Board of Directors. Working with management and +outside advisors, the Compensation Committee has developed a compensation and +benefits strategy that rewards performance and reinforces a culture that the +Compensation Committee believes will drive long-term success. +The +compensation program rewards team accomplishments while promoting individual +accountability. The executive officer compensation program depends in +significant measure on Company results, but business unit results and +individual accomplishments are also very +-11- +important factors in determining each executive’s compensation. The +Company has a robust planning and goal-setting process that is fully integrated +into the compensation system, enhancing a strong relationship between +individual efforts, Company results, and financial rewards. +A major +portion of total compensation is placed at risk through annual and long-term +incentives. As a result of a decline in 2008 profitability, bonuses linked to +profitability were not paid. As noted below, discretionary bonuses were paid to +Named Executive Officers (as defined herein). The combination of incentives is +designed to balance annual operating objectives and Company earnings +performance with longer-term stockholder value creation. +The Company +seeks to provide competitive compensation that is commensurate with +performance. The Company targets compensation at the median of the market, and +calibrates both annual and long-term incentive opportunities to generate +less-than-median awards when goals are not fully achieved and +greater-than-median awards when goals are exceeded. +The Company +seeks to promote a long-term commitment to the Company by its senior +executives. The Company believes that there is great value to the Company in +having a team of long-tenured, seasoned managers. The Company’s team-focused +culture and management processes are designed to foster this commitment. In +addition, stock options granted to Named Executive Officers in 2008 reinforce +this long-term orientation with annual vesting over a three-year or five-year +period. +ROLE OF THE COMPENSATION COMMITTEE +General +The +Compensation Committee provides overall guidance for the Company’s executive +compensation policies and determines the amounts and elements of compensation +for the Company’s executive officers and outside directors. The Compensation +Committee currently consists of two members of the Company’s Board of +Directors, Messrs. Migliorini and Schwartz, each of whom is an independent +director under Nasdaq’s Rule 4200, a “non-employee director” as defined under +the SEC’s rules and an “outside director” as defined under Section 162(m) of +the Internal Revenue Code (the “Code”). +When +considering decisions concerning the compensation of executives, other than the +Chief Executive Officer, the Compensation Committee asks for the +recommendations of the Chief Executive Officer, including his detailed +evaluation of each executive’s performance. No executive has a role in +recommending compensation for outside directors. With respect to the +application of the 2006 Stock Incentive Plan (the “2006 Plan”), as amended, to +non-employee directors, the Board of Directors functions as the Compensation +Committee. +Use of Outside Advisors +In making +its determinations with respect to executive compensation, the Compensation +Committee has historically engaged the services of an independent compensation +consulting firm. In 2005, the Compensation Committee retained the services of +James F. Reda & Associates, LLC to assist with its review of the +compensation package of the Chief Executive Officer and other executive +officers for 2006. In 2007 and 2008, James F. Reda & Associates, +-12- +LLC was retained to assist the Compensation Committee with several +special projects, including advice on director compensation, advice relating to +the 2006 Plan, as amended, including the use of restricted stock under the +Company’s long term incentive program, and appropriate compensation for new +hires at senior executive positions. +The +Compensation Committee retains James F. Reda & Associates, LLC directly, +although in carrying out assignments, James F. Reda & Associates, LLC also +interacts with Company management when necessary and appropriate in order to +obtain compensation and performance data for the executives and the Company. In +addition, James F. Reda & Associates, LLC may, in its discretion, seek +input and feedback from management regarding its consulting work product prior +to presentation to the Compensation Committee in order to confirm alignment +with the Company’s business strategy and identify data questions or other +similar issues, if any, prior to presentation to the Compensation Committee. +The +Compensation Committee has the sole authority to retain, terminate and set the +terms of the Company’s relationship with any outside advisors who assist the Committee +in carrying out its responsibilities. +COMPENSATION STRUCTURE +Pay Elements - Overview +The Company +utilizes four main components of compensation: +· +Base Salary +· +Annual +Performance-based Cash Bonuses +· +Long-term +Equity Incentives (consisting of stock options and restricted stock) +· +Benefits and +Perquisites +Pay Elements - Details +Base +Salary. The Company paid base salaries to each of the Named Executive Officers +to provide them with fixed pay that takes into account the Named Executive +Officer’s role and responsibilities, experience, expertise and individual +performance. As more fully described in “--Employment Arrangements,” as of +December 31, 2008, the Company had employment agreements with each of the Named +Executive Officers other than Jamieson A. Karson. (1) You should +refer to that section of this Proxy Statement for a full description of each +-13- +Named Executive Officer’s base salary. The Compensation Committee, as +constituted at the time the parties entered into the employment agreements, +reviewed and approved the salary established in each such agreement. The +Compensation Committee took into account each of the employee’s historic +salary, value in the marketplace and performance (including at the Company and +previous employment). Under their respective employment agreements, the base +salaries of Edward R. Rosenfeld, Robert Schmertz, Awadhesh Sinha and Amelia +Newton Varela remain constant during the term of their employment agreements. +Under Mr. Dharia’s employment agreement, his base salary increased from +$435,625 in 2007 to $457,406 in 2008 and is scheduled to increase by 5% in +2009. See “--Summary Compensation Table” and “--Employment Arrangements.” +Salary increases for officers are generally consistent with those of other +management employees. +(1) Effective +March 24, 2008, Mr. Karson resigned from his position as Chief Executive +Officer, director and Chairman of the Board of Directors of the Company. See +“-- Employment Arrangements.” +Annual +Performance-based Cash Bonus. Each Named Executive Officer’s annual +performance-based cash bonus is established in their respective employment +agreement. The Compensation Committee reviewed and approved the bonus +provisions set in each such employment agreement at the time the parties +entered into such agreements. Such bonus provisions generally provide for +variable or discretionary bonuses designed to reward attainment of business +goals. The amount, if any, of the annual performance-based cash bonuses of +Messrs. Rosenfeld, Dharia and Schmertz is entirely within the discretion of the +Board of Directors or the Compensation Committee. The Board of Directors and/or +the Compensation Committee consider various criteria, including revenue growth +and profitability. Based on these and other individual performance factors, the +Compensation Committee paid bonuses of $75,000, $50,000, and $250,000 +respectively to Messrs. Rosenfeld, Dharia, and Schmertz. +Mr. Sinha’s +annual performance-based cash bonus is tied to increases in the Company’s EBIT +from the preceding year. Mr. Sinha is entitled to an annual performance-based +cash bonus equal to 3% of the increase in the Company’s EBIT for such fiscal +year over the EBIT of the immediately prior fiscal year. Ms. Varela is entitled +to an annual performance-based cash bonus for each fiscal year in an amount +equal to 2% of the increase, if any, in Wholesale Footwear division EBIT for +that year over Wholesale Footwear division EBIT for the immediately prior year, +plus 1.5% of the increase, if any, in Retail division EBIT for that year over +Retail division EBIT for the immediately prior year. See “--Employment +Arrangements.” Each of Mr. Sinha’s and Ms. Varela’s annual performance-based +cash bonus targets were set to drive the business of their respective +divisions. Neither received a bonus for 2008 EBIT performance. Ms. Varela did +receive a $250,000 discretionary bonus for 2008. +Long-term +Equity Incentives. Management and the Compensation Committee believe that +equity-based awards are an important factor in aligning the long-term financial +interest of the officers and stockholders. The Compensation Committee +continually evaluates the use of equity-based awards and intends to continue to +use such awards in the future as part of designing and administering the +Company’s compensation program. Beginning in 2006, the Compensation Committee +replaced its practice of granting equity incentives solely in the form of stock +options with restricted stock awards in order to grant awards that contain both +substantial incentive and retention characteristics. These awards are designed +to provide emphasis on preserving +-14- +stockholder values generated in recent years while providing +significant incentives for continuing growth in stockholder value. +For 2008, +the Compensation Committee felt it was important to provide incentives that are +more responsive to shareholder value and therefore granted stock options to +Messrs. Rosenfeld and Sinha and to Ms. Varela. All grants were approved by the +Compensation Committee. The committee intends to continue to review the ideal +equity mix for influencing performance and retention. With respect to stock +options, the 2006 Plan, as amended, provides that the exercise price shall be +the closing market price per share on the business day immediately preceding +the grant date, which is fair market value for purposes of the 2006 Plan, as +amended. +Other +Benefits and Perquisites. The Company’s executive compensation program also includes +other benefits and perquisites. These benefits include annual matching +contributions to executive officers’ 401(k) plan accounts, company-paid medical +benefits, automobile allowances and leased automobiles, and life insurance +coverage. The Compensation Committee annually reviews these other benefits and +perquisites and makes adjustments as warranted based on competitive practices, +the Company’s performance and the individual’s responsibilities and +performance. The Compensation Committee has approved these other benefits and +perquisites as a reasonable component of the Company’s executive officer +compensation program. (See the “All Other Compensation” column and +corresponding footnotes in the Summary Compensation Table.) +Pay Mix +The Company +utilizes the particular elements of compensation described above because the +Company believes that it provides a well-proportioned mix of secure +compensation, retention value and at-risk compensation which produces +short-term and long-term performance incentives and rewards. By following this +approach, the Company provides the executive a measure of security in the +minimum expected level of compensation, while motivating the executive to focus +on business metrics and other variables within their particular sector which +will increase sales and margins and at the same time lower costs so as to +produce a high level of short-term and long-term performance for the Company +and long-term wealth creation for the executive, as well as reducing the risk +of recruitment of top executive talent by competitors. The mix of metrics used +for the annual performance bonuses and the Company’s long-term incentive +program likewise provides an appropriate balance between short-term financial +performance and long-term stock performance. +For Named +Executive Officers, the mix of compensation is weighted heavily toward at-risk +pay (annual incentives and long-term incentives). Maintaining this pay mix +results fundamentally in a pay-for-performance orientation for the Company’s +executives, which is aligned with the Company’s stated compensation philosophy +of providing compensation commensurate with performance. +-15- +Pay Levels and Benchmarking +Pay levels +for executives are determined based on a number of factors, including the +individual’s roles and responsibilities within the Company, the individual’s +experience and expertise, the pay levels for peers within the Company, pay +levels in the marketplace for similar positions and performance of the +individual and the Company as a whole. The Compensation Committee is +responsible for approving pay levels for the Named Executive Officers. In +determining the pay levels, the Compensation Committee considers all forms of +compensation and benefits. +The +Compensation Committee assesses “competitive market” compensation using a +number of sources. The primary data source used in setting competitive market +levels for the Named Executive Officers is the information publicly disclosed +by a peer group of the Company, which will be reviewed annually and may change +from year to year. The peer group of companies is American Apparel Inc., bebe +stores inc., Brown Shoe Company Inc., Collective Brands, Inc., Crocs Inc., +Deckers Outdoor Corp., Delta Apparel Inc., Perry Ellis International Inc., +G-III Apparel Group Inc., Genesco Inc., Guess?, Inc., Iconix Brand Group Inc., +Jones Apparel Group Inc., K-Swiss Inc., Kenneth Cole Productions Inc., +Maidenform Brands Inc., Movado Group Inc., Rocky Brands Inc., SKECHERS USA +Inc., Timberland Company, Under Armour Inc., Volcom Inc., Weyco Group Inc., and +Wolverine World Wide Inc. +After +consideration of the data collected on external competitive levels of +compensation and internal needs, the Compensation Committee makes decisions +regarding the Named Executive Officer’s target total compensation opportunities +based on the need to attract, motivate and retain an experienced and effective +management team. +Relative to +the competitive market data, the Compensation Committee generally intends that +the base salary and target annual incentive compensation for each Named +Executive Officer will be at the median of the competitive market. +As noted +above, notwithstanding the Company’s overall pay positioning objectives, pay +opportunities for specific individuals vary based on a number of factors such +as scope of duties, tenure, institutional knowledge and/or difficulty in +recruiting a new executive. Actual total compensation in a given year will vary +above or below the target compensation levels based primarily on the attainment +of operating goals and the creation of stockholder value. +Compensation Committee Discretion +The +Compensation Committee retains the discretion to decrease all forms of +incentive payouts based on significant individual or Company performance +shortfalls, with the exception of any such payouts that are to be made pursuant +to contractual commitments such as the bonuses that may be paid to Mr. Sinha +and Ms. Varela, which are tied to the Company’s EBIT for the preceding year +pursuant to their respective employment agreements. Likewise, the Compensation +Committee retains the discretion to increase payouts and/or consider special +awards for significant achievements, including, but not limited to, superior +asset management, investment or strategic accomplishments and/or consummation +of acquisitions, divestitures, capital improvements to existing properties, or +sales made by certain of the Company’s divisions. +-16- +Conclusion +The +level and mix of compensation that is finally decided upon is considered within +the context of both the objective data from the Company’s competitive +assessment of compensation and performance, as well as discussion of the +subjective factors as outlined above. The Compensation Committee believes that +each of the compensation packages for the Named Executive Officers is within +the competitive range of practices when compared to the objective comparative +data even where subjective factors have influenced the compensation decisions. +POST +TERMINATION, CHANGE IN CONTROL AND NON-COMPETE/NON-SOLICITATION +The +employment agreements for all the Named Executive Officers provide for severance +payment upon a termination upon a change-in-control of the Company. These payments however, are cutback if the +severance benefit, when added to any other benefits triggered by a +change-of-control, exceeds three times the executive’s average taxable +compensation for the five calendar years preceding the change of control. The threshold to which this cutback is made +is referred to as the Internal Revenue Code 280G threshold. The Company’s employment agreements with +Messrs. Rosenfeld, Dharia, Sinha and Ms. Varela also provide for severance +payments to each executive if the Company terminates the executive’s employment +without cause, or if the Company gives the executive good reason to terminate +employment. Refer to the section of +this Proxy Statement titled “Employment Arrangements” for a summary description +of the agreements and such severance and change-in-control provisions. These +benefits are described and quantified in the section entitled “Potential +Payments Upon Termination or Change-In-Control” under Directors and Executive +Officers, below. +The +Company believes that the severance payments and payments made upon +change-in-control provisions in the employment agreements provide appropriate +protection to the Company’s executives, comparable to that available at peer +companies, and, with regard to the enhanced severance following a +change-in-control, protects the Company from losing key executives during a +period when a change-in-control may be threatened or pending. These benefits +are described and quantified in the section entitled “Potential Payments Upon +Termination or Change-In-Control” under Directors and Executive Officers, +below. +Mr. +Schmertz and Ms. Varela have agreed to a non-compete and non-solicitation restriction +for a one-year period in the event of a voluntary termination or termination +for cause. In addition, Mr. Sinha has agreed to a non-compete and +non-solicitation restriction for a six-month period, unless he is terminated +other than “for cause,” or due to total disability, in which case his +non-compete and non-solicitation period shall last the lesser of six months or +the number of months he is entitled to payment following such termination. Messrs. +Rosenfeld and Dharia do not have non-compete or non-solicitation provisions in their +respective employment agreements. +IMPACT OF TAX +AND ACCOUNTING +As +a general matter, the Compensation Committee considers the various tax and +accounting implications of compensation vehicles employed by the Company. +-17- +While the +Compensation Committee reviews and considers both the accounting and tax +effects of various components of compensation, these effects are not a +significant factor in the Compensation Committee’s allocation of compensation +among the different components. In general, the Company believes that +compensation paid to executive officers should be deductible for U.S. tax +purposes. In certain instances, however, the Compensation Committee also +believes that it is in the Company’s best interests, and that of its +stockholders, to have the flexibility to pay compensation that is not +deductible under the limitations of Section 162(m) of the Code in order to +provide a compensation package consistent with the Company’s objectives. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +During the +2008 Fiscal Year, the following directors served on the Compensation Committee: +Peter Migliorini (chairman) and Thomas H. Schwartz. During the 2008 Fiscal +Year: +· +none of the members of the Compensation Committee was an officer (or +former officer) or employee of the Company or any of its subsidiaries; +· +none of the members of the Compensation Committee had a direct or +indirect material interest in any transaction in which the Company was a +participant and the amount involved exceeded $120,000; +· +none of the Company’s executive officers served on the compensation +committee (or another board committee with similar functions or, if none, the +entire board of directors) of another entity where one of that entity’s +executive officers served on the Company’s Compensation Committee; +· +none of the Company’s executive officers was a director of another +entity where one of that entity’s executive officers served on the Company’s +Compensation Committee; and +· +none of the Company’s executive officers served on the compensation +committee (or another board committee with similar functions or, if none, the +entire board of directors) of another entity where one of that entity’s +executive officers served as a director on the Board of Directors. +COMPENSATION COMMITTEE REPORT +The +Compensation Committee has reviewed and discussed the Compensation Discussion +and Analysis with management, and based on the review and discussions, the Compensation +-18- +Committee recommended to the Board of Directors that the Compensation +Discussion and Analysis be included in this Proxy Statement. +Submitted by the Compensation Committee of +the Company’s Board of Directors: +Peter +Migliorini (Chairman) +Thomas H. +Schwartz +CODE OF BUSINESS CONDUCT AND ETHICS +All of the +Company’s employees, officers (including senior executive, financial and +accounting officers) and directors are held accountable for adherence to the +Company’s Code of Business Conduct and Ethics (the “Conduct Code”). The Conduct +Code is intended to establish standards necessary to deter wrongdoing and to +promote compliance with applicable governmental laws, rules and regulations and +honest and ethical conduct. The Conduct Code covers all areas of professional +conduct, including conflicts of interest, fair dealing, financial reporting and +disclosure, protection of Company assets and confidentiality. Employees have an +obligation to promptly report any known or suspected violation of the Conduct +Code without fear of retaliation. Waiver of any provision of the Conduct Code +for executive officers and directors may only be granted by the Board of +Directors or one of its committees and any such waiver or modification of the +Conduct Code relating to such individuals will be disclosed by the Company. A +copy of the Conduct Code is available on the Company’s website at +www.stevemadden.com and may also be obtained by any stockholder without charge +upon request by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, NY 11104. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section +16(a) of the Exchange Act requires that the Company’s directors and executive +officers, and persons who beneficially own more than 10% of a registered class +of the Company’s equity securities, file with the Securities and Exchange +Commission reports of initial ownership of Common Stock and subsequent changes +in that ownership and furnish the Company with copies of all forms they file +pursuant to Section 16(a). Form 4s were not filed on a timely basis to report +(i) a grant of stock options on March 24, 2008 to Edward R. Rosenfeld; (ii) a +grant of stock options on March 24, 2008 to Walter Yetnikoff; (iii) a grant of +Common Stock on May 26, 2006 to Richard P. Randall; (iv) a grant of Common +Stock on May 26, 2007 to Richard P. Randall; and (v) sales of Common Stock on +November 13, 2008 by Richard P. Randall. Each of these reports has now been +filed. To the Company’s knowledge, based solely on a review of the copies of +the reports furnished to the Company or written representations received from +the Company’s directors, officers and greater than 10% beneficial owners that +no other reports were required, all Section 16(a) filing requirements +applicable to its officers, directors and greater than 10% beneficial owners +were complied with during, or in respect of, the fiscal year ended December 31, +2008. +-19- +DIRECTORS AND EXECUTIVE OFFICERS +The +directors, executive officers and certain significant employees of the Company, +and their ages and positions as of March 23, 2009, are: +NAME +AGE +POSITION +Edward R. +Rosenfeld +33 +Chairman of +the Board and Chief Executive Officer +Arvind +Dharia +59 +Chief +Financial Officer and Secretary +Awadhesh +Sinha +63 +Chief +Operating Officer +Robert +Schmertz +45 +Brand +Director +Amelia +Newton Varela +37 +Executive +Vice President of Wholesale and Retail +John L. +Madden +62 +Director +Peter +Migliorini +60 +Director +Richard P. +Randall +71 +Director +Ravi Sachdev +32 +Director +Thomas H. +Schwartz +61 +Director +See +“Proposal One: Election of Directors - Biographical Summaries of Nominees for +the Board of Directors” for the biographies of the Company’s directors. +Arvind +Dharia has been the Chief Financial Officer of the Company since October 1992 +and was a director of the Company from December 1993 through May 2004. Mr. +Dharia has been Secretary of the Company since 1993. From December 1988 to +September 1992, Mr. Dharia was Assistant Controller of Millennium III Real +Estate Corp. +Awadhesh +Sinha became the Chief Operating Officer of the Company in July 2005. Mr. Sinha +had been a director of the Company from October 2002 to July 2005. Mr. Sinha +was the Chief Operating Officer and Chief Financial Officer of WEAR ME Apparel +Inc., a company that designs, manufactures and markets branded and non-branded +children’s clothing, from 2003 to July 2005. Prior to that, Mr. Sinha worked +for Salant Corporation, a company that designs, manufactures and markets men’s +clothing, for 22 years, and held the position of Chief Operating Officer and +Chief Financial Officer of Salant Corporation from 1998 to 2003. +Robert +Schmertz has been the Brand Director since January 2006. Mr. Schmertz served as +President of Steve Madden Women’s Wholesale Division and Brand Manager from +-20- +September 2001 through January 2006. Additionally, Mr. Schmertz has +been the President of Shoe Biz, Inc., a wholly owned subsidiary of Steve Madden +Retail Inc. since May 1998 and the President of Diva Acquisition Corp. since +January 2001. Before joining the Company, Mr. Schmertz was President of Daniel +Scott Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the +East Coast Sales Manager for Impo International from January 1993 through +November 1995. From April 1990 to December 1992, Mr. Schmertz served as a sales +representative for Espirit de Corp. based in San Francisco, California. +Amelia +Newton Varela has been Executive Vice President of Wholesale and Retail since +April 2008. Ms. Varela was Executive Vice President of Wholesale Sales from +November 2004 to April 2008. Previously, she was Vice President of Sales for +Steve Madden Women’s Wholesale Division from January 2000. Prior to that, she +was Account Executive for Steve Madden Women’s Wholesale Division from 1998. +Before joining the Company, Ms. Varela was the sales assistant to the Executive +Vice President of Sales for Merrin Financial. She graduated from The Fashion +Institute of Technology in 1995. +SUMMARY COMPENSATION TABLE +The +following table sets forth the compensation earned for all services rendered to +the Company in all capacities in the 2008, 2007 and 2006 Fiscal Years, +respectively, by the Company’s Chief Executive Officer, Chief Financial Officer +and the three most highly compensated executive officers other than the CEO and +CFO who were serving at the end of 2008, 2007 and 2006, respectively. In this +Proxy Statement, the Company refers to this group of people as the Company’s +“Named Executive Officers”. +Following +the table is a discussion of material factors related to the information +disclosed in the table. +-21- +Options +Awards ($) +(1) +Change in Pension +Value and Non-Qualified Deferred +Compensation Earnings +Stock Awards ($) (1) +Non-Equity Incentive Plan +Compensation +Year +Salary ($) +Bonus($) +Total ($) +Name +and Principal Position +All Other Compensation ($) +Jamieson A. Karson (2) +2008 +138,461 +1,008,095 +4,014,018 +(3) +5,160,574 +2007 +500,000 +0 +322,856 +33,787 +(12) +856,643 +2006 +500,000 +450,000 +180,312 +29,585 +(13) +1,159,897 +Edward Rosenfeld +2008 +366,250 +75,000 +231,244 +34,999 +5,083 +(4) +712,576 +Chief Executive Officer +2007 +259,808 +75,000 +212,738 +547,546 +2006 +240,385 +200,000 +90,156 +530,541 +Arvind Dharia +2008 +457,406 +50,000 +207,203 +102,891 +(5) +817,500 +Chief Financial Officer +2007 +435,625 +0 +188,696 +91,115 +(14) +715,436 +2006 +425,000 +350,000 +72,125 +90,173 +(15) +937,298 +Awadhesh Sinha +2008 +526,612 +222,501 +36,595 +369,220 +(6) +1,154,928 +Chief Operating Officer +2007 +489,976 +0 +278,126 +7,431 +(16) +775,533 +2006 +446,250 +0 +0 +1,401,840 +(7) +13,458 +(16) +1,861,548 +Robert Schmertz +2008 +600,000 +250,000 +787,224 +22,452 +(8) +1,659,676 +President of Wholesale Women’s +2007 +578,901 +675,000 +696,090 +12,692 +(16) +1,962,683 +Division and Brand Manager +2006 +488,350 +180,312 +5,769 +(16) +674,431 +Amelia Newton Varela +2008 +349,038 +250,000 +240,416 +140,511 +22,750 +(9) +1,002,715 +Executive Vice President of +2007 +300,000 +0 +240,416 +240,000 +(10) +780,416 +Wholesale and Retail +2006 +300,000 +180,312 +570,166 +(11) +15,000 +(16) +1,065,478 +(1) The amounts in this column reflect the dollar +amount recognized for financial statement reporting purposes for the fiscal +years ended December 31, 2008, December 31, 2007 and December 31, 2006, +respectively, in accordance with FAS 123R. Assumptions used in the calculation +of these amounts are included in footnote G to the Company’s audited financial +statements for the fiscal years ended December 31, 2008 and December 31, 2007, +included in the Company’s Annual Report on Form 10-K filed respectively with +the Securities and Exchange Commission on March 12, 2009 and March 12, 2008, +and included in footnote 13 to the Company’s audited financial statements for +the fiscal year ended December 31, 2006, included in the Company’s Annual +Report on Form 10-K filed with the Securities and Exchange Commission on March +9, 2007. +(2) Effective March 24, 2008, Mr. Karson resigned +from his position as Chief Executive Officer, director and Chairman of the +Board of Directors of the Company, and entered into a Mutual Release with the +Company (the “Mutual Release”). +(3) Includes the following: $2,117 automobile +allowance, reimbusement of $11,209 for membership dues, $692 in annual matching +contributions to Mr. Karson’s 401(k) plan and $4,000,000 pursuant to the Mutual +Release. See “-Employment Arrangements.” +(4) Includes the following: $2,020 automobile +allowance and $3,063 in annual matching contributions to Mr. Rosenfeld’s 401(k) +plan. +(5) Includes the following: $9,226 automobile +allowance, $83,331 life insurance premiums and $10,334 in annual matching +contributions to Mr. Dharia’s 401(k) plan. +(6) Includes the following: $8,115 automobile +allowance, $351,688 for deferred compensation and $9,417 in annual matching +contributions to Mr. Sinha’s 401(k) plan. +(7) Represents non-equity incentive payment made +pursuant to a bonus formula in Mr. Sinha’s employment agreement. See +“-Employment Arrangements.” +(8) Includes the following: $15,000 automobile +allowance and $7,452 in annual matching contributions to Mr. Schmertz’s 401(k) +plan. +(9) Includes the following: $15,000 automobile +allowance and $7,750 in annual matching contributions to Ms. Varela’s 401(k) +plan. +(10) Includes the following: (i) Deferred +compensation in the amount of $225,000, paid for the period ended December 31, +2007, pursuant to Ms. Varela’s employment agreement; (ii) $15,000 in automobile +allowance. +(11) Represents non-equity incentive payment made +pursuant to a bonus formula in Ms. Varela’s employment agreement. See +“-Employment Arrangements.” +(12) Includes the following: $6,081 automobile +allowance and reimbursement of $27,706 for membership dues pursuant to Mr. +Karson’s amended and restated employment agreement. +(13) Includes the following: $6,271 automobile +allowance and reimbursement of $23,314 for membership dues pursuant to Mr. +Karson’s amended and restated employment agreement. +(14) Includes the following: $7,789 automobile +allowance and $83,326 life insurance premiums. +(15) Includes the following: $7,196 automobile +allowance and $82,977 life insurance premiums. +(16) Represents automobile allowance. +-22- +EMPLOYMENT ARRANGEMENTS +Edward R. +Rosenfeld. In April 2008 (effective in March 2008), the Company entered into an +employment agreement with Edward R. Rosenfeld pursuant to which Mr. Rosenfeld +agreed to serve as interim Chief Executive Officer of the Company for a term +expiring on December 31, 2009. Effective August 8, 2008, the Company appointed +Mr. Rosenfeld to serve as Chief Executive Officer and executive Chairman of the +Board. The terms of Mr. Rosenfeld’s employment agreement remained unchanged. +Under the agreement, the Company agreed to pay Mr. Rosenfeld an annual base +salary of $400,000 and Mr. Rosenfeld is entitled to receive such additional +compensation and annual bonus as may be determined from time to time by the +Board of Directors in its sole discretion. In addition, the agreement provides +that Mr. Rosenfeld is entitled to receive, as additional compensation, an +option to purchase 40,000 shares of Common Stock, exercisable to the extent of +8,000 shares on each of March 24, 2009, March 24, 2010, March 24, 2011, March +24, 2012 and March 24, 2013, said option to remain exercisable for seven years +from the effective date of the agreement. The Company may terminate the +agreement for cause (as such term is defined in the agreement) or without +cause. In the event that Mr. Rosenfeld’s employment is terminated by the +Company for cause, the Company will have no further obligations to Mr. +Rosenfeld, and Mr. Rosenfeld will be entitled to no further compensation from +the Company, except for pro-rata amounts due to him on the date of his +termination. In the event that Mr. Rosenfeld’s employment is terminated by the +Company without cause, as liquidated damages, he will be entitled to receive +all compensation to which he would be entitled under the agreement through +December 31, 2009. In the event that Mr. Rosenfeld’s employment is terminated +by the Company without cause during the period commencing 90 days prior to a +change of control (as defined in the agreement) and ending 180 days following a +change of control, he is entitled to receive an amount equal to the lesser of +(1) the average amount of total compensation actually received by him during +the preceding three calendar years multiplied by 3, and (2) the maximum amount +that is tax deductible to the Company under Section 280G of the Code. +Arvind +Dharia. In January 1998, the Company entered into an employment agreement with +Arvind Dharia, which has been amended from time to time, pursuant to which Mr. +Dharia agreed to serve as the Company’s Chief Financial Officer. The term of +Mr. Dharia’s employment under his agreement, as amended, commenced on January +1, 1998 and ends on December 31, 2009. The term will be automatically extended +for an additional one-year period unless either party timely notifies the other +of its intention not to extend the term. The amended agreement provides that +the Company pay Mr. Dharia an annual salary of $435,625 for the 2007 Fiscal +Year, with the following increases thereafter: (i) on January 1, 2008, his base +salary shall be increased by 5% of the then-current base salary; and (ii) on +January 1, 2009, his base salary shall be increased by 5% of the then-current +base salary. In addition, the agreement provides that Mr. Dharia receive an +annual bonus in such amount, if any, and at such time or times, as the Board of +Directors may determine in its absolute discretion. Subject to availability of +shares under the 2006 Plan, as amended, or any other plan designated by the +Board of Directors and approved by the Company’s stockholders, Mr. Dharia is +entitled to awards under such plan as may be determined by the Board of +Directors, or a committee thereof, from time to time in its absolute +discretion. The agreement provides, in the event of Mr. Dharia’s death, for the +payment to Mr. Dharia’s estate of his base salary for the 12-month period +immediately subsequent to the date of +-23- +Mr. Dharia’s death. In the event Mr. Dharia’s employment agreement is +terminated due to Mr. Dharia’s total disability (as defined in the agreement) +or “for cause” (as defined in the agreement), the Company is obligated to pay +Mr. Dharia the amount of compensation that is accrued and unpaid through the +date of termination. In the event Mr. Dharia’s employment agreement is +terminated for any reason (other than “for cause” or due to his death or total +disability), the Company is obligated to pay Mr. Dharia, in two installments, +(a) an amount equal to the product of (x) his base salary on the effective date +of such termination plus the bonus paid or payable, if any, for the fiscal year +ended on the December 31st immediately preceding the termination date, +multiplied by (y) the number of years (and fraction of years) remaining in the +term; and (b) the amount payable to him, or on his account, for what would have +been the balance of the term of his employment agreement with respect to +certain benefits and plans as set forth in his employment agreement. If the +Company decides not to renew the agreement (other than “for cause” or due to +his total disability), then Mr. Dharia will be entitled to receive severance +compensation in cash in an amount equal to his then-current base salary for the +90-day period commencing on the expiration of the term. In the event that there +is a “change of control” transaction and Mr. Dharia’s employment has been +terminated by the Company other than “for cause” or by Mr. Dharia “for good +reason” (as such terms are defined in the agreement), Mr. Dharia will receive +an amount equal to three times the total compensation he was entitled to +receive under the agreement for the preceding 12-month period ending on the +last previous December 31, except that in lieu of the actual base salary +component received during such period, there shall be substituted the annual +base salary to which Mr. Dharia was entitled to as of the date of termination, +unless said amount (or portion thereof) is determined to constitute an “excess +parachute payment” under Sections 280G and 4999 of the Code, in which case the +payment to Mr. Dharia shall be reduced to the maximum amount that is tax +deductible to the Company under Section 280G of the Code. +Jamieson A. +Karson. In May 2001, the Company entered into an employment agreement with +Jamieson A. Karson pursuant to which Mr. Karson agreed to serve as the +Company’s Chief Executive Officer and Vice Chairman of the Board. On July 22, +2004, at a regularly scheduled meeting of the Board of Directors of the +Company, Mr. Karson was appointed Chairman of the Board of Directors. Mr. +Karson’s employment agreement was amended and restated in January 2006. The +term of Mr. Karson’s employment under his amended and restated employment +agreement was three years commencing on January 1, 2006 and ending on December +31, 2008. The amended and restated employment agreement provided that the term +would be automatically extended for successive one-year periods unless the +Company timely notified Mr. Karson of its intention not to extend the term. The +amended and restated employment agreement provided that the Company pay Mr. +Karson an annual salary of $500,000. In addition, the amended and restated +employment agreement provided that Mr. Karson receive an annual bonus in such +amount, if any, and at such time or times, as the Board of Directors, or a +committee thereof, may determine in its absolute discretion. Subject to +availability of shares under the 2006 Plan, as amended, or any other plan +designated by the Board of Directors and approved by the Company’s +stockholders, Mr. Karson was entitled to awards under such plan as determined +by the Board of Directors, or a committee thereof, from time to time in its +absolute discretion. In addition, in the event of Mr. Karson’s total disability +or his death, the Company was obligated to continue to pay Mr. Karson (or Mr. +Karson’s estate) his base salary for the 12-month period immediately subsequent +to the date of such total disability or death. The amended and restated +employment agreement provided that, in the event Mr. Karson’s employment was +terminated (or +-24- +not extended) by the Company +for any reason other than “for cause” (as defined in the amended and restated +employment agreement) or due to his death or his total disability, the Company +would be obligated to pay Mr. Karson (i) the amount of compensation that is +accrued and unpaid through the date of termination; plus (ii) an amount equal +to the lesser of (A) the sum of three times Mr. Karson’s highest “total +compensation” (as defined in the amended and restated employment agreement) in +any given fiscal year of his employment with the Company, and (B) $4,000,000. +In the event that there was a “change of control” (as defined in the amended +and restated employment agreement) transaction, all unvested options to +purchase shares of Common Stock or restricted stock awards or other +equity-related awards under the 1999 Stock Plan and/or the 2006 Plan, as +amended, held by Mr. Karson would vest on the date of the change of control and +Mr. Karson would be entitled to receive a lump sum cash payment equal to the +amount described in the immediately preceding sentence. Mr. Karson’s amended +and restated employment agreement also contained provisions regarding +confidentiality, solicitation and competition. Effective March 24, 2008, Mr. +Karson resigned from his position as Chief Executive Officer, director and +Chairman of the Board of Directors of the Company, and entered into a Mutual +Release with the Company (the “Mutual Release”). Pursuant to the Mutual +Release, the Company shall consider Mr. Karson’s resignation to be a +termination without “cause” (as defined under Mr. Karson’s amended and restated +employment agreement), and shall (1) pay Mr. Karson, on April 1, 2008, the sum +of $4,000,000, less such deductions as shall be required to be withheld by +applicable law and regulations; (2) vest Mr. Karson’s restricted stock awards +granted under the Restricted Stock Agreements dated as of March 24, 2006 and +March 27, 2007 such that all restrictions on such shares shall lapse; (3) in +connection with the vesting of Mr. Karson’s restricted stock award granted +under the Restricted Stock Agreement dated as of March 24, 2006, pay Mr. +Karson, promptly following such vesting, the sum of $22,500 in respect of the +$1.00 per share special dividend paid by the Company in November 2006 +applicable to the remaining 22,500 shares being vested pursuant to the Mutual +Release; and (4) continue, pursuant to the terms of Mr. Karson’s amended and +restated employment agreement, to pay all costs of Mr. Karson’s use of the automobile +leased for Mr. Karson through the end of the lease term. Pursuant to the terms +of the Mutual Release, the Company releases Mr. Karson from certain claims, and +Mr. Karson releases the Company from certain claims. +Awadhesh +Sinha. In June 2005, the Company entered into an employment agreement with +Awadhesh Sinha, pursuant to which Mr. Sinha agreed to serve as the Company’s +Chief Operating Officer. Mr. Sinha’s employment agreement was amended in +November 2007 and in October 2008. The term of Mr. Sinha’s employment under his +employment agreement, as amended, commences on July 1, 2005 and ends on +December 31, 2010. The term will be automatically extended for successive +one-year periods unless either party timely notifies the other of its intention +not to extend the term. The agreement, as amended, provides that the Company +pay Mr. Sinha an annual salary of $540,000 (which is equal to the base salary +amount payable to Mr. Sinha pursuant to the original employment agreement at +the time of the October 2008 amendment). Upon entering the agreement, Mr. Sinha +received a signing bonus of $100,000. In addition, with respect to the fiscal +year ended December 31, 2005, Mr. Sinha was entitled to an annual bonus equal +to the greater of (i) $50,000, and (ii) 3% of the increase in the Company’s +EBIT for such fiscal year over the EBIT of the immediately prior fiscal year; +with respect to each of the Company’s remaining fiscal years through the 2008 +fiscal year, Mr. Sinha was entitled to an annual bonus equal to 3% of the +increase in the Company’s EBIT for such fiscal year over the EBIT of the +immediately prior fiscal year. In respect of each of the +-25- +Company’s 2009 and 2010 fiscal years during the Term, Mr. Sinha will be +eligible to receive a cash bonus under the Company’s 2006 Stock Incentive Plan, +as amended, equal to 3% of the increase in the Company’s EBIT for such fiscal +year over the EBIT of the immediately prior fiscal year. The agreement, as +amended, provides for certain deferred compensation with respect to 2008, 2009 +and 2010. For the period commencing July 1, 2008 and ending December 31, 2008, +the agreement, as amended, provides for a mandatory deferral in an amount equal +to 25% of Mr. Sinha’s annual base salary, and the Company agrees to pay to Mr. Sinha +such amount provided that Mr. +Sinha remains in the employ of the Company on December 31, 2010. For the period +commencing January 1, 2009 and ending December 31, 2009, the agreement, as +amended, provides for a mandatory deferral in an amount equal to 12.5% of Mr. +Sinha’s annual base salary, and the Company agrees to pay to Mr. Sinha such +amount provided that Mr. Sinha +remains in the employ of the Company on December 31, 2010. For the period +commencing January 1, 2010 and ending December 31, 2010, the agreement, as +amended, provides for a mandatory deferral in an amount equal to 7.5% of Mr. +Sinha’s annual base salary, and the Company agrees to pay to Mr. Sinha such +amount provided that Mr. Sinha +remains in the employ of the Company on December 31, 2010. The agreement, as +amended, provides for, in the event of Mr. Sinha’s death, the payment to Mr. +Sinha’s estate of his base salary for the 12-month period immediately +subsequent to the date of Mr. Sinha’s death. In the event Mr. Sinha’s +employment agreement, as amended, is terminated due to Mr. Sinha’s total +disability (as defined in the agreement, as amended,), “for cause” (as defined +in the agreement, as amended,) or due to Mr. Sinha’s resignation, the Company +is obligated to pay Mr. Sinha the amount of compensation that is accrued and +unpaid through the date of termination. In addition, in the event of Mr. +Sinha’s total disability (as defined in his employment agreement, as amended), +the Company is obligated to continue to pay Mr. Sinha’s base salary for the 12-month +period immediately subsequent to the date of determination of such total +disability. Mr. Sinha will be required to repay to the Company the full amount +of his signing bonus if he is discharged “for cause” and a pro rata portion of +the signing bonus for the portion of the term that he did not fulfill if he +resigns. In the event Mr. Sinha’s employment agreement, as amended, is +terminated by the Company for any reason (other than “for cause” or due to his +death or total disability), the Company is obligated to pay Mr. Sinha an amount +equal to the sum of (x) the base salary that would have been paid by the +Company pursuant to the agreement, as amended, for the longer of the remainder +of the then-current term or 6 months, (y) the cash bonus payable to Mr. Sinha +prorated from the commencement of the then-current term through the termination +date, and (z) a pro-rata portion of the deferred annual base salary. In the +event that there is a “change of control” transaction (as defined in the +agreement, as amended), and the Company (other than “for cause,” as defined in +the agreement, as amended) or Mr. Sinha (for “good reason,” as defined in the +agreement, as amended) terminates the agreement, as amended, Mr. Sinha shall be +entitled to an amount equal to three times the total compensation received by +Mr. Sinha under the agreement, as amended, for the preceding 12-month period +ending on the last previous December 31st, except that in lieu of the actual +base salary component received during such period, there shall be substituted +the annual base salary to which Mr. Sinha was entitled to as of the date of his +termination, unless said amount (or portion thereof) is determined to +constitute an “excess parachute payment” under Sections 280G and 4999 of the +Code, in which case the payment to Mr. Sinha shall be reduced to the maximum +amount that is tax deductible to the Company under Section 280G of the Code. +-26- +Robert +Schmertz. In April 2002, the Company entered into an employment agreement with +Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as President of +Steve Madden Wholesale Women’s Division and Brand Manager for Steven Madden, +Ltd. The agreement was extended in March 2005 and again in March 2007. The term +of Mr. Schmertz’s employment under his employment agreement (as extended) +commenced on April 1, 2002 and ends on December 31, 2009. Mr. Schmertz received +a signing bonus of $500,000 upon the execution of the March 2007 extension and +100,000 shares of restricted stock, which vests in equal parts on each of the +first five anniversaries of February 27, 2007, pursuant to the 2006 Plan, as +amended. The Company agreed to pay Mr. Schmertz an annual salary of $600,000. +Under the terms of the agreement as extended, the Company shall pay Mr. Schmertz +a discretionary bonus in an amount determined solely by the Company’s Board of +Directors. In the event of Mr. Schmertz’s death, the Company is obligated to +continue to pay Mr. Schmertz’s estate 50% of his base salary for the 12-month +period immediately subsequent to the date of his death. In the event of a +“change of control” and the termination of Mr. Schmertz thereafter other than +“for cause” (as defined in the agreement), Mr. Schmertz will be entitled to +receive an amount equal to the lesser of (i) the average amount of total +compensation actually received by Mr. Schmertz for the preceding three calendar +years multiplied by 3 or (ii) the maximum amount which is tax deductible to the +Company under Section 280G of the Code. +Amelia +Newton Varela. In October 2004, the Company entered into an employment +agreement with Amelia Newton Varela, pursuant to which Ms. Varela agreed to +serve as Executive Vice President of Wholesale Sales. In April 2008, the +Company entered into a new employment agreement with Ms. Varela, pursuant to +which Ms. Varela agreed to serve as Executive Vice President of Wholesale and +Retail. The term of Ms. Varela’s employment under this employment agreement +commenced on April 29, 2008 and ends on December 31, 2010. Pursuant to the +employment agreement, on April 29, 2008, Ms. Varela was granted an option to +purchase 50,000 shares of the Company’s Common Stock at an exercise price of +$19.32 per share. The option is exercisable until April 29, 2015 to the extent +of 10,000 shares on each of April 29, 2009, April 29, 2010, April 29, 2011, +April 29, 2012 and April 29, 2013. Further, in the event that Ms. Varela is +still employed by the Company (i) on April 1, 2009, she will be granted an +option to purchase 25,000 shares of Common Stock of the Company, and (ii) on +April 1, 2010, she will be granted an option to purchase 25,000 shares of +Common Stock of the Company. Such options shall vest 20% each year for five +years, commencing on the first anniversary date of the grant of the options, have +a term of seven years and have an exercise price equal to the market price on +the grant date. The Company agreed to pay Ms. Varela an annual base salary of +$350,000 from January 1, 2008 through December 31, 2008 and $400,000 from +January 1, 2009 through December 31, 2010. Under the terms of the agreement, +the Company agreed to pay Ms. Varela an annual bonus for each of 2008, 2009 and +2010 in an amount equal to 2% of the increase, if any, in Wholesale Footwear +division EBIT for that year over Wholesale Footwear division EBIT for the +immediately prior year, plus 1.5% of the increase, if any, in Retail division +EBIT for that year over Retail division EBIT for the immediately prior year. If +Ms. Varela is still employed by the Company on December 31, 2010, she will also +be entitled to a bonus of $200,000. In the event that Ms. Varela’s employment +agreement is terminated due to Ms. Varela’s disability (as defined in the +agreement) or death, the Company is obligated to pay Ms. Varela (or her estate) +the amount of accrued and unpaid salary through the date of termination plus +any accrued and unpaid bonus amounts for the year prior to termination. The +Company may terminate the agreement for cause (as defined in the agreement) +-27- +or without cause. In the event that Ms. Varela’s employment is +terminated by the Company for cause, the Company will have no further +obligations to Ms. Varela, and Ms. Varela will be entitled to no further +compensation from the Company, except for any accrued and unpaid salary through +the date of her termination. In the event that Ms. Varela’s employment is +terminated by the Company without cause, she will be entitled to (i) salary +payments, at the regular intervals of payment, from the date of termination through +the date the employment agreement would have otherwise terminated but for the +involuntary termination plus (ii) any accrued and unpaid bonus amounts for the +year prior to termination. In the event that Ms. Varela’s employment is +terminated by the Company without cause during the period commencing 30 days +prior to a change of control (as defined in the agreement) and ending 180 days +following a change of control, she is entitled to receive an amount equal to +the lesser of (1) the average amount of total compensation actually received by +her during the preceding three calendar years multiplied by 3, or (2) the +maximum amount that is tax deductible to the Company under Section 280G of the +Code. +GRANTS OF PLAN-BASED AWARDS IN THE 2008 FISCAL YEAR +The +following table sets forth information concerning awards under the Company’s +equity and non-equity incentive plans granted to each of the Named Executive +Officers in the 2008 Fiscal Year, including performance-based awards and those +using time-based vesting. +Following +the table is a discussion of material factors related to the information +disclosed in the table. +All Other Stock Awards Number of Shares of Stock +or Units +All Other Option Awards Number of Securities +Underlying Options +Exercise Price of Option Awards +Grant Date Fair Value of Stock and Option Awards +Estimated Future Payouts Under Non-Equity +Incentive Plan Awards +Estimated Future Payouts Under Equity Incentive +Plan Awards +Name +Grant Date +Threshold +Target +Maximum +Threshold +Target +Maximum +Ed Rosenfeld +3/24/2008 +0 +40,000 +(1) +18.17 +233,328.00 +Awadesh Sinha +10/3/2008 +0 +50,000 +(2) +23.46 +439,143.00 +Amelia Newton Varela +4/29/2008 +0 +50,000 +(3) +19.32 +351,278.00 +(1) +Mr. Rosenfeld was awarded stock options for 40,000 shares of Common Stock on +March 24, 2008. One-fifth of such options shall vest on each of the first five +anniversaries of March 24, 2008. The stock options were granted pursuant to the +Company’s 2006 Stock Incentive Plan. +(2) +Mr. Sinha was awarded stock options for 50,000 shares of Common Stock on +October 3, 2008. One-third of such options shall vest on each of the first +three anniversaries of October 3, 2008. The stock options were granted pursuant +to the Company’s 2006 Stock Incentive Plan. +(3) +Ms. Varela was awarded stock options for 50,000 shares of Common Stock on April +29, 2008. One-fifth of such options shall vest on each of the first five +anniversaries of April 29, 2008. The stock options were granted pursuant to the +Company’s 2006 Stock Incentive Plan. +Plan-Based Awards +1999 +Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the +1999 Stock Plan (the “1999 Plan”), and on June 4, 1999 the Company’s +stockholders approved the adoption of the 1999 Plan. Since its adoption, the +1999 Plan has been amended, with stockholder approval, to (i) increase the +number of shares subject to the plan, (ii) provide that the exercise price of +an option granted under the 1999 Plan shall be no less than the fair market +value of the Common Stock on the date of grant (except to the extent otherwise +provided in agreements with the Company dated prior to the effective date of +the amendment), and (iii) prohibit the Board from amending the +-28- +terms of any option granted pursuant to the 1999 Plan to reduce the +option price. The purpose of the 1999 Plan is to provide a means whereby +directors and selected employees, officers, agents, consultants, and +independent contractors of the Company may be granted incentive stock options +and/or nonqualified stock options to purchase shares of Common Stock, in order +to attract and retain the services or advice of such directors, employees, +officers, agents, consultants, and independent contractors and to provide +additional incentive for such persons to exert maximum efforts for the success +of the Company by encouraging stock ownership in the Company. As of March 31, +2009, options to purchase 366,050 shares of Common Stock were outstanding. No +additional options will be granted under the 1999 Plan. +2006 Stock +Incentive Plan +As of March +10, 2006, the Board of Directors of the Company adopted the 2006 Plan, and on +May 26, 2006 the Company’s stockholders approved the adoption of the 2006 Plan. +Amendment number one to the 2006 Plan was adopted by the Board of Directors on +April 25, 2007, subject to stockholder approval at the 2007 annual meeting of +the Company’s stockholders. On May 25, 2007, the Company’s stockholders +approved amendment number one to the 2006 Plan. Amendment number two to the +2006 Plan was adopted by the Board of Directors on April 29, 2008. The amended +and restated Steven Madden, Ltd. 2006 Stock Incentive Plan was adopted by the +Board of Directors on April 6, 2009, subject to stockholder approval at the +Annual Meeting. See “Proposal Two.” The purpose of the 2006 Plan, as amended +and restated, is to enhance the profitability and value of the Company for the +benefit of its stockholders by enabling the Company to offer eligible +employees, consultants and non-employee directors cash and stock-based +incentives in the Company to attract, retain and reward such individuals and +strengthen the mutuality of interests between such individuals and the +Company’s stockholders. +The maximum +number of shares of Common Stock available for issuance under the 2006 Plan, as +amended by amendment number one to the 2006 Plan, is 1,550,000 shares. As of +March 31, 2009, there were outstanding 295,833 unvested shares of restricted +stock and options to purchase 422,000 shares of Common Stock; options have been +exercised, or restricted stock has vested, with respect to 377,030 shares of +Common Stock; and 455,138 shares of Common Stock remained available for grant +under the 2006 plan. +-29- +OUTSTANDING EQUITY AWARDS AT END OF THE 2008 FISCAL YEAR +The +following table sets forth information concerning unexercised stock options, +restricted stock that has not vested and stock awards outstanding for each of +the Named Executive Officers as of the end of the 2008 Fiscal Year. (1) +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexcercised +Options - Excercisable +Number of Securities Underlying Unexcercised +Options - Unexcercisable +Equity Incentive Plan Awards: Number of +Securities Underlying Unexcercised Unearned Options +Option Exercise Price +Option Expiration Date +Number of Shares or Units of Stock That Have Not +Vested +Market Value of Shares or Units of Stock That +Have Not Vested +Equity Incentive Plan Awards: Number of Unearned +Shares, Units or Other Rights that have not Vested +Equity Incentive Plan Awards: Market or Payout +Value of Unearned Shares, Units or Other Rights That Have Not Vested +Jamieson +A. Karson (1) +— +— +— +— +— +Ed Rosenfeld +7,500 +— +12.3133 +7/6/2015 +23,500 +(3) +501,020 +40,000 +(2) +18.1700 +3/24/2015 +Arvind +Dharia +60,000 +— +13.9000 +9/9/2010 +22,000 +(4) +469,040 +60,001 +— +13.0533 +7/6/2011 +8,445 +— +11.8400 +5/27/2015 +Awadhesh +Sinha +50,000 +(5) +23.4600 +10/3/2015 +15,000 +(6) +319,800 +Robert +Schmertz +50,000 +— +12.6533 +5/17/2012 +95,000 +(7) +2,025,400 +Amelia +Newton Varela +— +50,000 +(8) +19.3200 +4/29/2015 +15,000 +(9) +319,800 +(1) Effective March 24, 2008, Mr. Karson +resigned from his position as Chief Executive Officer, director and Chairman of +the Board of Directors of the Company, and entered into a Mutual Release with +the Company (the “Mutual Release”). Pursuant to the Mutual Release, Mr. +Karson’s unvested restricted stock awards granted under the Restricted Stock +Agreements dated as of March 24, 2006 and March 27, 2007, vested, such that all +restrictions on the remaining 42,500 shares granted under such Restricted Stock +Agreements lapsed. As of December 31, 2008, there were no awards outstanding. +(2) Mr. Rosenfeld was awarded stock options +for 40,000 shares of Common Stock pursuant to the Company’s 2006 Stock +Incentive Plan on March 24, 2008. One-fifth of such options shall vest on each +of the first five anniversaries of March 24, 2008. +(3) Mr. Rosenfeld was awarded 15,000 shares +of restricted stock on March 20, 2006. One-fourth of such shares of restricted +stock shall vest and cease to be restricted stock on each of the first four +anniversaries of March 20, 2006. Mr. Rosenfeld was awarded 20,000 shares of +restricted stock on March 6, 2007. One-fifth of such shares of restricted stock +shall vest and cease to be restricted stock on each of the first five anniversaries +of March 6, 2007. +(4) Mr. Dharia was awarded 12,000 shares of +restricted stock on March 24, 2006. One-fourth of such shares of restricted +stock shall vest and cease to be restricted stock on each of the first four +anniversaries of March 24, 2006. Mr. Dharia was awarded 20,000 shares of +restricted stock on March 6, 2007. One-fifth of such shares of restricted stock +shall vest and cease to be restricted stock on each of the first five +anniversaries of March 6, 2007. +(5) Mr. Sinha was awarded stock options for +50,000 shares of Common Stock pursuant to the Company’s 2006 Stock Incentive +Plan on October 3, 2008. One-third of such options shall vest on each of the +first three anniversaries of October 3, 2008. +(6) Mr. Sinha was awarded 30,000 shares of +restricted stock on April 25, 2007. One-fourth of such shares of restricted +stock shall vest and cease to be restricted stock on each of September 19, 2007 +and the next three anniversaries of September 19, 2007. +(7) Mr. Schmertz was awarded 30,000 shares +of restricted stock on March 20, 2006. One-fourth of such shares of restricted +stock shall vest and cease to be restricted stock on each of the first four +anniversaries of March 20, 2006. Mr. Schmertz was awarded 100,000 shares of +restricted stock on March 9, 2007. One-fifth of such shares of restricted stock +shall vest and cease to be restricted stock on each of the first five +anniversaries of March 9, 2007. +(8) Ms. Varela was awarded stock options for +50,000 shares of Common Stock pursuant to the Company’s 2006 Stock Incentive +Plan on April 29, 2008. One-fifth of such options shall vest on each of the +first five anniversaries of April 29, 2008. +(9) Ms. Varela was awarded 30,000 shares of +restricted stock on March 20, 2006. One-fourth of such shares of restricted +stock shall vest and cease to be restricted stock on each of the first four +anniversaries of March 20, 2006. +OPTION EXERCISES AND STOCK VESTED IN THE 2008 FISCAL YEAR +The following table sets forth information concerning stock options +exercised and restricted stock vested during the 2008 Fiscal Year by each of +the Named Executive Officers. The value realized from exercised options is +deemed to be the market value of the Common Stock on the date of exercise, less +the exercise price of the option, multiplied by the number of shares underlying +the option. The value realized from vested restricted stock is deemed to be the +market value of the Common Stock on the date of vesting multiplied by the +number of shares. +-30- +Option Awards +Stock Awards +Name +Number of Shares Acquired on Exercise +Value Realized on Exercise +Number of Shares Acquired on Vesting +Value Realized on Vesting +Jamie +Karson (1) +0 +0 +42,500 +772,225 +Ed +Rosenfeld +0 +0 +7,750 +132,685 +Arvind +Dharia +64,797 +983,136 +7,000 +121,270 +Awadhesh +Sinha +0 +0 +7,500 +207,000 +Robert +Schmertz +0 +0 +27,500 +467,650 +Amelia +Newton Varela +0 +0 +7,500 +131,850 +(1) +Effective March 24, 2008, Mr. Karson resigned from his position as Chief +Executive Officer, director and Chairman of the Board of Directors of the +Company, and entered into a Mutual Release with the Company (the “Mutual +Release”). Pursuant to the Mutual Release, the Company vested Mr. Karson’s +restricted stock awards granted under the Restricted Stock Agreements dated +as of March 24, 2006 and March 27, 2007 such that all restrictions on such +shares lapsed. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The +Company’s employment agreements with the Named Executive Officers provide for +payments to such persons upon termination or a change in control of the +Company. See “—Employment Arrangements.” +The amounts +set forth in the table below shall be paid to the respective Named Executive +Officer if such Named Executive Officer’s employment is terminated by the +Company under the various scenarios set forth below. +-31- +NAME AND PRINCIPAL POSITION +CASH +PAYMENT +($) +CONTINUATION +OF MEDICAL / +WELFARE +BENEFITS +(PRESENT +VALUE) +($) +ACCELERATION +AND +CONTINUATION +OF EQUITY +AWARD +($) +SETTLEMENT +OF +DEFERRED +COMPENSATION +ARRANGEMENTS +($) +OTHER +COMPENSATION +($) +CUTBACK +OF +BENEFITS +UPON A +CHANGE OF +CONTROL +($) +TOTAL +TERMINATION +BENEFITS +($) +TERMINATION DUE TO DEATH +Edward Rosenfeld +— +— +Arvind Dharia +457,406 +(1) +10,000 +467,406 +Awadhesh Sinha +540,000 +(2) +10,000 +550,000 +Robert Schmertz +300,000 +(3) +300,000 +Amelia Newton Verela +— +— +TERMINATION DUE TO TOTAL DISABILITY +Edward Rosenfeld +— +— +Arvind Dharia +457,406 +(1) +90,000 +(4) +547,406 +Awadhesh Sinha +540,000 +(2) +540,000 +Robert Schmertz +— +— +Amelia Newton Verela +— +— +TERMINATION FOR CAUSE; RESIGNATION +Jamieson A. Karson (5) +Edward Rosenfeld +— +— +— +— +— +— +— +Arvind Dharia +— +— +— +— +— +— +— +Awadhesh Sinha +— +— +— +— +— +— +— +Robert Schmertz +— +— +— +— +— +— +— +Amelia Newton Verela +— +— +— +— +— +— +— +TERMINATION OTHER THAN FOR CAUSE +Edward Rosenfeld +400,000 +(6) +— +— +— +— +400,000 +Arvind Dharia +457,406 +(1) +90,000 +(4) +— +— +— +— +547,406 +Awadhesh Sinha +1,080,000 +(7) +— +— +— +— +1,080,000 +Robert Schmertz +— +— +— +— +— +— +— +Amelia Newton Verela +1,050,000 +(8) +— +— +— +— +1,050,000 +TERMINATION UPON A CHANGE OF CONTROL +Edward Rosenfeld +306,560 +(9) +627,020 +(10) +(599,981 +) +933,580 +Arvind Dharia +1,372,218 +(12) +270,000 +(13) +469,040 +(10) +— +2,111,258 +Awadhesh Sinha +1,630,500 +(14) +40,500 +(15) +319,800 +(10) +— +1,990,800 +Robert Schmertz +2,113,859 +(16) +2,025,400 +(10) +(1,307,131 +) +4,139,259 +Amelia Newton Verela +2,238,978 +(17) +419,800 +(10) +(1,104,011 +) +2,658,778 +(1) +Consists of Mr. Dharia’s +2008 base salary of $457,406. +(2) +Consists of Mr. Sinha’s 2008 +base salary at December 31, 2008 ($540,000). +(3) +Consists of 6 months of Mr. +Schmertz’s base salary at December 31, 2008 ($600,000). +(4) +Consists of one times the +sum of Mr. Dharia’s life insurance payment ($80,000 per year) plus medical +benefits ($10,000 per year). +(5) +Effective March 24, 2008, +Mr. Karson resigned from his position as Chief Executive Officer, director +and Chairman of the Board of Directors of the Company, and entered into a +Mutual Release with the Company (the “Mutual Release”). Pursuant to the +Mutual Release, the Company shall consider Mr. Karson’s resignation to be a +termination without “cause” (as defined under Mr. Karson’s amended and +restated employment agreement) by the Company and agreed to pay Mr. Karson +the sum of $4,000,000 on April 1, 2008. Also pursuant to the Mutual Release, +the Company vested Mr. Karson’s restricted stock awards granted under the +Restricted Stock Agreements dated as of March 24, 2006 and March 27, 2007 +such that all restrictions on such shares lapsed. +(6) +Consists of Mr. Rosenfeld’s +2008 base salary of $400,000. +(7) +Consists of two times Mr. +Sinha’s 2008 base salary at December 31, 2008 ($540,000). +(8) +Consists of Ms. Varela’s +base salary for the years ended December 31, 2009 ($400,000) and December 31, +2010 ($400,000). In addition, Ms. Varela had a bonus payable of $250,000, and +this bonus would have been paid irrespective of a hypothetical Change of +Control. +(9) +Consists of three times the +average amount of total compensation Mr. Rosenfeld actually received for the +preceding three calendar years. Upon a hypothetical December 31, 2008 change +of control, this amount would have been reduced by $599,981 (i.e. cutback) to +reflect the maximum amount which would be tax deductible by the Company. (10) +The amount disclosed represents the total value of the restricted stock and +stock options which would have received accelerated vesting upon a +hypothetical change in control on December 31, 2008. (11) The total amount +does not include the cutback amount. +(10) +The amount disclosed represents the total value of the restricted stock and +stock options which would have received accelerated vesting upon a +hypothetical change in control on December 31, 2008. (11) The total amount +does not include the cutback amount. +(11) +The total amount +does not include the cutback amount. +(12) +Consists of three times the +total compensation Mr. Dharia actually received for the preceding twelve +calendar months. On December 31, 2008 there was no bonus amount payable. Upon +a change in control, Mr. Dharia is subject to a cutback for any payment that +is not tax deductible by the Company. Upon a hypothetical December 31, 2008 +change of control no payments to Mr. Dharia would have been subject to the +cutback. +(13) +Consists of three times the +sum of Mr. Dharia’s life insurance payment ($80,000 per year) plus medical +benefits ($10,000 per year). +(14) +Consists of three times the +total compensation Mr. Sinha actually received for the preceding twelve +calendar months. On December 31, 2008 there was no bonus amount payable. Upon +a change in control, Mr. Sinha is subject to a cutback for any payment that +is not tax deductible by the Company. Upon a hypothetical December 31, 2008 +change of control, no payments to Mr. Sinha would have been cutback. +(15) +Consists of three times the +sum of Mr. Sinha’s life insurance payment ($3,500 per year) plus medical +benefits ($10,000 per year). +(16) +Consists of three times the +average amount of total compensation Mr. Schmertz actually received for the +preceding three calendar years. Upon a hypothetical December 31, 2008 change +of control, this amount would have been reduced by $1,307,131 (i.e. cutback) +to reflect the maximum amount which would be tax deductible by the Company. +(17) +Consists of three times the +average amount of total compensation Ms. Varela actually received for the +preceding three calendar years. Upon a hypothetical December 31, 2008 change +of control, this amount would have be reduced by $1,104,011 (i.e. cutback) to +reflect the maximum amount which would be tax deductible by the Company. +-32- +COMPENSATION OF DIRECTORS IN THE 2008 FISCAL YEAR +The +following table sets forth information concerning the compensation of the +Company’s non-employee directors in the 2008 Fiscal Year. +Following +the table is a discussion of material factors related to the information +disclosed in the table. +Fees earned or paid in cash +Stock Awards $ +Option Awards $ +Non-Equity Incentive Plan Compensation +Change in Pension Value and Non-Qualified +Deferred Compensation Earnings +All Other Compensation +Total $ +0 +0 +0 +Marc S. Cooper (1) +10,000 +0 +0 +10,000 +John L. Madden +66,250 +21,749 +(2) +821,789 +(3) +909,786 +Peter Migliorini +118,750 +43,498 +(4) +0 +162,244 +Richard P. Randall +111,250 +43,498 +(5) +0 +154,743 +Ravi Sachdev +21,250 +28,998 +(6) +0 +50,242 +Thomas H. Schwartz +76,250 +43,498 +(7) +0 +119,741 +Walter Yetnikoff (8) +230,000 +0 +116,664 +(9) +0 +346,664 +(1) +On February 25, 2008, Mr. Cooper resigned from his position as a director of +the Company. +(2) +The grant date fair value of such stock award computed in accordance with FAS +123R was $14,070. At December 31, 2008, the aggregate number of shares of +restricted stock outstanding was 750, and the aggregate number of stock options +outstanding was 40,000. +(3) +Includes: (a) the use of a corporate apartment valued at $61,519; (b) $760,270 +in fees, travel and insurance allowance paid to JLM Consultants, Inc., a +company wholly owned by Mr. Madden, in connection with consulting services for +the development of the Company’s international business. +(4) +The grant date fair value of such stock award computed in accordance with FAS +123R was $28,140. At December 31, 2008, the aggregate number of shares of +restricted stock outstanding was 1,500, and the aggregate number of stock +options outstanding was 15,000. +(5) +The grant date fair value of such stock award computed in accordance with FAS +123R was $28,140. At December 31, 2008, the aggregate number of shares of +restricted stock outstanding was 1,500, and Mr. Randall had no stock options +outstanding. +(6) +The grant date fair value of such stock award computed in accordance with FAS +123R was $26,790. At December 31, 2008, the aggregate number of shares of +restricted stock outstanding was 1,000, and Mr. Sachdev had no stock options +outstanding. +(7) +The grant date fair value of such stock award computed in accordance with FAS +123R was $28,140. At December 31, 2008, the aggregate number of shares of +restricted stock outstanding was 1,500, and Mr. Schwartz had no stock options +outstanding. +(8) +Effective August 8, 2008, Walter Yetnikoff retired as a director and +non-executive Chairman of the Board of the Company. +(9) +The grant date fair value of such option award computed in accordance with FAS +123R was $116,664. At December 31, 2008, Mr. Yetnikoff had no stock options +outstanding. +Directors who are also employees of the Company are not paid any fees +or other remuneration for service on the Board or any of its committees. In +2008, each non-employee director received the following compensation: (i) (A) +for independent directors, a grant of 1,500 shares of restricted stock, vesting +on the first anniversary of the grant date, and (B) for non-independent +directors, a grant of 750 shares of restricted stock, vesting on the first +anniversary of the grant date; and (ii) $66,250. In 2008, members of the Audit +Committee, Nominating/Corporate Governance Committee and Compensation Committee +each received an additional $10,000 for services on such committees, except +that the audit committee financial expert received $25,000 and the chairperson +of the Compensation Committee received $15,000. The Company reimburses +directors for any out-of-pocket expenses incurred by them in connection with +services provided in such capacity. +-33- +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +In July +2001, the Company entered into a consulting agreement with Peter J. Solomon +& Company, a financial advisory firm of which Marc S. Cooper, a director of +the Company until his resignation on February 25, 2008, was a managing +director. Under this agreement, the firm provided financial advisory and +investment banking services to the Company. This agreement was amended in March +2004. The amended agreement expired on March 31, 2005, but pursuant to its +terms was automatically renewed until the Company terminated it on July 11, +2006. In June 2007, the Company entered into a new consulting agreement with +Peter J. Solomon & Company, pursuant to which the firm is to provide +financial advisory and investment banking services to the Company. This +agreement was amended in February 2008, and, as amended, expired on December +31, 2008. The relationship with Peter J. Solomon & Company currently +continues on a month-to-month basis. During 2008, the Company paid Peter J. +Solomon & Company $46,402 in consulting fees. +In January +2004, the Company entered into an agreement with John Madden and JLM +Consultants, a company wholly-owned by John Madden, one of the Company’s +directors, which was amended in 2005. Under this agreement, Mr. Madden provided +consulting services with respect to the development of international sales of +the Company. This agreement expired on December 31, 2005 but Mr. Madden continued +to provide consulting services and the Company continued to make payments +consistent with those that would have been required under the expired +consulting agreement through December 31, 2007. For the 2008 fiscal year, Mr. +Madden has continued to provide consulting services and the Company has +continued to make payments for such services. In accordance with the foregoing, +JLM Consultants received a commission equal to 2.5% on international sales. JLM +Consultants received a monthly draw in the amount of $25,000 with recourse +against such commissions, as well as a $1,000 per month travel allowance and +$2,812 per month toward health insurance premiums. Pursuant to this +arrangement, JLM Consultants received a total of $760,270 in 2008. +Effective +as of July 1, 2005, the Company amended its employment agreement with Steven +Madden, pursuant to which Mr. Madden agreed to serve as the Company’s Creative +and Design Chief. The term of Mr. Madden’s employment under his amended +employment agreement commenced July 1, 2005 and ends on June 30, 2015. The +agreement provides for an annual salary of $600,000, with a 7% increase of base +salary on a compound basis in each of the third, fifth, seventh and ninth years +of the agreement. The agreement also provides for an annual bonus in an amount +determined by the Board of Directors, which will be at least 2% of the +Company’s EBITDA (the “Annual Bonus”). Additionally, the Company shall pay Mr. +Madden an annual cash bonus in relation to “new business” (as defined in the +agreement) in an amount to be determined by the Board of Directors, which will +be at least (i) 2.5% of new business gross direct revenues, and (ii) 10% of all +license or other fee income above $2,000,000 (the “New Business Bonus”). In +addition, Mr. Madden is eligible to receive annually an option grant to +purchase shares of Common Stock in an amount equal to not less than 100% of the +largest aggregate amount of options granted to any other continuing full-time +employee of the Company during the annual period; provided, however, that a +grant in excess of 150% of the options grant to such other continuing full-time +employee shall require shareholder approval. The agreement provides, in the +event of Mr. Madden’s death, for the payment to Mr. Madden’s estate of his base +salary for the 12-month period immediately subsequent to the date of Mr. +Madden’s death. In the +-34- +event that Mr. Madden’s employment agreement is terminated due to Mr. +Madden’s total disability (as defined in the agreement), “for cause” (as +defined in the agreement) or due to Mr. Madden’s resignation, the Company is +obligated to pay Mr. Madden the amount of compensation that is accrued and +unpaid through the date of termination. In the event Mr. Madden’s employment +agreement is terminated for any reason (other than “for cause” or due to his +death or total disability or due to Mr. Madden’s resignation), the Company is +obligated to pay Mr. Madden, in installments, the balance of his base salary +that would have been paid by the Company under the agreement for the full term +of the agreement. In the event that there is a “change of control” (as defined +in the agreement) transaction, all unvested options to purchase shares of +Common Stock held by Mr. Madden will vest on the date of termination and Mr. +Madden will be entitled to receive a lump sum cash payment equal to (1) the +amount of compensation that is accrued and unpaid through the date of +termination, (2) an amount equal to the product of (A) the number of years +remaining in the term of the agreement (but not less than 5), and (B) the sum +of (w) the base salary for the 12-month period ended on the preceding December +31 (or for the 12-month period ending on December 31, 2002, if greater), (x) +the amount of the Annual Bonus earned (paid or accrued or which should have +been paid or accrued) for the 12-month period ended on the preceding December +31 (or for the 12-month period ended on December 31, 2002, if greater), (y) the +non-accountable expense allowance provided for under the agreement for the +12-month period ended on the preceding December 31, and (z) the amount of the +New Business Bonus earned (paid or accrued or which should have been paid or +accrued) for the 12-month period ended on the preceding December 31 (or for the +12-month period ending on December 31 during the agreement in which Mr. Madden +received the greatest New Business Bonus, if greater). Mr. Madden’s employment +agreement contains other customary provisions, including provisions regarding +expense reimbursement, confidentiality, solicitation and competition. For the +fiscal year ending December 31, 2008, Mr. Madden earned (i) $642,000 in base +salary, (ii) $200,000 in non-accountable expense allowance, (iii) a bonus of +$1,139,020 representing 2% of the Company’s earnings before interest, tax, +depreciation and amortization, (iv) a bonus of $3,340,525 earned based on 2.5% +of the Company’s new business, and (v) a bonus of $72,744 based on 10% of +Royalty/Licensing income over $2,000,000. +On June 25, +2007, the Company made a loan to Steve Madden, its Creative and Design Chief +and a principal shareholder of the Company, in the amount of $3,000,000, in +order for Mr. Madden to exercise options that were due to expire and hold the +underlying Company stock. Mr. Madden executed a secured promissory note in +favor of the Company that bears interest at an annual rate of 8% and originally +was due on the earlier of the date Mr. Madden ceases to be employed by the +Company or December 31, 2008. An amendment to the note dated December 19, 2007 +extended the due date to March 31, 2009. As of December 31, 2008 $370,000 of +interest has accrued on the note. Pursuant to a pledge agreement between the +Company and Mr. Madden, the note is secured by 510,000 shares of the Company’s +common stock. On April 6, 2009, the Note was further amended and restated to +(i) extend the due date to the earlier of the date that Mr. Madden ceases to be +employed by the Company and June 30, 2015 (the “Maturity Date”), and (ii) amend +the rate of interest to accrue at a rate of 8% per annum from June 25, 2007 +until April 6, 2009, and 6% per annum from April 7, 2009 until the Maturity +Date. Mr. Madden is the brother of John Madden, who has been a director of the +Company since the Company’s inception. +-35- +On May 16, +2007, the Company entered into a Membership Interest Purchase Agreement (the +“Purchase Agreement”) whereby it purchased all of the outstanding membership +interests of Compo Enhancements, LLC, a provider of e-commerce services to the +Company (“Compo”), from its owners Jeffrey Silverman, James Randel, Ron Offir, +Godfrey Baker, Alyse Nathan and Andrew Rosca (collectively, the “Owners”). +Jeffrey Silverman became President of the Company on May 16, 2007. +In +connection with the Purchase Agreement, on May 16, 2007, the Company also +entered into an Earn-Out Agreement with the Owners (the “Earn-Out Agreement”). +Pursuant to the Earn-Out Agreement, as additional consideration for their +membership interests in Compo, the Owners collectively have the right to two +contingent purchase price payments of 168,000 shares of the Company’s common +stock, which shall be paid (if at all) if and when the Company achieves (or +exceeds), in two consecutive years, beginning with fiscal year 2008 and ending with +fiscal year 2012, certain EBIT Goals (as defined in the Earn-Out Agreement) and +certain Diluted EPS Goals (as defined in the Earn-Out Agreement), all as +specified in the Earn-Out Agreement. Promptly following the execution of the +Earn-Out Agreement, the Company purchased, for $200,000, 20.875% of any future +earn-out payment from Mr. Randel. +On December +21, 2007, the Company and Mr. Silverman, and the Company and Mr. Randel, each +entered into a Settlement and Release Agreement, dated as of December 18, 2007 +(each, a “Settlement Agreement”, and together, the “Settlement Agreements”). +Each of the Settlement Agreements provides for: the settlement of all disputes +between the parties relating to the pre-May 16, 2007 arrangement between Compo +and the Company (the “Pre-Transaction Arrangement”); the forgiveness by the +Company of all amounts in respect of the Working Capital Refund (as such term +is defined in the Purchase Agreement) that Messrs. Silverman and Randel may be +obligated to pay under the Purchase Agreement; and the payment by the Company +of certain amounts owed by Compo to the U.S. Customs Service and several +vendors to Compo. In addition, the Company and Mr. Silverman agreed that the +Company would have no further obligation to Mr. Silverman under the Earn-Out +Agreement, and the Company would pay $600,000 to Mr. Silverman on June 30, +2008. Mr. Randel released the Company and others from any claims arising from +or related to the Pre-Transaction Arrangement. Mr. Silverman and Mr. Randel +released the Company and others (and the Company released Mr. Silverman, Mr. +Randel and others) from any claims arising from or related to the Earn-Out +Agreement, the Purchase Agreement, the Pre-Transaction Arrangement and all +other matters and events arising prior to the date of the Settlement Agreement. +Pursuant to +the terms and conditions of a Termination Agreement, dated April 11, 2008, +between Mr. Silverman and the Company, Mr. Silverman resigned from his position +as President of the Company effective as of April 4, 2008. Pursuant to such +Termination Agreement, (i) the Company agreed to accelerate to April 19, 2008 +the $600,000 payment due to Mr. Silverman on June 30, 2008 pursuant to the +terms and conditions of the Settlement Agreement between the Company and Mr. +Silverman, and (ii) the Company and Mr. Silverman agreed to release each +other from claims which may arise from events occurring prior to the date of +the Termination Agreement. In addition, the Company retained Mr. Silverman +to act as a consultant to the Company in connection with the Company’s on-line +and internet business operations for the period beginning April 19, 2008 and +ending June 30, 2008. In consideration of such services, Mr. Silverman +received $140,769.23. +-36- +Effective +March 24, 2008, Jamieson A. Karson resigned from his position as Chief +Executive Officer, director and Chairman of the Board of Directors of the +Company, and entered into the Mutual Release with the Company. See “-- +Employment Arrangements.” +REVIEW, APPROVAL +OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS +The +Company’s written Conduct Code and “Employee Handbook” prohibit all conflicts +of interest. Under the Conduct Code, conflicts of interest occur when private +or family interests interfere in any way, or even appear to interfere, with the +interests of the Company. The Company’s prohibition on conflicts of interest +under the Conduct Code includes any related person transaction. +Related +person transactions must be approved by the Board, or by a committee of the +Board consisting solely of independent directors, who will approve the +transaction only if they determine that it is in the best interests of the +Company. In considering the transaction, the Board or committee will consider +all relevant factors, including as applicable (i) the Company’s business +rationale for entering into the transaction; (ii) the alternatives to entering +into a related person transaction; (iii) whether the transaction is on terms +comparable to those available to third parties or, in the case of employment +relationships, to employees generally; (iv) the potential for the transaction +to lead to an actual or apparent conflict of interest and any safeguards +imposed to prevent such actual or apparent conflicts; and (v) the overall +fairness of the transaction to the Company. +The Company +has multiple processes for reporting conflicts of interests, including related +person transactions. Under the Conduct Code, all employees are required to +report any actual or apparent conflict of interest, or potential conflict of +interest, to management. The chief financial officer quarterly distributes a +questionnaire to the Company’s executive officers and management personnel and +annually distributes a questionnaire to the members of the Board of Directors +requesting certain information regarding, among other things, their immediate +family members, employment and beneficial ownership interests, which +information is then reviewed for any conflicts of interest under the Conduct +Code. +The Audit +Committee, Disclosure Committee and Board of Directors discuss the related +party transactions and they are reviewed as part of the Forms 10-K and 10-Q +review process, including related party transaction disclosures. +If a +director is involved in the transaction, he will be recused from all +discussions and decisions about the transaction. The transaction must be +approved in advance whenever practicable, and if not practicable, must be +ratified as promptly as practicable. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The +following table sets forth information as of the Record Date (unless otherwise +indicated) with respect to the beneficial ownership of Common Stock by (i) each +person known by the Company to beneficially own five percent or more of the +outstanding shares; (ii) the directors and the Named Executive Officers; and +(iii) the Company’s executive officers and directors as a group. A person is +deemed to be a beneficial owner of any securities which that +-37- +person has the right to +acquire within 60 days. See “Compensation of Directors and Executive Officers.” +Name and Address of Beneficial Owner (1) +Amount and Nature of Beneficial Ownership (2) +Percentage of Class +Jamieson Karson +0 +* +(3) +Edward R. Rosenfeld +55,833 +* +(4) +Arvind Dharia +160,446 +* +(5) +Awadhesh Sinha +30,000 +* +(6) +Robert Schmertz +180,000 +1.00 +% +(7) +Amelia Varela +40,000 +* +(8) +John Madden +40,750 +* +(9) +Peter Migliorini +16,500 +* +(10) +Richard Randall +3,000 +* +(11) +Thomas Schwartz +30,400 +* +(12) +Ravi Sachdev +1,000 +* +(13) +Steve Madden +2,022,580 +11.26 +% +(14) +BOCAP Corp +1,214,000 +6.77 +% +(15) +Barclays Global Investors, N.A. +1,054,976 +5.90 +% +(16) +Directors and Executive Officers as a +Group (Ten persons) (17) +557,929 +3.07 +% +(18) +* indicates +beneficial ownership of less than 1%. +(1) Unless otherwise indicated, the address +of each beneficial owner is c/o Steven Madden, Ltd., 52-16 Barnett Avenue, Long +Island City, New York 11104. +(2) Beneficial ownership as reported in the +table above has been determined in accordance with Item 403 of Regulation S-K +of the Securities Act of 1933 and Rule 13d-3 of the Securities Exchange Act, and +based upon 17,938,562 shares of Common Stock outstanding (excluding treasury +shares) as of the Record Date. +(3) Effective March 24, 2008, Mr. Karson +resigned from his position as Chief Executive Officer, director and Chairman of +the Board of Directors of the Company. +(4) Mr. Rosenfeld’s beneficial ownership +includes (i) 20,833 shares that may be acquired through options that are +exercisable as of, or will become exercisable within 60 days of, the Record +Date; (ii) 15,750 shares of restricted stock; and (iii) 19,250 shares held by +Mr. Rosenfeld. +(5) Includes (i) 128,446 shares of Common +Stock issuable upon the exercise of options held by Mr. Dharia; (ii) 18,000 +shares of restricted stock; and (iii) 14,000 shares held by Mr. Dharia. +-38- +(6) Mr. Sinha’s beneficial ownership +includes: (i) 15,000 shares of restricted stock; and (ii) 15,000 shares held by +Mr. Sinha. +(7) Includes (i) 50,000 shares of Common +Stock issuable upon the exercise of options held by Mr. Schmertz; (ii) 67,500 +shares of restricted stock; and (iii) 62,500 shares held by Mr. Schmertz. +(8) Ms. Varela’s beneficial ownership +includes (i) 10,000 shares that may be acquired through options that are +exercisable as of, or will become exercisable within 60 days of, the Record +Date; (ii) 7,500 shares of restricted stock; and (iii) 22,500 shares held by +Ms. Varela. +(9) Mr. Madden’s beneficial ownership +includes (i) 40,000 shares that may be acquired through options that are +exercisable as of, or will become exercisable within 60 days of, the Record +Date; and (ii) 750 shares of restricted stock. +(10) Mr. Migliorini’s beneficial ownership +includes (i) 15,000 shares that may be acquired through options that are +exercisable as of, or will become exercisable within 60 days of, the Record +Date; and (ii) 1,500 shares of restricted stock. +(11) Mr. Randall’s beneficial ownership +includes 1,500 shares of restricted stock. Mr. Randall’s beneficial ownership +also includes 1,500 shares held by Mr. Randall which are pledged as collateral +to Merrill Lynch. +(12) Mr. Schwartz’s beneficial ownership +includes: (i) 1,500 shares of restricted stock; and (ii) 28,900 shares held by +Mr. Schwartz. +(13) Mr. Sachdev’s beneficial ownership +includes 1,000 shares of restricted stock. +(14) Mr. Madden’s beneficial ownership +includes (i) 1,214,000 shares of Common Stock held by BOCAP Corp, a corporation +wholly owned by Mr. Madden; (ii) 20,000 shares that may be acquired through +options that are exercisable as of, or will become exercisable within 60 days +of, the Record Date; (iii) 96,000 shares of restricted stock; and (iv) 692,580 +shares held by Mr. Madden. +(15) BOCAP Corp is a corporation wholly +owned by Steve Madden. +(16) Represents beneficial ownership as of +April 3, 2009. The address of Barclays Global Investors, N.A. is 400 Howard +Street, San Francisco, California 94105. +(17) Does not include Jamieson A. Karson, +who resigned from his position as Chief Executive Officer, director and +Chairman of the Board of Directors of the Company, effective March 24, 2008. +(18) Includes 264,279 shares that may be acquired +through options that are exercisable as of, or will become exercisable within +60 days of, the Record Date and 130,000 shares of restricted stock. +-39- +SECURITIES AUTHORIZED FOR ISSUANCE UNDER +EQUITY COMPENSATION PLANS +The +following table sets forth information as of December 31, 2008 with respect to +compensation plans (including individual compensation arrangements) under which +shares of Common Stock are authorized for issuance, aggregated as follows: +· +All +compensation plans previously approved by security holders; and +· +All +compensation plans not previously approved by security holders. +EQUITY COMPENSATION PLAN INFORMATION +Number of securities to be issued upon exercise of outstanding +options, warrants and rights +(a) +Weighted average exercise price of outstanding options, warrants and +rights +(b) +Number of securities remaining available for future issuance under +equity compensation plans (excluding securities reflected in column (a)) +(c) +Equity +compensation plans approved by security holders +772,000 +$ +16.18 +486,000 +Equity +compensation plans not approved by security holders +— +— +— +Total +772,000 +$ +16.18 +486,000 +PROPOSAL TWO +APPROVAL OF THE AMENDMENT AND RESTATEMENT OF OUR +2006 STOCK INCENTIVE PLAN +Our +stockholders are being asked to approve an amendment and restatement of our +2006 Stock Incentive Plan, as amended (which we refer to in this Proposal as +the “ 2006 Plan ”), which was approved by the Board of Directors on April +6, 2009, subject to stockholder approval. The amendment and restatement of the +2006 Plan incorporates the provisions of the 2006 Plan as currently in effect +and includes the following key modifications, effective on the date of our 2009 +stockholders’ meeting: +· +Adopts an additional 2,514,000 shares of Common Stock to the current +share reserve of 1,550,000shares of Common Stock, which +reflects the 3-for-2 stock split that became effective May 25, 2006, for a +total share reserve under the 2006 Plan of 4,064,000 shares of Common Stock. As described below, we clarified the 2006 +Plan in a manner that does not permit liberalized share counting. +-40- +· +Implements a “fungible share pool,” under which shares of Common +Stock subject to awards under the 2006 Plan that are not appreciation awards +(such as restricted stock awards, certain other stock-based awards and +performance-based awards) count against the 2006 Plan’s share reserve as 1.78 +shares for every share of Common Stock granted. +· +Limits the aggregate grant of awards made under the 2006 Plan granted +on and after our 2009 stockholders’ meeting to non-employee directors of the +Company and its affiliates to no more than 10% of the total number of shares of +Common Stock reserved for awards under the 2006 Plan. +· +Imposes minimum restrictions or vesting conditions, as applicable, on +restricted stock awards, other stock-based awards and performance-based +awards so that the vesting schedule may not be less than (i) one year from +the grant date for performance-based awards and (ii) three years from the +grant date for time-vested awards (with restrictions as to no more than 1/3 rd +of shares of Common Stock subject thereto lapsing on each of the first three +anniversaries of the date of grant); provided that , the +compensation committee of the Board is authorized to provide for earlier +lapsing of the restrictions or acceleration of vesting, as applicable, in the +event of a change in control of the Company or a participant’s retirement, +death or disability. The preceding limitation will not apply with respect to +up to 10% (when combined with the 10% limitation for non-employee director +award grants discussed above) of the total number of shares of Common Stock +reserved for awards under 2006 Plan. +· +Provides that the compensation committee of the Board will be the +Committee (as defined below) with respect to the application of the 2006 Plan +to non-employee directors (the Board of Directors currently serves as the Committee +with respect to the application of the 2006 Plan to non-employee directors). +· +Extends the term of the 2006 Plan through April 6, 2019 (currently +the 2006 Plan is scheduled to expire after March 10, 2016). +In addition +to the foregoing, our stockholders are being asked to approve the Section 162(m) performance goals under +the 2006 Plan so that certain incentive awards granted under the 2006 Plan to +executive officers of the Company may qualify as exempt performance-based +compensation under Section 162(m) of the Code, which otherwise generally +disallows the corporate tax deduction for certain compensation paid in excess +of $1,000,000 annually to each of the chief executive officer and certain other +named executive officers. Section 162(m) of the Code generally requires such +performance goals to be approved by stockholders every five years. +BACKGROUND OF THE PROPOSAL +TO APPROVE THE 2006 PLAN +Under the current terms of the 2006 Plan, the Company has granted, and +may continue to grant, options, restricted stock, stock appreciation rights, +performance shares, other stock-based awards, and performance-based cash awards +to employees, consultants and non-employee directors of the Company and its +affiliates. In addition, pursuant to the Company’s 1997 Stock Plan and the +Company’s 1999 Stock Plan, as amended, the Company previously granted stock +options to certain directors and employees of the Company and its affiliates. +On April 7, 2009, +-41- +the closing sale price for our shares of +Common Stock, as reported by NASAQ, was $19.11 per share. +The Board has approved the 2006 Plan in order to enhance the +profitability and value of the Company for the benefit of its stockholders by +enabling us to offer eligible employees, consultants and non-employee directors +of the Company and its affiliates cash and stock-based incentives in the +Company to attract, retain and reward such individuals and strengthen the +mutuality of interests between such individuals and the Company’s stockholders. +The Board’s adoption of the Plan is subject to the approval of the Company’s +stockholders. +The Board recommends that stockholders approve the 2006 Plan. If the +requisite stockholder approval of the 2006 Plan is not obtained, the 2006 Plan +will not take effect. If such approval is not obtained, the Company may +continue to grant awards separately under the 2006 Plan in accordance with the +current terms and the current share reserve under the 2006 Plan. +The affirmative vote of the holders of at least a majority of the +outstanding shares of the Common Stock present or represented by proxy and +entitled to vote at the Annual Meeting is required to approve the 2006 Plan. +The following description of the 2006 Plan, which takes into account +the effect of the amendment and restatement, is a summary of its principal +provisions and is qualified in its entirety by reference to the 2006 Plan (a +copy of which is appended hereto as Exhibit A). +-42- +DESCRIPTION OF +THE 2006 PLAN +Administration . The 2006 Plan is administered +by a committee, which is intended to consist of two or more non-employee +directors, each of whom will be, to the extent required, a non-employee +director as defined in Rule 16b-3 of the Exchange Act, an outside director as +defined under Section 162(m) of the Code and an independent director as defined +under NASD Rule 4200(a)(15) (the “Committee”). Under the 2006 Plan, the +Committee administers the 2006 Plan for purposes of awards to employees and +consultants of the Company and its affiliates and awards to non-employee directors. +Currently, the compensation committee of the Board serves as the Committee +under the 2006 Plan. +The Committee has full authority pursuant and subject to the terms of +the 2006 Plan to administer and interpret the 2006 Plan, to grant discretionary +awards under the 2006 Plan, to determine the persons to whom awards will be +granted, to determine the types of awards to be granted, to determine the terms +and conditions of each award, to determine the number of shares of Common Stock +to be covered by each award and to make all other determinations in connection +with the 2006 Plan and the awards thereunder as the Committee, in its sole +discretion, deems necessary or desirable. The Committee has delegated to the +Chief Executive Officer of the Company the authority to grant awards under the +2006 Plan to eligible employees and consultants who are not subject to Section +16(b) of the Exchange Act or Section 162(m) of the Code; provided that in no +event will the number of shares of Common Stock that may be granted exceed +1,000 shares to any such individual during any fiscal year. The terms and +conditions of individual awards are set forth in written agreements that are +consistent with the terms of the 2006 Plan. Awards under the 2006 Plan may not +be made on or after April 6, 2019, except that awards (other than stock options +or stock appreciation rights) that are intended to be “performance-based” under +Section 162(m) of the Code will not be made on or after the first stockholders’ +meeting that occurs in the fifth year following the year of the 2006 Plan’s +approval by the Company’s stockholders. If the 2006 Plan is approved by our +stockholders, the performance goals will be valid until the first stockholders’ +meeting in 2014. +Eligibility and Types of Awards . Employees and +consultants of the Company or its affiliates and non-employee directors of the +Company are eligible to be granted nonqualified stock options, stock +appreciation rights, performance shares, restricted stock, other stock-based +awards and performance-based cash awards. In addition, the Company’s employees +and employees of the Company’s affiliates that qualify as subsidiaries or +parent corporations (as defined under Section 424 of the Code) are eligible to +be granted incentive stock options under the 2006 Plan. +-43- +Available Shares . The number of shares of +Common Stock issuable under the 2006 Plan is 4,064,000 . This +number includes our current share reserve of 1,550,000 shares of Common Stock, +which reflects the 3-for-2 stock split that became effective May 25, 2006 (the +“Stock Split”), and 2,514,000 as an additional +amount of new shares of Common Stock. +The maximum number of shares of Common Stock with respect to which any +stock option, stock appreciation right or shares of restricted stock that are +subject to the attainment of specified performance goals and intended to +satisfy Section 162(m) of the Code that may be granted under the Plan during +any fiscal year to any eligible employee or consultant will be 600,000 shares +per type of award, subject to a total limit on the number of shares of Common +Stock with respect to all awards of 750,000 shares during any fiscal year. +There are no annual limits on the number of shares of Common Stock with respect +to an award to eligible employees or consultants of restricted stock that is +not subject to the attainment of specified performance goals. The maximum +number of shares of Common Stock with respect to any award of performance +shares to an eligible employee or consultant during any fiscal year is 300,000 +shares. The maximum number of shares of Common Stock with respect to which any +stock option (other than incentive stock options), stock appreciation right, +performance share or other stock-based award that may be granted under the Plan +during any fiscal year to any non-employee director will be 150,000 shares, +which reflects the Stock Split, per type of award. We have not requested an +increase to these limits but they reflect the Stock Split. The maximum payment +that may be made to an eligible employee or consultant under any +performance-based cash award during any fiscal year and subject to the +attainment of specified performance goals will be $10,000,000. Awards granted +under the 2006 Plan after the our stockholders’ 2009 annual meeting to +non-employee directors cannot exceed more than 10% of the total number of +shares of Common Stock reserved for awards under the 2006 Plan. +The 2006 Plan requires that the Committee appropriately adjust the +above individual maximum share limitations, the aggregate number of shares of +Common Stock available for the grant of awards and the exercise price of an +award to reflect any change in the Company’s capital structure or business by +reason of certain corporate transactions or events. +Under the 2006 Plan, the number of shares of Common Stock available for +the purpose of awards under the 2006 Plan are reduced by (i) the total number +of options or stock appreciation rights exercised, regardless of whether any of +the shares of Common Stock underlying such awards are not actually issued to +the participant as the result of a net settlement, (ii) any shares of Common +Stock used to pay any exercise price or tax withholding obligation with respect +to any award and (iii) any shares of Common Stock repurchased by the Company on +the open market with the proceeds of a stock option exercise price. +The Company’s Board commits that for fiscal years 2009, 2010 and 2011, +the Company will not grant during such three fiscal years a number of shares of +Common Stock subject to options or other awards settled in Common Stock to +employees or consultants (whether under the 2006 Plan or any other plan not +approved by stockholders, other than a tax qualified plan) such that the +average number of shares of Common Stock granted during such three fiscal years +will not be greater than the higher of (i) two percent of the Company’s Common +Stock outstanding or (ii) the mean plus one standard deviation of its GICS peer +group (2520 Consumer Durables and +-44- +Apparel). For purposes of calculating the number of shares granted in a +year, stock and restricted stock will count as equivalent to (i) 1.5 option +shares if the Company’s annual stock price volatility is 54.6% or higher, (ii) +2.0 option shares if the Company’s annual stock price volatility is between +36.1% and 54.6%, (iii) 2.5 option shares if the Company’s annual stock price +volatility is between 24.9% and 36.1%, (iv) 3.0 options shares if the Company’s +annual stock price volatility is between 16.5% and 24.9%, (v) 3.5 option shares +if the Company’s annual stock price volatility is between 7.9% and 16.5%, and +(vi) 4.0 option shares if the Company’s annual stock price volatility is less +than 7.9%. +Fungible Share Limit . The 2006 Plan provides a +“fungible share limit” to manage authorized shares in order to improve the +flexibility of awards going forward. Under the 2006 Plan’s fungible share +design: +· +shares of +Common Stock subject to awards under the 2006 Plan that are not appreciation +awards count against the 2006 Plan’s share reserve as 1.78 shares for every +share of common stock granted; +· +each share +of Common Stock underlying an appreciation award granted under the 2006 Plan +that expires, terminates, is cancelled or is forfeited for any reason, is +added back to the 2006 Plan’s aggregate maximum share limit and is available +for grant under the 2006 Plan; and +· +each share +of Common Stock underlying an award that is not an appreciation award +that expires, terminates, is cancelled or is forfeited for any reason, is +added back to the 2006 Plan’s share reserve as 1.78 shares of Common Stock +and is available for grant under the 2006 Plan. +The 2006 Plan’s fungible share limit has the effect of reducing the +number of awards under the 2006 Plan that are not appreciation awards because +awards under the 2006 Plan that are not appreciation awards count against the +2006 Plan’s share reserve as 1.78 shares for every share of Common Stock +granted. Because we have added this fungible share limit, if our stockholders +approve the 2006 Plan, the existing share sublimit for awards that are not +appreciation awards will be eliminated due to the addition of the fungible +share limit. +Awards Under the 2006 Plan . The following +types of awards are available under the 2006 Plan: +Stock Options . The Committee may grant +nonqualified stock options and incentive stock options (only to eligible +employees) to purchase shares of Common Stock. The Committee will determine the +number of shares of Common Stock subject to each option, the term of each +option, which may not exceed seven years (or five years in the case of an +incentive stock option granted to a 10% stockholder), the exercise price, the +vesting schedule (if any), and the other material terms of each option. No +incentive stock option or nonqualified stock option may have an exercise price +less than the fair market value of the Common Stock at the time of grant (or, +in the case of an incentive stock option granted to a 10% stockholder, 110% of +fair market value). +Options will be exercisable at such time or times and subject to such +terms and conditions as determined by the Committee at grant and the +exercisability of such options may be accelerated by the Committee in its sole +discretion, provided that no option is exercisable more than seven +-45- +years after the date the option +is granted and, in the case of a ten percent Stockholder, five years from the +date an incentive stock option is granted. +Upon the exercise of an option, the participant must make payment of +the full exercise price, either (i) in cash, check, bank draft or money order; +(ii) solely to the extent permitted by law, through the delivery of irrevocable +instructions to a broker reasonably acceptable to the Company to deliver +promptly to the Company an amount equal to the purchase price; or (iii) on such +other terms and condition as a may be acceptable to the Committee. +Stock Appreciation Rights . The Committee may grant stock appreciation +rights (“SARs”) either with a stock option which may be exercised only at such +times and to the extent the related option is exercisable (“Tandem SAR”) or +independent of a stock option (“Non-Tandem SARs”). A SAR is a right to receive a payment in Common Stock or cash (as +determined by the Committee) equal in value to the excess of the fair market +value of one share of Common Stock on the date of exercise over the exercise +price per share established in connection with the grant of the SAR. The term of each SAR may not exceed seven +years. The exercise price per share +covered by a SAR will be the exercise price per share of the related option in +the case of a Tandem SAR and will be the fair market value of the Common Stock +on the date of grant in the case of a Non-Tandem SAR. The Committee may also grant “limited SARs,” either as Tandem +SARs or Non-Tandem SARs, which may become exercisable only upon the occurrence +of a change in control (as defined in the 2006 Plan) or such other event as the +Committee may, in its sole discretion, designate at the time of grant or +thereafter. +Restricted Stock . The Committee may award shares of restricted stock. Except as otherwise +provided by the +Committee upon the award of restricted stock, the recipient generally has the +rights of a stockholder with respect to the shares, including the right to +receive dividends, the right to vote the shares of restricted stock and, +conditioned upon full vesting of shares of restricted stock, the right to +tender such shares, subject to the conditions and restrictions generally +applicable to restricted stock or specifically set forth in the recipient’s +restricted stock agreement. The +Committee may determine at the time of award, that the payment of dividends, if +any, will be deferred until the expiration of the applicable restriction +period. +Recipients of restricted stock are required to enter into a restricted +stock agreement with the Company which states the restrictions to which the +shares are subject, which may include +satisfaction of pre-established performance goals, and the criteria or date or +dates on which such restrictions will lapse. +If the grant of restricted stock or the lapse of the relevant +restrictions is based on the attainment of performance goals, the Committee +will establish for each recipient the applicable performance goals, formulae or +standards and the applicable vesting percentages with reference to the +attainment of such goals or satisfaction of such formulas or standards while +the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate +provisions for disregarding (or adjusting for) changes in accounting methods, +corporate transactions (including, without limitation, dispositions and +acquisitions) and other similar events or circumstances. Section 162(m) of the Code requires that +performance awards be based upon objective performance measures. The performance goals for performance-based +restricted stock +-46- +will be based on one or more of the objective criteria set forth on +Exhibit A to the 2006 Plan and discussed in general below. +Performance Shares . The Committee may award +performance shares. A performance share is the equivalent of one share of +Common Stock. The performance goals for performance shares will be based on one +or more of the objective criteria set forth on Exhibit A to the 2006 Plan and +discussed in general below. A minimum level of acceptable achievement will also +be established by the Committee. If, by the end of the performance period, the +recipient has achieved the specified performance goals, he or she will be +deemed to have fully earned the performance shares. To the extent earned, the +performance shares will be paid to the recipient at the time and in the manner +determined by the Committee in cash, shares of Common Stock or any combination +thereof. +Other Stock-Based Awards . The Committee may, +subject to limitations under applicable law, make a grant of such other +stock-based awards (including, without limitation, performance units, dividend +equivalent units, stock equivalent units, restricted stock units and deferred +stock units) under the 2006 Plan that are payable in cash or denominated or +payable in or valued by shares of Common Stock or factors that influence the +value of such shares. The Committee will determine the terms and conditions of +any such other awards, which may include the achievement of certain minimum +performance goals for purposes of compliance with Section 162(m) of the Code +and/or a minimum vesting period. The performance goals for performance-based +other stock-based awards will be based on one or more of the objective criteria +set forth on Exhibit A to the 2006 Plan and discussed in general below. +Performance-Based Cash Awards . The Committee +may, subject to limitations under applicable law, make a grant of individual +target awards either alone or in tandem with stock options, SARs or restricted +stock under the 2006 Plan that are contingent upon the satisfaction of certain +pre-established performance goals that are reached within a specified +performance period, each of which, together with any other terms and +conditions, shall be determined by the Committee in its sole discretion at the +time of grant. At the time the performance goals are established, the Committee +will prescribe a formula to determine the percentages (which may be greater +than 100%) of the individual target award which may be payable based upon the +degree of attainment of the performance goals during the calendar year. The +Committee may, in its sole discretion, elect to pay a participant an amount +that is less than the participant’s individual target award regardless of the +degree of attainment of the performance goals; provided that no such discretion +to reduce a performance-based cash award earned based on achievement of the +applicable performance goals will be permitted for a calendar year in which a +change in control occurs. The performance goals for performance-based cash +awards will be based on one or more of the objective criteria set forth on +Exhibit A to the 2006 Plan and discussed in general below. +Limitation . Notwithstanding any other +provisions in the 2006 Plan or employment agreement, effective on the date of +our 2009 stockholders’ meeting, the restrictions or vesting conditions, as +applicable, to restricted stock awards, other stock-based awards and +performance-based awards granted on and after such date can be no less than (i) +one year, if the lapsing of restrictions or vesting schedule, as applicable, is +based (in whole or in part) on the attainment of one or more performance goals, +and (ii) three years, if the lapsing of restrictions or the vesting schedule, +as +-47- +applicable, is +based solely on the continued performance of services by the 2006 Plan +participant (with restrictions as to no more than 1/3 rd of shares of +common stock subject thereto lapsing on each of the first three anniversaries +of the date of grant); provided that, the Committee is authorized to provide +for earlier lapsing of the restrictions or acceleration of vesting, as +applicable, in the event of a change in control of the Company or a +participant’s retirement, death or disability. The preceding limitation does +not apply with respect to up to 10% (when combined with the 10% limitation for +non-employee director award grants) of the total number of shares of common +stock reserved for awards under Plan. +Performance Goals . The Committee may grant +awards of restricted stock, performance shares, performance-based cash awards +and other stock-based awards that are intended to qualify as “performance-based +compensation” for purposes of Section 162(m) of the Code. These awards may be +granted, vest and be paid based on attainment of specified performance goals +established by the Committee. These performance goals will be based on the +attainment of a certain target level of, or a specified increase or decrease +in, one or more of the following criteria selected by the Committee: +· +earnings per +share, earnings before interest and taxes or earnings before interest, tax, +depreciation and amortization; +· +gross profit +or gross profit return on investment; +· +gross margin +or gross margin return on investment; +· +operating +income, net income, cash flow or economic value added; +· +revenue +growth; +· +working +capital; +· +specified +objectives with regard to limiting the level of increase in all or a portion +of, the Company’s bank debt or other long-term or short-term public or +private debt or other similar financial obligations of the Company, which may +be calculated net of cash balances and/or other offsets and adjustments as +may be established by the Committee; +· +return on +equity, assets or capital; +· +total +shareholder return; +· +fair market +value of the shares of the Common Stock; +· +market share +and/or market segment share; +· +the growth +in the value of an investment in the Common Stock assuming the reinvestment of +dividends; +· +customer +satisfaction, customer loyalty, brand recognition and/or brand acceptance; +· +style +indexes; +· +employee +retention; +· +number of +new patents, new product innovation and/or introduction; +· +product +release schedules and/or ship targets; or +· +reduction in +expenses and/or product cost reduction through advanced technology. +To the extent +permitted by law, the Committee may also exclude the impact of an event or +occurrence which the Committee determines should be appropriately excluded, +including: +-48- +· +restructurings, +discontinued operations, extraordinary items and other unusual or +non-recurring charges; +· +an event +either not directly related to the operations of the Company or not within the +reasonable control of the Company’s management; or +· +a change in +accounting standards required by generally accepted accounting principles. +Performance +goals may also be based on individual participant performance goals, as +determined by the Committee, in its sole discretion. +In addition, +all performance goals may be based upon the attainment of specified levels of +Company (or subsidiary, division or other operational unit of the Company) +performance under one or more of the measures described above relative to the +performance of other corporations. The Committee may designate additional +business criteria on which the performance goals may be based or adjust, modify +or amend those criteria. +Change in Control . Unless otherwise determined +by the Committee at the time of grant or in a written employment agreement that +is in effect on the date of the applicable grant and is applicable to a +specific award, awards subject to vesting and/or restrictions will not +accelerate and vest or cause the lapse of restrictions upon a change in control +(as defined in the 2006 Plan) of the Company. Instead, such awards will be, in +the discretion of the Committee, (i) assumed and continued or substituted in +accordance with applicable law, (ii) purchased by the Company for an amount +equal to the excess of the price of the Common Stock paid in a change in +control over the exercise price of the award(s), or (iii) cancelled if the +price of the Common Stock paid in a change in control is less than the exercise +price of the award. The Committee may also, in its sole discretion, provide for +accelerated vesting or lapse of restrictions of an award at any time. +Amendment and Termination . Notwithstanding any +other provision of the 2006 Plan, the Board may at any time amend any or all of +the provisions of the 2006 Plan, or suspend or terminate it entirely, +retroactively or otherwise; provided, however, that, unless otherwise required +by law or specifically provided in the 2006 Plan, the rights of a participant +with respect to awards granted prior to such amendment, suspension or +termination may not be adversely affected without the consent of such +participant and, provided further that the approval of the Company’s +stockholders will be obtained to the extend required by Delaware law, Sections +162(m) and 422 of the Code, The Nasdaq Global Market or the rules of such other +applicable stock exchange, as specified in the 2006 Plan. +Repricing Options and Stock Appreciation Rights . +Although the current terms of the 2006 Plan do not permit the repricing of +stock options and stock appreciation rights, the 2006 Plan includes an +additional express prohibition against repricing stock options and stock +appreciation rights. The Company may not, without stockholder approval, either +(i) reduce the exercise price of an outstanding stock option or stock +appreciation right, or (ii) simultaneously cancel stock options or stock +appreciation rights for which the exercise price exceeds the then current fair +market value of the underlying Common Stock and grant a new stock option or +stock appreciation right with an exercise price equal to the then current fair +market value of the underlying Common Stock. +-49- +Miscellaneous . Awards granted under the 2006 +Plan are generally nontransferable (other than by will or the laws of descent +and distribution), except that the Committee may provide for the +transferability of nonqualified stock options at the time of grant or +thereafter to certain family members. +Certain U.S. Federal Income Tax Consequences . +The rules concerning the federal income tax consequences with respect to +options granted and to be granted pursuant to the 2006 Plan are quite +technical. Moreover, the applicable statutory provisions are subject to change, +as are their interpretations and applications which may vary in individual +circumstances. Therefore, the following is designed to provide a general +understanding of the federal income tax consequences. In addition, the +following discussion does not set forth any gift, estate, social security or +state or local tax consequences that may be applicable and is limited to the +U.S. federal income tax consequences to individuals who are citizens or +residents of the U.S., other than those individuals who are taxed on a +residence basis in a foreign country. +Incentive Stock Options . In general, an +employee will not realize taxable income upon either the grant or the exercise +of an incentive stock option and the Company will not realize an income tax +deduction at either such time. In general, however, for purposes of the +alternative minimum tax, the excess of the fair market value of the shares of +Common Stock acquired upon exercise of an incentive stock option (determined at +the time of exercise) over the exercise price of the incentive stock option +will be considered income. If the recipient was continuously employed on the +date of grant until the date three months prior to the date of exercise and +such recipient does not sell Common Stock received pursuant to the exercise of +the incentive stock option within either (i) two years after the date of the +grant of the incentive stock option or (ii) one year after the date of +exercise, a subsequent sale of Common Stock will result in long-term capital +gain or loss to the recipient and will not result in a tax deduction to the +Company. +If the +recipient is not continuously employed on the date of grant until the date +three months prior to the date of exercise or such recipient disposes of Common +Stock acquired upon exercise of the incentive stock option within either of the +above mentioned time periods, the recipient will generally realize as ordinary +income an amount equal to the lesser of (i) the fair market value of Common +Stock on the date of exercise over the exercise price, or (ii) the amount +realized upon disposition over the exercise price. In such event, subject to +the limitations under Sections 162(m) and 280G of the Code (as described +below), the Company generally will be entitled to an income tax deduction equal +to the amount recognized as ordinary income. Any gain in excess of such amount +realized by the recipient as ordinary income would be taxed at the rates +applicable to short-term or long-term capital gains (depending on the holding +period). +To the extent +that the aggregate fair market value (determined as of the time of grant) of +the Common Stock with respect to which incentive stock options are exercisable +for the first time by a participant during any calendar year under the 2006 +Plan and/or any other stock option plan of the Company or affiliate exceeds +$100,000, such options are treated as non-qualified stock options. +-50- +Nonqualified Stock Options . A recipient will +not realize any taxable income upon the grant of a nonqualified stock option +and the Company will not receive a deduction at the time of such grant unless +such option has a readily ascertainable fair market value (as determined under +applicable tax law) at the time of grant. Upon exercise of a nonqualified stock +option, the recipient generally will realize ordinary income in an amount equal +to the excess of the fair market value of Common Stock on the date of exercise +over the exercise price. Upon a subsequent sale of Common Stock by the +recipient, the recipient will recognize short-term or long-term capital gain or +loss depending upon his or her holding period for Common Stock. Subject to the +limitations under Sections 162(m) and 280G of the Code (as described below), +the Company will generally be allowed a deduction equal to the amount +recognized by the recipient as ordinary income. +All Options . With regard to both incentive +stock options and nonqualified stock options, the following also apply: (i) any +of the Company’s officers and directors subject to Section 16(b) of the +Exchange Act may be subject to special tax rules regarding the income tax consequences +concerning their stock options, (ii) any entitlement to a tax deduction on the +part of the Company is subject to the applicable tax rules (including, without +limitation, Section 162(m) of the Code regarding the $1,000,000 limitation on +deductible compensation), and (iii) in the event that the exercisability or +vesting of any award is accelerated because of a change in control, payments +relating to the awards (or a portion thereof), either alone or together with +certain other payments, may constitute parachute payments under Section 280G of +the Code, which excess amounts may be subject to excise taxes and may be +nondeductible by the Company. +In general, +Section 162(m) of the Code denies a publicly held corporation a deduction for +federal income tax purposes for compensation in excess of $1,000,000 per year +per person to its named executive officers, other than its chief financial +officer, as disclosed in its proxy statement. Options will generally qualify +under one of these exceptions if they are granted under a plan that states the +maximum number of shares with respect to which options may be granted to any +recipient during a specified period, and if the plan under which the options +are granted is approved by stockholders and is administered by a committee +comprised of outside directors. The 2006 Plan is intended to satisfy these +requirements with respect to options. +Section 409A +of the Code provides that all amounts deferred under a nonqualified deferred +compensation plan are includible in a participant’s gross income to the extent +such amounts are not subject to a substantial risk of forfeiture, unless +certain requirements are satisfied. If the requirements are not satisfied, in +addition to current income inclusion, interest at the underpayment rate plus 1% +will be imposed on the participant’s underpayments that would have occurred had +the deferred compensation been includible in gross income for the taxable year +in which first deferred or, if later, the first taxable year in which such +deferred compensation is not subject to a substantial risk of forfeiture. The +amount required to be included in income is also subject to an additional 20% +tax. While most awards under the 2006 Plan are anticipated to be exempt from +the requirements of Section 409A of the Code, awards not exempt from Section +409A of the Code are intended to comply with Section 409A of the Code. +The 2006 Plan +is not subject to any of the requirements of the Employee Retirement Income +Security Act of 1974, as amended. The 2006 Plan is not, nor is it intended to +be, qualified under Section 401(a) of the Code. +-51- +Future 2006 Plan Awards . Except as stated +below under the section entitled “New 2006 Plan Benefits with Respect to 2009,” +no new equity-based awards have been approved at this time to any employee, +officer, non-employee director or consultant. The Company anticipates that +other equity-based awards may be granted to the named individuals as well as to +other employees, officers, non-employee directors and consultants under the 2006 +Plan. However, the amount of shares of Common Stock that may be granted to the +named individuals will be based upon various prospective factors, including, +the nature of services to be rendered by the Company’s employees, officers, +non-employee directors and consultants, and their potential contributions to +the Company’s success. Accordingly, actual awards cannot be determined at this +time. +-52- +NEW 2006 PLAN +BENEFITS WITH RESPECT TO 2009. +The terms and +number of awards to be granted in the future under the 2006 Plan are to be +determined in the discretion of the Committee. Since no other determinations +regarding awards or grants have yet been made, the benefits or amounts that +will be received by or allocated to our eligible employees, consultants or non-employee +directors cannot be determined at this time. +The +affirmative vote of the holders of at least a majority of the outstanding +shares of the Common Stock present or represented by proxy and entitled to vote +at the Annual Meeting is required to approve the 2006 Plan. The Board +recommends that the stockholders vote “for” the approval of the 2006 Plan. +THE +AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK +PRESENT OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL MEETING IS +REQUIRED TO APPROVE THE PLAN. THE BOARD OF DIRECTORS RECOMMENDS THAT THE +STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE +PLAN. +PROPOSAL THREE +RATIFICATION OF THE APPOINTMENT OF EISNER LLP +AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING +DECEMBER 31, 2009 +The +Audit Committee has appointed Eisner LLP as the Company’s independent +registered public accounting firm to conduct the audit of the Company’s books +and records for the fiscal year ending December 31, 2009. Eisner LLP also +served as the Company’s independent registered public accountants for the +previous fiscal year. +Although +ratification by stockholders is not required by the Company’s organizational +documents or other applicable law, the Audit Committee has determined that +requesting ratification by stockholders of its appointment of Eisner LLP as the +Company’s independent registered public accountants is a matter of good +corporate practice. If stockholders do not ratify the selection, the Audit +Committee will reconsider whether or not to retain Eisner LLP, but may still +retain them. Even if the selection is ratified, the Audit Committee, in its +discretion, may change the appointment at any time during the year if it +determines that such a change would be in the best interest of the Company and +its stockholders. +Representatives +of Eisner LLP are expected to be present at the Annual Meeting to respond to +appropriate questions and to make a statement should they so desire. +REQUIRED VOTE +The +affirmative vote of the holders of a majority of the shares of Common Stock +present or represented by proxy and entitled to vote at the Annual Meeting is +required to ratify the Audit Committee’s selection of Eisner LLP. +-53- +RECOMMENDATION +OF THE BOARD OF DIRECTORS +The +Board of Directors unanimously recommends a vote FOR the ratification of the +appointment of Eisner LLP as the Company’s independent registered public +accountants for the fiscal year ending December 31, 2009. Unless marked to the +contrary, proxies received from stockholders will be voted in favor of +ratifying the appointment of Eisner LLP as the Company’s independent registered +public accountants for the fiscal year ending December 31, 2009. +AUDIT FEES +The +aggregate fees billed by Eisner LLP for professional services rendered for the +audit of the Company’s annual financial statements for the 2008 Fiscal Year, +for the reviews of the financial statements included in the Company’s Quarterly +Reports on Form 10-Q for the 2008 Fiscal Year, other statutory and regulatory +filings or engagements and the audit of the Company’s internal controls over +financial reporting for the 2008 Fiscal Year were $557,983. The comparative +amount for the fiscal year ended December 31, 2007 (the “2007 Fiscal Year”) was +$529,000. +AUDIT-RELATED +FEES +In +addition to Audit Fees, Eisner LLP has billed the Company $25,000, in the +aggregate, for Audit Related Fees related to assurance and related services for +the 2008 Fiscal Year. These services include, among others, the audit of the +Company’s employee benefit plans and other accounting related consultations. +The comparative amount for the 2007 Fiscal Year was $105,000. +TAX FEES +During the +2008 Fiscal Year, Eisner LLP billed the Company $231,500, in the aggregate, for +services rendered to the Company for tax compliance, tax advice and tax +planning. Eisner LLP billed $239,000 for similar services in the 2007 Fiscal +Year. These professional services include assistance in the preparation of the +Company’s various federal, state and local tax returns, tax consultation and +various amendments. +ALL OTHER FEES +There were no +fees billed by Eisner LLP for services rendered to the Company, other than the +services described above under Audit Fees, Audit Related Fees and Tax Fees, for +the 2008 Fiscal Year or the 2007 Fiscal Year. +AUDIT +COMMITTEE’S PRE-APPROVAL POLICIES AND PROCEDURES +Consistent +with SEC policies regarding auditor independence, the Audit Committee has +responsibility for appointing, setting compensation and overseeing the work of +the independent registered public accountants. In recognition of this +responsibility, the Audit Committee has established a policy to review and +pre-approve all audit and permissible non-audit services +-54- +provided by +the independent registered public accountants. These services may include audit +services, audit-related services, tax services and other services. +Prior +to engagement of the independent auditor for next year’s audit, the Audit +Committee will pre-approve all auditing services and all permitted non-audit +services (including the fees and terms thereof), except those excluded from +requiring pre-approval based upon the de minimus exception set forth in Section +10A(i)(1)(B) of the Exchange Act. +The +Audit Committee’s pre-approval policies and procedures are as follows: (a) +prior to each fiscal year, the Audit Committee pre-approves a schedule of +estimated fees for proposed non-prohibited audit and non-audit services, and +(b) actual amounts paid are monitored by financial management of the Company +and reported to the Audit Committee. +All +work performed by Eisner LLP as described above under the captions Audit Fees, +Audit Related Fees, Tax Fees and All Other Fees has been approved or +pre-approved by the Audit Committee pursuant to the provisions of the Audit +Committee’s charter. The Audit Committee has considered and concluded that the +provision of non-audit services is compatible with maintaining the independence +of Eisner LLP. +THE +AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK +PRESENT OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL MEETING IS +REQUIRED TO RATIFY THE APPOINTMENT OF EISNER LLP AS THE COMPANY’S INDEPENDENT +REGISTERED PUBLIC ACCOUNTANTS. THE BOARD OF DIRECTORS RECOMMENDS THAT THE +STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS +THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR +ENDING DECEMBER 31, 2009. +OTHER MATTERS +At +the date of this Proxy Statement, the Company has no knowledge of any business +other than that described above that will be presented at the Annual Meeting. +If any other business should properly come before the Annual Meeting in +connection therewith, it is intended that the persons named in the accompanying +proxy will have discretionary authority to vote the shares which they +represent. +STOCKHOLDER +NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S +2010 ANNUAL MEETING +In +accordance with Article II, Section 5 of the Company’s By-Laws, director +nominations for the 2010 Annual Meeting can only be made by a stockholder of +the Company who (A) is a stockholder of record on the date of the giving of the +notice of such director nominations and on the record date for the +determination of stockholders entitled to vote at such meeting, and (B) +complies with the notice requirements and procedures set forth in Article II, +Section 5 of the Company’s By-Laws. A stockholder’s notice to the Corporate +Secretary with respect to any such nominations must be timely and in proper +written form pursuant to Article II, Section 5 of the Company’s By-Laws, +including containing certain information concerning the nominating or proposing +stockholder and certain information concerning the nominee, and must be +delivered to, or mailed and received at, the Company’s principal executive +offices not less than 120 days nor +-55- +more than 150 +days prior to the first anniversary of the date of the Company’s 2009 Annual +Meeting. Accordingly, any written notice given by or on behalf of a stockholder +pursuant to Article II, Section 5 of the Company’s By-Laws in connection with +the 2010 Annual Meeting must be received no later than January 22, 2010 and no +earlier than December 23, 2009. +In +accordance with rules promulgated by the SEC, any stockholder who wishes to +submit a proposal for inclusion in the proxy material to be distributed by the +Company in connection with the 2010 Annual Meeting must do so no later than +December 10, 2009. In addition, in accordance with Article I, Section 7(f) of +the Company’s By-Laws, in order to be properly brought before the 2010 Annual +Meeting, a matter must be either (i) specified in the notice of such meeting +given by or at the direction of the Board of Directors (or any duly authorized +committee thereof), (ii) otherwise properly brought before such meeting by or +at the direction of the Board of Directors (or any duly authorized committee +thereof) or (iii) specified in a notice in proper written form given by a +stockholder of record on the date of the giving of the notice and on the record +date for such meeting, which notice conforms to the requirements of Article I, +Section 7(f) of the By-Laws and is delivered to, or mailed and received at, the +Company’s principal executive offices not less than 120 days nor more than 150 +days prior to the first anniversary of the date of the Company’s 2009 Annual +Meeting. Accordingly, any written notice given by or on behalf of a stockholder +pursuant to the foregoing clause (iii) in connection with the 2010 Annual +Meeting must be received no later than January 22, 2010 and no earlier than +December 23, 2009. In addition, for business to be properly brought before the +2010 Annual Meeting by a stockholder pursuant to the foregoing clause (iii), +such stockholder shall have complied with any other applicable requirements, +including, but not limited to, the requirements of Rule 14a-8 promulgated by +the SEC. +A +copy of the applicable provisions of the Company’s By-Laws may be obtained by +any stockholder, without charge, upon written request to the Secretary of the +Company at the address set forth above. +WHETHER +OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN AND RETURN +THE ACCOMPANYING PROXY PROMPTLY. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY +TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. YOUR +VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL +MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME +PRIOR TO THE VOTE. +STEVEN +MADDEN, LTD. +April 9, +2009 +By: +/s/ Arvind +Dharia +Arvind +Dharia +Secretary +-56- +EXHIBIT A +TABLE +OF CONTENTS +ARTICLE I PURPOSE +1 +ARTICLE II DEFINITIONS +1 +ARTICLE III ADMINISTRATION +7 +ARTICLE IV SHARE LIMITATION +10 +ARTICLE V ELIGIBILITY – GENERAL +REQUIREMENTS FOR AWARDS +14 +ARTICLE VI STOCK OPTIONS +14 +ARTICLE VII STOCK APPRECIATION +RIGHTS +17 +ARTICLE VIII RESTRICTED STOCK +20 +ARTICLE IX PERFORMANCE SHARES +23 +ARTICLE X OTHER STOCK-BASED +AWARDS +25 +ARTICLE XI PERFORMANCE-BASED CASH +AWARDS +27 +ARTICLE XII TERMINATION +29 +ARTICLE XIII CHANGE IN CONTROL +PROVISIONS +30 +ARTICLE XIV TERMINATION OR +AMENDMENT OF PLAN +32 +ARTICLE XV UNFUNDED PLAN +33 +ARTICLE XVI GENERAL PROVISIONS +34 +ARTICLE XVII EFFECTIVE DATE OF PLAN +37 +ARTICLE XVIII TERM OF PLAN +37 +ARTICLE XIX NAME OF PLAN +37 +EXHIBIT A PERFORMANCE GOALS +A +i +EXHIBIT A +STEVEN MADDEN, LTD. +2006 STOCK INCENTIVE PLAN +(Amended +and Restated Effective May 22, 2009) +ARTICLE I +PURPOSE +The +purpose of this Plan is to enhance the profitability and value of the Company +for the benefit of its stockholders by enabling the Company to offer Eligible +Employees, Consultants and Non-Employee Directors cash and stock based +incentives in the Company to attract, retain and reward such individuals and +strengthen the mutuality of interests between such individuals and the +Company’s stockholders. +This +Plan, in the form set forth herein, is effective as of the Restatement Date (as +defined in Article XVII) and is an amendment and restatement of the Steve +Madden, Ltd. 2006 Stock Incentive Plan, as amended (the “Initial Plan”), which +was initially effective March 10, 2006. +ARTICLE II +DEFINITIONS +For +purposes of this Plan, the following terms shall have the following meanings: +2.1 “ Acquisition +Event ” means a merger or consolidation in which +the Company is not the surviving entity, any transaction that results in the +acquisition of all or substantially all of the Company’s outstanding Common +Stock by a single person or entity or by a group of persons and/or entities +acting in concert, or the sale or transfer of all or substantially all of the +Company’s assets. +2.2 “ Affiliate ” +means each of the following: (a) any Subsidiary; (b) any Parent; +(c) any corporation, trade or business (including, without limitation, a +partnership or limited liability company) which is directly or indirectly +controlled 50% or more (whether by ownership of stock, assets or an equivalent +ownership interest or voting interest) by the Company; (d) any corporation, +trade or business (including, without limitation, a partnership or limited +liability company) which directly or indirectly controls 50% or more (whether +by ownership of stock, assets or an equivalent ownership interest or voting +interest) of the Company; and (e) any other entity in which the Company or +any of its Affiliates has a material equity interest and which is designated as +an “Affiliate” by resolution of the Committee; provided that the Common Stock +subject to any +Award constitutes “service recipient stock” for purposes of Section 409A of the +Code or otherwise does not subject the Award to Section 409A of the Code. +2.3 “ Appreciation +Award ” means any Award under this Plan of any +Stock Option, Stock Appreciation Right or Other Stock-Based Award, provided +that such Other Stock-Based Award is based on the appreciation in value of a +share of Common Stock in excess of an amount equal to at least the Fair Market +Value of the Common Stock on the date such Other Stock-Based Award is granted. +2.4 “ Award ” +means any award under this Plan of any Stock Option, Stock Appreciation Right, +Restricted Stock, Performance Share, Other Stock-Based Award or +Performance-Based Cash Awards. All Awards shall be granted by, confirmed by, +and subject to the terms of, a written agreement executed by the Company and +the Participant. +2.5 “ Board ” +means the Board of Directors of the Company. +2.6 “ Cause ” +means with respect to a Participant’s Termination of Employment or Termination +of Consultancy from and after the date hereof, the following: (a) in the case +where there is no employment agreement, consulting agreement, change in control +agreement or similar agreement in effect between the Company or an Affiliate +and the Participant at the time of the grant of the Award (or where there is +such an agreement but it does not define “cause” (or words of like import)), +termination due to: (i) a Participant’s conviction of, or plea of guilty or +nolo contendere to, a felony; (ii) perpetration by a Participant of an illegal +act, or fraud which could cause significant economic injury to the Company; +(iii) continuing willful and deliberate failure by the Participant to perform +the Participant’s duties in any material respect, provided that the Participant +is given notice and an opportunity to effectuate a cure as determined by the +Committee; or (iv) a Participant’s willful misconduct with regard to the +Company that could have a material adverse effect on the Company; or (b) in the +case where there is an employment agreement, consulting agreement, change in +control agreement or similar agreement in effect between the Company or an +Affiliate and the Participant at the time of the grant of the Award that +defines “cause” (or words of like import), “cause” as defined under such +agreement; provided, however, that with regard to any agreement under which the +definition of “cause” only applies on occurrence of a change in control, such +definition of “cause” shall not apply until a change in control actually takes +place and then only with regard to a termination thereafter. With respect to a +Participant’s Termination of Directorship, “cause” means an act or failure to +act that constitutes cause for removal of a director under applicable Delaware +law. +2.7 “ Change +in Control ” has the meaning set forth in Section +13.2. +2.8 “ Change +in Control Price ” has the meaning set forth in +Section 13.1. +2.9 “ Code ” +means the Internal Revenue Code of 1986, as amended. Any reference to any +section of the Code shall also be a reference to any successor provision and +any Treasury Regulation promulgated thereunder. +2.10 “ Committee ” +means a committee or subcommittee of the Board appointed from time to time by +the Board, which committee or subcommittee shall consist of two or more +non-employee directors, each of whom shall be (i) a “non-employee director” as +defined in Rule 16b- +2 +3; (ii) to the +extent required by Section 162(m) of the Code, an “outside director” as defined +under Section 162(m) of the Code; and (iii) an “independent director” as +defined under NASD Rule 4200(a)(15) or such other applicable stock exchange +rule. To the extent that no Committee exists that has the authority to +administer this Plan, the functions of the Committee shall be exercised by the +Board. If for any reason the appointed Committee does not meet the requirements +of Rule 16b-3 or Section 162(m) of the Code, such noncompliance shall not +affect the validity of Awards, grants, interpretations or other actions of the +Committee. +2.11 “ Common +Stock ” means the Common Stock, $0.0001 par value +per share, of the Company. +2.12 “ Company ” +means Steven Madden, Ltd., a Delaware corporation, and its successors by +operation of law. +2.13 “ Consultant ” +means any natural person who provides bona fide consulting or advisory services +to the Company or its Affiliates pursuant to a written agreement, which are not +in connection with the offer and sale of securities in a capital-raising +transaction. +2.14 “ Disability ” +means with respect to a Participant’s Termination, a permanent and total +disability as defined in Section 22(e)(3) of the Code. A Disability shall only +be deemed to occur at the time of the determination by the Committee of the +Disability. Notwithstanding the foregoing, for Awards that are subject to +Section 409A of the Code, Disability shall mean that a Participant is disabled +under Section 409A(a)(2)(C)(i) or (ii) of the Code. +2.15 “ Effective +Date ” means the effective date of this Plan as +defined in Article XVII. +2.16 “ Eligible +Employees ” means each employee of the Company or +an Affiliate. +2.17 “ Exchange +Act ” means +the Securities Exchange Act of 1934, as amended. Any references to any section +of the Exchange Act shall also be a reference to any successor provision. +2.18 “ Fair +Market Value ” means, unless otherwise required by any applicable +provision of the Code or any regulations issued thereunder, as of any date and +except as provided below, the closing price reported for the Common Stock on +the applicable date: (a) as reported on the principal national securities +exchange in the United States on which it is then traded or The Nasdaq Stock +Market; or (b) if not traded on any such national securities exchange or The +Nasdaq Stock Market, as quoted on an automated quotation system sponsored by +the National Association of Securities Dealers, Inc. or if the Common Stock +shall not have been reported or quoted on such date, on the first day prior +thereto on which the Common Stock was reported or quoted. If the Common Stock +is not traded, listed or otherwise reported or quoted, then Fair Market Value +means the fair market value of the Common Stock as determined by the Committee +in good faith in whatever manner it considers appropriate taking into account +the requirements of Section 422 of the Code or Section 409A of the Code, as +applicable. For purposes of the grant of any Award, the applicable date shall +be the trading day immediately prior to the date on which the Award is granted. +For purposes of the exercise of any Award, the applicable date shall be the +date a notice of exercise is received by the Committee or, if not a day on +which the applicable market is open, the next day that it is open. +3 +2.19 “ Family +Member ” means “family member” as defined in +Section A.1.(5) of the general instructions of Form S-8, as may be amended from +time to time. +2.20 “ GAAP ” +has the meaning set forth in Section 11.2(c)(ii). +2.21 “ Incentive +Stock Option ” means any Stock Option awarded to an +Eligible Employee of the Company, its Subsidiaries and its Parent (if any) +under this Plan intended to be and designated as an “Incentive Stock Option” +within the meaning of Section 422 of the Code. +2.22 “ Non-Employee +Director ” means a director of the Company who is +not an active employee of the Company or an Affiliate. +2.23 “ Non-Qualified +Stock Option ” means any Stock Option awarded under +this Plan that is not an Incentive Stock Option. +2.24 “ Other +Stock-Based Award ” means an Award under Article X +of this Plan that is valued in whole or in part by reference to, or is payable +in or otherwise based on, Common Stock, including, without limitation, a +restricted stock unit or an Award valued by reference to an Affiliate. +2.25 “ Parent ” +means any parent corporation of the Company within the meaning of Section +424(e) of the Code. +2.26 “ Participant ” +means an Eligible Employee, Non-Employee Director or Consultant to whom an +Award has been granted pursuant to this Plan. +2.27 “ Performance-Based +Cash Award ” means a cash Award under Article XI of +this Plan that is payable or otherwise based on the attainment of certain +pre-established performance goals during a Performance Period. +2.28 “ Performance +Period ” means the duration of the period during +which receipt of an Award is subject to the satisfaction of performance +criteria, such period as determined by the Committee in its sole discretion. +2.29 “ Performance +Share ” means an Award made pursuant to Article IX +of this Plan of the right to receive Common Stock or cash of an equivalent +value at the end of a specified Performance Period. +2.30 “ Person ” +means any individual, corporation, partnership, limited liability company, +firm, joint venture, association, joint-stock company, trust, incorporated +organization, governmental or regulatory or other entity. +2.31 “ Plan ” +means this Steven Madden, Ltd. 2006 Stock Incentive Plan, as amended from time +to time. +2.32 “ Reference +Stock Option ” has the meaning set forth in Section +7.1. +4 +2.33 +“ Restricted Stock ” means an Award of shares of +Common Stock under this Plan that is subject to restrictions under Article +VIII. +2.34 “ Restriction +Period ” has the meaning set forth in Subsection +8.3(a). +2.35 “ Retirement ” +means a voluntary Termination of Employment at or after age 65 or such earlier +date after age 50 as may be approved by the Committee, in its sole discretion +at the time of grant or thereafter provided that the exercise of such discretion +does not make the applicable Award subject to Section 409A of the Code, except +that Retirement shall not include any Termination with or without Cause. With +respect to a Participant’s Termination of Directorship, Retirement means the +failure to stand for reelection or the failure to be reelected on or after a +Participant has attained age 65 or, with the consent of the Board, provided +that the exercise of such discretion does not make the applicable Award subject +to Section 409A of the Code, before age 65 but after age 50. +2.36 “ Rule +16b-3 ” means Rule 16b-3 under Section 16(b) of the +Exchange Act as then in effect or any successor provision. +2.37 “ Section +162(m) of the Code ” means the exception for +performance-based compensation under Section 162(m) of the Code and any +applicable Treasury regulations thereunder. +2.38 “ Section +409A of the Code ” means the nonqualified deferred +compensation rules under Section 409A of the Code and any applicable Treasury +regulations thereunder. +2.39 “ Securities +Act ” means the Securities Act of 1933, as amended +and all rules and regulations promulgated thereunder. Any reference to any +section of the Securities Act shall also be a reference to any successor +provision. +2.40 “ Stock +Appreciation Right ” means the right pursuant to an +Award granted under Article VII. A Tandem Stock Appreciation Right shall mean +the right to surrender to the Company all (or a portion) of a Stock Option in exchange +for cash or a number of shares of Common Stock (as determined by the Committee, +in its sole discretion, on the date of grant) equal to the difference between +(a) the Fair Market Value on the date such Stock Option (or such portion +thereof) is surrendered, of the Common Stock covered by such Stock Option (or +such portion thereof), and (b) the aggregate exercise price of such Stock +Option (or such portion thereof). A Non-Tandem Stock Appreciation Right shall +mean the right to receive cash or a number of shares of Common Stock (as +determined by the Committee, in its sole discretion, on the date of grant) +equal to the difference between (i) the Fair Market Value of a share of +Common Stock on the date such right is exercised, and (ii) the aggregate +exercise price of such right, otherwise than on surrender of a Stock Option. +2.41 “ Stock +Option ” or “ Option ” means any option to +purchase shares of Common Stock granted to Eligible Employees, Non-Employee +Directors or Consultants granted pursuant to Article VI. +2.42 “ Subsidiary ” +means any subsidiary corporation of the Company within the meaning of Section +424(f) of the Code. +5 +2.43 “ Ten +Percent Stockholder ” means a person owning stock +possessing more than 10% of the total combined voting power of all classes of +stock of the Company, its Subsidiaries or its Parent. +2.44 “ Termination ” +means a Termination of Consultancy, Termination of Directorship or Termination +of Employment, as applicable. +2.45 “ Termination +of Consultancy ” means: (a) that the Consultant is +no longer acting as a consultant to the Company or an Affiliate; or (b) when an +entity which is retaining a Participant as a Consultant ceases to be an +Affiliate unless the Participant otherwise is, or thereupon becomes, a +Consultant to the Company or another Affiliate at the time the entity ceases to +be an Affiliate. In the event that a Consultant becomes an Eligible Employee or +a Non-Employee Director upon the termination of his or her consultancy, unless +otherwise determined by the Committee, in its sole discretion, no Termination +of Consultancy shall be deemed to occur until such time as such Consultant is +no longer a Consultant, an Eligible Employee or a Non-Employee Director. +Notwithstanding the foregoing, the Committee may, in its sole discretion, +otherwise define Termination of Consultancy in the Award agreement or, if no +rights of a Participant are reduced, may otherwise define Termination of +Consultancy thereafter. +2.46 “ Termination +of Directorship ” means that the Non-Employee +Director has ceased to be a director of the Company; except that if a +Non-Employee Director becomes an Eligible Employee or a Consultant upon the +termination of his or her directorship, his or her ceasing to be a director of +the Company shall not be treated as a Termination of Directorship unless and +until the Participant has a Termination of Employment or Termination of +Consultancy, as the case may be. +2.47 “ Termination +of Employment ” means: (a) a termination of +employment (for reasons other than a military or personal leave of absence +granted by the Company) of a Participant from the Company and its Affiliates; +or (b) when an entity which is employing a Participant ceases to be an +Affiliate, unless the Participant otherwise is, or thereupon becomes, employed +by the Company or another Affiliate at the time the entity ceases to be an +Affiliate. In the event that an Eligible Employee becomes a Consultant or a Non-Employee +Director upon the termination of his or her employment, unless otherwise +determined by the Committee, in its sole discretion, no Termination of +Employment shall be deemed to occur until such time as such Eligible Employee +is no longer an Eligible Employee, a Consultant or a Non-Employee Director. +Notwithstanding the foregoing, the Committee may, in its sole discretion, +otherwise define Termination of Employment in the Award agreement or, if no +rights of a Participant are reduced, may otherwise define Termination of +Employment thereafter. +2.48 “ Transfer ” +means: (a) when used as a noun, any direct or indirect transfer, sale, +assignment, pledge, hypothecation, encumbrance or other disposition (including +the issuance of equity in a Person), whether for value or no value and whether +voluntary or involuntary (including by operation of law), and (b) when used as +a verb, to directly or indirectly transfer, sell, assign, pledge, encumber, +charge, hypothecate or otherwise dispose of (including the issuance of equity +in a Person) whether for value or for no value and whether voluntarily or +involuntarily (including by operation of law). “Transferred” and +“Transferrable” shall have a correlative meaning. +6 +ARTICLE III +ADMINISTRATION +3.1 The +Committee . This Plan shall be administered and +interpreted by the Committee. +3.2 Grants +of Awards . The Committee shall have full authority +to grant, pursuant to the terms of this Plan, to Eligible Employees, +Consultants and Non-Employee Directors: (i) Stock Options, (ii) Stock +Appreciation Rights, (iii) Restricted Stock, (iv) Performance Shares; +(v) Other Stock-Based Awards, and (vi) Performance-Based Cash Awards. In +particular, the Committee shall have the authority: +(a) +to select +the Eligible Employees, Consultants and Non-Employee Directors to whom Awards +may from time to time be granted hereunder; +(b) +to determine +whether and to what extent Awards, or any combination thereof, are to be +granted hereunder to one or more Eligible Employees, Consultants or +Non-Employee Directors; +(c) +to determine +the number of shares of Common Stock to be covered by each Award granted +hereunder; +(d) +to determine +the terms and conditions, not inconsistent with the terms of this Plan, of +any Award granted hereunder (including, but not limited to, the exercise or +purchase price (if any), any restriction or limitation, any vesting schedule +or acceleration thereof, or any forfeiture restrictions or waiver thereof, +regarding any Award and the shares of Common Stock relating thereto, based on +such factors, if any, as the Committee shall determine, in its sole +discretion); +(e) +to determine +whether, to what extent and under what circumstances grants of Options and +other Awards under this Plan are to operate on a tandem basis and/or in +conjunction with or apart from other awards made by the Company outside of +this Plan; +(f) +to determine +whether and under what circumstances a Stock Option may be settled in cash, +Common Stock and/or Restricted Stock under Section 6.3(d); +(g) +to determine +whether, to what extent and under what circumstances Common Stock and other +amounts payable with respect to an Award under this Plan shall be deferred +either automatically or at the election of the Participant in any case, in a +manner intended to comply with, Section 409A of the Code; +7 +(h) +to determine +whether a Stock Option is an Incentive Stock Option or Non-Qualified Stock +Option; +(i) +to determine +whether to require a Participant, as a condition of the granting of any +Award, to not sell or otherwise dispose of shares acquired pursuant to the +exercise of an Award for a period of time as determined by the Committee, in +its sole discretion, following the date of the acquisition of such Award; and +(j) +to set the +performance criteria and the Performance Period with respect to any Award for +which the grant, vesting or payment of such Award is conditioned upon the +attainment of specified performance criteria and to certify the attainment of +any such performance criteria; provided , that with regard to any Award +that is intended to comply with Section 162(m) of the Code, the applicable +performance criteria shall be based on one or more of the performance goals +set forth in Exhibit A hereto (“Performance Goals”). +3.3 Guidelines . +Subject to Article XIV hereof, the Committee shall, in its sole discretion, +have the authority to adopt, alter and repeal such administrative rules, +guidelines and practices governing this Plan and perform all acts, including +the delegation of its responsibilities (to the extent permitted by applicable +law and applicable stock exchange rules), as it shall, from time to time, deem +advisable; to construe and interpret the terms and provisions of this Plan and +any Award issued under this Plan (and any agreements relating thereto); and to +otherwise supervise the administration of this Plan. The Committee may, in its +sole discretion, correct any defect, supply any omission or reconcile any +inconsistency in this Plan or in any agreement relating thereto in the manner +and to the extent it shall deem necessary to effectuate the purpose and intent +of this Plan; provided , that with regard to any provision of this Plan +or any agreement relating thereto that is intended to comply with Section +162(m) of the Code, any such action by the Committee shall be permitted only to +the extent such action would be permitted under Section 162(m) of the Code. The +Committee may, in its sole discretion, adopt special guidelines and provisions +for persons who are residing in or employed in, or subject to, the taxes of, +any domestic or foreign jurisdictions to comply with applicable tax and +securities laws of such domestic or foreign jurisdictions. This Plan is +intended to comply with the applicable requirements of Rule 16b-3 and with +respect to Awards intended to be “performance-based,” the applicable provisions +of Section 162(m) of the Code, and this Plan shall be limited, construed and +interpreted in a manner so as to comply therewith. +3.4 Decisions +Final . Any decision, interpretation or other +action made or taken in good faith by or at the direction of the Company, the +Board or the Committee (or any of its members) arising out of or in connection +with this Plan shall be within the absolute discretion of all and each of them, +as the case may be, and shall be final, binding and conclusive on the Company +and all employees and Participants and their respective heirs, executors, +administrators, successors and assigns. +3.5 Procedures . +If the Committee is appointed, the Board shall designate one of the members of +the Committee as chairman and the Committee shall hold meetings, subject to the +8 +By-Laws of the +Company, at such times and places as it shall deem advisable, including, +without limitation, by telephone conference or by written consent to the extent +permitted by applicable law. A majority of the Committee members shall +constitute a quorum. All determinations of the Committee shall be made by a +majority of its members. Any decision or determination reduced to writing and +signed by all the Committee members in accordance with the By-Laws of the +Company shall be fully effective as if it had been made by a vote at a meeting duly +called and held. The Committee shall keep minutes of its meetings and shall +make such rules and regulations for the conduct of its business as it shall +deem advisable. +3.6 Designation +of Consultants/Liability . +(a) +The Committee +may, in its sole discretion, designate employees of the Company and +professional advisors to assist the Committee in the administration of this +Plan and (to the extent permitted by applicable law and applicable exchange +rules) may grant authority to officers to grant Awards and/or execute +agreements or other documents on behalf of the Committee. +(b) +The +Committee may, in its sole discretion, employ such legal counsel, consultants +and agents as it may deem desirable for the administration of this Plan and +may rely upon any opinion received from any such counsel or consultant and +any computation received from any such consultant or agent. Expenses incurred +by the Committee or the Board in the engagement of any such counsel, +consultant or agent shall be paid by the Company. The Committee, its members +and any person designated pursuant to sub-section (a) above shall not be +liable for any action or determination made in good faith with respect to +this Plan. To the maximum extent permitted by applicable law, no officer of +the Company or member or former member of the Committee or of the Board shall +be liable for any action or determination made in good faith with respect to +this Plan or any Award granted under it. +3.7 Indemnification . +To the maximum extent permitted by applicable law and the Certificate of +Incorporation and By-Laws of the Company and to the extent not covered by +insurance directly insuring such person, each officer or employee of the +Company or any Affiliate and member or former member of the Committee or the +Board shall be indemnified and held harmless by the Company against any cost or +expense (including reasonable fees of counsel reasonably acceptable to the +Committee) or liability (including any sum paid in settlement of a claim with +the approval of the Committee), and advanced amounts necessary to pay the +foregoing at the earliest time and to the fullest extent permitted, arising out +of any act or omission to act in connection with the administration of this +Plan, except to the extent arising out of such officer’s, employee’s, member’s +or former member’s fraud. Such indemnification shall be in addition to any +rights of indemnification the officers, employees, directors or members or +former officers, directors or members may have under applicable law or under +the Certificate of Incorporation or By-Laws of the Company or any Affiliate. +Notwithstanding anything else herein, this indemnification will not apply to +the actions or determinations made by an individual with regard to Awards +granted to him or her under this Plan. +9 +ARTICLE IV +SHARE LIMITATION +4.1 Shares . +(a) +General +Limitations . The aggregate number of shares of +Common Stock that may be issued or used for reference purposes or with +respect to which Awards may be granted under this Plan shall not exceed +4,064,000 shares (subject to any increase or decrease pursuant to Section +4.2), which may be either authorized and unissued Common Stock or Common +Stock held in or acquired for the treasury of the Company or both. Any shares +of Common Stock that are subject to Awards that are not Appreciation Awards +shall be counted against this limit as 1.78 shares for every share granted. +If any Appreciation Award granted under this Plan expires, terminates, is +cancelled or is forfeited for any reason, the number of shares of Common +Stock underlying any such Award shall again be available for the purpose of +Awards under this Plan and added back to the aggregate maximum limit. If any +Awards that are not Appreciation Awards granted under this Plan to a +Participant expire, terminate, are cancelled or are forfeited for any reason, +1.78 shares of Common Stock shall again be available for the purposes of +Awards under this Plan and added back to the aggregate maximum limit. If a +Tandem Stock Appreciation Right or a Limited Stock Appreciation Right is +granted in tandem with an Option, such grant shall only apply once against +the maximum number of shares of Common Stock which may be issued under this +Plan. The number of shares of Common Stock available for the purpose of +Awards under this Plan shall be reduced by (i) the total number of Stock +Options or Stock Appreciation Rights exercised, regardless of whether any of +the shares of Common Stock underlying such Awards are not actually issued to +the Participant as the result of a net settlement, (ii) any shares of Common +Stock used to pay any exercise price or tax withholding obligation with +respect to any Award and (iii) any shares of Common Stock repurchased by the +Company on the open market with the proceeds of an Stock Option exercise +price. +(b) +Individual +Participant Limitations . +(i) The +maximum number of shares of Common Stock subject to any Award of Stock +Options, Stock Appreciation Rights or shares of Restricted Stock for which +the grant of such Award or the lapse of the relevant Restriction Period is +subject to the attainment of Performance Goals in accordance with Section +8.3(a)(ii) herein which may be granted under this Plan during any fiscal year +of the Company to each Eligible Employee or Consultant shall be 600,000 +shares per type of Award (which shall be subject to any further increase or +decrease pursuant to Section 4.2), provided that the maximum number of shares +of Common Stock for +10 +all types of +Awards does not exceed 750,000 (which shall be subject to any further +increase or decrease pursuant to Section 4.2) with respect to any fiscal year +of the Company. If a Tandem Stock Appreciation Right is granted or a Limited Stock +Appreciation Right is granted in tandem with a Stock Option, it shall apply +against the Eligible Employee’s or Consultant’s individual share limitations +for both Stock Appreciation Rights and Stock Options. +(ii) The +maximum number of shares of Common Stock subject to any Award of Stock +Options (other than Incentive Stock Options), Stock Appreciation Rights, +Performance Shares or Other Stock-Based Awards which may be granted under +this Plan during any fiscal year of the Company to each Non-Employee Director +shall be 150,000 shares per type of Award (which shall be subject to any +further increase or decrease pursuant to Section 4.2), provided that the +maximum number of shares of Common Stock for all types of Awards does not exceed +200,000 (which shall be subject to any further increase or decrease pursuant +to Section 4.2) with respect to any fiscal year of the Company, provided +further, that, effective on the date of the Company’s 2009 annual +stockholders’ meeting, in no event shall the aggregate grant of Awards to +Non-Employee Directors granted on and after such date exceed 10% (when +combined with the 10% limitation set forth in Sections 8.3(a)(iii), 9.2(f), +and 10.2(d) of this Plan) of the total number of shares of Common Stock reserved +for Awards under this Plan. If a Tandem Stock Appreciation Right is granted +or a Limited Stock Appreciation Right is granted in tandem with a Stock +Option, it shall apply against the Non-Employee Director’s individual share +limitations for both Stock Appreciation Rights and Stock Options. +(iii) There +are no annual individual Eligible Employee or Consultant share limitations on +Restricted Stock for which the grant of such Award or the lapse of the +relevant Restriction Period is not subject to attainment of Performance Goals +in accordance with Section 8.3(a)(ii) hereof. +(iv) The +maximum number of shares of Common Stock subject to any Award of Performance +Shares which may be granted under this Plan during any fiscal year of the +Company to each Eligible Employee or Consultant shall be 300,000 (which shall +be subject to any further increase or decrease pursuant to Section 4.2) with +respect to any fiscal year of the Company. Each Performance Share shall be referenced +to one share of Common Stock and shall be charged against the available +shares under this Plan at the time the unit value measurement is converted to +a referenced number of shares of Common Stock in accordance with Section 9.1. +11 +(v) The +maximum payment under any Performance-Based Cash Award payable with respect +to any fiscal year of the Company and for which the grant of such Award is +subject to the attainment of Performance Goals in accordance with Section +11.2(c) herein which may be granted under this Plan with respect to any +fiscal year of the Company to each Eligible Employee or Consultant shall be +$10,000,000. +(vi) The +individual Participant limitations set forth in this Section 4.1(b) shall be +cumulative; that is, to the extent that shares of Common Stock for which +Awards are permitted to be granted to an Eligible Employee or a Consultant +during a fiscal year are not covered by an Award to such Eligible Employee or +Consultant in a fiscal year, the number of shares of Common Stock available +for Awards to such Eligible Employee or Consultant shall automatically +increase in the subsequent fiscal years during the term of the Plan until +used. +4.2 Changes . +(a) +The existence +of this Plan and the Awards granted hereunder shall not affect in any way the +right or power of the Board or the stockholders of the Company to make or +authorize (i) any adjustment, recapitalization, reorganization or other +change in the Company’s capital structure or its business, (ii) any merger or +consolidation of the Company or any Affiliate, (iii) any issuance of bonds, +debentures, preferred or prior preference stock ahead of or affecting the +Common Stock, (iv) the dissolution or liquidation of the Company or any +Affiliate, (v) any sale or transfer of all or part of the assets or business +of the Company or any Affiliate or (vi) any other corporate act or +proceeding. +(b) +Subject to +the provisions of Section 4.2(d), if there shall occur any such change in the +capital structure of the Company by reason of any stock split, reverse stock +split, stock dividend, subdivision, combination or reclassification of shares +that may be issued under the Plan, any recapitalization, any merger, any +consolidation, any spin off, any reorganization or any partial or complete +liquidation, or any other corporate transaction or event having an effect +similar to any of the foregoing (a “ Section 4.2 Event ”), then (i) the +aggregate number and/or kind of shares that thereafter may be issued under +the Plan, (ii) the number and/or kind of shares or other property (including +cash) to be issued upon exercise of an outstanding Award or under other +Awards granted under the Plan, (iii) the purchase price thereof, and/or (iv) +the individual Participant limitations set forth in Section 4.1(b) (other +than those based on cash limitations) shall be appropriately adjusted. In +addition, subject to Section 4.2(d), if there shall occur any change in the +capital structure or the business of the Company that is not a Section 4.2 +Event (an “ Other Extraordinary Event ”), including by reason of +any extraordinary dividend (whether cash or stock), any conversion, any +adjustment, any issuance of +12 +any class of +securities convertible or exercisable into, or exercisable for, any class of +stock, or any sale or transfer of all or substantially all the Company’s +assets or business, then the Committee, in its sole discretion, may adjust +any Award and make such other adjustments to the Plan. Any adjustment +pursuant to this Section 4.2 shall be consistent with the applicable Section +4.2 Event or the applicable Other Extraordinary Event, as the case may be, +and in such manner as the Committee may, in its sole discretion, deem +appropriate and equitable to prevent substantial dilution or enlargement of +the rights granted to, or available for, Participants under the Plan. Any +such adjustment determined by the Committee shall be final, binding and +conclusive on the Company and all Participants and their respective heirs, +executors, administrators, successors and permitted assigns. Except as +expressly provided in this Section 4.2 or in the applicable Award agreement, +a Participant shall have no rights by reason of any Section 4.2 Event or any +Other Extraordinary Event. +(c) +Fractional +shares of Common Stock resulting from any adjustment in Awards pursuant to +Section 4.2(a) or (b) shall be aggregated until, and eliminated at, the time +of exercise by rounding-down for fractions less than one-half and rounding-up +for fractions equal to or greater than one-half. No cash settlements shall be +made with respect to fractional shares eliminated by rounding. Notice of any +adjustment shall be given by the Committee to each Participant whose Award +has been adjusted and such adjustment (whether or not such notice is given) +shall be effective and binding for all purposes of this Plan. +(d) +In the event +of an Acquisition Event, the Committee may, in its sole discretion, terminate +all outstanding and unexercised Stock Options or Stock Appreciation Rights or +any Other Stock Based Award that provides for a Participant elected exercise +effective as of the date of the Acquisition Event, by delivering notice of +termination to each Participant at least 20 days prior to the date of +consummation of the Acquisition Event, in which case during the period from +the date on which such notice of termination is delivered to the consummation +of the Acquisition Event, each such Participant shall have the right to +exercise in full all of his or her Stock Options or Stock Appreciation Rights +that are then outstanding (without regard to any limitations on +exercisability otherwise contained in the Award agreements), but any such +exercise shall be contingent on the occurrence of the Acquisition Event, and, +provided that, if the Acquisition Event does not take place within a +specified period after giving such notice for any reason whatsoever, the +notice and exercise pursuant thereto shall be null and void. +If an +Acquisition Event occurs but the Committee does not terminate the outstanding +Awards pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) +and Article XIII shall apply. +13 +4.3 Minimum +Purchase Price . Notwithstanding any provision of +this Plan to the contrary, if authorized but previously unissued shares of +Common Stock are issued under this Plan, such shares shall not be issued for a +consideration that is less than as permitted under applicable law. +ARTICLE V +ELIGIBILITY – GENERAL REQUIREMENTS FOR AWARDS +5.1 General +Eligibility . All Eligible Employees, Consultants, +Non-Employee Directors and prospective employees and consultants are eligible +to be granted Awards, subject to the terms and conditions of this Plan. Eligibility +for the grant of Awards and actual participation in this Plan shall be +determined by the Committee in its sole discretion. +5.2 Incentive +Stock Options . Notwithstanding anything herein to +the contrary, only Eligible Employees of the Company, its Subsidiaries and its +Parent (if any) are eligible to be granted Incentive Stock Options under this +Plan. Eligibility for the grant of an Incentive Stock Option and actual +participation in this Plan shall be determined by the Committee in its sole +discretion. +5.3 General +Requirement . The vesting and exercise of Awards +granted to a prospective employee or consultant are conditioned upon such +individual actually becoming an Eligible Employee or Consultant. +ARTICLE VI +STOCK OPTIONS +6.1 Options . +Stock Options may be granted alone or in addition to other Awards granted under +this Plan. Each Stock Option granted under this Plan shall be of one of two +types: (a) an Incentive Stock Option or (b) a Non-Qualified Stock +Option. +6.2 Grants . +The Committee shall, in its sole discretion, have the authority to grant to any +Eligible Employee (subject to Section 5.2) Incentive Stock Options, +Non-Qualified Stock Options, or both types of Stock Options. The Committee +shall, in its sole discretion, have the authority to grant Non-Qualified Stock +Options to any Consultant or Non-Employee Director. To the extent that any +Stock Option does not qualify as an Incentive Stock Option (whether because of +its provisions or the time or manner of its exercise or otherwise), such Stock +Option or the portion thereof which does not qualify shall constitute a +separate Non-Qualified Stock Option. +6.3 Terms +of Options . Options granted under this Plan shall +be subject to the following terms and conditions and shall be in such form and +contain such additional terms and conditions, not inconsistent with the terms +of this Plan, as the Committee, in its sole discretion, shall deem desirable: +(a) +Exercise +Price . The exercise price per share of Common Stock +subject to a Stock Option shall be determined by the Committee at the time of +grant, +14 +provided +that the per share exercise price of a Stock Option shall not be less than +100% (or, in the case of an Incentive Stock Option granted to a Ten Percent +Stockholder, 110%) of the Fair Market Value of the Common Stock at the time +of grant. +(b) +Stock Option +Term . The term of each Stock Option shall be fixed +by the Committee, provided that no Stock Option shall be exercisable more +than seven (7) years after the date the Option is granted; and provided +further that the term of an Incentive Stock Option granted to a Ten Percent +Stockholder shall not exceed five (5) years. +(c) +Exercisability . +Stock Options shall be exercisable at such time or times and subject to such +terms and conditions or as shall be determined by the Committee at grant. If +the Committee provides, in its discretion, that any Stock Option is +exercisable subject to certain limitations (including, without limitation, +that such Stock Option is exercisable only in installments or within certain +time periods), the Committee may waive such limitations on the exercisability +at any time at or after grant in whole or in part (including, without limitation, +waiver of the installment exercise provisions or acceleration of the time at +which such Stock Option may be exercised), based on such factors, if any, as +the Committee shall determine, in its sole discretion. In the event that a +written employment agreement between the Company and a Participant provides +for a vesting schedule that is more favorable than the vesting schedule +provided in the form of Award Agreement, the vesting schedule in such +employment agreement shall govern, provided that such agreement is in effect +on the date of grant and applicable to the specific Award. +(d) +Method of +Exercise . Subject to whatever installment exercise +and waiting period provisions apply under subsection (c) above, to the extent +vested, Stock Options may be exercised in whole or in part at any time during +the Option term, by giving written notice of exercise to the Company +specifying the number of shares of Common Stock to be purchased. Such notice +shall be in a form acceptable to the Company and shall be accompanied by +payment in full of the purchase price as follows: (i) in cash or by check, +bank draft or money order payable to the order of the Company; (ii) solely to +the extent permitted by applicable law, if the Common Stock is traded on a +national securities exchange, the Nasdaq Stock Market or quoted on a national +quotation system sponsored by the National Association of Securities Dealers, +and the Committee authorizes, through a procedure whereby the Participant +delivers irrevocable instructions to a broker reasonably acceptable to the +Committee to deliver promptly to the Company an amount equal to the purchase +price; or (iii) on such other terms and conditions as may be acceptable to +the Committee (including, without limitation, the relinquishment of Stock +Options or by payment in full or in part in the form of Common Stock owned by +the Participant based on the Fair Market Value of the Common Stock on the +15 +payment date +as determined by the Committee, in its sole discretion). No shares of Common +Stock shall be issued until payment therefor, as provided herein, has been +made or provided for. +(e) +Non-Transferability +of Options . No Stock Option shall be Transferable by +the Participant otherwise than by will or by the laws of descent and distribution, +and all Stock Options shall be exercisable, during the Participant’s +lifetime, only by the Participant. Notwithstanding the foregoing, the +Committee may determine, in its sole discretion, at the time of grant or +thereafter that a Non-Qualified Stock Option that is otherwise not +Transferable pursuant to this Section is Transferable to a Family Member in +whole or in part and in such circumstances, and under such conditions, as +determined by the Committee, in its sole discretion. A Non-Qualified Stock +Option that is Transferred to a Family Member pursuant to the preceding +sentence (i) may not be subsequently Transferred otherwise than by will or by +the laws of descent and distribution and (ii) remains subject to the terms of +this Plan and the applicable Award agreement. Any shares of Common Stock +acquired upon the exercise of a Non-Qualified Stock Option by a permissible +transferee of a Non-Qualified Stock Option or a permissible transferee +pursuant to a Transfer after the exercise of the Non-Qualified Stock Option +shall be subject to the terms of this Plan and the applicable Award +agreement. +(f) +Incentive +Stock Option Limitations . To the extent that the +aggregate Fair Market Value (determined as of the time of grant) of the +Common Stock with respect to which Incentive Stock Options are exercisable +for the first time by an Eligible Employee during any calendar year under +this Plan and/or any other stock option plan of the Company, any Subsidiary +or any Parent exceeds $100,000, such Options shall be treated as +Non-Qualified Stock Options. Should any provision of this Plan not be +necessary in order for the Stock Options to qualify as Incentive Stock +Options, or should any additional provisions be required, the Committee may, +in its sole discretion, amend this Plan accordingly, without the necessity of +obtaining the approval of the stockholders of the Company. +(g) +Form, +Modification, Extension and Renewal of Stock Options . +Subject to the terms and conditions and within the limitations of this Plan, +Stock Options shall be evidenced by such form of agreement or grant as is +approved by the Committee, and the Committee may, in its sole discretion (i) +modify, extend or renew outstanding Stock Options granted under this Plan +(provided that the rights of a Participant are not reduced without his or her +consent and provided further that such action does not subject the Stock +Options to Section 409A of the Code), and (ii) accept the surrender of +outstanding Stock Options (up to the extent not theretofore exercised) and +authorize the granting of new Stock Options in substitution therefor (to the +extent not theretofore exercised). Notwithstanding the foregoing, an +outstanding Option may not be modified to reduce the exercise price +16 +thereof nor +may a new Option at a lower price be substituted for a surrendered Option +(other than adjustments or substitutions in accordance with Section 4.2), +unless such action is approved by the stockholders of the Company. +(h) +Early +Exercise . The Committee may provide that a Stock +Option include a provision whereby the Participant may elect at any time +before the Participant’s Termination to exercise the Stock Option as to any +part or all of the shares of Common Stock subject to the Stock Option prior +to the full vesting of the Stock Option and such shares shall be subject to +the provisions of Article VIII and treated as Restricted Stock. Any unvested +shares of Common Stock so purchased may be subject to a repurchase option in +favor of the Company or to any other restriction the Committee determines to +be appropriate. +(i) +Other Terms +and Conditions . Stock Options may contain such other +provisions, which shall not be inconsistent with any of the terms of this +Plan, as the Committee shall, in its sole discretion, deem appropriate. +ARTICLE VII +STOCK APPRECIATION RIGHTS +7.1 Tandem +Stock Appreciation Rights . Stock Appreciation +Rights may be granted in conjunction with all or part of any Stock Option (a +“Reference Stock Option”) granted under this Plan (“Tandem Stock Appreciation +Rights”). In the case of a Non-Qualified Stock Option, such rights may be +granted either at or after the time of the grant of such Reference Stock +Option. In the case of an Incentive Stock Option, such rights may be granted +only at the time of the grant of such Reference Stock Option. +7.2 Terms +and Conditions of Tandem Stock Appreciation Rights . +Tandem Stock Appreciation Rights granted hereunder shall be subject to such +terms and conditions, not inconsistent with the provisions of this Plan, as +shall be determined from time to time by the Committee in its sole discretion, +and the following: +(a) +Exercise +Price . The exercise price per share of Common Stock +subject to a Tandem Stock Appreciation Right shall be determined by the +Committee at the time of grant, provided that the per share exercise price of +a Tandem Stock Appreciation Right shall not be less than 100% of the Fair +Market Value of the Common Stock at the time of grant. +(b) +Term . +A Tandem Stock Appreciation Right or applicable portion thereof granted with +respect to a Reference Stock Option shall terminate and no longer be +exercisable upon the termination or exercise of the Reference Stock Option, +except that, unless otherwise determined by the Committee, in its sole +discretion, at the time of grant, a Tandem Stock Appreciation Right granted +with respect to less than the full number of shares covered +17 +by the +Reference Stock Option shall not be reduced until and then only to the extent +the exercise or termination of the Reference Stock Option causes the number +of shares covered by the Tandem Stock Appreciation Right to exceed the number +of shares remaining available and unexercised under the Reference Stock +Option. +(c) +Exercisability . +Tandem Stock Appreciation Rights shall be exercisable only at such time or +times and to the extent that the Reference Stock Options to which they relate +shall be exercisable in accordance with the provisions of Article VI, and +shall be subject to the provisions of Section 6.3(c). +(d) +Method of +Exercise . A Tandem Stock Appreciation Right may be +exercised by the Participant by surrendering the applicable portion of the +Reference Stock Option. Upon such exercise and surrender, the Participant +shall be entitled to receive an amount determined in the manner prescribed in +this Section 7.2. Stock Options which have been so surrendered, in whole or +in part, shall no longer be exercisable to the extent the related Tandem +Stock Appreciation Rights have been exercised. +(e) +Payment . +Upon the exercise of a Tandem Stock Appreciation Right, a Participant shall +be entitled to receive up to, but no more than, an amount in cash or +a number of shares of Common Stock (as determined by the Committee, in its +sole discretion, on the date of grant) equal in value to the excess of the +Fair Market Value of one share of Common Stock over the Option exercise price +per share specified in the Reference Stock Option agreement, multiplied by +the number of shares in respect of which the Tandem Stock Appreciation Right +shall have been exercised. +(f) +Deemed +Exercise of Reference Stock Option . Upon the +exercise of a Tandem Stock Appreciation Right, the Reference Stock Option or +part thereof to which such Stock Appreciation Right is related shall be +deemed to have been exercised for the purpose of the limitation set forth in +Article IV of the Plan on the number of shares of Common Stock to be issued +under the Plan. +(g) +Non-Transferability . +Tandem Stock Appreciation Rights shall be Transferable only when and to the +extent that the underlying Stock Option would be Transferable under Section +6.3(e) of the Plan. +7.3 Non-Tandem +Stock Appreciation Rights . Non-Tandem Stock +Appreciation Rights may also be granted without reference to any Stock Options +granted under this Plan. +7.4 Terms +and Conditions of Non-Tandem Stock Appreciation Rights . +Non-Tandem Stock Appreciation Rights granted hereunder shall be subject to such +terms and conditions, not inconsistent with the provisions of this Plan, as +shall be determined from time to time by the Committee in its sole discretion, +and the following: +18 +(a) +Exercise +Price . The exercise price per share of Common Stock +subject to a Non-Tandem Stock Appreciation Right shall be determined by the +Committee at the time of grant, provided that the per share exercise price of +a Non-Tandem Stock Appreciation Right shall not be less than 100% of the Fair +Market Value of the Common Stock at the time of grant. +(b) +Term . +The term of each Non-Tandem Stock Appreciation Right shall be fixed by the +Committee, but shall not be greater than 7 years after the date the right is +granted. +(c) +Exercisability . +Non-Tandem Stock Appreciation Rights shall be exercisable at such time or +times and subject to such terms and conditions as shall be determined by the +Committee at grant. If the Committee provides, in its discretion, that any +such right is exercisable subject to certain limitations (including, without +limitation, that it is exercisable only in installments or within certain +time periods), the Committee may waive such limitations on the exercisability +at any time at or after grant in whole or in part (including, without +limitation, waiver of the installment exercise provisions or acceleration of +the time at which such right may be exercised), based on such factors, if +any, as the Committee shall determine, in its sole discretion. In the event +that a written employment agreement between the Company and a Participant +provides for a vesting schedule that is more favorable than the vesting +schedule provided in the form of Award Agreement, the vesting schedule in +such employment agreement shall govern, provided that such agreement is in +effect on the date of grant and applicable to the specific Award. +(d) +Method of +Exercise . Subject to whatever installment exercise +and waiting period provisions apply under subsection (c) above, Non-Tandem +Stock Appreciation Rights may be exercised in whole or in part at any time in +accordance with the applicable Award agreement, by giving written notice of +exercise to the Company specifying the number of Non-Tandem Stock +Appreciation Rights to be exercised. +(e) +Payment . +Upon the exercise of a Non-Tandem Stock Appreciation Right a Participant +shall be entitled to receive, for each right exercised, up to, but no more +than, an amount in cash or a number of shares of Common Stock (as determined +by the Committee, in its sole discretion, on the date of grant) equal in value +to the excess of the Fair Market Value of one share of Common Stock on the +date the right is exercised over the Fair Market Value of one share of Common +Stock on the date the right was awarded to the Participant. +(f) +Non-Transferability . +No Non-Tandem Stock Appreciation Rights shall be Transferable by the +Participant otherwise than by will or by the laws of descent and +distribution, and all such rights shall be exercisable, during the +Participant’s lifetime, only by the Participant. +19 +7.5 Limited Stock Appreciation Rights . The Committee may, in its +sole discretion, grant Tandem and Non-Tandem Stock Appreciation Rights either +as a general Stock Appreciation Right or as a Limited Stock Appreciation Right. +Limited Stock Appreciation Rights may be exercised only upon the occurrence of +a Change in Control or such other event as the Committee may, in its sole +discretion, designate at the time of grant or thereafter. Upon the exercise of +Limited Stock Appreciation Rights, except as otherwise provided in an Award +agreement, the Participant shall receive in cash or Common Stock, as determined +by the Committee, an amount equal to the amount (a) set forth in Section +7.2(e) with respect to Tandem Stock Appreciation Rights, or (b) set forth +in Section 7.4(e) with respect to Non-Tandem Stock Appreciation Rights, as +applicable. +ARTICLE VIII +RESTRICTED STOCK +8.1 Awards +of Restricted Stock . Shares of Restricted Stock +may be issued either alone or in addition to other Awards granted under the +Plan. The Committee shall, in its sole discretion, determine the Eligible +Employees, Consultants and Non-Employee Directors, to whom, and the time or +times at which, grants of Restricted Stock shall be made, the number of shares +to be awarded, the price (if any) to be paid by the Participant (subject to +Section 8.2), the time or times within which such Awards may be subject to +forfeiture, the vesting schedule and rights to acceleration thereof, and all +other terms and conditions of the Awards. The Committee may condition the grant +or vesting of Restricted Stock upon the attainment of specified performance +targets (including, the Performance Goals specified in Exhibit A attached +hereto) or such other factors as the Committee may determine, in its sole +discretion, including to comply with the requirements of Section 162(m) of the +Code. +8.2 Awards +and Certificates . Eligible Employees, Consultants +and Non-Employee Directors selected to receive Restricted Stock shall not have +any rights with respect to such Award, unless and until such Participant has +delivered a fully executed copy of the agreement evidencing the Award to the +Company and has otherwise complied with the applicable terms and conditions of +such Award. Further, such Award shall be subject to the following conditions: +(a) +Purchase +Price . The purchase price of Restricted Stock shall +be fixed by the Committee. Subject to Section 4.3, the purchase price for +shares of Restricted Stock may be zero to the extent permitted by applicable +law, and, to the extent not so permitted, such purchase price may not be less +than par value. +(b) +Acceptance . +Awards of Restricted Stock must be accepted within a period of 60 days (or +such other period as the Committee may specify) after the grant date, by +executing a Restricted Stock agreement and by paying whatever price (if any) +the Committee has designated thereunder. +(c) +Legend . +Each Participant receiving Restricted Stock shall be issued a stock +certificate in respect of such shares of Restricted Stock, unless the +Committee elects to use another system, such as book entries by the +20 +transfer +agent, as evidencing ownership of shares of Restricted Stock. Such +certificate shall be registered in the name of such Participant, and shall, +in addition to such legends required by applicable securities laws, bear an +appropriate legend referring to the terms, conditions, and restrictions +applicable to such Award, substantially in the following form: +“The +anticipation, alienation, attachment, sale, transfer, assignment, pledge, +encumbrance or charge of the shares of stock represented hereby are subject +to the terms and conditions (including forfeiture) of the Steven Madden, Ltd. +(the “Company”) 2009 Stock Incentive Plan (the “Plan”) and an agreement +entered into between the registered owner and the Company dated __________. +Copies of such Plan and agreement are on file at the principal office of the +Company.” +(d) +Custody . +If stock certificates are issued in respect of shares of Restricted Stock, +the Committee may require that any stock certificates evidencing such shares +be held in custody by the Company until the restrictions thereon shall have +lapsed, and that, as a condition of any grant of Restricted Stock, the +Participant shall have delivered a duly signed stock power, endorsed in +blank, relating to the Common Stock covered by such Award. +8.3 Restrictions +and Conditions . The shares of Restricted Stock +awarded pursuant to this Plan shall be subject to the following restrictions +and conditions: +(a) +Restriction +Period . (i) The Participant shall not be permitted +to Transfer shares of Restricted Stock awarded under this Plan during the +period or periods set by the Committee (the “Restriction Period”) commencing +on the date of such Award, as set forth in a Restricted Stock Award agreement +and such agreement shall set forth a vesting schedule and any events which +would accelerate vesting of the shares of Restricted Stock. Within these limits, +based on service, attainment of Performance Goals pursuant to Section +8.3(a)(ii) below and/or such other factors or criteria as the Committee may +determine in its sole discretion, the Committee may condition the grant or +provide for the lapse of such restrictions in installments in whole or in +part, or may accelerate the vesting of all or any part of any Restricted +Stock Award and/or waive the deferral limitations for all or any part of any +Restricted Stock Award. Subject to Section 8.3(a)(iii) of this Plan, in the +event that a written employment agreement between the Company and a +Participant provides for a vesting schedule that is more favorable than the +vesting schedule provided in the form of Award Agreement, the vesting +schedule in such employment agreement shall govern, provided that such +agreement is in effect on the date of grant and applicable to the specific +Award. +(ii) Objective +Performance Goals, Formulae or Standards . +If the grant of shares of Restricted Stock or the lapse of restrictions is +based +21 +on the +attainment of Performance Goals, the Committee shall establish the +Performance Goals and the applicable vesting percentage of the Restricted +Stock Award applicable to each Participant or class of Participants in +writing prior to the beginning of the applicable Performance Period or at +such later date as otherwise determined by the Committee and while the +outcome of the Performance Goals are substantially uncertain. Such +Performance Goals may incorporate provisions for disregarding (or adjusting +for) changes in accounting methods, corporate transactions (including, +without limitation, dispositions and acquisitions) and other similar type +events or circumstances. With regard to a Restricted Stock Award that is intended +to comply with Section 162(m) of the Code, to the extent any such provision +would create impermissible discretion under Section 162(m) of the Code or +otherwise violate Section 162(m) of the Code, such provision shall be of no +force or effect. The applicable Performance Goals shall be based on one or +more of the performance criteria set forth in Exhibit A hereto. +(iii) Limitations . +Notwithstanding any other provision of this Plan to the contrary, effective +on the date of the Company’s 2009 annual stockholders’ meeting, the +Restriction Period with respect to any Restricted Stock Award granted on or +after such date shall be no less than (A) one year, if the lapsing of +restrictions is based (in whole or in part) on the attainment of one or more +Performance Goals, and (B) three years, if the lapsing of restrictions is +based solely on the continued performance of services by the Participant +(with restrictions as to no more than 1/3 rd of the shares of +Common Stock subject thereto lapsing on each of the first three anniversaries +of the date of grant); provided , that, subject to the terms of this +Plan, the Committee shall be authorized (at the time of grant or thereafter) +to provide for the earlier lapsing of restrictions in the event of a Change +in Control or a Participant’s retirement, death or Disability; and provided +further , that, subject to the limitations set forth in Section 4.1(b), +Restricted Stock Awards may be granted on or after the date of the Company’s +2009 annual stockholders’ meeting without the foregoing limitations with +respect to up to 10% (when combined with the 10% limitation set forth in +Sections 4.1(b)(ii), 9.2(f) and 10.2(d) of this Plan) of the total number of +shares of Common Stock reserved for Awards under this Plan. +(b) +Rights as a +Stockholder . Except as provided in this subsection +(b) and subsection (a) above and as otherwise determined by the Committee, +the Participant shall have, with respect to the shares of Restricted Stock, +all of the rights of a holder of shares of Common Stock of the Company +including, without limitation, the right to receive any dividends, the right +to vote such shares and, subject to and conditioned upon the full vesting of +shares of Restricted Stock, the right to tender such shares. The Committee +may, in its sole discretion, determine at the time of grant that the payment +22 +of dividends +shall be deferred until, and conditioned upon, the expiration of the +applicable Restriction Period. +(c) +Lapse of +Restrictions . If and when the Restriction Period +expires without a prior forfeiture of the Restricted Stock, the certificates +for such shares shall be delivered to the Participant. All legends shall be +removed from said certificates at the time of delivery to the Participant, +except as otherwise required by applicable law or other limitations imposed +by the Committee. +ARTICLE IX +PERFORMANCE SHARES +9.1 Award +of Performance Shares . Performance Shares may be +awarded either alone or in addition to other Awards granted under this Plan. +The Committee shall, in its sole discretion, determine the Eligible Employees, +Consultants and Non-Employee Directors, to whom, and the time or times at +which, Performance Shares shall be awarded, the number of Performance Shares to +be awarded to any person, the Performance Period during which, and the +conditions under which, receipt of the Shares will be deferred, and the other +terms and conditions of the Award in addition to those set forth in Section +9.2. +Except +as otherwise provided herein, the Committee shall condition the right to +payment of any Performance Share upon the attainment of specified objective +performance goals (including, the Performance Goals specified in Exhibit A +attached hereto) established pursuant to Section 9.2(c) below and such +other factors as the Committee may determine, in its sole discretion, including +to comply with the requirements of Section 162(m) of the Code. +9.2 Terms +and Conditions . Performance Shares awarded pursuant +to this Article IX shall be subject to the following terms and conditions: +(a) +Earning of +Performance Share Award . At the expiration of the +applicable Performance Period, the Committee shall determine the extent to +which the Performance Goals established pursuant to Section 9.2(c) are +achieved and the percentage of each Performance Share Award that has been +earned. +(b) +Non-Transferability . +Subject to the applicable provisions of the Award agreement and this Plan, +Performance Shares may not be Transferred during the Performance Period. +(c) +Objective +Performance Goals, Formulae or Standards . The +Committee shall establish the objective Performance Goals for the earning of +Performance Shares based on a Performance Period applicable to each +Participant or class of Participants in writing prior to the beginning of the +applicable Performance Period or at such later date as permitted under +Section 162(m) of the Code and while the outcome of the Performance Goals are +substantially uncertain. Such Performance Goals may +23 +incorporate, +if and only to the extent permitted under Section 162(m) of the Code, +provisions for disregarding (or adjusting for) changes in accounting methods, +corporate transactions (including, without limitation, dispositions and +acquisitions) and other similar type events or circumstances. To the extent +any such provision would create impermissible discretion under Section 162(m) +of the Code or otherwise violate Section 162(m) of the Code, such provision +shall be of no force or effect. The applicable Performance Goals shall be +based on one or more of the performance criteria set forth in Exhibit A +hereto. +(d) +Dividends . +Unless otherwise determined by the Committee at the time of grant, amounts +equal to any dividends declared during the Performance Period with respect to +the number of shares of Common Stock covered by a Performance Share will not +be paid to the Participant. +(e) +Payment . +Following the Committee’s determination in accordance with subsection (a) +above, shares of Common Stock or, as determined by the Committee in its sole +discretion, the cash equivalent of such shares shall be delivered to the +Eligible Employee, Consultant or Non-Employee Director, or his legal +representative, in an amount equal to such individual’s earned Performance +Share. Notwithstanding the foregoing, the Committee may, in its sole +discretion, award an amount less than the earned Performance Share and/or +subject the payment of all or part of any Performance Share to additional +vesting, forfeiture and deferral conditions as it deems appropriate. +(f) +Accelerated +Vesting . Based on service, performance and/or such +other factors or criteria, if any, as the Committee may determine, the +Committee may, in its sole discretion, at or after grant, accelerate the +vesting of all or any part of any Performance Share Award and/or waive the +preceding sentence and any other provision of this Plan to the contrary. +Notwithstanding the preceding sentence or any other provision of this Plan, effective +on the date of the Company’s 2009 annual stockholders’ meeting, the vesting +schedule with respect to any Performance Share Award on or after such date +shall be no less than (A) one year, if the vesting period is based (in whole +or in part) on the attainment of one or more Performance Goals, and (B) three +years, if the vesting period is based solely on the continued performance of +services by the Participant (with restrictions as to no more than 1/3 rd +of the shares of Common Stock subject thereto lapsing on each of the first +three anniversaries of the date of grant); provided , that, subject to +the terms of this Plan, the Committee shall be authorized (at the time of +grant or thereafter) to provide for the acceleration of vesting in the event +of a Change in Control or a Participant’s retirement, death or Disability; +and provided further , that, subject to the limitations set +forth in Section 4.1(b), Performance Share Awards may be granted on or after +the date of the Company’s 2009 annual stockholders’ meeting without the +foregoing limitations with respect to up +24 +to 10% (when +combined with the 10% limitation set forth in Sections 4.1(b)(ii), +8.3(a)(iii) and 10.2(d) of this Plan) of the total number of shares of Common +Stock reserved for Awards under this Plan. +ARTICLE X +OTHER STOCK-BASED AWARDS +10.1 Other +Awards . The +Committee, in its sole discretion, is authorized to grant to Eligible +Employees, Consultants and Non-Employee Directors Other Stock-Based Awards that +are payable in, valued in whole or in part by reference to, or otherwise based +on or related to shares of Common Stock, including, but not limited to, shares +of Common Stock awarded purely as a bonus and not subject to any restrictions +or conditions, shares of Common Stock in payment of the amounts due under an +incentive or performance plan sponsored or maintained by the Company or an +Affiliate, performance units, dividend equivalent units, stock equivalent +units, restricted stock units and deferred stock units. To the extent +permitted by law, the Committee may, in its sole discretion, permit Eligible +Employees and/or Non-Employee Directors to defer all or a portion of their cash +compensation in the form of Other Stock-Based Awards granted under this Plan, +subject to the terms and conditions of any deferred compensation arrangement +established by the Company, which shall be intended to comply with Section 409A +of the Code. Other Stock-Based Awards may be granted either alone or in +addition to or in tandem with other Awards granted under the Plan. +Subject +to the provisions of this Plan, the Committee shall, in its sole discretion, +have authority to determine the Eligible Employees, Consultants and +Non-Employee Directors, to whom, and the time or times at which, such Awards +shall be made, the number of shares of Common Stock to be awarded pursuant to +such Awards, and all other conditions of the Awards. The Committee may also +provide for the grant of Common Stock under such Awards upon the completion of +a specified Performance Period. +The +Committee may condition the grant or vesting of Other Stock-Based Awards upon +the attainment of specified Performance Goals set forth on Exhibit A as the +Committee may determine, in its sole discretion; provided that to the extent +that such Other Stock-Based Awards are intended to comply with Section 162(m) +of the Code, the Committee shall establish the objective Performance Goals for +the vesting of such Other Stock-Based Awards based on a performance period +applicable to each Participant or class of Participants in writing prior to the +beginning of the applicable performance period or at such later date as +permitted under Section 162(m) of the Code and while the outcome of the +Performance Goals are substantially uncertain. Such Performance Goals may +incorporate, if and only to the extent permitted under Section 162(m) of the +Code, provisions for disregarding (or adjusting for) changes in accounting +methods, corporate transactions (including, without limitation, dispositions +and acquisitions) and other similar type events or circumstances. To the extent +any such provision would create impermissible discretion under Section 162(m) +of the Code or otherwise violate Section 162(m) of the Code, such provision +shall be of no force or effect. The applicable Performance Goals shall be based +on one or more of the performance criteria set forth in Exhibit A hereto. +25 +10.2 Terms +and Conditions . Other Stock-Based Awards made +pursuant to this Article X shall be subject to the following terms and +conditions: +(a) +Non-Transferability . +Subject to the applicable provisions of the Award agreement and this Plan, +shares of Common Stock subject to Awards made under this Article X may not be +Transferred prior to the date on which the shares are issued, or, if later, +the date on which any applicable restriction, performance or deferral period +lapses. +(b) +Dividends . +Unless otherwise determined by the Committee at the time of Award, subject to +the provisions of the Award agreement and this Plan, the recipient of an +Award under this Article X shall not be entitled to receive, currently or on +a deferred basis, dividends or dividend equivalents with respect to the +number of shares of Common Stock covered by the Award. +(c) +Vesting . +Any Award under this Article X and any Common Stock covered by any such Award +shall vest or be forfeited to the extent so provided in the Award agreement, +as determined by the Committee, in its sole discretion, in accordance with +the terms of this Plan. Subject to Section 10.2(d) of this Plan, in the event +that a written employment agreement between the Company and a Participant +provides for a vesting schedule that is more favorable than the vesting +schedule provided in the form of Award Agreement, the vesting schedule in +such employment agreement shall govern, provided that such agreement is in +effect on the date of grant and applicable to the specific Award. +(d) +Limitation . +Notwithstanding Section 10.2(c) of this Plan and any other provision of this +Plan to the contrary, effective on the date of the Company’s 2009 annual +stockholders’ meeting, the vesting schedule with respect to any Other +Stock-Based Award on or after such date shall be no less than (A) one year, +if the vesting period is based (in whole or in part) on the attainment of one +or more Performance Goals, and (B) three years, if the vesting period is +based solely on the continued performance of services by the Participant +(with restrictions as to no more than 1/3 rd of the shares of +Common Stock subject thereto lapsing on each of the first three anniversaries +of the date of grant); provided , that, subject to the terms of this +Plan, the Committee shall be authorized (at the time of grant or thereafter) +to provide for the acceleration of vesting in the event of a Change in +Control or a Participant’s retirement, death or Disability; and provided +further , that, subject to the limitations set forth in Section 4.1(b), +Other Stock-Based Awards may be granted on or after the date of the Company’s +2009 annual stockholders’ meeting without the foregoing limitations with +respect to up to 10% (when combined with the 10% limitation set forth in +Sections 4.1(b)(ii), 8.3(a)(iii) and 9.2(f) of this Plan) of the total number +of shares of Common Stock reserved for Awards under this Plan. +26 +(e) +Price . +Common Stock issued on a bonus basis under this Article X may be issued for +no cash consideration; Common Stock purchased pursuant to a purchase right +awarded under this Article X shall be priced, as determined by the Committee +in its sole discretion. +(f) +Payment . +Form of payment for the Other Stock-Based Award shall be specified in the +Award agreement. +ARTICLE XI +PERFORMANCE-BASED CASH AWARDS +11.1 Performance-Based +Cash Awards . Performance-Based Cash Awards may be +granted either alone or in addition to or in tandem with Stock Options, Stock +Appreciation Rights, or Restricted Stock. Subject to the provisions of this +Plan, the Committee shall, in its sole discretion, have authority to determine +the Eligible Employees, Consultants and Non-Employee Directors to whom, and the +time or times at which, such Awards shall be made, the dollar amount to be +awarded pursuant to such Awards, and all other conditions of the Awards. The Committee +may also provide for the payment of dollar amount under such Awards upon the +completion of a specified Performance Period. +For +each Participant, the Committee may specify a targeted performance award. The +individual target award may be expressed, at the Committee’s discretion, as a +fixed dollar amount, a percentage of base pay or total pay (excluding payments +made under the Plan), or an amount determined pursuant to an objective formula +or standard. Establishment of an individual target award for a Participant for +a calendar year shall not imply or require that the same level individual +target award (if any such award is established by the Committee for the +relevant Participant) be set for any subsequent calendar year. At the time the +Performance Goals are established, the Committee shall prescribe a formula to +determine the percentages (which may be greater than 100%) of the individual +target award which may be payable based upon the degree of attainment of the +Performance Goals during the calendar year. Notwithstanding anything else +herein, the Committee may, in its sole discretion, elect to pay a Participant +an amount that is less than the Participant’s individual target award (or +attained percentage thereof) regardless of the degree of attainment of the +Performance Goals; provided that no such discretion to reduce an Award earned +based on achievement of the applicable Performance Goals shall be permitted for +the calendar year in which a Change in Control of the Company occurs, or during +such calendar year with regard to the prior calendar year if the Awards for the +prior calendar year have not been made by the time of the Change in Control of +the Company, with regard to individuals who were Participants at the time of +the Change in Control of the Company. +11.2 Terms +and Conditions . Performance-Based Awards made +pursuant to this Article XI shall be subject to the following terms and +conditions: +(a) +Vesting of +Performance-Based Cash Award . At the expiration of +the applicable Performance Period, the Committee shall determine and certify +in writing the extent to which the Performance Goals established pursuant +27 +to Section +11.2(c) are achieved and the percentage of the Participant’s individual +target award has been vested and earned. +(b) +Waiver of +Limitation . In the event of the Participant’s +Retirement (other than with respect to Performance-Based Cash Awards that are +intended to comply with Section 162(m) of the Code), Disability or death, or +in cases of special circumstances (to the extent permitted under Section +162(m) of the Code with regard to a Performance-Based Cash Award that is +intended to comply with Section 162(m) of the Code), the Committee may, in +its sole discretion, waive in whole or in part any or all of the limitations +imposed hereunder (if any) with respect to any or all of an Award under this +Article XI. +(c) +Objective +Performance Goals, Formulae or Standards . +(i) The +Committee shall establish the objective Performance Goals and the individual +target award (if any) applicable to each Participant or class of Participants +in writing prior to the beginning of the applicable Performance Period or at +such later date as permitted under Section 162(m) of the Code and while the +outcome of the Performance Goals are substantially uncertain. Such +Performance Goals may incorporate, if and only to the extent permitted under +Section 162(m) of the Code, provisions for disregarding (or adjusting for) +changes in accounting methods, corporate transactions (including, without +limitation, dispositions and acquisitions) and other similar type events or +circumstances. To the extent any Performance-Based Award is intended to +comply with the provisions of Section 162(m) of the Code, if any provision +would create impermissible discretion under Section 162(m) of the Code or +otherwise violate Section 162(m) of the Code, such provision shall be of no +force or effect. The applicable Performance Goals shall be based on one or +more of the performance criteria set forth in Exhibit A hereto. +(ii) The +measurements used in Performance Goals set under the Plan shall be determined +in accordance with Generally Accepted Accounting Principles (“GAAP”), except, +to the extent that any objective Performance Goals are used, if any +measurements require deviation from GAAP, such deviation shall be at the +discretion of the Committee at the time the Performance Goals are set or at +such later time to the extent permitted under Section 162(m) of the Code. +(d) +Payment . +Following the Committee’s determination and certification in accordance with +subsection (a) above, the Performance-Based Cash Award amount shall be +delivered to the Eligible Employee, Consultant or Non-Employee Director, or +his legal representative, in accordance with the terms and conditions of the +Award agreement. If the Award Agreement does not provide when such amount +will be paid, except as +28 +provided in +the next sentence, such amount shall be paid by no later than the later of: +(i) March 15 of the year following the year in which the applicable +Performance Period ends; or (ii) two and one-half (2½) months after the +expiration of the fiscal year of the Company in which the applicable +Performance Period ends. Notwithstanding the foregoing, the Committee may +place such conditions on the payment of the payment of all or any portion of +any Performance-Based Cash Award as the Committee may determine and prior to +the beginning of a Performance Period the Committee may (x) provide that the +payment of all or any portion of any Performance-Based Cash Award shall be +deferred and (y) permit a Participant to elect to defer receipt of all or a +portion of any Performance-Based Cash Award. Any Performance-Based Cash Award +deferred by a Participant in accordance with the terms and conditions +established by the Committee shall not increase (between the date on which +the Performance-Based Cash Award is credited to any deferred compensation +program applicable to such Participant and the payment date) by an amount +that would result in such deferral being deemed as an “increase in the amount +of compensation” under Code Section 162(m). To the extent applicable, any +deferral under this Section 11.2(d) shall be made in a manner intended to +comply with the applicable requirements of Section 409A of the Code. +ARTICLE XII +TERMINATION +12.1 Termination . +The following rules apply with regard to the Termination of a Participant. +(a) +Rules Applicable to Stock Option and Stock +Appreciation Rights. Unless otherwise determined by +the Committee at grant (or, if no rights of the Participant are reduced, +thereafter): +(i) Termination +by Reason of Death, Disability or Retirement. If a Participant’s +Termination is by reason of death, Disability or the Participant’s +Retirement, all Stock Options or Stock Appreciation Rights that are held by +such Participant that are vested and exercisable at the time of the +Participant’s Termination may be exercised by the Participant (or, in the +case of death, by the legal representative of the Participant’s estate) at +any time within a one-year period from the date of such Termination, but in +no event beyond the expiration of the stated term of such Stock Options or Stock +Appreciation Rights; provided, however, if the Participant dies within such +exercise period, all unexercised Stock Options or Stock Appreciation Rights +held by such Participant shall thereafter be exercisable, to the extent to +which they were exercisable at the time of death, for a period of one year +from the date of such death, but in no event +29 +beyond the +expiration of the stated term of such Stock Options or Stock Appreciation +Rights. +(ii) Involuntary +Termination Without Cause. If a Participant’s Termination is by +involuntary termination without Cause, all Stock Options or Stock +Appreciation Rights that are held by such Participant that are vested and +exercisable at the time of the Participant’s Termination may be exercised by +the Participant at any time within a period of 90 days from the date of such +Termination, but in no event beyond the expiration of the stated term of such +Stock Options or Stock Appreciation Rights. +(iii) Voluntary +Termination. If a Participant’s Termination is voluntary (other +than a voluntary termination described in Section 12.2(a)(iv)(2) below), all +Stock Options or Stock Appreciation Rights that are held by such Participant +that are vested and exercisable at the time of the Participant’s Termination +may be exercised by the Participant at any time within a period of 30 days +from the date of such Termination, but in no event beyond the expiration of +the stated terms of such Stock Options or Stock Appreciation Rights. +(iv) Termination +for Cause. If a Participant’s Termination: (1) is for Cause or (2) +is a voluntary Termination (as provided in sub-section (iii) above) after the +occurrence of an event that would be grounds for a Termination for Cause, all +Stock Options or Stock Appreciation Rights, whether vested or not vested, +that are held by such Participant shall thereupon terminate and expire as of +the date of such Termination. +(v) Unvested +Stock Options and Stock Appreciation Rights. Stock Options or +Stock Appreciation Rights that are not vested as of the date of a +Participant’s Termination for any reason shall terminate and expire as of the +date of such Termination. +(b) +Rules Applicable to Restricted Stock, +Performance Shares, Other Stock-Based Awards and Performance-Based Cash +Awards . Unless otherwise determined by the Committee +at grant or thereafter, upon a Participant’s Termination for any reason: +(i) during the relevant Restriction Period, all Restricted Stock still +subject to restriction shall be forfeited; and (ii) any unvested +Performance Shares, Other Stock-Based Awards or Performance-Based Cash Awards +shall be forfeited +ARTICLE XIII +CHANGE IN CONTROL PROVISIONS +13.1 Benefits . +In the event of a Change in Control of the Company, and except as otherwise +provided by the Committee in an Award agreement or in a written employment +agreement between the Company and a Participant, a Participant’s unvested Award +shall not vest +30 +and a +Participant’s Award shall be treated in accordance with one of the following +methods as determined by the Committee in its sole discretion: +(a) +Awards, +whether or not then vested, shall be continued, assumed, have new rights +substituted therefor or be treated in accordance with Section 4.2(d) hereof, +as determined by the Committee in its sole discretion, and restrictions to +which any shares of Restricted Stock or any other Award granted prior to the +Change in Control are subject shall not lapse upon a Change in Control and +the Restricted Stock or other Award shall, where appropriate in the sole +discretion of the Committee, receive the same distribution as other Common +Stock on such terms as determined by the Committee; provided that, the +Committee may, in its sole discretion, decide to award additional Restricted +Stock or other Award in lieu of any cash distribution. Notwithstanding +anything to the contrary herein, for purposes of Incentive Stock Options, any +assumed or substituted Stock Option shall comply with the requirements of +Treasury Regulation § 1.424-1 (and any amendments thereto) and for purposes +of any Non-Qualified Stock Options and Stock Appreciations Rights, any +assumed or substituted Non-Qualified Stock Option or Stock Appreciation Right +shall comply with the requirements of Section 409A of the Code and the +regulations and guidance issued thereunder. +(b) +The +Committee, in its sole discretion, may provide for the purchase of any Awards +by the Company or an Affiliate for an amount of cash equal to the excess of +the Change in Control Price (as defined below) of the shares of Common Stock +covered by such Awards, over the aggregate exercise price of such Awards. For +purposes of this Section 13.1, “Change in Control Price” shall mean the +highest price per share of Common Stock paid in any transaction related to a +Change in Control of the Company. +(c) +The +Committee may, in its sole discretion, provide for the cancellation of any +Awards without payment, if the Change in Control Price is less than the Fair +Market Value of such Award on the date of grant. +(d) +Notwithstanding +anything else herein, the Committee may, in its sole discretion, provide for +accelerated vesting or lapse of restrictions, of an Award at the time of +grant or at any time thereafter. +13.2 Change +in Control . Unless otherwise determined by the +Committee in the applicable Award agreement (or other written agreement +approved by the Committee including, without limitation, an employment +agreement), a “Change in Control” shall be deemed to occur following any +transaction if: (a) any “person” as such term is used in Sections 13(d) and +14(d) of the Exchange Act (other than the Company, any trustee or other +fiduciary holding securities under any employee benefit plan of the Company, or +any company owned, directly or indirectly, by the stockholders of the Company +in substantially the same proportions as their ownership of Common Stock of the +Company), becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange +Act), directly or indirectly, of 50% or more of the combined voting power of +31 +the then +outstanding securities of the Company (or its successor corporation); provided, +however, that a merger or consolidation effected solely to implement a recapitalization +of the Company shall not constitute a Change in Control of the Company; or (b) +the stockholders of the Company approve a plan of complete liquidation of the +Company; provided , that this subsection (b) shall not constitute a +Change in Control with respect to the amount of any payment pursuant to an +Award under this Plan, or any portion thereof, that is triggered upon a Change +in Control and that is intended to constitute “non-qualified deferred +compensation” pursuant to Section 409A of the Code; or (c) the consummation of +the sale or disposition by the Company of all or substantially all of the +Company’s assets other than (i) the sale or disposition of all or substantially +all of the assets of the Company to a person or persons who beneficially own, directly +or indirectly, at least 50% or more of the combined voting power of the +outstanding voting securities of the Company at the time of the sale or (ii) +pursuant to a spinoff type transaction, directly or indirectly, of such assets +to the stockholders of the Company. +ARTICLE XIV +TERMINATION OR AMENDMENT OF PLAN +14.1 Termination +or Amendment . Notwithstanding any other provision +of this Plan, the Board or the Committee may at any time, and from time to +time, amend, in whole or in part, any or all of the provisions of this Plan +(including any amendment deemed necessary to ensure that the Company may comply +with any regulatory requirement referred to in Article XVI), or suspend or +terminate it entirely, retroactively or otherwise; provided, however, that, +unless otherwise required by law or specifically provided herein, the rights of +a Participant with respect to Awards granted prior to such amendment, +suspension or termination, may not be impaired without the consent of such +Participant and, provided further, without the approval of the stockholders of +the Company in accordance with the laws of the State of Delaware, to the extent +required by the applicable provisions of Rule 16b-3 or Section 162(m) of the +Code, pursuant to the requirements of NASD Rule 4350(i)(1)(A) or such other +applicable stock exchange rule, or, to the extent applicable to Incentive Stock +Options, Section 422 of the Code, no amendment may be made which would: +(a) +increase the +aggregate number of shares of Common Stock that may be issued under this Plan +pursuant to Section 4.1 (except by operation of Section 4.2); +(b) +increase the +maximum individual Participant limitations for a fiscal year under Section +4.1(b) (except by operation of Section 4.2); +(c) +change the +classification of Eligible Employees or Consultants eligible to receive +Awards under this Plan; +(d) +decrease the +minimum option price of any Stock Option or Stock Appreciation Right; +(e) +extend the +maximum option period under Section 6.3; +32 +(f) +alter the +Performance Goals for the Award of Restricted Stock, Performance Shares or +Other Stock-Based Awards subject to satisfaction of Performance Goals as set +forth in Exhibit A; +(g) +other than +adjustments or substitutions in accordance with Section 4.2 , amend the +terms of outstanding Awards to reduce the exercise price of outstanding Stock +Options or Stock Appreciation Rights or to cancel outstanding Stock Options +or Stock Appreciation Rights in exchange for cash, other Awards or Stock +Options or Stock Appreciation Rights with an exercise price that is less than +the exercise price of the original Stock Options or Stock Appreciation +Rights; +(h) +award any +Stock Option or Stock Appreciation Right in replacement of a canceled Stock +Option or Stock Appreciation Right with a higher exercise price, except in +accordance with Section 6.3(g); or +(i) +require +stockholder approval in order for this Plan to continue to comply with the +applicable provisions of Section 162(m) of the Code or, to the extent +applicable to Incentive Stock Options, Section 422 of the Code. In no event +may this Plan be amended without the approval of the stockholders of the +Company in accordance with the applicable laws of the State of Delaware to +increase the aggregate number of shares of Common Stock that may be issued +under this Plan, decrease the minimum exercise price of any Stock Option or +Stock Appreciation Right, or to make any other amendment that would require +stockholder approval under NASD Rule 4350(i)(1)(A) or other such rules of any +exchange or system on which the Company’s securities are listed or traded at +the request of the Company. +The +Committee may amend the terms of any Award theretofore granted, prospectively +or retroactively, but, subject to Article IV above or as otherwise specifically +provided herein, no such amendment or other action by the Committee shall +impair the rights of any holder without the holder’s consent. +ARTICLE XV +UNFUNDED PLAN +15.1 Unfunded +Status of Plan . This Plan is an “unfunded” plan +for incentive and deferred compensation. With respect to any payments as to +which a Participant has a fixed and vested interest but that are not yet made +to a Participant by the Company, nothing contained herein shall give any such +Participant any rights that are greater than those of a general unsecured +creditor of the Company. +33 +ARTICLE XVI +GENERAL PROVISIONS +16.1 Legend . +The Committee may require each person receiving shares of Common Stock pursuant +to a Stock Option or other Award under the Plan to represent to and agree with +the Company in writing that the Participant is acquiring the shares without a +view to distribution thereof. In addition to any legend required by this Plan, +the certificates for such shares may include any legend that the Committee, in +its sole discretion, deems appropriate to reflect any restrictions on Transfer. +All +certificates for shares of Common Stock delivered under the Plan shall be +subject to such stop transfer orders and other restrictions as the Committee +may, in its sole discretion, deem advisable under the rules, regulations and +other requirements of the Securities and Exchange Commission, The Nasdaq Stock +Market or any national securities exchange system upon whose system the Common +Stock is then quoted, any applicable Federal or state securities law, and any +applicable corporate law, and the Committee may cause a legend or legends to be +put on any such certificates to make appropriate reference to such +restrictions. +16.2 Other +Plans . Nothing contained in this Plan shall +prevent the Board from adopting other or additional compensation arrangements, +subject to stockholder approval if such approval is required; and such arrangements +may be either generally applicable or applicable only in specific cases. +16.3 No +Right to Employment/Directorship/Consultancy . +Neither this Plan nor the grant of any Option or other Award hereunder shall +give any Participant or other employee, Consultant or Non-Employee Director any +right with respect to continuance of employment, consultancy or directorship by +the Company or any Affiliate, nor shall they be a limitation in any way on the +right of the Company or any Affiliate by which an employee is employed or a +Consultant or Non-Employee Director is retained to terminate his or her +employment, consultancy or directorship at any time. +16.4 Withholding +of Taxes . The Company shall have the right to +deduct from any payment to be made pursuant to this Plan, or to otherwise +require, prior to the issuance or delivery of any shares of Common Stock or the +payment of any cash hereunder, payment by the Participant of, any Federal, +state or local taxes required by law to be withheld. Upon the vesting of +Restricted Stock (or other Award that is taxable upon vesting), or upon making +an election under Section 83(b) of the Code, a Participant shall pay all +required withholding to the Company. Any statutorily required withholding obligation +with regard to any Participant may be satisfied, subject to the advance consent +of the Committee, by reducing the number of shares of Common Stock otherwise +deliverable or by delivering shares of Common Stock already owned. Any fraction +of a share of Common Stock required to satisfy such tax obligations shall be +disregarded and the amount due shall be paid instead in cash by the +Participant. +16.5 No +Assignment of Benefits . No Award or other benefit +payable under this Plan shall, except as otherwise specifically provided by law +or permitted by the Committee, be Transferable in any manner, and any attempt +to Transfer any such benefit shall be void, and any +34 +such benefit shall not in any manner be liable for or +subject to the debts, contracts, liabilities, engagements or torts of any +person who shall be entitled to such benefit, nor shall it be subject to +attachment or legal process for or against such person. +16.6 Listing +and Other Conditions . +(a) +Unless +otherwise determined by the Committee, as long as the Common Stock is listed +on a national securities exchange or system sponsored by a national +securities association, the issue of any shares of Common Stock pursuant to +an Award shall be conditioned upon such shares being listed on such exchange +or system. The Company shall have no obligation to issue such shares unless +and until such shares are so listed, and the right to exercise any Option or +other Award with respect to such shares shall be suspended until such listing +has been effected. +(b) +If at any +time counsel to the Company shall be of the opinion that any sale or delivery +of shares of Common Stock pursuant to an Option or other Award is or may in +the circumstances be unlawful or result in the imposition of excise taxes on +the Company under the statutes, rules or regulations of any applicable +jurisdiction, the Company shall have no obligation to make such sale or +delivery, or to make any application or to effect or to maintain any +qualification or registration under the Securities Act or otherwise, with +respect to shares of Common Stock or Awards, and the right to exercise any +Option or other Award shall be suspended until, in the opinion of said +counsel, such sale or delivery shall be lawful or will not result in the +imposition of excise taxes on the Company. +(c) +Upon +termination of any period of suspension under this Section 16.6, any Award +affected by such suspension which shall not then have expired or terminated +shall be reinstated as to all shares available before such suspension and as +to shares which would otherwise have become available during the period of +such suspension, but no such suspension shall extend the term of any Award. +(d) +A +Participant shall be required to supply the Company with any certificates, +representations and information that the Company requests and otherwise +cooperate with the Company in obtaining any listing, registration, +qualification, exemption, consent or approval the Company deems necessary or +appropriate. +16.7 Governing +Law . This Plan and actions taken in connection +herewith shall be governed and construed in accordance with the laws of the +State of Delaware (regardless of the law that might otherwise govern under +applicable Delaware principles of conflict of laws). +16.8 Construction . +Wherever any words are used in this Plan in the masculine gender they shall be +construed as though they were also used in the feminine gender in all cases +where they would so apply, and wherever any words are used herein in the +singular form they shall be +35 +construed as though they +were also used in the plural form in all cases where they would so apply. +16.9 Other +Benefits . No Award granted or paid out under this +Plan shall be deemed compensation for purposes of computing benefits under any +retirement plan of the Company or its Affiliates nor affect any benefits under +any other benefit plan now or subsequently in effect under which the +availability or amount of benefits is related to the level of compensation. +16.10 Costs . +The Company shall bear all expenses associated with administering this Plan, +including expenses of issuing Common Stock pursuant to any Awards hereunder. +16.11 No +Right to Same Benefits . The provisions of Awards +need not be the same with respect to each Participant, and such Awards to +individual Participants need not be the same in subsequent years. +16.12 Death/Disability . +The Committee may in its sole discretion require the transferee of a +Participant to supply it with written notice of the Participant’s death or +Disability and to supply it with a copy of the will (in the case of the +Participant’s death) or such other evidence as the Committee deems necessary to +establish the validity of the transfer of an Award. The Committee may, in its +discretion, also require the agreement of the transferee to be bound by all of +the terms and conditions of the Plan. +16.13 Section +16(b) of the Exchange Act . All elections and +transactions under this Plan by persons subject to Section 16 of the Exchange +Act involving shares of Common Stock are intended to comply with any applicable +exemptive condition under Rule 16b-3. The Committee may, in its sole discretion, +establish and adopt written administrative guidelines, designed to facilitate +compliance with Section 16(b) of the Exchange Act, as it may deem necessary or +proper for the administration and operation of this Plan and the transaction of +business thereunder. +16.14 Section +409A of the Code . Although the Company does not +guarantee the particular tax treatment of an Award granted under this Plan, +Awards made under this Plan are intended to comply with, or be exempt from, the +applicable requirements of Section 409A of the Code and this Plan and any Award +agreement hereunder shall be limited, construed and interpreted in accordance +with such intent. In no event whatsoever shall the Company or any of its +Affiliates be liable for any additional tax, interest or penalties that may be +imposed on a Participant by Section 409A of the Code or any damages for failing +to comply with Section 409A of the Code. +16.15 Successor +and Assigns . The Plan shall be binding on all +successors and permitted assigns of a Participant, including, without +limitation, the estate of such Participant and the executor, administrator or +trustee of such estate. +16.16 Severability +of Provisions . If any provision of the Plan shall +be held invalid or unenforceable, such invalidity or unenforceability shall not +affect any other provisions hereof, and the Plan shall be construed and +enforced as if such provisions had not been included. +36 +16.17 Payments +to Minors, Etc . Any benefit payable to or for the +benefit of a minor, an incompetent person or other person incapable of receipt +thereof shall be deemed paid when paid to such person’s guardian or to the +party providing or reasonably appearing to provide for the care of such person, +and such payment shall fully discharge the Committee, the Board, the Company, +its Affiliates and their employees, agents and representatives with respect +thereto. +16.18 Headings +and Captions . The headings and captions herein are +provided for reference and convenience only, shall not be considered part of +the Plan, and shall not be employed in the construction of the Plan. +ARTICLE XVII +EFFECTIVE DATE OF PLAN +The +Initial Plan was originally adopted by the Board in its resolution adopting the +Initial Plan on March 10, 2006 and was thereafter approved by the stockholders +of the Company in 2006. The Board subsequently approved this amendment and +restatement of the Initial Plan in the form set forth herein (the “Amended and +Restated Plan”) subject to, and to be effective upon, the approval of the +stockholders of the Company in accordance with the requirements of the laws of +the State of Delaware at the Company’s 2009 annual stockholders’ meeting to be +held on May 22, 2009 (the “Restatement Date”). If the Amended and Restated Plan +is not so approved by the stockholders, all provisions of the Initial Plan +shall remain effective. +ARTICLE XVIII +TERM OF PLAN +No +Award shall be granted pursuant to this Plan on or after the tenth anniversary +of the earlier of the date the Plan is adopted by the Board and the Effective +Date, but Awards granted prior to such tenth anniversary may extend beyond that +date; provided that no Award (other than a Stock Option or Stock Appreciation +Right) that is intended to be “performance-based” under Section 162(m) of +the Code shall be granted on or after the fifth anniversary of the stockholder +approval of the Plan unless the Performance Goals set forth on Exhibit A are +reapproved (or other designated performance goals are approved) by the +stockholders no later than the first stockholder meeting that occurs in the +fifth year following the year in which stockholders approve the Performance +Goals set forth on Exhibit A. +ARTICLE XIX +NAME OF PLAN +This +Plan shall be known as “The Steven Madden, Ltd. 2006 Stock Incentive Plan.” +37 +EXHIBIT A +PERFORMANCE GOALS +1. +Performance +goals established for purposes of the grant or vesting of Awards of +Restricted Stock, Other Stock-Based Awards, Performance Shares and/or +Performance-Based Cash Awards, each intended to be “performance-based” under +Section 162(m) of the Code, shall be based on the attainment of certain +target levels of, or a specified increase or decrease (as applicable) in one +or more of the following performance goals (“Performance Goals”): +(a) +earnings per +share; +(b) +operating +income; +(c) +net income; +(d) +cash flow; +(e) +gross +profit; +(f) +gross profit +return on investment; +(g) +gross margin +return on investment; +(h) +gross +margin; +(i) +working +capital; +(j) +earnings +before interest and taxes; +(k) +earnings +before interest, tax, depreciation and amortization; +(l) +return on +equity; +(m) +return on +assets; +(n) +return on +capital; +(o) +revenue +growth; +(p) +total +shareholder return; +(q) +economic +value added; +(r) +specified +objectives with regard to limiting the level of increase in all or a portion +of the Company’s bank debt or other long-term or short-term public or private +debt or other similar financial obligations of the +A +Company, +which may be calculated net of cash balances and/or other offsets and +adjustments as may be established by the Committee in its sole discretion; +(s) +the fair market +value of the shares of the Company’s Common Stock; +(t) +the growth +in the value of an investment in the Company’s Common Stock assuming the +reinvestment of dividends; +(u) +reduction in +expenses; +(v) +customer +satisfaction; +(w) +customer +loyalty; +(x) +style +indexes; +(y) +number of +new patents; +(z) +employee +retention; +(aa) +market +share; +(bb) +market +segment share; +(cc) +product +release schedules; +(dd) +new product +innovation; +(ee) +new product +introduction; +(ff) +product cost +reduction through advanced technology; +(gg) +brand +recognition and/or acceptance; or +(hh) +ship +targets. +2. +To the +extent permitted under Section 162(m) of the Code, the Committee may, in its +sole discretion, also exclude, or adjust to reflect, the impact of an event +or occurrence which the Committee determines should be appropriately excluded +or adjusted, including: +(a) +restructurings, +discontinued operations, extraordinary items or events, and other unusual or +non-recurring charges as described in Accounting Principles Board Opinion No. +30 and/or management’s discussion and analysis of financial condition and +results of operations appearing or incorporated by reference in the Company’s +Form 10-K for the applicable year; +B +(b) +an event +either not directly related to the operations of the Company or not within +the reasonable control of the Company’s management; or +(c) +a change in +tax law or accounting standards required by generally accepted accounting +principles. +3. +Performance +goals may also be based upon individual Participant performance goals, as +determined by the Committee, in its sole discretion. +4. +In addition, +such Performance Goals may be based upon the attainment of specified levels +of Company (or subsidiary, division, other operational unit or administrative +department of the Company) performance under one or more of the measures +described above relative to the performance of other corporations. To the extent +permitted under Section 162(m) of the Code, but only to the extent +permitted under Section 162(m) of the Code (including, without +limitation, compliance with any requirements for stockholder approval), the +Committee may: +(a) +designate +additional business criteria on which the performance goals may be based; or +(b) +adjust, +modify or amend the aforementioned business criteria. +C +VOTE BY +INTERNET - www.proxyvote.com +Use the Internet to transmit +your voting instructions and for electronic delivery of information up until +11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card +in hand when you access the web site and follow the instructions to obtain +your records and to create an electronic voting instruction form. +STEVEN MADDEN, LTD. +ATTN: ARVIND DHARIA +52-16 BARNETT AVEUE +LONG ISLAND CITY, NY 11104 +VOTE BY +PHONE - 1-800-690-6903 +Use any touch-tone telephone +to transmit your voting instructions up until 11:59 P.M. Eastern Time the day +before the meeting date. Have your proxy card in hand when you call and then +follow the instructions. +VOTE BY +MAIL +Mark, sign and date your +proxy card and return it in the postage-paid envelope we have provided or +return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY +11717. +TO VOTE, MARK BLOCKS BELOW +IN BLUE OR BLACK INK AS FOLLOWS: +KEEP +THIS PORTION FOR YOUR RECORDS +DETACH +AND RETURN THIS PORTION ONLY +THIS +PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +For +Withhold +For +All +To +withhold authority to vote for any individual nominee(s), mark “For All +Except” and write the number(s) of the nominee(s) on the line below. +The +Board of Directors recommends that you vote FOR the following: +All +All +Except +1. +Election of Directors +o +o +o +Nominees +01 +Edward R Rosenfeld +02 +John L Madden +03 +Peter Migliorini +04 +Richard P Randall +05 +Ravi Sachdev +06 +Thomas H Schwartz +The Board of Directors +recommends you vote FOR the following proposal(s): +For +Against +Abstain +2 +APPROVAL +OF THE AMENDMENT AND RESTATEMENT OF THE 2006 STOCK INCENTIVE PLAN TO INCREASE +BY 2,514,000 THE NUMBER OF SHARES AVAILABLE UNDER THE PLAN, APPROVE THE +PLAN’S PERFORMANCE GOALS AND MAKE OTHER AMENDMENTS, AS DESCRIBED IN THE +COMPANY’S PROXY STATEMENT. +o +o +o +3 +RATIFICATION +OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY’S INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2009. +o +o +o +NOTE : +In their discretion, the proxies are authorized to vote upon such other +business as may properly be presented at the meeting or any adjournments or +postponements thereof. +Yes +No +Please indicate if you plan +to attend this meeting +o +o +Please +sign exactly as your name(s) appear(s) hereon. When signing as attorney, +executor, administrator, or other fiduciary, please give full title as such. +Joint owners should each sign personally. All holders must sign. If a +corporation or partnership, please sign in full corporate or partnership +name, by authorized officer. +Signature [PLEASE SIGN +WITHIN BOX] +Date +Signature (Joint Owners) +Date +ANNUAL MEETING OF STOCKHOLDERS OF +STEVEN MADDEN, LTD. +May 22, 2009 +Please sign, date and mail your proxy card in the +envelope provided as soon as possible. +Please detach along perforated line and mail in the +envelope provided. +Important Notice Regarding the Availability of Proxy +Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report is/ are available at www.proxyvote.com . +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF +DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF +THE BOXES ([FOR] +[WITHHOLD +AUTHORITY] [AGAINST] OR [ABSTAIN]) NEXT TO EACH OF THE PROPOSALS +The +undersigned stockholder(s) of Steven Madden, Ltd. (the “Company”) hereby +appoint(s) Edward R. Rosenfeld and Arvind Dharia, and each of them, as attorneys +and proxies, each with power of substitution and revocation, to represent the +undersigned at the Annual Meeting of Stockholders of the Company to be held at +the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New +York, New York at 10:00 a.m., local time, on May 22, 2009 and at any +adjournments or postponements thereof, with authority to vote all shares of +Common Stock of the Company held or owned by the undersigned on March 23, 2009, +in accordance with the directions indicated herein. +THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN; UNLESS +OTHERWISE INDICATED, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE SIX +(6) NOMINEES NAMED IN ITEM 1, (2) FOR THE APPROVAL OF THE AMENDMENT AND +RESTATEMENT OF THE 2006 STOCK INCENTIVE PLAN SET FORTH IN ITEM 2, (3) FOR THE +RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR +FISCAL YEAR 2009 SET FORTH IN ITEM 3, AND (4) IN THE DISCRETION OF THE PROXIES +ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-09-000432/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-09-000432/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..4231742400a8d20b6e84402b70a493b79b5bf432 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-09-000432/proxy_rpt.txt @@ -0,0 +1,149 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +In July +2001, the Company entered into a consulting agreement with Peter J. Solomon +& Company, a financial advisory firm of which Marc S. Cooper, a director of +the Company until his resignation on February 25, 2008, was a managing +director. Under this agreement, the firm provided financial advisory and +investment banking services to the Company. This agreement was amended in March +2004. The amended agreement expired on March 31, 2005, but pursuant to its +terms was automatically renewed until the Company terminated it on July 11, +2006. In June 2007, the Company entered into a new consulting agreement with +Peter J. Solomon & Company, pursuant to which the firm is to provide +financial advisory and investment banking services to the Company. This +agreement was amended in February 2008, and, as amended, expired on December +31, 2008. The relationship with Peter J. Solomon & Company currently +continues on a month-to-month basis. During 2008, the Company paid Peter J. +Solomon & Company $46,402 in consulting fees. +In January +2004, the Company entered into an agreement with John Madden and JLM +Consultants, a company wholly-owned by John Madden, one of the Company’s +directors, which was amended in 2005. Under this agreement, Mr. Madden provided +consulting services with respect to the development of international sales of +the Company. This agreement expired on December 31, 2005 but Mr. Madden continued +to provide consulting services and the Company continued to make payments +consistent with those that would have been required under the expired +consulting agreement through December 31, 2007. For the 2008 fiscal year, Mr. +Madden has continued to provide consulting services and the Company has +continued to make payments for such services. In accordance with the foregoing, +JLM Consultants received a commission equal to 2.5% on international sales. JLM +Consultants received a monthly draw in the amount of $25,000 with recourse +against such commissions, as well as a $1,000 per month travel allowance and +$2,812 per month toward health insurance premiums. Pursuant to this +arrangement, JLM Consultants received a total of $760,270 in 2008. +Effective +as of July 1, 2005, the Company amended its employment agreement with Steven +Madden, pursuant to which Mr. Madden agreed to serve as the Company’s Creative +and Design Chief. The term of Mr. Madden’s employment under his amended +employment agreement commenced July 1, 2005 and ends on June 30, 2015. The +agreement provides for an annual salary of $600,000, with a 7% increase of base +salary on a compound basis in each of the third, fifth, seventh and ninth years +of the agreement. The agreement also provides for an annual bonus in an amount +determined by the Board of Directors, which will be at least 2% of the +Company’s EBITDA (the “Annual Bonus”). Additionally, the Company shall pay Mr. +Madden an annual cash bonus in relation to “new business” (as defined in the +agreement) in an amount to be determined by the Board of Directors, which will +be at least (i) 2.5% of new business gross direct revenues, and (ii) 10% of all +license or other fee income above $2,000,000 (the “New Business Bonus”). In +addition, Mr. Madden is eligible to receive annually an option grant to +purchase shares of Common Stock in an amount equal to not less than 100% of the +largest aggregate amount of options granted to any other continuing full-time +employee of the Company during the annual period; provided, however, that a +grant in excess of 150% of the options grant to such other continuing full-time +employee shall require shareholder approval. The agreement provides, in the +event of Mr. Madden’s death, for the payment to Mr. Madden’s estate of his base +salary for the 12-month period immediately subsequent to the date of Mr. +Madden’s death. In the +-34- +event that Mr. Madden’s employment agreement is terminated due to Mr. +Madden’s total disability (as defined in the agreement), “for cause” (as +defined in the agreement) or due to Mr. Madden’s resignation, the Company is +obligated to pay Mr. Madden the amount of compensation that is accrued and +unpaid through the date of termination. In the event Mr. Madden’s employment +agreement is terminated for any reason (other than “for cause” or due to his +death or total disability or due to Mr. Madden’s resignation), the Company is +obligated to pay Mr. Madden, in installments, the balance of his base salary +that would have been paid by the Company under the agreement for the full term +of the agreement. In the event that there is a “change of control” (as defined +in the agreement) transaction, all unvested options to purchase shares of +Common Stock held by Mr. Madden will vest on the date of termination and Mr. +Madden will be entitled to receive a lump sum cash payment equal to (1) the +amount of compensation that is accrued and unpaid through the date of +termination, (2) an amount equal to the product of (A) the number of years +remaining in the term of the agreement (but not less than 5), and (B) the sum +of (w) the base salary for the 12-month period ended on the preceding December +31 (or for the 12-month period ending on December 31, 2002, if greater), (x) +the amount of the Annual Bonus earned (paid or accrued or which should have +been paid or accrued) for the 12-month period ended on the preceding December +31 (or for the 12-month period ended on December 31, 2002, if greater), (y) the +non-accountable expense allowance provided for under the agreement for the +12-month period ended on the preceding December 31, and (z) the amount of the +New Business Bonus earned (paid or accrued or which should have been paid or +accrued) for the 12-month period ended on the preceding December 31 (or for the +12-month period ending on December 31 during the agreement in which Mr. Madden +received the greatest New Business Bonus, if greater). Mr. Madden’s employment +agreement contains other customary provisions, including provisions regarding +expense reimbursement, confidentiality, solicitation and competition. For the +fiscal year ending December 31, 2008, Mr. Madden earned (i) $642,000 in base +salary, (ii) $200,000 in non-accountable expense allowance, (iii) a bonus of +$1,139,020 representing 2% of the Company’s earnings before interest, tax, +depreciation and amortization, (iv) a bonus of $3,340,525 earned based on 2.5% +of the Company’s new business, and (v) a bonus of $72,744 based on 10% of +Royalty/Licensing income over $2,000,000. +On June 25, +2007, the Company made a loan to Steve Madden, its Creative and Design Chief +and a principal shareholder of the Company, in the amount of $3,000,000, in +order for Mr. Madden to exercise options that were due to expire and hold the +underlying Company stock. Mr. Madden executed a secured promissory note in +favor of the Company that bears interest at an annual rate of 8% and originally +was due on the earlier of the date Mr. Madden ceases to be employed by the +Company or December 31, 2008. An amendment to the note dated December 19, 2007 +extended the due date to March 31, 2009. As of December 31, 2008 $370,000 of +interest has accrued on the note. Pursuant to a pledge agreement between the +Company and Mr. Madden, the note is secured by 510,000 shares of the Company’s +common stock. On April 6, 2009, the Note was further amended and restated to +(i) extend the due date to the earlier of the date that Mr. Madden ceases to be +employed by the Company and June 30, 2015 (the “Maturity Date”), and (ii) amend +the rate of interest to accrue at a rate of 8% per annum from June 25, 2007 +until April 6, 2009, and 6% per annum from April 7, 2009 until the Maturity +Date. Mr. Madden is the brother of John Madden, who has been a director of the +Company since the Company’s inception. +-35- +On May 16, +2007, the Company entered into a Membership Interest Purchase Agreement (the +“Purchase Agreement”) whereby it purchased all of the outstanding membership +interests of Compo Enhancements, LLC, a provider of e-commerce services to the +Company (“Compo”), from its owners Jeffrey Silverman, James Randel, Ron Offir, +Godfrey Baker, Alyse Nathan and Andrew Rosca (collectively, the “Owners”). +Jeffrey Silverman became President of the Company on May 16, 2007. +In +connection with the Purchase Agreement, on May 16, 2007, the Company also +entered into an Earn-Out Agreement with the Owners (the “Earn-Out Agreement”). +Pursuant to the Earn-Out Agreement, as additional consideration for their +membership interests in Compo, the Owners collectively have the right to two +contingent purchase price payments of 168,000 shares of the Company’s common +stock, which shall be paid (if at all) if and when the Company achieves (or +exceeds), in two consecutive years, beginning with fiscal year 2008 and ending with +fiscal year 2012, certain EBIT Goals (as defined in the Earn-Out Agreement) and +certain Diluted EPS Goals (as defined in the Earn-Out Agreement), all as +specified in the Earn-Out Agreement. Promptly following the execution of the +Earn-Out Agreement, the Company purchased, for $200,000, 20.875% of any future +earn-out payment from Mr. Randel. +On December +21, 2007, the Company and Mr. Silverman, and the Company and Mr. Randel, each +entered into a Settlement and Release Agreement, dated as of December 18, 2007 +(each, a “Settlement Agreement”, and together, the “Settlement Agreements”). +Each of the Settlement Agreements provides for: the settlement of all disputes +between the parties relating to the pre-May 16, 2007 arrangement between Compo +and the Company (the “Pre-Transaction Arrangement”); the forgiveness by the +Company of all amounts in respect of the Working Capital Refund (as such term +is defined in the Purchase Agreement) that Messrs. Silverman and Randel may be +obligated to pay under the Purchase Agreement; and the payment by the Company +of certain amounts owed by Compo to the U.S. Customs Service and several +vendors to Compo. In addition, the Company and Mr. Silverman agreed that the +Company would have no further obligation to Mr. Silverman under the Earn-Out +Agreement, and the Company would pay $600,000 to Mr. Silverman on June 30, +2008. Mr. Randel released the Company and others from any claims arising from +or related to the Pre-Transaction Arrangement. Mr. Silverman and Mr. Randel +released the Company and others (and the Company released Mr. Silverman, Mr. +Randel and others) from any claims arising from or related to the Earn-Out +Agreement, the Purchase Agreement, the Pre-Transaction Arrangement and all \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-10-000447/proxy.txt b/raw/proxies/0000913241/0001019056-10-000447/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..acf8bc836cd41f0b6029449f76db6db468b2eec8 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-10-000447/proxy.txt @@ -0,0 +1,1456 @@ +DEF 14A +1 +sml_def14a10.htm +DEFINITIVE 14A +Unassociated Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 (Amendment No. __) +Filed by the Registrant þ +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +Steven Madden, Ltd. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, New York 11104 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 28, 2010 +TO THE STOCKHOLDERS OF STEVEN MADDEN, LTD.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Steven Madden, Ltd. (the “Company”) will be held on May 28, 2010, at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., local time, for the purposes stated below: +1. +to elect six directors to the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal from office; +2. +to ratify the appointment of Eisner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010; and +3. +to transact such other business as may properly come before the Annual Meeting or any adjournments thereof. +Only those stockholders of record at the close of business on April 1, 2010 are entitled to notice of and to vote at the Annual Meeting and any adjournments thereof. A complete list of stockholders entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting for purposes germane to the Annual Meeting, between the hours of 9:00 a.m. and 4:30 p.m., local time, at the Company’s principal executive offices at 52-16 Barnett Avenue, Long Island City, New York 11104, by contacting the Secretary of the Company, and will be available at the Annual Meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 28, 2010: THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, ANNUAL REPORT, ELECTRONIC PROXY CARD AND ANY OTHER MATERIALS CONCERNING THE ANNUAL MEETING, TOGETHER WITH ANY AMENDMENTS TO ANY OF THESE MATERIALS, ARE AVAILABLE ON THE INTERNET AT WWW.PROXYVOTE.COM. +BY ORDER OF THE BOARD OF DIRECTORS +April 13, 2010 +/s/ Arvind Dharia +Arvind Dharia +Secretary +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE DATE AND SIGN THE ACCOMPANYING FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED TO: VOTE PROCESSING, C/O BROADRIDGE, 51 MERCEDES WAY, EDGEWOOD, NEW YORK 11717. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. +TABLE OF CONTENTS +GENERAL INFORMATION +1 +Notice of Internet Availability of Proxy Materials +1 +Questions and Answers +2 +Stockholder Nominations for Board Membership, Proposals and Submissions for the Company’s 2011 Annual Meeting +4 +PROPOSAL ONE: ELECTION OF DIRECTORS +5 +Biographical Summaries of Nominees for the Board of Directors +5 +CORPORATE GOVERNANCE +8 +Board of Directors +8 +Director Independence +8 +Director Attendance at Meetings +8 +Committees of the Board +8 +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +10 +Code of Business Conduct and Ethics +12 +Certain Relationships and Related Party Transactions +12 +Review, Approval or Ratification of Transactions with Related Persons +13 +COMPENSATION OF DIRECTORS +14 +STOCK OWNERSHIP +15 +Security Ownership of Certain Beneficial Owners +15 +Security Ownership of Directors and Executive Officers +16 +Section 16(a) Beneficial Ownership Reporting Compliance +17 +EXECUTIVE COMPENSATION +17 +Compensation Discussion and Analysis +17 +Compensation Committee Interlocks and Insider Participation +22 +Executive Officers +23 +SUMMARY COMPENSATION TABLE +24 +Employment Arrangements +25 +GRANTS OF PLAN-BASED AWARDS IN 2009 FISCAL YEAR +29 +OUTSTANDING EQUITY AWARDS AT END OF 2009 FISCAL YEAR +31 +OPTION EXERCISES AND STOCK VESTED IN 2009 FISCAL YEAR +32 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +33 +EQUITY COMPENSATION PLAN INFORMATION +33 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +34 +COMPENSATION COMMITTEE REPORT +35 +AUDIT COMMITTEE REPORT +36 +PROPOSAL 2: RATIFICATION OF APPOINTMENT OF EISNER LLP +36 +OTHER MATTERS +38 +i +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, New York 11104 +PROXY STATEMENT +GENERAL INFORMATION +On behalf of the Board of Directors of Steven Madden, Ltd., a Delaware corporation (the “Company”, “we” or “us”), we are requesting your proxy in connection with the Annual Meeting of Stockholders (the “Annual Meeting”) scheduled to be held at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York on Friday, May 28, 2010 at 10:00 a.m., local time. On or about April 16, 2010, a notice containing instructions on how to access this Proxy Statement, the accompanying proxy card and related materials online is being mailed to holders of record of common stock, $.0001 par value, of the Company (the “Common Stock”) at the close of business on April 1, 2010 (the “Record Date”). The Company’s Annual Report for the fiscal year ended December 31, 2009 (“2009 Fiscal Year”), including audited financial statements, is included in the materials that are accessible online to our stockholders. This Proxy Statement contains information about the Annual Meeting as well as information regarding the voting process, director elections, our corporate governance programs and executive and director compensation, among other things. We recommend that you read all of the materials. +The Annual Meeting has been called to consider and take action on the following proposals: +· +to elect six directors to the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal from office; +· +to ratify the appointment of Eisner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010; and +· +to transact such other business as may properly come before the Annual Meeting and any adjournments thereof. +The Board of Directors knows of no other matters to be presented for action at the Annual Meeting. However, if any other matters properly come before the Annual Meeting, the persons named in the proxy will vote on such other matters and/or for other nominees in accordance with their best judgment. The Company’s Board of Directors recommends that the stockholders vote in favor of each of the proposals. Only holders of record of Common Stock of the Company at the close of business on the Record Date will be entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 Barnett Avenue, Long Island City, New York 11104 and the telephone number of the Company is (718) 446-1800. +Notice of Internet Availability of Proxy Materials +For the second year, we are pleased to use the Securities and Exchange Commission (the “SEC”) “e-proxy” rules allowing us to furnish proxy materials through the Internet. By using the e-proxy rules, we can expedite the receipt by stockholders of this Proxy Statement and our Annual Report while lowering the costs and reducing the environmental impact associated with our Annual Meeting. On or about April 16, 2010, we will furnish a Notice of Internet Availability of Proxy Material (the “Availability Notice”) to most of our stockholders containing instructions on how to access the proxy materials and to vote online. In addition, our instructions on how to request a printed copy of these materials will be found on the Availability Notice. For more information on voting your stock, please see the “Question and Answer” section below. If you received an Availability Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials by following the instructions contained in the Availability Notice. +1 +QUESTIONS AND ANSWERS +Who may vote at the Annual Meeting? +Only stockholders of record are entitled to vote at the Annual Meeting. A stockholder of record is a stockholder as of the close of business on the Record Date. On the Record Date, there were 18,380,979 shares of our Common Stock outstanding (excluding treasury shares) held by approximately 103 registered holders of record and 36,912 beneficial owners. +What is considered a quorum to conduct the Annual Meeting? +The presence, in person or by proxy, of the holders of a majority of the shares eligible to vote is necessary to constitute a quorum for the purpose of transacting business at the Annual Meeting. Abstentions and broker non-votes (meaning proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owner or other persons eligible to vote shares as to matters with respect to which the brokers or nominees do not have discretionary power to vote) are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +How many votes do I have? +For each share of Common Stock that you own on the Record Date you are entitled to one vote on each matter presented at the Annual Meeting. +How many votes are required to approve each proposal and what is the effect of abstentions and broker non-votes? +Proposal One (Election of Directors): Directors are elected by the affirmative vote of a plurality of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote. This means that the director nominees who receive the greatest number of affirmative votes cast are elected as directors. +Proposal Two (Ratification of Appointment of Eisner LLP): The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve the ratification of the appointment of Eisner LLP as the Company’s independent registered public accounting firm. +Other Matters: If any other matters are presented at the Annual Meeting, they must receive an affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote in order to be approved. +Abstentions will have no effect on the election of directors but will be treated as present and entitled to vote on the other proposals presented at the Annual Meeting and, therefore, will have the effect of votes “against” such proposals. If you do not provide your broker or other nominee with instructions on how to vote your shares held in “street name,” your broker or nominee will not be permitted to vote your shares on non-routine matters (a broker “non-vote”), and your shares will not affect the outcome of proposals concerning non-routine matters. Please note that the rules regarding how brokers may vote your shares have changed, such that, starting this year, Proposal One (Election of Directors) is a “non-discretionary” item. This means that your broker may no longer vote your shares in connection with the election of directors in the absence of your specific instructions as to how to vote. If you hold your shares beneficially through a broker or nominee, we strongly encourage you to provide instructions regarding the voting of your shares as your broker cannot vote your shares with respect to this proposal without instructions from you. +2 +How can I vote my shares? +Your vote is important. Your shares can be voted at the Annual Meeting only if you are present in person or represented by proxy. Even if you plan to attend the Annual Meeting, we urge you to authorize your proxy in advance. You may vote your shares by authorizing a proxy over the Internet or by telephone. In addition, if you received a paper copy of the proxy materials by mail, you can also submit a proxy by mail by following the instructions on the proxy card. Voting your shares by authorizing a proxy over the Internet, by telephone or by written proxy card will ensure your representation at the Annual Meeting regardless of whether you attend in person. +If you are the record holder of your shares, please authorize your proxy electronically by going to the http://www.proxyvote.com website or by calling the toll-free number listed below and on the proxy card. Please have your Proxy Statement or proxy card in hand when going online or calling. If you authorize your proxy via the Internet or by phone you do not need to return your proxy card. If you choose to authorize your proxy by mail, simply mark your proxy card and then date, sign and return it in the postage-paid envelope provided. +VOTE BY INTERNET +http://www.proxyvote.com +VOTE BY PHONE +1-800-690-6903 +VOTE BY MAIL +Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717 +Use the Internet to transmit your voting instructions and for electronic delivery of information. +Use any touch-tone telephone to transmit your voting instructions. +If you receive paper proxy materials, mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to the address shown above. +If you hold your shares beneficially in “street name” through a broker or nominee you may be able to authorize your proxy by telephone or the Internet as well as by mail, but you will need to obtain and follow instructions from your broker or nominee to vote these shares. +May I revoke my proxy for the Annual Meeting once I have given it? +You may revoke your proxy at any time before it is voted at the Annual Meeting by: +· +properly executing and delivering a later dated proxy (including a telephone or Internet proxy authorization); +· +voting by ballot at the Annual Meeting; or +· +sending a written notice of revocation to the Corporate Secretary of the Company at Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +How does the Board of Directors recommend that I vote my shares? +The Board of Directors of the Company recommends that you vote: +· +FOR the election of each of the six director nominees; and +· +FOR the ratification of the appointment of Eisner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. AS NOTED ABOVE, IF YOU HOLD YOUR SHARES BENEFICIALLY THROUGH A BROKER OR NOMINEE AND FAIL TO PROVIDE SPECIFIC VOTING INSTRUCTIONS TO THAT BROKER OR NOMINEE, YOUR SHARES WILL NOT BE VOTED IN THE ELECTION OF DIRECTORS. +3 +Who will bear the expenses of this solicitation? +The expense of this solicitation, including preparing, printing and mailing this Proxy Statement, the exhibits hereto and the proxies solicited hereby, will be borne by the Company. In addition to the use of the mails, proxies may be solicited by officers and directors and employees of the Company, without additional remuneration, by personal interviews, telephone, telegraph or facsimile transmission. The Company will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares of Common Stock held of record by them and will provide reimbursements for the cost of forwarding the material in accordance with customary charges. The Company has entered into an agreement with D.F. King & Co., Inc. to assist in the solicitation of proxies and provide related advice and informational support. The total expense of this engagement, which will be borne by the Company, including customary disbursements, is not expected to exceed $20,000 in the aggregate. +How will the voting results be reported? +The results of the voting on the proposals will be reported at the Annual Meeting and, thereafter, will be reported in a Current Report on Form 8-K filed with the SEC within four business days following the Annual Meeting. +STOCKHOLDER NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2011 ANNUAL MEETING +In accordance with Article II, Section 5 of the Company’s By-Laws, director nominations for the 2011 Annual Meeting of Stockholders of the Company (the “2011 Annual Meeting”) can only be made by a stockholder of the Company who (A) is a stockholder of record on the date of the giving of the notice of such director nominations and on the record date for the determination of stockholders entitled to vote at such meeting, and (B) complies with the notice requirements and procedures set forth in Article II, Section 5 of the Company’s Amended and Restated By-Laws (the “By-Laws”). A stockholder’s notice to the Corporate Secretary with respect to any such nominations must be timely and in proper written form pursuant to Article II, Section 5 of the Company’s By-Laws, including containing certain information concerning the nominating or proposing stockholder and certain information concerning the nominee, and must be delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s 2010 Annual Meeting. Accordingly, any written notice given by or on behalf of a stockholder pursuant to Article II, Section 5 of the Company’s By-Laws in connection with the 2011 Annual Meeting must be received no later than January 28, 2011 and no earlier than December 29, 2010. +In accordance with rules promulgated by the SEC, any stockholder who wishes to submit a proposal for inclusion in the proxy material to be distributed by the Company in connection with the 2011 Annual Meeting must do so no later than December 10, 2010. In addition, in accordance with Article I, Section 7(f) of the Company’s By-Laws, in order to be properly brought before the 2011 Annual Meeting, a matter must be either (i) specified in the notice of such meeting given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before such meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) specified in a notice in proper written form given by a stockholder of record on the date of the giving of the notice and on the record date for such meeting, which notice conforms to the requirements of Article I, Section 7(f) of the By-Laws and is delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s 2010 Annual Meeting. Accordingly, any written notice given by or on behalf of a stockholder pursuant to the foregoing clause (iii) in connection with the 2011 Annual Meeting must be received no later than January 28, 2011 and no earlier than December 29, 2010. In addition, for business to be properly brought before the 2011 Annual Meeting by a stockholder pursuant to the foregoing clause (iii), such stockholder shall have complied with any other applicable requirements, including, but not limited to, the requirements of Rule 14a-8 promulgated by the SEC. +4 +PROPOSAL ONE: +ELECTION OF DIRECTORS +The Company’s By-Laws provide that the Board of Directors of the Company shall be comprised of a minimum of one director and that, subject to this limitation, the number of directors may be fixed from time to time by action of the directors. The Company’s Board of Directors has fixed the number of directors to comprise the Board at six directors and the Board presently is comprised of six directors whose terms expire at the Annual Meeting. Directors serve a one-year term. +The Nominating/Corporate Governance Committee of the Board of Directors and the Board of Directors have nominated and are recommending the election of each of the six nominees named below to serve as a director of the Company until the next annual meeting of the Company’s stockholders and until his successor is duly elected and qualified or until his earlier death, resignation or removal from office. All nominees have consented to being named in this Proxy Statement and to serving on the Board of Directors if elected. +Biographical Summaries of Nominees for the Board of Directors +The names and biographical summaries of the six persons who have been nominated by the Nominating/ Corporate Governance Committee of the Board of Directors and the Board of Directors to stand for election at the Annual Meeting are provided below for your information. +Our Board of Directors includes members who are well-qualified to serve on the Board and its committees and to represent the best interests of our stockholders. The Board and the Nominating/Corporate Governance Committee select nominees with a view to establishing a Board of Directors that is comprised of individuals who have extensive business leadership experience, are independent, bring diverse perspectives to the Board, possess high ethical standards and sound business judgment and acumen and a willingness to devote the time necessary for the Board to effectively fulfill its responsibilities. We believe that all of the director nominees possess these qualifications and provide the Board with a full complement of knowledge, business skills and expertise for the effective management of our Company. In addition to these general qualifications, provided below for each nominee for director is a discussion of the experience, qualifications, attributes and skills that led to the Board’s conclusion that the nominee should serve as a director. +Edward R. Rosenfeld - Chairman of the Board and Chief Executive Officer +Edward R. Rosenfeld, 34, has served as a director of the Company since February 2008 and has served on the Company’s Investment Committee since April 2008. Mr. Rosenfeld has been Chairman of the Board and Chief Executive Officer since August 2008 after serving as interim Chief Executive Officer of the Company from March 24, 2008 and prior to that, serving as the Executive Vice President of Strategic Planning and Finance of the Company. Mr. Rosenfeld has been a member of the executive management team since joining the Company in May 2005. Prior to joining the Company, Mr. Rosenfeld was a Vice President with Peter J. Solomon Company, an investment banking boutique, where he specialized in mergers and acquisitions in the retail, apparel and footwear industries. +With more than 12 years of experience focused on the retail, apparel and footwear industries, five of which have been with the Company, Mr. Rosenfeld possesses particular knowledge of and experience in the industry that strengthens the Board’s collective qualifications, skills and experience. Mr. Rosenfeld’s background in finance and his analytical skills gained through his years in investment banking provide the Board and the Investment Committee with insight and guidance with respect to, among other things, strategic business development matters. Mr. Rosenfeld has strong leadership skills and an in-depth understanding of the Company and its goals from his positions as the Chairman of the Board and Chief Executive Officer. +5 +John L. Madden - Owner of JLM Consultants, Inc. +John L. Madden, 63, has served as a director of the Company since the Company’s inception in 1990 and has served on the Company’s Investment Committee, as its Chair, since April 2008. Since June 2004, Mr. Madden’s business consulting company, JLM Consultants, Inc., has provided consulting services to the Company with respect to international sales. From April 1998 through September 2003, Mr. Madden owned a branch office of Tradeway Securities Group, Inc., a brokerage firm, in Florida. From May 1996 through December 1996, Mr. Madden’s consulting company, JLM Consultants, Inc., acted as a branch office of Merit Capital, Inc., a brokerage firm. From May 1994 to May 1996, Mr. Madden served as Vice President of Investments for GKN Securities, Inc.. a brokerage firm. From August 1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc., a brokerage firm, as Managing Director and registered sales representative. Mr. Madden is the brother of Steven Madden, the Company’s founder and Creative and Design Chief. Please see the section of this Proxy Statement captioned “Certain Relationships and Related Party Transactions.” +As a result of Mr. Madden’s near twenty years of experience in finance and investing, he possesses a proficiency in financial analysis and investing that strengthens the Board’s collective qualifications, skills and experience and provides the Board and the Investment Committee with greater insight and guidance. Mr. Madden’s years in business consulting and strong financial background have provided him with broad experience in addressing operational and management issues and providing overall direction for complex corporations like ours. Mr. Madden brings a wealth of knowledge and experience that comes from twenty years of service on the Company’s Board of Directors since its inception. His knowledge of Company history and his understanding of the Company in the context of the Company’s long-term strategic plan provides the Board with continuity of direction and focus. +Peter Migliorini - Sales Manager, Greschlers, Inc. +Peter Migliorini, 61, has served as a director of the Company since October 1996 and has served on the Company’s Audit Committee since October 1996, the Nominating/Corporate Governance Committee since July 2004 and the Compensation Committee, as its Chair, since July 2004. Mr. Migliorini is also Presiding Director over all executive sessions of the independent directors. Mr. Migliorini has been Sales Manager for Greschlers, Inc., a building supplies company, since 1994. From 1987 to 1994, Mr. Migliorini served as Director of Operations for Mackroyce Group, a construction company. Prior to 1987, Mr. Migliorini held various positions of increasing responsibility from Assistant Buyer to Chief Planner/Coordinator for several shoe companies including Meldisco Shoes, Perry Shoes and Fasco Shoes. +Mr. Migliorini possesses extensive executive level financial, sales and operations experience. His numerous years of business experience at various levels and in various industries provide the Board with a measure of practical orientation regarding the Company’s operations and growth endeavors. Mr. Migliorini’s early experience in the shoe industry also provides relevant knowledge and expertise in the company’s specific industry. +Richard P. Randall - Retired Executive Vice President and Chief Financial Officer, Direct Holdings Worldwide, LLC +Richard P. Randall, 72, has served as a director of the Company since April 2006 and has served on the Company’s Audit Committee, as its Chair, since 2006, on the Nominating/Corporate Governance Committee since September 2008 and on the Investment Committee since April 2008. Mr. Randall was the Executive Vice President and Chief Financial Officer of Direct Holdings Worldwide, LLC, the parent company of Lillian Vernon Corp., a catalog and online retailer of gifts and household goods, and Time-Life, a music and video marketing company, from 2002 until his retirement in June 2005. Prior to 2002, Mr. Randall served as Senior Vice President and Chief Financial Officer of Coach, Inc., a luxury leather goods company, and Chief Operating Officer and Chief Financial Officer of Lillian Vernon Corp. from 2000 to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves as a director, a member of the Audit & Risk and Compensation Committees and chairs the Governance Committee of Aceto Corporation, a pharmaceutical, nutraceutical and chemical distribution company. Mr. Randall also serves as a director and chairs the Audit Committee of The Burke Rehabilitation Hospital and also serves as a member of the Executive, Finance and Research Committees of the hospital. Mr. Randall served as a director and chair of the Audit Committee of Universal Travel Group, a travel services provider in the People’s Republic of China, and of Home Systems Group, a manufacturer and distributor of household appliances in the People’s Republic of China, from 2007 until 2008 when he resigned from these boards. +6 +With decades of business experience, including tenures as Chief Financial Officer and Chief Operating Officer of both publicly traded and privately held companies in the retail industry, Mr. Randall is a certified public accountant and possesses extensive knowledge of accounting and finance, the retail industry and the issues impacting a publicly traded company. Mr. Randall has extensive executive level experience establishing his capabilities in management of complex organizations. His expertise in finance qualify him to serve as the Audit Committee “audit committee financial expert” and his service on the boards and committees of other companies has allowed him to gain broad-based experience and sensitivity regarding best practices, which he shares with the Board. +Ravi Sachdev - Managing Director, Deutsche Bank Securities, Inc. +Ravi Sachdev, 33, has served as a director of the Company since September 2008 and has served on the Company’s Audit Committee since September 2008. Mr. Sachdev has been a Managing Director at Deutsche Bank Securities, Inc., a global investment bank (“Deutsche Bank”), since January 2009 and prior to that held the position of Director at Deutsche Bank from January 2007 until January 2009. Mr. Sachdev joined Deutsche Bank in 2006 as a Vice President and throughout such time he has focused on the healthcare services subsector. Prior to joining Deutsche Bank, Mr. Sachdev was a Vice President at Peter J. Solomon Company, an investment banking boutique, specializing in mergers and acquisitions in the healthcare sector from 1998 to 2006. +Mr. Sachdev possesses knowledge of finance and the financial analytics used to measure business performance. His professional experience in investment banking brings to the Board a thorough understanding of the financial issues affecting public companies and greater insights in business valuation together with a practical orientation with respect to acquisitions and integrations which our Company has undertaken over the last few years. +Thomas H. Schwartz - Owner, Sumner and Forge Investors LLC +Thomas H. Schwartz, 62, has served as a director of the Company since May 2004 and has served on the Company’s Compensation Committee since July 2004. Since March 2007, Mr. Schwartz has been the Chief Executive Officer and sole owner of Sumner and Forge Investors LLC, a company that invests in real estate and manages properties in which it holds ownership interests. Prior to 2007, Mr. Schwartz was a Managing Director of Helmsley-Spear, Inc., a real estate brokerage and management company, from 1984 to March 2007. +With more than twenty years of experience as a Managing Director of Helmsley-Spear, Inc. and several years as the owner of his own real estate investment firm, Mr. Schwartz brings to the Board extensive executive level experience in handling operations issues and practical expertise in management. +Required Vote +Proxies will be voted for the election of the six nominees as directors of the Company unless otherwise specified in the proxy. A plurality of the votes cast by the holders of shares of Common Stock present in person or represented by proxy at the Annual Meeting will be necessary to elect the nominees as directors. This means that the director nominees who receive the greatest number of affirmative votes cast are elected as directors. If, for any reason, any of the nominees shall be unable or unwilling to serve, the proxies will be voted for a substitute nominee who will be designated by the Board of Directors at the Annual Meeting. Stockholders may abstain from voting by marking the appropriate boxes on the accompanying proxy. Abstentions shall be counted separately and shall be used for purposes of calculating whether a quorum is present at the Annual Meeting. +Recommendation of the Board of Directors +The Nominating/Corporate Governance Committee of the Board and the entire Board of Directors unanimously recommend a vote FOR the election of Messrs. Edward R. Rosenfeld, John L. Madden, Peter Migliorini, Richard P. Randall, Ravi Sachdev and Thomas H. Schwartz. +7 +CORPORATE GOVERNANCE +The Board of Directors +Our business is managed under the direction and oversight of the Board of Directors who are elected by the Company’s stockholders. Directors meet their responsibilities by participating in meetings of the Board of Directors and the various committees of the Board on which they sit, as well as through communications with our Chairman and Chief Executive Officer, other officers and employees of the Company and by consulting with our independent registered public accounting firm and other third parties. +Director Independence +The Board of Directors is currently comprised of six members. The Board of Directors has determined that the following director nominees are “independent” for purposes of the criteria of the SEC and The Nasdaq Global Select Market listing standards: Messrs. Migliorini, Randall, Sachdev and Schwartz. If the six nominees set forth above are elected, the Board will be comprised of a majority of independent directors. The Board of Directors has held regularly scheduled executive sessions, with Peter Migliorini serving as Presiding Director of such executive sessions. +Director Attendance at Meetings +Attendance at Annual Meetings of Stockholders +The Company has no specific policy regarding director attendance at its annual meetings of stockholders. The Company encourages all of its directors to attend annual meetings of the Company’s stockholders and two directors attended the Company’s 2009 annual meeting of stockholders. +Attendance at Meetings of the Board of Directors +The Board of Directors held four regularly scheduled meetings during the 2009 Fiscal Year and acted by unanimous written consent on four occasions during the 2009 Fiscal Year. In 2009, each director attended at least 75% of the aggregate of the number of Board meetings, and each director attended at least 75% of the aggregate number of meetings held by all committees on which he then served. +Committees of the Board +The Board of Directors, among other committees, has a standing Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee. +Audit Committee +The members of the Audit Committee are Messrs. Randall (Chairman), Migliorini and Sachdev. The Audit Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards and who meet the independence requirements contained in Exchange Act Rule 10A-3(b)(1). The Board has determined that Mr. Randall meets the SEC criteria of an “audit committee financial expert” and he is currently serving as such. The Audit Committee is primarily responsible for reviewing the services performed by the Company’s independent registered public accountants, evaluating the Company’s accounting policies and its system of internal controls, and reviewing significant financial transactions. During the 2009 Fiscal Year, the Audit Committee met eight times. +8 +The Audit Committee is responsible for reviewing and striving to ensure the integrity of the Company’s financial statements and oversight of our compliance with legal and regulatory requirements, our internal audit function and an independent registered public accounting firm. Among other matters, the Audit Committee, with management and independent and internal auditors, reviews the adequacy of the Company’s internal accounting controls that could significantly affect the Company’s financial statements. The Audit Committee is also directly and solely responsible for the appointment, retention, compensation, oversight and termination of the Company’s independent registered public accountants. In addition, the Audit Committee also functions as the Company’s Qualified Legal Compliance Committee (the “QLCC”). The purpose of the QLCC is to receive, retain and investigate reports made directly, or otherwise made known, of evidence of material violations of any United States federal or state law, including any breach of fiduciary duty by the Company, its officers, directors, employees or agents, and if the QLCC believes appropriate, to recommend courses of action to the Company. +Management has primary responsibility for the Company’s financial statements and the overall reporting process, including the Company’s system of internal controls. The independent registered public accountants audit the annual financial statements prepared by management, express an opinion as to whether those financial statements present fairly the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States and discuss with the Audit Committee any issues they believe should be raised with the Audit Committee. +The Audit Committee is also responsible for the oversight of the Company’s risk management process, which is discussed in the “Risk Oversight” section below. +In performing its functions, the Audit Committee meets with management on at least a quarterly basis to review and discuss the annual audited financial statements, quarterly financial statements and related reports and to consider the adequacy of the Company’s internal controls and the objectivity of its financial reporting. The Audit Committee discusses these matters with the Company’s independent registered public accountants and with appropriate Company financial personnel. Meetings are held with the independent registered public accountants who have unrestricted access to the Audit Committee. In addition, the Audit Committee reviews the Company’s financing plans and reports and makes recommendations to the full Board of Directors for approval and to authorize action. The Board has adopted a written charter setting out the functions the Audit Committee is to perform. A copy of the Audit Committee Charter is available on the Company’s website at www.stevemadden.com. +Nominating/Corporate Governance Committee +The members of the Nominating/Corporate Governance Committee are Messrs. Migliorini and Randall. The Nominating/Corporate Governance Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards. During the 2009 Fiscal Year, the Nominating/Corporate Governance Committee met once and acted once by unanimous written consent. +The Nominating/Corporate Governance Committee provides oversight with respect to a wide range of issues relating to the composition and operation of the Board including consideration of and recommendations regarding the size and composition of the Board of Directors and identifies potential candidates to serve as directors. The Nominating/ Corporate Governance Committee identifies candidates to the Board of Directors by introductions from management, members of the Board of Directors, employees or other sources and stockholders that satisfy the Company’s policy regarding stockholder recommended candidates. The Nominating/Corporate Governance Committee does not evaluate director candidates recommended by stockholders differently than director candidates recommended by other sources. +Stockholders wishing to submit recommendations for director nominations for the 2011 Annual Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. Any such stockholder must (x) comply with the director nomination provisions of the Company’s By-Laws, (y) meet and evidence the minimum eligibility requirements specified in Exchange Act Rule 14a-8, and (z) submit, within the same timeframe for submitting a stockholder proposal required by Rule 14a-8: (1) evidence in accordance with Rule 14a-8 of compliance with the stockholder eligibility requirements, (2) the written consent of the candidate(s) for nomination as a director, (3) a resume or other written statement of the qualifications of the candidate(s) for nomination as a director, and (4) all information regarding the candidate(s) and the submitting stockholder that would be required to be disclosed in a proxy statement filed with the SEC if the candidate(s) were nominated for election to the Board of Directors. +9 +In considering Board of Directors candidates, the Nominating/Corporate Governance Committee takes into consideration the Company’s Board Candidate Guidelines, available on the Company’s website at www.stevemadden.com, the Company’s policy regarding stockholder recommended director candidates, as set forth above, and all other factors that are deemed appropriate including, but not limited to, the individual’s character, education, experience, knowledge and skills. While the Nominating/Corporate Governance Committee’s Board Candidate Guidelines does not expressly identify diversity as a factor for consideration regarding the evaluation of director candidates, diversity is among the many factors the Nominating/Corporate Governance Committee considers in the candidate evaluation process. To assess the effectiveness of the mandate set forth in the Nominating/Corporate Governance Committee’s charter, the Nominating/Corporate Governance Committee reviews annually with the Board the composition of the Board as a whole and recommends, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for the Board as a whole. +In addition, the Nominating/Corporate Governance Committee develops and recommends corporate governance principles for the Company; makes recommendations to the Board of Directors in support of such principles; takes a leadership role in the shaping of the corporate governance of the Company; and oversees the evaluation of the Board of Directors and management. The Nominating/Corporate Governance Committee operates under a formal charter that governs the Committee’s composition, powers and responsibilities. A copy of the Nominating/Corporate Governance Charter is available on the Company’s website at www.stevemadden.com. +Compensation Committee +The members of the Compensation Committee are Messrs. Migliorini (Chairman) and Schwartz. The Compensation Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards and applicable tax and securities rules. During 2009, the Compensation Committee met three times. +The Compensation Committee is responsible for establishing and overseeing the Company’s compensation and incentive plans and programs; determining and approving compensation for the Company’s executive officers, including salaries, bonuses, perquisites and equity awards; reviewing and approving compensation and awards for the Company’s executive officers under the Company’s compensation and incentive plans and programs; administering the Company’s equity compensation plans; reviewing and approving a compensation program for independent members of the Board; and assisting the Board in discharging the Board’s responsibilities relating to management organization, performance, compensation and succession. +The Compensation Committee operates under a formal charter adopted by the Board of Directors that governs its composition, powers and responsibilities. A copy of the Compensation Committee Charter is available on the Company’s website at www.stevemadden.com. +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +Board Leadership Structure +As noted above, our Board is currently comprised of four independent and two non-independent directors. Mr. Rosenfeld has served as Chairman of the Board and Chief Executive Officer since August 2008, and has been a member of the Board since February 2008. The Board has designated one of the independent directors as Presiding Director to preside over executive sessions. We believe that the number of independent, experienced directors that comprise our Board, along with the independent oversight of our Presiding Director, benefits the Company and its stockholders. +We recognize that different board leadership structures may be appropriate for companies in different situations and believe that no one structure is suitable for all companies. We believe our current Board leadership structure is optimal for the Company because it demonstrates to our employees, suppliers, customers, and other stakeholders that the Company is under strong leadership, with a single person setting the tone and having primary responsibility for managing our operations. Having a single leader for both the Company and the Board eliminates confusion and duplication of efforts, and provides clear leadership for the Company. We believe the Company, like many U.S. companies, has been well-served by this leadership structure. +10 +Because the positions of Chairman of the Board and Chief Executive Officer are held by the same person, the Board believes it is appropriate for the independent directors to elect one independent director to serve as a Presiding Director. In addition to presiding at executive sessions of the independent directors, the Presiding Director has various responsibilities including coordinating with the Chairman of the Board and Chief Executive Officer in establishing agenda and discussion items for Board meetings; retaining independent advisors on behalf of the Board as the Board may determine may be necessary or appropriate and performing such other functions as the independent directors may designate from time to time. Mr. Migliorini is currently serving as the Presiding Director. +Our Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for the Company and its stockholders. Our Corporate Governance Guidelines provide the flexibility for our Board to modify or continue our leadership structure in the future, as it deems appropriate. +Risk Oversight +Our Board is responsible for overseeing the Company’s risk management process. The Board focuses on the Company’s general risk management strategy, the most significant risks facing the Company, and ensures that appropriate risk mitigation strategies are implemented by management. The Board is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters. +The Board has delegated to the Audit Committee oversight of the Company’s risk management process. Among its duties, the Audit Committee reviews with management (a) the Company’s policies with respect to risk assessment and management of risks that may be material to the Company, (b) the Company’s system of disclosure controls and system of internal controls over financial reporting, and (c) the Company’s compliance with legal and regulatory requirements. The Audit Committee is also responsible for reviewing major legislative and regulatory developments that could materially impact the Company’s contingent liabilities and risks. Our other Board committees also consider and address risks as they perform their respective committee responsibilities. All committees report to the full Board as appropriate, including when a matter rises to the level of a material or enterprise level risk. +The Company’s management is responsible for day-to-day risk management. Our risk management and internal audit areas serve as the primary monitoring and testing function for company-wide policies and procedures, and manage the day-to-day oversight of the risk management strategy for the ongoing business of the Company. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels. +We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing the Company and that our Board leadership structure supports this approach. +Executive Sessions of Independent Directors +The Board holds executive sessions of its independent directors generally at each regularly scheduled meeting. The Presiding Director serves as the chairperson for these executive sessions. +11 +Communications between Stockholders and the Board +The Company has adopted a procedure by which stockholders may send communications as defined within Item 7(d) of Schedule 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to one or more members of the Board of Directors by writing to such director(s) or to the entire Board of Directors in care of the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. The Board has instructed the Corporate Secretary to review all communications so received and to exercise his discretion not to forward to the Board correspondence that is inappropriate, such as business solicitations, frivolous communications and advertising, routine business matters (i.e. business inquiries, complaints, or suggestions) and personal grievances. However, any director may at any time request the Corporate Secretary to forward any and all communications received by the Corporate Secretary but not forwarded to the directors. +Code of Business Conduct and Ethics +All of the Company’s employees, officers (including senior executive, financial and accounting officers) and directors are held accountable for adherence to the Company’s Code of Business Conduct and Ethics (the “Conduct Code”). The Conduct Code is intended to establish standards necessary to deter wrongdoing and to promote compliance with applicable governmental laws, rules and regulations and honest and ethical conduct. The Conduct Code covers all areas of professional conduct, including conflicts of interest, fair dealing, financial reporting and disclosure, protection of Company assets and confidentiality. Employees have an obligation to promptly report any known or suspected violation of the Conduct Code without fear of retaliation. Waiver of any provision of the Conduct Code for executive officers and directors may only be granted by the Board of Directors or one of its committees and any such waiver or modification of the Conduct Code relating to such individuals will be disclosed by the Company. A copy of the Conduct Code is available on the Company’s website at www.stevemadden.com and may also be obtained by any stockholder without charge upon request by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +Certain Relationships and Related Party Transactions +In January 2004, the Company entered into an agreement with John L. Madden, one of the Company’s directors, and JLM Consultants, a company wholly-owned by John L. Madden. Under this agreement, which was amended in 2005, Mr. Madden agreed to provide consulting services to the Company with respect to the development of international sales of the Company. This agreement expired by its terms on December 31, 2005, but Mr. Madden continues to provide consulting services and the Company continues to make payments to JLM Consultants consistent with those that would have been required under the expired consulting agreement. In accordance with the foregoing, for the 2009 Fiscal Year, JLM Consultants received the following from the Company: (a) a commission equal to 2.5% on international sales, (b) a monthly draw in the amount of $25,000 with recourse against such commissions, (c) a $1,000 per month travel allowance and (d) $2,812 per month toward health insurance premiums for health insurance coverage for John L. Madden. Pursuant to this arrangement, JLM Consultants received a total of $759,180 from the Company in the 2009 Fiscal Year. +12 +Effective as of July 1, 2005, the Company amended and restated its employment agreement with Steven Madden, pursuant to which Mr. Madden agreed to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement commenced on July 1, 2005 and, in accordance with a December 14, 2009 amendment thereto, will end on December 31, 2019. The agreement provides for an annual salary of $600,000, with a 7% increase of base salary on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. Mr. Madden also receives an annual $200,000 non-accountable expense allowance. The agreement provides for an annual cash bonus in an amount determined by the Board of Directors, which will be at least 2% of the Company’s EBITDA (the “Annual Bonus”). Additionally, the Company agreed to pay Mr. Madden an annual cash bonus in relation to “new business” (as defined in the agreement) in an amount to be determined by the Board of Directors, but which is at least (i) 2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business Bonus”). In addition, Mr. Madden is eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders, an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, with such number to be equal to not less than 100% of the largest aggregate number of shares of Common Stock available upon the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month period; provided, however, that a grant to Mr. Madden in excess of 150% of the number of shares of Common Stock available upon the exercise of an option or options granted to such other continuing full-time employee shall require stockholder approval. Any Annual Option received by Mr. Madden will vest quarterly over a one-year period following the grant date and will be exercisable, at a price equal to the closing price of the Company’s Common Stock on the grant date, for a period of five years following the date of the grant. In the event of Mr. Madden’s death, the agreement provides for the payment to Mr. Madden’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Madden’s death. In the event that Mr. Madden’s employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” (as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” (as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within 30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to (1) the amount of compensation that is accrued and unpaid through the date of termination, (2) an amount equal to the product of (A) the number of years remaining in the term of the agreement (but not less than 5), and (B) the sum of (w) the base salary for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31, 2002, if greater), (x) the amount of the Annual Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ended on December 31, 2002, if greater), (y) the non-accountable expense allowance provided for under the agreement for the 12-month period ended on the preceding December 31, and (z) the amount of the New Business Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31 during the agreement in which Mr. Madden received the greatest New Business Bonus, if greater). Mr. Madden’s employment agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation and competition. For Fiscal Year 2009, Mr. Madden earned (i) $664,470 in base salary; (ii) $200,000 in non-accountable expense allowance; (iii) a bonus of $1,752,665, representing 2% of the Company’s earnings before interest, tax, depreciation and amortization; (iv) a bonus of $3,995,600, earned based on 2.5% of the Company’s new business; and (v) a bonus of $100,101, based on 10% of Royalty/Licensing income over $2,000,000. +On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to exercise an option, which was due to expire, and hold the underlying Common Stock. Mr. Madden executed a promissory note in favor of the Company, which is secured by a pledge of 510,000 shares of the Company’s Common Stock beneficially owned by Mr. Madden. There have been successive amendments to the note, the most recent of which occurred on April 6, 2009, at which time the note was amended and restated to (i) extend the maturity date to the earlier of the date that Mr. Madden ceases to be employed by the Company and June 30, 2015 (the “Maturity Date”), and (ii) reflect the rate of interest as 8% per annum for the period from June 25, 2007 until April 6, 2010, and 6% per annum for the period from April 7, 2010 until the Maturity Date. As of December 31, 2009, interest in the amount of $568,000 has accrued on the note. Mr. Madden is the brother of John L. Madden, who has been a director of the Company since the Company’s inception in 1990. +Review, Approval or Ratification of Transactions with Related Persons +The Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +13 +Related person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, the Board or committee will consider all relevant factors, including as applicable (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which information is then reviewed for any conflicts of interest under the Conduct Code. +The Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s periodic filings, including related party transaction disclosures. +If a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable. +COMPENSATION OF DIRECTORS IN THE 2009 FISCAL YEAR +The following table sets forth information concerning the compensation of the Company’s non-employee directors in the 2009 Fiscal Year. Following the table is a discussion of material factors related to the information disclosed in the table. +Name +Fees Earned or Paid in Cash +($) +Stock Awards +($)(1) +All Other Compensation($) +Total +($) +John L. Madden +75,000 +20,243 +(2) +821,368 +(3) +916,611 +Peter Migliorini +110,000 +40,485 +(4) +0 +150,485 +Richard P. Randall +110,000 +40,485 +(5) +0 +150,485 +Ravi Sachdev +85,000 +26,990 +(6) +0 +111,990 +Thomas H. Schwartz +85,000 +40,485 +(7) +0 +125,485 +(1) Reflects the grant date fair value of stock awards calculated in accordance with The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The amounts shown represent dollar amounts recognized for 2009 for financial statement reporting purposes under Statement of Accounting Standards No. 123R. The number of shares of Common Stock was calculated based on the fair value of the Company’s Common Stock on the grant date, May 22, 2009, by taking the closing sale price for a share of Common Stock on the Nasdaq for such grant date. There are no other assumptions made in the valuation of the stock awards. +(2) At December 31, 2009, the aggregate number of shares of restricted Common Stock held was 750, and the aggregate number of options unexercised was 25,000. +(3) Includes: (a) the use of a corporate apartment valued at $62,188; and (b) $759,180 in fees, travel and health insurance premium allowance paid to JLM Consultants, Inc., a company wholly owned by Mr. Madden, as consideration for consulting services provided by JLM Consultants, Inc. with respect to the development of the Company’s international business. +(4) At December 31, 2009, the aggregate number of shares of restricted Common Stock held was 1,500, and the aggregate number of options unexercised was 7,500. +(5) At December 31, 2009, the aggregate number of shares of restricted Common Stock held was 1,500, and Mr. Randall had no options. +(6) At December 31, 2009, the aggregate number of shares of restricted Common Stock held was 1,500, and Mr. Sachdev had no options. +(7) At December 31, 2009, the aggregate number of shares of restricted Common Stock held was 1,500, and Mr. Schwartz had no options. +14 +Directors who are also employees of the Company are not paid any fees or other remuneration for service on the Board of Directors or any of its committees. In 2009, each non-employee director received the following compensation: (i) (A) for independent directors, a grant of 1,500 shares of restricted Common Stock, vesting on the first anniversary of the grant date, and (B) for non-independent directors, a grant of 750 shares of restricted Common Stock, vesting on the first anniversary of the grant date; and (ii) $75,000. In 2009, members of the Audit Committee, Nominating/Corporate Governance Committee and Compensation Committee each received an additional $10,000 for serving on such committees, except that the Audit Committee financial expert received $25,000 and the Chairman of the Compensation Committee received $15,000. The Company reimburses its directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. +STOCK OWNERSHIP +Security Ownership of Certain Beneficial Owners +The following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership of the Common Stock of the Company by each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Common Stock of the Company. A person is deemed to be a beneficial owner of any securities which that person has the right to acquire within 60 days. +Name and Address of Beneficial Owner +Amount and Nature +of Beneficial +Ownership (1) +Percentage of Class +Steven Madden +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +1,806,400 +9.81 +% +(2) +BOCAP Corp. +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +1,114,000 +6.06 +% +(3) +BlackRock Inc. +40 East 52 nd Street +New York, NY 10022 +949,158 +5.23 +% +(4) +Royce & Associates, LLC +745 Fifth Avenue +New York, NY 10151 +1,126,078 +6.21 +% +(5) +(1) Beneficial ownership as reported in the table above has been determined in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the Exchange Act and based upon 18,380,979 shares of Common Stock outstanding (excluding treasury shares) as of the Record Date. +(2) Mr. Madden’s beneficial ownership includes: (i) 1,114,000 shares of Common Stock held by BOCAP Corp, a corporation wholly-owned by Mr. Madden; (ii) 40,000 shares of Common Stock that may be acquired through options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (iii) 100,400 shares of restricted Common Stock; and (iv) 552,000 shares held by Mr. Madden directly. Mr. Madden has pledged to the Company 510,000 shares of Common Stock beneficially owned by him to secure the repayment of a loan made by the Company to Mr. Madden, which loan is discussed in the section of this Proxy Statement captioned “Certain Relationships and Related Party Transactions.” +(3) BOCAP Corp is a corporation wholly-owned by Steven Madden. +(4) Based solely on a Statement on Schedule 13G filed with the SEC by BlackRock, Inc., BlackRock has sole voting and dispositive power with respect to all such shares. +(5) Based solely on a Statement on Schedule 13G filed with the SEC by Royce & Associates, LLC, Royce has sole voting and dispositive power with respect to all such shares. +15 +Security Ownership of Directors and Executive Officers +The following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership of Common Stock held by (a) each current director and nominee; (b) the Chief Executive Officer, the Chief Financial Officer and each of the other highly compensated executive officers (the “Named Executive Officers”); and (c) all current directors and executive officers as a group. A person is deemed to be a beneficial owner of any securities which that person has the right to acquire within 60 days. Each director and executive officer has sole voting power and dispositive power with respect to all shares beneficially owned by him or her. No shares of the Company’s Common Stock have been pledged as security by any of these individuals. +Name of Beneficial Owner (1) +Amount and Nature +of Beneficial +Ownership (2) +Percentage of Class +Edward R. Rosenfeld +97,167 +* +% +(3) +Arvind Dharia +118,446 +* +% +(4) +Awadhesh Sinha +30,000 +* +% +(5) +Robert Schmertz +124,250 +* +% +(6) +Amelia Newton Varela +46,250 +* +% +(7) +John L. Madden +25,750 +* +% +(8) +Peter Migliorini +9,000 +* +% +(9) +Richard P. Randall +4,500 +* +% +(10) +Thomas H. Schwartz +6,900 +* +% +(11) +Ravi Sachdev +2,500 +* +% +(12) +All Directors and Executive Officers as a Group +(10 persons named above) +464,763 +2.50 +% +(13) +* Indicates beneficial ownership of less than 1%. +(1) The address for each of the named individuals below is c/o Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +(2) Beneficial ownership as reported in the table above has been determined in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the Exchange Act and based upon 18,380,979 shares of Common Stock outstanding (excluding treasury shares) as of the Record Date. +(3) Mr. Rosenfeld’s beneficial ownership includes: (i) 27,667 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 58,000 shares of restricted Common Stock; and (iii) 11,500 shares of Common Stock held by Mr. Rosenfeld. +(4) Mr. Dharia’s beneficial ownership includes: (i) 78,446 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 16,000 shares of restricted Common Stock; and (iii) 24,000 shares of Common Stock held by Mr. Dharia. +(5) Mr. Sinha’s beneficial ownership includes: (i) 7,500 shares of restricted Common Stock; and (ii) 22,500 shares of Common Stock held by Mr. Sinha. +(6) Mr. Schmertz’s beneficial ownership includes: (i) 18,750 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 40,000 shares of restricted Common Stock; and (iii) 65,500 shares of Common Stock held by Mr. Schmertz. +(7) Ms. Varela’s beneficial ownership includes: (i) 38,750 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; and (ii) 7,500 shares of Common Stock held by Ms. Varela. +(8) Mr. Madden’s beneficial ownership includes: (i) 25,000 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; and (ii) 750 shares of restricted Common Stock. +16 +(9) Mr. Migliorini’s beneficial ownership includes: (i) 7,500 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; and (ii) 1,500 shares of restricted Common Stock. +(10) Mr. Randall’s beneficial ownership includes: (i) 1,500 shares of restricted Common Stock; and (ii) 3,000 shares of Common Stock held by Mr. Randall. +(11) Mr. Schwartz’s beneficial ownership includes: (i) 1,500 shares of restricted Common Stock; and (ii) 5,400 shares of Common Stock held by Mr. Schwartz. +(12) Mr. Sachdev’s beneficial ownership includes: (i) 1,500 shares of restricted Common Stock; and (ii) 1,000 shares of Common Stock held by Mr. Sachdev. +(13) Includes, in aggregate, 196,113 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 128,250 share of restricted Common Stock; and (iii) 140,400 shares of Common Stock held by such beneficial owners. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that the Company’s directors and officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, file with the SEC reports of initial ownership of Common Stock and subsequent changes in that ownership and furnish the Company with copies of all forms they file with the SEC pursuant to Section 16(a) of the Exchange Act. A late report was filed on June 3, 2009 to report that Peter Migliorini was granted 1,500 shares of restricted Common Stock on May 23, 2008. A late report was filed on January 7, 2010 to report the following transactions by Amelia Varela: (a) an option to purchase 34,500 shares of Common Stock granted on July 6, 2005, the exercise of such option on November 8, 2006 and the sale of the shares of Common Stock acquired upon exercise of such option on November 8, 2006, (b) a sale of 10,000 shares of Common Stock on September 8, 2005, (c) a sale of 10,000 shares of Common Stock on March 15, 2006, (d) an option to purchase 34,500 shares of Common Stock granted on November 8, 2006, (e) a sale of 7,500 shares of Common Stock on September 15, 2008, (f) a sale of 7,500 shares of Common Stock on September 17, 2008, and (g) a sale of 7,500 shares of Common Stock on December 17, 2009. A late report was filed on April 9, 2010 to report that Peter Migliorini was granted 1,500 shares of restricted Common Stock on May 22, 2009. A late report was filed on April 9, 2010 to report that Thomas H. Schwartz was granted (a) 1,500 shares of restricted Common Stock on May 23, 2008 and (b) 1,500 shares of restricted Common Stock on May 22, 2009. A late report was filed on April 12, 2010 to report that Ravi Sachdev was granted (a) 1,000 shares of restricted Common Stock on September 22, 2008 and (b) 1,500 shares of restricted Common Stock on May 22, 2009. A late report was filed on April 12, 2010 to report that Richard P. Randall was granted (a) 1,500 shares of restricted Common Stock on May 23, 2008 and (b) 1,500 shares of restricted Common Stock on May 22, 2009. To the Company’s knowledge, based solely on a review of the copies of the reports furnished to the Company or written representations received from the Company’s directors, officers and greater than 10% beneficial owners that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with during, or in respect of, the fiscal year ended December 31, 2009. +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Compensation Objectives and Strategy +The Company’s executive officer compensation program is designed to attract and retain the caliber of officers needed to ensure the Company’s continued growth and profitability and to reward them for their performance, the Company’s performance and for creating longer term value for our stockholders. The primary objectives of the program are to: +· +align rewards with performance that creates stockholder value; +· +support the Company’s strong team orientation; +· +encourage high-potential team players to build a career at the Company; and +· +provide rewards that are cost-efficient, competitive with other organizations and fair to employees and stockholders. +17 +The Company’s executive compensation programs are approved and administered by the Compensation Committee of the Board of Directors. Working with management and outside advisors, the Compensation Committee has developed a compensation and benefits strategy that rewards performance and reinforces a culture that the Compensation Committee believes will drive long-term success. +The compensation program rewards team accomplishments while promoting individual accountability. The executive officer compensation program depends in significant measure on Company results, but business unit results and individual accomplishments are also very important factors in determining each executive’s compensation. The Company has a robust planning and goal-setting process that is fully integrated into the compensation system, enhancing a strong relationship between individual efforts, Company results, and financial rewards. +A major portion of total compensation is placed at risk through annual and long-term incentives. As noted below, discretionary bonuses were paid to the Named Executive Officers. The combination of incentives is designed to balance annual operating objectives and Company earnings performance with longer-term stockholder value creation. +The Company seeks to provide competitive compensation that is commensurate with performance. The Company targets compensation at the median of the market, and calibrates both annual and long-term incentive opportunities to generate less-than-median awards when goals are not fully achieved and greater-than-median awards when goals are exceeded. +The Company seeks to promote a long-term commitment to the Company by its senior executives. The Company believes that there is great value to the Company in having a team of long-tenured, seasoned managers. The Company’s team-focused culture and management processes are designed to foster this commitment. In addition, stock options and/or restricted Common Stock awards granted to Named Executive Officers in Fiscal Year 2009 reinforce this long-term orientation with annual vesting over a four- or five-year period. +Role of the Compensation Committee +General. The Compensation Committee provides overall guidance for the Company’s executive compensation policies and determines the amounts and elements of compensation for the Company’s executive officers and outside directors. The Compensation Committee currently consists of two members of the Company’s Board of Directors, Messrs. Migliorini and Schwartz, each of whom is an independent director under Rule 5605 of The Nasdaq Global Select Market listing standards, a “non-employee director” as defined under the SEC’s rules and an “outside director” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). +When considering decisions concerning the compensation of executives, other than the Chief Executive Officer, the Compensation Committee asks for the recommendations of the Chief Executive Officer, including his detailed evaluation of each executive’s performance. No executive has a role in recommending compensation for outside directors. With respect to the application of the 2006 Stock Incentive Plan, as amended (the “2006 Plan”), to non-employee directors, the Board of Directors functions as the Compensation Committee. +Use of Outside Advisors. In making its determinations with respect to executive compensation, the Compensation Committee has historically engaged the services of an independent compensation consulting firm. In 2005, the Compensation Committee retained the services of James F. Reda & Associates, LLC to assist with its review of the compensation package of the Chief Executive Officer and other executive officers for 2006. In 2007 and 2008, James F. Reda & Associates, LLC was retained to assist the Compensation Committee with several special projects, including advice on director compensation, advice relating to the 2006 Plan, including the use of restricted stock under the Company’s long-term incentive program, and appropriate compensation for new hires at senior executive positions. +In 2009, James F. Reda & Associates, LLC worked with the Compensation Committee to update the peer group and conduct an executive compensation review based on that peer group, and assist in designing new employment agreements for Mr. Rosenfeld and Mr. Schmertz and extending Mr. Dharia’s employment agreement. Assistance was also provided in designing the 2006 Plan. +18 +James F. Reda & Associates, LCC provides only executive compensation consulting services and works with management only at the behest of the Compensation Committee. +The Compensation Committee retains James F. Reda & Associates, LLC directly, although in carrying out assignments, James F. Reda & Associates, LLC also interacts with Company management, when necessary and appropriate, in order to obtain compensation and performance data for the executives and the Company. In addition, James F. Reda & Associates, LLC may, in its discretion, seek input and feedback from management regarding its consulting work product prior to presentation to the Compensation Committee in order to confirm alignment with the Company’s business strategy and identify data questions or other similar issues, if any, prior to presentation to the Compensation Committee. +The Compensation Committee has the sole authority to retain, terminate and set the terms of the Company’s relationship with any outside advisors who assist the Committee in carrying out its responsibilities. +Compensation Structure +Pay Elements - Overview +The Company utilizes four main components of compensation: +· +base salary +· +annual performance-based cash bonuses +· +long-term equity incentives (consisting of stock options and restricted stock); and +· +benefits and perquisites +Pay Elements - Details +Base Salary . The Company paid base salaries to each of the Named Executive Officers to provide them with fixed pay that considers the Named Executive Officer’s role and responsibilities, experience, expertise and individual performance. As more fully described in the section of this Proxy Statement captioned “Employment Arrangements,” as of December 31, 2009, the Company had employment agreements with each of the Named Executive Officers. A full description of each Named Executive Officer’s base salary is contained in the section of this Proxy Statement captioned “Employment Arrangements.” The Compensation Committee, as constituted at the time the parties entered into the employment agreements or any amendments thereof, reviewed and approved the salary established in each such agreement or amendment. The Compensation Committee considered each employee’s salary history, value in the marketplace and performance (including at the Company and previous employment). +Under the employment agreement of our Chief Executive Officer, Mr. Rosenfeld, annual base salary was fixed at $400,000 for the year ended December 31, 2009, increased to $500,000 for the 2010 fiscal year and is subject to successive annual increases of 5% thereafter through December 31, 2012. The employment agreement, as amended, of our Chief Operating Officer, Mr. Sinha, provides for an annual base salary of $540,000, which remains constant throughout the term of his agreement. Under the employment agreement, as amended, of our Chief Financial Officer, Mr. Dharia, annual base salary was fixed at $479,573 for the year ended December 31, 2009 and increased to $528,304 for subsequent years of the term of his agreement. The employment agreement of our Brand Director, Mr. Schmertz, provided for an annual base salary of $600,000 for the year ended December 31, 2009 and an increase in base salary to $660,000 for subsequent years of the term of his agreement. Under the employment agreement of our Executive Vice President - Wholesale and Retail, Ms. Varela, annual base salary was fixed at $350,000 for the period through December 31, 2008 and increased to $400,000 for subsequent years of the term of her agreement. Please see the section of this Proxy Statement captioned “Summary Compensation Table” and “Employment Arrangements.” Salary increases for officers are generally consistent with those of other management employees. +19 +Annual Performance-based Cash Bonus . Annual performance-based cash bonuses for Named Executive Officers are established in their respective employment agreements. The Compensation Committee reviewed and approved the bonus provisions fixed in each such employment agreement at the time the parties entered into such agreements and any amendments thereof. Such bonus provisions generally provide for variable or discretionary bonuses designed to reward attainment of business goals. The amount, if any, of the annual performance-based cash bonuses of Messrs. Rosenfeld, Dharia and Schmertz is entirely within the discretion of the Board of Directors or the Compensation Committee. The Board of Directors and/or the Compensation Committee consider various criteria, including revenue growth and profitability. Based on these and other individual performance factors, the Compensation Committee paid bonuses of $100,000, $50,000, and $100,000 respectively to Messrs. Rosenfeld, Dharia, and Schmertz for the 2009 Fiscal Year. +Mr. Sinha’s annual performance-based cash bonus is tied to increases in the Company’s EBIT from the preceding year. Mr. Sinha is entitled to an annual performance-based cash bonus equal to 3% of the increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year. Ms. Varela is entitled to an annual performance-based cash bonus for each fiscal year in an amount equal to 2% of the increase, if any, in Wholesale Footwear Division EBIT for that year over Wholesale Footwear Division EBIT for the immediately prior year, plus 1.5% of the increase, if any, in Retail Division EBIT for that year over Retail Division EBIT for the immediately prior year. Please see the section of this Proxy Statement captioned “Employment Arrangements.” Mr. Sinha’s annual performance-based cash bonus target was set to drive the business of the Company. Ms. Varela’s annual performance-based cash bonus target was set to drive the business of the Company’s Wholesale Footwear and Retail divisions. Mr. Sinha and Ms. Varela received cash bonuses of $899,176 and $421,224, respectively, for 2009 EBIT performance. +Long-term Equity Incentives . Management and the Compensation Committee believe that equity-based awards are an important factor in aligning the long-term financial interest of the officers and stockholders. The Compensation Committee continually evaluates the use of equity-based awards and intends to continue to use such awards in the future as part of designing and administering the Company’s compensation program. Beginning in 2006, the Compensation Committee modified its prior practice of granting equity incentives solely in the form of stock options with periodic awards of restricted stock in order to grant awards that contain both substantial incentive and retention characteristics. These awards are designed to provide emphasis on preserving stockholder value generated in recent years while providing significant incentives for continuing growth in stockholder value. +With respect to the 2009 Fiscal Year, the Compensation Committee determined it to be important to provide incentives that are more responsive to stockholder value and, therefore, granted stock options to Messrs. Rosenfeld, Dharia and Schmertz and to Ms. Varela. Mr. Rosenfeld also received an award of restricted stock. All grants were approved by the Compensation Committee. The Committee intends to continue to review the equity mix to achieve the ideal incentive for both performance and retention. With respect to stock options, the 2006 Plan provides that the exercise price shall be the closing market price per share of the Company’s Common Stock on the business day immediately preceding the grant date, which is fair market value for purposes of the 2006 Plan. +Other Benefits and Perquisites . The Company’s executive compensation program also includes other benefits and perquisites. These benefits and perquisites include annual matching contributions to executive officers’ 401(k) plan accounts, company-paid medical benefits, automobile allowances and leased automobiles, and life insurance coverage. The Compensation Committee annually reviews these other benefits and perquisites and makes adjustments as warranted based on competitive practices, the Company’s performance and the individual’s responsibilities and performance. The Compensation Committee has approved these other benefits and perquisites as a reasonable component of the Company’s executive officer compensation program. Please see the section of this Proxy Statement captioned “Summary Compensation Table and, specifically, the column entitled “All Other Compensation” and the corresponding footnotes. +20 +Pay Mix +The Company utilizes the particular elements of compensation described above because the Company believes that it provides a well-proportioned mix of secure compensation, retention value and at-risk compensation, which produces short-term and long-term performance incentives and rewards. By following this approach, the Company provides the executives a measure of security in the minimum expected level of compensation, while motivating the executives to focus on business metrics and other variables within their particular sector which will increase sales and margins and at the same time lower costs so as to produce a high level of short-term and long-term performance for the Company and long-term wealth creation for the executives, as well as reducing the risk of recruitment of top executive talent by competitors. The mix of metrics used for the annual performance bonuses and the Company’s long-term incentive program likewise provides an appropriate balance between short-term financial performance and long-term stock performance. +For the Named Executive Officers, the mix of compensation is weighted heavily toward at-risk pay (annual incentives and long-term incentives). Maintaining this pay mix results fundamentally in a pay-for-performance orientation for the Company’s executives, which is aligned with the Company’s stated compensation philosophy of providing compensation commensurate with performance. +Pay Levels and Benchmarking +Pay levels for executives are determined based on a number of factors, including the individual’s roles and responsibilities within the Company, the individual’s experience and expertise, the pay levels for peers within the Company, pay levels in the marketplace for similar positions and performance of the individual and the Company as a whole. The Compensation Committee is responsible for approving pay levels for the Named Executive Officers. In determining the pay levels, the Compensation Committee considers all forms of compensation and benefits. +The Compensation Committee assesses “competitive market” compensation using a number of sources. The primary data source used in setting competitive market levels for the Named Executive Officers is the information publicly disclosed by a peer group of the Company, which will be reviewed annually and may change from year to year. For 2009, executive compensation and compensation design was reviewed in relation to the following peer companies: +American Apparel Inc. +Perry Ellis International, Inc. +Movado Group, Inc. +Bebe Stores, Inc. +G-III Apparel Group, Ltd. +Rocky Brands, Inc. +Brown Shoe Co. Inc. +Genesco, Inc. +Skechers U.S.A. Inc. +Kenneth Cole Productions Inc. +Guess, Inc. +Timberland Co. +Collective Brands, Inc. +Iconix Brand Group, Inc. +Under Armour, Inc. +Crocs, Inc. +Jones Apparel Group, Inc. +Volcom, Inc. +Deckers Outdoor Corp. +K-Swiss, Inc. +Weyco Group, Inc. +Delta Apparel, Inc. +Maidenform Brands, Inc. +Wolverine Worldwide +After consideration of the data collected on external competitive levels of compensation and internal needs, the Compensation Committee makes decisions regarding the Named Executive Officer’s target total compensation opportunities based on the need to attract, motivate and retain an experienced and effective management team. Relative to the competitive market data, the Compensation Committee generally intends that the base salary and target annual incentive compensation for each Named Executive Officer will be at the median of the competitive market. +As noted above, notwithstanding the Company’s overall pay positioning objectives, pay opportunities for specific individuals vary based on a number of factors such as scope of duties, tenure, institutional knowledge and/or difficulty in recruiting a new executive. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of operating goals and the creation of stockholder value. +21 +Compensation Committee Discretion +The Compensation Committee retains the discretion to decrease all forms of incentive payouts based on significant individual or Company performance shortfalls, with the exception of any such payouts that are to be made pursuant to contractual commitments such as the bonuses that may be paid to Mr. Sinha and Ms. Varela, which are tied to the Company’s EBIT for the preceding year pursuant to their respective employment agreements. Similarly, the Compensation Committee retains the discretion to increase payouts and/or consider special awards for significant achievements, including, but not limited to, superior asset management, investment or strategic accomplishments and/or consummation of acquisitions, divestitures, capital improvements to existing properties, or sales made by certain of the Company’s divisions. +Risk Assessment +Bonus payments to executives are based either on the discretion of the Compensation Committee or are tied to growth in EBIT. Long-term incentives have been granted in the form of stock options and time-vested restricted stock that generally vest over four or five years. These programs have been in place for several years and have proved effective in rewarding performance while not encouraging inappropriate risk-taking. In general, the Compensation Committee believes there is no material adverse risk to the Company that is related to our compensation programs for executives and non-executives. +Implications of Tax and Accounting Matters +As a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed by the Company. +While the Compensation Committee reviews and considers both the accounting and tax effects of various components of compensation, these effects are not a significant factor in the Compensation Committee’s allocation of compensation among the different components. In general, the Company believes that compensation paid to executive officers should be deductible for U.S. tax purposes. In certain instances, however, the Compensation Committee also believes that it is in the Company’s best interests, and that of its stockholders, to have the flexibility to pay compensation that is not deductible under the limitations of Section 162(m) of the Code in order to provide a compensation package consistent with the Company’s objectives. +Conclusion +The level and mix of compensation that is finally decided upon is considered within the context of both the objective data from the Company’s competitive assessment of compensation and performance, as well as discussion of the subjective factors as outlined above. The Compensation Committee believes that each of the compensation packages for the Named Executive Officers is within the competitive range of practices when compared to the objective comparative data even where subjective factors have influenced the compensation decisions. +Compensation Committee Interlocks and Insider Participation +During the 2009 Fiscal Year, the following directors served on the Compensation Committee: Peter Migliorini (Chairman) and Thomas H. Schwartz. During the 2009 Fiscal Year: +· +none of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries; +· +none of the members of the Compensation Committee had a direct or indirect material interest in any transaction in which the Company was a participant and the amount involved exceeded $120,000; +22 +· +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; +· +none of the Company’s executive officers was a director of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; and +· +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served as a director on the Company’s Board of Directors. +Executive Officers +The following table identifies the executive officers and certain significant employees of the Company, and their ages and positions: +Name +Age +Position +Edward R. Rosenfeld +34 +Chairman of the Board and Chief Executive Officer +Arvind Dharia +60 +Chief Financial Officer and Secretary +Awadhesh Sinha +64 +Chief Operating Officer +Robert Schmertz +46 +Brand Director +Amelia Newton Varela +38 +Executive Vice President of Wholesale and Retail +Arvind Dharia has been the Chief Financial Officer of the Company since October 1992 and was a director of the Company from December 1993 through May 2004. Mr. Dharia has been Secretary of the Company since 1993. From December 1988 until joining the Company in September 1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp., a real estate management company. +Awadhesh Sinha became the Chief Operating Officer of the Company in July 2005. Mr. Sinha was a director of the Company, from October 2002 to July 2005, before joining the Company as its Chief Operating Officer. Mr. Sinha was the Chief Operating Officer and Chief Financial Officer of WEAR ME Apparel Inc., a company that designs, manufactures and markets branded and non-branded children’s clothing, from 2003 to July 2005. Prior to that, Mr. Sinha worked for Salant Corporation, a company that designs, manufactures and markets men’s clothing, for 22 years, and held the position of Chief Operating Officer and Chief Financial Officer of Salant Corporation from 1998 to 2003. +Robert Schmertz has been the Brand Director since January 2006. Mr. Schmertz served as President of Steve Madden Women’s Wholesale Division and Brand Manager from September 2001 through January 2006. Additionally, Mr. Schmertz has been the President of Shoe Biz, Inc., a wholly owned subsidiary of Steve Madden Retail Inc. since May 1998 and the President of Diva Acquisition Corp. since January 2001. Before joining the Company, Mr. Schmertz was President of Daniel Scott Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the East Coast Sales Manager for Impo International from January 1993 through November 1995. From April 1990 to December 1992, Mr. Schmertz served as a sales representative for Espirit de Corp. based in San Francisco, California. +Amelia Newton Varela has been Executive Vice President of Wholesale and Retail since April 2008. Ms. Varela was Executive Vice President of Wholesale Sales from November 2004 to April 2008. Previously, she was Vice President of Sales for Steve Madden Women’s Wholesale Division from January 2000. Prior to that, she was Account Executive for Steve Madden Women’s Wholesale Division from 1998. Before joining the Company, Ms. Varela was the sales assistant to the Executive Vice President of Sales for Merrin Financial. She graduated from The Fashion Institute of Technology in 1995. +23 +Please see the section of this Proxy Statement captioned “Proposal One: Election of Directors — Biographical Summaries of Nominees for the Board of Directors” for information concerning the Company’s directors. +SUMMARY COMPENSATION TABLE +The following table sets forth the compensation earned for all services rendered to the Company in all capacities in the 2009, 2008 and 2007 fiscal years, respectively, by the Company’s Chief Executive Officer, Chief Financial Officer and the three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer, who were serving at the end of 2009, 2008 and 2007, respectively. In this Proxy Statement, the Company refers to this group of people as the Company’s “Named Executive Officers.” +Name and Principal Position +Fiscal Year +Salary ($) +Bonus +($) +Stock Awards +($) (1) +Option Awards +($)(1) +Non-Equity Incentive Plan Compensation +($) +All Other Compensation +($) +Total Compensation +($) +Edward R. Rosenfeld +2009 +400,000 +100,000 +1,977,000 +742,218 +0 +5,885 +(2) +3,225,103 +Chief Executive Officer +2008 +366,250 +75,000 +0 +233,200 +0 +5,083 +(3) +679,533 +2007 +259,808 +75,000 +596,800 +0 +0 +931,608 +Arvind Dharia +2009 +479,573 +50,000 +0 +296,887 +0 +97,782 +(4) +924,242 +Chief Financial Officer +2008 +457,406 +50,000 +0 +0 +0 +102,891 +(5) +610,297 +2007 +435,625 +0 +596,800 +0 +0 +91,115 +(6) +1,123,540 +Awadhesh Sinha +2009 +540,000 +0 +0 +0 +899,176 +(7) +20,994 +(8) +1,460,170 +Chief Operating Officer +2008 +526,612 +0 +0 +439,143 +0 +369,220 +(9) +1,334,975 +2007 +489,976 +0 +933,900 +0 +0 +7,431 +(10) +1,431,307 +Robert Schmertz +2009 +600,000 +400,000 +0 +1,337,514 +0 +22,750 +(11) +2,360,264 +President of Wholesale Women’s Division and Brand Manager +2008 +600,000 +250,000 +0 +0 +0 +22,452 +(12) +872,452 +2007 +578,901 +675,000 +2,939,000 +0 +0 +12,692 +(10) +4,205,593 +Amelia Newton Varela +2009 +400,000 +0 +0 +556,664 +421,224 +(13) +22,750 +(14) +1,400,638 +Executive Vice President +2008 +349,038 +250,000 +0 +351,278 +0 +22,750 +(14) +973,066 +of Wholesale and Retail +2007 +300,000 +0 +0 +0 +0 +240,000 +(15) +540,000 +(1) The amounts in this column reflect the aggregate grant date fair value of awards granted during the applicable year for the fiscal years ended December 31, 2009, December 31, 2008 and December 31, 2007, respectively, calculated in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote G to the Company’s audited financial statements for the fiscal years ended December 31, 2009, December 31, 2008 and December 31, 2007 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2010, March 12, 2009 and March 12, 2008, respectively. +(2) Includes the following: $1,731 automobile allowance and $4,154 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(3) Includes the following: $2,020 automobile allowance and $3,063 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(4) Includes the following: $6,136 automobile allowance, $80,202 life insurance premiums and $11,444 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +24 +(5) Includes the following: $9,226 automobile allowance, $83,331 life insurance premiums and $10,334 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +(6) Includes the following: $7,789 automobile allowance and $83,326 life insurance premiums. +(7) Represents non-equity incentive payment made pursuant to a bonus formula in Mr. Sinha’s employment agreement. See “Employment Arrangements.” +(8) Includes the following: $10,411 automobile allowance and $10,583 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(9) Includes the following: $8,115 automobile allowance, $351,688 for deferred compensation and $9,417 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(10) Represents automobile allowance. +(11) Includes the following: $15,000 automobile allowance and $7,750 in annual matching contributions to Mr. Schmertz’s 401(k) plan account. +(12) Includes the following: $15,000 automobile allowance and $7,452 in annual matching contributions to Mr. Schmertz’s 401(k) plan account. +(13) Represents non-equity incentive payment made pursuant to a bonus formula in Ms. Varela’s employment agreement. See “Employment Arrangements. +(14) Includes the following: $15,000 automobile allowance and $7,750 in annual matching contributions to Ms. Varela’s 401(k) plan account. +(15) Includes the following: deferred compensation in the amount of $225,000, paid for the period ended December 31, 2007, pursuant to Ms. Varela’s employment agreement and $15,000 automobile allowance. +Employment Arrangements +Edward R. Rosenfeld. In April 2008 (effective in March 2008), the Company entered into an employment agreement with Edward R. Rosenfeld pursuant to which Mr. Rosenfeld agreed to serve as interim Chief Executive Officer of the Company for a term expiring on December 31, 2009. Effective August 8, 2008, the Company appointed Mr. Rosenfeld to serve as Chief Executive Officer and executive Chairman of the Board. The terms of Mr. Rosenfeld’s employment agreement remained unchanged. Under the employment agreement, the Company agreed to pay Mr. Rosenfeld an annual base salary of $400,000 and such additional compensation and annual bonus as may be determined from time to time by the Board of Directors in its sole discretion. In addition, pursuant to the employment agreement, Mr. Rosenfeld received, as additional compensation, an option to purchase 40,000 shares of Common Stock, exercisable to the extent of 8,000 shares on each of March 24, 2009, March 24, 2010, March 24, 2011, March 24, 2012 and March 24, 2013, said option to remain exercisable for seven years from the effective date of the agreement. +In November 2009, the Company entered into a new employment agreement with Mr. Rosenfeld to replace the prior employment agreement, which was to expire by its terms on December 31, 2009. Pursuant to his new employment agreement, Mr. Rosenfeld will continue to serve as Chief Executive Officer of the Company for a term commencing on November 6, 2009 and expiring on December 31, 2012, unless sooner terminated in accordance with the terms of the agreement. Mr. Rosenfeld will continue to serve as the executive Chairman of the Board of Directors of the Company. His base salary during the period from November 6, 2009 through December 31, 2009 remained the annual base salary of $400,000 reflected in the prior employment agreement. On January 1, 2010, Mr. Rosenfeld’s annual base salary increased to $500,000 for the period from January 1, 2010 to December 31, 2010 and is subject to successive annual 5% increases thereafter until December 31, 2012. Mr. Rosenfeld receives a monthly automobile allowance of $1,250. In addition, Mr. Rosenfeld’s new employment agreement provides for a grant of 50,000 shares of the Company’s Common Stock, subject to certain restrictions. These restricted shares of Common Stock were issued to Mr. Rosenfeld on November 10, 2009 under the 2006 Plan. The restricted Common Stock will vest in five equal annual installments of 10,000 shares commencing on the first anniversary of the date of the award. Mr. Rosenfeld’s new employment agreement provides that additional compensation and bonuses, if any, will be paid to him at the absolute discretion of the Board of Directors. +25 +In the event of his death, Mr. Rosenfeld’s employment agreement provides for the payment to his estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Rosenfeld’s death. The agreement also provides that if Mr. Rosenfeld’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. Rosenfeld will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to be totally disabled. Mr. Rosenfeld’s new employment agreement allows the Company to terminate his employment with “cause” (as defined in the employment agreement) or without cause. In the event that Mr. Rosenfeld’s employment is terminated by the Company for cause, the Company will have no further obligations to Mr. Rosenfeld, and Mr. Rosenfeld will be entitled to no further compensation from the Company, except for pro-rata amounts due to him on the date of his termination. In the event that Mr. Rosenfeld’s employment is terminated by the Company without cause or by Mr. Rosenfeld’s resignation for “good reason” (as defined in the employment agreement), Mr. Rosenfeld will be entitled to receive payment of his annual base salary, payable at regular payroll intervals, from the date of termination of employment through the longer of the remainder of the term of the agreement or six months. In addition, if Mr. Rosenfeld’s employment is terminated by the Company without cause or by the resignation of Mr. Rosenfeld for good reason during the period commencing 90 days prior to a “change of control” (as defined in the employment agreement) transaction and ending 180 days following a change of control transaction, Mr. Rosenfeld will receive an amount equal to three times the average amount of total W-2 compensation actually received by him during the preceding three calendar years ending on the last previous December 31, except that in lieu of the actual base salary component received during such period, there shall be substituted the annual base salary to which Mr. Rosenfeld was entitled as of the date of termination or resignation, unless said amount (or portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, in which case the payment to Mr. Rosenfeld shall be reduced to the maximum amount that is tax deductible to the Company under Section 280G of the Code. +Arvind Dharia. In January 1998, the Company entered into an employment agreement with Arvind Dharia, which has been amended from time to time, most recently on October 7, 2009, pursuant to which Mr. Dharia agreed to serve as the Company’s Chief Financial Officer. The term of Mr. Dharia’s employment under his agreement, as amended, commenced on January 1, 1998 and ends on December 31, 2011. The term will be automatically extended for an additional one-year period unless either party timely notifies the other of its intention not to extend the term. Pursuant to the amended agreement, Mr. Dharia received a base salary of $435,625 and $457,406 during fiscal years 2007 and 2008, respectively. Commencing January 1, 2009, Mr. Dharia’s annual base salary increased by 5% to $479,573 and, commencing January 1, 2010 his annual base salary increased to $528,304. In addition, the agreement provides that Mr. Dharia receive an annual bonus in such amount, if any, and at such time or times, as the Board of Directors may determine in its absolute discretion. Subject to availability of shares under the 2006 Plan, as amended, or any other plan designated by the Board of Directors and approved by the Company’s stockholders, Mr. Dharia is entitled to awards under such plan as may be determined by the Board of Directors, or a committee thereof, from time to time in its absolute discretion. +The agreement provides, in the event of Mr. Dharia’s death, for the payment to Mr. Dharia’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Dharia’s death. The agreement also provides that if Mr. Dharia’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. Dharia will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to be totally disabled. In the event Mr. Dharia’s employment agreement is terminated “for cause” (as defined in the agreement), the Company is obligated to pay Mr. Dharia the amount of compensation that is accrued and unpaid through the date of termination. In the event Mr. Dharia’s employment agreement is terminated for any reason (other than “for cause” or due to his death or total disability), the Company is obligated to pay Mr. Dharia, in two installments, (a) an amount equal to the product of (x) his base salary on the effective date of such termination plus the bonus paid or payable, if any, for the fiscal year ended on the December 31st immediately preceding the termination date, multiplied by (y) the number of years (and fraction of years) remaining in the term; and (b) the amount payable to him, or on his account, for what would have been the balance of the term of his employment agreement with respect to certain benefits and plans as set forth in his employment agreement. If the Company decides not to renew the agreement (other than “for cause” or due to his total disability), then Mr. Dharia will be entitled to receive severance compensation in cash in an amount equal to his then-current base salary for the 90-day period commencing on the expiration of the term. In the event that there is a “change of control” transaction and Mr. Dharia’s employment has been terminated by the Company other than “for cause” or by Mr. Dharia “for good reason” (as such terms are defined in the agreement), Mr. Dharia will receive an amount equal to three times the total compensation he was entitled to receive under the agreement for the preceding 12-month period ending on the last previous December 31, except that in lieu of the actual base salary component received during such period, there shall be substituted the annual base salary to which Mr. Dharia was entitled to as of the date of termination or resignation, unless said amount (or portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, in which case the payment to Mr. Dharia shall be reduced to the maximum amount that is tax deductible to the Company under Section 280G of the Code. +26 +Awadhesh Sinha. In June 2005, the Company entered into an employment agreement with Awadhesh Sinha, pursuant to which Mr. Sinha agreed to serve as the Company’s Chief Operating Officer. Mr. Sinha’s employment agreement was amended in November 2007 and in October 2008. The term of Mr. Sinha’s employment under his employment agreement, as amended, commenced on July 1, 2005 and ends on December 31, 2010. The term will be automatically extended for successive one-year periods unless either party timely notifies the other of its intention not to extend the term. The agreement, as amended, provides that the Company pay Mr. Sinha an annual salary of $540,000 (which is equal to the base salary amount payable to Mr. Sinha pursuant to the original employment agreement at the time of the October 2008 amendment). Upon entering into the agreement, Mr. Sinha received a signing bonus of $100,000. In addition, with respect to the fiscal year ended December 31, 2005, Mr. Sinha was entitled to an annual bonus equal to the greater of (i) $50,000, and (ii) 3% of the increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year; with respect to each of the Company’s remaining fiscal years through the 2008 fiscal year, Mr. Sinha was entitled to an annual bonus equal to 3% of the increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year. In respect of each of the Company’s 2009 and 2010 fiscal years, Mr. Sinha is eligible to receive a cash bonus under the Company’s 2006 Plan equal to 3% of the increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year. Mr. Sinha received a bonus of $899,176 for 2009 EBIT performance. The agreement, as amended, provides for certain deferred compensation with respect to 2008, 2009 and 2010. For the period commencing July 1, 2008 and ending December 31, 2008, the agreement, as amended, provides for a mandatory deferral of additional cash compensation in an amount equal to 25% of Mr. Sinha’s annual base salary, and the Company agrees to pay to Mr. Sinha such additional cash compensation provided that Mr. Sinha remains in the employ of the Company on December 31, 2010. For the period commencing January 1, 2009 and ending December 31, 2009, the agreement, as amended, provides for a mandatory deferral of additional cash compensation in an amount equal to 12.5% of Mr. Sinha’s annual base salary, and the Company agrees to pay to Mr. Sinha such additional cash compensation provided that Mr. Sinha remains in the employ of the Company on December 31, 2010. For the period commencing January 1, 2010 and ending December 31, 2010, the agreement, as amended, provides for a mandatory deferral of additional cash compensation in an amount equal to 7.5% of Mr. Sinha’s annual base salary, and the Company agrees to pay to Mr. Sinha such additional cash compensation provided that Mr. Sinha remains in the employ of the Company on December 31, 2010. +The agreement, as amended, provides for, in the event of Mr. Sinha’s death, the payment to Mr. Sinha’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Sinha’s death. In the event Mr. Sinha’s employment agreement, as amended, is terminated due to Mr. Sinha’s “total disability” or “for cause” (as such terms are defined in the agreement, as amended,), or due to Mr. Sinha’s resignation, the Company is obligated to pay Mr. Sinha the amount of compensation that is accrued and unpaid through the date of termination. In addition, in the event of Mr. Sinha’s total disability, the Company is obligated to continue to pay Mr. Sinha’s base salary for the 12-month period immediately subsequent to the date of determination of such total disability. Mr. Sinha will be required to repay to the Company the full amount of his signing bonus if he is discharged “for cause” and a pro rata portion of the signing bonus for the portion of the term that he did not fulfill if he resigns. In the event Mr. Sinha’s employment agreement, as amended, is terminated by the Company for any reason (other than “for cause” or due to his death or total disability), the Company is obligated to pay Mr. Sinha an amount equal to the sum of (x) the base salary that would have been paid by the Company pursuant to the agreement, as amended, for the longer of the remainder of the then-current term or 6 months, (y) the cash bonus payable to Mr. Sinha prorated from the commencement of the then-current term through the termination date, and (z) a pro-rata portion of the deferred additional cash compensation (such deferred additional cash compensation shall be an amount equal to the applicable percentage (depending on the period during which termination occurs) of Mr. Sinha’s aggregate base salary paid through the date of such termination). In the event that there is a “change of control” transaction (as defined in the agreement, as amended), and the Company (other than “for cause”) or Mr. Sinha (for “good reason,” as defined in the agreement, as amended) terminates the agreement, as amended, Mr. Sinha shall be entitled to an amount equal to three times the total compensation received by Mr. Sinha under the agreement, as amended, for the preceding 12-month period ending on the last previous December 31st, except that in lieu of the actual base salary component received during such period, there shall be substituted the annual base salary to which Mr. Sinha was entitled as of the date of his termination, unless said amount (or portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, in which case the payment to Mr. Sinha shall be reduced to the maximum amount that is tax deductible to the Company under Section 280G of the Code. +27 +Robert Schmertz. In April 2002, the Company entered into an employment agreement with Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as President of Steve Madden Wholesale Women’s Division and Brand Manager for Steven Madden, Ltd. The term of the agreement commenced on April 1, 2002 and was extended in March 2005 and again in March 2007. Mr. Schmertz received a signing bonus of $500,000 upon the execution of the March 2007 extension and 100,000 shares of restricted Common Stock, which vests in equal parts on each of the first five anniversaries of February 27, 2007, pursuant to the 2006 Plan, as amended. The Company agreed to pay Mr. Schmertz an annual salary of $600,000. In October 2009, the Company entered into a new employment agreement with Mr. Schmertz to replace the prior employment agreement, as amended, which was to expire by its terms on December 31, 2009. Pursuant to the new employment agreement, Mr. Schmertz will continue to serve as Brand Director of the Company for a term commencing on October 7, 2009 and expiring on December 31, 2012, unless sooner terminated in accordance with the terms of the agreement. Mr. Schmertz’s annual base salary during the period from October 7, 2009 through December 31, 2009 remained $600,000. His annual base salary was increased to $660,000 commencing on January 1, 2010 for the duration of the term. Pursuant to the new employment agreement, Mr. Schmertz is entitled to receive a fiscal year 2009 performance bonus of $300,000 (minus withholding taxes), $200,000 of which was paid to him in October 2009 and the remaining $100,000 of which was paid to him in March 2010. The new employment agreement provides that Mr. Schmertz may receive additional bonuses, if any, at the absolute discretion of the Board of Directors. In addition, pursuant to the new employment agreement, Mr. Schmertz received an option to purchase 50,000 shares of Common Stock, pursuant to the terms of the 2006 Plan, at an exercise price of $37.10 per share. The option vests in equal annual installments of 10,000 shares over a five-year period on each anniversary of the date of the grant commencing on October 8, 2010 and remains exercisable until October 8, 2016. +In the event of Mr. Schmertz’s death, the employment agreement provides for the payment to his estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Schmertz’s death. The agreement also provides that if Mr. Schmertz’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. Schmertz will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to be totally disabled. The Company may terminate the employment agreement for “cause” (as defined in the employment agreement), in which event Mr. Schmertz would be entitled to receive only his accrued and unpaid base salary through the date of termination. In the event that Mr. Schmertz’s employment is terminated by the Company without cause, he would be entitled to receive payment of his annual base salary, payable at regular payroll intervals, from the date of termination through the remainder of the term. In addition, if Mr. Schmertz’s employment is terminated by the Company without cause during the period commencing 30 days prior to a “change of control” (as defined in the employment agreement) transaction and ending 180 days after a change of control transaction, he would be entitled to receive an amount equal to the lesser of (i) the average amount of total compensation actually received by him during the preceding three calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible to the Company under Section 280G of the Code, such amount to be in lieu of and not in addition to any other payments to which Mr. Schmertz would be entitled in the event of the termination of his employment. +Amelia Newton Varela. In October 2004, the Company entered into an employment agreement with Amelia Newton Varela, pursuant to which Ms. Varela agreed to serve as Executive Vice President of Wholesale Sales. In April 2008, the Company entered into a new employment agreement with Ms. Varela, pursuant to which Ms. Varela agreed to serve as Executive Vice President of Wholesale and Retail. The term of Ms. Varela’s employment under this employment agreement commenced on April 29, 2008 and ends on December 31, 2010. Pursuant to the employment agreement, on April 29, 2008, Ms. Varela was granted an option to purchase 50,000 shares of the Company’s Common Stock at an exercise price of $19.32 per share. The option is exercisable until April 29, 2015 to the extent of 10,000 shares on each of April 29, 2009, April 29, 2010, April 29, 2011, April 29, 2012 and April 29, 2013. Further, pursuant to the employment agreement, on April 1, 2009, Ms. Varela was granted an option to purchase 25,000 shares of Common Stock of the Company at an exercise price of $18.78 per share. In addition, provided that she is still employed by the Company (i) on April 1, 2010, Ms. Varela will be granted an option to purchase 25,000 shares of Common Stock of the Company. Such options shall vest 20% each year for five years, commencing on the first anniversary date of the grant of the options, have a term of seven years and have an exercise price equal to the market price on the grant date. The Company agreed to pay Ms. Varela an annual base salary of $350,000 from January 1, 2008 through December 31, 2008 and $400,000 from January 1, 2009 through December 31, 2010. Under the terms of the agreement, the Company agreed to pay Ms. Varela an annual bonus for each of 2008, 2009 and 2010 in an amount equal to 2% of the increase, if any, in Wholesale Footwear Division EBIT for that year over Wholesale Footwear Division EBIT for the immediately prior year, plus 1.5% of the increase, if any, in Retail Division EBIT for that year over Retail Division EBIT for the immediately prior year. Ms. Varela received a cash bonus of $421,224 for 2009 EBIT performance. If Ms. Varela is still employed by the Company on December 31, 2010, she will also be entitled to a cash bonus of $200,000. +28 +In the event that Ms. Varela’s employment agreement is terminated due to Ms. Varela’s “disability” (as defined in the agreement) or death, the Company is obligated to pay Ms. Varela (or her estate) the amount of accrued and unpaid salary through the date of termination plus any accrued and unpaid bonus amounts for the year prior to termination. The Company may terminate the agreement for “cause” (as defined in the agreement) and, in such event, Ms. Varela will be entitled only to accrued and unpaid salary through the date of termination of employment. If Ms. Varela’s employment is terminated by the Company without cause, she is entitled to salary payments at regular intervals from the date of termination through the date the agreement would have otherwise terminated plus any accrued and unpaid bonus amounts for the year prior to termination. In the event that Ms. Varela’s employment is terminated by the Company without cause during the period commencing 30 days prior to a “change of control” (as defined in the agreement) transaction and ending 180 days following a change of control transaction, she is entitled to receive an amount equal to the lesser of (i) the average amount of total compensation actually received by her during the preceding three calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible to the Company under Section 280G of the Code. +GRANTS OF PLAN-BASED AWARDS IN THE 2009 FISCAL YEAR +The following table sets forth information concerning awards under the Company’s equity and non-equity incentive plans granted to each of the Named Executive Officers in the 2009 Fiscal Year, including performance-based awards and those using time-based vesting. Following the table is a discussion of material factors related to the information disclosed in the table. +Name +Grant Date +All Other +Stock Awards: +Number of Shares +of Stock or Units +(#) +All Other +Option Awards: +Number of Securities +Underlying Options +(#) +Exercise or +Base Price of +Option Awards +($/Sh) +Grant Date +Fair Value of +Stock and +Option Awards +($) +Edward R. Rosenfeld +4/1/2009 +— +100,000 +18.78 +742,218 +11/10/2009 +50,000 +— +— +1,977,000 +Arvind Dharia +4/1/2009 +— +40,000 +18.78 +296,887 +Awadesh Sinha +n/a +— +— +— +— +Robert Schmertz +4/1/2009 +— +75,000 +18.78 +556,664 +10/8/2009 +— +50,000 +37.10 +780,850 +Amelia Newton Varela +4/1/2009 +— +75,000 +18.78 +556,664 +29 +Plan-Based Awards +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the 1999 Stock Plan (the “1999 Plan”), and on June 4, 1999 the Company’s stockholders approved the adoption of the 1999 Plan. Since its adoption, the 1999 Plan has been amended, with stockholder approval, to (i) increase the number of shares subject to the 1999 Plan, (ii) provide that the exercise price of an option granted under the 1999 Plan shall be no less than the fair market value of the Common Stock on the date of grant (except to the extent otherwise provided in agreements with the Company dated prior to the effective date of the amendment), and (iii) prohibit the Board from amending the terms of any option granted pursuant to the 1999 Plan to reduce the option price. The 1999 Plan was adopted to provide a means whereby directors and selected employees, officers, agents, consultants, and independent contractors of the Company could be granted incentive stock options and/or nonqualified stock options to purchase shares of Common Stock, in order to attract and retain the services or advice of such directors, employees, officers, agents, consultants, and independent contractors and to provide additional incentive for such persons to exert maximum efforts for the success of the Company by encouraging stock ownership in the Company. As of April 1, 2010, options to purchase 166,921 shares of Common Stock were outstanding under the 1999 Plan. No additional options will be granted under the 1999 Plan. +2006 Stock Incentive Plan +As of March 10, 2006, the Board of Directors of the Company adopted the Company’s 2006 Stock Incentive Plan and, on May 26, 2006, the Company’s stockholders approved the adoption of the Company’s 2006 Stock Incentive Plan. The 2006 Stock Incentive Plan was amended in 2007 and 2008. On April 6, 2009, the Board of Directors adopted an Amended and Restated 2006 Stock Incentive Plan and, on May 22, 2009, the Company’s stockholders approved the Amended and Restated 2006 Stock Incentive Plan. The Company’s Amended and Restated 2006 Stock Incentive Plan is referred to as the “2006 Plan” throughout this Proxy Statement. The purpose of the 2006 Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible employees, consultants and non-employee directors cash and stock-based incentives in the Company to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders. +The maximum number of shares of Common Stock available for issuance under the 2006 Plan is 4,064,000 shares. As of April 1, 2010, there were outstanding 270,200 unvested shares of restricted stock and options to purchase 964,008 shares of Common Stock; options have been exercised, or restricted stock has vested, with respect to 606,857 shares of Common Stock; and 2,129,921 shares of Common Stock remained available for grant under the 2006 Plan. +30 +OUTSTANDING EQUITY AWARDS AT END OF THE 2009 FISCAL YEAR +The following table sets forth information concerning unexercised stock options, restricted stock that has not vested and stock awards outstanding for each of the Named Executive Officers as of the end of the 2009 Fiscal Year. +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexercised Options +(#) Exercisable +Number of securities Underlying Unexcercised Options +(#) Unexercisable +Equity Incentive Plan Awards: Number of Securities Underlying Unexcercised Unearned Options +(#) +Option Exercise Price +($) +Option Expiration Date +Number of Shares or Units of Stock That Have Not Vested +(#) +Market Value of Shares or Units of Stock That Have Not Vested +($) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested +(#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested +($) +Edward R. Rosenfeld +— +32,000 +(1) +— +18.1700 +3/24/2015 +65,750 +(2) +2,711,530 +— +— +— +100,000 +(1) +— +18.7800 +4/1/2016 +— +— +— +— +Arvind Dharia +60,001 +— +— +13.0533 +7/6/2011 +15,000 +(3) +618,600 +— +— +8,445 +— +— +11.8400 +5/27/2015 +— +— +— +— +— +40,000 +(4) +— +18.7800 +4/1/2016 +— +— +— +— +Awadhesh Sinha +33,333 +(5) +— +23.4600 +10/3/2015 +7,500 +(6) +309,300 +— +— +Robert Schmertz +75,000 +(7) +— +18.7800 +4/1/2016 +67,500 +(8) +2,783,700 +— +— +50,000 +(7) +— +37.1000 +10/8/2016 +— +— +— +— +Amelia Newton Varela +10,000 +— +— +19.3200 +4/29/2015 +7,500 +(10) +309,300 +— +— +— +40,000 +(9) +— +19.3200 +4/29/2015 +— +— +— +— +— +75,000 +(9) +— +18.7800 +4/1/2016 +— +— +— +— +(1) Mr. Rosenfeld was granted an option to purchase 40,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant, March 24, 2008. Mr. Rosenfeld was granted an option to purchase 100,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant, April 1, 2009. +(2) Mr. Rosenfeld was awarded 15,000 shares of restricted Common Stock on March 20, 2006, which shares vest in four equal installments commencing on the first anniversary of the date awarded. Mr. Rosenfeld was awarded 20,000 shares of restricted Common Stock on March 6, 2007, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. Mr. Rosenfeld was awarded 50,000 shares of restricted Common Stock on November 10, 2009, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(3) Mr. Dharia was awarded 12,000 shares of restricted Common Stock on March 24, 2006, which shares vest in four equal installments commencing on the first anniversary of the date awarded. Mr. Dharia was awarded 20,000 shares of restricted Common Stock on March 6, 2007, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(4) Mr. Dharia was granted an option to purchase 40,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant, April 1, 2009. +(5) Mr. Sinha was granted an option to purchase 50,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in three equal annual installments commencing on the first anniversary of the date of grant, October 3, 2008. +31 +(6) Mr. Sinha was awarded 30,000 shares of restricted Common Stock on April 25, 2007, which shares vest in four equal annual installments commencing on the first anniversary of the date awarded. +(7) Mr. Schmertz was granted an option to purchase 75,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant, April 1, 2009. Mr. Schmertz was granted an option to purchase 50,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant, October 8, 2009. +(8) Mr. Schmertz was awarded 30,000 shares of restricted Common Stock on March 20, 2006, which shares vest in four equal annual installments commenting on the first anniversary of the date awarded. Mr. Schmertz was awarded 100,000 shares of restricted Common Stock on March 9, 2007, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(9) Ms. Varela was granted an option to purchase 75,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant, April 1, 2009. Ms. Varela was granted an option to purchase 50,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant, April 29, 2008. +(10) Ms. Varela was awarded 30,000 shares of restricted Common Stock on March 20, 2007, which shares vest in four equal annual installments commencing on the first anniversary of the date awarded. +OPTION EXERCISES AND STOCK VESTED IN THE 2009 FISCAL YEAR +The following table sets forth information concerning stock options exercised and restricted stock vested during the 2009 Fiscal Year for each of the Named Executive Officers. The value realized from exercised options is deemed to be the market value of the Common Stock on the date of exercise, less the exercise price of the option, multiplied by the number of shares of Common Stock underlying the option. The value realized from the vesting of restricted stock is deemed to be the market value of the Common Stock on the date of vesting multiplied by the number of shares vesting. +Option Awards +Stock Awards +Name +Number of Shares Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Edward R. Rosenfeld +15,500 +346,820 +7,750 +119,998 +Arvind Dharia +60,000 +1,551,600 +7,000 +109,310 +Awadhesh Sinha +16,667 +304,506 +7,500 +274,050 +Robert Schmertz +50,000 +1,037,250 +27,500 +395,075 +Amelia Newton Varela +— +— +7,500 +123,675 +32 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +The following table sets forth information as of December 31, 2009 with respect to compensation plans (including individual compensation arrangements) under which shares of Common Stock are authorized for issuance, aggregated as follows: +· +All compensation plans previously approved by security holders; and +· +All compensation plans not previously approved by security holders. +EQUITY COMPENSATION PLAN INFORMATION +Number of securities to be issued upon exercise of outstanding options, warrants and rights +(#) +Weighted average exercise price of outstanding options, warrants and rights +($) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +(#) +Equity compensation plans approved by security holders +1,077,000 +20.52 +2,290,000 +Equity compensation plans not approved by security holders +— +— +— +Total +1,077,000 +20.52 +2,290,000 +Termination, Change in Control and Non-Competition/Non-Solicitation +The employment agreements for all the Named Executive Officers provide for a severance payment upon a termination of employment in connection with a change-in-control of the Company. The employment agreements of Messrs. Rosenfeld, Dharia and Sinha provide for severance payment if the executive terminates his employment for good reason in connection with a change-in-control event. These payments in connection with a change-in-control, however, are cutback if the severance benefit, when added to any other benefits triggered by a change-of-control, is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code. The threshold to which this cutback is made is referred to as the Code 280G threshold. The Company’s employment agreements with each of the Named Executive Officers also provide for severance payments to the executive if the Company terminates the executive’s employment without cause, or, in the case of Mr. Rosenfeld, if the Company gives him good reason to terminate employment. Please see the section of this Proxy Statement captioned “Employment Arrangements” for a summary description of the agreements and such severance and change-in-control provisions. These benefits are described and quantified in the section of this Proxy Statement captioned “Potential Payments Upon Termination or Change-In-Control” below. +The Company believes that the severance payments and payments made upon change-in-control provisions in the employment agreements provide appropriate protection to the Company’s executives, comparable to that available at peer companies, and, with regard to the enhanced severance following a change-in-control, protects the Company from losing key executives during a period when a change-in-control may be threatened or pending. These benefits are described and quantified in the section below captioned “Potential Payments Upon Termination or Change-In-Control.” +33 +Ms. Varela has agreed to a non-compete and non-solicitation restriction for a one-year period in the event of a voluntary termination or termination for cause. Mr. Sinha has agreed to a non-compete and non-solicitation restriction through the period of his actual employment and for a six-month period thereafter, unless he is terminated other than for cause, or due to total disability, in which case his non-compete and non-solicitation period shall last the lesser of six months or the number of months he is entitled to payment following such termination. Mr. Rosenfeld has agreed to a non-compete and non-solicitation restriction during the period of his employment and for a six-month period following the termination of his employment for cause or in the event of his resignation without good reason. Mr. Schmertz has agreed to a non-compete and non-solicitation restriction through the term of his employment agreement, which ends on December 31, 2012. Mr. Dharia does not have non-compete or non-solicitation provisions in his employment agreement. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The Company’s employment agreements with the Named Executive Officers provide for payments to such individuals upon termination of employment or a change-in-control of the Company. Please see the section of this Proxy Statement captioned “Employment Arrangements.” The amounts set forth in the table below shall be payable to the respective Named Executive Officer if such Named Executive Officer’s employment is terminated by the Company under the various scenarios set forth below. +NAME AND PRINCIPAL +CASH PAYMENT +CONTINUATION OF MEDICAL / WELFARE BENEFITS (PRESENT VALUE) +ACCELERATION AND CONTINUATION OF EQUITY AWARD +CUTBACK OF BENEFITS UPON A CHANGE OF CONTROL +TOTAL TERMINATION BENEFITS +POSITION +($) +($) +($) +($) +($) +TERMINATION DUE TO DEATH +Edward R. Rosenfeld +400,000 +(1) +10,000 +(2) +— +— +410,000 +Arvind Dharia +479,573 +(3) +10,000 +(2) +— +— +467,406 +Awadhesh Sinha +540,000 +(4) +10,000 +(2) +— +— +550,000 +Robert Schmertz +600,000 +(5) +— +— +— +600,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION DUE TO TOTAL DISABILITY +Edward R. Rosenfeld +400,000 +(1) +— +— +— +400,000 +Arvind Dharia +479,573 +(3) +90,000 +(6) +— +— +569,573 +Awadhesh Sinha +540,000 +(4) +— +— +— +540,000 +Robert Schmertz +600,000 +(5) +— +— +— +600,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON +Edward R. Rosenfeld +— +— +— +— +— +Arvind Dharia +— +— +— +— +— +Awadhesh Sinha +— +— +— +— +— +Robert Schmertz +— +— +— +— +— +Amelia Newton Varela +— +— +— +— +— +TERMINATION OTHER THAN FOR CAUSE; RESIGNATION FOR GOOD REASON +Edward R. Rosenfeld +1,576,250 +(7) +— +— +— +1,576,250 +Arvind Dharia +959,146 +(8) +— +— +— +959,146 +Awadhesh Sinha +540,000 +(9) +— +— +— +540,000 +Robert Schmertz +1,980,000 +(10) +— +— +— +1,980,000 +Amelia Newton Varela +400,000 +(11) +— +— +— +400,000 +TERMINATION UPON A CHANGE OF CONTROL +Edward R. Rosenfeld +1,980,859 +(12) +— +5,695,770 +(13) +(6,551,616 +) +7,676,629 +(14) +Arvind Dharia +1,438,719 +(15) +270,000 +(16) +901,967 +(13) +— +3,225,719 +Awadhesh Sinha +4,328,028 +(17) +40,500 +(18) +4,675,200 +(13) +(2,139,413 +) +5,270,495 +(14) +Robert Schmertz +4,877,160 +(19) +— +4,675,200 +(13) +(5,098,029 +) +9,552,360 +(14) +Amelia Newton Varela +2,588,846 +(20) +— +2,870,600 +(13) +(2,905,965 +) +5,459,446 +(14) +34 +(1) +Consists of Mr. Rosenfeld’s 2009 base salary of $400,000, which would be paid at regular intervals. +(2) +Consists of medical benefits. +(3) +Consists of Mr. Dharia’s 2009 base salary of $479,573, which would be paid at regular intervals. +(4) +Consists of Mr. Sinha’s 2009 base salary of $540,000, which would be paid at regular intervals. +(5) +Consists of Mr. Schmertz’s 2009 base salary of $600,000, which would be paid at regular intervals. +(6) +Consists of one times the sum of Mr. Dharia’s life insurance payment ($80,000 per year) plus medical benefits ($10,000 per year). +(7) +Consists of the base salary ($500,000 for 2010, $525,000 for 2011 and $551,250 for 2012) that would have been paid to Mr. Rosenfeld during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2012. Mr. Rosenfeld would receive these payments at regular intervals. +(8) +Consists of two times Mr. Dharia’s 2009 base salary of $479,573. Mr. Dharia would receive 50% of this payment immediately and the remaining 50% would be paid to him one year later (i.e., on December 31, 2010). +(9) +Consists of the base salary of $540,000 that would have been paid to Mr. Sinha during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2010. Mr. Sinha would receive these payments at regular intervals. +(10) +Consists of an annual base salary of $660,000 that would have been paid to Mr. Schmertz during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2012. Mr. Schmertz would receive these payments at regular intervals. +(11) +Consists of the base salary of $400,000 that would have been paid to Ms. Varela during the remainder of the term of her employment until the expiration of her employment agreement on December 31, 2010. Ms. Varela would receive these payments at regular intervals. +(12) +Consists of three times the average amount of total compensation Mr. Rosenfeld actually received for the preceding three calendar years. Upon a hypothetical December 31, 2009 change of control, this amount would have been reduced by $6,551,616 (i.e. cutback) to reflect the maximum amount which would be tax deductible by the Company. +(13) +The amount disclosed represents the total value of the restricted stock and stock options which would have received accelerated vesting upon a hypothetical change in control on December 31, 2009. +(14) +The total amount does not include the cutback amount. +(15) +Consists of three times the total compensation Mr. Dharia actually received for the preceding twelve calendar months. On December 31, 2009 there was no bonus amount payable. Upon a change in control, Mr. Dharia is subject to a cutback for any payment that is not tax deductible by the Company. Upon a hypothetical December 31, 2009 change of control, no payments to Mr. Dharia would have been subject to the cutback. +(16) +Consists of three times the sum of Mr. Dharia’s life insurance payment ($80,000 per year) plus medical benefits ($10,000 per year). +(17) +Consists of three times the total compensation Mr. Sinha actually received for the preceding twelve calendar months. On December 31, 2009 there was a bonus amount of $899,176 payable. Upon a change in control, Mr. Sinha is subject to a cutback for any payment that is not tax deductible by the Company. Upon a hypothetical December 31, 2009 change of control, this amount would have been reduced by $2,139,413 (i.e. cutback) to reflect the maximum amount which would be tax deductible by the Company. +(18) +Consists of three times the sum of Mr. Sinha’s life insurance payment ($3,500 per year) plus medical benefits ($10,000 per year). +(19) +Consists of three times the average amount of total compensation Mr. Schmertz actually received for the preceding three calendar years. Upon a hypothetical December 31, 2009 change of control, this amount would have been reduced by $5,098,029 (i.e. cutback) to reflect the maximum amount which would be tax deductible by the Company. +(20) +Consists of three times the average amount of total compensation Ms. Varela actually received for the preceding three calendar years. Upon a hypothetical December 31, 2009 change of control, this amount would have be reduced by $2,905,965 (i.e. cutback) to reflect the maximum amount which would be tax deductible by the Company. +_______________________________ +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +Submitted by the Compensation Committee of the Company’s Board of Directors: +Peter Migliorini (Chairman) +Thomas H. Schwartz +35 +Audit Committee Report +The Audit Committee reviewed the Company’s audited financial statements for the 2009 Fiscal Year and met with both management and representatives of Eisner LLP, the Company’s independent registered public accountants, to discuss such audited financial statements. Management and the Company’s independent registered public accountants have represented to the Audit Committee that the financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee has received from and discussed with Eisner LLP the written disclosures and the letter regarding Eisner LLP’s communications with the Audit Committee concerning independence as required by applicable requirements of the Public Company Accounting Oversight Board, and discussed with Eisner LLP the independence of Eisner LLP. The Audit Committee also discussed with Eisner LLP any matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. Based on these reviews and discussions, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the 2009 Fiscal Year. +Submitted by the Audit Committee of the Company’s Board of Directors: +Richard P. Randall (Chairman) +Peter Migliorini +Ravi Sachdev +PROPOSAL TWO: +RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010 +The Audit Committee has appointed Eisner LLP as the Company’s independent registered public accounting firm to conduct the audit of the Company’s books and records for the fiscal year ending December 31, 2010. Eisner LLP also served as the Company’s independent registered public accountants for the 2009 Fiscal Year. +Before making its determination on appointment, the Audit Committee carefully considers the qualifications and competence of candidates for the independent registered public accounting firm. For Eisner LLP, this has included a review of its performance in prior years, its independence and processes for maintaining independence, the results of the most recent internal quality control review or Public Company Accounting Oversight Board inspection, the key members of the audit engagement team, the firm’s approach to resolving significant accounting and auditing matters including consultation with the firm’s national office, as well as its reputation for integrity and competence in the fields of accounting and auditing. Although ratification by stockholders is not required by the Company’s organizational documents or other applicable law, the Audit Committee has determined that requesting ratification by stockholders of its appointment of Eisner LLP as the Company’s independent registered public accountants is a matter of good corporate practice. If stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain Eisner LLP, but may still retain them. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interest of the Company and its stockholders. +Representatives of Eisner LLP are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement should they so desire. +Required Vote +The affirmative vote of the holders of a majority of the outstanding shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the Audit Committee’s selection of Eisner LLP. +36 +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the ratification of the appointment of Eisner LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2010. Unless marked to the contrary, proxies received from stockholders will be voted in favor of ratifying the appointment of Eisner LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2010. +Audit Fees +The aggregate fees billed by Eisner LLP for professional services rendered for the audit of the Company’s annual financial statements for the 2009 Fiscal Year, for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the 2009 Fiscal Year, other statutory and regulatory filings or engagements and the audit of the Company’s internal controls over financial reporting for the 2009 Fiscal Year were $585,000. The comparative amount for the fiscal year ended December 31, 2008 (the “2008 Fiscal Year”) was $557,983. +Audit-Related Fees +In addition to Audit Fees, Eisner LLP has billed the Company $25,000, in the aggregate, for Audit Related Fees related to assurance and related services for the 2009 Fiscal Year. These services include, among others, the audit of the Company’s employee benefit plans and other accounting related consultations. The comparative amount for the 2008 Fiscal Year was $25,000. +Tax Fees +During the 2009 Fiscal Year, Eisner LLP billed the Company $234,348, in the aggregate, for services rendered to the Company for tax compliance, tax advice and tax planning. Eisner LLP billed $231,500 for similar services in the 2008 Fiscal Year. These professional services include assistance in the preparation of the Company’s various federal, state and local tax returns, tax consultation and various amendments. +All Other Fees +In addition to the fees billed by Eisner LLP for the services described above under Audit Fees, Audit-Related Fees and Tax Fees, during the 2009 Fiscal Year, Eisner LLP billed the Company $89,350 for (a) services rendered in connection with (i) the preparation of the Company’s registration statement filed with the SEC in 2009 to register shares available for issuance under the Steven Madden, Ltd. 2006 Stock Incentive Plan and (ii) the Company’s recent acquisition of handbag designer, Big Buddha, Inc., and (b) out-of-pocket expenses incurred by Eisner LLP in connection with services rendered to the Company. No such fees were billed by Eisner LLP in the 2008 Fiscal Year. +Audit Committee’s Pre-Approval Policies and Procedures +Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accountants. In recognition of this responsibility, the Audit Committee has established a policy to review and pre-approve all audit and permissible non-audit services provided by the independent registered public accountants. These services may include audit services, audit-related services, tax services and other services. +Prior to engagement of the independent auditor for next year’s audit, the Audit Committee will pre-approve all auditing services and all permitted non-audit services (including the fees and terms thereof), except those excluded from requiring pre-approval based upon the de minimus exception set forth in Section 10A(i)(1)(B) of the Exchange Act. +The Audit Committee’s pre-approval policies and procedures are as follows: (a) prior to each fiscal year, the Audit Committee pre-approves a schedule of estimated fees for proposed non-prohibited audit and non-audit services, and (b) actual amounts paid are monitored by financial management of the Company and reported to the Audit Committee. +37 +All work performed by Eisner LLP as described above under the captions Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees has been approved or pre-approved by the Audit Committee pursuant to the provisions of the Audit Committee’s charter. The Audit Committee has considered and concluded that the provision of non-audit services is compatible with maintaining the independence of Eisner LLP. +OTHER MATTERS +At the date of this Proxy Statement, the Company has no knowledge of any business other than that described above that will be presented at the Annual Meeting. If any other business should properly come before the Annual Meeting in connection therewith, it is intended that the persons named in the accompanying proxy will have discretionary authority to vote the shares which they represent. +A copy of the applicable provisions of the Company’s By-Laws may be obtained by any stockholder, without charge, upon written request to the Secretary of the Company at the address set forth above. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD PROMPTLY. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. YOUR VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 13, 2010 +By: +/s/ Arvind Dharia +Arvind Dharia +Secretary +38 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +STEVEN MADDEN, LTD. +ATTN: ARVIND DHARIA +52-16 BARNETT AVEUE +LONG ISLAND CITY, NY 11104 +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. +The Board of Directors recommends that you vote FOR the following: +o +o +o +1. Election of Directors +Nominees +01 Edward R Rosenfeld 02 John L Madden 03 Peter Migliorini 04 Richard P Randall 05 Ravi Sachdev +06 Thomas H Schwartz +The Board of Directors recommends you vote FOR the following proposal(s): +For +Against +Abstain +2. RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010. +o +o +o +NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly be presented at the meeting or any adjournments or postponements thereof. +Yes +No +Please indicate if you plan to attend this meeting +o +o +Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +ANNUAL MEETING OF STOCKHOLDERS OF +STEVEN MADDEN, LTD. +May 28, 2010 +Please sign, date and mail your proxy card in the envelope provided as soon as possible. +Please detach along perforated line and mail in the envelope provided. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report with 10-K is/are available at www.proxyvote.com . +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF +THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES ([FOR] [WITHHOLD AUTHORITY] [AGAINST] OR [ABSTAIN]) NEXT TO EACH OF THE PROPOSALS +The undersigned stockholder(s) of Steven Madden, Ltd. (the “Company”) hereby appoint(s) Edward R. Rosenfeld and Arvind Dharia, and each of them, as attorneys and proxies, each with power of substitution and revocation, to represent the undersigned at the Annual Meeting of Stockholders of the Company to be held at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., local time, on May 28, 2010 and at any adjournments or postponements thereof, with authority to vote all shares of Common Stock of the Company held or owned by the undersigned on April 1, 2010, in accordance with the directions indicated herein. +THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN; UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE SIX (6) NOMINEES NAMED IN ITEM 1, (2) FOR THE RATIFICATION OF THE APPOINTMENT OF EISNER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2010, AND (3) IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-10-000447/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-10-000447/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..8fa62932b448456b0bdc4e81d3f929ddf2caf0d1 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-10-000447/proxy_rpt.txt @@ -0,0 +1,12 @@ +Certain Relationships and Related Party Transactions +In January 2004, the Company entered into an agreement with John L. Madden, one of the Company’s directors, and JLM Consultants, a company wholly-owned by John L. Madden. Under this agreement, which was amended in 2005, Mr. Madden agreed to provide consulting services to the Company with respect to the development of international sales of the Company. This agreement expired by its terms on December 31, 2005, but Mr. Madden continues to provide consulting services and the Company continues to make payments to JLM Consultants consistent with those that would have been required under the expired consulting agreement. In accordance with the foregoing, for the 2009 Fiscal Year, JLM Consultants received the following from the Company: (a) a commission equal to 2.5% on international sales, (b) a monthly draw in the amount of $25,000 with recourse against such commissions, (c) a $1,000 per month travel allowance and (d) $2,812 per month toward health insurance premiums for health insurance coverage for John L. Madden. Pursuant to this arrangement, JLM Consultants received a total of $759,180 from the Company in the 2009 Fiscal Year. +12 +Effective as of July 1, 2005, the Company amended and restated its employment agreement with Steven Madden, pursuant to which Mr. Madden agreed to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement commenced on July 1, 2005 and, in accordance with a December 14, 2009 amendment thereto, will end on December 31, 2019. The agreement provides for an annual salary of $600,000, with a 7% increase of base salary on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. Mr. Madden also receives an annual $200,000 non-accountable expense allowance. The agreement provides for an annual cash bonus in an amount determined by the Board of Directors, which will be at least 2% of the Company’s EBITDA (the “Annual Bonus”). Additionally, the Company agreed to pay Mr. Madden an annual cash bonus in relation to “new business” (as defined in the agreement) in an amount to be determined by the Board of Directors, but which is at least (i) 2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business Bonus”). In addition, Mr. Madden is eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders, an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, with such number to be equal to not less than 100% of the largest aggregate number of shares of Common Stock available upon the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month period; provided, however, that a grant to Mr. Madden in excess of 150% of the number of shares of Common Stock available upon the exercise of an option or options granted to such other continuing full-time employee shall require stockholder approval. Any Annual Option received by Mr. Madden will vest quarterly over a one-year period following the grant date and will be exercisable, at a price equal to the closing price of the Company’s Common Stock on the grant date, for a period of five years following the date of the grant. In the event of Mr. Madden’s death, the agreement provides for the payment to Mr. Madden’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Madden’s death. In the event that Mr. Madden’s employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” (as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” (as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within 30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to (1) the amount of compensation that is accrued and unpaid through the date of termination, (2) an amount equal to the product of (A) the number of years remaining in the term of the agreement (but not less than 5), and (B) the sum of (w) the base salary for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31, 2002, if greater), (x) the amount of the Annual Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ended on December 31, 2002, if greater), (y) the non-accountable expense allowance provided for under the agreement for the 12-month period ended on the preceding December 31, and (z) the amount of the New Business Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31 during the agreement in which Mr. Madden received the greatest New Business Bonus, if greater). Mr. Madden’s employment agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation and competition. For Fiscal Year 2009, Mr. Madden earned (i) $664,470 in base salary; (ii) $200,000 in non-accountable expense allowance; (iii) a bonus of $1,752,665, representing 2% of the Company’s earnings before interest, tax, depreciation and amortization; (iv) a bonus of $3,995,600, earned based on 2.5% of the Company’s new business; and (v) a bonus of $100,101, based on 10% of Royalty/Licensing income over $2,000,000. +On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to exercise an option, which was due to expire, and hold the underlying Common Stock. Mr. Madden executed a promissory note in favor of the Company, which is secured by a pledge of 510,000 shares of the Company’s Common Stock beneficially owned by Mr. Madden. There have been successive amendments to the note, the most recent of which occurred on April 6, 2009, at which time the note was amended and restated to (i) extend the maturity date to the earlier of the date that Mr. Madden ceases to be employed by the Company and June 30, 2015 (the “Maturity Date”), and (ii) reflect the rate of interest as 8% per annum for the period from June 25, 2007 until April 6, 2010, and 6% per annum for the period from April 7, 2010 until the Maturity Date. As of December 31, 2009, interest in the amount of $568,000 has accrued on the note. Mr. Madden is the brother of John L. Madden, who has been a director of the Company since the Company’s inception in 1990. +Review, Approval or Ratification of Transactions with Related Persons +The Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +13 +Related person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, the Board or committee will consider all relevant factors, including as applicable (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which information is then reviewed for any conflicts of interest under the Conduct Code. +The Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s periodic filings, including related party transaction disclosures. +If a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable. \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-11-000407/proxy.txt b/raw/proxies/0000913241/0001019056-11-000407/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..465933c99e63edc13e3c1a829e4616db2beee0d2 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-11-000407/proxy.txt @@ -0,0 +1,1618 @@ +DEF 14A +1 +smadden_def14a.htm +DEFINITIVE 14A +Unassociated Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 (Amendment No. __) +Filed by the Registrant þ +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +Steven Madden, Ltd. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TO OUR STOCKHOLDERS +2010 was another record year for Steve Madden. We achieved strong sales and profitability growth by building our new brands, improving our retail business, expanding our international reach and completing strategic acquisitions, all while maintaining focus on our core business. Net sales for 2010 increased 26% to $635.4 million, and net income increased 51% to $75.7 million, or $2.68 per diluted share, the highest in our Company’s history. +Maintaining Momentum in Our Core Business +Our top priority at Steve Madden is always to offer our customers trend-right product at a great value in our core brands, Steve Madden Women’s, Steven and Madden Girl. In 2010, Steve and his design team once again stayed ahead of the fashion curve and created an outstanding merchandise assort-ment that resonated with consumers, enabling us to continue our strong momentum in these core brands. We recorded a net sales increase for our Steve Madden Women’s, Steven and Madden Girl wholesale businesses of 13% over 2009. +Driving Profitability Improvements in Retail +We were particularly pleased with the dramatic improvement in our retail business in 2010. Retail had been a challenge for us the last few years, and in 2008 and 2009 our retail segment recorded operating losses. We worked diligently to turn this segment around and took a number of steps to improve this important part of our business. We upgraded our retail management team, cut expenses, implemented a new merchandising, allocation and +planning system, and closed a number of underperforming locations. In 2010, these initiatives began to pay dividends, as our retail segment improved from an operating loss of $1.5 million in 2009 to an operating profit of $9.1 million in 2010. This increase in profitability was driven by a 12.7% comparable store sales gain and a 460 basis point improvement in gross margin. +The retail segment also benefitted from the continued growth of our e-commerce store. We had net sales on stevemadden.com of $22.8 million, up 16% from 2009. +We also opened our first outlet store in November 2010. We have since opened three more outlet stores in the first quarter of 2011, and while it is still early, we are pleased with the initial results and are optimistic that the outlet channel will provide us with another profitable growth vehicle within our retail segment. +Re-Energizing Our Men’s Business +Another area in which we showed great improvement in 2010 was our men’s business. Following sales declines in 2007 and 2008 and modest growth in 2009, our men’s business took off in 2010. Steve Madden Men’s grew 27% for the year, benefitting from a reinvigorated product assortment with strength across all major categories, including dress shoes, driving moccasins and casuals. In addition, our new Madden brand, a more moderately priced men’s line that we introduced in December 2009, got off to a great start in its first full year. Madden contributed over $11 million in net sales in 2010, bringing overall sales growth in our men’s business, including +Steve Madden Men’s and Madden, to over 54% for the year. +Expanding Our International Footprint +Another highlight in 2010 was the growth in our international business. We recorded $34.7 million in international net sales in 2010, which represented a 58% increase over 2009. This growth was driven by outstanding performance in countries like China and Canada, where we have an established presence, as well as by our entry into a number of new territories. We operate internationally through retail and wholesale distribution arrange- ments with partners in the local territories, and, in 2010, we joined with new partners for distribution in Saudi Arabia, Australia, Russia and Central America. In early 2011, we entered the United Arab Emirates and Benelux, and we expect to launch in India and South Africa by the end of the year. +Growing Through Acquisitions +We also completed two strategic acquisitions in 2010 that we believe can be significant growth drivers for the company in the years to come. In February, we bought Big Buddha, a designer and marketer of fashion-forward handbags distributed to specialty retailers, better department stores and online retailers. The Big Buddha handbag business continued its upward trajectory in 2010, expanding its business in better department stores while maintaining its strong presence in the specialty boutiques where it started. In July, we introduced Big +Buddha footwear, which has already gained significant traction, and which we expect to contribute approximately $10 million in net sales in 2011. +In October, we acquired the Betsey Johnson brand and related brand names. We were thrilled to add an iconic brand like Betsey Johnson to our portfolio, and we believe it offers meaningful growth opportunity for our company. Through this transaction, we acquired an existing licensing business that includes licensees for jewelry, intimate apparel, swimwear, eyewear, outerwear and legwear. We have since added new licensees for apparel, retail and cold weather accessories. In addition, we continue to design and market Betsey Johnson handbags and belts, and we have recently launched Betsey Johnson footwear, which has exceeded expectations in its first few months. +Looking Ahead +As we look ahead, we believe our company is better positioned than ever before, with strong momentum in our core business and a diversified platform that provides us with numerous growth opportunities. For 2011, our key priorities are as follows: +● Continue to build on the momentum in our core brands +● Develop our new brands like Betsey Johnson, Big Buddha and Madden +● Continue to drive profitability improvements in our retail segment +● Further enhance our e-commerce business +● Expand our outlet strategy +● Continue to extend our reach in categories outside of footwear +● Increase our international penetration and expand into new geographies +In closing, we are pleased with our performance in 2010 and look forward to delivering further progress in 2011 and beyond. There is no factor more important to our continued success than the hard work, dedication and tireless efforts of all of the talented professionals in our organization. Our people are our foundation and the driving force behind our success. We therefore thank all of our employees for their excellent work, we thank our customers for their loyalty, and we thank you, our stockholders, for your continued support. +/s/Edward Rosenfeld +Edward Rosenfeld +Chief Executive Officer +/s/Awadhesh Sinha +Awadhesh Sinha +Chief Operating Officer +/s/Arvind Dharia +Arvind Dharia +Chief Financial Officer +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, New York 11104 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 27, 2011 +TO THE STOCKHOLDERS OF STEVEN MADDEN, LTD.: +NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Steven Madden, Ltd. (the “Company”) will be held on May 27, 2011, at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., local time, for the purposes stated below: +1. +to elect six directors to the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal from office; +2. +to ratify the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011; +3. +to approve, on a non-binding advisory basis, the compensation of certain executive officers as disclosed in the accompanying proxy statement; +4. +to recommend, on a non-binding advisory basis, the frequency of holding an advisory vote on executive compensation; and +5. +to transact such other business as may properly come before the Annual Meeting or any adjournments thereof. +Only those stockholders of record at the close of business on April 5, 2011 are entitled to notice of and to vote at the Annual Meeting and any adjournments thereof. A complete list of stockholders entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting for purposes germane to the Annual Meeting, between the hours of 9:00 a.m. and 4:30 p.m., local time, at the Company’s principal executive offices at 52-16 Barnett Avenue, Long Island City, New York 11104, by contacting the Secretary of the Company, and will be available at the Annual Meeting. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 27, 2011: THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, ANNUAL REPORT, ELECTRONIC PROXY CARD AND ANY OTHER MATERIALS CONCERNING THE ANNUAL MEETING, TOGETHER WITH ANY AMENDMENTS TO ANY OF THESE MATERIALS, ARE AVAILABLE ON THE INTERNET AT WWW.PROXYVOTE.COM. +BY ORDER OF THE BOARD OF DIRECTORS +April 11, 2011 +/s/ Arvind Dharia +Arvind Dharia +Secretary +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK, DATE AND SIGN THE ACCOMPANYING FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED TO: VOTE PROCESSING, C/O BROADRIDGE, 51 MERCEDES WAY, EDGEWOOD, NEW YORK 11717. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. +TABLE OF CONTENTS +GENERAL INFORMATION +1 +Notice of Internet Availability of Proxy Materials +1 +Questions and Answers About the Annual Meeting +2 +Stockholder Nominations for Board Membership, Proposals and Submissions for the Company’s 2012 Annual Meeting +4 +PROPOSAL ONE: ELECTION OF DIRECTORS +5 +Biographical Summaries of Nominees for the Board of Directors +5 +CORPORATE GOVERNANCE +8 +Board of Directors +8 +Director Independence +8 +Director Attendance at Meetings +8 +Committees of the Board +9 +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +11 +Code of Business Conduct and Ethics +12 +Certain Relationships and Related Party Transactions +12 +Review, Approval or Ratification of Transactions with Related Persons +14 +COMPENSATION OF DIRECTORS +15 +STOCK OWNERSHIP +16 +Security Ownership of Certain Beneficial Owners +16 +Security Ownership of Directors and Executive Officers +17 +Section 16(a) Beneficial Ownership Reporting Compliance +18 +EXECUTIVE COMPENSATION +18 +Compensation Discussion and Analysis +18 +Compensation Committee Interlocks and Insider Participation +25 +Executive Officers +25 +SUMMARY COMPENSATION TABLE +27 +Employment Arrangements +28 +GRANTS OF PLAN-BASED AWARDS IN 2010 FISCAL YEAR +33 +OUTSTANDING EQUITY AWARDS AT END OF 2010 FISCAL YEAR +35 +OPTION EXERCISES AND STOCK VESTED IN 2010 FISCAL YEAR +36 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +37 +EQUITY COMPENSATION PLAN INFORMATION +37 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +38 +COMPENSATION COMMITTEE REPORT +40 +AUDIT COMMITTEE REPORT +41 +PROPOSAL 2: RATIFICATION OF APPOINTMENT OF EISNERAMPER LLP +41 +PROPOSAL 3: NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +43 +PROPOSAL 4: NON-BINDING ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION +44 +OTHER MATTERS +45 +i +STEVEN MADDEN, LTD. +52-16 Barnett Avenue +Long Island City, New York 11104 +PROXY STATEMENT +GENERAL INFORMATION +On behalf of the Board of Directors of Steven Madden, Ltd., a Delaware corporation (the “Company”, “we” or “us”), we are requesting your proxy in connection with the Annual Meeting of Stockholders (the “Annual Meeting”) scheduled to be held at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York on Friday, May 27, 2011 at 10:00 a.m., local time. On or about April 13, 2011, a notice containing instructions on how to access this Proxy Statement, the accompanying proxy card and related materials online is being mailed to holders of record of common stock, $.0001 par value, of the Company (the “Common Stock”) at the close of business on April 5, 2011 (the “Record Date”). The Company’s Annual Report for the fiscal year ended December 31, 2010 (“2010 Fiscal Year”), including audited financial statements, is included in the materials that are accessible online to our stockholders. This Proxy Statement contains information about the Annual Meeting as well as information regarding the voting process, director elections, our corporate governance programs and executive and director compensation, among other things. We recommend that you read all of the materials. +The Annual Meeting has been called to consider and take action on the following proposals: +● +to elect six directors to the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal from office; +● +to ratify the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011; +● +to approve, on a non-binding advisory basis, the compensation of certain executive officers as disclosed in this Proxy Statement; +● +to recommend, on a non-binding advisory basis, the frequency of holding an advisory vote on executive compensation; and +● +to transact such other business as may properly come before the Annual Meeting and any adjournments thereof. +The Board of Directors knows of no other matters to be presented for action at the Annual Meeting. However, if any other matters properly come before the Annual Meeting, the persons named in the proxy will vote on such other matters and/or for other nominees in accordance with their best judgment. With respect to the proposal concerning the frequency of advisory votes on executive compensation, the Company’s Board of Directors recommends that the advisory vote take place every three years. The Company’s Board of Directors recommends that the stockholders vote in favor of each of the other proposals. Only holders of record of Common Stock of the Company at the close of business on the Record Date will be entitled to vote at the Annual Meeting. +The principal executive offices of the Company are located at 52-16 Barnett Avenue, Long Island City, New York 11104 and the telephone number of the Company is (718) 446-1800. +Notice of Internet Availability of Proxy Materials +For the third year, we are pleased to use the Securities and Exchange Commission (the “SEC”) “e-proxy” rules allowing us to furnish proxy materials through the Internet. By using the e-proxy rules, we can expedite the receipt by stockholders of this Proxy Statement and our Annual Report while lowering the costs and reducing the environmental impact associated with our Annual Meeting. On or about April 13, 2011, we will furnish a Notice of Internet Availability of Proxy Material (the “Availability Notice”) to most of our stockholders containing instructions on how to access the proxy materials and to vote online. In addition, our instructions on how to request a printed copy of these materials will be found on the Availability Notice. For more information on voting your Common Stock, please see the “Questions and Answers” section below. If you received an Availability Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials by following the instructions contained in the Availability Notice. +1 +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING +Who may vote at the Annual Meeting? +Only stockholders of record are entitled to vote at the Annual Meeting. A stockholder of record is a stockholder as of the close of business on the Record Date. On the Record Date, there were 28,147,771 shares of our Common Stock outstanding (excluding treasury shares) held by approximately 83 registered holders of record and 30,387 beneficial owners. +What is considered a quorum to conduct the Annual Meeting? +The presence, in person or by proxy, of the holders of a majority of the shares eligible to vote is necessary to constitute a quorum for the purpose of transacting business at the Annual Meeting. Under Delaware law (under which the Company is incorporated), abstentions and broker non-votes (meaning proxies from brokers or nominees indicating that such persons have not received instructions on how to vote from the beneficial owner or other persons eligible to vote shares as to matters with respect to which the brokers or nominees do not have discretionary power to vote) are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +How many votes do I have? +For each share of Common Stock that you own on the Record Date you are entitled to one vote on each matter presented at the Annual Meeting. +How many votes are required to approve each proposal and what is the effect of abstentions and broker non-votes? +Proposal One (Election of Directors): Directors are elected by the affirmative vote of a plurality of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote. This means that the director nominees who receive the greatest number of affirmative votes cast are elected as directors. +Proposal Two (Ratification of Appointment of EisnerAmper LLP): The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve the ratification of the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011. +Proposal Three (Non-Binding Advisory Vote On Executive Compensation): The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers as described in this Proxy Statement. +Proposal Four (Non-Binding Advisory Vote On Frequency of Advisory Vote on Executive Compensation): The voting requirement applicable to the advisory vote on the frequency of the advisory vote on executive compensation is a plurality of the shares of Common Stock voted on the various frequency options. This means that the frequency (every one, two or three years) receiving the highest number of votes will be deemed to be the choice of the stockholders with respect to the frequency of the advisory vote on executive compensation. +2 +Other Matters: If any other matters are presented at the Annual Meeting, they must receive an affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote in order to be approved. +Abstentions will have no effect on the election of directors and the advisory vote on frequency of advisory vote on executive compensation, but will be treated as present and entitled to vote on the proposals for the approval of the compensation of the named executive officers and the ratification of the selection of the Company’s independent auditor and, therefore, will have the effect of votes “against” such proposals. +If you do not provide your broker or other nominee with instructions on how to vote your shares held in “street name,” your broker or nominee will not be permitted to vote your shares on non-routine matters, and your shares will not affect the outcome of proposals concerning non-routine matters. The proposals concerning the election of directors and the advisory votes on executive compensation and the frequency of the advisory vote on executive compensation are considered “non-routine” matters, which means that your broker or other nominee does not have discretion to vote your shares in the election of directors and the two advisory votes with respect to executive compensation in the absence of specific instructions from you as to how you would like your shares to be voted. If you hold your shares in “street name,” we strongly encourage you to provide instructions regarding the voting of your shares as your broker or nominee cannot vote your shares with respect to these proposals without voting instructions from you. +How can I vote my shares? +Your vote is important. Your shares can be voted at the Annual Meeting only if you are present in person or represented by proxy. Even if you plan to attend the Annual Meeting, we urge you to authorize your proxy in advance. You may vote your shares by authorizing a proxy over the Internet or by telephone. In addition, if you received a paper copy of the proxy materials by mail, you can also submit a proxy by mail by following the instructions on the proxy card. Voting your shares by authorizing a proxy over the Internet, by telephone or by written proxy card will ensure your representation at the Annual Meeting regardless of whether you attend in person. +If you are the record holder of your shares, please authorize your proxy electronically by going to the http://www.proxyvote.com website or by calling the toll-free number listed below and on the proxy card. Please have your Proxy Statement or proxy card in hand when going online or calling. If you authorize your proxy via the Internet or by phone you do not need to return your proxy card. If you choose to authorize your proxy by mail, simply mark your proxy card and then date, sign and return it in the postage-paid envelope provided. +VOTE BY INTERNET +http://www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information. +VOTE BY PHONE +1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions. +VOTE BY MAIL +Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717 +If you receive paper proxy materials, mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to the address shown above. +If you hold your shares beneficially in “street name” through a broker or nominee you may be able to authorize your proxy by telephone or the Internet as well as by mail, but you will need to obtain and follow instructions from your broker or nominee to vote these shares. +May I revoke my proxy for the Annual Meeting once I have given it? +You may revoke your proxy at any time before it is voted at the Annual Meeting by: +● +properly executing and delivering a later dated proxy (including a telephone or Internet proxy authorization); +● +voting by ballot at the Annual Meeting; or +● +sending a written notice of revocation to the Corporate Secretary of the Company at Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +3 +How does the Board of Directors recommend that I vote my shares? +The Board of Directors of the Company recommends that you vote: +● +FOR the election of each of the six director nominees; +● +FOR the ratification of the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011; +● +FOR the approval, on a non-binding advisory basis, of the executive compensation of the Company’s named executive officers, as disclosed in this Proxy Statement; and +● +FOR the approval, on a non-binding advisory basis, of the recommendation to hold the advisory vote on the approval of executive compensation every three years. +ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. AS NOTED ABOVE, IF YOU HOLD YOUR SHARES BENEFICIALLY THROUGH A BROKER OR NOMINEE AND FAIL TO PROVIDE SPECIFIC VOTING INSTRUCTIONS TO THAT BROKER OR NOMINEE, YOUR SHARES WILL NOT BE VOTED IN THE ELECTION OF DIRECTORS AND THE ADVISORY VOTES ON EXECUTIVE COMPENSATION AND THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION. +Who will bear the expenses of this solicitation? +The expense of this solicitation, including preparing, printing and mailing this Proxy Statement, the exhibits hereto and the proxies solicited hereby, will be borne by the Company. In addition to the use of the mails, proxies may be solicited by officers and directors and employees of the Company, without additional remuneration, by personal interviews, telephone, telegraph or facsimile transmission. The Company will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares of Common Stock held of record by them and will provide reimbursements for the cost of forwarding the material in accordance with customary charges. The Company has entered into an agreement with Phoenix Advisory Partners to assist in the solicitation of proxies and provide related advice and informational support. The total expense of this engagement, which will be borne by the Company, including customary disbursements, is not expected to exceed $20,000 in the aggregate. +How will the voting results be reported? +The results of the voting on the proposals will be reported at the Annual Meeting and in a Current Report on Form 8-K, which will be filed with the SEC within four business days following the Annual Meeting. +STOCKHOLDER NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2012 ANNUAL MEETING +In accordance with Article II, Section 5 of the Company’s By-Laws, director nominations for the 2012 Annual Meeting of Stockholders of the Company (the “2012 Annual Meeting”) can only be made by a stockholder of the Company who (A) is a stockholder of record on the date of the giving of the notice of such director nominations and on the record date for the determination of stockholders entitled to vote at such meeting, and (B) complies with the notice requirements and procedures set forth in Article II, Section 5 of the Company’s Amended and Restated By-Laws (the “By-Laws”). A stockholder’s notice to the Corporate Secretary with respect to any such nominations must be timely and in proper written form pursuant to Article II, Section 5 of the Company’s By-Laws, including containing certain information concerning the nominating or proposing stockholder and certain information concerning the nominee, and must be delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s 2011 Annual Meeting. Accordingly, any written notice given by or on behalf of a stockholder pursuant to Article II, Section 5 of the Company’s By-Laws in connection with the 2012 Annual Meeting must be received no later than January 28, 2012 and no earlier than December 29, 2011. +4 +In accordance with rules promulgated by the SEC, any stockholder who wishes to submit a proposal for inclusion in the proxy material to be distributed by the Company in connection with the 2012 Annual Meeting must do so no later than December 15, 2011. In addition, in accordance with Article I, Section 7(f) of the Company’s By-Laws, in order to be properly brought before the 2012 Annual Meeting, a matter must be either (i) specified in the notice of such meeting given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before such meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) specified in a notice in proper written form given by a stockholder of record on the date of the giving of the notice and on the record date for such meeting, which notice conforms to the requirements of Article I, Section 7(f) of the By-Laws and is delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s 2011 Annual Meeting. Accordingly, any written notice given by or on behalf of a stockholder pursuant to the foregoing clause (iii) in connection with the 2012 Annual Meeting must be received no later than January 28, 2012 and no earlier than December 29, 2011. In addition, for business to be properly brought before the 2012 Annual Meeting by a stockholder pursuant to the foregoing clause (iii), such stockholder shall have complied with any other applicable requirements, including, but not limited to, the requirements of Rule 14a-8 promulgated by the SEC. +PROPOSAL ONE: +ELECTION OF DIRECTORS +The Company’s By-Laws provide that the Board of Directors of the Company shall be comprised of a minimum of one director and that, subject to this limitation, the number of directors may be fixed from time to time by action of the directors. The Company’s Board of Directors has fixed the number of directors to comprise the Board of Directors at six directors and the Board of Directors presently is comprised of six directors whose terms expire at the Annual Meeting. Directors serve a one-year term. +Upon recommendation of the Nominating/Corporate Governance Committee of the Board of Directors, the Board of Directors has nominated and is recommending to the stockholders the election of each of the six nominees named below to serve as a director of the Company until the next annual meeting of the Company’s stockholders and until his successor is duly elected and qualified or until his earlier death, resignation or removal from office. All nominees have consented to being named in this Proxy Statement and to serving on the Board of Directors if elected. +Biographical Summaries of Nominees for the Board of Directors +The names and biographical summaries of the six persons who have been recommended by the Nominating/ Corporate Governance Committee of the Board of Directors and nominated by the Board of Directors to stand for election at the Annual Meeting are provided below for your information. +Our Board of Directors includes members who are well-qualified to serve on the Board and its committees and to represent the best interests of our stockholders. The Board and the Nominating/Corporate Governance Committee select nominees with a view to establishing a Board of Directors that is comprised of individuals who have extensive business leadership experience, are independent, bring diverse perspectives to the Board, possess high ethical standards and sound business judgment and acumen and a willingness to devote the time necessary for the Board to effectively fulfill its responsibilities. We believe that all of the director nominees possess these qualifications and provide the Board with a full complement of knowledge, business skills and expertise for the effective management of our Company. In addition to these general qualifications, provided below for each nominee for director is a discussion of the experience, qualifications, attributes and skills that led to the Board’s conclusion that the nominee should serve as a director. +5 +Edward R. Rosenfeld - Chairman of the Board and Chief Executive Officer +Edward R. Rosenfeld, 35, has served as a director of the Company since February 2008 and has served on the Company’s Investment Committee since April 2008. Mr. Rosenfeld has been Chairman of the Board and Chief Executive Officer since August 2008 after serving as interim Chief Executive Officer of the Company from March 24, 2008 and prior to that, serving as the Executive Vice President of Strategic Planning and Finance of the Company. Mr. Rosenfeld has been a member of the executive management team since joining the Company in May 2005. Prior to joining the Company, Mr. Rosenfeld was a Vice President with Peter J. Solomon Company, an investment banking boutique, where he specialized in mergers and acquisitions in the retail, apparel and footwear industries. +With more than 13 years of experience focused on the retail, apparel and footwear industries, six of which have been with the Company, Mr. Rosenfeld possesses particular knowledge of and experience in the industry that strengthens the Board’s collective qualifications, skills and experience. Mr. Rosenfeld’s background in finance and his analytical skills gained through his years in investment banking provide the Board and the Investment Committee with insight and guidance with respect to, among other things, strategic business development matters. Mr. Rosenfeld has strong leadership skills and an in-depth understanding of the Company and its goals from his positions as the Chairman of the Board and Chief Executive Officer. +John L. Madden - Owner of JLM Consultants, Inc. +John L. Madden, 64, has served as a director of the Company since the Company’s inception in 1990 and has served on the Company’s Investment Committee, as its Chair, since April 2008. Since June 2004, Mr. Madden’s business consulting company, JLM Consultants, Inc., has provided consulting services to the Company with respect to international sales. From April 1998 through September 2003, Mr. Madden owned a branch office of Tradeway Securities Group, Inc., a brokerage firm, in Florida. From May 1996 through December 1996, Mr. Madden’s consulting company, JLM Consultants, Inc., acted as a branch office of Merit Capital, Inc., a brokerage firm. From May 1994 to May 1996, Mr. Madden served as Vice President of Investments for GKN Securities, Inc.. a brokerage firm. From August 1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc., a brokerage firm, as Managing Director and registered sales representative. Mr. Madden is the brother of Steven Madden, the Company’s founder and Creative and Design Chief. Please see the section of this Proxy Statement captioned “Certain Relationships and Related Party Transactions.” +As a result of Mr. Madden’s near twenty years of experience in finance and investing, he possesses a proficiency in financial analysis and investing that strengthens the Board’s collective qualifications, skills and experience and provides the Board and the Investment Committee with greater insight and guidance. Mr. Madden’s years in business consulting and strong financial background have provided him with broad experience in addressing operational and management issues and providing overall direction for complex corporations like ours. Mr. Madden brings a wealth of knowledge and experience that comes from over twenty years of service on the Company’s Board of Directors. His knowledge of Company history and his understanding of the Company in the context of the Company’s long-term strategic plan provides the Board with continuity of direction and focus. +Peter Migliorini - Sales Manager, Greschlers, Inc. +Peter Migliorini, 62, has served as a director of the Company since October 1996 and has served on the Company’s Audit Committee since October 1996, the Nominating/Corporate Governance Committee, as its Chair, since July 2004 and the Compensation Committee, as its Chair, since July 2004. Mr. Migliorini is also Presiding Director over all executive sessions of the independent directors. Mr. Migliorini has been Sales Manager for Greschlers, Inc., a building supplies company, since 1994. From 1987 to 1994, Mr. Migliorini served as Director of Operations for Mackroyce Group, a construction company. Prior to 1987, Mr. Migliorini held various positions of increasing responsibility from Assistant Buyer to Chief Planner/Coordinator for several shoe companies, including Meldisco Shoes, Perry Shoes and Fasco Shoes. +6 +Mr. Migliorini possesses extensive executive level financial, sales and operations experience. His numerous years of business experience at various levels and in various industries provide the Board with a measure of practical orientation regarding the Company’s operations and growth endeavors. Mr. Migliorini’s early experience in the shoe industry also provides relevant knowledge and expertise in the Company’s specific industry. +Richard P. Randall - Retired Executive Vice President and Chief Financial Officer, Direct Holdings Worldwide, LLC +Richard P. Randall, 73, has served as a director of the Company since April 2006 and has served on the Company’s Audit Committee, as its Chair, since 2006, on the Nominating/Corporate Governance Committee since September 2008 and on the Investment Committee since April 2008. Mr. Randall was the Executive Vice President and Chief Financial Officer of Direct Holdings Worldwide, LLC, the parent company of Lillian Vernon Corp., a catalog and online retailer of gifts and household goods, and Time-Life, a music and video marketing company, from 2002 until his retirement in June 2005. Prior to 2002, Mr. Randall served as Senior Vice President and Chief Financial Officer of Coach, Inc., a luxury leather goods company, and Chief Operating Officer and Chief Financial Officer of Lillian Vernon Corp. from 2000 to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves as a director, a member of the Audit and Risk Committee and chairs the Governance Committee of Aceto Corporation, a pharmaceutical, nutraceutical and chemical distribution company. Mr. Randall also serves as a director and chairs the Audit Committee of The Burke Rehabilitation Hospital and also serves as a member of the Executive, Finance and Research Committees of the hospital. Mr. Randall served as a director and chair of the Audit Committee of Universal Travel Group, a travel services provider in the People’s Republic of China, and of Home Systems Group, a manufacturer and distributor of household appliances in the People’s Republic of China, from 2007 until 2008 when he resigned from these boards. +With decades of business experience, including tenures as Chief Financial Officer and Chief Operating Officer of both publicly traded and privately held companies in the retail industry, Mr. Randall is a certified public accountant and possesses extensive knowledge of accounting and finance, the retail industry and the issues impacting a publicly traded company. Mr. Randall has extensive executive level experience establishing his capabilities in management of complex organizations. His expertise in finance qualify him to serve as the Audit Committee “audit committee financial expert” and his service on the boards and committees of other companies has allowed him to gain broad-based experience and sensitivity regarding best practices, which he shares with the Board. +Ravi Sachdev - Managing Director, J.P. Morgan. +Ravi Sachdev, 34, has served as a director of the Company since September 2008 and has served on the Company’s Audit Committee since September 2008. Mr. Sachdev joined J.P. Morgan, a global investment bank, as a Managing Director in November 2010, and focuses on the healthcare services subsector. Previously, Mr. Sachdev was a Managing Director at Deutsche Bank Securities, Inc. (“Deutsche Bank”) from January 2009 and prior to that held the position of Director at Deutsche Bank from January 2007 until January 2009. Mr. Sachdev joined Deutsche Bank in 2006 as a Vice President. Prior to joining Deutsche Bank, Mr. Sachdev was a Vice President at Peter J. Solomon Company, an investment banking boutique, specializing in mergers and acquisitions in the healthcare sector, from 1998 to 2006. +Mr. Sachdev possesses knowledge of finance and the financial analytics used to measure business performance. His professional experience in investment banking brings to the Board a thorough understanding of the financial issues affecting public companies and greater insights in business valuation together with a practical orientation with respect to acquisitions and integrations which our Company has undertaken over the last few years. +Thomas H. Schwartz - Owner, Sumner and Forge Investors LLC +Thomas H. Schwartz, 63, has served as a director of the Company since May 2004 and has served on the Company’s Compensation Committee since July 2004. Since March 2007, Mr. Schwartz has been the Chief Executive Officer and sole owner of Sumner and Forge Investors LLC, a company that invests in real estate and manages properties in which it holds ownership interests. Previously, Mr. Schwartz was a Managing Director of Helmsley-Spear, Inc., a real estate brokerage and management company, from 1984 to March 2007. +7 +With more than twenty years of experience as a Managing Director of Helmsley-Spear, Inc. and several years as the owner of his own real estate investment firm, Mr. Schwartz brings to the Board extensive executive level experience in handling operations issues and practical expertise in management. +Required Vote +Proxies will be voted for the election of the six nominees as directors of the Company unless otherwise specified in the proxy. A plurality of the votes cast by the holders of shares of Common Stock present in person or represented by proxy at the Annual Meeting will be necessary to elect the nominees as directors. This means that the director nominees who receive the greatest number of affirmative votes cast are elected as directors. If, for any reason, any of the nominees shall be unable or unwilling to serve, the proxies will be voted for a substitute nominee who will be designated by the Board of Directors at the Annual Meeting. Stockholders may abstain from voting by marking the appropriate boxes on the accompanying proxy. Abstentions shall be counted separately and shall be used for purposes of calculating whether a quorum is present at the Annual Meeting. +Recommendation of the Board of Directors +The Nominating/Corporate Governance Committee of the Board and the entire Board of Directors unanimously recommend a vote FOR the election of Messrs. Edward R. Rosenfeld, John L. Madden, Peter Migliorini, Richard P. Randall, Ravi Sachdev and Thomas H. Schwartz. +CORPORATE GOVERNANCE +The Board of Directors +Our business is managed under the direction and oversight of the Board of Directors who are elected by the Company’s stockholders. Directors meet their responsibilities by participating in meetings of the Board of Directors and the various committees of the Board on which they sit, as well as through communications with our Chairman and Chief Executive Officer, other officers and employees of the Company and by consulting with our independent registered public accounting firm and other third parties. +Director Independence +The Board of Directors is currently comprised of six members. The Board of Directors has determined that the following director nominees are “independent” for purposes of the criteria of the SEC and The Nasdaq Global Select Market listing standards: Messrs. Migliorini, Randall, Sachdev and Schwartz. If the six nominees set forth above are elected, the Board will be comprised of a majority of independent directors. The Board of Directors has held regularly scheduled executive sessions for the independent directors, with Peter Migliorini serving as Presiding Director of such executive sessions. +Director Attendance at Meetings +Attendance at Annual Meetings of Stockholders +The Company has no specific policy regarding director attendance at its annual meetings of stockholders. The Company encourages all of its directors to attend annual meetings of the Company’s stockholders and two directors attended the Company’s 2010 annual meeting of stockholders. +Attendance at Meetings of the Board of Directors +The Board of Directors held five regularly scheduled meetings during the 2010 Fiscal Year and acted by unanimous written consent on five occasions during the 2010 Fiscal Year. In 2010, each director attended at least 75% of the aggregate number of Board meetings, and each director attended at least 75% of the aggregate number of meetings held by all committees on which he then served. +8 +Committees of the Board +The Board of Directors, among other committees, has a standing Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee. +Audit Committee +The members of the Audit Committee are Messrs. Randall (Chairman), Migliorini and Sachdev. The Audit Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards and who meet the independence requirements contained in Exchange Act Rule 10A-3(b)(1). The Board has determined that Mr. Randall meets the SEC criteria of an “audit committee financial expert” and he is currently serving as such. The Audit Committee is primarily responsible for reviewing the services performed by the Company’s independent registered public accountants, evaluating the Company’s accounting policies and its system of internal controls, and reviewing significant financial transactions. During the 2010 Fiscal Year, the Audit Committee met eight times. +The Audit Committee is responsible for reviewing and striving to ensure the integrity of the Company’s financial statements and oversight of our compliance with legal and regulatory requirements, our internal audit function and an independent registered public accounting firm. Among other matters, the Audit Committee, with management and independent and internal auditors, reviews the adequacy of the Company’s internal accounting controls that could significantly affect the Company’s financial statements. The Audit Committee is also directly and solely responsible for the appointment, retention, compensation, oversight and termination of the Company’s independent registered public accountants. In addition, the Audit Committee also functions as the Company’s Qualified Legal Compliance Committee (the “QLCC”). The purpose of the QLCC is to receive, retain and investigate reports made directly, or otherwise made known, of evidence of material violations of any United States federal or state law, including any breach of fiduciary duty by the Company, its officers, directors, employees or agents, and if the QLCC believes appropriate, to recommend courses of action to the Company. +Management has primary responsibility for the Company’s financial statements and the overall reporting process, including the Company’s system of internal controls. The independent registered public accountants audit the annual financial statements prepared by management, express an opinion as to whether those financial statements present fairly the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States and discuss with the Audit Committee any issues they believe should be raised with the Audit Committee. +The Audit Committee is also responsible for the oversight of the Company’s risk management process, which is discussed in the “Risk Oversight” section below. +In performing its functions, the Audit Committee meets with management on at least a quarterly basis to review and discuss the annual audited financial statements, quarterly financial statements and related reports and to consider the adequacy of the Company’s internal controls and the objectivity of its financial reporting. The Audit Committee discusses these matters with the Company’s independent registered public accountants and with appropriate Company financial personnel. Meetings are held with the independent registered public accountants who have unrestricted access to the Audit Committee. In addition, the Audit Committee reviews the Company’s financing plans and reports and makes recommendations to the full Board of Directors for approval and to authorize action. The Board has adopted a written charter setting out the functions the Audit Committee is to perform. A copy of the Audit Committee Charter is available on the Company’s website at www.stevemadden.com. +9 +Nominating/Corporate Governance Committee +The members of the Nominating/Corporate Governance Committee are Messrs. Migliorini (Chairman) and Randall. The Nominating/Corporate Governance Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards. The Nominating/Corporate Governance Committee met once during the 2010 Fiscal Year. +The Nominating/Corporate Governance Committee provides oversight with respect to a wide range of issues relating to the composition and operation of the Board, including consideration of and recommendations regarding the size and composition of the Board of Directors and identification of potential candidates to serve as directors. The Nominating/ Corporate Governance Committee identifies candidates to the Board of Directors by introductions from management, members of the Board of Directors, employees of the Company or other sources, including stockholders that satisfy the Company’s policy regarding stockholder recommended candidates. The Nominating/Corporate Governance Committee does not evaluate director candidates recommended by stockholders differently than director candidates recommended by other sources. +Stockholders wishing to submit recommendations for director nominations for the 2012 Annual Meeting should write to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. Any such stockholder must (x) comply with the director nomination provisions of the Company’s By-Laws, (y) meet and evidence the minimum eligibility requirements specified in Exchange Act Rule 14a-8, and (z) submit, within the same timeframe for submitting a stockholder proposal required by Rule 14a-8: (1) evidence in accordance with Rule 14a-8 of compliance with the stockholder eligibility requirements, (2) the written consent of the candidate(s) for nomination as a director, (3) a resume or other written statement of the qualifications of the candidate(s) for nomination as a director, and (4) all information regarding the candidate(s) and the submitting stockholder that would be required to be disclosed in a proxy statement filed with the SEC if the candidate(s) were nominated for election to the Board of Directors. +In considering candidates for the Board of Directors, the Nominating/Corporate Governance Committee considers the Company’s Board Candidate Guidelines, available on the Company’s website at www.stevemadden.com, the Company’s policy regarding stockholder recommended director candidates, as set forth above, and all other factors that are deemed appropriate including, but not limited to, the individual’s character, education, experience, knowledge and skills. While the Nominating/Corporate Governance Committee’s Board Candidate Guidelines does not expressly identify diversity as a factor for consideration regarding the evaluation of director candidates, diversity is among the many factors the Nominating/Corporate Governance Committee considers in the candidate evaluation process. To assess the effectiveness of the mandate set forth in the Nominating/Corporate Governance Committee’s charter, the Nominating/Corporate Governance Committee reviews annually with the Board the composition of the Board as a whole and recommends, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for the Board as a whole. +In addition, the Nominating/Corporate Governance Committee develops and recommends corporate governance principles for the Company; makes recommendations to the Board of Directors in support of such principles; takes a leadership role in the shaping of the corporate governance of the Company; and oversees the evaluation of the Board of Directors and management. The Nominating/Corporate Governance Committee operates under a formal charter that governs the Committee’s composition, powers and responsibilities. A copy of the Nominating/Corporate Governance Charter is available on the Company’s website at www.stevemadden.com. +Compensation Committee +The members of the Compensation Committee are Messrs. Migliorini (Chairman) and Schwartz. The Compensation Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards and applicable tax and securities rules. During 2010, the Compensation Committee met four times and acted twice by unanimous written consent. +The Compensation Committee is responsible for establishing and overseeing the Company’s compensation and incentive plans and programs; determining and approving compensation for the Company’s executive officers, including salaries, bonuses, perquisites and equity awards; reviewing and approving compensation and awards for the Company’s executive officers under the Company’s compensation and incentive plans and programs; administering the Company’s equity compensation plans; reviewing and approving a compensation program for independent members of the Board; and assisting the Board in discharging the Board’s responsibilities relating to management organization, performance, compensation and succession. +10 +The Compensation Committee operates under a formal charter adopted by the Board of Directors that governs its composition, powers and responsibilities. A copy of the Compensation Committee Charter is available on the Company’s website at www.stevemadden.com. +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +Board Leadership Structure +As noted above, our Board is currently comprised of four independent and two non-independent directors. Mr. Rosenfeld has served as Chairman of the Board and Chief Executive Officer since August 2008, and has been a member of the Board since February 2008. The Board has designated one of the independent directors as Presiding Director to preside over executive sessions. We believe that the number of independent, experienced directors that comprise our Board, along with the independent oversight of our Presiding Director, benefits the Company and its stockholders. +We recognize that different board leadership structures may be appropriate for companies in different situations and believe that no one structure is suitable for all companies. We believe our current Board leadership structure is optimal for the Company because it demonstrates to our employees, suppliers, customers, and other stakeholders that the Company is under strong leadership, with a single person setting the tone and having primary responsibility for managing our operations. Having a single leader for both the Company and the Board eliminates confusion and duplication of efforts, and provides clear leadership for the Company. We believe the Company, like many U.S. companies, has been well-served by this leadership structure. +Because the positions of Chairman of the Board and Chief Executive Officer are held by the same person, the Board believes it is appropriate for the independent directors to elect one independent director to serve as a Presiding Director. In addition to presiding at executive sessions of the independent directors, the Presiding Director has various responsibilities including coordinating with the Chairman of the Board and Chief Executive Officer in establishing agenda and discussion items for Board meetings; retaining independent advisors on behalf of the Board as the Board may determine may be necessary or appropriate and performing such other functions as the independent directors may designate from time to time. Mr. Migliorini is currently serving as the Presiding Director. +Our Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for the Company and its stockholders. Our Corporate Governance Guidelines provide the flexibility for our Board to modify or continue our leadership structure in the future, as it deems appropriate. +Risk Oversight +Our Board is responsible for overseeing the Company’s risk management process. The Board focuses on the Company’s general risk management strategy, the most significant risks facing the Company, and ensures that appropriate risk mitigation strategies are implemented by management. The Board is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters. +The Board has delegated to the Audit Committee oversight of the Company’s risk management process. Among its duties, the Audit Committee reviews with management (a) the Company’s policies with respect to risk assessment and management of risks that may be material to the Company, (b) the Company’s system of disclosure controls and system of internal controls over financial reporting, and (c) the Company’s compliance with legal and regulatory requirements. The Audit Committee is also responsible for reviewing major legislative and regulatory developments that could materially impact the Company’s contingent liabilities and risks. Our other Board committees also consider and address risks as they perform their respective committee responsibilities. All committees report to the full Board as appropriate, including when a matter rises to the level of a material or enterprise level risk. +11 +The Company’s management is responsible for day-to-day risk management. Our risk management and internal audit areas serve as the primary monitoring and testing function for company-wide policies and procedures, and manage the day-to-day oversight of the risk management strategy for the ongoing business of the Company. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels. +We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing the Company and that our Board leadership structure supports this approach. +Executive Sessions of Independent Directors +The Board holds executive sessions of its independent directors generally at each regularly scheduled meeting. The Presiding Director serves as the chairperson for these executive sessions. +Communications between Stockholders and the Board +The Company has adopted a procedure by which stockholders may send communications as defined within Item 7(d) of Schedule 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to one or more members of the Board of Directors by writing to such director(s) or to the entire Board of Directors in care of the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. The Board has instructed the Corporate Secretary to review all communications so received and to exercise his discretion not to forward to the Board correspondence that is inappropriate, such as business solicitations, frivolous communications and advertising, routine business matters (i.e. business inquiries, complaints, or suggestions) and personal grievances. However, any director may at any time request the Corporate Secretary to forward any and all communications received by the Corporate Secretary but not forwarded to the directors. +Code of Business Conduct and Ethics +All of the Company’s employees, officers (including senior executive, financial and accounting officers) and directors are held accountable for adherence to the Company’s Code of Business Conduct and Ethics (the “Conduct Code”). The Conduct Code is intended to establish standards necessary to deter wrongdoing and to promote compliance with applicable governmental laws, rules and regulations and honest and ethical conduct. The Conduct Code covers all areas of professional conduct, including conflicts of interest, fair dealing, financial reporting and disclosure, protection of Company assets and confidentiality. Employees have an obligation to promptly report any known or suspected violation of the Conduct Code without fear of retaliation. Waiver of any provision of the Conduct Code for executive officers and directors may only be granted by the Board of Directors or one of its committees and any such waiver or modification of the Conduct Code relating to such individuals will be disclosed by the Company. A copy of the Conduct Code is available on the Company’s website at www.stevemadden.com and may also be obtained by any stockholder without charge upon request by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +Certain Relationships and Related Party Transactions +In January 2004, the Company entered into an agreement with John L. Madden, one of the Company’s directors, and JLM Consultants, a company wholly-owned by John L. Madden. Under this agreement, which was amended in 2005, Mr. Madden agreed to provide consulting services to the Company with respect to the development of international sales of the Company. This agreement expired by its terms on December 31, 2005, but Mr. Madden continues to provide consulting services and the Company continues to make payments to JLM Consultants consistent with those that would have been required under the expired consulting agreement. In accordance with the foregoing, for the 2010 Fiscal Year, JLM Consultants received the following from the Company: (a) a commission equal to 2.5% on international sales, (b) a monthly draw in the amount of $25,000 with recourse against such commissions, (c) a $1,000 per month travel allowance and (d) $2,812 per month toward health insurance premiums for health insurance coverage for John L. Madden. Pursuant to this arrangement, JLM Consultants received a total of $1,005,540 from the Company in the 2010 Fiscal Year. +12 +Effective as of July 1, 2005, the Company amended and restated its employment agreement with Steven Madden, pursuant to which Mr. Madden agreed to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement commenced on July 1, 2005 and, in accordance with a December 14, 2009 amendment thereto, will end on December 31, 2019. The agreement provides for an annual salary of $600,000, with a 7% increase of base salary on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. Mr. Madden also receives an annual $200,000 non-accountable expense allowance. The agreement provides for an annual cash bonus in an amount determined by the Board of Directors, which will be at least 2% of the Company’s EBITDA (the “Annual Bonus”). Additionally, the Company agreed to pay Mr. Madden an annual cash bonus in relation to “new business” (as defined in the agreement) in an amount to be determined by the Board of Directors, but which is at least (i) 2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business Bonus”). +Mr. Madden is also eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders, an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, with such number to be equal to not less than 100% of the largest aggregate number of shares of Common Stock available upon the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month period; provided, however, that a grant to Mr. Madden in excess of 150% of the number of shares of Common Stock available upon the exercise of an option or options granted to such other continuing full-time employee shall require stockholder approval. Any Annual Option received by Mr. Madden will vest quarterly over a one-year period following the grant date and will be exercisable, at a price equal to the closing price of the Company’s Common Stock on the grant date, for a period of five years following the date of the grant. In the event of Mr. Madden’s death, the agreement provides for the payment to Mr. Madden’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Madden’s death. +In the event that Mr. Madden’s employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” (as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” (as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within 30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to (1) the amount of compensation that is accrued and unpaid through the date of termination, (2) an amount equal to the product of (A) the number of years remaining in the term of the agreement (but not less than 5), and (B) the sum of (w) the base salary for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31, 2002, if greater), (x) the amount of the Annual Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ended on December 31, 2002, if greater), (y) the non-accountable expense allowance provided for under the agreement for the 12-month period ended on the preceding December 31, and (z) the amount of the New Business Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31 during the agreement in which Mr. Madden received the greatest New Business Bonus, if greater). Mr. Madden’s employment agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation and competition. +13 +For 2010 Fiscal Year, Mr. Madden earned (i) $686,940 in base salary; (ii) $200,000 in non-accountable expense allowance; (iii) a bonus of $2,608,819, representing 2% of the Company’s earnings before interest, tax, depreciation and amortization; (iv) a bonus of $5,627,484, earned based on 2.5% of the Company’s new business; and (v) a bonus of $368,088, based on 10% of Royalty/Licensing income over $2,000,000. As an Annual Option, on May 28, 2010, Mr. Madden received an option to purchase 75,000 shares of Common Stock, pursuant to the Company’s 2006 Stock Incentive Plan, as amended (the “2006 Plan”), at an exercise price of $34.49 per share. The option vests in equal installments of 18,750 shares on each of August 28, 2010, November 28, 2010, February 28, 2011 and May 28, 2011. +On January 11, 2010, Mr. Madden received a grant of 54,600 shares of the Company’s Common Stock, subject to certain restrictions (such number of shares is adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend), under the Company’s 2006 Plan. The restricted Common Stock will vest on the third anniversary of the grant date, January 11, 2013. +On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to exercise a stock option, which was due to expire, and hold the underlying Common Stock. Mr. Madden executed a promissory note in favor of the Company, which is secured by a pledge of 210,000 shares of the Company’s Common Stock beneficially owned by Mr. Madden. There have been successive amendments to the note, the most recent of which occurred on April 6, 2009, at which time the note was amended and restated to (i) extend the maturity date to the earlier of the date that Mr. Madden ceases to be employed by the Company and June 30, 2015 (the “Maturity Date”), and (ii) reflect the rate of interest as 8% per annum for the period from June 25, 2007 until April 6, 2010, and 6% per annum for the period from April 7, 2010 until the Maturity Date. As of December 31, 2010, interest in the amount of $849,186 has accrued on the note. Mr. Madden is the brother of John L. Madden, who has been a director of the Company since the Company’s inception in 1990. +Review, Approval or Ratification of Transactions with Related Persons +The Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +Related person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, the Board or committee will consider all relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which information is then reviewed for any conflicts of interest under the Conduct Code. +The Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s periodic filings, including related party transaction disclosures. +14 +If a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable. +COMPENSATION OF DIRECTORS IN THE 2010 FISCAL YEAR +The following table sets forth information concerning the compensation of the Company’s non-employee directors in the 2010 Fiscal Year. Following the table is a discussion of material factors related to the information disclosed in the table. +Name +Fees Earned +or Paid in +Cash +($) +Stock Awards +($)(1) +All Other Compensation +($) +Total +($) +John L. Madden +75,000 +63,244 +(2) +1,067,037 +(3) +1,205,281 +Peter Migliorini +110,000 +101,190 +(4) +0 +211,190 +Richard P. Randall +110,000 +101,190 +(5) +0 +211,190 +Ravi Sachdev +85,000 +101,190 +(6) +0 +186,190 +Thomas H. Schwartz +85,000 +101,190 +(7) +0 +186,190 +(1) Reflects the grant date fair value of stock awards calculated in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The amounts shown represent dollar amounts recognized for 2010 for financial statement reporting purposes under ASC Topic 718. The number of shares of Common Stock was calculated based on the fair value of the Company’s Common Stock on the grant date, May 28, 2010, by taking the closing sale price for a share of Common Stock on the Nasdaq for such grant date. There are no other assumptions made in the valuation of the stock awards. +(2) At December 31, 2010, the aggregate number of shares of restricted Common Stock held was 1,875, and Mr. Madden had no options outstanding. +(3) Includes: (a) the use of a corporate apartment valued at $61,497 and (b) $1,005,540 in fees, travel and health insurance premium allowance paid to JLM Consultants, Inc., a company wholly owned by Mr. Madden, as consideration for consulting services provided by JLM Consultants, Inc. with respect to the development of the Company’s international business. +(4) At December 31, 2010, the aggregate number of shares of restricted Common Stock held was 3,000, and the aggregate number of options outstanding was 1,250. +(5) At December 31, 2010, the aggregate number of shares of restricted Common Stock held was 3,000, and Mr. Randall had no options outstanding. +(6) At December 31, 2010, the aggregate number of shares of restricted Common Stock held was 3,000, and Mr. Sachdev had no options outstanding. +(7) At December 31, 2010, the aggregate number of shares of restricted Common Stock held was 3,000, and Mr. Schwartz had no options outstanding. +Directors who are also employees of the Company are not paid any fees or other remuneration for service on the Board of Directors or any of its committees. In 2010, each non-employee director received the following compensation: (i) (A) for independent directors, a grant of 3,000 shares of restricted Common Stock, vesting on the first anniversary of the grant date, and (B) for non-independent directors, a grant of 1,875 shares of restricted Common Stock, vesting on the first anniversary of the grant date; and (ii) $75,000. In 2010, members of the Audit Committee, Nominating/Corporate Governance Committee and Compensation Committee each received an additional $10,000 for serving on such committees, except that the Audit Committee financial expert and the Chairman of the Compensation Committee each received $25,000. The Company reimburses its directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. +15 +STOCK OWNERSHIP +Security Ownership of Certain Beneficial Owners +The following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership of the Common Stock of the Company by each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Common Stock of the Company. A person is deemed to be a beneficial owner of any securities which that person has the right to acquire within 60 days. +Name and Address of Beneficial Owner +Amount and Nature of Beneficial Ownership (1) +Percentage of Class +Steven Madden +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +2,098,849 +7.41 +%(2) +BOCAP Corp. +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +1,570,250 +5.58 +%(3) +BlackRock Inc. +40 East 52 nd Street +New York, NY 10022 +1,869,848 +6.64 +%(4) +FMR LLC +82 Devonshire Street +Boston, MA 02109 +2,385,069 +8.47 +%(5) +Royce & Associates, LLC +745 Fifth Avenue +New York, NY 10151 +1,871,604 +6.65 +%(6) +(1) Beneficial ownership as reported in the table below has been determined in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the Exchange Act and based upon 28,147,771 shares of Common Stock outstanding (excluding treasury shares) as of the Record Date. +(2) Mr. Madden’s beneficial ownership includes: (i) 1,570,250 shares of Common Stock held by BOCAP Corp, a corporation wholly-owned by Mr. Madden; (ii) 164,999 shares of Common Stock that may be acquired through options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (iii) 95,100 shares of restricted Common Stock; and (iv) 268,500 shares held by Mr. Madden directly. Mr. Madden has pledged to the Company 210,000 shares of Common Stock beneficially owned by him to secure the repayment of a loan made by the Company to Mr. Madden, which loan is discussed in the section of this Proxy Statement captioned “Certain Relationships and Related Party Transactions.” Excluded are 600,000 shares of Common Stock beneficially owned by a grantor retained annuity trust, the trustee of which is unrelated to Mr. Madden and as to which Mr. Madden does not, directly or indirectly, have or share voting or investment power; Mr. Madden disclaims beneficial ownership of such shares. +(3) BOCAP Corp is a corporation wholly-owned by Steven Madden. +(4) Based solely on a Statement on Schedule 13G filed with the SEC on February 8, 2011 by BlackRock, Inc. (“BlackRock”), BlackRock has sole voting and dispositive power with respect to all such shares. +16 +(5) Based solely on a Statement on Schedule 13G filed with the SEC on February 14, 2011 by FMR LLC (“FMR”), Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR, serves as investment adviser to various investment companies (the “Funds”) controlled by FMR and Edward C. Johnson 3d, Chairman of FMR. Mr. Johnson and FMR, through control of Fidelity and the Funds, have sole power to dispose of such shares. Neither FMR nor Edward C. Johnson 3d has sole power to vote or direct the voting of such shares, such power residing with the Funds’ boards of trustees. Fidelity carries out the voting of such shares under written guidelines established by the Funds’ boards of trustees. +(6) Based solely on a Statement on Schedule 13G filed with the SEC on January 14, 2011 by Royce & Associates, LLC (“Royce”), Royce has sole voting and dispositive power with respect to all such shares. +Security Ownership of Directors and Executive Officers +The following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership of Common Stock held by (a) each current director and nominee; (b) the Chief Executive Officer, the Chief Financial Officer and the three most highly compensated executive officers of the Company other than the Chief Executive Officer and the Chief Financial Officer (the “Named Executive Officers”); and (c) all current directors and executive officers as a group. A person is deemed to be a beneficial owner of any securities which that person has the right to acquire within 60 days. Each director and executive officer has sole voting power and dispositive power with respect to all shares beneficially owned by him or her. +Name of Beneficial Owner (1) +Amount and Nature of +Beneficial Ownership (2) +Percentage of Class +Edward R. Rosenfeld +205,250 +* +% (3) +Arvind Dharia +117,170 +* +% (4) +Awadhesh Sinha +57,500 +* +% (5) +Robert Schmertz +193,875 +* +% (6) +Amelia Newton Varela +78,749 +* +% (7) +John L. Madden +32,500 +* +% (8) +Peter Migliorini +4,250 +* +% (9) +Richard P. Randall +9,750 +* +% (10) +Thomas H. Schwartz +13,350 +* +% (11) +Ravi Sachdev +6,750 +* +% (12) +All Directors and Executive Officers as a Group (10 persons named above) +719,144 +2.53 +% (13) +* Indicates beneficial ownership of less than 1%. +(1) The address for each of the named individuals below is c/o Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +(2) Beneficial ownership as reported in the table above has been determined in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the Exchange Act and based upon 28,147,771 shares of Common Stock outstanding (excluding treasury shares) as of the Record Date. +(3) Mr. Rosenfeld’s beneficial ownership includes: (i) 91,000 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 86,000 shares of restricted Common Stock; and (iii) 28,250 shares of Common Stock held by Mr. Rosenfeld. +(4) Mr. Dharia’s beneficial ownership includes: (i) 72,670 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 25,600 shares of restricted Common Stock; and (iii) 18,900 shares of Common Stock held by Mr. Dharia. +(5) Mr. Sinha’s beneficial ownership includes: (i) 35,000 shares of restricted Common Stock; and (ii) 22,500 shares of Common Stock held by Mr. Sinha. +(6) Mr. Schmertz’s beneficial ownership includes: (i) 28,125 shares of Common Stock that may be acquired through the exercise of an option that is exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 37,500 shares of restricted Common Stock; and (iii) 128,250 shares of Common Stock held by Mr. Schmertz. +17 +(7) Ms. Varela’s beneficial ownership consists of 78,749 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date. +(8) Mr. Madden’s beneficial ownership includes: (i) 1,875 shares of restricted Common Stock and (ii) 30,625 shares of Common Stock held by Mr. Madden. +(9) Mr. Migliorini’s beneficial ownership includes: (i) 1,250 shares of Common Stock that may be acquired through the exercise of an option that is exercisable as of the Record Date; and (ii) 3,000 shares of restricted Common Stock. +(10) Mr. Randall’s beneficial ownership includes: (i) 3,000 shares of restricted Common Stock; and (ii) 6,750 shares of Common Stock held by Mr. Randall, all of which shares have been pledged by Mr. Randall as collateral security in a margin brokerage account. +(11) Mr. Schwartz’s beneficial ownership includes: (i) 3,000 shares of restricted Common Stock; and (ii) 10,350 shares of Common Stock held by Mr. Schwartz. +(12) Mr. Sachdev’s beneficial ownership includes: (i) 3,000 shares of restricted Common Stock; and (ii) 3,750 shares of Common Stock held by Mr. Sachdev. +(13) Includes, in aggregate, 271,794 shares of Common Stock that may be acquired through the exercise of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 197,975 share of restricted Common Stock; and (iii) 249,375 shares of Common Stock held by such beneficial owners. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that the Company’s directors and officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, file with the SEC reports of initial ownership of Common Stock and subsequent changes in that ownership and furnish the Company with copies of all forms they file with the SEC pursuant to Section 16(a) of the Exchange Act. A late report was filed on April 27, 2010 to report that on April 1, 2010 Amelia Varela was granted an option to purchase 37,500 shares of Common Stock (the number of shares indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend). A late report was filed on November 22, 2010 to report that on March 24, 2010 Edward R. Rosenfeld exercised an option to purchase 5,333 shares of Common Stock granted on March 24, 2008. To the Company’s knowledge, based solely on a review of the copies of the reports furnished to the Company or written representations received from the Company’s directors, officers and greater than 10% beneficial owners that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with during, or in respect of, the fiscal year ended December 31, 2010. +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Compensation Objectives and Strategy +The Company’s executive officer compensation program is designed to attract and retain the caliber of officers needed to ensure the Company’s continued growth and profitability and to reward them for their performance, the Company’s performance and for creating longer term value for our stockholders. The primary objectives of the program are to: +● +align rewards with performance that creates stockholder value; +● +support the Company’s strong team orientation; +● +encourage high-potential team players to build a career at the Company; and +● +provide rewards that are cost-efficient, competitive with other organizations and fair to employees and stockholders. +The Company’s executive compensation programs are approved and administered by the Compensation Committee of the Board of Directors. Working with management and outside advisors, the Compensation Committee has developed a compensation and benefits strategy that rewards performance and reinforces a culture that the Compensation Committee believes will drive long-term success. +18 +The compensation program rewards team accomplishments while promoting individual accountability. The executive officer compensation program depends in significant measure on Company results, but business unit results and individual accomplishments are also very important factors in determining each executive’s compensation. The Company has a robust planning and goal-setting process that is fully integrated into the compensation system, enhancing a strong relationship between individual efforts, Company results, and financial rewards. +A major portion of total compensation is placed at risk through annual and long-term incentives. As noted below, discretionary bonuses were paid to the Named Executive Officers. The combination of incentives is designed to balance annual operating objectives and Company earnings performance with longer-term stockholder value creation. +The Company seeks to provide competitive compensation that is commensurate with performance. The Company targets compensation at the median of the market, and calibrates both annual and long-term incentive opportunities to generate less-than-median awards when goals are not fully achieved and greater-than-median awards when goals are exceeded. +The Company seeks to promote a long-term commitment to the Company by its senior executives. The Company believes that there is great value to the Company in having a team of long-tenured, seasoned managers. The Company’s team-focused culture and management processes are designed to foster this commitment. In addition, stock options and/or restricted Common Stock awards granted to Named Executive Officers in 2010 Fiscal Year reinforce this long-term orientation with annual vesting over a four- or five-year period. +Role of the Compensation Committee +General. The Compensation Committee provides overall guidance for the Company’s executive compensation policies and determines the amounts and elements of compensation for the Company’s executive officers and outside directors. The Compensation Committee currently consists of two members of the Company’s Board of Directors, Messrs. Migliorini and Schwartz, each of whom is an independent director under Rule 5605 of The Nasdaq Global Select Market listing standards, a “non-employee director” as defined under the SEC’s rules and an “outside director” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). +When considering decisions concerning the compensation of executives, other than the Chief Executive Officer, the Compensation Committee asks for the recommendations of the Chief Executive Officer, including his detailed evaluation of each executive’s performance. No executive has a role in recommending compensation for outside directors. With respect to the application of the 2006 Plan to non-employee directors, the Board of Directors functions as the Compensation Committee. +Use of Outside Advisors. In making its determinations with respect to executive compensation, the Compensation Committee has historically engaged the services of an independent compensation consulting firm. The Compensation Committee has retained the services of James F. Reda & Associates, LLC (“Reda & Associates”) since 2005 to assist with its review of the compensation packages and employment agreements of the Chief Executive Officer and other executive officers. In 2010, Reda & Associates worked with the Compensation Committee to assess the reasonableness of discretionary cash bonus payments to Messrs. Rosenfeld, Dharia and Schmertz based on the Company’s performance in 2009 and the reasonableness of the terms of a new employment agreement for Mr. Sinha as compared with comparable positions in the peer group listed below. Executive compensation decisions in 2010 were based on a market study provided by Reda & Associates in late 2009. Reda & Associates provides only executive compensation consulting services and works with management only at the behest of the Compensation Committee. +19 +The Compensation Committee retains Reda & Associates directly, although in carrying out assignments, Reda & Associates also interacts with Company management, when necessary and appropriate, in order to obtain compensation and performance data for the executives and the Company. In addition, Reda & Associates may, in its discretion, seek input and feedback from management regarding its consulting work product prior to presentation to the Compensation Committee in order to confirm alignment with the Company’s business strategy and identify data questions or other similar issues, if any, prior to presentation to the Compensation Committee. +The Compensation Committee has the sole authority to retain, terminate and set the terms of the Company’s relationship with any outside advisors who assist the Committee in carrying out its responsibilities. +Compensation Structure +Pay Elements - Overview +The Company utilizes four main components of compensation: +● +base salary +● +annual performance-based cash bonuses +● +long-term equity incentives (consisting of stock options and restricted stock); and +● +benefits and perquisites +Pay Elements - Details +Base Salary . The Company paid base salaries to each of the Named Executive Officers to provide them with fixed pay that considers the Named Executive Officer’s role and responsibilities, experience, expertise and individual performance. As more fully described in the section of this Proxy Statement captioned “Employment Arrangements,” as of December 31, 2010, the Company had employment agreements with each of the Named Executive Officers. A full description of each Named Executive Officer’s base salary is contained in the section of this Proxy Statement captioned “Employment Arrangements.” The Compensation Committee, as constituted at the time the parties entered into the employment agreements or any amendments thereof, reviewed and approved the salary established in each such agreement or amendment. The Compensation Committee considered each employee’s salary history, value in the marketplace and performance (including at the Company and previous employment). +Under the employment agreement of our Chief Executive Officer, Mr. Rosenfeld, annual base salary was fixed at $500,000 for the 2010 Fiscal Year, increased to $525,000 for the 2011 fiscal year and, on January 1, 2012, will increase to and remain at $551,250 until the agreement expires on December 31, 2012. The annual base salary of our Chief Operating Officer, Mr. Sinha, was $540,000 for 2010 Fiscal Year under an employment agreement that expired by its terms on December 31, 2010. Mr. Sinha’s current employment agreement provides for an annual base salary of $575,000 throughout the term of the agreement, which will expire on December 31, 2013. Under the employment agreement, as amended, of our Chief Financial Officer, Mr. Dharia, annual base salary for 2010 Fiscal Year was fixed at $528,304 and remains at this level until the agreement expires on December 31, 2011. The employment agreement of our Brand Director, Mr. Schmertz, provides for an annual base salary of $660,000 for 2010 Fiscal Year and subsequent years, until the agreement expires on December 31, 2012. The annual base salary of our Executive Vice President - Wholesale, Ms. Varela, was fixed at $400,000 for 2010 Fiscal Year under an employment agreement that expired by its terms on December 31, 2010. Ms. Varela’s current employment agreement provides for an annual base salary of $450,000 for the year ending December 31, 2011 and for the remainder of the term of the agreement, which will expire on December 31, 2013. Please see the section of this Proxy Statement captioned “Summary Compensation Table” and “Employment Arrangements.” Salary increases for Named Executive Officers are generally consistent with those of other management employees. +A nnual Performance-based Cash Bonus - Based on Specific Performance Metrics . Annual performance-based cash bonuses for Named Executive Officers are established in their respective employment agreements. The Compensation Committee reviewed and approved the bonus provisions fixed in each such employment agreement at the time the parties entered into such agreements and any amendments thereof. Such bonus provisions generally provide for variable or discretionary bonuses designed to reward attainment of business goals. +20 +Under the terms of his prior employment agreement, Mr. Sinha was entitled to an annual performance-based cash bonus equal to 3% of the increase in the Company’s EBIT for the latest fiscal year over the EBIT of the immediately prior fiscal year up to a maximum bonus of $1,000,000 in any fiscal year. For 2010 Fiscal Year, Mr. Sinha’s annual performance-based cash bonus was $1,000,000 based on an increase of $42,867,167 in 2010 EBIT over 2009 EBIT. +Beginning with fiscal year 2011, Mr. Sinha’s bonus will be determined by the Board of Directors or the Compensation Committee in its sole discretion. +Under the terms of her prior employment agreement, Ms. Varela was entitled to an annual performance-based cash bonus for each fiscal year in an amount equal to 2% of the increase, if any, in Wholesale Footwear Division EBIT for that year over Wholesale Footwear Division EBIT for the immediately prior year, plus 1.5% of the increase, if any, in Retail Division EBIT for that year over Retail Division EBIT for the immediately prior year. For 2010 Fiscal Year, Ms. Varela’s annual performance-based cash bonus was $540,965, reflecting 2% of $19,002,550, the increase in 2010 Wholesale Footwear Division EBIT over that of 2009, plus 1.5% of $10,727,587, the increase of 2010 Retail Division EBIT over that of 2009. +Under Ms. Varela’s current employment agreement, commencing with fiscal year 2011, she is entitled to an annual performance-based cash bonus equal to 2% of the increase, if any, in Wholesale Division EBIT for that year over Wholesale Division EBIT for the immediately prior year, excluding from such bonus calculation EBIT attributable to any business acquired after January 31, 2011 until the acquired business has been owned by the Company for two full calendar years. +Annual Performance-based Cash Bonus - Not Based on Specific Performance Metrics. The decision to pay cash bonuses to Messrs. Rosenfeld, Dharia and Schmertz for the 2010 Fiscal Year and the amount of each such Named Executive Officer’s bonus was determined wholly at the discretion of the Compensation Committee. The Compensation Committee evaluated a variety of indicators of the Company’s overall financial performance, including revenue growth and profitability, and assessed and made subjective judgments as to each of these executive’s individual contribution towards the Company’s performance in 2010 Fiscal Year in determining whether to pay cash bonuses to these executives and establishing the amount to be paid. With respect to the determination to award bonuses to Messrs. Dharia and Schmertz, the Compensation Committee also considered the recommendations of the Chief Executive Officer, Mr. Rosenfeld. The Company paid cash bonuses of $100,000, $50,000 and $350,000, respectively, to Messrs. Rosenfeld, Dharia, and Schmertz for the 2010 Fiscal Year. +Long-term Equity Incentives . Management and the Compensation Committee believe that equity-based awards are an important factor in aligning the long-term financial interest of the executive officers and stockholders. The Compensation Committee continually evaluates the use of equity-based awards and intends to continue to use such awards in the future as part of designing and administering the Company’s compensation program. Beginning in 2006, the Compensation Committee modified its prior practice of granting equity incentives solely in the form of stock options with periodic awards of restricted stock in order to grant awards that contain both substantial incentive and retention characteristics. These awards are designed to provide emphasis on preserving stockholder value generated in recent years while providing significant incentives for continuing growth in stockholder value. +With respect to the 2010 Fiscal Year, Ms. Varela received a stock option for 37,500 shares of Common Stock at an exercise price of $32.64 (the number of shares and exercise price indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend), which vests in five equal annual installments. Mr. Sinha received a restricted stock award of 35,000 shares of Common Stock, which vests in three equal annual installments. Mr. Dharia received a restricted stock award of 12,000 shares of Common Stock (the number of shares indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend), which vests in five equal annual installments. The grants to Ms. Varela and Mr. Sinha were made under their employment agreements, the terms of which were approved by the Compensation Committee. The grant to Mr. Dharia was also approved by the Compensation Committee. All of the equity awards in the 2010 Fiscal Year were made under the 2006 Plan. The Committee intends to continue to review the equity mix to achieve the ideal incentive for both performance and retention. With respect to stock options, the 2006 Plan provides that the exercise price shall be the closing market price per share of the Company’s Common Stock on the business day immediately preceding the grant date, which is fair market value for purposes of the 2006 Plan. +21 +Other Benefits and Perquisites . The Company’s executive compensation program also includes other benefits and perquisites. These benefits and perquisites include annual matching contributions to executive officers’ 401(k) plan accounts, company-paid medical benefits, automobile allowances and leased automobiles, and life insurance coverage. The Compensation Committee annually reviews these other benefits and perquisites and makes adjustments as warranted based on competitive practices, the Company’s performance and the individual’s responsibilities and performance. The Compensation Committee has approved these other benefits and perquisites as a reasonable component of the Company’s executive officer compensation program. Please see the section of this Proxy Statement captioned “Summary Compensation Table and, specifically, the column entitled “All Other Compensation” and the corresponding footnotes. +Pay Mix +The Company utilizes the particular elements of compensation described above because the Company believes that it provides a well-proportioned mix of secure compensation, retention value and at-risk compensation, which produces short-term and long-term performance incentives and rewards. By following this approach, the Company provides the executives a measure of security in the minimum expected level of compensation, while motivating the executives to focus on business metrics and other variables within their particular sector which will increase sales and margins and at the same time lower costs so as to produce a high level of short-term and long-term performance for the Company and long-term wealth creation for the executives, as well as reducing the risk of recruitment of top executive talent by competitors. The mix of metrics used for the annual performance bonuses and the Company’s long-term incentive program likewise provides an appropriate balance between short-term financial performance and long-term stock performance. +For the Named Executive Officers, the mix of compensation is weighted heavily toward at-risk pay (annual incentives and long-term incentives). Maintaining this pay mix results fundamentally in a pay-for-performance orientation for the Company’s executives, which is aligned with the Company’s stated compensation philosophy of providing compensation commensurate with performance. +Pay Levels and Benchmarking +Pay levels for executives are determined based on a number of factors, including the individual’s roles and responsibilities within the Company, the individual’s experience and expertise, the pay levels for peers within the Company, pay levels in the marketplace for similar positions and performance of the individual and the Company as a whole. The Compensation Committee is responsible for approving pay levels for the Named Executive Officers. In determining the pay levels, the Compensation Committee considers all forms of compensation and benefits. +The Compensation Committee assesses “competitive market” compensation using a number of sources. The primary data source used in setting competitive market levels for the Named Executive Officers is the information publicly disclosed by a peer group of the Company, which will be reviewed annually and may change from year to year. For 2010 Fiscal Year, executive compensation and compensation design was reviewed in relation to the following peer companies: +American Apparel Inc. +Perry Ellis International, Inc. +Movado Group, Inc. +Bebe Stores, Inc. +G-III Apparel Group, Ltd. +Rocky Brands, Inc. +Brown Shoe Co. Inc. +Genesco, Inc. +Skechers U.S.A. Inc. +Kenneth Cole Productions Inc. +Guess, Inc. +Timberland Co. +Collective Brands, Inc. +Iconix Brand Group, Inc. +Under Armour, Inc. +Crocs, Inc. +The Jones Group Inc. +Volcom, Inc. +Deckers Outdoor Corp. +K-Swiss, Inc. +Weyco Group, Inc. +Delta Apparel, Inc. +Maidenform Brands, Inc. +Wolverine Worldwide +22 +After consideration of the data collected on external competitive levels of compensation and internal needs, the Compensation Committee makes decisions regarding the Named Executive Officer’s target total compensation opportunities based on the need to attract, motivate and retain an experienced and effective management team. Relative to the competitive market data, the Compensation Committee generally intends that the base salary and target annual incentive compensation for each Named Executive Officer will be at the median of the competitive market. +As noted above, notwithstanding the Company’s overall pay positioning objectives, pay opportunities for specific individuals vary based on a number of factors such as scope of duties, tenure, institutional knowledge and/or difficulty in recruiting a new executive. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of operating goals and the creation of stockholder value. +Compensation Committee Discretion +The Compensation Committee retains the discretion to decrease all forms of incentive payouts based on significant individual or Company performance shortfalls, with the exception of any such payouts that are to be made pursuant to contractual commitments, such as the bonuses that may be paid to Ms. Varela, which are tied to the Company’s EBIT for the preceding year pursuant to her employment agreement. Similarly, the Compensation Committee retains the discretion to increase payouts and/or consider special awards for significant achievements, including, but not limited to, superior asset management, investment or strategic accomplishments and/or consummation of acquisitions, divestitures, capital improvements to existing properties, or sales made by certain of the Company’s divisions. +Risk Assessment +Bonus payments to executives are based either on the discretion of the Compensation Committee or are tied to growth in EBIT. Long-term incentives have been granted in the form of stock options and time-vested restricted stock that generally vest over four or five years. These programs have been in place for several years and have proved effective in rewarding performance while not encouraging inappropriate risk-taking. +The Compensation Committee undertook to review and evaluate all of our executive and company-wide compensation plans and programs to assess whether any aspect of these plans and programs would encourage inappropriate risk-taking by the Company’s executives and non-executive employees that could have a material adverse effect on the Company and to confirm that the Company has adequate risk management controls in place to ensure that executive and company-wide compensation is reasonable and achieves its intended incentive without creating unacceptable risk. Based on such review and evaluation, the Compensation Committee believes there is no material adverse risk to the Company that is related to our compensation programs for executives and non-executives. +This review and evaluation of our compensation plans and programs risks consisted of: +● +identifying those business risks that could be material to the Company and identifying our existing risk management system; +● +reviewing and analyzing our compensation plans and programs to identify plan and program features that could potentially encourage or introduce excessive or imprudent risk taking of a material nature; +● +identifying the business risks that our compensation plan and program features could potentially encourage or create; +● +balancing these business risks against our existing internal control systems designed to manage and mitigate these business risks; and +● +analyzing whether the unmitigated risks, as a whole, are reasonably likely to have a material adverse effect on the Company. +23 +Various persons were consulted during the course of the assessment, including our executive officers and senior members of our human resources department. The Compensation Committee engaged Reda & Associates to review our executive and company-wide compensation plans and programs and provide advice regarding appropriate levels of incentive. This included an early 2010 market review of pay mix and the ratio of long-term incentives to short-term incentives. +The Compensation Committee noted several features of our compensation structure that mitigate risk, including, for example: +● +the Company utilizes a pay mix that is well balanced between short-term financial performance and long-term stock performance, comprised of secure compensation in the form of base salary, short-term incentives in the form of potential for cash bonuses, and long-term incentives in the form of stock options and time-vested restricted stock that generally vest over four or five years; +● +in most instances, management or the Compensation Committee retains the discretion to decrease all forms of incentive compensation based on significant individual or Company performance shortfalls; +● +we periodically benchmark our compensation plans and programs and target executive and non-executive compensation within the normal limits of the competitive market; and +● +the Compensation Committee provides oversight of the Company’s compensation plans and programs and compensation philosophy, makes recommendations to the Board with respect to improvements to our compensation plans and programs, and is responsible for reviewing and approving executive compensation and administering and awarding incentive, deferred and equity compensation to our senior executives. +In light of the assessment described above, it was concluded that the risks associated with our compensation plans and programs (executive and company-wide) are not reasonably likely to have a material adverse effect on the Company. +Implications of Tax and Accounting Matters +As a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed by the Company. While the Compensation Committee reviews and considers both the accounting and tax effects of various components of compensation, these effects are not a significant factor in the Compensation Committee’s allocation of compensation among the different components. +In general, the Company believes that compensation paid to executive officers should be deductible for U.S. tax purposes. In certain instances, however, the Compensation Committee also believes that it is in the Company’s best interests, and that of its stockholders, to have the flexibility to pay compensation that is not deductible under the limitations of Section 162(m) of the Code in order to provide a compensation package consistent with the Company’s objectives. +As more fully described below under the heading “Termination, Change-in-Control and Non-Competition/Non-Solicitation,” all of the executive officers of the Company whose names appear in the Summary Compensation Table contained in this Proxy Statement are entitled to receive certain compensation in the event of a termination of employment in connection with a change-in-control event for the Company, which payments may trigger the application of the “golden parachute” provisions of Sections 280G and 4999 of the Code. Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change-in-control. In addition, Section 4999 of the Code imposes a 20% excise tax on the individual receiving the excess parachute payment. Excess parachute payments are golden parachute payments that exceed an amount determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements of our Named Executive Officers, our Compensation Committee considers all elements of the cost to our Company of providing such compensation including the potential impact of Sections 280G and 4999 which, under certain circumstances, may limit the deductibility to the Company of executive compensation. However, our Compensation Committee may determine, in its judgment, to authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section 4999 when it believes that such arrangements are appropriate to attract and retain executive talent. +24 +Conclusion +The level and mix of compensation that is finally decided upon is considered within the context of both the objective data from the Company’s competitive assessment of compensation and performance, as well as discussion of the subjective factors as outlined above. The Compensation Committee believes that each of the compensation packages for the Named Executive Officers is within the competitive range of practices when compared to the objective comparative data even where subjective factors have influenced the compensation decisions. +Compensation Committee Interlocks and Insider Participation +During the 2010 Fiscal Year, the following directors served on the Compensation Committee: Peter Migliorini (Chairman) and Thomas H. Schwartz. During the 2010 Fiscal Year: +● +none of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries; +● +none of the members of the Compensation Committee had a direct or indirect material interest in any transaction in which the Company was a participant and the amount involved exceeded $120,000; +● +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; +● +none of the Company’s executive officers was a director of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; and +● +none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served as a director on the Company’s Board of Directors. +Executive Officers +The following table identifies the executive officers and certain significant employees of the Company, and their ages and positions: +Name +Age +Position +Edward R. Rosenfeld +35 +Chairman of the Board and Chief Executive Officer +Arvind Dharia +61 +Chief Financial Officer and Secretary +Awadhesh Sinha +65 +Chief Operating Officer +Robert Schmertz +47 +Brand Director +Amelia Newton Varela +39 +Executive Vice President of Wholesale +25 +Arvind Dharia has been the Chief Financial Officer of the Company since October 1992 and was a director of the Company from December 1993 through May 2004. Mr. Dharia has been Secretary of the Company since 1993. From December 1988 until joining the Company in September 1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp., a real estate management company. +Awadhesh Sinha became the Chief Operating Officer of the Company in July 2005. Mr. Sinha was a director of the Company, from October 2002 to July 2005, before joining the Company as its Chief Operating Officer. Mr. Sinha was the Chief Operating Officer and Chief Financial Officer of WEAR ME Apparel Inc., a company that designs, manufactures and markets branded and non-branded children’s clothing, from 2003 to July 2005. Prior to that, Mr. Sinha worked for Salant Corporation, a company that designs, manufactures and markets men’s clothing, for 22 years, and held the position of Chief Operating Officer and Chief Financial Officer of Salant Corporation from 1998 to 2003. +Robert Schmertz has been the Brand Director since January 2006. Mr. Schmertz served as President of Steve Madden Women’s Wholesale Division and Brand Manager from September 2001 through January 2006. Additionally, Mr. Schmertz served as President of Shoe Biz, Inc., formerly a wholly owned subsidiary of Steven Madden Retail, Inc., from May 1998 through August 2001. Before joining the Company, Mr. Schmertz was President of Daniel Scott Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the East Coast Sales Manager for Impo International from January 1993 through November 1995. From April 1990 to December 1992, Mr. Schmertz served as a sales representative for Espirit de Corp. based in San Francisco, California. +Amelia Newton Varela has been Executive Vice President of Wholesale since April 2008. Ms. Varela was Executive Vice President of Wholesale Sales from November 2004 to April 2008. Previously, she was Vice President of Sales for Steve Madden Women’s Wholesale Division from January 2000. Prior to that, she was Account Executive for Steve Madden Women’s Wholesale Division from 1998. Before joining the Company, Ms. Varela was the sales assistant to the Executive Vice President of Sales for Merrin Financial. She graduated from The Fashion Institute of Technology in 1995. +Please see the section of this Proxy Statement captioned “Proposal One: Election of Directors -- Biographical Summaries of Nominees for the Board of Directors” for information concerning the Company’s Chairman of the Board and Chief Executive Officer, Edward R. Rosenfeld, and the Company’s other directors. +26 +SUMMARY COMPENSATION TABLE +The following table sets forth the compensation earned for all services rendered to the Company in all capacities in the 2010, 2009 and 2008 fiscal years, respectively, by the Company’s Chief Executive Officer, Chief Financial Officer and the three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer, who were serving at the end of 2010, 2009 and 2008, respectively. In this Proxy Statement, the Company refers to this group of people as the Company’s “Named Executive Officers.” +Name and Principal Position +Fiscal Year +Salary ($) +Bonus +($) +Stock Awards ($) (1) +Option Awards ($)(1) +Non-Equity Incentive Plan Compensation ($) +All Other Compensation ($) +Total Compensation ($) +Edward R. Rosenfeld +2010 +500,000 +100,000 +0 +0 +0 +22,350 +(2) +622,350 +Chief Executive Officer +2009 +400,000 +100,000 +1,977,000 +742,218 +0 +5,885 +(3) +3,225,103 +2008 +366,250 +75,000 +0 +233,200 +0 +5,083 +(4) +679,533 +Arvind Dharia +2010 +528,304 +50,000 +364,240 +0 +0 +94,415 +(5) +1,036,959 +Chief Financial Officer +2009 +479,573 +50,000 +0 +296,887 +0 +97,782 +(6) +924,242 +2008 +457,406 +50,000 +0 +0 +0 +102,891 +(7) +610,297 +Awadhesh Sinha +2010 +539,963 +175,500 +1,621,550 +0 +1,000,000 +(8) +17,584 +(9) +3,354,597 +Chief Operating Officer +2009 +540,000 +0 +0 +0 +899,176 +(8) +20,994 +(10) +1,460,170 +2008 +526,612 +0 +0 +439,143 +0 +369,220 +(11) +1,334,975 +Robert Schmertz +2010 +660,000 +350,000 +0 +0 +0 +22,350 +(12) +1,032,350 +Brand Director +2009 +600,000 +400,000 +0 +1,337,514 +0 +22,750 +(13) +2,360,264 +2008 +600,000 +250,000 +0 +0 +0 +22,452 +(14) +872,452 +Amelia Newton Varela +2010 +400,000 +200,000 +0 +500,159 +540,965 +(15) +22,350 +(16) +1,663,474 +Executive Vice President +2009 +400,000 +0 +0 +556,664 +421,224 +(15) +22,750 +(17) +1,400,638 +Of Wholesale +2008 +349,038 +250,000 +0 +351,278 +0 +22,750 +(17) +973,066 +(1) The amounts in this column reflect the aggregate grant date fair value of awards granted during the applicable year for the fiscal years ended December 31, 2010, December 31, 2009 and December 31, 2008, respectively, calculated in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Notes I or G to the Company’s audited financial statements for the fiscal years ended December 31, 2010, December 31, 2009 and December 31, 2008 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2011, March 12, 2010 and March 12, 2009, respectively. +(2) Includes the following: $15,000 automobile allowance and $7,350 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(3) Includes the following: $1,731 automobile allowance and $4,154 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(4) Includes the following: $2,020 automobile allowance and $3,063 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(5) Includes the following: $6,738 automobile allowance, $80,327 life insurance premiums and $7,350 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +(6) Includes the following: $6,136 automobile allowance, $80,202 life insurance premiums and $11,444 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +(7) Includes the following: $9,226 automobile allowance, $83,331 life insurance premiums and $10,334 in annual matching contributions to Mr. Dharia’s 401(k) plan account. +(8) Represents a non-equity incentive payment made pursuant to a bonus formula in Mr. Sinha’s employment agreement. See “Employment Arrangements.” +(9) Includes the following: $10,108 automobile allowance and $7,476 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(10) Includes the following: $10,411 automobile allowance and $10,583 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +27 +(11) Includes the following: $8,115 automobile allowance, $351,688 for deferred compensation and $9,417 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(12) Includes the following: $15,000 automobile allowance and $7,350 in annual matching contributions to Mr. Schmertz’s 401(k) plan account. +(13) Includes the following: $15,000 automobile allowance and $7,750 in annual matching contributions to Mr. Schmertz’s 401(k) plan account. +(14) Includes the following: $15,000 automobile allowance and $7,452 in annual matching contributions to Mr. Schmertz’s 401(k) plan account. +(15) Represents a non-equity incentive payment made pursuant to a bonus formula in Ms. Varela’s employment agreement. See “Employment Arrangements. +(16) Includes the following: $15,000 automobile allowance and $7,350 in annual matching contributions to Ms. Varela’s 401(k) plan account. +(17) Includes the following: $15,000 automobile allowance and $7,750 in annual matching contributions to Ms. Varela’s 401(k) plan account. +Employment Arrangements +Edward R. Rosenfeld. In April 2008 (effective in March 2008), the Company entered into an employment agreement with Edward R. Rosenfeld pursuant to which Mr. Rosenfeld agreed to serve as interim Chief Executive Officer of the Company for a term expiring on December 31, 2009. Effective August 8, 2008, the Company appointed Mr. Rosenfeld to serve as Chief Executive Officer and executive Chairman of the Board. The terms of Mr. Rosenfeld’s employment agreement remained unchanged. Under the employment agreement, the Company agreed to pay Mr. Rosenfeld an annual base salary of $400,000 and such additional compensation and annual bonus as may be determined from time to time by the Board of Directors in its sole discretion. In addition, pursuant to the employment agreement, Mr. Rosenfeld received, as additional compensation, an option to purchase 60,000 shares of Common Stock at an exercise price of $12.11, exercisable to the extent of 12,000 shares on each of March 24, 2009, March 24, 2010, March 24, 2011, March 24, 2012 and March 24, 2013, said option to remain exercisable for seven years from the effective date of the agreement (the number of shares and exercise price indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend). +In November 2009, the Company entered into a new employment agreement with Mr. Rosenfeld to replace the prior employment agreement, which expired by its terms on December 31, 2009. Pursuant to his new employment agreement, Mr. Rosenfeld will continue to serve as Chief Executive Officer of the Company for a term commencing on November 6, 2009 and expiring on December 31, 2012, unless sooner terminated in accordance with the terms of the agreement. Mr. Rosenfeld will continue to serve as the executive Chairman of the Board of Directors of the Company. His base salary during the 2009 Fiscal Year remained $400,000 and, on January 1, 2010, increased to $500,000 for 2010 Fiscal Year. Mr. Rosenfeld’s annual base salary increased to $525,000 for the year ending December 31, 2011 and, on January 1, 2012, will increase to and remain at $551,250 until the agreement expires on December 31, 2012. Mr. Rosenfeld receives a monthly automobile allowance of $1,250. In addition, Mr. Rosenfeld’s new employment agreement provides for a grant of 75,000 shares of the Company’s Common Stock, subject to certain restrictions (the number of shares indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend). These restricted shares of Common Stock were issued to Mr. Rosenfeld on November 10, 2009 under the 2006 Plan. The restricted Common Stock will vest in five equal annual installments of 15,000 shares commencing on the first anniversary of the date of the award. Mr. Rosenfeld’s new employment agreement provides that additional compensation and bonuses, if any, will be paid to him at the absolute discretion of the Board of Directors. +In the event of his death, Mr. Rosenfeld’s employment agreement provides for the payment to his estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Rosenfeld’s death. The agreement also provides that if Mr. Rosenfeld’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. Rosenfeld will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to be totally disabled. Mr. Rosenfeld’s new employment agreement allows the Company to terminate his employment with “cause” (as defined in the employment agreement) or without cause. In the event that Mr. Rosenfeld’s employment is terminated by the Company for cause, the Company will have no further obligations to Mr. Rosenfeld, and Mr. Rosenfeld will be entitled to no further compensation from the Company, except for pro-rata amounts due to him on the date of his termination. In the event that Mr. Rosenfeld’s employment is terminated by the Company without cause or by Mr. Rosenfeld’s resignation for “good reason” (as defined in the employment agreement), Mr. Rosenfeld will be entitled to receive payment of his annual base salary, payable at regular payroll intervals, from the date of termination of employment through the longer of the remainder of the term of the agreement or six months. +28 +In addition, if Mr. Rosenfeld’s employment is terminated by the Company without cause or by the resignation of Mr. Rosenfeld for good reason during the period commencing 90 days prior to a “change of control” (as defined in the employment agreement) transaction and ending 180 days following a change of control transaction, Mr. Rosenfeld will receive an amount equal to three times the average amount of total W-2 compensation actually received by him during the preceding three calendar years ending on the last previous December 31, except that in lieu of the actual base salary component received during such period, there shall be substituted the annual base salary to which Mr. Rosenfeld was entitled as of the date of termination or resignation (the “Change of Control Payment”). However, if the Change of Control Payment (or a portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, Mr. Rosenfeld shall be paid either (i) the Change of Control Payment (which shall be subject to all applicable taxes to be paid by the executive including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility to the Company) or (ii) a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without the imposition of an excise tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields the greater after-tax benefit to the executive. +A rvind Dharia. In January 1998, the Company entered into an employment agreement with Arvind Dharia, which has been amended from time to time, most recently on October 7, 2009, pursuant to which Mr. Dharia agreed to serve as the Company’s Chief Financial Officer. The term of Mr. Dharia’s employment under his agreement, as amended, commenced on January 1, 1998 and ends on December 31, 2011. The term will be automatically extended for an additional one-year period unless either party timely notifies the other of its intention not to extend the term. Pursuant to the amended agreement, Mr. Dharia received a base salary of $457,406 and $479,573 during fiscal years 2008 and 2009, respectively. Commencing January 1, 2010, Mr. Dharia’s annual base salary increased to $528,304. Mr. Dharia receives a monthly automobile allowance of $1,200. In addition, the agreement provides that Mr. Dharia receive an annual bonus in such amount, if any, and at such time or times, as the Board of Directors may determine in its absolute discretion. Subject to availability of shares under the 2006 Plan, or any other plan designated by the Board of Directors and approved by the Company’s stockholders, Mr. Dharia is entitled to awards under such plan as may be determined by the Board of Directors, or a committee thereof, from time to time in its absolute discretion. +The agreement provides, in the event of Mr. Dharia’s death, for the payment to Mr. Dharia’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Dharia’s death. The agreement also provides that if Mr. Dharia’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. Dharia will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to be totally disabled. In the event Mr. Dharia’s employment agreement is terminated “for cause” (as defined in the agreement), the Company is obligated to pay Mr. Dharia the amount of compensation that is accrued and unpaid through the date of termination. In the event Mr. Dharia’s employment agreement is terminated for any reason (other than “for cause” or due to his death or total disability), the Company is obligated to pay Mr. Dharia, in two installments, (a) an amount equal to the product of (x) his base salary on the effective date of such termination plus the bonus paid or payable, if any, for the fiscal year ended on the December 31st immediately preceding the termination date, multiplied by (y) the number of years (and fraction of years) remaining in the term; and (b) the amount payable to him, or on his account, for what would have been the balance of the term of his employment agreement with respect to certain benefits and plans as set forth in his employment agreement. If the Company decides not to renew the agreement (other than “for cause” or due to his total disability), then Mr. Dharia will be entitled to receive severance compensation in cash in an amount equal to his then-current base salary for the 90-day period commencing on the expiration of the term. +In addition, in the event that there is a “change of control” transaction and Mr. Dharia’s employment has been terminated by the Company other than “for cause” or if Mr. Dharia resigns “for good reason” (as such terms are defined in the agreement), Mr. Dharia will receive an amount equal to three times the total compensation he was entitled to receive under the agreement for the preceding 12-month period ending on the last previous December 31, except that in lieu of the actual base salary component received during such period, there shall be substituted the annual base salary to which Mr. Dharia was entitled to as of the date of termination or resignation (the “Change of Control Payment”). However, if the Change of Control Payment (or a portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, Mr. Dharia will be paid either (i) the Change of Control Payment (which shall be subject to all applicable taxes to be paid by the executive including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility to the Company) or (ii) a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without the imposition of an excise tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields the greater after-tax benefit to the executive. +29 +Awadhesh Sinha. In June 2005, the Company entered into an employment agreement with Awadhesh Sinha, pursuant to which Mr. Sinha agreed to serve as the Company’s Chief Operating Officer. Mr. Sinha’s employment agreement was amended in November 2007 and in October 2008. The agreement, as amended, provided Mr. Sinha an annual salary of $540,000 (which is equal to the base salary amount payable to Mr. Sinha pursuant to the original employment agreement at the time of the October 2008 amendment). Upon entering into the agreement in 2005, Mr. Sinha received a signing bonus of $100,000. In addition, with respect to the fiscal year ended December 31, 2005, Mr. Sinha was entitled to an annual bonus equal to the greater of (i) $50,000, and (ii) 3% of the increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year; with respect to each of the Company’s remaining fiscal years through the 2008 fiscal year, Mr. Sinha was entitled to an annual bonus equal to 3% of the increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year. In respect of each of the Company’s 2009 and 2010 fiscal years, Mr. Sinha was eligible to receive a cash bonus under the Company’s 2006 Plan equal to 3% of the increase in the Company’s EBIT for such fiscal year over the EBIT of the immediately prior fiscal year up to a maximum bonus of $1,000,000 in any fiscal year. Mr. Sinha received a cash bonus of $1,000,000 and $899,176 for 2010 EBIT performance and 2009 EBIT performance, respectively. +In addition, Mr. Sinha’s employment agreement, as amended, provided for certain deferred compensation with respect to 2008, 2009 and 2010. For the period commencing July 1, 2008 and ending December 31, 2008, the agreement, as amended, provided for a mandatory deferral of additional cash compensation in an amount equal to 25% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such additional cash compensation provided that Mr. Sinha remained in the employ of the Company on December 31, 2010. For the period commencing January 1, 2009 and ending December 31, 2009, the agreement, as amended, provided for a mandatory deferral of additional cash compensation in an amount equal to 12.5% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such additional cash compensation provided that Mr. Sinha remains in the employ of the Company on December 31, 2010. For the period commencing January 1, 2010 and ending December 31, 2010, the agreement, as amended, provided for a mandatory deferral of additional cash compensation in an amount equal to 7.5% of Mr. Sinha’s annual base salary, and the Company agreed to pay to Mr. Sinha such additional cash compensation provided that Mr. Sinha remains in the employ of the Company on December 31, 2010. Mr. Sinha received a total of $175,500, in cash, with respect to the deferred additional cash compensation for the 2008, 2009 and 2010 fiscal years subsequent to the end of the 2010 Fiscal Year. +On December 1, 2010, the Company entered into a new employment agreement with Mr. Sinha to replace the prior employment agreement, which was to expire by its terms on December 31, 2010. Pursuant to the new employment agreement, Mr. Sinha continues to serve as Chief Operating Officer of the Company for a term commencing on January 1, 2011 and expiring on December 31, 2013, unless sooner terminated in accordance with the terms of the agreement. Mr. Sinha’s annual base salary is $575,000 for the fiscal year 2011 and for the remainder of the term of the agreement. Mr. Sinha receives a monthly automobile allowance of $1,750 and the Company will pay term life insurance premiums on his behalf of approximately $3,500 per year. In addition, Mr. Sinha’s new employment agreement provides for a grant of 35,000 shares of the Company’s Common Stock, subject to certain restrictions. These restricted shares of Common Stock were issued to Mr. Sinha on December 1, 2010 under the 2006 Plan. The restricted Common Stock will vest in three annual installments of 11,666 shares on the first anniversary of the grant date and as to 11,667 shares on each of the second and third anniversary of the grant date. Mr. Sinha’s new employment agreement provides that additional compensation and bonuses, if any, will be paid to him at the absolute discretion of the Board of Directors. Bonuses and other incentive-based compensation paid to Mr. Sinha are subject to recovery by the Company in the event of a determination that such compensation was based upon materially inaccurate financial statements. +30 +In the event of his death, Mr. Sinha’s employment agreement provides for the payment to Mr. Sinha’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Sinha’s death. In the event Mr. Sinha’s employment agreement is terminated due to Mr. Sinha’s “total disability” or “for cause” (as such terms are defined in the agreement), or due to Mr. Sinha’s resignation without “good reason” (as such term is defined in the agreement), the Company is obligated to pay Mr. Sinha the amount of compensation that is accrued and unpaid through the date of termination. In addition, in the event of Mr. Sinha’s total disability, the Company is obligated to continue to pay Mr. Sinha’s base salary for the 12-month period immediately subsequent to the date of determination of such total disability. In the event Mr. Sinha’s employment agreement is terminated by the Company without cause or by the resignation of Mr. Sinha for good reason, Mr. Sinha would be entitled to receive payment of his annual base salary, payable at regular payroll intervals, from the date of termination of employment through the longer of (i) the remainder of the term or (ii) six months. +In addition, if Mr. Sinha’s employment is terminated by the Company without cause or if Mr. Sinha resigns for good reason during the period commencing 120 days prior to a “change of control” (as defined in the agreement) and ending 180 days after a change of control, Mr. Sinha would be entitled to receive an amount equal to three times the total W-2 compensation actually received by him during the preceding twelve-month period ending on the last previous December 31 st , except that, in lieu of the actual base salary compensation received, the annual base salary to which Mr. Sinha was entitled as of the date of such termination or resignation of employment shall be substituted (the “Change of Control Payment”). However, if the Change of Control Payment (or a portion thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, Mr. Sinha will be paid either (i) the Change of Control Payment (which shall be subject to all applicable taxes to be paid by the executive including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility to the Company) or (ii) a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without the imposition of an excise tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields the greater after-tax benefit to the executive. +Robert Schmertz. In April 2002, the Company entered into an employment agreement with Robert Schmertz pursuant to which Mr. Schmertz agreed to serve as President of Steve Madden Wholesale Women’s Division and Brand Manager for the Company. The term of the agreement commenced on April 1, 2002 and was extended in March 2005 and again in March 2007. Mr. Schmertz received a signing bonus of $500,000 upon the execution of the March 2007 extension and 150,000 shares of restricted Common Stock, which vests in equal parts on each of the first five anniversaries of February 27, 2007, pursuant to the 2006 Plan (the number of shares indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend). The Company agreed to pay Mr. Schmertz an annual salary of $600,000. +In October 2009, the Company entered into a new employment agreement with Mr. Schmertz to replace the prior employment agreement, which was to expire by its terms on December 31, 2009. Pursuant to the new employment agreement, Mr. Schmertz will continue to serve as Brand Director of the Company for a term commencing on October 7, 2009 and expiring on December 31, 2012, unless sooner terminated in accordance with the terms of the agreement. Mr. Schmertz’s annual base salary during the period from October 7, 2009 through December 31, 2009 remained $600,000. His annual base salary was increased to $660,000 commencing on January 1, 2010 for the duration of the term. Mr. Schmertz receives a monthly automobile allowance of $1,250. Pursuant to the new employment agreement, Mr. Schmertz received a fiscal year 2009 performance bonus of $300,000 (minus withholding taxes), $200,000 of which was paid to him in October 2009 and the remaining $100,000 of which was paid to him in March 2010. The new employment agreement provides that Mr. Schmertz may receive additional bonuses, if any, at the absolute discretion of the Board of Directors. In addition, pursuant to the new employment agreement, Mr. Schmertz received an option to purchase 75,000 shares of Common Stock, pursuant to the terms of the 2006 Plan, at an exercise price of $24.73 per share. The option vests in equal annual installments of 15,000 shares over a five-year period on each anniversary of the date of the grant commencing on October 8, 2010 and remains exercisable until October 8, 2016. +31 +In the event of Mr. Schmertz’s death, the employment agreement provides for the payment to his estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Schmertz’s death. The agreement also provides that if Mr. Schmertz’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. Schmertz will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to be totally disabled. The Company may terminate the employment agreement for “cause” (as defined in the employment agreement), in which event Mr. Schmertz would be entitled to receive only his accrued and unpaid base salary through the date of termination. In the event that Mr. Schmertz’s employment is terminated by the Company without cause, he would be entitled to receive payment of his annual base salary, payable at regular payroll intervals, from the date of termination through the remainder of the term. In addition, if Mr. Schmertz’s employment is terminated by the Company without cause during the period commencing 30 days prior to a “change of control” (as defined in the employment agreement) transaction and ending 180 days after a change of control transaction, he would be entitled to receive an amount equal to the lesser of (i) the average amount of total compensation actually received by him during the preceding three calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible to the Company under Section 280G of the Code, such amount to be in lieu of and not in addition to any other payments to which Mr. Schmertz would be entitled in the event of the termination of his employment. +Amelia Newton Varela. In October 2004, the Company entered into an employment agreement with Amelia Newton Varela, pursuant to which Ms. Varela agreed to serve as Executive Vice President of Wholesale Sales. In April 2008, the Company entered into a new employment agreement with Ms. Varela, pursuant to which Ms. Varela agreed to serve as Executive Vice President of Wholesale and Retail for a term commencing on April 29, 2008 and ending on December 31, 2010. Pursuant to the employment agreement, on April 29, 2008, Ms. Varela was granted an option to purchase 75,000 shares of the Company’s Common Stock at an exercise price of $12.88 per share (the number of shares and exercise price indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend). The option is exercisable until April 29, 2015 to the extent of 15,000 shares on each of April 29, 2009, April 29, 2010, April 29, 2011, April 29, 2012 and April 29, 2013. Further, pursuant to the employment agreement, Ms. Varela was granted an option to purchase 37,500 shares of Common Stock of the Company at an exercise price of $12.52 per share on April 1, 2009 and an option to purchase 37,500 shares of Common Stock of the Company at an exercise price of $32.64 per share on April 1, 2010 (the number of shares and exercise prices indicated having been adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend). Such options shall vest 20% each year for five years, commencing on the first anniversary date of the grant of the options, have a term of seven years and have an exercise price equal to the market price on the grant date. Under Ms. Varela’s 2008 employment agreement, her annual base salary was $350,000 for 2008 and $400,000 for 2009 and 2010. Under the terms of the agreement, the Company agreed to pay Ms. Varela an annual bonus for each of 2008, 2009 and 2010 in an amount equal to 2% of the increase, if any, in Wholesale Footwear Division EBIT for that year over Wholesale Footwear Division EBIT for the immediately prior year, plus 1.5% of the increase, if any, in Retail Division EBIT for that year over Retail Division EBIT for the immediately prior year. Ms. Varela received a cash bonus of $540.965 and $421,224 for 2010 EBIT performance and 2009 EBIT performance, respectively. In addition, under her employment agreement, Ms. Varela would be entitled to a cash bonus of $200,000 if still employed by the Company on December 31, 2010, which bonus was paid to Ms. Varela subsequent to the end of the 2010 Fiscal Year. +On January 31, 2011, the Company entered into a new employment agreement with Ms. Varela to replace the prior employment agreement, which expired by its terms on December 31, 2010. Pursuant to her new employment agreement, Ms. Varela will serve as the Executive Vice President - Wholesale for a term commencing January 1, 2011 and expiring on December 31, 2013, unless sooner terminated in accordance with the terms of the agreement. Ms. Varela will receive an annual base salary during the term of $450,000 and a monthly automobile allowance of $1,250. In addition, pursuant to her new employment agreement, on February 1, 2011, Ms. Varela was granted an option to purchase 100,000 shares of the Company’s Common Stock under the 2006 Plan, at an exercise price of $38.17 per share, which option becomes exercisable in four equal annual installments of 25,000 on each anniversary of the date of grant, commencing on February 1, 2012. In addition, Ms. Varela is entitled to an annual performance-based cash bonus for each of the fiscal years ended December 31, 2011, 2012 and 2013 in an amount equal to 2% of the increase, if any, in the Wholesale Division EBIT for each such year over the Wholesale Division EBIT for the immediately preceding year. Wholesale Division EBIT attributable to any business acquired by the Company after January 31, 2011 will not be included for the purpose of determining Ms. Varela’s bonus until the acquired business has been owned by the Company for two full calendar years. +32 +In the event that Ms. Varela’s employment agreement is terminated due to Ms. Varela’s “disability” (as defined in the agreement) or death, the Company is obligated to pay Ms. Varela (or her estate) the amount of accrued and unpaid salary through the date of termination plus any performance-based cash bonus that has accrued for the year prior to termination and is unpaid at the time Ms. Varela’s employment is terminated due to her disability or death. The Company may terminate the agreement for “cause” (as defined in the agreement) and, in such event, Ms. Varela will be entitled only to accrued and unpaid salary through the date of termination of employment. In the event Ms. Varela’s employment is terminated by the Company without cause, she would be entitled to receive payment of her annual base salary, payable at regular payroll intervals, from the date of termination of employment through the remainder of the term plus any performance-based cash bonus that has accrued but not yet been paid. In the event that Ms. Varela’s employment is terminated by the Company without cause during the period commencing 30 days prior to a “change of control” (as defined in the agreement) transaction and ending 180 days following a change of control transaction, she is entitled to receive an amount equal to the lesser of (i) the average amount of total compensation actually received by her during the preceding three calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible to the Company under Section 280G of the Code. +GRANTS OF PLAN-BASED AWARDS IN THE 2010 FISCAL YEAR +The following table sets forth information concerning awards under the Company’s equity and non-equity incentive plans granted to each of the Named Executive Officers in the 2010 Fiscal Year, including performance-based awards and those using time-based vesting. Following the table is a discussion of material factors related to the information disclosed in the table. +All Other Stock Awards: Number of Shares of Stock or Units (#) +All Other Option Awards: Number of Securities Underlying Options (#) +Exercise or Base Price of Option Awards ($/Sh) +Grant Date Fair Value of Stock and Option Awards ($) +Estimated future payouts under non-equity incentive plan awards +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Edward R. Rosenfeld +n/a +— +— +— +— +— +— +— +Arvind Dharia +03/09/10 +— +— +— +12,000 +— +— +364,240 +Awadesh Sinha +10/14/08 +(1) +899,176 +(2) +— +— +— +— +12/01/10 +— +— +— +35,000 +— +— +1,621,550 +Robert Schmertz +n/a +— +— +— +— +— +— +— +Amelia Newton Varela +05/30/08 +(1) +— +421,224 +(3) +— +— +— +— +— +04/01/10 +— +— +— +— +37,500 +32.53 +500,159 +(1) Each of Mr. Sinha and Ms. Varela were parties to employment agreements with the Company entered into on the dates indicated above, respectively, each of which expired by its terms on December 31, 2010. Each such employment agreement provides that the executive officer will receive a cash bonus under the Company’s 2006 Plan based on the Company’s performance in the immediately prior fiscal year, as measured by specified metrics. These employment agreements provide for such bonuses over several years corresponding to the term of each such employment agreement. Since the performance metrics for each year’s awards are set forth in the employment agreement of each executive, the date of such employment agreement is indicated as the grant date of the award. +(2) Under the employment agreement, dated October 14, 2008, between the Company and Mr. Sinha, Mr. Sinha is entitled to receive a cash bonus under the Company’s 2006 Plan during the first quarter of the Company’s fiscal year 2011 in an amount equal to 3% of the increase, if any, in the Company’s EBIT for the 2010 fiscal year over the Company’s EBIT for the 2009 fiscal year. Since it would not be possible to determine the amount of Mr. Sinha’s cash bonus, if any, until the completion of the Company’s 2010 fiscal year, the amount indicated as the target bonus payout is a representative amount and based upon the actual increase in the Company’s EBIT for the 2009 fiscal year over the Company’s EBIT for the 2008 fiscal year. See the discussion of this grant to Mr. Sinha appearing above in the “Annual Performance-Based Cash Bonus - Based on Specific Performance Metrics” section of “Compensation Structure” and above under “Employment Arrangements.” As disclosed in the Summary Compensation Table above, Mr. Sinha received a cash bonus of $1,000,000 for 2010 EBIT performance. +33 +(3) Under the employment agreement, dated May 30, 2008, between the Company and Ms. Varela, Ms. Varela is entitled to receive a cash bonus under the Company’s 2006 Plan on or about March 15, 2011 in an amount equal to (a) 2% of the increase, if any, in the Wholesale Footwear division EBIT for the 2010 fiscal year over the Wholesale Footwear division EBIT for the 2009 fiscal year plus (b) 1.5% of the increase, if any, in the Retail division EBIT for the 2010 fiscal year over the Retail division EBIT for the 2009 fiscal year. Since it would not be possible to determine the amount of Ms. Varela’s cash bonus, if any, until the completion of the Company’s 2010 fiscal year, the amount indicated as the target bonus payout is a representative amount and based upon the actual increase in the EBIT performance of the Company’s Wholesale Footwear and Retail divisions for the 2009 fiscal year over the EBIT performance of these divisions for the 2008 fiscal year. See the discussion of this grant to Ms. Varela appearing above in the “Annual Performance-Based Cash Bonus - Based on Specific Performance Metrics” section of “Compensation Structure” and above under “Employment Arrangements.” As disclosed in the Summary Compensation Table above, Ms. Varela received a cash bonus of $540,965 for 2010 EBIT performance of the Company’s Wholesale Footwear and Retail divisions. +Plan-Based Awards +1999 Stock Plan +As of March 15, 1999, the Board of Directors of the Company adopted the 1999 Stock Plan (the “1999 Plan”), and on June 4, 1999 the Company’s stockholders approved the adoption of the 1999 Plan. Since its adoption, the 1999 Plan has been amended, with stockholder approval, to (i) increase the number of shares subject to the 1999 Plan, (ii) provide that the exercise price of an option granted under the 1999 Plan shall be no less than the fair market value of the Common Stock on the date of grant (except to the extent otherwise provided in agreements with the Company dated prior to the effective date of the amendment), and (iii) prohibit the Board from amending the terms of any option granted pursuant to the 1999 Plan to reduce the option price. The 1999 Plan was adopted to provide a means whereby directors and selected employees, officers, agents, consultants, and independent contractors of the Company could be granted incentive stock options and/or nonqualified stock options to purchase shares of Common Stock, in order to attract and retain the services or advice of such directors, employees, officers, agents, consultants, and independent contractors and to provide additional incentive for such persons to exert maximum efforts for the success of the Company by encouraging stock ownership in the Company. As of the Record Date, options to purchase 60,546 shares of Common Stock were outstanding under the 1999 Plan. No additional options will be granted under the 1999 Plan. +2006 Stock Incentive Plan +As of March 10, 2006, the Board of Directors of the Company adopted the Company’s 2006 Stock Incentive Plan and, on May 26, 2006, the Company’s stockholders approved the adoption of the Company’s 2006 Stock Incentive Plan. The 2006 Stock Incentive Plan was amended in 2007 and 2008. On April 6, 2009, the Board of Directors adopted an Amended and Restated 2006 Stock Incentive Plan and, on May 22, 2009, the Company’s stockholders approved the Amended and Restated 2006 Stock Incentive Plan. The Company’s Amended and Restated 2006 Stock Incentive Plan is referred to as the “2006 Plan” throughout this Proxy Statement. The purpose of the 2006 Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible employees, consultants and non-employee directors cash and stock-based incentives in the Company to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders. +The maximum number of shares of Common Stock available for issuance under the 2006 Plan is 6,096,000 shares (such number of shares is adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend). As of the Record Date, there were outstanding 396,550 unvested shares of restricted stock and options to purchase 1,909,705 shares of Common Stock; options had been exercised, or restricted stock had vested, with respect to 3,887,848 shares of Common Stock; and 2,208,152 shares of Common Stock remained available for grant under the 2006 Plan. +34 +OUTSTANDING EQUITY AWARDS AT END OF THE 2010 FISCAL YEAR +The following table sets forth information concerning unexercised stock options, restricted stock that has not vested and stock awards outstanding for each of the Named Executive Officers as of the end of the 2010 Fiscal Year. All awards that occurred prior to the three-for-two split of the Company’s Common Stock effectuated as a stock dividend on or about April 30, 2010 have been adjusted to account for such stock split. +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexercised Options (#) Exercisable +Number of securities Underlying Unexercised Options (#) Unexercisable +Equity Incentive Plan Awards: Number of Securities Underlying Unexcercised Unearned Options (#) +Option Exercise Price ($) +Option Expiration Date +Number of Shares or Units of Stock That Have Not Vested (#) +Market Value of Shares or Units of Stock That Have Not Vested ($) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) +Edward R. Rosenfeld +4,000 +36,000 +(1) +— +12.1133 +3/24/2015 +72,000 +(2) +3,003,840 +— +— +37,500 +112,500 +(1) +— +12.5200 +4/1/2016 +— +— +— +— +Arvind Dharia +30,002 +— +— +8.7022 +7/6/2011 +24,000 +(3) +1,001,280 +— +— +12,668 +— +— +7.8933 +5/27/2015 +— +— +— +— +15,000 +45,000 +(4) +— +12.5200 +4/1/2016 +— +— +— +— +Awadhesh Sinha +— +25,001 +(5) +— +15.6400 +10/3/2015 +35,000 +(6) +1,460,200 +— +— +— +— +— +— +— +— +— +Robert Schmertz +— +84,375 +(7) +— +12.5200 +4/1/2016 +60,000 +(8) +2,503,200 +— +— +— +60,001 +(7) +— +24.7333 +10/8/2016 +— +— +— +— +Amelia Newton +Varela +— +45,001 +(9) +— +12.8800 +4/29/2015 +— +— +— +— +28,124 +84,376 +(9) +— +12.5200 +4/1/2016 +— +— +— +— +— +37,500 +(9) +— +32.5300 +4/1/2017 +— +— +— +— +(1) On March 24, 2008, Mr. Rosenfeld was granted an option to purchase 60,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant. On April 1, 2009, Mr. Rosenfeld was granted an option to purchase 150,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant. +(2) On March 20, 2006, Mr. Rosenfeld was awarded 30,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. On November 10, 2009, Mr. Rosenfeld was awarded 75,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(3) On March 6, 2007, Mr. Dharia was awarded 30,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. On March 9, 2010, Mr. Dharia was awarded 12,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on April 1, 2011. +(4) On April 1, 2009, Mr. Dharia was granted an option to purchase 60,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant. +35 +(5) On October 3, 2008, Mr. Sinha was granted an option to purchase 75,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in three equal annual installments commencing on the first anniversary of the date of grant. +(6) On December 1, 2010, Mr. Sinha was awarded 35,000 shares of restricted Common Stock, which shares vest to the extent of 11,666 shares on the first anniversary of the grant date and as to 11,667 shares on each of the second and third anniversaries of the grant date. +(7) On April 1, 2009, Mr. Schmertz was granted an option to purchase 112,500 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant. On October 8, 2009, Mr. Schmertz was granted an option to purchase 75,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant. +(8) On March 9, 2007, Mr. Schmertz was awarded 150,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(9) On April 29, 2008, Ms. Varela was granted an option to purchase 75,000 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant. On April 1, 2009, Ms. Varela was granted an option to purchase 112,500 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant. On April 1, 2010, Ms. Varela was granted an option to purchase 37,500 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant. +OPTION EXERCISES AND STOCK VESTED IN THE 2010 FISCAL YEAR +The following table sets forth information concerning stock options exercised and restricted stock vested during the 2010 Fiscal Year for each of the Named Executive Officers. The value realized from exercised options is deemed to be the market value of the Common Stock on the date of exercise, less the exercise price of the option, multiplied by the number of shares of Common Stock underlying the option. The value realized from the vesting of restricted stock is deemed to be the market value of the Common Stock on the date of vesting multiplied by the number of shares vesting. +Option Awards +Stock Awards +Name +Number of Shares Acquired on Exercise (#) +Value Realized on Exercise ($) +Number of Shares Acquired on Vesting (#) +Value Realized on Vesting ($) +Edward R. Rosenfeld +5,333 +153,377 +26,625 +970,845 +Arvind Dharia +60,000 +2,139,000 +10,500 +324.600 +Awadhesh Sinha +25,000 +684,575 +11,250 +445,837 +Robert Schmertz +43,125 +1,196,428 +41,250 +1,244,650 +Amelia Newton Varela +30,000 +1,014,240 +11,250 +334,050 +36 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +The following table sets forth information as of December 31, 2010 with respect to compensation plans (including individual compensation arrangements) under which shares of Common Stock are authorized for issuance, aggregated as follows: +● +All compensation plans previously approved by security holders; and +● +All compensation plans not previously approved by security holders. +EQUITY COMPENSATION PLAN INFORMATION +Number of securities to be issued upon exercise of outstanding options, warrants and rights (#) +Weighted average exercise price of outstanding options, warrants and rights ($) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (#) +Equity compensation plans approved by security holders +1,802,000 +21.12 +2,519,000 +Equity compensation plans not approved by security holders +— +— +— +Total +1,802,000 +21.12 +2,519,000 +Termination, Change in Control and Non-Competition/Non-Solicitation +The employment agreements for all the Named Executive Officers provide for a severance payment upon a termination of employment in connection with a change-in-control of the Company. The employment agreements of Messrs. Rosenfeld, Dharia and Sinha also provide for severance payment if the executive terminates his employment for good reason in connection with a change-in-control event. The change-in-control severance payments may result in the application of the “golden parachute” provisions of Section 280G of the Code and, to the extent Section 280G applies, the Company may not deduct from its taxable income the severance payments made to the Named Executive Officer. Moreover, Section 4999 of the Code would impose a 20% excise tax on the Named Executive Officer receiving the severance payment. In the case of Mr. Schmertz and Ms. Varela, these severance payments in connection with a change-in-control, however, are reduced if the severance payment, when added to any other benefits triggered by a change-of-control, is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, to the maximum amount that is deductible to the Company under Section 280G of the Code. In the case of Messrs. Rosenfeld, Dharia and Sinha, the executive’s change-in-control severance payment will only be reduced to the maximum amount that is deductible to the Company under Section 280G of the Code if the reduction provides the Named Executive Officer with the best after-tax result; otherwise, the Named Executive officer will receive the full amount of the severance payment and other benefits triggered by the change-in-control and be liable for the 20% excise tax on the excess parachute payment in addition to all other applicable taxes and, in such case, the deduction by the Company of the portion of the severance payment constituting an excess parachute payment will be disallowed. +The Company’s employment agreements with each of the Named Executive Officers also provide for severance payments to the executive if the Company terminates the executive’s employment without cause, or, in the case of Mr. Rosenfeld and Mr. Sinha, if the Company gives him good reason to terminate employment. +37 +Please see the section of this Proxy Statement captioned “Employment Arrangements” for a summary description of the Named Executive Officers’ employment agreements and such severance and change-in-control provisions. These benefits are described and quantified in the section of this Proxy Statement captioned “Potential Payments Upon Termination or Change-In-Control” below. +The Company believes that the severance payments and payments made upon change-in-control provisions in the employment agreements provide appropriate protection to the Company’s executives, comparable to that available at peer companies, and, with regard to the enhanced severance following a change-in-control, protects the Company from losing key executives during a period when a change-in-control may be threatened or pending. These benefits are described and quantified in the section below captioned “Potential Payments Upon Termination or Change-In-Control.” +Ms. Varela has agreed to a non-compete and non-solicitation restriction through the expiration date of her employment agreement, December 31, 2013, in the event of a voluntary termination or termination for cause. Messrs. Rosenfeld and Sinha have each agreed to a non-compete and non-solicitation restriction during the period of his employment and for a six-month period following the termination of his employment for cause or in the event of his resignation without good reason. Mr. Schmertz has agreed to a non-compete and non-solicitation restriction through the term of his employment agreement, which ends on December 31, 2012. Mr. Dharia does not have non-compete or non-solicitation provisions in his employment agreement. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The Company’s employment agreements with the Named Executive Officers provide for payments to such individuals upon termination of employment or a change-in-control of the Company. Please see the section of this Proxy Statement captioned “Employment Arrangements.” The amounts set forth in the table below shall be payable to the respective Named Executive Officer if such Named Executive Officer’s employment is terminated under the various scenarios set forth below. +NAME AND PRINCIPAL POSITION +CASH PAYMENT +CONTINUATION OF MEDICAL / WELFARE BENEFITS (PRESENT VALUE) +ACCELERATION AND CONTINUATION OF EQUITY AWARD +REDUCTION OF BENEFITS UPON A CHANGE–IN–CONTROL (1) +TOTAL TERMINATION BENEFITS +($) +($) +($) +($) +($) +TERMINATION DUE TO DEATH +Edward R. Rosenfeld +525,000 +(2) +15,000 +(3) +— +— +540,000 +Arvind Dharia +528,304 +(4) +10,000 +(3) +— +— +538,304 +Awadhesh Sinha +575,000 +(5) +13,500 +(3) +— +— +588,500 +Robert Schmertz +660,000 +(6) +— +— +— +660,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION DUE TO TOTAL DISABILITY +Edward R. Rosenfeld +525,000 +(2) +— +— +— +525,000 +Arvind Dharia +528,304 +(4) +— +— +— +528,304 +Awadhesh Sinha +575,000 +(5) +— +— +— +575,000 +Robert Schmertz +660,000 +(6) +— +— +— +660,000 +Amelia Newton Varela +— +— +— +— +— +TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON +Edward R. Rosenfeld +— +— +— +— +— +Arvind Dharia +— +— +— +— +— +Awadhesh Sinha +— +— +— +— +— +Robert Schmertz +— +— +— +— +— +Amelia Newton Varela +— +— +— +— +— +38 +NAME +AND PRINCIPAL POSITION +CASH PAYMENT +CONTINUATION OF MEDICAL / WELFARE BENEFITS (PRESENT VALUE) +ACCELERATION AND CONTINUATION OF EQUITY AWARD +REDUCTION OF BENEFITS UPON A CHANGE–IN–CONTROL (1) +TOTAL TERMINATION BENEFITS +($) +($) +($) +($) +($) +TERMINATION OTHER THAN FOR CAUSE; RESIGNATION FOR GOOD REASON +Edward R. Rosenfeld +1,076,250 +(7) +— +— +— +1,076,250 +Arvind Dharia +528,304 +(8) +90,327 +(9) +— +— +618,631 +Awadhesh Sinha +1,725,000 +(10) +— +— +— +1,725,000 +Robert Schmertz +1,320,000 +(11) +— +— +— +1,350,000 +Amelia Newton Varela +1,350,000 +(12) +— +— +— +400,000 +TERMINATION UPON A CHANGE—IN—CONTROL +Edward R. Rosenfeld +2,992,534 +(13) +— +7,283,412 +(14) +— +10,275,946 +Arvind Dharia +1,996,107 +(15) +270,981 +(16) +2,293,680 +(14) +— +4,299,573 +Awadhesh Sinha +4,631,202 +(17) +— +2,100,200 +(14) +(1,256,583 +) +6,731,402 +(18) +Robert Schmertz +6,872,080 +(19) +— +5,916,870 +(14) +(2,374,478 +) +12,788,950 +(18) +Amelia Newton Varela +3,655,321 +(20) +— +3,497,888 +(14) +(1,465,217 +) +7,153,209 +(18) +(1) +The employment agreements of two of the Named Executive Officers provide that severance payments in connection with a change-in-control are reduced if the severance payment, when added to any other benefits triggered by a change-of-control, is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, to the maximum amount that is deductible to the Company under Section 280G of the Code. The employment agreements of the remaining Named Executive Officers indicate that the executive’s change-in-control severance payment will only be reduced to the maximum amount that is deductible to the Company under Section 280G of the Code if the reduction provides the Named Executive Officer with the best after-tax result; otherwise, the Named Executive officer will receive the full amount of the severance payment and other benefits triggered by the change-in-control and be liable for the 20% excise tax on the excess parachute payment in addition to all other applicable taxes and, in such case, the deduction by the Company of the portion of the severance payment constituting an excess parachute payment will be disallowed. +(2) +Consists of Mr. Rosenfeld’s 2011 base salary of $525,000, which would be paid at regular intervals. +(3) +Consists of medical benefits. +(4) +Consists of Mr. Dharia’s 2011 base salary of $528,304, which would be paid at regular intervals. +(5) +Consists of Mr. Sinha’s 2011 base salary of $575,000, which would be paid at regular intervals. +(6) +Consists of Mr. Schmertz’s 2011 base salary of $660,000, which would be paid at regular intervals. +(7) +Consists of the base salary ($525,000 for 2011 and $551,250 for 2012) that would have been paid to Mr. Rosenfeld during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2012. Mr. Rosenfeld would receive these payments at regular intervals. +(8) +Consists of Mr. Dharia’s 2011 base salary of $528,304 multiplied by the number of years (and fraction of years) remaining in the term of his employment agreement, which expires on December 31, 2011. Mr. Dharia would receive 50% of this payment immediately and the remaining 50% would be paid to him one year later (i.e., on December 31, 2011). +(9) +Consists of one times the sum of Mr. Dharia’s life insurance payment ($80,327 per year) plus medical benefits ($10,000 per year). +(10) +Consists of the base salary ($575,000 for the years ending December 31, 2011, 2012 and 2013) that would have been paid to Mr. Sinha during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2013. Mr. Sinha would receive these payments at regular intervals. +(11) +Consists of an annual base salary of $660,000 that would have been paid to Mr. Schmertz during the remainder of the term of his employment until the expiration of his employment agreement on December 31, 2012. Mr. Schmertz would receive these payments at regular intervals. +(12) +Consists of the base salary of $450,000 that would have been paid to Ms. Varela during the remainder of the term of her employment until the expiration of her employment agreement on December 31, 2013. Ms. Varela would receive these payments at regular intervals. +(13) +Consists of three times the average total compensation Mr. Rosenfeld actually received for the preceding three calendar years, except that in lieu of the actual base salary component received during such period, there has been substituted the annual base salary to which Mr. Rosenfeld was entitled as of the date of termination or resignation. Upon a change-in-control, payments (or portions thereof) to Mr. Rosenfeld determined to constitute an “excess parachute payment” may be reduced to the maximum amount that would be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December 31, 2010 change-in-control, no payments to Mr. Rosenfeld would have been subject to reduction. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Rosenfeld’s employment agreement under “Employment Arrangements.” +(14) +The amount disclosed represents the total value of the restricted stock and stock options which would have received accelerated vesting upon a hypothetical change in control on December 31, 2010. +(15) +Consists of three times the total compensation Mr. Dharia actually received for the preceding twelve calendar months, except that in lieu of the actual base salary component received during such period, there has been substituted the annual base salary to which Mr. Dharia was entitled as of the date of termination or resignation. Upon a change-in-control, payments (or portions thereof) to Mr. Dharia determined to constitute an “excess parachute payment” may be subject to reduction to the maximum amount that would be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December 31, 2010 change-in-control, no payments to Mr. Dharia would have been subject to reduction. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Dharia’s employment agreement under “Employment Arrangements.” +(16) +Consists of three times the sum of Mr. Dharia’s life insurance payment ($80,327 per year) plus medical benefits ($10,000 per year). +(17) +Consists of three times the total compensation Mr. Sinha actually received for the preceding twelve calendar months, except that in lieu of the actual base salary component received during such period, there has been substituted the annual base salary to which Mr. Sinha was entitled as of the date of termination or resignation. Upon a hypothetical December 31, 2010 change-in-control, this amount would have been reduced by $1,256,583 to reflect the maximum amount that would be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Sinha’s employment agreement under “Employment Arrangements.” +(18) +The total amount does not include the amount deducted pursuant to Section 280G of the Code. +39 +(19) +Consists of three times the average total compensation Mr. Schmertz actually received for the preceding three calendar years. Upon a hypothetical December 31, 2010 change-in-control, this amount would have been reduced by $7,343,002 to reflect the maximum amount that would be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Mr. Schmertz’s employment agreement under “Employment Arrangements.” +(20) +Consists of three times the average total compensation Ms. Varela actually received for the preceding three calendar years. Upon a hypothetical December 31, 2010 change-in-control, this amount would have been reduced by $4,305,829 to reflect the maximum amount that would be tax deductible by the Company pursuant to Section 280G of the Code. See the “Implications of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. See also the summary of Ms. Varela’s employment agreement under “Employment Arrangements.” +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +Submitted by the Compensation Committee of the Company’s Board of Directors: +Peter Migliorini (Chairman) +Thomas H. Schwartz +40 +Audit Committee Report +The Audit Committee reviewed the Company’s audited financial statements for the 2010 Fiscal Year and met with both management and representatives of EisnerAmper LLP, the Company’s independent registered public accountants, to discuss such audited financial statements. Management and the Company’s independent registered public accountants have represented to the Audit Committee that the financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee has received from and discussed with EisnerAmper LLP the written disclosures and the letter regarding EisnerAmper LLP’s communications with the Audit Committee concerning independence as required by applicable requirements of the Public Company Accounting Oversight Board, and discussed with EisnerAmper LLP the independence of EisnerAmper LLP. The Audit Committee also discussed with EisnerAmper LLP any matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. Based on these reviews and discussions, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the 2010 Fiscal Year. +Submitted by the Audit Committee of the Company’s Board of Directors: +Richard P. Randall (Chairman) +Peter Migliorini +Ravi Sachdev +PROPOSAL TWO: +RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011 +The Audit Committee has appointed EisnerAmper LLP as the Company’s independent registered public accounting firm to conduct the audit of the Company’s books and records for the fiscal year ending December 31, 2011. EisnerAmper LLP also served as the Company’s independent registered public accountants for the 2010 Fiscal Year. +Before making its determination on appointment, the Audit Committee carefully considers the qualifications and competence of candidates for the independent registered public accountants. For EisnerAmper LLP, this has included a review of its performance in prior years, its independence and processes for maintaining independence, the results of the most recent internal quality control review or Public Company Accounting Oversight Board inspection, the key members of the audit engagement team, the firm’s approach to resolving significant accounting and auditing matters including consultation with the firm’s national office, as well as its reputation for integrity and competence in the fields of accounting and auditing. Although ratification by stockholders is not required by the Company’s organizational documents or other applicable law, the Audit Committee has determined that requesting ratification by stockholders of its appointment of EisnerAmper LLP as the Company’s independent registered public accountants is a matter of good corporate practice. If stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain EisnerAmper LLP, but may still retain the accounting firm. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interest of the Company and its stockholders. +Representatives of EisnerAmper LLP are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement should they so desire. +41 +Required Vote +The affirmative vote of the holders of a majority of the outstanding shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the Audit Committee’s selection of EisnerAmper LLP. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the ratification of the appointment of EisnerAmper LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2011. Unless marked to the contrary, proxies received from stockholders will be voted in favor of ratifying the appointment of EisnerAmper LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2011. +Audit Fees +The aggregate fees billed by EisnerAmper LLP for professional services rendered for the audit of the Company’s annual financial statements for the 2010 Fiscal Year, for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the 2010 Fiscal Year, other statutory and regulatory filings or engagements and the audit of the Company’s internal controls over financial reporting for the 2010 Fiscal Year were $585,000. The comparative amount for the fiscal year ended December 31, 2009 (the “2009 Fiscal Year”) was $585,000. +Audit-Related Fees +In addition to audit fees, EisnerAmper LLP billed the Company $25,000, in the aggregate, for audit-related fees related to assurance and related services for the 2010 Fiscal Year. These services include, among others, the audit of the Company’s employee benefit plans and other accounting related consultations. The comparative amount for the 2009 Fiscal Year was $25,000. +Tax Fees +During the 2010 Fiscal Year, EisnerAmper LLP billed the Company $187,000, in the aggregate, for services rendered to the Company for tax compliance, tax advice and tax planning. EisnerAmper LLP billed $234,348 for similar services in the 2009 Fiscal Year. These professional services include assistance in the preparation of the Company’s various federal, state and local tax returns, tax consultation and various amendments. +All Other Fees +In addition to the fees billed by EisnerAmper LLP for the services described above under the captions Audit Fees, Audit-Related Fees and Tax Fees, during the 2010 Fiscal Year, EisnerAmper LLP charged the Company $115,000 for (a) due diligence services rendered in connection with an asset acquisition and business acquisitions and (b) out-of-pocket expenses incurred by EisnerAmper LLP in connection with services rendered to the Company. In comparison, EisnerAmper LLP charged the Company $89,350 in the 2009 Fiscal Year for (a) services rendered in connection with (i) the preparation and filing of a registration statement by the Company to register shares available for issuance under an equity compensation plan and (ii) the acquisition of a business and (b) out-of-pocket expenses incurred by EisnerAmper LLP in connection with services rendered to the Company. +Audit Committee’s Pre-Approval Policies and Procedures +Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accountants. In recognition of this responsibility, the Audit Committee has established a policy to review and pre-approve all audit and permissible non-audit services provided by the independent registered public accountants. These services may include audit services, audit-related services, tax services and other services. +42 +Prior to engagement of the independent auditor for next year’s audit, the Audit Committee will pre-approve all auditing services and all permitted non-audit services (including the fees and terms thereof), except those excluded from requiring pre-approval based upon the de minimus exception set forth in Section 10A(i)(1)(B) of the Exchange Act. +The Audit Committee’s pre-approval policies and procedures are as follows: (a) prior to each fiscal year, the Audit Committee pre-approves a schedule of estimated fees for proposed non-prohibited audit and non-audit services, and (b) actual amounts paid are monitored by financial management of the Company and reported to the Audit Committee. +All work performed by EisnerAmper LLP as described above under the captions Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees has been approved or pre-approved by the Audit Committee pursuant to the provisions of the Audit Committee’s charter. The Audit Committee has considered and concluded that the provision of non-audit services is compatible with maintaining the independence of EisnerAmper LLP. +PROPOSAL THREE: +NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +Section 14A of the Exchange Act, as created by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the rules and regulations promulgated thereunder, require a publicly traded company to include a resolution in its proxy statement at least once every three years seeking stockholder approval, on an advisory or non-binding basis, of the compensation of the named executive officers as disclosed in such company’s proxy statement pursuant to the compensation rules of the SEC. In accordance with these requirements, we are providing stockholders with an advisory vote on the compensation of our Named Executive Officers. +As described in more detail in the Compensation Discussion and Analysis section, which begins on page 18 of this Proxy Statement, the overall objective of the Company’s executive compensation programs and practices is to support delivery of sustained operating and financial performance results with the ultimate goal being to create and maximize value for our stockholders on a long-term basis. We believe that our executive compensation programs and practices serve the interests of our stockholders by enabling us to attract and retain an experienced and effective management team whose combined knowledge of our business and the footwear and accessories industry has proved extremely valuable in delivering results for our stockholders. The Compensation Committee and the Board of Directors believe that the Company’s compensation programs and practices as articulated in the Compensation Discussion and Analysis section of this Proxy Statement effectively implement our philosophy of aligning compensation to stockholder interests and that the compensation received by our Named Executive Officers in the 2010 Fiscal Year reflects and supports such philosophy and goal and is commensurate with the performance and strategic position of the Company. We will continue to review and modify our executive compensation programs to address evolving best practices and changing regulatory requirements. +We encourage stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, as well as the Summary Compensation Table and other related compensation tables and narrative disclosure contained in this Proxy Statement, all of which describe and explain in detail the compensation of our Named Executive Officers in the 2010 Fiscal Year. +The following resolution is submitted for stockholder approval: +“ RESOLVED , that the stockholders of Steven Madden, Ltd. (the ‘Company’) approve, on a non-binding advisory basis, the compensation paid to the Named Executive Officers of the Company as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the executive compensation as described in the section captioned ‘Compensation Discussion and Analysis,’ the Summary Compensation Table and related tabular disclosure and narrative discussion regarding compensation of Named Executive Officers under the caption ‘Executive Compensation’ contained in the Company’s Proxy Statement dated April 11, 2011.” +43 +This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the compensation programs and practices described in this Proxy Statement. While this advisory vote on executive compensation, commonly referred to as a “say-on-pay” advisory vote, is required by Section 14A of the Exchange Act, it is not binding on our Board of Directors and may not be construed as overruling any decision by the Board of Directors or the Compensation Committee. However, we value the opinions of our stockholders. To the extent there is a significant vote against the compensation of the Named Executive Officers as disclosed in this Proxy Statement, the Board of Directors and the Compensation Committee will consider the outcome of the vote when considering future compensation arrangements and evaluate whether any actions are necessary to address the stockholders’ concerns. +Required Vote +Approval of this resolution requires the affirmative vote of a majority of the shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting. +Recommendation of the Board of Directors +The Board of Directors unanimously recommends a vote FOR the resolution approving the overall compensation of the Named Executive Officers for the 2010 Fiscal Year. +PROPOSAL FOUR: +NON-BINDING ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION +Pursuant to Section 14A of the Exchange Act, as created by Section 951 of the Dodd-Frank Act, and the rules and regulations promulgated thereunder, we are required, commencing with this Annual Meeting, and not less frequently than once every six years thereafter, to include a separate stockholder vote on the frequency with which stockholders shall have a non-binding advisory vote on the compensation of the Named Executive Officers, such as Proposal Three above. Accordingly, we are asking stockholders to vote on whether future non-binding advisory votes on the Named Executive Officer’s compensation should occur every year, every two years, or every three years. In lieu of voting for one of these options, stockholders may also abstain from voting. +After careful consideration, the Board of Directors recommends that future advisory votes on the compensation of the Named Executive Officers be conducted every three years. The Board of Directors believes that every three years is appropriate because it allows stockholders to evaluate our executive compensation program and practices in relation to the Company’s performance over the long-term. As discussed in this Proxy Statement, a core principle of our executive compensation program is to attract and retain an experienced and effective management team to support delivery of sustained performance results by the Company with the ultimate goal of creating long-term value for stockholders. A vote every three years is consistent with the Company’s commitment to compensation programs designed to support long-term value creation for stockholders over a multi-year period. Equity awards to Named Executive Officers generally vest over a four-to-five year period to encourage our executives to focus on long-term performance. Further, we believe that holding a triennial vote is reasonable as it strikes a balance between the benefit of hearing the collective view of our stockholders regarding executive of compensation on an annual basis and affording the Company time to thoughtfully consider and respond to stockholder views on executive compensation issues and, if appropriate, implement changes to our executive compensation programs. +44 +While the Board of Directors recommends that future non-binding advisory votes on executive compensation be conducted every three years, stockholders are not voting to approve or disapprove the Board’s recommendation. Rather, stockholders are being asked to vote on the following resolution: +“ RESOLVED , that the stockholders of Steven Madden, Ltd. ( the ‘Company’) determine, on a non-binding advisory basis, that the frequency with which the stockholders should have an advisory vote on executive compensation set forth in the Company’s Proxy Statement for its annual meeting of stockholders, commencing with the 2011 Annual Meeting of Stockholders, is (i) every year, (ii) every two years, or (iii) every three years.” +Stockholders may choose among the three choices included in the resolution above, or may abstain from voting on this proposal. +While this advisory vote is required by Section 14A of the Exchange Act, the voting result is not binding on our Board of Directors and may not be construed as overruling any decision by the Board of Directors. However, the Board of Directors and the Compensation Committee will take into account the outcome of the vote when determining the frequency of future say-on-pay votes. +Required Vote +The choice receiving the highest number of votes will be deemed the choice of the stockholders. +Recommendation of the Board of Directors +The Board of Directors recommends a vote for a frequency of every THREE YEARS for future non-binding advisory votes on the compensation of the Company’s Named Executive Officers. +OTHER MATTERS +At the date of this Proxy Statement, the Company has no knowledge of any business other than that described above that will be presented at the Annual Meeting. If any other business should properly come before the Annual Meeting in connection therewith, it is intended that the persons named in the accompanying proxy will have discretionary authority to vote the shares which they represent. +A copy of the applicable provisions of the Company’s By-Laws may be obtained by any stockholder, without charge, upon written request to the Secretary of the Company at the address set forth above. +WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD PROMPTLY. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. YOUR VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN MADDEN, LTD. +April 11, 2011 +By: +/s/ Arvind Dharia +Arvind Dharia +Secretary +45 +STEVEN MADDEN, LTD. +ATTN: ARVIND DHARIA +52-16 BARNETT AVEUE +LONG ISLAND CITY, NY 11104 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. +The Board of Directors recommends you vote +FOR the following: +o +o +o +1. +Election of Directors +Nominees +01 +Edward R Rosenfeld +02 +John L Madden +03 +Peter Migliorini +04 Richard P Randall +05 +Ravi Sachdev +06 +Thomas H Schwartz +The Board of Directors recommends you vote “FOR” proposals 2 and 3. +For +Against +Abstain +2. +TO RATIFY THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011; +o +o +o +3. +TO APPROVE, BY NON-BINDING ADVISORY VOTE, THE EXECUTIVE COMPENSATION DESCRIBED IN THE STEVEN MADDEN, LTD PROXY STATEMENT; +o +o +o +The Board of Directors recommends you vote “3 YEARS” on the following proposal: +1 year +2 years +3 years +Abstain +4. +TO RECOMMEND, BY NON-BINDING ADVISORY VOTE, THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION. +o +o +o +o +NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly be presented at the meeting or any adjournments or postponements thereof. +Yes +No +Please indicate if you plan to attend this meeting +o +o +Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report with 10-K is/are available at www.proxyvote.com . +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF +THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE BOXES NEXT TO EACH OF THE PROPOSALS +The undersigned stockholder(s) of Steven Madden, Ltd. (the “Company”) hereby appoint(s) Edward R. Rosenfeld and Arvind Dharia, and each of them, as attorneys and proxies, each with power of substitution and revocation, to represent the undersigned at the Annual Meeting of Stockholders of the Company to be held at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York at 10:00 a.m., local time, on May 27, 2011 and at any adjournments or postponements thereof, with authority to vote all shares of Common Stock of the Company held or owned by the undersigned on April 5, 2011, in accordance with the directions indicated herein. +THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN; UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE SIX (6) NOMINEES NAMED IN ITEM 1, (2) FOR THE RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2011, (3) FOR THE APPROVAL OF THE EXECUTIVE COMPENSATION DESCRIBED IN THE COMPANY’S PROXY STATEMENT, (4) FOR A FREQUENCY OF EVERY THREE YEARS FOR FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION, AND (5) IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-11-000407/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-11-000407/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..6368b1e31e2ad00278a02e766766c936dc265b78 --- /dev/null +++ b/raw/proxies/0000913241/0001019056-11-000407/proxy_rpt.txt @@ -0,0 +1,17 @@ +Certain Relationships and Related Party Transactions +In January 2004, the Company entered into an agreement with John L. Madden, one of the Company’s directors, and JLM Consultants, a company wholly-owned by John L. Madden. Under this agreement, which was amended in 2005, Mr. Madden agreed to provide consulting services to the Company with respect to the development of international sales of the Company. This agreement expired by its terms on December 31, 2005, but Mr. Madden continues to provide consulting services and the Company continues to make payments to JLM Consultants consistent with those that would have been required under the expired consulting agreement. In accordance with the foregoing, for the 2010 Fiscal Year, JLM Consultants received the following from the Company: (a) a commission equal to 2.5% on international sales, (b) a monthly draw in the amount of $25,000 with recourse against such commissions, (c) a $1,000 per month travel allowance and (d) $2,812 per month toward health insurance premiums for health insurance coverage for John L. Madden. Pursuant to this arrangement, JLM Consultants received a total of $1,005,540 from the Company in the 2010 Fiscal Year. +12 +Effective as of July 1, 2005, the Company amended and restated its employment agreement with Steven Madden, pursuant to which Mr. Madden agreed to serve as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement commenced on July 1, 2005 and, in accordance with a December 14, 2009 amendment thereto, will end on December 31, 2019. The agreement provides for an annual salary of $600,000, with a 7% increase of base salary on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. Mr. Madden also receives an annual $200,000 non-accountable expense allowance. The agreement provides for an annual cash bonus in an amount determined by the Board of Directors, which will be at least 2% of the Company’s EBITDA (the “Annual Bonus”). Additionally, the Company agreed to pay Mr. Madden an annual cash bonus in relation to “new business” (as defined in the agreement) in an amount to be determined by the Board of Directors, but which is at least (i) 2.5% of new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business Bonus”). +Mr. Madden is also eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders, an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, with such number to be equal to not less than 100% of the largest aggregate number of shares of Common Stock available upon the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month period; provided, however, that a grant to Mr. Madden in excess of 150% of the number of shares of Common Stock available upon the exercise of an option or options granted to such other continuing full-time employee shall require stockholder approval. Any Annual Option received by Mr. Madden will vest quarterly over a one-year period following the grant date and will be exercisable, at a price equal to the closing price of the Company’s Common Stock on the grant date, for a period of five years following the date of the grant. In the event of Mr. Madden’s death, the agreement provides for the payment to Mr. Madden’s estate of his base salary for the 12-month period immediately subsequent to the date of Mr. Madden’s death. +In the event that Mr. Madden’s employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” (as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” (as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within 30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to (1) the amount of compensation that is accrued and unpaid through the date of termination, (2) an amount equal to the product of (A) the number of years remaining in the term of the agreement (but not less than 5), and (B) the sum of (w) the base salary for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31, 2002, if greater), (x) the amount of the Annual Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ended on December 31, 2002, if greater), (y) the non-accountable expense allowance provided for under the agreement for the 12-month period ended on the preceding December 31, and (z) the amount of the New Business Bonus earned (paid or accrued or which should have been paid or accrued) for the 12-month period ended on the preceding December 31 (or for the 12-month period ending on December 31 during the agreement in which Mr. Madden received the greatest New Business Bonus, if greater). Mr. Madden’s employment agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation and competition. +13 +For 2010 Fiscal Year, Mr. Madden earned (i) $686,940 in base salary; (ii) $200,000 in non-accountable expense allowance; (iii) a bonus of $2,608,819, representing 2% of the Company’s earnings before interest, tax, depreciation and amortization; (iv) a bonus of $5,627,484, earned based on 2.5% of the Company’s new business; and (v) a bonus of $368,088, based on 10% of Royalty/Licensing income over $2,000,000. As an Annual Option, on May 28, 2010, Mr. Madden received an option to purchase 75,000 shares of Common Stock, pursuant to the Company’s 2006 Stock Incentive Plan, as amended (the “2006 Plan”), at an exercise price of $34.49 per share. The option vests in equal installments of 18,750 shares on each of August 28, 2010, November 28, 2010, February 28, 2011 and May 28, 2011. +On January 11, 2010, Mr. Madden received a grant of 54,600 shares of the Company’s Common Stock, subject to certain restrictions (such number of shares is adjusted for an April 30, 2010 three-for-two stock split effected as a stock dividend), under the Company’s 2006 Plan. The restricted Common Stock will vest on the third anniversary of the grant date, January 11, 2013. +On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to exercise a stock option, which was due to expire, and hold the underlying Common Stock. Mr. Madden executed a promissory note in favor of the Company, which is secured by a pledge of 210,000 shares of the Company’s Common Stock beneficially owned by Mr. Madden. There have been successive amendments to the note, the most recent of which occurred on April 6, 2009, at which time the note was amended and restated to (i) extend the maturity date to the earlier of the date that Mr. Madden ceases to be employed by the Company and June 30, 2015 (the “Maturity Date”), and (ii) reflect the rate of interest as 8% per annum for the period from June 25, 2007 until April 6, 2010, and 6% per annum for the period from April 7, 2010 until the Maturity Date. As of December 31, 2010, interest in the amount of $849,186 has accrued on the note. Mr. Madden is the brother of John L. Madden, who has been a director of the Company since the Company’s inception in 1990. +Review, Approval or Ratification of Transactions with Related Persons +The Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +Related person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, the Board or committee will consider all relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which information is then reviewed for any conflicts of interest under the Conduct Code. +The Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s periodic filings, including related party transaction disclosures. +14 +If a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable. \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-14-000516/proxy.txt b/raw/proxies/0000913241/0001019056-14-000516/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..48e36fc691d558d82bc77b42ef7dc72fb59f62ba --- /dev/null +++ b/raw/proxies/0000913241/0001019056-14-000516/proxy.txt @@ -0,0 +1,3624 @@ +DEF 14A +1 +smadden_def14a.htm +DERFINITIVE 14A +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE +14A +(Rule 14a-101) +INFORMATION +REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the +Securities +Exchange Act of 1934 (Amendment No. __) +Filed by the Registrant þ +Filed by a Party other than +the Registrant o +Check the appropriate box: +o Preliminary +Proxy Statement +o Confidential, +for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive +Proxy Statement +o Definitive +Additional Materials +o Soliciting +Material Pursuant to §240.14a-12 +Steven +Madden, Ltd. +(Name +of Registrant as Specified in Its Charter) +(Name +of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check +the appropriate box): +þ No +fee required. +o Fee +computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title +of each class of securities to which transaction applies: +(2) +Aggregate +number of securities to which transaction applies: +(3) +Per +unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which +the filing fee is calculated and state how it was determined): +(4) +Proposed +maximum aggregate value of transaction: +(5) +Total +fee paid: +o Fee +paid previously with preliminary materials. +o Check +box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting +fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of +its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +LETTER TO +THE SHAREHOLDERS +Dear +ShareholDerS, +2013 was another successful +year for Steve Madden, as we delivered solid sales and earnings growth in a challenging environment. Consolidated +net sales increased 7% to $1.3 billion, and net income rose 10% to $132 million, or $1.98 per diluted share. +These results, achieved despite soft retail traffic throughout the industry and fewer new fashion footwear +trends on which to capitalize, demonstrate the strength of our business model and the benefits of our +diversification by distribution channel and geography. +In +2013, we SucceSSfully: +Grew +our core buSIneSS +Our first priority in 2013, as always, +was to continue to expand the Steve Madden brand’s market leadership position in fashion-forward footwear. This year, Steve +and his team once again produced a trend-right merchandise assortment that enabled us to gain market share in our core Steve Madden Women’s wholesale footwear business. Our diffusion brand, Madden Girl, also recorded solid growth, rebounding after a +decline in 2012. Importantly, both brands accelerated in the back half of the year, providing us with strong momentum heading into +2014. +enhanceD our men’S offerInG +During the year, we set out to better +differentiate our higher-priced Steve Madden Men’s line from our more moderately priced Madden line by elevating the Steve +Madden collection in terms of quality and styling +and targeting the +Madden line at a younger, more casual consumer. The new strategy, rolled out for Fall 2013, received an outstanding +response from both wholesale customers and the end consumer, driving a 15% increase in our men’s wholesale +footwear net sales in the second half of the year. +Grew +our prIvate label footwear buSIneSS +Over the last several years, we have +leveraged our product development and sourcing capabilities into a substantial business producing private label footwear for various +retailers, primarily value-priced chains. In 2013, we delivered strong double-digit percentage growth in this business, bringing +private label footwear annual net sales to over $300 million for the first time. +expanDeD +our +InternatIonal buSIneSS +We made significant progress +on one of our most important long-term initiatives which is to expand our business outside of the United States. Our +business in Canada, which we acquired from our former distributor in February 2012 and is currently our only owned +international operation, increased 30% over the prior year. Additionally, we recorded robust gains with our +distribution partners in Europe, the Middle East and Asia. Overall, our international net sales in 2013 increased 20% +to $113 million, or approximately 9% of consolidated net sales. +contInueD +to roll out outlet StoreS +We opened six Steve Madden outlet +stores in 2013, bringing our total at the end of the year to 17 outlet locations. We continue to be pleased with the +consumer response to our outlet concept and the financial results we are seeing in that division. As we look ahead, +we plan to accelerate the unit growth in outlets, with 10-12 expected outlet openings in 2014. +contInueD +to Grow our hanDbaG buSIneSS +We also continued to extend our reach +in the handbag category. We delivered strong double-digit percentage sales increases in both Steven Madden and Betsey Johnson handbags, +gains that came on top of explosive growth in each of those divisions in 2012. We also introduced Madden Girl handbags, a line +of trendy junior bags with an emphasis on fashion backpacks. Madden Girl handbags are off to a great start, and further expansion +of the Madden Girl handbag collection is an important initiative for 2014. +expanDeD +our newer branDS +We made important advances on +another of our significant long-term growth opportunities, which is to develop our newer brands. Mad Love had an +outstanding first year as an exclusive brand at Target. Freebird by Steven, our boot line manufactured exclusively in +Mexico, recorded substantial sales gains with key customers including Free People, Bloomingdales and Nordstrom. +Finally, Superga, our licensed fashion sneaker brand, +continued its robust sales growth and strong sell-through at retail. +RETURNED CAPITAL TO SHAREHOLDERS +As part of our ongoing efforts to maximize +shareholder value, we returned $102 million to shareholders under our share repurchase plan. We ended the year with a strong balance +sheet, including $292 million in cash, cash equivalents and marketable securities and no debt. +In conclusion, 2013 was another strong year +for Steve Madden. We delivered solid financial results and made significant progress on our growth initiatives. As we look ahead, +we believe our diversified platform and proven business model provide us with many opportunities to expand the business across +our various brands, distribution channels, product categories and geographies. +We owe our success to the hard work and commitment +of all of the associates at Steve Madden and, therefore, we would like to thank our employees for their dedication. We also thank +our customers for their loyalty and you, our shareholders, for your continued support. +Sincerely, +EDWARD ROSENFELD +CHIEF EXECUTIVE OFFICER +AWADHESH SINHA +CHIEF OPERATING OFFICER +ARVIND DHARIA +CHIEF FINANCIAL OFFICER +STEVEN MADDEN, +LTD. +52-16 Barnett +Avenue +Long +Island City, New York 11104 +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO +BE HELD ON MAY 23, 2014 +TO THE STOCKHOLDERS OF STEVEN +MADDEN, LTD.: +NOTICE IS HEREBY +GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Steven Madden, Ltd. (the “Company”) +will be held on May 23, 2014, at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New +York at 10:00 a.m., local time, for the purposes stated below: +1. +to elect +eight directors to the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders +and until their successors are duly elected and qualified or until their earlier death, resignation or removal from office; +2. +to ratify +the appointment of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year +ending December 31, 2014; +3. +to approve, +on a non-binding advisory basis, the compensation of certain executive officers as disclosed in the accompanying proxy statement; +and +4. +to transact such other business +as may properly come before the Annual Meeting or any adjournments thereof. +Only those +stockholders of record at the close of business on April 4, 2014 are entitled to notice of and to vote at the Annual Meeting and +any adjournments thereof. A complete list of stockholders entitled to vote at the Annual Meeting will be available for ten days +prior to the Annual Meeting for purposes germane to the Annual Meeting, between the hours of 9:00 a.m. and 4:30 p.m., local time, +at the Company’s principal executive offices at 52-16 Barnett Avenue, Long Island City, New York 11104, by contacting the +Secretary of the Company, and will be available at the Annual Meeting. +IMPORTANT NOTICE REGARDING THE +AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 2014: THE NOTICE OF ANNUAL MEETING +AND PROXY STATEMENT, ANNUAL REPORT, ELECTRONIC PROXY CARD AND ANY OTHER MATERIALS CONCERNING THE ANNUAL MEETING, TOGETHER WITH +ANY AMENDMENTS TO ANY OF THESE MATERIALS, ARE AVAILABLE ON THE INTERNET AT WWW.PROXYVOTE.COM. +BY ORDER OF THE +BOARD OF DIRECTORS +April 10, 2014 +Long Island City, +New York +Arvind Dharia +Secretary +WHETHER OR NOT YOU EXPECT +TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK, DATE AND SIGN THE ACCOMPANYING FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE +PROVIDED TO: VOTE PROCESSING, C/O BROADRIDGE, 51 MERCEDES WAY, EDGEWOOD, NEW YORK 11717. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES +BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. +TABLE +OF CONTENTS +GENERAL INFORMATION +1 +Notice of Internet Availability of Proxy Materials +1 +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING +2 +STOCKHOLDER NOMINATIONS FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2014 ANNUAL MEETING +5 +PROPOSAL ONE: ELECTION OF DIRECTORS +6 +Biographical Summaries of Nominees for the Board of Directors +6 +CORPORATE GOVERNANCE +10 +The Board of Directors +10 +Director Independence +10 +Director Attendance at Meetings +10 +Director Election (Majority Voting) Policy +11 +Committees of the Board +11 +Board Leadership Structure, Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +14 +Code of Business Conduct and Ethics +15 +Certain Relationships and Related Party Transactions +15 +Review, Approval or Ratification of Transactions with Related Persons +17 +COMPENSATION OF DIRECTORS IN THE 2013 FISCAL YEAR +18 +STOCK OWNERSHIP +19 +Security Ownership of Certain Beneficial Owners +19 +Security Ownership of Directors and Executive Officers +20 +Section 16(a) Beneficial Ownership Reporting Compliance +22 +EXECUTIVE COMPENSATION +22 +Compensation Discussion and Analysis +22 +Compensation Committee Interlocks and Insider Participation +30 +Executive Officers +30 +SUMMARY COMPENSATION TABLE +31 +Employment Arrangements +32 +GRANTS OF PLAN-BASED AWARDS IN THE 2013 FISCAL YEAR +37 +OUTSTANDING EQUITY AWARDS AT END OF THE 2013 FISCAL YEAR +39 +OPTION EXERCISES AND STOCK VESTED IN THE 2013 FISCAL YEAR +40 +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +40 +EQUITY COMPENSATION PLAN INFORMATION +41 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +42 +COMPENSATION COMMITTEE REPORT +44 +PROPOSAL TWO: RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2014 +45 +AUDIT COMMITTEE REPORT +47 +PROPOSAL THREE: NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +48 +i +STEVEN MADDEN, +LTD. +52-16 Barnett +Avenue +Long +Island City, New York 11104 +PROXY STATEMENT +GENERAL +INFORMATION +On +behalf of the Board of Directors of Steven Madden, Ltd., a Delaware corporation (the “Company”, “we” or +“us”), we are requesting your proxy in connection with the Annual Meeting of Stockholders (the “Annual Meeting”) +scheduled to be held at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, New York, New York on +Friday, May 23, 2014 at 10:00 a.m., local time. On or about April 10, 2014, a notice containing instructions on how to access +this Proxy Statement, the accompanying proxy card and related materials online is being mailed to holders of record of common +stock, $.0001 par value, of the Company (the “Common Stock”) at the close of business on April 4, 2014 (the “Record +Date”). The Company’s Annual Report for the fiscal year ended December 31, 2013 (“2013 Fiscal Year”), +including audited financial statements, is included in the materials that are accessible online to our stockholders. This Proxy +Statement contains information about the Annual Meeting as well as information regarding the voting process, director elections, +our corporate governance programs and executive and director compensation, among other things. We recommend that you read all +of these materials. +The Annual +Meeting has been called to consider and take action on the following proposals: +● to +elect eight directors to the Board of Directors of the Company to serve until the next +annual meeting of the Company’s stockholders and until their successors are duly +elected and qualified or until their earlier death, resignation or removal from office; +● to +ratify the appointment of EisnerAmper LLP as the Company’s independent registered +public accounting firm for the fiscal year ending December 31, 2014; +● to +approve, on a non-binding advisory basis, the compensation of certain executive officers +as disclosed in this Proxy Statement; and +● to +transact such other business as may properly come before the Annual Meeting and any adjournments +thereof. +The +Board of Directors knows of no other matters to be presented for action at the Annual Meeting. However, if any other matters properly +come before the Annual Meeting, the persons named in the proxy will vote on such other matters and/or for other nominees in accordance +with their best judgment. The Company’s Board of Directors recommends that the stockholders vote “FOR” each +of the proposals. Only holders of record of Common Stock of the Company at the close of business on the Record Date will be entitled +to vote at the Annual Meeting. +The +principal executive offices of the Company are located at 52-16 Barnett Avenue, Long Island City, New York 11104 and the telephone +number of the Company is (718) 446-1800. +Notice of Internet Availability +of Proxy Materials +We +continue to take advantage of the Securities and Exchange Commission (the “SEC”) “e-proxy” rules allowing +us to furnish proxy materials through the Internet for the benefit and convenience of our stockholders. By using the e-proxy rules, +we can expedite the receipt by stockholders of this Proxy Statement and our Annual Report while lowering the costs and reducing +the environmental impact associated with our Annual Meeting. On or about April 10, 2014, we will furnish a Notice of Internet +Availability of Proxy Material (the “Availability Notice”) to most of our stockholders containing instructions on +how to access the proxy materials and to vote online. In addition, our instructions on how to request a printed copy of these +materials will be found on the Availability Notice. For more information on voting your Common Stock, please see the “Questions +and Answers” section below. If you received an Availability Notice by mail, you will not receive a paper copy of the proxy +materials unless you request such materials by following the instructions contained in the Availability Notice. +1 +QUESTIONS AND ANSWERS +ABOUT THE ANNUAL MEETING +Who +may vote at the Annual Meeting? +Only +stockholders of record are entitled to vote at the Annual Meeting. A stockholder of record is a stockholder as of the close of +business on the Record Date. On the Record Date, there were 66,563,809 shares of our Common Stock outstanding (excluding treasury +shares) held by approximately 116 registered holders of record and 16,303 beneficial owners. +What is considered a quorum +to conduct the Annual Meeting? +The +presence, in person or by proxy, of the holders of a majority of the shares eligible to vote is necessary to constitute a quorum +for the purpose of transacting business at the Annual Meeting. Under Delaware law (under which the Company is incorporated), abstentions +and broker non-votes (meaning proxies from brokers or nominees indicating that such persons have not received instructions on +how to vote from the beneficial owner or other persons eligible to vote shares as to matters with respect to which the brokers +or nominees do not have discretionary power to vote) are counted as present for purposes of determining the presence or absence +of a quorum for the transaction of business. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is +obtained. +What is a “broker +non-vote”? +If +your shares are held in “street name” by a broker, bank or nominee, your broker, bank or nominee is the record holder; +however, the broker, bank or nominee is required to vote the shares in accordance with your instructions. If you do not give instructions +to your broker, bank or nominee, as the case may be, the broker, bank or nominee may, if permitted by the organizations of which +it is a member, exercise discretionary voting power to vote your shares. A “broker non-vote” occurs when a broker, +bank or nominee of record holding shares for a beneficial owner has not received voting instructions from the beneficial owner +and either chooses not to vote the shares on a particular proposal as to which the holder has discretionary voting power or does +not vote on a particular proposal because that holder does not have discretionary voting power for that particular item. Broker +non-votes are considered present in determining whether a quorum is present. If you hold your shares in “street name,” +we strongly encourage you to provide instructions regarding the voting of your shares as your broker or nominee cannot vote your +shares with respect to certain of the proposals being presented at the Annual Meeting without voting instructions from you. +How many votes do I have? +For +each share of Common Stock that you own on the Record Date you are entitled to one vote on each matter presented at the Annual +Meeting. +How many votes are required +to approve each proposal and what is the effect of abstentions and broker non-votes? +Proposal +One (Election of Directors): Under Delaware law, directors are elected by the affirmative vote of a plurality of the shares +of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote. This means that the director +nominees who receive the greatest number of affirmative votes cast are elected as directors, subject to our director resignation +policy discussed in Proposal One below. +Proposal +Two (Ratification of Appointment of EisnerAmper LLP): The affirmative vote of a majority of the shares of Common Stock present +in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve the ratification of the appointment +of EisnerAmper LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, +2014. +2 +Proposal +Three (Non-Binding Advisory Vote On Executive Compensation): The affirmative vote of a majority of the shares of Common Stock +present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve, on a non-binding +advisory basis, the compensation of the Company’s named executive officers as described in this Proxy Statement. +Other +Matters: If any other matters are presented at the Annual Meeting, they must receive an affirmative vote of a majority of +the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote in order to be +approved. +Abstentions +will have no effect on the election of directors, but will be treated as present and entitled to vote on the remaining proposals +and, therefore, abstentions will have the effect of votes “AGAINST” such proposals. +Proposal +One (Election of Directors) will be decided by a plurality of the votes of the shares represented in person or by proxy. The approval +of each of Proposals Two (Ratification of EisnerAmper LLP) and Three (Advisory Vote on Executive Compensation) requires a favorable +vote of a majority of the shares present and entitled to vote on the applicable matter. As noted above, an abstention will have +no effect on the election of directors but will have the same effect as a vote “AGAINST” each other proposal. Broker +non-votes with respect to Proposals One, Two and Three will have no effect on the outcome of the vote with respect to that proposal. +How can I vote my shares? +Your +vote is important. Your shares can be voted at the Annual Meeting only if you are present in person or represented by proxy. Even +if you plan to attend the Annual Meeting, we urge you to authorize your proxy in advance. You may vote your shares by authorizing +a proxy over the Internet or by telephone. In addition, if you received a paper copy of the proxy materials by mail, you can also +submit a proxy by mail by following the instructions on the proxy card. Voting your shares by authorizing a proxy over the Internet, +by telephone or by written proxy card will ensure your representation at the Annual Meeting regardless of whether you attend in +person. +If +you are the record holder of your shares, please authorize your proxy electronically by going to the http://www.proxyvote.com +website or by calling the toll-free number listed below and on the proxy card. Please have your Proxy Statement or proxy card +in hand when going online or calling. If you authorize your proxy via the Internet or by phone you do not need to return your +proxy card. If you choose to authorize your proxy by mail, simply mark your proxy card and then date, sign and return it in the +postage-paid envelope provided. +VOTE +BY INTERNET +http://www.proxyvote.com +Use the Internet to transmit +your voting instructions and for electronic delivery of information. +VOTE +BY PHONE +1-800-690-6903 +Use any touch-tone telephone +to transmit your voting instructions. +VOTE +BY MAIL +Vote +Processing, c/o Broadridge +51 Mercedes Way +Edgewood, New York 11717 +If you receive paper +proxy materials, mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return +it to the address shown above. +If +you hold your shares beneficially in “street name” through a broker or nominee you may be able to authorize your proxy +by telephone or the Internet as well as by mail, but you will need to obtain and follow instructions from your broker or nominee +to vote these shares. +May +I revoke my proxy for the Annual Meeting once I have given it? +You may revoke +your proxy at any time before it is voted at the Annual Meeting by: +● properly +executing and delivering a later dated proxy (including a telephone or Internet proxy +authorization); +3 +● voting +by ballot at the Annual Meeting; or +● sending +a written notice of revocation to the Corporate Secretary of the Company at Steven Madden, +Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. +How does the Board of Directors +recommend that I vote my shares? +The Board of +Directors of the Company recommends that you vote: +● “FOR” +the election of each of the eight director nominees; +● “FOR” +the ratification of the appointment of EisnerAmper LLP as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2014; and +● “FOR” +the approval, on a non-binding advisory basis, of the executive compensation of the Company’s +named executive officers, as disclosed in this Proxy Statement. +ALL PROXIES +RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL +IF NO CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE DISCRETION OF THE PERSONS NAMED IN THE PROXY +WITH RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. +AS NOTED ABOVE, IF YOU HOLD YOUR SHARES BENEFICIALLY THROUGH A BROKER OR NOMINEE AND FAIL TO PROVIDE SPECIFIC VOTING INSTRUCTIONS +TO THAT BROKER OR NOMINEE, YOUR SHARES WILL NOT BE VOTED IN THE ELECTION OF DIRECTORS AND THE ADVISORY VOTE ON EXECUTIVE COMPENSATION. +Who will bear the expenses +of this solicitation? +The +expense of this solicitation, including preparing, printing and mailing this Proxy Statement, the exhibits hereto and the proxies +solicited hereby, will be borne by the Company. In addition to the use of the mails, proxies may be solicited by officers and +directors and employees of the Company, without additional remuneration, by personal interviews, telephone, telegraph or facsimile +transmission. The Company will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to +the beneficial owners of shares of Common Stock held of record by them and will provide reimbursements for the cost of forwarding +the material in accordance with customary charges. The Company has entered into an agreement with Phoenix Advisory Partners to +assist in the solicitation of proxies and provide related advice and informational support. The total expense of this engagement, +which will be borne by the Company, including customary disbursements, is not expected to exceed $20,000 in the aggregate. +How will the voting results +be reported? +The +preliminary results of the voting on the proposals will be reported at the Annual Meeting. The final certified results will be +reported in a Current Report on Form 8-K, which will be filed with the SEC within four business days following the Annual Meeting. +4 +STOCKHOLDER NOMINATIONS +FOR BOARD MEMBERSHIP, PROPOSALS AND SUBMISSIONS FOR THE COMPANY’S 2015 ANNUAL MEETING +In +accordance with Article II, Section 5 of the Company’s By-Laws, director nominations for the 2015 Annual Meeting of +Stockholders of the Company (the “2015 Annual Meeting”) can only be made by a stockholder of the Company who (A) +is a stockholder of record on the date of the giving of the notice of such director nominations and on the record date for +the determination of stockholders entitled to vote at such meeting, and (B) complies with the notice requirements and +procedures set forth in Article II, Section 5 of the Company’s Amended and Restated By-Laws (the +“By-Laws”). A stockholder’s notice to the Corporate Secretary with respect to any such nominations must be +timely and in proper written form pursuant to Article II, Section 5 of the Company’s By-Laws, including containing +certain information concerning the nominating or proposing stockholder and certain information concerning the nominee, and +must be delivered to, or mailed and received at, the Company’s principal executive offices not less than 120 days nor +more than 150 days prior to the first anniversary of the date of the Company’s 2014 Annual Meeting. Accordingly, any +written notice given by or on behalf of a stockholder pursuant to Article II, Section 5 of the Company’s By-Laws in +connection with the 2015 Annual Meeting must be received no later than January 24, 2015 and no earlier than December 25, +2014. +In +accordance with rules promulgated by the SEC, any stockholder who wishes to submit a proposal for inclusion in the proxy material +to be distributed by the Company in connection with the 2015 Annual Meeting must do so no later than December 9, 2014. In addition, +in accordance with Article I, Section 7(f) of the Company’s By-Laws, in order to be properly brought before the 2015 Annual +Meeting, a matter must be either (i) specified in the notice of such meeting given by or at the direction of the Board of Directors +(or any duly authorized committee thereof), (ii) otherwise properly brought before such meeting by or at the direction of the +Board of Directors (or any duly authorized committee thereof) or (iii) specified in a notice in proper written form given by a +stockholder of record on the date of the giving of the notice and on the record date for such meeting, which notice conforms to +the requirements of Article I, Section 7(f) of the By-Laws and is delivered to, or mailed and received at, the Company’s +principal executive offices not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s +2014 Annual Meeting. Accordingly, any written notice given by or on behalf of a stockholder pursuant to the foregoing clause (iii) +in connection with the 2015 Annual Meeting must be received no later than January 24, 2015 and no earlier than December 25, 2014. +In addition, for business to be properly brought before the 2015 Annual Meeting by a stockholder pursuant to the foregoing clause +(iii), such stockholder shall have complied with any other applicable requirements, including, but not limited to, the requirements +of Rule 14a-8 promulgated by the SEC. +5 +PROPOSAL +ONE: +ELECTION OF DIRECTORS +The +Company’s By-Laws provide that the Board of Directors of the Company shall be comprised of a minimum of one director and +that, subject to this limitation, the number of directors may be fixed from time to time by action of the directors. The Company’s +Board of Directors has fixed the number of directors to comprise the Board of Directors at eight directors and the Board of Directors +presently is comprised of six directors. The expansion of the Board from six to eight members will become effective as of April +28, 2014 when Rose Peabody Lynch and Robert Smith will join the Board of Directors. All directors’ terms on the Board will +expire at the Annual Meeting. Directors serve a one-year term. +Upon +recommendation of the Nominating/Corporate Governance Committee of the Board of Directors, the Board of Directors has nominated +and is recommending to the stockholders the election of each of the eight nominees named below to serve as a director of the Company +until the next annual meeting of the Company’s stockholders and until his or her successor is duly elected and qualified +or until his or her earlier death, resignation or removal from office. All of the nominees were elected directors at last year’s +Annual Meeting of Stockholders, other than Ms. Lynch and Mr. Smith, who were appointed to the Board of Directors in February 2014 +and April 2014, respectively, to fill newly-created directorships resulting from the increases in the number of directors constituting +the Board from six members to eight members. The appointment of Ms. Lynch and Mr. Smith to the Board of Directors is effective +as of April 28, 2014. All nominees have consented to being named in this Proxy Statement and to serving on the Board of Directors +if elected. +Biographical Summaries +of Nominees for the Board of Directors +The +names and biographical summaries of the eight persons who have been recommended by the Nominating/ Corporate Governance Committee +of the Board of Directors and nominated by the Board of Directors to stand for election at the Annual Meeting are provided below +for your information. +Our +Board of Directors includes members who are well-qualified to serve on the Board and its committees and to represent the best +interests of our stockholders. The Board and the Nominating/Corporate Governance Committee select nominees with a view to establishing +a Board of Directors that is comprised of individuals who have extensive business leadership experience, are independent, bring +diverse perspectives to the Board, possess high ethical standards and sound business judgment and acumen and a willingness to +devote the time necessary for the Board to effectively fulfill its responsibilities. We believe that all of the director nominees +possess these qualifications and provide the Board with a full complement of knowledge, business skills and expertise for the +effective management of our Company. In addition to these general qualifications, provided below for each nominee for director +is a discussion of the experience, qualifications, attributes and skills that led to the Board’s conclusion that the nominee +should serve as a director. +Edward +R. Rosenfeld - Chairman of the Board and Chief Executive Officer, Steven Madden, Ltd. +Edward +R. Rosenfeld, 38, has served as a director of the Company since February 2008 and has served on the Company’s Investment +Committee since April 2008. Mr. Rosenfeld has been Chairman of the Board and Chief Executive Officer since August 2008 after serving +as interim Chief Executive Officer of the Company from March 24, 2008 and prior to that, serving as the Executive Vice President +of Strategic Planning and Finance of the Company. Mr. Rosenfeld has been a member of the executive management team since joining +the Company in May 2005. Prior to joining the Company, Mr. Rosenfeld was a Vice President with Peter J. Solomon Company, an investment +banking boutique, where he specialized in mergers and acquisitions in the retail, apparel and footwear industries. Mr. Rosenfeld +serves as a director of PVH Corp., one of the world’s largest apparel companies, and is also a director of Summer Search +New York City, a non-profit corporation, whose mission is to help low-income teenagers develop skills and character traits to +become college-educated leaders. +6 +Mr. +Rosenfeld has more than 16 years of experience focused on the retail, apparel and footwear industries, nine of which have been +with the Company, and possesses particular knowledge of and experience in the industry that strengthens the Board’s collective +qualifications, skills and experience. His background in finance and his analytical skills gained through his years in investment +banking provide the Board and the Investment Committee with insight and guidance with respect to, among other things, strategic +business development matters. Mr. Rosenfeld has strong leadership skills and an in-depth understanding of the Company and its +goals from his positions as the Chairman of the Board and Chief Executive Officer. +Rose Peabody +Lynch – Owner of Marketing Strategies, LLC. +Rose +Peabody Lynch, 64, was appointed to serve as a director effective April 28, 2014. No committee appointments for Ms. Lynch have +yet been made. Since 1997, Ms. Lynch has operated Marketing Strategies, LLC, a New York based consulting firm of which she is +founder and President, which focuses on strategic marketing and operating issues for small to medium-sized companies. Prior to +forming Marketing Strategies, LLC, Ms. Lynch held the position of Vice President, General Merchandise Manager of the Bath and +Fragrance division of Victoria’s Secret from 1993 through 1996 and held the position of President of U.S. Operations of +Trowbridge Gallery, a supplier of fine art to the interior design trade, from 1989 through 1992. Prior to 1989, Ms. Lynch was +President of Danskin, Inc., a leading manufacturer of women’s dance and active wear, from 1986 through 1989 and, prior to +that, she held the position of Director of Marketing successively with Elizabeth Arden, Inc. and Charles of the Ritz Group, Inc. +Ms. Lynch has served on a number of boards, including The Harmony Group-LeRoi Princeton (a manufacturer of children’s apparel), +Salant Corporation (Perry Ellis Menswear) and Frederick’s of Hollywood (a retailer of women’s apparel and lingerie). +She was a member of the Audit and Nominating and Governance Committees during her tenure at Salant and chaired the Compensation +Committee during her tenure on the board of Frederick’s of Hollywood. Ms. Lynch has held leadership positions with a variety +of charities and currently serves as a director of S.O.S. Children’s Villages, the U.S. arm of an international non-profit +organization dedicated to providing assistance to children. She currently serves on the Board of Directors of the Princeton University +Varsity Club. Ms. Lynch is also a member of the Women and Foreign Policy Advisory Council at the Council on Foreign Relations. +Ms. +Lynch possesses over 30 years of business experience, including tenures as the President and in other senior executive officer +positions of major companies in the beauty and fashion industries, and has extensive executive level financial and operating experience. +Her experience serving as a director and as a senior executive for a range of companies enhances the Board’s leadership +and oversight capabilities. +John +L. Madden - Owner of JLM Consultants, Inc. +John +L. Madden, 67, has served as a director of the Company since 1993 and has served on the Company’s Investment Committee, +as its Chair, since April 2008. Since June 2004, Mr. Madden’s business consulting company, JLM Consultants, Inc., has provided +consulting services to the Company with respect to international sales. From April 1998 through September 2003, Mr. Madden owned +a branch office of Tradeway Securities Group, Inc., a brokerage firm, in Florida. From May 1996 through December 1996, Mr. Madden’s +consulting company, JLM Consultants, Inc., acted as a branch office of Merit Capital, Inc., a brokerage firm. From May 1994 to +May 1996, Mr. Madden served as Vice President of Investments for GKN Securities, Inc.. a brokerage firm. From August 1993 to April +1994, Mr. Madden was employed by Biltmore Securities, Inc., a brokerage firm, as Managing Director and registered sales representative. +Mr. Madden is the brother of Steven Madden, the Company’s founder and Creative and Design Chief. Please see the section +of this Proxy Statement captioned “Certain Relationships and Related Party Transactions.” +As +a result of Mr. Madden’s numerous years of experience in finance and investing, he possesses a proficiency in financial +analysis and investing that strengthens the Board’s collective qualifications, skills and experience and provides the Board +and the Investment Committee with greater insight and guidance. Mr. Madden’s years in business consulting and his strong +financial background have provided him with expertise in addressing operational and management issues and providing overall direction +for complex corporations like ours. Mr. Madden brings a wealth of knowledge and a depth of experience that comes from over twenty +years of service on the Company’s Board of Directors. His knowledge of Company history and his understanding of the Company +in the context of the Company’s long-term strategic plan provides the Board with continuity of direction and focus. +7 +Peter +Migliorini - Sales Manager, Greschlers, Inc. +Peter +Migliorini, 65, has served as a director of the Company since October 1996 and has served on the Company’s Audit Committee +since October 1996, the Nominating/Corporate Governance Committee, as its Chair, since July 2004 and the Compensation Committee, +as its Chair, since July 2004. Mr. Migliorini is also Presiding Director over all executive sessions of the independent directors. +Mr. Migliorini has been Sales Manager for Greschlers, Inc., a building supplies company, since 1994. From 1987 to 1994, Mr. Migliorini +served as Director of Operations for Mackroyce Group, a construction company. Prior to 1987, Mr. Migliorini held various positions +of increasing responsibility from Assistant Buyer to Chief Planner/Coordinator for several shoe companies, including Meldisco +Shoes, Perry Shoes and Fasco Shoes. +Mr. +Migliorini possesses extensive executive level financial, sales and operations experience. His numerous years of business experience +at various levels and in various industries provide the Board with a measure of practical orientation regarding the Company’s +operations and growth endeavors. Mr. Migliorini’s early experience in the shoe industry also provides relevant knowledge +and expertise in the Company’s specific industry. +Richard +P. Randall - Retired Executive Vice President and Chief Financial Officer, Direct Holdings Worldwide, +LLC. +Richard +P. Randall, 76, has served as a director of the Company since April 2006 and has served on the Company’s Audit Committee, +as its Chair, since 2006, on the Nominating/Corporate Governance Committee since September 2008 and on the Investment Committee +since April 2008. Mr. Randall was the Executive Vice President and Chief Financial Officer of Direct Holdings Worldwide, LLC, +the parent company of Lillian Vernon Corp., a catalog and online retailer of gifts and household goods, and Time-Life, a music +and video marketing company, from 2002 until his retirement in June 2005. Prior to 2002, Mr. Randall served as Senior Vice President +and Chief Financial Officer of Coach, Inc., a luxury leather goods company, and Chief Operating Officer and Chief Financial Officer +of Lillian Vernon Corp. from 2000 to 2001 and 1998 to 2000, respectively. Currently, Mr. Randall serves as a director and chairs +the Audit and Risk Committee of Aceto Corporation, a generic pharmaceutical, nutraceutical and chemical distribution company. +Mr. Randall also serves on the board of directors and is a member of the Audit Committee of P&F Industries, Inc., a manufacturer +and importer of tools sold principally to the industrial, retail and automotive markets, as well as residential hardware. Mr. +Randall is a former director and member of the Executive, Finance, Audit and Research Committees of The Burke Rehabilitation Hospital +(“Burke”). He currently serves as a Member Emeritus of Burke’s Executive Committee and retains a board seat +on The Burke Foundation’s board. Mr. Randall served as a director and chair of the Audit Committee of Universal Travel Group, +a travel services provider in the People’s Republic of China, and of Home Systems Group, a manufacturer and distributor +of household appliances in the People’s Republic of China, from 2007 until 2008 when he resigned from these boards. +With +decades of business experience, including tenures as Chief Financial Officer and Chief Operating Officer of both publicly traded +and privately held companies in the retail industry, Mr. Randall possesses extensive knowledge of accounting and finance, the +retail industry and the issues impacting a publicly traded company. Mr. Randall has extensive executive level experience establishing +his capabilities in management of complex organizations and is a certified public accountant. His expertise in finance qualifies +him to serve as the Audit Committee “audit committee financial expert” and his service on the boards and committees +of other companies has allowed him to gain broad-based experience and sensitivity regarding best practices, which he shares with +the Board. +Ravi +Sachdev - Managing Director, J.P. Morgan. +Ravi +Sachdev, 37, has served as a director of the Company since September 2008 and has served on the Company’s Audit Committee +since September 2008. Mr. Sachdev joined J.P. Morgan, a global investment bank, as a Managing Director in November 2010, and focuses +on the healthcare services subsector. Previously, Mr. Sachdev was a Managing Director at Deutsche Bank Securities, Inc. (“Deutsche +Bank”) from January 2009 and prior to that held the position of Director at Deutsche Bank from January 2007 until January +2009. Mr. Sachdev joined Deutsche Bank in 2006 as a Vice President. Prior to joining Deutsche Bank, Mr. Sachdev was a Vice President +at Peter J. Solomon Company, an investment banking boutique, specializing in mergers and acquisitions in the healthcare sector, +from 1998 to 2006. +8 +Mr. +Sachdev possesses knowledge of finance and the financial analytics used to measure business performance. His 16 years of professional +experience in investment banking brings to the Board a thorough understanding of the financial issues affecting public companies +and greater insights in business valuation together with a practical orientation with respect to acquisitions and integrations +which our Company has undertaken over the last few years. +Thomas +H. Schwartz - Owner, Sumner and Forge Investors LLC. +Thomas +H. Schwartz, 66, has served as a director of the Company since May 2004 and has served on the Company’s Compensation Committee +since July 2004. Since March 2007, Mr. Schwartz has been the Chief Executive Officer and sole owner of Sumner and Forge Investors +LLC, a company that invests in real estate and manages properties in which it holds ownership interests. Previously, Mr. Schwartz +was a Managing Director of Helmsley-Spear, Inc., a real estate brokerage and management company, from 1984 to March 2007. +With +more than twenty years of experience as a Managing Director of Helmsley-Spear, Inc. and seven years as the owner of his own real +estate investment firm, Mr. Schwartz brings to the Board extensive executive level experience in handling operations issues and +practical expertise in management. +Robert +Smith – Chief Merchandising Officer, Haddad Brands. +Robert +Smith, 48, was recently appointed to serve as a director effective April 28, 2014. No committee appointments for Mr. Smith +have yet been made. Since 2013, Mr. Smith has been Chief Merchandising Officer for Haddad Brands, a global children’s +apparel and accessories licensing partner for iconic American brands such as Levi’s, Hurley, Nike, Jordan and Converse. +Prior to 2013, from 2010 to 2012, Mr. Smith held the position of Executive Vice President, Merchandising for Limited +Brands, Victoria’s Secret Direct, the largest direct-to-consumer women’s apparel retailer in the United States. +From 1998 through 2010, Mr. Smith held various senior merchandising positions at Macy’s Inc. beginning with Vice +President, Merchandise Manager, Macy’s West and culminating with Executive Vice President, Merchandising for Juniors, +Kids, Intimate Apparel, Dresses, Suits, Coats and Swimwear. Prior to 1998, Mr. Smith was a Merchandiser for XOXO Apparel +Company and, from 1990 through 1996, Mr. Smith held various positions with Burdine’s Department Stores. +Mr. +Smith possesses nearly 30 years of business experience in the fashion industry and has extensive executive level expertise in +merchandising. His experience in this area will further enhance the Board’s depth of understanding of the industry. +Required Vote +Proxies +will be voted for the election of the eight nominees as directors of the Company unless otherwise specified in the proxy. A plurality +of the votes cast by the holders of shares of Common Stock present in person or represented by proxy at the Annual Meeting will +be necessary to elect the nominees as directors. This means that the director nominees who receive the greatest number of affirmative +votes cast are elected as directors subject to our Director Election (Majority Voting) Policy which is described under the caption +“Corporate Governance-Director – Election (Majority Voting) Policy” below. If, for any reason, any nominee is +unable or unwilling to serve, the proxies will be voted for a substitute nominee who will be designated by the Board of Directors +at the Annual Meeting. Stockholders may abstain from voting by marking the appropriate boxes on the accompanying proxy. Abstentions +will be counted separately and used for purposes of calculating whether a quorum is present at the Annual Meeting. +9 +Director Election (Majority +Voting) Policy +It +is the policy of the Company that any nominee for director who receives a greater number of “WITHHOLD” votes than +“FOR” votes for his or her election must promptly submit a letter of resignation to the Nominating/Corporate Governance +Committee following the certification of the stockholder vote. In such event, the Nominating/Corporate Governance Committee would +then consider the offer of resignation and make a recommendation to the Board of Directors as to whether or not the resignation +should be accepted. This policy does not apply in contested elections. For more information about this policy, see “Corporate +Governance – Director Election (Majority Voting) Policy” below. +Recommendation of the Board +of Directors +The +Nominating/Corporate Governance Committee of the Board and the entire Board of Directors unanimously recommend a vote “FOR” +the election of Ms. Rose Peabody Lynch and Messrs. Edward R. Rosenfeld, John L. Madden, Peter Migliorini, Richard P. Randall, +Ravi Sachdev, Thomas H. Schwartz and Robert Smith. +CORPORATE +GOVERNANCE +The Board of Directors +Our +business is managed under the direction and oversight of the Board of Directors who are elected by the Company’s stockholders. +Directors meet their responsibilities by participating in meetings of the Board of Directors and the various committees of the +Board on which they sit, as well as through communicating with our Chairman and Chief Executive Officer, other officers and employees +of the Company and by consulting with our independent registered public accounting firm and other third parties. +As +noted above, our Board is currently comprised of four independent and two non-independent directors. As part of the Company’s +corporate governance planning and upon the recommendation of the Nominating/Corporate Governance Committee, the Board recently +voted to expand the size of the Board from six members to eight members. The expansion of the Board from six to eight members +will become effective as of April 28, 2014 when Rose Peabody Lynch and Robert Smith will join the Board of Directors as independent +directors. +Director Independence +The +Board of Directors is currently comprised of six members and, effective April 28, 2014, will expand to eight members, when Rose +Peabody Lynch and Robert Smith join the Board as independent directors. +The +Board of Directors has determined that the following director nominees are “independent” for purposes of the criteria +of the SEC and The Nasdaq Global Select Market listing standards: Ms. Lynch and Messrs. Migliorini, Randall, Sachdev, Schwartz +and Smith. If the eight nominees set forth above are elected, the Board will be comprised of a majority of independent directors. +The Board of Directors has held regularly scheduled executive sessions for the independent directors, with Peter Migliorini serving +as Presiding Director of such executive sessions. +Director Attendance at +Meetings +Attendance +at Annual Meetings of Stockholders +The +Company has no specific policy regarding director attendance at its annual meetings of stockholders. The Company encourages all +of its directors to attend annual meetings of the Company’s stockholders and two directors attended the Company’s +2013 annual meeting of stockholders. +Attendance +at Meetings of the Board of Directors +The +Board of Directors held four regularly scheduled and three special meetings during the 2013 Fiscal Year, one of which was not +attended by Mr. Schwartz and Mr. Madden, and acted by unanimous written consent on three occasions during the 2013 Fiscal Year. +In 2013, each director attended at least 75% of the aggregate number of Board meetings, and each director attended at least 75% +of the aggregate number of meetings held by all committees on which he then served. +10 +Director Election (Majority +Voting) Policy +The +Company has adopted a Director Election (Majority Voting) Policy. Pursuant to this policy, in an uncontested election of directors +(that is, an election where the number of nominees is equal to the number of seats open) any nominee for director who receives +a greater number of “WITHHOLD” votes than “FOR” votes for his or her election must promptly submit an +offer of resignation to the Nominating/Corporate Governance Committee following the certification of the stockholder vote for +consideration in accordance with the following procedures. +In +such event, upon receipt of the resignation, the Nominating/Corporate Governance Committee would promptly consider the appropriateness +of the director’s continued service on the Board of Directors and recommend to the Qualified Independent Directors (as defined +below) the action to be taken with respect to the resignation, which could include (1) accepting the resignation; (2) rejecting +the resignation; (3) retaining the director but addressing what the Qualified Independent Directors believe to be the underlying +cause of the “WITHHOLD” votes; or (4) determining that the director will not be renominated by the Board of Directors +in future elections. The Nominating/Corporate Governance Committee would consider factors such as (a) the reasons expressed +by the stockholders for withholding votes from such director; (b) any possibilities for curing the underlying cause of the +“WITHHOLD” votes; (c) the tenure and qualifications of the director and his or her past and expected future contributions +to the Company; (d) the overall composition of the Board of Directors, including, without limitation, whether accepting the +resignation would cause the Company to fail to meet any applicable SEC or Nasdaq requirement; (e) the availability of other qualified +candidates; and (f) the Company’s Board of Director Candidate Guidelines and Director Election (Majority Voting) Policy. +The +Qualified Independent Directors would then act on the Nominating/Corporate Governance Committee’s recommendation no later +than 90 days following the date of the stockholders’ meeting at which the director election occurred. In considering the +Nominating/Corporate Governance Committee’s recommendation, the Qualified Independent Directors would review the factors +considered by the Nominating/Governance Committee and such additional information and factors that they believe to be relevant. +Following the Qualified Independent Directors’ decision, the Company would promptly disclose the decision in a Current Report +on Form 8-K. The Form 8-K would include a full explanation of the process by which the decision of the Qualified Independent Directors +was reached and, if applicable, the reasons why the offer of resignation was rejected. +In +the event that an offer of resignation were to be accepted, the Nominating/Corporate Governance Committee would recommend to the +Board of Directors whether to fill the vacancy or reduce the size of the Board of Directors accordingly. Any director required +to submit his or her resignation pursuant to this policy would not participate in the Nominating/Corporate Governance Committee’s +recommendation or the Qualified Independent Directors’ consideration of the resignation but, prior to voting on the director’s +resignation offer, the Qualified Independent Directors would provide to the director an opportunity to submit any information +or statement that he believes relevant to the Qualified Independent Directors’ consideration of the resignation. +For +purposes of this policy, “Qualified Independent Directors” means all directors who (1) are “independent” +for purposes of The Nasdaq Global Select Market listing standards and (2) are not required to offer their resignation in accordance +with this policy. If there are fewer than three independent directors then serving on the Board of Directors who are not required +to submit their resignations in accordance with this policy, then the Qualified Independent Directors shall consist of all of +the independent directors and each independent director who is required to offer his or her resignation in accordance with this +policy shall recuse himself or herself from the deliberations and voting only with respect to his or her individual offer to resign. +Committees of the Board +The +Board of Directors, among other committees, has a standing Audit Committee, Compensation Committee and Nominating/Corporate Governance +Committee. +11 +Audit +Committee +The +members of the Audit Committee are Messrs. Randall (Chairman), Migliorini and Sachdev. The Audit Committee is comprised of directors +who are “independent” for purposes of The Nasdaq Global Select Market listing standards and who meet the independence +requirements contained in Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rule 10A-3(b)(1). The Board +has determined that Mr. Randall meets the SEC criteria of an “audit committee financial expert” and he is currently +serving as such. The Audit Committee is primarily responsible for reviewing the services performed by the Company’s independent +registered public accountants, evaluating the Company’s accounting policies and its system of internal controls, and reviewing +significant financial transactions. During the 2013 Fiscal Year, the Audit Committee met five times. +The +Audit Committee is responsible for reviewing and striving to ensure the integrity of the Company’s financial statements +and oversight of our compliance with legal and regulatory requirements, our internal audit function and an independent registered +public accounting firm. Among other matters, the Audit Committee, with management and independent and internal auditors, reviews +the adequacy of the Company’s internal accounting controls that could significantly affect the Company’s financial +statements. The Audit Committee is also directly and solely responsible for the appointment, retention, compensation, oversight +and termination of the Company’s independent registered public accountants. In addition, the Audit Committee also functions +as the Company’s Qualified Legal Compliance Committee (the “QLCC”). The purpose of the QLCC is to receive, retain +and investigate reports made directly, or otherwise made known, of evidence of material violations of any United States federal +or state law, including any breach of fiduciary duty by the Company, its officers, directors, employees or agents, and if the +QLCC believes appropriate, to recommend courses of action to the Company. +Management +has primary responsibility for the Company’s financial statements and the overall reporting process, including the Company’s +system of internal controls. The independent registered public accountants audit the annual financial statements prepared by management, +express an opinion as to whether those financial statements present fairly the financial position, results of operations and cash +flows of the Company in conformity with accounting principles generally accepted in the United States and discuss with the Audit +Committee any issues they believe should be raised with the Audit Committee. +The +Audit Committee is also responsible for the oversight of the Company’s risk management process, which is discussed in the +“Risk Oversight” section below. +In +performing its functions, the Audit Committee meets with management on at least a quarterly basis to review and discuss the annual +audited financial statements, quarterly financial statements and related reports and to consider the adequacy of the Company’s +internal controls and the objectivity of its financial reporting. The Audit Committee discusses these matters with the Company’s +independent registered public accountants and with appropriate Company financial personnel. Meetings are held with the independent +registered public accountants, who have unrestricted access to the Audit Committee. In addition, the Audit Committee reviews the +Company’s financing plans and reports and makes recommendations to the full Board of Directors for approval and to authorize +action. The Board has adopted a written charter setting out the functions the Audit Committee is to perform. A copy of the Audit +Committee Charter is available on the Company’s website at www.stevemadden.com . +Nominating/Corporate +Governance Committee +The +members of the Nominating/Corporate Governance Committee are Messrs. Migliorini (Chairman) and Randall. The Nominating/Corporate +Governance Committee is comprised of directors who are “independent” for purposes of The Nasdaq Global Select Market +listing standards. The Nominating/Corporate Governance Committee acted by unanimous written consent on one occasion during the +2013 Fiscal Year. +The +Nominating/Corporate Governance Committee provides oversight with respect to a wide range of issues relating to the composition +and operation of the Board, including consideration of and recommendations regarding the size and composition of the Board of +Directors and identification of potential candidates to serve as directors. The Nominating/Corporate Governance Committee identifies +candidates to the Board of Directors by introductions from management, members of the Board of Directors, employees of the Company +or other sources, including stockholders that satisfy the Company’s policy regarding stockholder recommended candidates. +The Nominating/Corporate Governance Committee does not evaluate director candidates recommended by stockholders differently than +director candidates recommended by other sources. +12 +Stockholders +wishing to submit recommendations for director nominations for the 2015 Annual Meeting should write to the Corporate Secretary, +Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New York 11104. Any such stockholder must (x) comply with the director +nomination provisions of the Company’s By-Laws, (y) meet and evidence the minimum eligibility requirements specified in +Exchange Act Rule 14a-8, and (z) submit, within the same timeframe for submitting a stockholder proposal required by Rule 14a-8: +(1) evidence in accordance with Rule 14a-8 of compliance with the stockholder eligibility requirements, (2) the written consent +of the candidate(s) for nomination as a director, (3) a resume or other written statement of the qualifications of the candidate(s) +for nomination as a director, and (4) all information regarding the candidate(s) and the submitting stockholder that would be +required to be disclosed in a proxy statement filed with the SEC if the candidate(s) were nominated for election to the Board +of Directors. +In +considering candidates for the Board of Directors, the Nominating/Corporate Governance Committee considers the Company’s +Board of Director Candidate Guidelines and Director Election (Majority Voting) Policy, available on the Company’s website +at www.stevemadden.com , the Company’s policy regarding stockholder recommended director candidates, as set forth +above, and all other factors that are deemed appropriate including, but not limited to, the individual’s character, education, +experience, knowledge and skills. While the Nominating/Corporate Governance Committee’s Board of Directors Candidate Guidelines +does not expressly identify diversity as a factor for consideration regarding the evaluation of director candidates, diversity +is among the many factors the Nominating/Corporate Governance Committee considers in the candidate evaluation process. To assess +the effectiveness of the mandate set forth in the Nominating/Corporate Governance Committee’s charter, the Nominating/Corporate +Governance Committee reviews annually with the Board the composition of the Board as a whole and recommends, if necessary, measures +to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required +for the Board as a whole. +In +addition, the Nominating/Corporate Governance Committee develops and recommends corporate governance principles for the Company; +makes recommendations to the Board of Directors in support of such principles; takes a leadership role in the shaping of the corporate +governance of the Company; and oversees the evaluation of the Board of Directors and management. The Nominating/Corporate Governance +Committee operates under a formal charter that governs the Committee’s composition, powers and responsibilities. A copy +of the Nominating/Corporate Governance Charter is available on the Company’s website at www.stevemadden.com . +Compensation +Committee +The +members of the Compensation Committee are Messrs. Migliorini (Chairman) and Schwartz. The Compensation Committee is comprised +of directors who are “independent” for purposes of The Nasdaq Global Select Market listing standards and applicable +tax and securities rules. The Compensation Committee met three times during the 2013 Fiscal Year and acted by unanimous written +consent on two occasions during the 2013 Fiscal Year. +The +Compensation Committee is responsible for establishing and overseeing the Company’s compensation and incentive plans and +programs; determining and approving compensation for the Company’s executive officers, including salaries, bonuses, perquisites +and equity awards; reviewing and approving compensation and awards for the Company’s executive officers under the Company’s +compensation and incentive plans and programs; administering the Company’s equity compensation plans; reviewing and approving +a compensation program for independent members of the Board; and assisting the Board in discharging the Board’s responsibilities +relating to management organization, performance, compensation and succession. The Compensation Committee operates under a formal +charter adopted by the Board of Directors that governs its composition, powers and responsibilities. A copy of the Compensation +Committee Charter is available on the Company’s website at www.stevemadden.com . +13 +Board Leadership Structure, +Risk Oversight, Executive Sessions of Non-Employee Directors, and Communications Between Stockholders and the Board +Board +Leadership Structure +As +noted above, our Board is currently comprised of four independent and two non-independent directors and, commencing on April 28, +2014, will be expanded and consist of five independent directors and two non-independent directors. +Mr. +Rosenfeld has served as Chairman of the Board and Chief Executive Officer since August 2008, and has been a member of the Board +since February 2008. The Board has designated one of the independent directors as Presiding Director to preside over executive +sessions. We believe that the number of independent, experienced directors that comprise our Board, along with the independent +oversight of our Presiding Director, benefits the Company and its stockholders. +We +recognize that different board leadership structures may be appropriate for companies in different situations and believe that +no one structure is suitable for all companies. We believe our current Board leadership structure is optimal for the Company because +it demonstrates to our employees, suppliers, customers, and other stakeholders that the Company is under strong leadership, with +a single person setting the tone and having primary responsibility for managing our operations and leading the Board in setting +long-term strategy. Having a single leader for both the Company and the Board eliminates confusion and duplication of efforts, +and provides clear leadership for the Company. We believe the Company, like many U.S. companies, has been well-served by this +leadership structure. +Because +the positions of Chairman of the Board and Chief Executive Officer are held by the same person, the Board believes it is appropriate +for the independent directors to elect one independent director to serve as a Presiding Director. In addition to presiding at +executive sessions of the independent directors, the Presiding Director has various responsibilities including coordinating with +the Chairman of the Board and Chief Executive Officer in establishing agenda and discussion items for Board meetings; retaining +independent advisors on behalf of the Board as the Board may determine to be necessary or appropriate and performing such other +functions as the independent directors may designate from time to time. Mr. Migliorini is currently serving as the Presiding Director. +Our +Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of +this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for the Company +and its stockholders. +Risk +Oversight +Our +Board is responsible for overseeing the Company’s risk management process. The Board focuses on the Company’s general +risk management strategy, the most significant risks facing the Company, and ensures that appropriate risk mitigation strategies +are implemented by management. The Board is also apprised of particular risk management matters in connection with its general +oversight and approval of corporate matters. +The +Board has delegated to the Audit Committee oversight of the Company’s risk management process. Among its duties, the Audit +Committee reviews with management (a) the Company’s policies with respect to risk assessment and management of risks that +may be material to the Company, (b) the Company’s system of disclosure controls and system of internal controls over financial +reporting, and (c) the Company’s compliance with legal and regulatory requirements. The Audit Committee is also responsible +for reviewing major legislative and regulatory developments that could materially impact the Company’s contingent liabilities +and risks. Our other Board committees also consider and address risks as they perform their respective committee responsibilities. +All committees report to the full Board as appropriate, including when a matter rises to the level of a material or enterprise +level risk. +The +Company’s management is responsible for day-to-day risk management. Our risk management and internal audit areas serve as +the primary monitoring and testing function for company-wide policies and procedures, and manage the day-to-day oversight of the +risk management strategy for the ongoing business of the Company. This oversight includes identifying, evaluating, and addressing +potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels. +14 +We +believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing +the Company and that our Board leadership structure supports this approach. +Executive +Sessions of Independent Directors +The +Board holds executive sessions of its independent directors generally at each regularly scheduled meeting. The Presiding Director +serves as the chairperson for these executive sessions. +Communications +between Stockholders and the Board +The +Company has adopted a procedure by which stockholders may send communications to one or more members of the Board of Directors +by writing to such director(s) or to the entire Board of Directors in care of the Corporate Secretary, Steven Madden, Ltd., 52-16 +Barnett Avenue, Long Island City, New York 11104. The Board has instructed the Corporate Secretary to review all communications +so received and to exercise his discretion not to forward to the Board correspondence that is inappropriate, such as business +solicitations, frivolous communications and advertising, routine business matters (i.e. business inquiries, complaints, or suggestions) +and personal grievances. However, any director may at any time request the Corporate Secretary to forward to such director any +and all communications received by the Corporate Secretary but not forwarded to the directors. +Code of Business Conduct +and Ethics +All +of the Company’s employees, officers (including senior executive, financial and accounting officers) and directors are held +accountable for adherence to the Company’s Code of Business Conduct and Ethics (the “Conduct Code”). The Conduct +Code is intended to establish standards necessary to deter wrongdoing and to promote compliance with applicable governmental laws, +rules and regulations and honest and ethical conduct. The Conduct Code covers all areas of professional conduct, including conflicts +of interest, fair dealing, financial reporting and disclosure, protection of Company assets and confidentiality. Employees have +an obligation to promptly report any known or suspected violation of the Conduct Code without fear of retaliation. Waiver of any +provision of the Conduct Code for executive officers and directors may only be granted by the Board of Directors or one of its +committees and any such waiver or modification of the Conduct Code relating to such individuals will be disclosed by the Company. +A copy of the Conduct Code is available on the Company’s website at www.stevemadden.com and may also be obtained +by any stockholder without charge upon request by writing to the Corporate Secretary, Steven Madden, Ltd., 52-16 Barnett Avenue, +Long Island City, New York 11104. +Certain Relationships +and Related Party Transactions +JLM +Consultants, Inc., a company wholly-owned by John L. Madden. Since 2004, the Company has engaged JLM Consultants, Inc., +a company wholly-owned by John L. Madden, a member of the Board and the brother of Steven Madden, the Company’s founder +and Creative and Design Chief, to provide consulting services to the Company with respect to the development of international +sales of the Company. On February 23, 2012, the Company entered into a consulting agreement (the “JLM Consulting Agreement”) +with JLM Consultants, Inc., which replaced a prior consulting agreement, and continues in effect until December 31, 2014. In accordance +with the terms of the JLM Consulting Agreement, for the 2013 Fiscal Year, JLM Consultants, Inc. received the following compensation +from the Company for services rendered: (a) a commission equal to 1% of net sales, excluding retail royalty income; (b) a commission +equal to 10% of retail royalty income, (c) 1% of any commission income to the International division that is not recognized in +net sales; (d) a monthly draw in the amount of $25,000, which amount is offset against commissions earned, (e) a $1,000 per month +travel allowance and (f) $4,576.08 per month reimbursement for health insurance premiums for John L. Madden. Pursuant to this +arrangement, JLM Consultants, Inc. received a total of $1,310,349 from the Company in the 2013 Fiscal Year. +15 +Pursuant +to the JLM Consulting Agreement, on January 2, 2013, the Company issued 72,012 restricted shares of the Company’s Common +Stock (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock split effected as a stock +dividend) to JLM Consultants, Inc. under the Steven Madden, Ltd. 2006 Stock Incentive Plan, as amended (the “2006 Plan”), +which shares will vest in twelve substantially equal quarterly installments over a three-year period commencing on April 1, 2013 +and continuing to vest quarterly thereafter until the final installment vests on January 1, 2016. +Steven +Madden Employment Agreement. Effective as of July 1, 2005, the Company amended and restated its employment agreement with +the Company’s founder and Creative and Design Chief, Steven Madden, pursuant to which Mr. Madden agreed to continue to serve +as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement commenced +on July 1, 2005 and, in accordance with the amendment of the agreement effective December 31, 2011, will end on December 31, 2023. +Prior to this recent amendment, the agreement had provided for an annual salary of $600,000, with a 7% increase of base salary +on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. The agreement had also provided for +an annual cash bonus in an amount equal to at least 2% of the Company’s EBITDA (the “Annual Bonus”) and an annual +cash bonus in relation to “new business” (as defined in the agreement) in an amount equal to at least (i) 2.5% of +new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business +Bonus”). The agreement, as amended, increases Mr. Madden’s annual base salary but eliminates the Annual Bonus and +the New Business Bonus and provides that all cash bonuses subsequent to the fiscal year ended December 31, 2011 will be at the +sole discretion of the Company’s Board of Directors. Under the agreement, as amended, Mr. Madden’s annual base salary +was fixed at $5,416,667 in 2012, $7,416,667 in 2013, $9,666,667 in 2014, $11,916,667 in 2015 and $10,697,917 in 2016 and in each +year thereafter through the end of the term of employment. In addition, the amended agreement entitles Mr. Madden to an annual +life insurance premium reimbursement of up to $200,000. The amendment also eliminates an annual non-accountable expense allowance +of $200,000 that had been previously provided to Mr. Madden under the agreement. Pursuant to the amended agreement, on February +8, 2012, Mr. Madden was granted 1,463,056 restricted shares of Common Stock (the number of shares indicated having been adjusted +for an October 1, 2013 three-for-two stock split effected as a stock dividend), valued at approximately $40 million, under the +2006 Plan. The restricted Common Stock will vest in equal annual installments over seven years commencing on December 31, 2017 +through December 31, 2023, subject to Mr. Madden’s continued employment with the Company on each such vesting date. +On +June 30, 2012, pursuant to an election right granted to him under the agreement, as amended, Mr. Madden notified the Company of +his election to receive an additional restricted stock award valued at $40 million in consideration of a reduction in his annual +base salary in years subsequent to 2012. Accordingly, on July 3, 2012, Mr. Madden was issued 1,893,342 restricted shares of Common +Stock (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock split effected as a stock +dividend) under the 2006 Plan. The restricted Common Stock will vest in equal annual installments over six years commencing on +December 31, 2018 through December 31, 2023, subject to Mr. Madden’s continued employment with the Company on each such +vesting date. As a result of his election to receive an additional restricted stock award, Mr. Madden’s annual base salary +for years subsequent to 2012 has been reduced as follows: $4,000,000 in 2013, $6,125,000 in 2014, $8,250,000 in 2015 and $7,026,042 +in 2016 and in each year thereafter through the end of the term of employment. +Mr. +Madden is also eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders (but not +later than June 30 th ), an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, +with such number to be equal to the greater of (a) 100% of the largest aggregate number of shares of Common Stock available upon +the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month +period and (b) 100,000 shares of Common Stock; provided, however, that a grant to Mr. Madden in excess of 150% of the number of +shares of Common Stock subject to options granted to such other continuing full-time employee would require stockholder approval. +Any Annual Option granted to Mr. Madden would vest quarterly over a one-year period following the grant date and would be exercisable +at a price equal to the closing price of the Company’s Common Stock on the grant date for a period of five years following +the grant date. Mr. Madden opted to waive his right to the Annual Option in 2013. In addition to the Annual Option, the agreement, +as amended, provides for a potential additional one-time stock option grant to purchase 750,000 shares of the Company’s +Common Stock (the number of shares subject to this potential stock option award having been adjusted for an October 1, 2013 three-for-two +stock split effected as a stock dividend) in the event that the Company achieves earnings per share, on a fully-diluted basis, +equal to $3.00 in any fiscal year ending December 31, 2015 or after. If granted, the option would vest in equal annual installments +of 20% over a five-year period and be exercisable for a period of seven years at a price equal to the closing price of the Company’s +Common Stock on the date immediately preceding the grant date. +16 +In +the event of Mr. Madden’s death, his employment agreement provides for the payment to Mr. Madden’s estate of his base +salary for the 12-month period immediately subsequent to the date of his death. Further, in the event that Mr. Madden’s +employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” +(as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount +of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement +is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company +is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under +the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” +(as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. +Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good +reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within +30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden +will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to +the amount of compensation that is accrued and unpaid through the date of termination plus $35 million. Mr. Madden’s employment +agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation +and competition. +For +the 2013 Fiscal Year, Mr. Madden earned $4,000,000 in base salary and received $200,000 for the payment of an annual life insurance +premium. Mr. Madden opted to waive his right to the Annual Option for the 2013 Fiscal Year. +Loan +to Steven Madden. On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal +stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to satisfy a personal tax obligation resulting +from the exercise of a stock option which was due to expire and to hold the underlying shares of Common Stock. Mr. Madden executed +a promissory note in favor of the Company, which is secured by a pledge of 472,500 shares of the Company’s Common Stock +beneficially owned by Mr. Madden (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock +split effected as a stock dividend). There have been successive amendments to the note, the most recent of which occurred on January +3, 2012, at which time the note was amended and restated to extend the maturity date of the obligation to December 31, 2023 and +eliminate the accrual of interest after December 31, 2011. Prior to the most recent amendment, the note had been accruing interest +at the rate of 6% per annum. In addition, the amended and restated note provides that, commencing on December 31, 2014 and annually +on each December 31 thereafter through the maturity date, one-tenth of the principal amount thereof, together with accrued interest, +will be cancelled by the Company provided that Mr. Madden continues to be employed by the Company on each such December 31. Contemporaneously, +the Company will release a number of pledged shares of Common Stock from the pledge generally correlating to the amount of indebtedness +cancelled on such date. As of December 31, 2011, interest in the amount of $1,090,000 had accrued on the principal amount of the +note and, as noted above, interest was eliminated after December 31, 2011. +Steven +Madden is the brother of John L. Madden, who has been a director of the Company since 1993. +Review, Approval or Ratification +of Transactions with Related Persons +The +Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts +of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the +Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +17 +Related +person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, +who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, +the Board or committee will consider all relevant factors, including, as applicable, (i) the Company’s business rationale +for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction +is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; +(iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent +such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The +Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct +Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to +management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel +on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain +information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which +information is then reviewed for any conflicts of interest under the Conduct Code. +The +Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the +related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s +periodic filings, including related party transaction disclosures. +If +a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions +and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, +must be ratified as promptly as practicable. +COMPENSATION +OF DIRECTORS IN THE 2013 FISCAL YEAR +The +following table sets forth information concerning the compensation of the Company’s non-employee directors in the 2013 Fiscal +Year. Following the table is a discussion of material factors related to the information disclosed in the table. +Name +Fees +Earned or +Paid in +Cash +($) +Stock +Awards +($)(1) +All Other +Compensation +($) +Total +($) +John L. Madden +0 +1,999,773 (2) +1,376,997 (3) +3,376,770 +Peter Migliorini +110,000 +100,012 (4) +0 +210,012 +Richard P. Randall +110,000 +100,012 (5) +0 +210,012 +Ravi Sachdev +85,000 +100,012 (6) +0 +185,012 +Thomas H. Schwartz +85,000 +100,012 (7) +0 +185,012 +(1) Reflects +the grant date fair value of stock awards calculated in accordance with the Financial Accounting Standards Board (“FASB”) +Accounting Standards Codification (“ASC”) Topic 718. Assumptions used in the calculation of these +amounts are included in Note I to the Company’s audited financial statements for the fiscal year ended December 31, 2013 +included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2014. +(2) At +December 31, 2013, the aggregate number of shares of restricted Common Stock held by JLM Consultants, Inc., a corporation wholly-owned +by Mr. Madden, was 54,012, and Mr. Madden had no options outstanding. +(3) Includes: +(a) the use of a corporate apartment valued at $66,648 and (b) $1,310,349 in fees, travel and health insurance premium allowance +paid to JLM Consultants, Inc., a company wholly-owned by Mr. John Madden, as consideration for consulting services provided by +JLM Consultants, Inc. with respect to the development of the Company’s international business. +(4) At +December 31, 2013, the aggregate number of shares of restricted Common Stock held was 3,147, and Mr. Migliorini had no options +outstanding. +(5) At +December 31, 2013, the aggregate number of shares of restricted Common Stock held was 3,147, and Mr. Randall had no options outstanding. +(6) At +December 31, 2013, the aggregate number of shares of restricted Common Stock held was 3,147, and Mr. Sachdev had no options outstanding. +(7) At +December 31, 2013, the aggregate number of shares of restricted Common Stock held was 3,147, and Mr. Schwartz had no options outstanding. +18 +Directors +who are also employees of the Company are not paid any fees or other remuneration for service on the Board of Directors or any +of its committees. In the 2013 Fiscal Year, each non-employee director, other than John L. Madden, received the following compensation: +(i) a grant of 3,147 shares of restricted Common Stock (the number of shares indicated having been adjusted for an October 1, +2013 three-for-two stock split effected as a stock dividend), vesting on the first anniversary of the grant date, June 6, 2014 +and (ii) $75,000. John L. Madden, who is a non-independent director as a result of his ownership of JLM Consultants, Inc., a provider +of consulting services to the Company with respect to international sales, is not paid a fee for his service on the Board of Directors. +In +the 2013 Fiscal Year, members of the Audit Committee, Nominating/Corporate Governance Committee and Compensation Committee each +received an additional $10,000 for serving on such committees, except that the Chairman of the Audit Committee received $25,000 +instead of $10,000 and the Chairman of the Compensation Committee received $15,000 instead of $10,000. The Company reimburses +its directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. +STOCK +OWNERSHIP +Security Ownership of +Certain Beneficial Owners +The +following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership +of the Common Stock of the Company by each person known by the Company to be the beneficial owner of more than 5% of the outstanding +shares of the Common Stock of the Company. A person is deemed to be a beneficial owner of any securities which that person has +the right to acquire within 60 days. +Name and Address of Beneficial Owner +Amount and Nature +of Beneficial +Ownership (1) +Percentage of Class +Steven Madden +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +7,242,290 +10.74 +% +(2) +BOCAP Corp. +c/o Steven Madden, Ltd. +52-16 Barnett Avenue +Long Island City, NY 11104 +2,058,062 +3.09 +% +(3) +FMR LLC +82 Devonshire Street +Boston, Massachusetts 02109 +5,733,664 +8.61 +% +(4) +BlackRock Inc. +40 East +52 nd Street +New York, NY 10022 +5,464,456 +8.21 +% +(5) +The Vanguard Group +100 Vanguard Boulevard +Malvern, Pennsylvania 19355 +4,111,249 +6.18 +% +(6) +Eagle Asset Management, Inc. +880 Carillon Parkway +St. Petersburg, Florida 33716 +3,898,540 +5.86 +% +(7) +19 +(1) Beneficial +ownership as reported in the table below has been determined in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the +Exchange Act and based upon 66,563,809 shares of Common Stock outstanding (excluding treasury shares) as of the Record Date. +(2) Mr. +Madden’s beneficial ownership includes: (i) 2,058,062 shares of Common Stock held by BOCAP Corp, a corporation wholly-owned +by Mr. Madden; (ii) 881,253 shares of Common Stock that may be acquired through options that are exercisable as of, or will become +exercisable within 60 days of, the Record Date; (iii) 3,356,398 shares of restricted Common Stock granted under the 2006 Plan +(which restricted stock includes 1,463,056 shares which will vest in equal annual installments over seven years commencing on +December 31, 2017 through December 31, 2023 and 1,893,342 shares which will vest in equal annual installments over six years commencing +on December 31, 2018 through December 31, 2023, in each case subject to forfeiture pursuant to the terms of the 2006 Plan and +of Mr. Madden’s employment agreement); and (iv) 946,577 shares of Common Stock held by Mr. Madden directly. Mr. Madden has +pledged to the Company 472,500 shares of Common Stock beneficially owned by him to secure the repayment of a loan made by the +Company to Mr. Madden, which loan is discussed in the section of this Proxy Statement captioned “Certain Relationships and +Related Party Transactions.” Excluded are 241,926 shares of Common Stock beneficially owned by two irrevocable trusts (collectively, +the “2010 Trusts”) established by Mr. Madden for the benefit of each of his two sons, the trustee of which is unrelated +to Mr. Madden and as to which Mr. Madden does not, directly or indirectly, have or share voting or investment power. The 2010 +Trusts were funded by shares distributed from the Steven H. Madden July 2010 Grantor Retained Annuity Trust, a grantor retained +annuity trust (the “GRAT”) by the trustee of the GRAT, who is unrelated to Mr. Madden, upon the expiration of the +GRAT pursuant to its terms. Mr. Madden disclaims beneficial ownership of the shares of Common Stock beneficially owned by +the 2010 Trusts. Also excluded are 341,215 shares of Common Stock beneficially owned by the Steven H. Madden 2012 Trust, an irrevocable +trust established by Mr. Madden for the benefit of his descendants, the trustee of which is unrelated to Mr. Madden and as to +which Mr. Madden does not, directly or indirectly, have or share voting or investment power; Mr. Madden disclaims beneficial ownership +of the shares of Common Stock beneficially owned by this trust. +(3) BOCAP +Corp is a corporation wholly-owned by Steven Madden. +(4) Based +solely on a Statement on Schedule 13G filed with the SEC on February 14, 2014 by FMR LLC (“FMR”), FMR has sole voting +power with respect to 673,309 of such shares and sole dispositive power with respect to all such shares. +(5) Based +solely on a Statement on Schedule 13G filed with the SEC on January 30, 2014 by BlackRock, Inc. (“BlackRock”), BlackRock +has sole voting power with respect to 5,289,719 of such shares and sole dispositive power with respect to all such shares. +(6) Based +solely on a Statement on Schedule 13G filed with the SEC on February 12, 2014 by The Vanguard Group (“Vanguard”), +Vanguard has sole voting power with respect to 84,963 of such shares, sole dispositive power with respect to 4,031,336 of such +shares and shared dispositive power with respect to 79,913 of such shares. +(7) Based +solely on a Statement on Schedule 13G filed with the SEC on January 28, 2014 by Eagle Asset Management, Inc. (“Eagle”), +Eagle has sole voting and dispositive power with respect to all such shares. +Security Ownership of +Directors and Executive Officers +The +following table sets forth information as of the Record Date (unless otherwise indicated) with respect to the beneficial ownership +of Common Stock held by (a) each current director and nominee; (b) the Chief Executive Officer, the Chief Financial Officer and +the three most highly compensated executive officers of the Company other than the Chief Executive Officer and the Chief Financial +Officer (the “Named Executive Officers”); and (c) all current directors and executive officers as a group. A person +is deemed to be a beneficial owner of any securities which that person has the right to acquire within 60 days. Each director +and executive officer has sole voting power and sole dispositive power with respect to all shares beneficially owned by him or +her. As of the Record Date, the director nominees Rose Peabody Lynch and Robert Smith were not beneficial owners of any Common +Stock. +20 +Name +of Beneficial Owner (1) +Amount +and Nature +of Beneficial +Ownership (2) +Percentage +of Class +Edward +R. Rosenfeld +712,077 +1.06 +% +(3) +Arvind +Dharia +164,104 +* +% +(4) +Awadhesh +Sinha +93,636 +* +% +(5) +Robert +Schmertz +335,497 +* +% +(6) +Amelia +Newton Varela +341,238 +* +% +(7) +John +L. Madden +60,012 +* +% +(8) +Peter +Migliorini +3,147 +* +% +(9) +Richard +P. Randall +27,334 +* +% +(10) +Thomas +H. Schwartz +11,247 +* +% +(11) +Ravi +Sachdev +25,084 +* +% +(12) +All +Directors and Executive Officers as a Group (10 persons named above) +1,773,376 +2.64 +% +(13) +* Indicates beneficial +ownership of less than 1%. +(1) The address for each of the named individuals below is c/o Steven Madden, Ltd., 52-16 Barnett Avenue, Long Island City, New +York 11104. +(2) Beneficial +ownership as reported in the table above has been determined in accordance with Item 403 of Regulation S-K and Rule 13d-3 of the +Exchange Act and based upon 66,563,809 shares of Common Stock outstanding (excluding treasury shares) as of the Record Date. +(3) Mr. +Rosenfeld’s beneficial ownership includes: (i) 427,500 shares of Common Stock that may be acquired through the exercise +of options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 229,265 shares of restricted +Common Stock; and (iii) 55,312 shares of Common Stock held by Mr. Rosenfeld. +(4) Mr. +Dharia’s beneficial ownership includes: (i) 20,526 shares of restricted Common Stock; and (ii) 143,578 shares of Common +Stock held by Mr. Dharia. +(5) Mr. +Sinha’s beneficial ownership includes: (i) 36,636 shares of restricted Common Stock; and (ii) 57,000 shares of Common Stock +held by Mr. Sinha. +(6) Mr. +Schmertz’s beneficial ownership includes: (i) 48,466 shares of restricted Common Stock; and (ii) 287,031 shares of Common +Stock held by Mr. Schmertz. +(7) Ms. +Varela’s beneficial ownership includes: (i) 293,911 shares of Common Stock that may be acquired through the exercise of +options that are exercisable as of, or will become exercisable within 60 days of, the Record Date; (ii) 37,445 shares of restricted +Common Stock; and (iii) 9,882 shares of Common Stock held by Ms. Varela. +(8) Mr. +Madden’s beneficial ownership includes: (1) 42,012 shares of restricted Common Stock held by JLM Consultants, Inc., a corporation +wholly-owned by Mr. Madden; and (ii) 18,000 shares of Common Stock held by JLM Consultants, Inc. +(9) Mr. +Migliorini’s beneficial ownership consists of 3,147 shares of restricted Common Stock. +(10) +Mr. Randall’s beneficial ownership includes: (i) 3,147 shares of restricted Common Stock; and (ii) 24,187 shares of Common +Stock held by Mr. Randall, all of which shares have been pledged by Mr. Randall as collateral security in a margin brokerage account. +(11) +Mr. Schwartz’s beneficial ownership includes: (i) 3,147 shares of restricted Common Stock; and (ii) 8,100 shares of Common +Stock held by Mr. Schwartz. +(12) +Mr. Sachdev’s beneficial ownership includes: (i) 3,147 shares of restricted Common Stock; and (ii) 21,937 shares of Common +Stock held by Mr. Sachdev. +(13) Includes, +in the aggregate, 721,411 shares of Common Stock that may be acquired through the exercise of options that are exercisable as +of, or will become exercisable within 60 days of, the Record Date; (ii) 426,938 shares of restricted Common Stock; and (iii) 625,027 +shares of Common Stock held by such beneficial owners. +21 +Section 16(a) Beneficial +Ownership Reporting Compliance +Section +16(a) of the Exchange Act requires that the Company’s directors and officers, and persons who beneficially own more than +10% of a registered class of the Company’s equity securities, file with the SEC reports of initial ownership of Common Stock +and subsequent changes in that ownership and furnish the Company with copies of all forms they file with the SEC pursuant to Section +16(a) of the Exchange Act. A late report was filed on January 8, 2013 to report a January 2, 2013 grant of 72,012 restricted shares +of Common Stock (initially 48,008 shares, adjusted for a three-for-two stock split (effected as a stock dividend) that occurred +on October 1, 2013) to JLM Consultants, Inc., a corporation wholly-owned by John L. Madden. A late report was filed on November +22, 2013 to report that on November 19, 2013 Robert Schmertz exercised an option to purchase 33,750 shares of Common Stock granted +on October 8, 2009. To the Company’s knowledge, based solely on a review of the copies of the reports furnished to the Company +or written representations received from the Company’s directors, officers and greater than 10% beneficial owners that no +other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% +beneficial owners were complied with during, or in respect of, the 2013 Fiscal Year. +EXECUTIVE +COMPENSATION +Compensation Discussion +and Analysis +Compensation +Objectives and Strategy +The +Company’s executive officer compensation program is designed to attract and retain the caliber of officers needed to ensure +the Company’s continued growth and profitability and to reward them for their performance, for the Company’s performance +and for creating longer-term value for our stockholders. The primary objectives of the program are to: +● align +rewards with performance that creates stockholder value; +● support +the Company’s strong team orientation; +● encourage +high-potential team players to build a career at the Company; and +● provide +rewards that are cost-efficient, competitive with other similarly-positioned organizations +and fair to employees and stockholders. +The +Company’s executive compensation programs are approved and administered by the Compensation Committee of the Board of Directors. +Working with management and outside advisors, the Compensation Committee has developed a compensation and benefits strategy that +rewards performance and reinforces a culture that the Compensation Committee believes will drive long-term success. +The +compensation program rewards team accomplishments while promoting individual accountability. The executive officer compensation +program depends in significant measure on Company results, but business unit results and individual accomplishments are also very +important factors in determining each executive’s compensation. The Company has a robust planning and goal-setting process +that is fully integrated into the compensation system, enhancing a strong relationship among individual efforts, Company results +and financial rewards. +A +major portion of total compensation is placed at risk through annual and long-term incentives. As noted below, discretionary bonuses +were paid to the Named Executive Officers. The combination of incentives is designed to balance annual operating objectives and +Company earnings performance with longer-term stockholder value creation. +To +implement its primary objectives, the Company seeks to provide competitive compensation that is commensurate with performance. +The Company targets compensation at the median of the market and calibrates both annual and long-term incentive opportunities +to generate less-than-median awards when goals are not fully achieved and greater-than-median awards when goals are exceeded. +22 +The +Company believes that there is great value to the Company in having a team of long-tenured, seasoned managers and seeks to promote +a long-term commitment from its senior executives. The Company’s team-focused culture and management processes are designed +to foster this commitment. In addition, restricted Common Stock awards granted to Named Executive Officers in the 2013 Fiscal +Year reinforce this long-term orientation with annual vesting over a five-year period. +Role +of the Compensation Committee +General. +The Compensation Committee provides overall guidance for the Company’s executive compensation policies and determines +the amounts and elements of compensation for the Company’s executive officers and outside directors. The Compensation Committee +currently consists of two members of the Company’s Board of Directors, Messrs. Peter Migliorini and Thomas Schwartz, each +of whom is an independent director under Rule 5605 of The Nasdaq Global Select Market listing standards, a “non-employee +director” as defined under the SEC’s rules and an “outside director” as defined under Section 162(m) of +the Internal Revenue Code of 1986, as amended (the “Code”). +When +considering decisions concerning the compensation of executives, other than the Chief Executive Officer, the Compensation Committee +asks for the recommendations of the Chief Executive Officer, including his detailed evaluation of each executive’s performance. +No executive has a role in recommending compensation for outside directors. With respect to the application of the 2006 Plan to +non-employee directors, the Board of Directors functions as the Compensation Committee. +Use +of Outside Advisors. In making its determinations with respect to executive compensation, the Compensation Committee has historically +engaged the services of an independent compensation consulting firm. The Compensation Committee has retained the services of James +F. Reda & Associates, LLC, a division of Gallagher Benefit Services, Inc. (“Reda & Associates”) since 2005 +to assist with its review of the compensation packages and employment agreements of the Chief Executive Officer and other executive +officers. In 2013, Reda & Associates worked with the Compensation Committee to assess the reasonableness of discretionary +cash bonus payments and equity grants to Messrs. Rosenfeld, Dharia, Sinha and Schmertz and Ms. Varela based on the Company’s +and the individual’s performance in the fiscal year ended December 31, 2012 and the reasonableness of the terms of new employment +agreements for Mr. Sinha and Ms. Varela as compared with comparable positions in the peer group listed below. Executive compensation +for the other Named Executive Officers was based on prior employment agreements with pay structures and levels guided by Reda +& Associates’ market studies just prior to the consummation of the agreements. Position-specific market studies were +completed at the time of the employment agreement extension in support of the design of these agreements. The Compensation Committee +also consulted Reda & Associates with respect to the establishment of a performance-based cash bonus pool based on a percentage +of the Company’s net income in the 2013 Fiscal Year. Reda & Associates provides only executive compensation consulting +services and works with management only at the behest of the Compensation Committee. +The +Compensation Committee retains Reda & Associates directly, although in carrying out assignments, Reda & Associates also +interacts with Company management, when necessary and appropriate, in order to obtain compensation and performance data for the +executives and the Company. In addition, Reda & Associates may, in its discretion, seek input and feedback from management +regarding its consulting work product prior to presentation to the Compensation Committee in order to confirm alignment with the +Company’s business strategy and identify data questions or other similar issues, if any, prior to presentation to the Compensation +Committee. +Independence +of Outside Advisors. The Compensation Committee has the sole authority to retain, terminate, approve the fees and set the +terms of the Company’s relationship with any outside advisors who assist the Committee in carrying out its responsibilities, +and may select or receive advice from any compensation consultant or other advisor only after taking into consideration all factors +relevant to the consultant’s independence from management, including the factors set forth in the Nasdaq’s rules. +23 +Accordingly, +the Compensation Committee reviews annually its relationship with Reda & Associates to ensure its independence on executive +compensation matters. Prior to selecting and receiving advice from Reda & Associates with respect to executive compensation +in the 2013 Fiscal Year, the Compensation Committee reviewed the independence of Reda & Associates and the individual representatives +of Reda & Associates who served as the committee’s advisors. The Compensation Committee determined that no conflicts +of interest exist between the Company and Reda & Associates (or any individuals working on the Company’s account on +behalf of Reda & Associates). In reaching such determination, the Compensation Committee considered, among other things, the +following factors: (i) that Reda & Associates provides no services to the Company other than the executive compensation consulting +services; (ii) the fees paid by us to Reda & Associates as a percentage of Reda & Associates’ total revenue; (iii) the +representations by Reda & Associates as to its policies and procedures that are designed to prevent a conflict of interest; +(iv) any business or personal relationships between the individual representatives of Reda & Associates who advised the +Compensation Committee and any member of the Compensation Committee; and (v) any business or personal relationships between +our executive officers and Reda & Associates or the individual representatives of Reda & Associates. +Consideration +of 2013 Stockholder Say on Pay Vote. At our 2013 Annual Meeting of Stockholders, our stockholders overwhelmingly +approved, on an advisory basis, the compensation of our Named Executive Officers (96% of votes cast). The Compensation Committee +believes this level of stockholder support reflects a very strong endorsement of our compensation policies and decisions. The +Compensation Committee has considered the results of this advisory vote on executive compensation in determining the Company’s +compensation policies and decisions for 2014, and has determined that these policies and decisions are appropriate and in the +best interests of the Company and its stockholders at this time. +Compensation +Structure +Pay +Elements - Overview +The Company +utilizes four main components of compensation: +● +base +salary; +● +annual +performance-based cash bonuses; +● +long-term +equity incentives (consisting of stock options and/or restricted stock); and +● +benefits +and perquisites. +Pay +Elements - Details +Base +Salary . The Company paid base salaries to each of the Named Executive Officers to provide them with fixed pay commensurate +with the Named Executive Officer’s role and responsibilities, experience, expertise and individual performance. As more +fully described in the section of this Proxy Statement captioned “Employment Arrangements,” as of December 31, 2013, +the Company had employment agreements with each of the Named Executive Officers. The Compensation Committee, as constituted at +the time the parties entered into the employment agreements or any amendments thereof, reviewed and approved the salary established +in each such agreement or amendment. The Compensation Committee considered each employee’s salary history, value in the +marketplace and performance (including at the Company and previous employment). +The +annual base salary of our Chief Executive Officer, Mr. Rosenfeld, was fixed at $578,813 for the 2013 Fiscal Year under an employment +agreement dated December 31, 2012 that remains in effect until December 31, 2015 and provides for an annual base salary of $607,754 +and $638,142 for the fiscal years ending December 31, 2014 and 2015, respectively. The annual base salary of our Chief Operating +Officer, Mr. Sinha, was fixed at $575,000 for the 2013 Fiscal Year under an employment agreement that expired on December 31, +2013. The expired employment agreement was replaced with a new agreement dated January 10, 2014, which remains in effect through +December 31, 2016, and provides for an annual base salary of $600,000, $630,000 and $661,500 for the fiscal years ending December +31, 2014, 2015 and 2016, respectively. Under the employment agreement, as amended, of our Chief Financial Officer, Mr. Dharia’s +annual base salary for the 2013 Fiscal Year was and will remain at $554,719 until the agreement expires on December 31, 2014. +The annual base salary of our Brand Director, Mr. Schmertz, was fixed at $725,000 for the 2013 Fiscal Year and the year ending +December 31, 2014 under an employment agreement dated January 2, 2013 that will expire on December 31, 2014. The annual base salary +of our Executive Vice President - Wholesale, Ms. Varela, was fixed at $450,000 for the 2013 Fiscal Year under an employment agreement +that expired on December 31, 2013. The expired employment agreement was replaced with a new agreement dated January 10, 2014, +which remains in effect through December 31, 2016, and provides for an annual base salary of $500,000 for 2014, 2015 and 2016. +Please see the section of this Proxy Statement captioned “Summary Compensation Table” and “Employment Arrangements” +for a more detailed description of their employment agreement and compensation. Salary increases for Named Executive Officers +are generally consistent with those of other management employees. +24 +Annual +Performance-based Cash Bonus - Based on Specific Performance Metrics . Annual performance-based cash bonuses, if any, for Named +Executive Officers are established in their respective employment agreements. The Compensation Committee reviewed and approved +the bonus provisions fixed in each such employment agreement at the time the parties entered into such agreements and any amendments +thereof. Such bonus provisions generally provide for variable or discretionary bonuses designed to reward attainment of business +goals. +Commencing +with fiscal year 2014, Mr. Sinha’s employment agreement entitles him to an annual performance-based bonus for each fiscal +year in an amount equal to 2% of the increase in the Company’s EBITDA for that year over the Company’s EBITDA for +the immediately preceding year, excluding from such bonus calculation EBITDA attributable to any business acquired after January +10, 2014 until the next fiscal quarter following the date of the acquisition, up to a maximum annual bonus of $600,000, the first +$300,000 of which will be payable in cash and for any amount of the annual bonus in excess of $300,000 by a grant of restricted +shares of the Company’s common stock, which restricted common stock will vest in three equal annual installments commencing +on the first anniversary of the grant date. +Under +Ms. Varela’s employment agreement that expired on December 31, 2013, she was entitled to an annual performance-based cash +bonus for each fiscal year in an amount equal to 2% of the increase, if any, in Wholesale Division EBIT for the 2013 Fiscal Year +over Wholesale Division EBIT for the immediately prior year, excluding from such bonus calculation EBIT attributable to any business +acquired after January 31, 2011 until the acquired business has been owned by the Company for two full calendar years. For the +2013 Fiscal Year, Ms. Varela’s annual performance-based cash bonus was $76,000, reflecting 2% of $3,821,963, the increase +in 2013 Wholesale Division EBIT (exclusive of EBIT attributable to businesses acquired in the period beginning on February 1, +2011 and ending on December 31, 2013) over that of 2012. This annual performance-based cash bonus is continued under Ms. Varela’s +new employment agreement, which provides that she is entitled to an annual performance-based cash bonus for each of the fiscal +years ended December 31, 2014, 2015 and 2016 in an amount equal to 2% of the increase, if any, in the Wholesale Division EBIT +for each such year over the Wholesale Division EBIT for the immediately preceding year, excluding from such bonus calculation +EBIT attributable to any business acquired after January 10, 2014 until the acquired business has been owned by the Company for +two full calendar years. +As +provided in the 2006 Plan, the maximum payment that may be made to an individual under any performance-based cash award during +any fiscal year and subject to the attainment of specified performance goals is $10,000,000. The Compensation Committee may, in +it sole discretion, elect to pay an individual an amount that is less than the individual’s target award regardless of the +degree of attainment of the performance goals. +For +the 2013 Fiscal Year, the Compensation Committee established a bonus pool for Named Executive Officers and other key executives +of the Company based on 6% of net income of the Company achieved in the 2013 Fiscal Year intended to comply with the provisions +of Section 162(m) of the Code. Net income was selected because it is highly correlated with stock price performance. The Compensation +Committee also fixed for each executive his or her maximum share of the 2013 bonus pool, which was 30% for Mr. Rosenfeld and 14% +for each of the other Named Executive Officers. In the 2013 Fiscal Year, the Company achieved net income of $132,007,000, which +resulted in a bonus pool of $7,920,420. The Compensation Committee determined to pay to the Named Executive Officers bonuses that +were significantly below their individual target awards for the 2013 Fiscal Year and to pay the bonuses in a combination of cash +and restricted shares of Common Stock. Accordingly, on March 17, 2014, the Company paid performance-based cash bonuses of $225,000 +to each of Messrs. Rosenfeld, Dharia, and Sinha and $100,000 to Mr. Schmertz and, on March 17, 2014, granted 22,265, 10,995 and +15,118 restricted shares of Common Stock to Mr. Rosenfeld, Mr. Schmertz and Ms. Varela, respectively, for performance in the 2013 +Fiscal Year, each of which restricted stock awards vests in five equal annual installments. Ms. Varela received a $76,000 cash +bonus based on the increase in Wholesale Division EBIT of the Company in the 2013 Fiscal Year. In accordance with applicable SEC +rules, the Summary Compensation Table included in this Proxy Statement contains these cash bonuses but does not report the grant +date fair value of these restricted stock awards because, while earned in 2013, the grants were not made until after the close +of the 2013 Fiscal Year. The 2014 Summary Compensation Table to be included in our proxy statement for our 2015 Annual Meeting +of Stockholders will contain the grant date fair value of these restricted stock awards to Mr. Rosenfeld, Mr. Schmertz and Ms. +Varela provided these individuals are named executive officers in that proxy statement. +25 +The +decision to pay cash bonuses to Messrs. Rosenfeld, Dharia, Sinha and Schmertz and to award restricted shares of Common Stock to +Mr. Rosenfeld, Mr. Schmertz and Ms. Varela for the 2013 Fiscal Year and the amount of each such Named Executive Officer’s +bonus was determined at the discretion of the Compensation Committee but within the parameters of the bonus pool for Named Executive +Officers. The Compensation Committee evaluated a variety of indicators of the Company’s overall financial performance, including +revenue growth and profitability, and assessed and made subjective judgments as to each of these executive’s individual +contribution towards the Company’s performance in the 2013 Fiscal Year in determining whether to pay bonuses to these executives +and establishing the amounts to be paid. With respect to the determination to award bonuses to Messrs. Dharia, Sinha and Schmertz +and Ms. Varela, the Compensation Committee also considered the recommendations of the Chief Executive Officer, Mr. Rosenfeld. +The +Compensation Committee consulted Reda & Associates regarding the establishment of the bonus pool and the individual target +awards for the 2013 Fiscal Year to ensure the bonus pool and the individual target awards were within market range for each executive. +Long-term +Equity Incentives . Management and the Compensation Committee believe that equity-based awards are an important factor in aligning +the long-term financial interest of the executive officers and stockholders. The Compensation Committee continually evaluates +the use of equity-based awards and intends to continue to use such awards in the future as part of designing and administering +the Company’s compensation program. Beginning in 2006, the Compensation Committee modified its prior practice of granting +equity incentives solely in the form of stock options with periodic awards of restricted stock in order to grant awards that contain +both substantial incentive and retention characteristics. These awards are designed to provide emphasis on preserving stockholder +value generated in recent years while providing significant incentives for continuing growth in stockholder value. +In +March 2013, the Company made grants of 30,000, 16,564 and 15,000 restricted shares of Common Stock to Mr. Rosenfeld, Mr. Schmertz +and Ms. Varela, respectively, for performance in the 2012 fiscal year, each of which restricted stock awards vests in five equal +annual installments. In addition, Mr. Rosenfeld and Mr. Schmertz received restricted stock awards of 150,000 and 25,000 shares +of Common Stock (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock split effected +as a stock dividend), respectively, which restricted stock awards vest in five equal annual installments, pursuant to their employment +agreements, the terms of which were approved by the Compensation Committee. Reda & Associates reviewed the individual grant +values relative to market practice. All of the equity awards in the 2013 Fiscal Year were made under the 2006 Plan. +The +Committee intends to continue to review the equity mix to achieve the ideal incentive for both performance and retention. With +respect to stock options, the 2006 Plan provides that the exercise price shall be the closing market price per share of the Company’s +Common Stock on the business day immediately preceding the grant date, which is fair market value for purposes of the 2006 Plan. +Other +Benefits and Perquisites . The Company’s executive compensation program also includes other benefits and perquisites. +These benefits and perquisites include annual matching contributions to executive officers’ 401(k) plan accounts, company-paid +medical benefits, automobile allowances and leased automobiles, and life insurance coverage. The Compensation Committee annually +reviews these other benefits and perquisites and makes adjustments as warranted based on competitive practices, the Company’s +performance and the individual’s responsibilities and performance. The Compensation Committee has approved these other benefits +and perquisites as a reasonable component of the Company’s executive officer compensation program. Please see the section +of this Proxy Statement captioned “Summary Compensation Table and, specifically, the column entitled “All Other Compensation” +and the corresponding footnotes. +26 +Pay +Mix +The +Company utilizes the particular elements of compensation described above because the Company believes that it provides a well-proportioned +mix of secure compensation, retention value and at-risk compensation, which produces short-term and long-term performance incentives +and rewards. By following this approach, the Company provides the executives a measure of security in the minimum expected level +of compensation, while motivating the executives to focus on business metrics and other variables within their particular sector +which will increase sales and margins and at the same time lower costs so as to produce a high level of short-term and long-term +performance for the Company and long-term wealth creation for the executives, as well as reducing the risk of recruitment of top +executive talent by competitors. The mix of metrics used for the annual performance bonuses and the Company’s long-term +incentive program likewise provides an appropriate balance between short-term financial performance and long-term stock performance. +For +the Named Executive Officers, the mix of compensation is weighted heavily toward at-risk pay (annual incentives and long-term +incentives). Maintaining this pay mix results fundamentally in a pay-for-performance orientation for the Company’s executives, +which is aligned with the Company’s stated compensation philosophy of providing compensation commensurate with performance. +Pay +Levels and Benchmarking +Pay +levels for executives are determined based on a number of factors, including the individual’s roles and responsibilities +within the Company, the individual’s experience and expertise, the pay levels for peers within the Company, pay levels in +the marketplace for similar positions and performance of the individual and the Company as a whole. The Compensation Committee +is responsible for approving pay levels for the Named Executive Officers. In determining the pay levels, the Compensation Committee +considers all forms of compensation and benefits. +The +Compensation Committee assesses “competitive market” compensation using a number of sources. The primary data source +used in setting competitive market levels for the Named Executive Officers is the information publicly disclosed by a peer group +of the Company, which will be reviewed annually and may change from year to year. For the past four years, including the 2013 +Fiscal Year, executive compensation and compensation design was reviewed in relation to the following peer companies: +American +Apparel Inc. +Perry +Ellis International, Inc. +Movado +Group, Inc. +Bebe +Stores, Inc. +G-III +Apparel Group, Ltd. +Rocky +Brands, Inc. +Brown +Shoe Co. Inc. +Genesco, +Inc. +Skechers +U.S.A. Inc. +Kenneth +Cole Productions Inc. +Guess, +Inc. +Timberland +Co. +Collective +Brands, Inc. +Iconix +Brand Group, Inc. +Under +Armour, Inc. +Crocs, +Inc. +The +Jones Group Inc. +Volcom, +Inc. +Deckers Outdoor +Corp. +K-Swiss, +Inc. +Weyco +Group, Inc. +Delta +Apparel, Inc. +Maidenform +Brands, Inc. +Wolverine +Worldwide +After +consideration of the data collected on external competitive levels of compensation and internal needs, the Compensation Committee +makes decisions regarding the Named Executive Officer’s target total compensation opportunities based on the need to attract, +motivate and retain an experienced and effective management team. Relative to the competitive market data, the Compensation Committee +generally intends that the base salary and target annual incentive compensation for each Named Executive Officer will be at the +median of the competitive market. +As +noted above, notwithstanding the Company’s overall pay positioning objectives, pay opportunities for specific individuals +vary based on a number of factors such as scope of duties, tenure, institutional knowledge and/or difficulty in recruiting a new +executive. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on +the attainment of operating goals and the creation of stockholder value. +27 +Compensation +Committee Discretion +The +Compensation Committee retains the discretion to decrease all forms of incentive payouts based on significant individual or Company +performance shortfalls, with the exception of any such payouts that are to be made pursuant to contractual commitments, such as +the bonuses that may be paid to Mr. Sinha and Ms. Varela, which are tied to the Company’s EBITDA and EBIT, respectively, +for the preceding year pursuant to their employment agreements. Similarly, the Compensation Committee retains the discretion to +increase payouts and/or consider special awards for significant achievements, including, but not limited to, superior asset management, +investment or strategic accomplishments and/or consummation of acquisitions, divestitures, capital improvements to existing properties, +or sales made by certain of the Company’s divisions. +Risk Assessment +Bonus +payments to executives are based either on the discretion of the Compensation Committee or are tied to growth in various indicators +of financial performance, such as EBITDA and EBIT. Long-term incentives have been granted in the form of stock options and time-vested +restricted stock that generally vest over four or five years. These programs have been in place for several years and have proved +effective in rewarding performance while not encouraging inappropriate risk-taking. +The +Compensation Committee undertook to review and evaluate all of our executive and company-wide compensation plans and programs +to assess whether any aspect of these plans and programs would encourage inappropriate risk-taking by the Company’s executives +and non-executive employees that could have a material adverse effect on the Company and to confirm that the Company has adequate +risk management controls in place to ensure that executive and company-wide compensation is reasonable and achieves its intended +incentive without creating unacceptable risk. Based on such review and evaluation, the Compensation Committee believes there is +no material adverse risk to the Company that is related to our compensation programs for executives and non-executives. +This review +and evaluation of our compensation plans and programs risks consisted of: +● identifying +those business risks that could be material to the Company and identifying our existing +risk management system; +● reviewing +and analyzing our compensation plans and programs to identify plan and program features +that could potentially encourage or introduce excessive or imprudent risk taking of a +material nature; +● identifying +the business risks that our compensation plan and program features could potentially +encourage or create; +● balancing +these business risks against our existing internal control systems designed to manage +and mitigate these business risks; and +● analyzing +whether the unmitigated risks, as a whole, are reasonably likely to have a material adverse +effect on the Company. +Various +persons were consulted during the course of the assessment, including our executive officers and senior members of our human resources +department. The Compensation Committee engages Reda & Associates to review our executive and company-wide compensation plans +and programs and provide advice regarding appropriate levels of incentive. +28 +The +Compensation Committee noted several features of our compensation structure that mitigate risk, including, for example: +● the +Company utilizes a pay mix that is well balanced between short-term financial performance +and long-term stock performance, comprised of secure compensation in the form of base +salary, short-term incentives in the form of potential for cash bonuses, and long-term +incentives in the form of stock options and time-vested restricted stock that generally +vest over four or five years; +● in +most instances, management or the Compensation Committee retains the discretion to decrease +all forms of incentive compensation based on significant individual or Company performance +shortfalls; +● we +periodically benchmark our compensation plans and programs and target executive and non-executive +compensation within the normal limits of the competitive market; and +● the +Compensation Committee provides oversight of the Company’s compensation plans and +programs and compensation philosophy, makes recommendations to the Board with respect +to improvements to our compensation plans and programs, and is responsible for reviewing +and approving executive compensation and administering and awarding incentive, deferred +and equity compensation to our senior executives. +In light +of the assessment described above, it was concluded that the risks associated with our compensation plans and programs (executive +and company-wide) are not reasonably likely to have a material adverse effect on the Company. +Implications +of Tax and Accounting Matters +As +a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed +by the Company. While the Compensation Committee reviews and considers both the accounting and tax effects of various components +of compensation, these effects are not a significant factor in the Compensation Committee’s allocation of compensation among +the different components. +In +general, the Company believes that compensation paid to executive officers should be deductible for U.S. tax purposes. In certain +instances, however, the Compensation Committee also believes that it is in the Company’s best interests, and that of its +stockholders, to have the flexibility to pay compensation that is not deductible under the limitations of Section 162(m) of the +Code in order to provide a compensation package consistent with the Company’s objectives. For Fiscal Year 2013, the Compensation +Committee believes incentive compensation paid and awarded will not be subject to the limitations of Section 162(m). +As +more fully described below under the heading “Termination, Change-in-Control and Non-Competition/Non-Solicitation,” +all of the executive officers of the Company whose names appear in the Summary Compensation Table contained in this Proxy Statement +are entitled to receive certain compensation in the event of a termination of employment in connection with a change-in-control +event for the Company, which payments may trigger the application of the “golden parachute” provisions of Sections +280G and 4999 of the Code. Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain +executives of companies that undergo a change-in-control. In addition, Section 4999 of the Code imposes a 20% excise tax on the +individual receiving the excess parachute payment. Excess parachute payments are golden parachute payments that exceed an amount +determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements of +our Named Executive Officers, our Compensation Committee considers all elements of the cost to our Company of providing such compensation, +including the potential impact of Sections 280G and 4999, which, under certain circumstances, may limit the deductibility to the +Company of executive compensation. However, our Compensation Committee may determine, in its judgment, to authorize compensation +arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section +4999 when it believes that such arrangements are appropriate to attract and retain executive talent. +Conclusion +The +level and mix of compensation that is finally decided upon as to each executive is considered within the context of both the objective +data from the Company’s competitive assessment of compensation and performance, as well as discussion of the subjective +factors as outlined above. The Compensation Committee believes that each of the compensation packages for the Named Executive +Officers is within the competitive range of practices when compared to the objective comparative data even where subjective factors +have influenced the compensation decisions. +29 +Compensation Committee +Interlocks and Insider Participation +During +the 2013 Fiscal Year, the following directors served on the Compensation Committee: Peter Migliorini (Chairman) and Thomas H. +Schwartz. During the 2013 Fiscal Year: +● +none +of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries; +● +none +of the members of the Compensation Committee had a direct or indirect material interest in any transaction in which the Company +was a participant and the amount involved exceeded $120,000; +● +none +of the Company’s executive officers served on the compensation committee (or another board committee with similar functions +or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served on +the Company’s Compensation Committee; +● +none +of the Company’s executive officers was a director of another entity where one +of that entity’s executive officers served on the Company’s Compensation +Committee; and +● +none +of the Company’s executive officers served on the compensation committee (or another board committee with similar functions +or, if none, the entire board of directors) of another entity where one of that entity’s executive officers served as +a director on the Company’s Board of Directors. +Executive Officers +The following +table identifies the executive officers of the Company, and their ages and positions: +Name +Age +Position +Edward R. Rosenfeld +38 +Chairman of the Board and Chief Executive +Officer +Arvind Dharia +64 +Chief Financial Officer and Secretary +Awadhesh Sinha +68 +Chief Operating Officer +Robert Schmertz +50 +Brand Director +Amelia Newton Varela +42 +Executive Vice President of Wholesale +Arvind +Dharia has been the Chief Financial Officer of the Company since October 1992 and was a director of the Company from December +1993 through May 2004. Mr. Dharia has been Secretary of the Company since 1993. From December 1988 until joining the Company in +September 1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp., a real estate management company. +Awadhesh +Sinha became the Chief Operating Officer of the Company in July 2005. Mr. Sinha was a director of the Company, from October 2002 +to July 2005, before joining the Company as its Chief Operating Officer. Mr. Sinha was the Chief Operating Officer and Chief Financial +Officer of WEAR ME Apparel Inc., a company that designs, manufactures and markets branded and non-branded children’s clothing, +from 2003 to July 2005. Prior to that, Mr. Sinha worked for Salant Corporation, a company that designs, manufactures and markets +men’s clothing, for 22 years, and held the position of Chief Operating Officer and Chief Financial Officer of Salant Corporation +from 1998 to 2003. +30 +Robert +Schmertz has been the Brand Director since January 2006. Mr. Schmertz served as President of Steve Madden Women’s Wholesale +Division and Brand Manager from September 2001 through January 2006. Additionally, Mr. Schmertz served as President of Shoe Biz, +Inc., formerly a wholly owned subsidiary of Steven Madden Retail, Inc., from May 1998 through August 2001. Before joining the +Company, Mr. Schmertz was President of Daniel Scott Inc. from November 1995 to May 1998. Previously, Mr. Schmertz was the East +Coast Sales Manager for Impo International from January 1993 through November 1995. From April 1990 to December 1992, Mr. Schmertz +served as a sales representative for Espirit de Corp. based in San Francisco, California. +Amelia +Newton Varela has been Executive Vice President of Wholesale since April 2008. Ms. Varela was Executive Vice President of Wholesale +Sales from November 2004 to April 2008. Previously, she was Vice President of Sales for Steve Madden Women’s Wholesale Division +from January 2000. Prior to that, she was Account Executive for Steve Madden Women’s Wholesale Division from 1998. Before +joining the Company, Ms. Varela was the sales assistant to the Executive Vice President of Sales for Merrin Financial. She graduated +from The Fashion Institute of Technology in 1995. +Please +see the section of this Proxy Statement captioned “Proposal One: Election of Directors -- Biographical Summaries of Nominees +for the Board of Directors” for information concerning the Company’s Chairman of the Board and Chief Executive Officer, +Edward R. Rosenfeld, and the Company’s other director nominees. +SUMMARY +COMPENSATION TABLE +The +following table sets forth the compensation information for the Company’s Chief Executive Officer, Chief Financial Officer +and the three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer relating +to Fiscal Years 2013, 2012 and 2011, respectively. In this Proxy Statement, the Company refers to this group of people as the +Company’s “Named Executive Officers.” +In +accordance with applicable SEC rules, the Summary Compensation Table includes, for a particular fiscal year, only those stock +awards made during that fiscal year and not any awards made after year-end even if awarded for services rendered in that year. +SEC rules require that such awards be reflected in the year of grant and, as such, awards made after the year-end of fiscal year +2013 will appear in the Summary Compensation Table to be included in our proxy statement for our 2015 Annual Meeting of Stockholders. +Name and Principal Position +Fiscal +Year +Salary +($) +Bonus +($) +Stock +Awards +($) (1) +Option +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($) +All Other +Compensation +($) +Total +Compensation +($) +Edward R. Rosenfeld +2013 +577,647 +0 +5,065,800 +0 +225,000 +21,232 (2) +5,889,679 +Chief Executive Officer +2012 +551,250 +0 +883,400 +0 +250,000 +15,000 (3) +1,699,650 +2011 +525,000 +200,000 +886,600 +0 +0 +17,423 (4) +1,629,023 +Arvind Dharia +2013 +554,719 +0 +0 +0 +225,000 +110,444 (5) +890,163 +Chief Financial Officer +2012 +554,719 +0 +623,050 +0 +250,000 +101,685 (6) +1,529,454 +2011 +528,304 +100,000 +443,300 +0 +0 +105,713 (7) +1,177,317 +Awadhesh Sinha +2013 +575,000 +0 +0 +0 +225,000 +24,760 (8) +824,760 +Chief Operating Officer +2012 +575,000 +0 +331,275 +0 +250,000 +21,317 (9) +1,177,592 +2011 +575,000 +150,000 +0 +0 +0 +19,352 (10) +744,352 +Robert Schmertz +2013 +722,250 +0 +1,201,976 +0 +100,000 +25,842 (11) +2,050,068 +Brand Director +2012 +660,000 +0 +0 +0 +100,000 +22,500 (12) +782,500 +2011 +660,000 +500,000 +332,475 +0 +0 +22,350 (13) +1,514,825 +Amelia Newton Varela +2013 +450,000 +0 +449,900 +0 +76,000 (14) +23,801 (15) +999,701 +Executive Vice President +2012 +450,000 +0 +506,762 +0 +216,999 (14) +22,500 (16) +1,196,261 +Of Wholesale +2011 +450,000 +186,649 +0 +1,462,500 +63,351 (14) +22,350 (17) +2,184,850 +(1) The +amounts in this column reflect the aggregate grant date fair value of awards granted during the applicable year for the fiscal +years ended December 31, 2013, December 31, 2012 and December 31, 2011, respectively, calculated in accordance with ASC Topic +718. Assumptions used in the calculation of these amounts are included in Note I to the Company’s audited financial statements +for the fiscal years ended December 31, 2013, December 31, 2012 and December 31, 2011 included in the Company’s Annual Report +on Form 10-K filed with the Securities and Exchange Commission on February 27, 2014, March 1, 2013 and February 29, 2012, respectively. +31 +(2) Consists +of a $17,893 automobile allowance and $3,339 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(3) Consists of a $15,000 +automobile allowance. +(4) Includes +the following: $15,000 automobile allowance and $2,423 in annual matching contributions to Mr. Rosenfeld’s 401(k) plan account. +(5) Includes +the following: $11,792 automobile allowance, $87,514 life insurance premiums and $11,138 in annual matching contributions to Mr. +Dharia’s 401(k) plan account. +(6) Includes +the following: $11,381 automobile allowance, $82,804 life insurance premiums and $7,500 in annual matching contributions to Mr. +Dharia’s 401(k) plan account. +(7) Includes +the following: $14,400 automobile allowance, $83,963 life insurance premiums and $7,350 in annual matching contributions to Mr. +Dharia’s 401(k) plan account. +(8) Includes +the following: $14,183 automobile allowance and $10,577 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(9) Includes +the following: $13,817 automobile allowance and $7,500 in annual matching contributions to Mr. Sinha’s 401(k) plan account. +(10) +Includes the following: $12,002 automobile allowance and $7,350 in annual matching contributions to Mr. Sinha’s 401(k) plan +account. +(11) +Includes the following: $17,936 automobile allowance and $7,906 in annual matching contributions to Mr. Schmertz’s 401(k) +plan account. +(12) +Includes the following: $15,000 automobile allowance and $7,500 in annual matching contributions to Mr. Schmertz’s 401(k) +plan account. +(13) +Includes the following: $15,000 automobile allowance and $7,350 in annual matching contributions to Mr. Schmertz’s 401(k) +plan account. +(14) +Represents a non-equity incentive payment made pursuant to a bonus formula in Ms. Varela’s employment agreement. See “Employment +Arrangements. +(15) +Includes the following: $15,051 automobile allowance and $8,750 in annual matching contributions to Ms. Varela’s 401(k) +plan account. +(16) +Includes the following: $15,000 automobile allowance and $7,500 in annual matching contributions to Ms. Varela’s 401(k) +plan account. +(17) Includes the following: +$15,000 automobile allowance and $7,350 in annual matching contributions to Ms. Varela’s 401(k) plan account. +Employment Arrangements +Edward +R. Rosenfeld. In November 2009, the Company entered into an employment agreement with Mr. Rosenfeld to replace the prior, +expiring employment agreement. Pursuant to the employment agreement Mr. Rosenfeld continued to serve as Chief Executive Officer +and executive Chairman of the Board of Directors of the Company and received a base salary of $500,000 and $525,000 during fiscal +years 2010 and 2011, respectively, and a base salary of $551,250 commencing January 1, 2012 until the employment agreement’s +expiration on December 31, 2012. The November 2009 employment agreement provided that Mr. Rosenfeld received a monthly automobile +allowance of $1,250 and additional compensation and bonuses, if any, at the absolute discretion of the Board of Directors. On +December 31, 2012, the Company entered into a new employment agreement with Mr. Rosenfeld pursuant to which Mr. Rosenfeld continues +to serve as Chief Executive Officer and executive Chairman of the Board of Directors of the Company until the agreement expires +on December 31, 2015 or is sooner terminated in accordance with its terms. Mr. Rosenfeld’s current agreement provides for +an annual base salary of $578,813, $607,754 and $638,142 for the fiscal years 2013, 2014 and 2015, respectively, and a monthly +automobile allowance of $1,500. The current agreement provides that Mr. Rosenfeld will receive additional compensation and bonuses, +if any, at the absolute discretion of the Board of Directors. Pursuant to the current agreement, on January 2, 2013, Mr. Rosenfeld +was granted 150,000 shares of the Company’s Common Stock (the number of shares indicated having been adjusted for an October +1, 2013 three-for-two stock split effected as a stock dividend), subject to certain restrictions. These restricted shares of Common +Stock, which were issued under the 2006 Plan, will vest in five equal annual installments of 30,000 shares commencing on December +1, 2013. +32 +In +the event of his death, Mr. Rosenfeld’s employment agreement provides for the payment to his estate of his base salary for +the 12-month period immediately subsequent to the date of Mr. Rosenfeld’s death. The agreement also provides that if Mr. +Rosenfeld’s employment agreement is terminated due to his “total disability” (as defined in the agreement), +Mr. Rosenfeld will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined +to be totally disabled. Mr. Rosenfeld’s employment agreement allows the Company to terminate his employment with “cause” +(as defined in the employment agreement) or without cause. In the event that Mr. Rosenfeld’s employment is terminated by +the Company for cause, the Company will have no further obligations to Mr. Rosenfeld, and Mr. Rosenfeld will be entitled to no +further compensation from the Company, except for pro-rata amounts due to him on the date of his termination. In the event that +Mr. Rosenfeld’s employment is terminated by the Company without cause or by Mr. Rosenfeld’s resignation for “good +reason” (as defined in the employment agreement), Mr. Rosenfeld will be entitled to receive payment of his annual base salary, +payable at regular payroll intervals, from the date of termination of employment through the longer of the remainder of the term +of the agreement or six months. +In +addition, if Mr. Rosenfeld’s employment is terminated by the Company without cause or by the resignation of Mr. Rosenfeld +for good reason during the period commencing 90 days prior to a “change of control” (as defined in the employment +agreement) transaction and ending 180 days following a change of control transaction, Mr. Rosenfeld will receive an amount equal +to three times the average amount of total W-2 compensation actually received by him during the preceding three calendar years +ending on the last previous December 31, except that in lieu of the actual base salary component received during such period, +there shall be substituted the annual base salary to which Mr. Rosenfeld was entitled as of the date of termination or resignation +(the “Change of Control Payment”). However, if the Change of Control Payment (or a portion thereof) is determined +to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, Mr. Rosenfeld shall be paid +either (i) the Change of Control Payment (which shall be subject to all applicable taxes to be paid by the executive including +the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility to the Company) or (ii) a reduced +amount, calculated in accordance with Section 280G, that may be paid to the executive without the imposition of an excise tax +under Section 4999 and which shall be fully deductible to the Company, whichever payment yields the greater after-tax benefit +to the executive. +Arvind +Dharia. In January 1998, the Company entered into an employment agreement with Arvind Dharia, which has been amended from +time to time, most recently on February 8, 2012. Pursuant to Mr. Dharia’s amended agreement, Mr. Dharia continues to serve +as the Company’s Chief Financial Officer. The term of Mr. Dharia’s employment under his agreement, as amended, extends +through December 31, 2014, and will be automatically extended for an additional one-year period unless either party timely notifies +the other of its intention not to extend the term. Pursuant to the amended agreement, Mr. Dharia received an annual base salary +of $528,304 during fiscal years 2010 and 2011. Commencing January 1, 2012, Mr. Dharia’s annual base salary increased to +and will remain $554,719 for the remaining term of the agreement. Mr. Dharia received a monthly automobile allowance of $1,200 +prior to the most recent amendment of the agreement and, beginning January 1, 2012, his monthly car allowance increased to $1,400. +The agreement provides that the Company will pay life insurance premiums on Mr. Dharia’s behalf of approximately $80,000 +per year. Mr. Dharia’s employment agreement, as amended, provides for a grant of 15,000 shares of the Company’s Common +Stock (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock split effected as a stock +dividend), subject to certain restrictions. These restricted shares of Common Stock were issued to Mr. Dharia on February 8, 2012 +under the 2006 Plan and vest in three substantially equal annual installments which commenced on February 8, 2013. In addition, +the amended agreement provides that Mr. Dharia will receive an annual bonus in such amount, if any, and at such time or times, +as the Board of Directors may determine in its absolute discretion. Subject to availability of shares under the 2006 Plan, or +any other plan designated by the Board of Directors and approved by the Company’s stockholders, Mr. Dharia is entitled to +awards under such plan as may be determined by the Board of Directors, or a committee thereof, from time to time in its absolute +discretion. +33 +The +agreement provides, in the event of Mr. Dharia’s death, for the payment to Mr. Dharia’s estate of his base salary +for the 12-month period immediately subsequent to the date of Mr. Dharia’s death. The agreement also provides that if Mr. +Dharia’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. +Dharia will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to +be totally disabled. In the event that Mr. Dharia’s employment agreement is terminated “for cause” (as defined +in the agreement), the Company is obligated to pay Mr. Dharia the amount of compensation that is accrued and unpaid through the +date of termination. In the event that Mr. Dharia’s employment agreement is terminated for any reason (other than “for +cause” or due to his death or total disability), the Company is obligated to pay Mr. Dharia, in two installments, (a) an +amount equal to the product of (x) his base salary on the effective date of such termination plus the bonus paid or payable, if +any, for the fiscal year ended on the December 31st immediately preceding the termination date, multiplied by (y) the number of +years (and fraction of years) remaining in the term; and (b) the amount payable to him, or on his account, for what would have +been the balance of the term of his employment agreement with respect to certain benefits and plans as set forth in his employment +agreement. If the Company decides not to renew the agreement (other than “for cause” or due to his total disability), +then Mr. Dharia will be entitled to receive severance compensation, in cash, in an amount equal to his then-current base salary +for the 90-day period commencing on the expiration of the term. +In +addition, in the event that there is a “change of control” transaction and Mr. Dharia’s employment has been +terminated by the Company other than “for cause” or if Mr. Dharia resigns “for good reason” (as such terms +are defined in the agreement), Mr. Dharia will receive an amount equal to three times the total compensation he was entitled to +receive under the agreement for the preceding 12-month period ending on the last previous December 31, except that in lieu of +the actual base salary component received during such period, there shall be substituted the annual base salary to which Mr. Dharia +was entitled to as of the date of termination or resignation (the “Change of Control Payment”). However, if the Change +of Control Payment (or a portion thereof) is determined to constitute an “excess parachute payment” under Sections +280G and 4999 of the Code, Mr. Dharia will be paid either (i) the Change of Control Payment (which shall be subject to all applicable +taxes to be paid by the executive including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility +to the Company) or (ii) a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without +the imposition of an excise tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields +the greater after-tax benefit to the executive. +Awadhesh +Sinha. On December 1, 2010, the Company entered into an employment agreement with Mr. Sinha to replace the prior employment +agreement, which was to expire by its terms on December 31, 2010. Pursuant to the December 1, 2010 employment agreement, Mr. Sinha +continued to serve as Chief Operating Officer of the Company for a term that commenced on January 1, 2011 and expired on December +31, 2013, with an annual base salary of $575,000 for the term of the agreement. The December 1, 2010 employment agreement provided +Mr. Sinha with a monthly automobile allowance of $1,750 and obligated the Company to pay term life insurance premiums on his behalf +of approximately $3,500 per year. The agreement also provided for a grant of 78,750 shares of the Company’s Common Stock +(the number of shares indicated having been adjusted for three-for-two stock splits effected as a stock dividend, which occurred +on May 31, 2011 and October 1, 2013), subject to certain restrictions. These restricted shares of Common Stock were issued to +Mr. Sinha on December 1, 2010 under the 2006 Plan. The restricted Common Stock will vest in three annual installments of 26,250 +shares commencing on the first anniversary of the grant date. The December 1, 2010 employment agreement provided that additional +compensation and bonuses, if any, would be paid to Mr. Sinha at the absolute discretion of the Board of Directors. +On +January 10, 2014, the Company entered into a new employment agreement with Mr. Sinha pursuant to which Mr. Sinha continues to +serve as Chief Operating Officer of the Company until the agreement expires on December 31, 2016 or is sooner terminated in accordance +with its terms. Mr. Sinha’s current agreement provides for an annual base salary of $600,000, $630,000 and $661,500 for +the years 2014, 2015 and 2016, respectively, a monthly automobile allowance of $1,850 and the payment of term life insurance premiums +on Mr. Sinha’s behalf in the amount of approximately $3,500 per year. On January 15, 2014, pursuant to his current employment +agreement, Mr. Sinha was granted 29,886 shares of Common Stock, subject to certain restrictions. These restricted shares of Common +Stock, which were issued under the 2006 Plan, will vest in three equal annual installments of 9,962 shares on each of December +15, 2014, December 15, 2015 and December 15, 2016. +34 +In +addition, Mr. Sinha’s current agreement entitles him to an annual performance-based bonus for each of the fiscal years ended +December 31, 2014, 2015 and 2016 in an amount equal to 2% of the increase in the Company’s EBITDA for each such year over +the Company’s EBITDA for the immediately preceding year, up to a maximum annual bonus of $600,000, the first $300,000 of +which will be payable in cash and for any amount of the annual bonus in excess of $300,000 by a grant of restricted shares of +Common Stock, which restricted shares of Common Stock will vest in three equal annual installments commencing on the first anniversary +of the grant date. Bonuses and other incentive-based compensation paid to Mr. Sinha are subject to recovery by the Company in +the event of a determination that such compensation was based upon materially inaccurate financial statements. +In +the event of his death, Mr. Sinha’s employment agreement provides for the payment to Mr. Sinha’s estate of his base +salary for the 12-month period immediately subsequent to the date of Mr. Sinha’s death. In addition, in the event of Mr. +Sinha’s “total disability” (as such term is defined in the agreement), the Company is obligated to continue +to pay Mr. Sinha’s base salary for the 12-month period immediately subsequent to the date of determination of such total +disability. In the event Mr. Sinha’s employment agreement is terminated “for cause” (as such terms are defined +in the agreement), or due to Mr. Sinha’s resignation without “good reason” (as such term is defined in the agreement), +the Company is obligated to pay Mr. Sinha the amount of compensation that is accrued and unpaid through the date of termination. +In the event Mr. Sinha’s employment agreement is terminated by the Company without cause or by the resignation of Mr. Sinha +for good reason, Mr. Sinha would be entitled to receive payment of his annual base salary, payable at regular payroll intervals, +from the date of termination of employment through the longer of (i) the remainder of the term or (ii) six months. +In +addition, if Mr. Sinha’s employment is terminated by the Company without cause or if Mr. Sinha resigns for good reason during +the period commencing 120 days prior to a “change of control” (as defined in the agreement) and ending 90 days after +a change of control, Mr. Sinha would be entitled to receive a cash payment within ten days of the date of his termination or resignation +of employment in an amount equal to three times the total W-2 compensation and benefits actually received by him during the preceding +twelve-month period ending on the last previous December 31 st , except that, in lieu of the actual base salary compensation +received during such period, there shall be substituted the annual base salary to which Mr. Sinha was entitled to as of the date +of termination or resignation (the “Change of Control Payment”). However, if the Change of Control Payment (or a portion +thereof) is determined to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, Mr. Sinha +will be paid either (i) the Change of Control Payment (which shall be subject to all applicable taxes to be paid by the executive +including the excise tax payable pursuant to Section 4999 and which shall be limited as to deductibility to the Company) or (ii) +a reduced amount, calculated in accordance with Section 280G, that may be paid to the executive without the imposition of an excise +tax under Section 4999 and which shall be fully deductible to the Company, whichever payment yields the greater after-tax benefit +to the executive. +Robert +Schmertz. In October 2009, the Company entered into an new employment agreement with Mr. Schmertz to replace the prior employment +agreement, which was to expire by its terms on December 31, 2009. Pursuant to the October 2009 agreement, Mr. Schmertz continued +to serve as Brand Director of the Company for a term that commenced on October 7, 2009 and expired on December 31, 2012. Mr. Schmertz’s +annual base salary during the period from October 7, 2009 through December 31, 2009 remained at $600,000. His annual base salary +was increased to $660,000 commencing on January 1, 2010 for the duration of the term. The October 2009 employment agreement provided +that Mr. Schmertz would receive a monthly automobile allowance of $1,250 and additional compensation and bonuses, if any, at the +absolute discretion of the Board of Directors. +On +January 2, 2013, the Company entered into a new employment agreement with Mr. Schmertz to replace the prior agreement that expired +on December 31, 2012. Pursuant to the new agreement, Mr. Schmertz continues to serve as the Company’s Brand Director for +a term commencing on January 1, 2013 and expiring on December 31, 2014 unless sooner terminated in accordance with the agreement’s +terms. Mr. Schmertz’s current agreement provides for an annual base salary of $725,000 and a monthly automobile allowance +of $1,500 during the term of the agreement. He will receive additional compensation and bonuses, if any, at the absolute discretion +of the Board of Directors. Pursuant to the current agreement, on January 4, 2013, Mr. Schmertz was granted 25,000 shares of the +Company’s Common Stock (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock split +effected as a stock dividend), subject to certain restrictions. These restricted shares of Common Stock, which were issued under +the 2006 Plan, will vest in five substantially equal annual installments commencing on the first anniversary of the grant date. +35 +In +the event of Mr. Schmertz’s death, the employment agreement provides for the payment to his estate of his base salary for +the 12-month period immediately subsequent to the date of Mr. Schmertz’s death. The agreement also provides that if Mr. +Schmertz’s employment agreement is terminated due to his “total disability” (as defined in the agreement), Mr. +Schmertz will receive payment of his base salary for the 12-month period immediately subsequent to the date he is determined to +be totally disabled. The Company may terminate the employment agreement for “cause” (as defined in the employment +agreement), in which event Mr. Schmertz would be entitled to receive only his accrued and unpaid base salary through the date +of termination. In the event that Mr. Schmertz’s employment is terminated by the Company without cause, he would be entitled +to receive payment of his annual base salary, payable at regular payroll intervals, from the date of termination through the remainder +of the term. In addition, if Mr. Schmertz’s employment is terminated by the Company without cause during the period commencing +30 days prior to a “change of control” (as defined in the employment agreement) transaction and ending 180 days after +a change of control transaction, he would be entitled to receive an amount equal to the lesser of (i) the average amount of total +compensation actually received by him during the preceding three calendar years multiplied by 3 and (ii) the maximum amount that +is tax deductible to the Company under Section 280G of the Code, such amount to be in lieu of and not in addition to any other +payments to which Mr. Schmertz would be entitled in the event of the termination of his employment. +Amelia +Newton Varela. On January 31, 2011, the Company entered into a new employment agreement with Ms. Varela to replace the prior +employment agreement, which expired by its terms on December 31, 2010. Pursuant to the employment agreement, Ms. Varela continued +to serve as the Executive Vice President - Wholesale and received an annual base salary of $450,000 and a monthly automobile allowance +of $1,250 commencing January 1, 2011 until the employment agreement’s expiration on December 31, 2013. Pursuant to the January +31, 2011 employment agreement, on February 1, 2011, Ms. Varela was granted an option to purchase 225,000 shares of the Company’s +Common Stock under the 2006 Plan, at an exercise price of $16.97 per share (the number of shares and exercise price indicated +having been adjusted for three-for-two stock splits effected as a stock dividend, which occurred on May 31, 2011 and October 1, +2013), which option is exercisable in four equal annual installments of 56,250 on each anniversary of the date of grant, commencing +on February 1, 2012. The January 31, 2011 employment agreement also provided an annual performance-based cash bonus to Ms. Varela +for each of the fiscal years ended December 31, 2011, 2012 and 2013 in an amount equal to 2% of the increase, if any, in the Wholesale +Division EBIT for each such year over the Wholesale Division EBIT for the immediately preceding year, provided that Wholesale +Division EBIT attributable to any business acquired by the Company after January 31, 2011 would not be included for the purpose +of determining Ms. Varela’s bonus until the acquired business has been owned by the Company for two full calendar years. +Ms. Varela received a cash bonus of $76,000, $216,999 and $63,351 for 2013 Wholesale Division EBIT performance, 2012 Wholesale +Division EBIT performance and 2011 Wholesale Division EBIT performance, respectively. +On +January 10, 2014, the Company entered into a new employment agreement with Ms. Varela to replace the prior agreement that expired +on December 31, 2013. Pursuant to the current employment agreement, Ms. Varela continues to serve as the Executive Vice President +- Wholesale of the Company for a term commencing on January 1, 2014 and expiring on December 31, 2016, unless sooner terminated +in accordance with the agreement’s terms. Ms. Varela’s current employment agreement provides for an annual base salary +during the term of $500,000 and a monthly automobile allowance of $1,250. In addition, pursuant to the agreement, on February +3, 2014, Ms. Varela was granted an option to purchase 100,000 shares of the Company’s Common Stock under the 2006 Plan, +at an exercise price of $32.59 per share, which option is exercisable in four equal annual installments of 25,000 on each anniversary +of the date of grant, commencing on February 3, 2015. The current agreement also entitles Ms. Varela to an annual performance-based +cash bonus for each of the fiscal years ended December 31, 2014, 2015 and 2016 in an amount equal to 2% of the increase, if any, +in the Wholesale Division EBIT for each such year over the Wholesale Division EBIT for the immediately preceding year, provided +that Wholesale Division EBIT attributable to any business acquired by the Company after January 10, 2014 will not be included +for the purpose of determining Ms. Varela’s bonus until the acquired business has been owned by the Company for two full +calendar years. +36 +In +the event that Ms. Varela’s employment agreement is terminated due to Ms. Varela’s “disability” (as defined +in the agreement) or death, the Company is obligated to pay Ms. Varela (or her estate) the amount of accrued and unpaid salary +through the date of termination plus any performance-based cash bonus that has accrued for the year prior to termination and is +unpaid at the time Ms. Varela’s employment is terminated due to her disability or death. The Company may terminate the agreement +for “cause” (as defined in the agreement) and, in such event, Ms. Varela will be entitled only to accrued and unpaid +salary through the date of termination of employment. In the event Ms. Varela’s employment is terminated by the Company +without cause, she would be entitled to receive payment of her annual base salary, payable at regular payroll intervals, from +the date of termination of employment through the remainder of the term plus any performance-based cash bonus that has accrued +but not yet been paid. In the event that Ms. Varela’s employment is terminated by the Company without cause during the period +commencing 30 days prior to a “change of control” (as defined in the agreement) transaction and ending 180 days following +a change of control transaction, she is entitled to receive an amount equal to the lesser of (i) the average amount of total compensation +actually received by her during the preceding three calendar years multiplied by 3 and (ii) the maximum amount that is tax deductible +to the Company under Section 280G of the Code. +GRANTS +OF PLAN-BASED AWARDS IN THE 2013 FISCAL YEAR +The +following table sets forth information concerning awards under the Company’s equity and non-equity incentive plans granted +to each of the Named Executive Officers in the 2013 Fiscal Year, including performance-based awards and those using time-based +vesting. Following the table is a discussion of material factors related to the information disclosed in the table. +All Other +All Other +Stock +Option +Awards: +Awards: +Grant Date +Number of +Number of +Exercise or +Fair Value +Estimated future payouts under non-equity +Shares of +Securities +Base Price +of Stock and +incentive plan awards +Stock or +Underlying +of Option +Option +Grant +Threshold +Target +Maximum +Units +Options +Awards +Awards +Name +Date +($) +($) +($) +(#) +(#) +($/Sh) +($) +Edward R. Rosenfeld +01/02/13 +— +2,153,268 (1) +— +150,000 +— +— +4,166,000 +03/15/13 +— +— +— +30,000 +— +— +899,800 +Arvind Dharia +n/a +— +1,004,858 (1) +— +— +— +— +— +Awadhesh Sinha +n/a +— +1,004,858 (1) +— +— +— +— +— +Robert Schmertz +01/04/13 +— +1,004,858 (1) +— +25,000 +— +— +705,181 +03/15/13 +— +— +— +16,564 +— +— +496,754 +Amelia Newton Varela +03/15/13 +— +216,999 (2) +— +15,000 +— +— +449,900 +n/a +— +1,004,858 (1) +— +— +— +— +— +(1) In +the 2013 Fiscal Year, the Compensation Committee established a bonus pool for Named Executive Officers and other key executives +of the Company based on 6% of net income of the Company achieved in the 2013 Fiscal Year and also fixed each executive’s +maximum share of the 2013 bonus pool, which was 30% for Mr. Rosenfeld and 14% for each of the other Named Executive Officers. +Since the bonus pool was established as a percentage of the Company’s 2013 Fiscal Year net income, it would not be possible +to determine the amount of these potential cash bonuses until the completion of the Company’s 2013 Fiscal Year. Accordingly, +the amount indicated is a representative payout amount and equals the maximum bonus the Named Executive Officer would have been +eligible to receive from a cash bonus pool of $7,177,560, which equals 6% of the $119,626,000 in net income of the Company achieved +in the fiscal year ended December 31, 2012. See the discussion of the 2013 cash bonus pool and the individual target awards of +each of the Named Executive Officers appearing above in the “Annual Performance-Based Cash Bonus - Based on Specific Performance +Metrics” section of “Compensation Structure.” As disclosed therein, the Company paid these performance bonuses +in cash on March 17, 2014 and in restricted shares of Common Stock granted on March 17, 2014. Accordingly, Messrs. Rosenfeld, +Dharia, Sinha and Schmertz received performance-based cash bonuses of $225,000, $225,000, $225,000 and $100,000, respectively, +and Mr. Rosenfeld, Mr. Schmertz and Ms. Varela received grants of 22,265, 10,995 and 15,118 restricted shares of Common Stock, +respectively. Ms. Varela did not receive a cash bonus from the 2013 cash bonus pool. In accordance with applicable SEC rules, +the Summary Compensation Table included in this Proxy Statement reflects these cash bonuses, while the restricted stock awards +will appear in the Summary Compensation Table to be included in our proxy statement for our 2015 Annual Meeting of Stockholders +provided the restricted stock award recipient is a named executive officer in that proxy statement. +37 +(2) Under +an employment agreement dated January 31, 2011 between the Company and Ms. Varela, Ms. Varela is entitled to receive a cash bonus +under the Company’s 2006 Plan on or about March 15, 2014 in an amount equal to 2% of the increase, if any, in the Wholesale +division EBIT for the 2013 Fiscal Year over the Wholesale division EBIT for the 2012 fiscal year. Since it would not be possible +to determine the amount of Ms. Varela’s cash bonus, if any, until the completion of the 2013 Fiscal Year, the amount indicated +as the target bonus payout is a representative amount and based upon the actual increase in the EBIT performance of the Company’s +Wholesale division for the 2012 fiscal year over the EBIT performance of the Wholesale division for the 2011 fiscal year. See +the discussion of this grant to Ms. Varela appearing above in the “Annual Performance-Based Cash Bonus - Based on Specific +Performance Metrics” section of “Compensation Structure” and above under “Employment Arrangements.” +As disclosed in the Summary Compensation Table above, Ms. Varela received a cash bonus of $76,000 for 2013 Fiscal Year EBIT performance +of the Company’s Wholesale division. +Plan-Based Awards +1999 +Stock Plan +As +of March 15, 1999, the Board of Directors of the Company adopted the 1999 Stock Plan (the “1999 Plan”), and on June +4, 1999 the Company’s stockholders approved the adoption of the 1999 Plan. Since its adoption, the 1999 Plan has been amended, +with stockholder approval, to (i) increase the number of shares subject to the 1999 Plan, (ii) provide that the exercise price +of an option granted under the 1999 Plan shall be no less than the fair market value of the Common Stock on the date of grant +(except to the extent otherwise provided in agreements with the Company dated prior to the effective date of the amendment), and +(iii) prohibit the Board from amending the terms of any option granted pursuant to the 1999 Plan to reduce the option price. The +1999 Plan was adopted to provide a means whereby directors and selected employees, officers, agents, consultants, and independent +contractors of the Company could be granted incentive stock options and/or nonqualified stock options to purchase shares of Common +Stock, in order to attract and retain the services or advice of such directors, employees, officers, agents, consultants, and +independent contractors and to provide additional incentive for such persons to exert maximum efforts for the success of the Company +by encouraging stock ownership in the Company. As of the Record Date, options to purchase 33,753 shares of Common Stock were outstanding +under the 1999 Plan. No additional options will be granted under the 1999 Plan. +2006 +Stock Incentive Plan +As +of March 10, 2006, the Board of Directors of the Company adopted the Company’s 2006 Stock Incentive Plan and, on May 26, +2006, the Company’s stockholders approved the adoption of the Company’s 2006 Stock Incentive Plan. The 2006 Stock +Incentive Plan was amended in 2007 and 2008. On April 6, 2009, the Board of Directors adopted an Amended and Restated 2006 Stock +Incentive Plan and, on May 22, 2009, the Company’s stockholders approved the Amended and Restated 2006 Stock Incentive Plan. +On April 5, 2012, the Board of Directors approved an amendment of the Amended and Restated 2006 Stock Incentive Plan primarily +to increase the number of shares of Common Stock available for issuance thereunder, subject to stockholder approval of such amendment. +The amendment to the Amended and Restated 2006 Stock Incentive Plan was approved by the Company’s stockholders at the 2012 +Annual Meeting of Stockholders on May 25, 2012. +The +Company’s Amended and Restated 2006 Stock Incentive Plan is referred to as the “2006 Plan” throughout this Proxy +Statement. The purpose of the 2006 Plan is to enhance the profitability and value of the Company for the benefit of its stockholders +by enabling the Company to offer eligible employees, consultants and non-employee directors cash and stock-based incentives in +the Company to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals +and the Company’s stockholders. +The +maximum number of shares of Common Stock available for issuance under the 2006 Plan is 23,466,000 shares. As of the Record Date, +there were outstanding 4,222,403 unvested shares of restricted stock and options to purchase 3,586,934 shares of Common Stock; +options had been exercised, or restricted stock had vested, with respect to 10,664,093 shares of Common Stock; and 4,992,570 shares +of Common Stock remained available for grant under the 2006 Plan. +38 +OUTSTANDING +EQUITY AWARDS AT END OF THE 2013 FISCAL YEAR +The +following table sets forth information concerning unexercised stock options, restricted stock that has not vested and stock awards +outstanding for each of the Named Executive Officers as of the end of the 2013 Fiscal Year. All awards that occurred prior to +the three-for-two split of the Company’s Common Stock effectuated as a stock dividend on or about April 30, 2010, the three-for-two +split of the Company’s Common Stock effectuated as a stock dividend on or about May 31, 2011 and the three-for-two split +of the Company’s Common Stock effectuated as a stock dividend on or about October 1, 2013 have been adjusted to account +for each such stock split, as applicable. +Option +Awards +Stock +Awards +Name +Number +of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number +of +securities +Underlying +Unexercised +Options +(#) +Unexercisable +Equity +Incentive Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +Number +of +Shares or +Units of Stock +That Have +Not Vested +(#) +Market +Value +of Shares or +Units of Stock +That Have Not +Vested +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, Units +or Other +Rights that +Have Not +Vested +(#) +Equity +Incentive Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, Units or +Other Rights +That Have +Not Vested +($) +Edward R. Rosenfeld +90,000 +— +— +5.3822 +3/24/2015 +230,250 (1) +8,353,470 +— +— +337,500 +— +— +5.5645 +4/1/2016 +— +— +— +— +Arvind Dharia +— +— +— +— +— +38,050 (2) +1,380,454 +— +— +Awadhesh Sinha +— +— +— +— +— +9,000 (3) +326,520 +— +— +Robert Schmertz +— +33,753 (4) +— +10.9911 +10/8/2016 +50,003 (5) +1,814,109 +— +— +Amelia Newton Varela +67,503 +— +— +5.7244 +4/29/2015 +28,768 (7) +1,043,703 +— +— +63,283 +— +— +5.5645 +4/1/2016 +— +— +— +— +33,750 +33,751 (6) +— +14.4578 +4/1/2017 +— +— +— +— +56,250 +112,500 (6) +— +16.9645 +2/1/2018 +— +— +— +— +(1) On November 10, 2009, Mr. Rosenfeld was awarded 168,750 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. On March 16, 2011, Mr. Rosenfeld was awarded 45,000 shares of restricted Common Stock, which shares vest in four equal annual installments commencing on the first anniversary of the date awarded. On March 14, 2012, Mr. Rosenfeld was awarded 30,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. On January 2, 2013, Mr. Rosenfeld was awarded 150,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on December 1, 2013 and on each December 1 st thereafter. On March 15, 2013, Mr. Rosenfeld was awarded 30,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(2) On March 9, 2010, Mr. Dharia was awarded 27,000 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on April 1, 2011. On March 16, 2011, Mr. Dharia was awarded 22,500 shares of restricted Common Stock, which shares vest in four equal annual installments commencing on the first anniversary of the date awarded. On February 8, 2012, Mr. Dharia was awarded 15,000 shares of restricted Common Stock, which shares vest in three substantially equal annual installments commencing on the first anniversary of the date awarded. On April 2, 2012, Mr. Dharia was awarded 7,500 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(3) On March 14, 2012, Mr. Sinha was awarded 11,250 shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of the date awarded. +(4) On October 8, 2009, Mr. Schmertz was granted an option to purchase 168,753 shares of the Company’s Common Stock under the Company’s 2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant. +39 +(5) On March 16, 2011, Mr. Schmertz was awarded 16,875 shares of restricted Common Stock, which shares vest in four equal annual installments commencing on the first anniversary of the date awarded. On January 4, 2013, Mr. Schmertz was awarded 25,000 shares of restricted Common Stock, which shares vest in five substantially equal annual installments commencing on the first anniversary of the date awarded. On March 15, 2013, Mr. Schmertz was awarded 16,564 shares of restricted Common Stock, which shares vest in five substantially equal annual installments commencing on the first anniversary of the date awarded. +(6) On April 1, +2010, Ms. Varela was granted an option to purchase 84,375 shares of the Company’s Common Stock under the Company’s +2006 Plan, which option vests in five equal annual installments commencing on the first anniversary of the date of grant. On February +1, 2011, Ms. Varela was granted an option to purchase 225,000 shares of the Company’s Common Stock under the Company’s +2006 Plan, which option vests in four equal annual installments commencing on the first anniversary of the date of grant. +(7) On March 14, 2012, Ms. Varela was awarded 17,209 shares of restricted Common Stock, which shares vest in five substantially +equal annual installments commencing on the first anniversary of the date awarded. On March 15, 2013, Ms. Varela was awarded 15,000 +shares of restricted Common Stock, which shares vest in five equal annual installments commencing on the first anniversary of +the date awarded. +OPTION +EXERCISES AND STOCK VESTED IN THE 2013 FISCAL YEAR +The +following table sets forth information concerning stock options exercised and restricted stock vested during the 2013 Fiscal Year +for each of the Named Executive Officers. The value realized from exercised options is deemed to be the market value of the Common +Stock on the date of exercise, less the exercise price of the option, multiplied by the number of shares of Common Stock underlying +the option. The value realized from the vesting of restricted stock is deemed to be the market value of the Common Stock on the +date of vesting multiplied by the number of shares vesting. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized on Vesting +($) +Edward R. Rosenfeld +— +— +81,000 +1,553,047 +Arvind Dharia +60,000 +1,587,600 +17,525 +256,145 +Awadhesh Sinha +— +— +28,500 +606,772 +Robert Schmertz +97,030 +2,971,135 +4,218 +55,403 +Amelia Newton Varela +— +— +3,441 +101,326 +SECURITIES +AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +The +following table sets forth information as of December 31, 2013 with respect to compensation plans (including individual compensation +arrangements) under which shares of Common Stock are authorized for issuance, aggregated as follows: +● +All compensation plans previously approved +by security holders; and +● +All +compensation plans not previously approved by security holders. +40 +EQUITY +COMPENSATION PLAN INFORMATION +Number of +securities to be +issued upon +exercise of +outstanding +options, warrants +and rights +(#) +Weighted average +exercise price of +outstanding options, +warrants and rights +($) +Number of securities +remaining available +for future issuance +under equity +compensation plans +(excluding securities +reflected in +column (a)) +(#) +(a) +(b) +(c) +Equity compensation plans approved by security holders +3,380,000 +17.01 +5,480,000 +Equity compensation plans not approved by security holders +— +— +— +Total +3,380,000 +17.01 +5,480,000 +Termination, +Change in Control and Non-Competition/Non-Solicitation +The +employment agreements for each of the Named Executive Officers provide for a severance payment upon a termination of employment +in connection with a change-in-control of the Company. The employment agreements of Messrs. Rosenfeld, Dharia and Sinha also provide +for severance payment if the executive terminates his employment for good reason in connection with a change-in-control event. +The change-in-control severance payments may result in the application of the “golden parachute” provisions of Section +280G of the Code and, to the extent Section 280G applies, the Company may not deduct from its taxable income the severance payments +made to the Named Executive Officer. Moreover, Section 4999 of the Code would impose a 20% excise tax on the Named Executive Officer +receiving the severance payment. In the case of Mr. Schmertz and Ms. Varela, these severance payments in connection with a change-in-control, +however, are reduced if the severance payment, when added to any other benefits triggered by a change-of-control, is determined +to constitute an “excess parachute payment” under Sections 280G and 4999 of the Code, to the maximum amount that is +deductible to the Company under Section 280G of the Code. In the case of Messrs. Rosenfeld, Dharia and Sinha, the executive’s +change-in-control severance payment will only be reduced to the maximum amount that is deductible to the Company under Section +280G of the Code if the reduction provides the Named Executive Officer with the best after-tax result; otherwise, the Named Executive +officer will receive the full amount of the severance payment and other benefits triggered by the change-in-control and be liable +for the 20% excise tax on the excess parachute payment in addition to all other applicable taxes and, in such case, the deduction +by the Company of the portion of the severance payment constituting an excess parachute payment will be disallowed. +The +Company’s employment agreements with each of the Named Executive Officers also provide for severance payments to the executive +if the Company terminates the executive’s employment without cause, or, in the case of Mr. Rosenfeld and Mr. Sinha, if the +Company gives him good reason to terminate employment. +Please +see the section of this Proxy Statement captioned “Employment Arrangements” for a summary description of the Named +Executive Officers’ employment agreements and such severance and change-in-control provisions. These benefits are described +and quantified in the section of this Proxy Statement captioned “Potential Payments Upon Termination or Change-In-Control” +below. +41 +The +Company believes that the severance payments and payments made upon change-in-control provisions in the employment agreements +provide appropriate protection to the Company’s executives, comparable to that available at peer companies, and, with regard +to the enhanced severance following a change-in-control, protects the Company from losing key executives during a period when +a change-in-control may be threatened or pending. These benefits are described and quantified in the section below captioned “Potential +Payments Upon Termination or Change-In-Control.” +Ms. +Varela has agreed to a non-compete and non-solicitation restriction through the expiration date of her employment agreement, December +31, 2016, in the event of a voluntary termination or termination for cause. Messrs. Rosenfeld and Sinha have each agreed to a +non-compete and non-solicitation restriction during the period of his employment and for a six-month period following the termination +of his employment for cause or in the event of his resignation without good reason. Mr. Schmertz has agreed to a non-compete and +non-solicitation restriction through December 31, 2015. Mr. Dharia does not have non-compete or non-solicitation provisions in +his employment agreement. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The +Company’s employment agreements with the Named Executive Officers provide for payments to such individuals upon termination +of employment or a change-in-control of the Company. Please see the section of this Proxy Statement captioned “Employment +Arrangements.” The amounts set forth in the table below shall be payable to the respective Named Executive Officer if such +Named Executive Officer’s employment is terminated under the various scenarios set forth below. +NAME +AND PRINCIPAL POSITION +CASH +PAYMENT +CONTINUATION +OF +MEDICAL / +WELFARE BENEFITS +(PRESENT VALUE) +ACCELERATION +AND +CONTINUATION +OF EQUITY +AWARD +REDUCTION +OF +BENEFITS UPON A +CHANGE-IN- +CONTROL (1) +TOTAL +TERMINATION +BENEFITS +($) +($) +($) +($) +($) +TERMINATION +DUE TO DEATH +Edward +R. Rosenfeld +607,754 +(2) +6,255 (3) +— +— +614,009 +Arvind +Dharia +554,719 (4) +11,320 (3) +— +— +566,039 +Awadhesh +Sinha +600,000 (5) +11,320 (3) +— +— +611,320 +Robert +Schmertz +725,000 (6) +— +— +— +725,000 +Amelia +Newton Varela +— +— +— +— +— +TERMINATION +DUE TO TOTAL DISABILITY +Edward +R. Rosenfeld +607,754 (2) +— +— +— +607,754 +Arvind +Dharia +554,719 (4) +— +— +— +554,719 +Awadhesh +Sinha +600,000 (5) +— +— +— +600,000 +Robert +Schmertz +725,000 (6) +— +— +— +725,000 +Amelia +Newton Varela +— +— +— +— +— +TERMINATION +FOR CAUSE; RESIGNATION WITHOUT GOOD REASON +Edward +R. Rosenfeld +— +— +— +— +— +Arvind +Dharia +— +— +— +— +— +Awadhesh +Sinha +— +— +— +— +— +Robert +Schmertz +— +— +— +— +— +Amelia +Newton Varela +— +— +— +— +— +TERMINATION +OTHER THAN FOR CAUSE; RESIGNATION FOR GOOD REASON +Edward +R. Rosenfeld +1,245,896 (7) +— +— +— +1,245,896 +Arvind +Dharia +554,719 (8) +98,834 (9) +— +— +653,553 +Awadhesh +Sinha +1,891,500 (10) +— +— +— +1,891,500 +Robert +Schmertz +725,000 (11) +— +— +— +725,000 +Amelia +Newton Varela +1,500,000 (12) +— +— +— +1,500,000 +TERMINATION +UPON A CHANGE-IN-CONTROL +Edward +R. Rosenfeld +5,806,015 (13) +— +8,424,848 (14) +(3,827,012 ) +10,403,851 (17) +Arvind +Dharia +2,414,157 (15) +— +1,392,268 (14) +— +3,806,425 +Awadhesh +Sinha +4,489,080 (16) +— +329,310 (14) +— +4,818,390 +Robert +Schmertz +12,513,710 (18) +— +2,693,669 (14) +(3,429,301 ) +11,778,078 +(17) +Amelia +Newton Varela +9,438,758 (19) +— +4,007,320 +(14) +(3,435,810 ) +10,010,268 (17) +(1) The +employment agreements of two of the Named Executive Officers provide that severance payments +in connection with a change-in-control are reduced if the severance payment, when added +to any other benefits triggered by a change-of-control, is determined to constitute an +“excess parachute payment” under Sections 280G and 4999 of the Code, to the +maximum amount that is deductible to the Company under Section 280G of the Code. The +employment agreements of the remaining Named Executive Officers indicate that the executive’s +change-in-control severance payment will only be reduced to the maximum amount that is +deductible to the Company under Section 280G of the Code if the reduction provides the +Named Executive Officer with the best after-tax result; otherwise, the Named Executive +officer will receive the full amount of the severance payment and other benefits triggered +by the change-in-control and be liable for the 20% excise tax on the excess parachute +payment in addition to all other applicable taxes and, in such case, the deduction by +the Company of the portion of the severance payment constituting an excess parachute +payment will be disallowed. +(2) Consists +of Mr. Rosenfeld’s 2014 base salary of $607,754, which would be paid at regular +intervals. +42 +(3) Consists +of medical benefits. +(4) Consists +of Mr. Dharia’s 2014 base salary of $554,719, which would be paid at regular intervals. +(5) Consists +of Mr. Sinha’s 2014 base salary of $600,000, which would be paid at regular intervals. +For purposes of calculating this hypothetical payment, Mr. Sinha’s January 10, +2014 employment agreement is deemed to be in effect as of December 31, 2013. The section +of this Proxy Statement captioned “Employment Arrangements” contains a detailed +description of the terms of this employment agreement. +(6) Consists +of Mr. Schmertz’s 2014 base salary of $725,000, which would be paid at regular +intervals. +(7) Consists +of the base salary ($607,754 for 2014 and $638,142 for 2015) that would have been paid +to Mr. Rosenfeld during the remainder of the term of his employment until the expiration +of his employment agreement on December 31, 2015. Mr. Rosenfeld would receive these payments +at regular intervals. +(8) Consists +of Mr. Dharia’s 2013 base salary of $554,719 multiplied by the number of years +(and fraction of years) remaining in the term of his employment agreement, which expires +on December 31, 2014. Mr. Dharia would receive 50% of this payment immediately and the +remaining 50% would be paid to him one year later (i.e., on December 31, 2014). +(9) Consists +of one times the sum of Mr. Dharia’s life insurance payment ($87,514 per year) +plus medical benefits ($11,320 per year). +(10) Consists +of the base salary ($600,000 for 2014, $630,000 for 2015 and $661,500 for 2016) that +would have been paid to Mr. Sinha during the remainder of the term of his employment +until the expiration of his employment agreement on December 31, 2016. Mr. Sinha would +receive these payments at regular intervals. For purposes of calculating this hypothetical +payment, Mr. Sinha’s January 10, 2014 employment agreement is deemed to be in effect +as of December 31, 2013. The section of this Proxy Statement captioned “Employment +Arrangements” contains a detailed description of the terms of this employment agreement. +(11) Consists +of an annual base salary of $725,000 that would have been paid to Mr. Schmertz during +the remainder of the term of his employment until the expiration of his employment agreement +on December 31, 2014. Mr. Schmertz would receive these payments at regular intervals. +(12) Consists +of the base salary of $500,000 that would have been paid to Ms. Varela during the remainder +of the term of her employment until the expiration of her employment agreement on December +31, 2016. Ms. Varela would receive these payments at regular intervals. For purposes +of calculating this hypothetical payment, Ms. Varela’s January 10, 2014 employment +agreement is deemed to be in effect as of December 31, 2013. The section of this Proxy +Statement captioned “Employment Arrangements” contains a detailed description +of the terms of this employment agreement. +(13) Consists +of three times the average total compensation Mr. Rosenfeld actually received for the +preceding three calendar years, except that in lieu of the actual base salary component +received during such period, there has been substituted the annual base salary to which +Mr. Rosenfeld was entitled as of the date of termination or resignation. Upon a change-in-control, +payments (or portions thereof) to Mr. Rosenfeld determined to constitute an “excess +parachute payment” may be reduced to the maximum amount that would be tax deductible +by the Company pursuant to Sections 280G of the Code. Upon a hypothetical December 31, +2013 change-in-control, this amount would have been reduced by $3,827,012 to reflect +the maximum amount that would be tax deductible by the Company pursuant to Section 280G +of the Code. See the “Implications of Tax and Accounting Matters” section +of “Compensation Discussion and Analysis” for a discussion of the applicability +of Sections 280G and 4999 of the Code to change-in-control payments generally. See also +the summary of Mr. Rosenfeld’s employment agreement under “Employment Arrangements.” +(14) The +amount disclosed represents the total value of the restricted stock and stock options +which would have received accelerated vesting upon a hypothetical change in control on +December 31, 2013. +(15) Consists +of three times the total compensation Mr. Dharia actually received for the preceding +twelve calendar months, except that in lieu of the actual base salary component received +during such period, there has been substituted the annual base salary to which Mr. Dharia +was entitled as of the date of termination or resignation. Upon a change-in-control, +payments (or portions thereof) to Mr. Dharia determined to constitute an “excess +parachute payment” may be subject to reduction to the maximum amount that would +be tax deductible by the Company pursuant to Sections 280G of the Code. Upon a hypothetical +December 31, 2013 change-in-control, no payments to Mr. Dharia would have been subject +to reduction. See the “Implications of Tax and Accounting Matters” section +of “Compensation Discussion and Analysis” for a discussion of the applicability +of Sections 280G and 4999 of the Code to change-in-control payments generally. See also +the summary of Mr. Dharia’s employment agreement under “Employment Arrangements.” +43 +(16) Consists +of three times the sum of base compensation and certain benefits Mr. Sinha actually received +for the preceding twelve calendar months, except that in lieu of the actual base salary +component received during such period, there has been substituted the annual base salary +to which Mr. Sinha was entitled as of the date of termination or resignation. Upon a +change-in-control, payments (or portions thereof) to Mr. Sinha determined to constitute +an “excess parachute payment” may be subject to reduction to the maximum +amount that would be tax deductible by the Company pursuant to Sections 280G of the Code. +Upon a hypothetical December 31, 2013 change-in-control, no payments to Mr. Sinha would +have been subject to reduction. See the “Implications of Tax and Accounting Matters” +section of “Compensation Discussion and Analysis” for a discussion of the +applicability of Sections 280G and 4999 of the Code to change-in-control payments generally. +See also the summary of Mr. Sinha’s employment agreement under “Employment +Arrangements.” For purposes of calculating this hypothetical payment, Mr. Sinha’s +January 10, 2014 employment agreement is deemed to be in effect as of December 31, 2013. +(17) The +total amount does not include the amount deducted pursuant to Section 280G of the Code. +(18) Consists +of three times the average total compensation Mr. Schmertz actually received for the +preceding three calendar years. Upon a hypothetical December 31, 2013 change-in-control, +this amount would have been reduced by $3,429,301 to reflect the maximum amount that +would be tax deductible by the Company pursuant to Section 280G of the Code. See the +“Implications of Tax and Accounting Matters” section of “Compensation +Discussion and Analysis” for a discussion of the applicability of Sections 280G +and 4999 of the Code to change-in-control payments generally. See also the summary of +Mr. Schmertz’s employment agreement under “Employment Arrangements.” +(19) Consists +of three times the average total compensation Ms. Varela actually received for the preceding +three calendar years. Upon a hypothetical December 31, 2013 change-in-control, this amount +would have been reduced by $3,435,810 to reflect the maximum amount that would be tax +deductible by the Company pursuant to Section 280G of the Code. See the “Implications +of Tax and Accounting Matters” section of “Compensation Discussion and Analysis” +for a discussion of the applicability of Sections 280G and 4999 of the Code to change-in-control +payments generally. See also the summary of Ms. Varela’s employment agreement under +“Employment Arrangements.” For purposes of calculating this hypothetical +payment, Ms. Varela’s January 10, 2014 employment agreement is deemed to be in +effect as of December 31, 2013. +Compensation +Committee Report +The +Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review +and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis +be included in this Proxy Statement. +Submitted by +the Compensation Committee of the Company’s Board of Directors: +Peter Migliorini (Chairman) +Thomas H. Schwartz +44 +PROPOSAL +TWO: +RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2014 +The +Audit Committee has appointed EisnerAmper LLP as the Company’s independent registered public accounting firm to conduct +the audit of the Company’s books and records for the fiscal year ending December 31, 2014. EisnerAmper LLP also served as +the Company’s independent registered public accountants for the 2013 Fiscal Year. +Before +making its determination on appointment, the Audit Committee carefully considers the qualifications and competence of candidates +for the independent registered public accountants. For EisnerAmper LLP, this has included a review of its performance in prior +years, its independence and processes for maintaining independence, the results of the most recent internal quality control review +or Public Company Accounting Oversight Board inspection, the key members of the audit engagement team, the firm’s approach +to resolving significant accounting and auditing matters including consultation with the firm’s national office, as well +as its reputation for integrity and competence in the fields of accounting and auditing. Although ratification by stockholders +is not required by the Company’s organizational documents or other applicable law, the Audit Committee has determined that +requesting ratification by stockholders of its appointment of EisnerAmper LLP as the Company’s independent registered public +accountants is a matter of good corporate practice. If stockholders do not ratify the selection, the Audit Committee will reconsider +whether or not to retain EisnerAmper LLP, but may still retain the accounting firm. Even if the selection is ratified, the Audit +Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would +be in the best interest of the Company and its stockholders. +Representatives +of EisnerAmper LLP are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement +should they so desire. +Required Vote +The +affirmative vote of the holders of a majority of the outstanding shares of Common Stock present or represented by proxy and entitled +to vote at the Annual Meeting is required to ratify the Audit Committee’s selection of EisnerAmper LLP. +Recommendation of the Board +of Directors +The +Board of Directors unanimously recommends a vote “FOR” the ratification of the appointment of EisnerAmper LLP as the +Company’s independent registered public accountants for the fiscal year ending December 31, 2014. Unless marked to the contrary, +proxies received from stockholders will be voted in favor of ratifying the appointment of EisnerAmper LLP as the Company’s +independent registered public accountants for the fiscal year ending December 31, 2014. +45 +Independent Registered Public +Accounting Firm’s Fees and Services +The +aggregate fees billed to the Company by EisnerAmper LLP for professional services rendered for each of the past two years are +set forth below: +Year Ended December 31, +2013 +2012 +Audit Fees (1) +$ 728,000 +$ 700,000 +Audit-Related Fees (2) +25,000 +25,000 +Tax Fees (3) +91,000 +46,850 +All Other Fees (4) +41,500 +148,465 +Total +$ 885,500 +$ 920,315 +(1) +Represents the aggregate fees and expenses billed for (a) the audit of the Company’s annual financial statements, +(b) the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, (c) other statutory +and regulatory filings or engagements and (d) the audit of the Company’s internal controls over financial reporting. +(2) +Represents the aggregate fees billed for audit-related fees related to assurance and related services. Includes, among others, +the audit of the Company’s employee benefit plans and other accounting related consultations. +(3) +Represents the aggregate fees billed for tax compliance, tax advice and tax planning services. These professional services +include assistance in the preparation of the Company’s various federal, state and local tax returns, tax consultation and +various amendments. +(4) +Represents the aggregate fees billed (a) with respect to the 2013 Fiscal Year, for (i) services rendered in connection with +the Company’s acquisition of a business in Canada and (ii) out-of-pocket expenses incurred by EisnerAmper LLP in connection +with services rendered to the Company and (b) with respect to the fiscal year ended December 31, 2012, for (i) due diligence services +rendered in connection with two business acquisitions and (ii) out-of-pocket expenses incurred by EisnerAmper LLP in connection +with services rendered to the Company. +Audit Committee’s +Pre-Approval Policies and Procedures +Consistent +with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation +and overseeing the work of the independent registered public accountants. In recognition of this responsibility, the Audit Committee +has established a policy to review and pre-approve all audit and permissible non-audit services provided by the independent registered +public accountants. These services may include audit services, audit-related services, tax services and other services. +Prior +to engagement of the independent auditor for next year’s audit, the Audit Committee will pre-approve all auditing services +and all permitted non-audit services (including the fees and terms thereof), except those excluded from requiring pre-approval +based upon the de minimus exception set forth in Section 10A(i)(1)(B) of the Exchange Act. +The +Audit Committee’s pre-approval policies and procedures are as follows: (a) prior to each fiscal year, the Audit Committee +pre-approves a schedule of estimated fees for proposed non-prohibited audit and non-audit services, and (b) actual amounts paid +are monitored by financial management of the Company and reported to the Audit Committee. +All +work performed by EisnerAmper LLP as described above under the captions Audit Fees, Audit-Related Fees, Tax Fees and All Other +Fees has been approved or pre-approved by the Audit Committee pursuant to the provisions of the Audit Committee’s charter. +The Audit Committee has considered and concluded that the provision of non-audit services is compatible with maintaining the independence +of EisnerAmper LLP. +46 +AUDIT +COMMITTEE REPORT +The +Audit Committee reviewed the Company’s audited financial statements for the 2013 Fiscal Year and met with both management +and representatives of EisnerAmper LLP, the Company’s independent registered public accountants, to discuss such audited +financial statements. Management and the Company’s independent registered public accountants have represented to the Audit +Committee that the financial statements were prepared in accordance with accounting principles generally accepted in the United +States of America. The Audit Committee has received from and discussed with EisnerAmper LLP the written disclosures and the letter +regarding EisnerAmper LLP’s communications with the Audit Committee concerning independence as required by applicable requirements +of the Public Company Accounting Oversight Board, and discussed with EisnerAmper LLP the independence of EisnerAmper LLP. The +Audit Committee also discussed with EisnerAmper LLP any matters required to be discussed by Statement on Auditing Standards No. +61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. Based on these reviews and discussions, +the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s +Annual Report on Form 10-K for the 2013 Fiscal Year. +Submitted by +the Audit Committee of the Company’s Board of Directors: +Richard P. Randall (Chairman) +Peter Migliorini +Ravi +Sachdev +47 +PROPOSAL +THREE: +NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION +Section +14A of the Exchange Act, as created by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank +Act”), and the rules and regulations promulgated thereunder, require a publicly traded company to include a resolution in +its proxy statement at least once every three years seeking stockholder approval, on an advisory or non-binding basis, of the +compensation of the named executive officers as disclosed in such company’s proxy statement pursuant to the compensation +rules of the SEC. At our 2011 Annual Meeting of Stockholders, the Company’s stockholders approved, on an advisory basis, +the holding of an advisory vote to approve executive compensation (commonly known as a “say-on-pay” proposal) on an +annual basis. Based on these results, the Board of Directors determined to hold its advisory vote to approve executive compensation +annually until the next frequency vote, which is scheduled for the Company’s 2017 Annual Meeting of Stockholders. Accordingly, +we are providing stockholders with a non-binding advisory vote on the compensation of our Named Executive Officers. +As +described in more detail in the Compensation Discussion and Analysis section, which begins on page 22 of this Proxy Statement, +the overall objective of the Company’s executive compensation programs and practices is to support delivery of sustained +operating and financial performance results with the ultimate goal being to create and maximize value for our stockholders on +a long-term basis. We believe that our executive compensation programs and practices serve the interests of our stockholders by +enabling us to attract and retain an experienced and effective management team whose combined knowledge of our business and the +footwear and accessories industries has proved extremely valuable in delivering results for our stockholders. The Compensation +Committee and the Board of Directors believe that the Company’s compensation programs and practices as articulated in the +Compensation Discussion and Analysis section of this Proxy Statement effectively implement our philosophy of aligning compensation +to stockholder interests and that the compensation received by our Named Executive Officers in the 2013 Fiscal Year reflects and +supports such philosophy and goal and is commensurate with the performance and strategic position of the Company. We will continue +to review and modify our executive compensation programs to address evolving best practices and changing regulatory requirements. +We +encourage stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, as well as the Summary +Compensation Table and other related compensation tables and narrative disclosure contained in this Proxy Statement, all of which +describe and explain in detail the compensation of our Named Executive Officers in the 2013 Fiscal Year. +The following +resolution is submitted for stockholder approval: +“ RESOLVED , +that the stockholders of Steven Madden, Ltd. (the ‘Company’) approve, on a non-binding advisory basis, the compensation +paid to the Named Executive Officers of the Company as disclosed pursuant to the compensation disclosure rules of the Securities +and Exchange Commission, including the executive compensation as described in the section captioned ‘Compensation Discussion +and Analysis,’ the Summary Compensation Table and related tabular disclosure and narrative discussion regarding compensation +of Named Executive Officers under the caption ‘Executive Compensation’ contained in the Company’s Proxy Statement +dated April 10, 2014.” +This +vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive +Officers and the compensation programs and practices described in this Proxy Statement. While this advisory vote on executive +compensation, commonly referred to as a “say-on-pay” advisory vote, is required by Section 14A of the Exchange Act, +it is not binding on our Board of Directors and may not be construed as overruling any decision by the Board of Directors or the +Compensation Committee. However, we value the opinions of our stockholders. To the extent there is a significant vote +against the compensation of the Named Executive Officers as disclosed in this Proxy Statement, the Board of Directors and the +Compensation Committee will consider the outcome of the vote when considering future compensation arrangements and evaluate whether +any actions are necessary to address the stockholders’ concerns. +48 +Required Vote +Approval +of this resolution requires the affirmative vote of a majority of the shares of Common Stock present or represented by proxy and +entitled to vote at the Annual Meeting. +Recommendation of the Board +of Directors +The +Board of Directors unanimously recommends a vote “FOR” the resolution approving the overall compensation of the Named +Executive Officers for the 2013 Fiscal Year. +OTHER MATTERS +At +the date of this Proxy Statement, the Company has no knowledge of any business other than that described above that will be presented +at the Annual Meeting. If any other business should properly come before the Annual Meeting in connection therewith, it is intended +that the persons named in the accompanying proxy will have discretionary authority to vote the shares which they represent. +A copy +of the applicable provisions of the Company’s By-Laws may be obtained by any stockholder, without charge, upon written request +to the Secretary of the Company at the address set forth above. +WHETHER +OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD PROMPTLY. +ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET AS DESCRIBED ON THE ACCOMPANYING PROXY CARD. YOUR +VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW +YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. +STEVEN +MADDEN, LTD. +April 10, 2014 +By: +Arvind +Dharia +Secretary +49 +STEVEN MADDEN, LTD. +ATTN: ARVIND DHARIA +52-16 BARNETT AVENUE +LONG ISLAND CITY, NY 11104 +VOTE BY +INTERNET - www.proxyvote.com +Use the Internet to +transmit your voting instructions and for electronic delivery of information +up until 11:59 P.M. Eastern Time the day before the meeting date. Have your +proxy card in hand when you access the web site and follow the instructions +to obtain your records and to create an electronic voting instruction form. +ELECTRONIC +DELIVERY OF FUTURE PROXY MATERIALS +If you would like to +reduce the costs incurred by our company in mailing proxy materials, you can +consent to receiving all future proxy statements, proxy cards and annual +reports electronically via e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions above to vote using the Internet +and, when prompted, indicate that you agree to receive or access proxy +materials electronically in future years. +VOTE BY +PHONE - 1-800-690-6903 +Use any touch-tone +telephone to transmit your voting instructions up until 11:59 P.M. Eastern +Time the day before the meeting date. Have your proxy card in hand when you +call and then follow the instructions. +VOTE BY +MAIL +Mark, sign and date +your proxy card and return it in the postage-paid envelope we have provided +or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, +NY 11717. +TO +VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP +THIS PORTION FOR YOUR RECORDS +DETACH +AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +For +All +Withhold +All +For All +Except +To withhold authority to +vote for any individual nominee(s), mark “For All Except” and write the +number(s) of the nominee(s) on the line below. +The Board +of Directors recommends you vote +FOR the +following: +o +o +o +1. +Election of Directors +Nominees +01 +06 +Edward R Rosenfeld 02 Rose Peabody Lynch 03 John +L Madden 04 Peter +Migliorini 05 Richard +P Randall +Ravi Sachdev 07 Thomas +H Schwartz 08 Robert +Smith +The Board +of Directors recommends you vote FOR proposals 2 and 3. +For +Against +Abstain +2. +TO RATIFY THE APPOINTMENT OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2014. +o +o +o +3. +TO APPROVE, BY NON-BINDING ADVISORY VOTE, THE EXECUTIVE COMPENSATION DESCRIBED IN THE STEVEN +MADDEN, LTD PROXY STATEMENT. +o +o +o +NOTE: In their +discretion, the proxies are authorized to vote upon such other business as +may properly be presented at the meeting or any adjournments or postponements +thereof. +Yes +No +Please indicate if you plan +to attend this meeting +o +o +Please sign exactly as your +name(s) appear(s) hereon. When signing as attorney, executor, administrator, +or other fiduciary, please give full title as such. Joint owners should each +sign personally. All holders must sign. If a corporation or partnership, +please sign in full corporate or partnership name, by authorized officer. +Signature [PLEASE SIGN +WITHIN BOX] +Date +Signature (Joint Owners) +Date +0000209393_1 R1.0.0.51160 +Important +Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual +Report with 10-K is/are available at www.proxyvote.com . +STEVEN MADDEN, LTD. +THIS PROXY IS BEING SOLICITED ON BEHALF OF +THE BOARD OF DIRECTORS +PLEASE CLEARLY INDICATE A RESPONSE BY CHECKING ONE OF THE +BOXES NEXT TO EACH OF THE PROPOSALS +The undersigned +stockholder(s) of Steven Madden, Ltd. (the “Company”) hereby appoint(s) +Edward R. Rosenfeld and Arvind Dharia, and each of them, as attorneys and +proxies, each with power of substitution and revocation, to represent the +undersigned at the Annual Meeting of Stockholders of the Company to be held +at the Company’s showroom located at 1370 Avenue of the Americas, 14th Floor, +New York, New York at 10:00 a.m., local time, on May 23, 2014 and at any +adjournments or postponements thereof, with authority to vote all shares of +Common Stock of the Company held or owned by the undersigned on April 4, +2014, in accordance with the directions indicated herein. +THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN; UNLESS OTHERWISE INDICATED, THIS PROXY WILL +BE VOTED (1) FOR THE ELECTION OF THE EIGHT(8) NOMINEES NAMED IN ITEM 1, (2) FOR THE RATIFICATION OF THE APPOINTMENT +OF EISNERAMPER LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR 2014 AND (3) FOR +THE APPROVAL OF THE EXECUTIVE COMPENSATION DESCRIBED IN THE COMPANY’S PROXY STATEMENT. THIS PROXY WILL BE VOTED IN THE DISCRETION +OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING. +Continued and to be signed on reverse side +0000209393_2 R1.0.0.51160 \ No newline at end of file diff --git a/raw/proxies/0000913241/0001019056-14-000516/proxy_rpt.txt b/raw/proxies/0000913241/0001019056-14-000516/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..26a37758cca5fcdd332ca1e067374f14db313ace --- /dev/null +++ b/raw/proxies/0000913241/0001019056-14-000516/proxy_rpt.txt @@ -0,0 +1,136 @@ +and Related Party Transactions +JLM +Consultants, Inc., a company wholly-owned by John L. Madden. Since 2004, the Company has engaged JLM Consultants, Inc., +a company wholly-owned by John L. Madden, a member of the Board and the brother of Steven Madden, the Company’s founder +and Creative and Design Chief, to provide consulting services to the Company with respect to the development of international +sales of the Company. On February 23, 2012, the Company entered into a consulting agreement (the “JLM Consulting Agreement”) +with JLM Consultants, Inc., which replaced a prior consulting agreement, and continues in effect until December 31, 2014. In accordance +with the terms of the JLM Consulting Agreement, for the 2013 Fiscal Year, JLM Consultants, Inc. received the following compensation +from the Company for services rendered: (a) a commission equal to 1% of net sales, excluding retail royalty income; (b) a commission +equal to 10% of retail royalty income, (c) 1% of any commission income to the International division that is not recognized in +net sales; (d) a monthly draw in the amount of $25,000, which amount is offset against commissions earned, (e) a $1,000 per month +travel allowance and (f) $4,576.08 per month reimbursement for health insurance premiums for John L. Madden. Pursuant to this +arrangement, JLM Consultants, Inc. received a total of $1,310,349 from the Company in the 2013 Fiscal Year. +15 +Pursuant +to the JLM Consulting Agreement, on January 2, 2013, the Company issued 72,012 restricted shares of the Company’s Common +Stock (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock split effected as a stock +dividend) to JLM Consultants, Inc. under the Steven Madden, Ltd. 2006 Stock Incentive Plan, as amended (the “2006 Plan”), +which shares will vest in twelve substantially equal quarterly installments over a three-year period commencing on April 1, 2013 +and continuing to vest quarterly thereafter until the final installment vests on January 1, 2016. +Steven +Madden Employment Agreement. Effective as of July 1, 2005, the Company amended and restated its employment agreement with +the Company’s founder and Creative and Design Chief, Steven Madden, pursuant to which Mr. Madden agreed to continue to serve +as the Company’s Creative and Design Chief. The term of Mr. Madden’s employment under his employment agreement commenced +on July 1, 2005 and, in accordance with the amendment of the agreement effective December 31, 2011, will end on December 31, 2023. +Prior to this recent amendment, the agreement had provided for an annual salary of $600,000, with a 7% increase of base salary +on a compound basis in each of the third, fifth, seventh and ninth years of the agreement. The agreement had also provided for +an annual cash bonus in an amount equal to at least 2% of the Company’s EBITDA (the “Annual Bonus”) and an annual +cash bonus in relation to “new business” (as defined in the agreement) in an amount equal to at least (i) 2.5% of +new business gross direct revenues plus (ii) 10% of all license or other fee income above $2,000,000 (the “New Business +Bonus”). The agreement, as amended, increases Mr. Madden’s annual base salary but eliminates the Annual Bonus and +the New Business Bonus and provides that all cash bonuses subsequent to the fiscal year ended December 31, 2011 will be at the +sole discretion of the Company’s Board of Directors. Under the agreement, as amended, Mr. Madden’s annual base salary +was fixed at $5,416,667 in 2012, $7,416,667 in 2013, $9,666,667 in 2014, $11,916,667 in 2015 and $10,697,917 in 2016 and in each +year thereafter through the end of the term of employment. In addition, the amended agreement entitles Mr. Madden to an annual +life insurance premium reimbursement of up to $200,000. The amendment also eliminates an annual non-accountable expense allowance +of $200,000 that had been previously provided to Mr. Madden under the agreement. Pursuant to the amended agreement, on February +8, 2012, Mr. Madden was granted 1,463,056 restricted shares of Common Stock (the number of shares indicated having been adjusted +for an October 1, 2013 three-for-two stock split effected as a stock dividend), valued at approximately $40 million, under the +2006 Plan. The restricted Common Stock will vest in equal annual installments over seven years commencing on December 31, 2017 +through December 31, 2023, subject to Mr. Madden’s continued employment with the Company on each such vesting date. +On +June 30, 2012, pursuant to an election right granted to him under the agreement, as amended, Mr. Madden notified the Company of +his election to receive an additional restricted stock award valued at $40 million in consideration of a reduction in his annual +base salary in years subsequent to 2012. Accordingly, on July 3, 2012, Mr. Madden was issued 1,893,342 restricted shares of Common +Stock (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock split effected as a stock +dividend) under the 2006 Plan. The restricted Common Stock will vest in equal annual installments over six years commencing on +December 31, 2018 through December 31, 2023, subject to Mr. Madden’s continued employment with the Company on each such +vesting date. As a result of his election to receive an additional restricted stock award, Mr. Madden’s annual base salary +for years subsequent to 2012 has been reduced as follows: $4,000,000 in 2013, $6,125,000 in 2014, $8,250,000 in 2015 and $7,026,042 +in 2016 and in each year thereafter through the end of the term of employment. +Mr. +Madden is also eligible to receive annually, on or about the date of the Company’s annual meeting of stockholders (but not +later than June 30 th ), an option grant (the “Annual Option”) to purchase a number of shares of Common Stock, +with such number to be equal to the greater of (a) 100% of the largest aggregate number of shares of Common Stock available upon +the exercise of an option or options granted to any other continuing full-time employee of the Company during the preceding twelve-month +period and (b) 100,000 shares of Common Stock; provided, however, that a grant to Mr. Madden in excess of 150% of the number of +shares of Common Stock subject to options granted to such other continuing full-time employee would require stockholder approval. +Any Annual Option granted to Mr. Madden would vest quarterly over a one-year period following the grant date and would be exercisable +at a price equal to the closing price of the Company’s Common Stock on the grant date for a period of five years following +the grant date. Mr. Madden opted to waive his right to the Annual Option in 2013. In addition to the Annual Option, the agreement, +as amended, provides for a potential additional one-time stock option grant to purchase 750,000 shares of the Company’s +Common Stock (the number of shares subject to this potential stock option award having been adjusted for an October 1, 2013 three-for-two +stock split effected as a stock dividend) in the event that the Company achieves earnings per share, on a fully-diluted basis, +equal to $3.00 in any fiscal year ending December 31, 2015 or after. If granted, the option would vest in equal annual installments +of 20% over a five-year period and be exercisable for a period of seven years at a price equal to the closing price of the Company’s +Common Stock on the date immediately preceding the grant date. +16 +In +the event of Mr. Madden’s death, his employment agreement provides for the payment to Mr. Madden’s estate of his base +salary for the 12-month period immediately subsequent to the date of his death. Further, in the event that Mr. Madden’s +employment agreement is terminated due to Mr. Madden’s total disability (as defined in the agreement), “for cause” +(as defined in the agreement) or due to Mr. Madden’s resignation, the Company is obligated to pay Mr. Madden the amount +of compensation that is accrued and unpaid through the date of termination. In the event Mr. Madden’s employment agreement +is terminated for any reason (other than “for cause” or due to his death, total disability or resignation), the Company +is obligated to pay Mr. Madden, in installments, the balance of his base salary that would have been paid by the Company under +the agreement for the full term of the agreement. If, during the period commencing 120 days prior to a “change of control” +(as defined in the employment agreement) transaction and ending on the first anniversary of a change of control transaction, Mr. +Madden’s employment is terminated by the Company other than for cause or by the resignation of Mr. Madden for “good +reason” (as defined in the employment agreement), or if Mr. Madden resigns for good reason or without good reason within +30 days following a change of control transaction, all unvested options to purchase shares of Common Stock held by Mr. Madden +will vest on the date of termination or resignation and Mr. Madden will be entitled to receive a lump sum cash payment equal to +the amount of compensation that is accrued and unpaid through the date of termination plus $35 million. Mr. Madden’s employment +agreement contains other customary provisions, including provisions regarding expense reimbursement, confidentiality, solicitation +and competition. +For +the 2013 Fiscal Year, Mr. Madden earned $4,000,000 in base salary and received $200,000 for the payment of an annual life insurance +premium. Mr. Madden opted to waive his right to the Annual Option for the 2013 Fiscal Year. +Loan +to Steven Madden. On June 25, 2007, the Company made a loan to Steven Madden, its Creative and Design Chief and a principal +stockholder of the Company, in the amount of $3,000,000, in order for Mr. Madden to satisfy a personal tax obligation resulting +from the exercise of a stock option which was due to expire and to hold the underlying shares of Common Stock. Mr. Madden executed +a promissory note in favor of the Company, which is secured by a pledge of 472,500 shares of the Company’s Common Stock +beneficially owned by Mr. Madden (the number of shares indicated having been adjusted for an October 1, 2013 three-for-two stock +split effected as a stock dividend). There have been successive amendments to the note, the most recent of which occurred on January +3, 2012, at which time the note was amended and restated to extend the maturity date of the obligation to December 31, 2023 and +eliminate the accrual of interest after December 31, 2011. Prior to the most recent amendment, the note had been accruing interest +at the rate of 6% per annum. In addition, the amended and restated note provides that, commencing on December 31, 2014 and annually +on each December 31 thereafter through the maturity date, one-tenth of the principal amount thereof, together with accrued interest, +will be cancelled by the Company provided that Mr. Madden continues to be employed by the Company on each such December 31. Contemporaneously, +the Company will release a number of pledged shares of Common Stock from the pledge generally correlating to the amount of indebtedness +cancelled on such date. As of December 31, 2011, interest in the amount of $1,090,000 had accrued on the principal amount of the +note and, as noted above, interest was eliminated after December 31, 2011. +Steven +Madden is the brother of John L. Madden, who has been a director of the Company since 1993. +Review, Approval or Ratification +of Transactions with Related Persons +The +Company’s written Conduct Code and Employee Handbook prohibit all conflicts of interest. Under the Conduct Code, conflicts +of interest occur when private or family interests interfere in any way, or even appear to interfere, with the interests of the +Company. The Company’s prohibition on conflicts of interest under the Conduct Code includes any related person transaction. +17 +Related +person transactions must be approved by the Board, or by a committee of the Board consisting solely of independent directors, +who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, +the Board or committee will consider all relevant factors, including, as applicable, (i) the Company’s business rationale +for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction +is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; +(iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent +such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. +The +Company has multiple processes for reporting conflicts of interests, including related person transactions. Under the Conduct +Code, all employees are required to report any actual or apparent conflict of interest, or potential conflict of interest, to +management. The Chief Financial Officer distributes a questionnaire to the Company’s executive officers and management personnel +on a quarterly basis and distributes a questionnaire to the members of the Board of Directors on an annual basis requesting certain +information regarding, among other things, their immediate family members, employment and beneficial ownership interests, which +information is then reviewed for any conflicts of interest under the Conduct Code. +The +Board of Directors, the Audit Committee and the Disclosure Committee, which is comprised of management personnel, discuss the +related party transactions, specifically, and in connection with the regular review processes attendant to the Company’s +periodic filings, including related party transaction disclosures. +If +a director is a party to or in some manner involved in a transaction involving the Company, he will be recused from all discussions +and decisions about the transaction. The transaction must be approved in advance whenever practicable, and if not practicable, +must be ratified as promptly as practicable. +COMPENSATION \ No newline at end of file diff --git a/raw/proxies/0001017303/0000914039-01-500011/proxy.txt b/raw/proxies/0001017303/0000914039-01-500011/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..108a04717b72b74793b13a1294aacbd35a5e268b --- /dev/null +++ b/raw/proxies/0001017303/0000914039-01-500011/proxy.txt @@ -0,0 +1,960 @@ +DEF 14A +1 +y47828def14a.txt +NOTIICE AND PROXY STATEMENT +1 +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, DC 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) Title of each class of securities to which transaction applies: +------------------------------------------------------------------------ +2) Aggregate number of securities to which transaction applies: +------------------------------------------------------------------------ +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined.): +------------------------------------------------------------------------ +4) Proposed maximum aggregate value of transaction: +------------------------------------------------------------------------ +5) Total fee paid: +------------------------------------------------------------------------ +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +------------------------------------------------------------------------ +2) Form, Schedule or Registration Statement No: +------------------------------------------------------------------------ +3) Filing Party: +------------------------------------------------------------------------ +4) Date Filed: +------------------------------------------------------------------------ +2 +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 23, 2001 +Notice is hereby given that the 2001 Annual Meeting of Stockholders (the +"Annual Meeting") of TransAct Technologies Incorporated (the "Company"), a +Delaware corporation, will be held on Wednesday, May 23, 2001, at 10:00 a.m. +Eastern Daylight Savings Time, at The Ramada Plaza Hotel, 275 Research Parkway, +Meriden, Connecticut 06450 for the following purposes, all of which are more +completely set forth in the accompanying Proxy Statement: +(1) To elect two directors to serve until the 2004 Annual Meeting of +Stockholders or until their successors have been duly elected and +qualified; +(2) To ratify the selection of PricewaterhouseCoopers LLP as the Company's +independent accountants for 2001; and +(3) To transact such other business as may legally come before the Annual +Meeting. +Stockholders of record at the close of business on April 12, 2001 are +entitled to notice of and to vote at the Annual Meeting. The transfer books will +not be closed for the Annual Meeting. +By Order of the Board of Directors, +RICHARD L. COTE +Secretary +Wallingford, Connecticut +April 23, 2001 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT +YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH +REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT +PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE +IN PERSON. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION IS APPRECIATED. +3 +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 23, 2001 +This Proxy Statement is being furnished to the stockholders of TransAct +Technologies Incorporated (the "Company") in connection with the solicitation of +proxies by the Board of Directors of the Company for use at the Annual Meeting +of Stockholders of the Company to be held on May 23, 2001, and any adjournments +or postponements thereof (the "Annual Meeting"). This Proxy Statement, the +foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's +2000 Annual Report to Stockholders are first being mailed or given to +stockholders on or about April 23, 2001. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power +to revoke the same anytime prior to it being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in +such form or at such time as to render it not votable. The proxy is in ballot +form so that a specification may be made to grant or withhold authority to vote +for the election of directors and to indicate separate approval or disapproval +as to the other matter presented to stockholders. All of the proposals will be +presented by the Board of Directors. The shares represented by the proxy will be +voted for the election of the directors named thereon, unless authority to do so +is withheld. With respect to the other proposal presented to stockholders by the +Board of Directors, the shares represented by the proxy will be voted in +accordance with the specification made. Where a choice is not so specified, the +shares represented by the proxy will be voted for the proposal. +VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF +Stockholders of record on April 12, 2001 are entitled to vote at the Annual +Meeting. Each holder of common stock is entitled to cast one vote for each share +of common stock and each holder of Series B Preferred Stock is entitled to cast +111.11 votes for each share of Series B Preferred Stock held by them on April +12, 2001. There were 5,620,327 shares of common stock and 4,000 shares of Series +B Preferred Stock issued and outstanding and entitled to vote at the close of +business on April 12, 2001. A majority of the shares entitled to vote, present +in person or represented by proxy, will constitute a quorum to transact business +at the Annual Meeting. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information known to the Company regarding +the beneficial ownership of the Company's common stock as of April 12, 2001 by: +(i) each person known by the Company to own beneficially more than 5% of the +Company's issued and outstanding common stock; (ii) each director or nominee for +director of the Company; (iii) each executive officer of the Company named in +the Summary Compensation Table; and (iv) all current directors and executive +officers of the Company as a group. Except as otherwise indicated, each of the +persons named in the table has sole voting power and sole investment power with +respect to the shares set forth opposite their name. +4 +SHARES +BENEFICIALLY PERCENT OF +NAME OF BENEFICIAL OWNER OWNED COMMON STOCK +------------------------ ------------ ------------ +Bart C. Shuldman(1)......................................... 290,236 5.1% +Graham Y. Tanaka(2)......................................... 212,848 3.8% +Charles A. Dill(3).......................................... 110,171 2.0% +Richard L. Cote(4).......................................... 104,646 1.8% +Thomas R. Schwarz(5)........................................ 73,687 1.3% +Michael S. Kumpf(6)......................................... 51,320 * +Lucy H. Staley(7)........................................... 45,707 * +James B. Stetson(8)......................................... 13,500 * +Jeffrey T. Leeds(9)......................................... 7,085 * +All current directors and executive officers as a group (12 +persons)(10).............................................. 985,080 16.5% +Pequot Capital Management, Inc.(11)......................... 475,400 8.5% +500 Nyala Farm Road +Westport, CT 06880 +Niles Mosher and POS Partners LLC(12)....................... 420,000 7.5% +210 Stokes Farm Road +Franklin Lakes, NJ 07417 +Advance Capital Partners, L.P.(13).......................... 488,888 8.0% +660 Madison Avenue +New York, NY 10021 +--------------- +* Less than 1% of the outstanding common stock. +(1) Includes 116,516 shares owned jointly with Mr. Shuldman's spouse, 1,000 +shares owned by his spouse in an individual retirement account, 3,200 +shares owned by his minor children and 2,500 shares owned by his mother. +Also includes 52,640 unvested shares of restricted stock of the Company and +111,740 shares subject to options exercisable within 60 days of April 12, +2001 granted under the Company's 1996 Stock Plan. +(2) Includes 13,500 shares subject to options exercisable within 60 days of +April 12, 2001 granted under the Company's Non-Employee Directors' Stock +Plan and 4,710 shares deemed beneficially owned by Mr. Tanaka for the +benefit of his children. +(3) Includes 13,500 shares subject to options exercisable within 60 days of +April 12, 2001 granted under the Non-Employee Directors' Stock Plan. Also +includes 57,214 shares with respect to which Mr. Dill is the trustee for +the benefit of his parent and 1,000 shares owned by his spouse. +(4) Includes 27,130 shares owned jointly with Mr. Cote's spouse and 6 shares +held as custodian for his child. Also includes 5,320 unvested shares of +restricted stock of the Company and 62,900 shares subject to options +exercisable within 60 days of April 12, 2001 granted under the 1996 Stock +Plan. +(5) Includes 1,000 unvested shares of restricted stock of the Company granted +under the 1996 Stock Plan and 13,500 shares subject to options exercisable +within 60 days of April 12, 2001 granted under the Non-Employee Directors' +Stock Plan. Also includes 1,000 shares deemed to be beneficially owned by +Mr. Schwarz in his capacity as trustee of a trust for the benefit of his +granddaughter and 1,000 shares beneficially owned by his daughter, as to +which shares he disclaims beneficial ownership, and 10,650 shares owned by +his spouse. +(6) Includes 1,000 unvested shares of restricted stock of the Company and +30,500 shares subject to options exercisable within 60 days of April 12, +2001 granted under the 1996 Stock Plan. +(7) Includes 1,000 unvested shares of restricted stock of the Company and +29,100 shares subject to options exercisable within 60 days of April 12, +2001 granted under the 1996 Stock Plan. +(8) Includes 4,000 unvested shares of restricted stock of the Company and 8,500 +shares subject to options exercisable within 60 days of April 12, 2001 +granted under the 1996 Stock Plan. +2 +5 +(9) Includes 1,000 shares subject to options exercisable within 60 days of +April 12, 2001 granted under the Non-Employee Directors' Stock Plan. See +also Note (13). +(10) Includes 74,560 unvested shares of restricted stock of the Company and +339,640 shares subject to options exercisable within 60 days of April 12, +2001 granted under the 1996 Stock Plan and the Non-Employee Directors' +Stock Plan. +(11) Based on information provided in Schedule 13G dated February 13, 2001 as +filed with the Securities and Exchange Commission (the "SEC"), which stated +that Pequot Scout Fund, L.P., which is managed by Pequot Capital +Management, Inc., owns more than 5% of the common stock. +(12) Based on information provided in Schedule 13D dated March 8, 2001 as filed +with the SEC, which stated that POS Partners LLC and Niles Mosher, its sole +member, beneficially own 300,000 shares of common stock. In addition, it +reported that Mr. Mosher is a general partner in Mogen Investment, a New +Jersey general partnership, which beneficially owns 120,000 shares of +common stock; Mr. Mosher disclaimed beneficiary ownership of such shares. +(13) Based on information provided in Schedule 13G dated March 19, 2001 as filed +with the SEC, which stated that Advance Capital Partners, L.P. and its +affiliate Advance Capital Offshore Partners, L.P. own in the aggregate +4,000 shares of the Company's Series B Preferred Stock, which shares are +currently convertible into 444,444 shares of common stock, and warrants to +purchase 44,444 shares of common stock. Mr. Jeffrey T. Leeds is a principal +of Advance Capital Management, LLC, the general partner of the general +partner of Advance Capital Partners, L.P. and the general partner of the +majority shareholder of the general partner of Advance Capital Offshore +Partners, L.P., and may be deemed to be the beneficial owner of the shares +owned by Advance Capital Partners, L.P. and Advance Capital Offshore +Partners, L.P. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the +"Exchange Act"), requires the Company's directors, executive officers and +persons who beneficially own more than 10% of the Company's common stock to file +with the SEC and the Nasdaq Stock Market reports of ownership and reports of +changes in ownership of common stock and other equity securities of the Company +and to furnish the Company with copies of all such reports they file. To the +Company's knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2000, all such reports were timely filed. +1. ELECTION OF DIRECTORS +The Board of Directors currently consists of six directors and is divided +into three classes. Five of the directors are elected by the holders of the +Company's common stock to serve three-year terms. The sixth director is elected +by the holders of the Company's Series B Preferred Stock to serve a three-year +term. +At the Annual Meeting, two persons are to be elected to hold office as +directors until the 2004 Annual Meeting of Stockholders or until their +successors are duly elected and qualified. In the absence of instructions to the +contrary, the persons named in the accompanying proxy will vote such proxy "FOR" +the election of the nominees named below. Should a nominee become unavailable, +which is not anticipated, it is intended that proxies will be voted for the +election of such other person, if any, as the Board of Directors may recommend +in place of such nominee. +INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS, WHOSE TERMS WILL +EXPIRE AT THE 2004 ANNUAL MEETING +Graham Y. Tanaka, 53, has been a director of the Company since its +formation in June 1996. Mr. Tanaka has been President of Tanaka Capital +Management, Inc., an investment management firm, since +3 +6 +1986. From 1989 until 1996, Mr. Tanaka was a limited partner of McFarland Dewey +& Co., a financial advisor to the Company. He is a director of Tridex +Corporation ("Tridex") and Tanaka Funds, Inc. +Richard L. Cote, 59, has been Executive Vice President, Chief Financial +Officer, Treasurer, Secretary and a director of the Company since its formation +in June 1996. Prior thereto, he served as Senior Vice President and Chief +Financial Officer of Tridex from September 1993 to June 1996 and as Vice +President of Tridex from June 1993 to September 1993. From October 1991 to March +1993, he was a self-employed management consultant. Previously, Mr. Cote held +management positions with Wang Laboratories, Inc., Emhart Corporation, Xerox +Corporation and Price Waterhouse LLP. Mr. Cote is a director of Bead Industries, +Inc. +VOTE REQUIRED +The election of Graham Y. Tanaka and Richard L. Cote as directors of the +Company requires the affirmative vote of the holders of a plurality of the +shares of common stock present in person or represented by proxy and entitled to +vote. Abstentions by holders of such shares and broker non-votes with respect to +the election of directors will be included in determining the presence of a +quorum at the Annual Meeting but will not be included in determining whether the +nominee has received the vote of such plurality. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION +OF GRAHAM Y. TANAKA AND RICHARD L. COTE AS DIRECTORS OF THE COMPANY. +INFORMATION CONCERNING DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2002 ANNUAL +MEETING +Thomas R. Schwarz, 64, has been a director of the Company since its +formation in June 1996 and Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman's Inc., a +retailer of building materials, from 1990 until his retirement in 1994. From +1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz is a director +of Tridex, Foilmark, Inc., Tanaka Growth Fund, Lebhar-Friedman Publishing +Company and Yorkshire Global Restaurants. +Bart C. Shuldman, 44, has been Chief Executive Officer, President and a +director of the Company since its formation in June 1996 and Chairman of the +Board since February 2001. Previously, Mr. Shuldman was Vice President of Sales +and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April +1993 to August 1993, and served as President of Magnetec and later the combined +operations of Magnetec and Ithaca Peripherals Incorporated, another former +Tridex subsidiary, from August 1993 to June 1996. Prior to joining Magnetec, he +held several management positions with Mars Electronics International, a +division of Mars, Incorporated, from 1989 to 1993, including serving as Business +Manager for the North American Amusement, Gaming and Lottery operations. From +1979 to 1989, he held manufacturing and sales management positions with General +Electric Company. +INFORMATION CONCERNING DIRECTOR WHOSE TERM WILL EXPIRE AT THE 2003 ANNUAL +MEETING +Charles A. Dill, 61, has been a director of the Company since its formation +in June 1996. Mr. Dill has been a General Partner of Gateway Associates, a +venture capital firm, since 1996. From 1991 to 1995, Mr. Dill served as +President, Chief Executive Officer and a director of Bridge Information Systems, +Inc. Mr. Dill currently serves as a director of Zoltek Companies, Inc., Stifel +Financial Corp. and DT Industries, Inc. +INFORMATION CONCERNING DIRECTOR ELECTED BY HOLDERS OF SERIES B PREFERRED STOCK +Jeffrey T. Leeds, 45, became a director of the Company in April 2000 for a +term expiring at the 2003 Annual Meeting. Mr. Leeds has been a principal of +Advance Capital Management, LLC, a private investment firm, since November 1995. +He has also been a principal of Leeds Associates LLC, a private investment firm, +since April 1999 and a principal of Leeds Equity Management, a private equity +firm, since November, 1999, and has served as President of Leeds Group Inc., an +investment banking firm, since December 1992. Mr. Leeds serves on the Board of +Directors of Edison Schools Inc., RealPage, Inc., Elsinore Corporation, of which +he was President and Chief Executive Officer from February 1997 to December +1999, and several non-profit organizations, including the Cooper-Hewitt, +National Design Museum in New York. +4 +7 +THE BOARD OF DIRECTORS AND ITS COMMITTEES +During the year ended December 31, 2000, the Board of Directors held 14 +meetings. Each director attended all meetings of the Board of Directors and of +the committees of the Board of Directors on which such director served. +During 2000, the standing committees of the Board of Directors were the +Audit Committee, the Compensation Committee and the Nominating Committee. +During 2000 the Audit Committee was comprised of Messrs. Thomas R. Schwarz, +Graham Y. Tanaka and Charles A. Dill, with Mr. Dill serving as Chairman. Each of +the members of the Audit Committee is an "independent" director, as defined in +the listing standards of the Nasdaq Stock Market. The Audit Committee operates +under a written charter (the "Charter"), a copy of which is attached as Appendix +A. See the "Audit Committee Report" for more information about the roles and +responsibilities of the Audit Committee. The Audit Committee met twice during +2000. +During 2000 the Compensation Committee was comprised of Messrs. Thomas R. +Schwarz, Graham Y. Tanaka and Charles A. Dill, with Mr. Schwarz serving as +Chairman. The Compensation Committee is responsible for reviewing and +recommending the compensation arrangements for all directors and officers of the +Company, approving such arrangements for other senior level employees and +administering and taking such other action as may be required in connection with +certain compensation plans of the Company. The Compensation Committee met five +times during 2000. +The Nominating Committee consists of the full Board of Directors, with Mr. +Tanaka serving as Chairman. The Nominating Committee is responsible for +recommending to the Board of Directors nominees for election to the Board. The +Nominating Committee will also consider nominees recommended by stockholders in +accordance with proper nomination procedures specified in the Company's By-laws. +The Nominating Committee did not meet during 2000. +AUDIT COMMITTEE REPORT +Pursuant to the Charter, the roles and responsibilities of the Audit +Committee fall within four broad categories: +- Internal Control. The Audit Committee reviews and considers the adequacy +of the Company's internal control procedures and related matters. +- Financial Reporting. The Audit Committee reviews the Company's annual +financial statements with the Company's management and independent +accountants and considers the financial judgments and accounting +principles utilized in their preparation. Through its Chairman, it also +reviews the Company's quarterly financial statements with management and +the independent accountants prior to filing of the quarterly reports with +the SEC. +- Independent Accountants. The Audit Committee recommends to the Board of +Directors the firm to be appointed as independent accountants, evaluates +their performance, recommends any change, if necessary, and approves +their fees. It reviews all audit and non-audit related services rendered +by the independent accountants and their costs and obtains written +communication from them concerning their independence. The Audit +Committee also reviews with the independent accountants the scope of +their audit and discusses with them the conduct of the audit. +- Other. The Audit Committee reviews with legal counsel any matters that +may impact the financial statements, reviews the adequacy of the +Company's policies concerning ethical and responsible business conduct +and performs other functions as requested by the Board of Directors. It +reviews the Charter on an annual basis and recommends to the Board any +appropriate changes. +Please refer to the Charter at Appendix A for a fuller description of the roles +and responsibilities of the Audit Committee. +5 +8 +In connection with its duties, the Audit Committee has taken the following +actions: +- It has reviewed and discussed the audited financial statements with +management, which has responsibility for the preparation of the financial +statements. +- It has discussed with the independent accountants, which are responsible +for expressing an opinion on the financial statements in accordance with +generally accepted accounting principles, the matters required to be +discussed by Statement on Auditing Standards No. 61, "Communication with +Audit Committees", as amended. +- It has received from the independent accountants the written disclosures +describing any relationships between the independent accountants and the +Company and the letter confirming their independence required by +Independence Standards Board Standard No. 1, "Independence Discussions +with Audit Committees," and has discussed with the independent +accountants matters relating to their independence. +Based on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial statements of +the Company for the year ended December 31, 2000 be included in the Company's +Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +COMPENSATION OF DIRECTORS +During the year ended December 31, 2000, each outside director of the +Company received as compensation for services rendered and expenses incurred (i) +$2,000 for each fiscal quarter served as director, (ii) $750 for each Board of +Directors meeting attended, (iii) $300 for each Board of Directors committee +meeting attended, and (iv) $250 for each telephonic meeting. Chairs of +committees received $600 for each committee meeting. The Chairman of the Board +also received as compensation $7,500 for each fiscal quarter served as Chairman. +Pursuant to the terms of the Company's Non-Employee Directors' Stock Plan +(the "Directors' Plan"), each director who is not an employee of the Company +received an annual grant of non-qualified options to purchase 5,000 shares of +common stock as of the 2000 Annual Meeting. Beginning as of the 2001 Annual +Meeting, each director who is not an employee of the Company will receive an +annual grant of non-qualified options to purchase 7,500 shares of common stock. +In addition, each non-employee director also receives a non-qualified option to +purchase 5,000 shares of common stock upon his or her initial election to the +Board of Directors. Each option is granted at an exercise price equal to 100% of +the fair market value of the common stock on the date of grant, expires ten +years from the date of grant, and becomes exercisable at a rate of 20% per year +on the first through fifth anniversaries of the date of grant. In the event of a +change-in-control, stock options awarded under the Directors' Plan not +previously exercisable shall become fully exercisable. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Pursuant to a promissory note dated February 23, 1999, the Company loaned +Bart C. Shuldman, the Chief Executive Officer, President and a director of the +Company, $330,000 to fund his purchase of 104,000 shares of the Company's common +stock. Mr. Shuldman pledged 93,423 of the shares purchased with the loan +proceeds and 50,000 shares of restricted common stock as security for the +promissory note. The principal and any unpaid interest under the note is due in +a balloon payment five years after the date of execution of the note. The +interest rate on the note will be calculated based on the Company's average +variable lending rate under its primary credit facility for each of its fiscal +years. Interest payments are payable in arrears by Mr. Shuldman shortly after +the close of each of the fiscal years. +6 +9 +EXECUTIVE COMPENSATION +The following tables set forth information concerning the compensation +earned by the Company's Chief Executive Officer and each of the other four most +highly compensated executive officers in 2000: +SUMMARY COMPENSATION TABLE +LONG-TERM COMPENSATION +-------------------------- +AWARDS +-------------------------- ALL +ANNUAL COMPENSATION RESTRICTED SECURITIES OTHER +-------------------- STOCK UNDERLYING COMPEN- +FISCAL SALARY(1) BONUS(2) AWARDS(3) OPTIONS(4) SATION(5) +NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) ($) +---------------------------- ------ --------- -------- ---------- ---------- ---------- +Bart C. Shuldman................ 2000 274,500 55,000 -- 17,500 37,539 +President and 1999 245,000 10,000 -- 25,000 6,653 +Chief Executive Officer 1998 245,000 -- 228,125 25,000 6,159 +Richard L. Cote................. 2000 183,000 45,000 -- 7,500 22,580 +Executive Vice President, 1999 170,000 -- -- -- 9,382 +Chief Financial Officer, 1998 170,000 -- -- 45,000 8,768 +Treasurer and Secretary +James B. Stetson(6)............. 2000 128,833 35,462 43,750 25,000 6,272 +Senior Vice President -- +Worldwide Sales +Michael S. Kumpf................ 2000 140,820 30,000 -- 7,500 8,795 +Senior Vice President -- 1999 130,686 -- -- -- 5,170 +Engineering (Ithaca, NY +facility) 1998 129,913 -- -- 22,500 4,395 +Lucy H. Staley.................. 2000 137,034 20,000 -- 2,500 13,082 +Senior Vice President -- 1999 127,258 -- -- -- 4,279 +General Manager 1998 126,505 -- -- 22,500 4,395 +(Ithaca, NY facility) +--------------- +(1) Neither the Chief Executive Officer nor any of the other executive officers +named in the table received perquisites or other personal benefits in an +amount which exceeded 10% of their salary plus bonus during any fiscal year. +(2) A portion of the bonus paid to Mr. Stetson represents commissions on sales +by the Company. +(3) All restricted stock awards were granted under the Company's 1996 Stock +Plan. The value of the restricted stock awards is based on the closing +market price of the Company's common stock on the date of grant. At the end +of fiscal year 2000, the number of shares of common stock which remain +subject to restricted awards and the value of such shares, based on the +closing price of the Company's common stock on such date, were as follows: +Mr. Shuldman: 55,280 shares and $290,220; Mr. Cote: 6,640 shares and +$34,860; Mr. Stetson: 5,000 shares and $26,250; Mr. Kumpf: 2,000 shares and +$10,500; and Ms. Staley: 2,000 shares and $10,500. All grants of shares of +restricted stock vest in five equal installments beginning on the first +anniversary of the date of grant, except with respect to 50,000 shares +awarded to Mr. Shuldman and 4,000 shares awarded to Mr. Cote, which vest +100% at the end of five years from the date of grant. Currently, no +dividends may be paid on shares of the Company's common stock. +(4) All options were granted under the Company's 1996 Stock Plan. +(5) For all the executive officers named in the table, these amounts consist of +Company contributions under the Company's 401(k) Plan and other benefits, +such as life and disability insurance. Also, for 2000, includes a one-time +payment of accrued vacation as of December 31, 1999 at a rate of 75% of the +value of such accrued vacation. +(6) Mr. Stetson was appointed Senior Vice President -- Worldwide Sales in +February, 2000. +7 +10 +OPTION GRANTS IN 2000 +POTENTIAL REALIZABLE +INDIVIDUAL GRANTS VALUE AT ASSUMED +--------------------------------------------------------------- ANNUAL RATE OF STOCK +NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION +SECURITIES UNDER- OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(2) +LYING OPTIONS EMPLOYEES IN THE PRICE EXPIRATION --------------------- +NAME GRANTED (#) (1) FISCAL YEAR ($/SHARE) DATE 5% 10% +---- ----------------- ------------------ --------- ---------- --------- --------- +Bart C. Shuldman......... 17,500 9.2% 10.125 5/11/10 $111,388 $282,363 +Richard L. Cote.......... 7,500 3.9% 10.125 5/11/10 $ 47,738 $121,013 +James B. Stetson......... 15,000 7.9% 8.75 2/25/10 $ 82,500 $209,250 +James B. Stetson......... 10,000 5.2% 10.125 5/11/10 $ 63,650 $161,350 +Michael S. Kumpf......... 7,500 3.9% 10.125 5/11/10 $ 47,738 $121,013 +Lucy H. Staley........... 2,500 1.3% 10.125 5/11/10 $ 15,913 $ 40,338 +--------------- +(1) All options were granted under the Company's 1996 Stock Plan. In general, +options granted under the 1996 Plan have an exercise price equal to 100% of +the fair market value of the common stock on the date of grant, expire ten +years from the date of grant, and become exercisable at a rate of 20% per +year on the first through fifth anniversaries of the date of grant. In the +event of a change-in-control of the Company, stock options awarded under the +1996 Stock Plan not previously exercisable shall become fully exercisable. +(2) The potential realizable value portion of the foregoing table illustrates +the value that might be realized upon exercise of the options immediately +prior to the expiration of their term, assuming the specified rates of +appreciation on the Company's common stock compounded annually over the term +of the options. This hypothetical value is based entirely on assumed annual +growth rates of 5% and 10% in the value of the Company's stock price over +the term of the options. The assumed rates of growth were selected by the +SEC for illustration purposes only, and are not intended to predict future +stock prices, which will depend upon market conditions and the Company's +future performance and prospects. These numbers do not take into account +provisions of certain options providing for termination of the option +following termination of employment, non-transferability or vesting over +various periods. +AGGREGATED OPTION EXERCISES IN 2000 AND FISCAL YEAR-END +OPTION VALUES +NUMBER OF SECURITIES VALUE OF UNEXERCISED +UNDERLYING UNEXERCISED IN-THE-MONEY +SHARES VALUE OPTIONS AT OPTIONS AT +ACQUIRED ON REALIZED FISCAL YEAR-END (#) FISCAL YEAR-END ($) +NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE +---- ------------ -------- ------------------------- ------------------------- +Bart C. Shuldman...... 0 0 99,240/91,060 0/0 +Richard L. Cote....... 0 0 54,900/48,100 12,997/19,503 +James B. Stetson...... 0 0 3,500/29,000 1,500/1,000 +Michael S. Kumpf...... 0 0 26,600/26,400 8,775/13,163 +Lucy H. Staley........ 0 0 26,200/20,800 8,125/12,188 +8 +11 +EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +Under the terms of an Employment Agreement dated July 31, 1996 between Bart +C. Shuldman and the Company, Mr. Shuldman serves as President and Chief +Executive Officer at the pleasure of the Board of Directors. If Mr. Shuldman's +employment is terminated other than for cause, Mr. Shuldman shall be entitled to +continue to receive (i) his annual base salary and all other benefits for two +years from the date of termination and (ii) a pro rata portion of his annual +target bonus amount for the year of termination. If Mr. Shuldman's employment is +terminated other than for cause, or if Mr. Shuldman resigns for specified +reasons, within one year of a change-in-control of the Company, Mr. Shuldman +shall be entitled to continue to receive his annual base salary, annual target +bonus and all benefits for a period of three years from the date of termination. +In addition, the Company shall cause the immediate vesting of all stock options +granted to Mr. Shuldman under the 1996 Stock Plan. +Under the terms of an Employment Agreement dated July 31, 1996 between +Richard L. Cote and the Company, Mr. Cote serves as Executive Vice President and +Chief Financial Officer. If Mr. Cote's employment is terminated other than for +cause, Mr. Cote shall be entitled to continue to receive (i) his annual base +salary and all benefits for one year from the date of termination and (ii) a pro +rata portion of the annual target bonus for the year of termination. If Mr. +Cote's employment is terminated other than for cause, or if Mr. Cote resigns for +specified reasons, within one year of a change-in-control of the Company, Mr. +Cote shall be entitled to continue to receive his annual base salary, annual +target bonus and all benefits for a period of two years from the date of +termination. In addition, the Company shall cause the immediate vesting of all +options granted to Mr. Cote under the 1996 Stock Plan. +Under the terms of Severance Agreements between the Company and each of +James B. Stetson, Michael S. Kumpf and Lucy H. Staley, dated January 24, 2001, +September 4, 1996, and September 4, 1996, respectively, if the employment of Mr. +Stetson, Mr. Kumpf or Ms. Staley is terminated other than for cause, each +executive shall be entitled to continue to receive, for six months following the +date of termination, the annual base salary, a pro rata portion of the annual +target bonus for the year of termination and all benefits which would otherwise +have been payable to each of them. If the employment of Mr. Stetson, Mr. Kumpf +or Ms. Staley is terminated other than for cause, or if they resign for +specified reasons, within one year of a change-in-control of the Company, each +shall be entitled to continue to receive his or her annual base salary, annual +target bonus and all benefits for a period of one year from the date of +termination. In addition, the Company shall cause the immediate vesting of all +stock options granted under the 1996 Stock Plan. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee, which is comprised of non-employee directors of +the Company, is responsible for administering the Company's executive +compensation policies. In connection with such responsibilities, the +Compensation Committee establishes the general compensation policies for the +Company, approves the hiring and termination of all executive officers and any +staff reporting directly to the Chief Executive Officer of the Company and +approves the compensation plans and specific compensation levels for all +executive officers and any staff reporting directly to the Chief Executive +Officer of the Company. The Compensation Committee also approves the issuance of +all awards to employees of the Company and its subsidiaries under the Company's +1996 Stock Plan. +Compensation Policies and Goals +The primary goals of the Company's compensation policies are to attract, +retain, motivate and reward management of the Company and its operating units, +while, at the same time, aligning their interests closely with those of the +Company and its stockholders. The Company seeks to attract and retain management +by offering a competitive total compensation package. To align the interests of +management more closely with those of the Company as a whole and reward +individual initiative and effort, the Company seeks to promote performance-based +compensation where contribution to the Company as a whole is rewarded. Through +the use of performance-based plans that reward attainment of operating unit or +Company goals, the Company seeks to foster an attitude of teamwork. The Company +also believes that the use of equity ownership is an important +9 +12 +tool to ensure that the efforts of management are consistent with the objectives +of its stockholders and seeks to promote increased ownership of the Company by +management through the use of stock awards. +The Compensation Committee has tried to achieve the above goals utilizing +publicly available information regarding competitive compensation. The +Compensation Committee utilizes an independent consultant to ensure that +compensation for the Company's management is competitive, meets the above-stated +objectives and is consistent for all members of management of the Company and +its operating units. +Compensation Components +At present, the compensation of the executive officers of the Company +consists of a combination of salary, cash bonuses, stock options, restricted +stock and participation in the Company's 401(k) Plan, as well as the provision +of medical and other personal benefits typically offered to corporate +executives. The executive officers of the Company are parties to agreements +which provide for severance payments under certain circumstances. These +agreements for the executive officers listed in the Summary Compensation Table +are described above under "Employment Contracts, Termination of Employment and +Change-In-Control Arrangements." +Salaries: Effective January 1, 2000, base salaries were fixed based on the +Compensation Committee's assessment of competitive base salaries. The +Compensation Committee targets the Chief Executive Officer's salary at the mean +of that for the Company's peer group. The annual base salary of Bart C. +Shuldman, President and Chief Executive Officer of the Company, was fixed at +$270,000. Mr. Shuldman's base salary has been fixed at $375,000 effective +February, 2001 upon his election as Chairman of the Board. +Cash Bonuses: The Company generally maintains an incentive compensation +plan for all salaried employees of the Company and its operating units, +including key executives, which provides for the payment of cash bonuses. Under +the plan, the Board of Directors fixes an incentive target, as well as +individual goals and objectives, for each employee at the beginning of the year +and bonuses are paid shortly after the end of the year. The incentive targets +for 2000 were not achieved. However, the Compensation Committee determined to +pay special bonuses in November, 2000, including $55,000 to Mr. Shuldman, in +recognition of the achievement of non-financial goals. +Stock Awards: Under the Company's 1996 Stock Plan, stock options and +restricted stock are granted by the Compensation Committee. All salaried +employees are granted an initial award of stock options on their date of hiring +for a fixed number of shares depending on their level, which vests over five +years. In each year following the initial award, eligible employees may be +granted an annual award in varying amounts depending on their level and +individual performance. During 2000, a total of 95,000 stock options were +granted to executive officers of the Company, including 17,500 granted to Mr. +Shuldman. +Other Benefit Plans: Executive officers of the Company may participate in +the Company's nondiscriminatory 401(k) Plan. +COMPENSATION COMMITTEE +Thomas R. Schwarz, Chairman +Graham Y. Tanaka +Charles A. Dill +10 +13 +CORPORATE PERFORMANCE GRAPH +The following graph compares the cumulative total return on the Company's +common stock from August 22, 1996, the effective date of its initial public +offering, through December 31, 2000, with the CRSP Total Return Index for the +Nasdaq Stock Market (US) and the Nasdaq Computer Manufacturer Stocks Index. The +graph assumes that $100 was invested on August 22, 1996 in each of the Company's +common stock, the CRSP Total Return Index for the Nasdaq Stock Market (US) and +the Nasdaq Computer Manufacturer Stocks Index and that all dividends were +reinvested. +COMPARISON OF CUMULATIVE TOTAL RETURN AMONG +TRANSACT TECHNOLOGIES INCORPORATED COMMON STOCK, +THE CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (US), +AND THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX +[LINEGRAPH] +---------------------------------------------------------------------------------------------------------------- +8/22/96 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 +---------------------------------------------------------------------------------------------------------------- +TransAct Technologies +Incorporated Common Stock $100.00 $122.06 $130.88 $ 38.97 $ 88.97 $ 61.76 +CRSP Total Return Index for the +Nasdaq Stock Market (US) $100.00 $112.69 $138.34 $194.14 $351.49 $217.60 +Nasdaq Computer Manufacturer +Stocks Index $100.00 $117.96 $142.69 $309.88 $657.50 $368.79 +11 +14 +2. RATIFICATION OF SELECTION OF PRICEWATERHOUSECOOPERS LLP AS +INDEPENDENT ACCOUNTANTS FOR 2001 +The Board of Directors has selected, upon the recommendation of the Audit +Committee, PricewaterhouseCoopers LLP as independent accountants to audit the +financial statements of the Company for the 2001 fiscal year. This selection is +being presented to the stockholders for ratification at the Annual Meeting. +PricewaterhouseCoopers LLP has audited the Company's financial statements since +the Company's formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at +the Annual Meeting, will have the opportunity to make a statement, and is +expected to be available to respond to appropriate questions. +INDEPENDENT ACCOUNTANTS' FEES +During 2000, the independent accountants billed the Company for the +following professional services: +- Audit Fees rendered for the audit of the 2000 financial statements and +reviews of the financial statements included in the Company's Form 10-Q +filings with the SEC: $85,500. +- Financial Information Systems Design and Implementation Fees: None. +- All Other Fees: $94,000. These fees included tax planning and +preparation, assistance in selection of enterprise resource planning +software and the audit of the 401(k) Plan. +The Audit Committee has considered whether the provision of the above services +other than Audit Fees is compatible with maintaining the accountants' +independence and has determined that, in its opinion, they are compatible. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as +independent accountants for 2001 requires the affirmative vote of a majority of +the shares of common stock and Series B Preferred Stock, voting together with +the shares of common stock as a single class, present in person or represented +by proxy and entitled to vote. Abstentions by holders of such shares with +respect to voting on this matter will have the effect of a negative vote; broker +non-votes with respect to voting on this matter will have no effect on the +outcome of the vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR +2001. +STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year's proxy +materials must be received by the Secretary of the Company on or before December +24, 2001. Stockholder proposals submitted to be considered at the 2002 Annual +Meeting without inclusion in next year's proxy materials must be received by the +Company no later than March 9, 2002. If the Company is not notified of a +stockholder proposal by March 9, 2002, then proxies held by management of the +Company may provide the discretion to vote against such stockholder proposal, +even though such proposal is not discussed in the Proxy Statement. Proposals +should be addressed to TransAct Technologies Incorporated, 7 Laser Lane, +Wallingford, Connecticut 06492, Attention: Corporate Secretary. Stockholders may +nominate candidates for election to the Board of Directors if the proper +nomination procedure specified in the Company's By-Laws are followed. All +nominations by stockholders must be delivered to or mailed and received at the +principal executive offices of the Company not less than 30 nor more than 60 +days prior to the meeting at which election of directors will take place; +however, if less than 40 days notice of the date of the meeting is given to +stockholders, nominations will be timely if received not later than 10 days +after notice was given. The notice must set forth in writing (i) for each person +proposed to be nominated, all information relating to each such person that is +required to be disclosed in solicitations of proxies for election of directors +pursuant to Regulation 14A under the Exchange Act, including such person's +written consent to be named in the proxy and to serving as a director, and (ii) +for the +12 +15 +stockholder giving notice, the (x) name and address of such stockholder as they +appear on the Company's books and (y) the class and number of shares of the +Company beneficially owned by such stockholder. +ANNUAL REPORT +A COPY OF THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON +FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE +FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS +SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER +RELATIONS DEPARTMENT, 7 LASER LANE, WALLINGFORD, CONNECTICUT 06492. +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise +specified, proxies will be voted for the directors nominated by the Board of +Directors and for ratification of the selection of PricewaterhouseCoopers LLP as +independent accountants for 2001. The Board of Directors is not aware of any +matter which is to be presented for action at the Annual Meeting other than the +matters set forth herein. Should any other matter requiring a vote of the +stockholders arise, the proxies confer upon the persons named in the +accompanying proxy the authority to vote in respect of any such other matter in +accordance with the recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by (i) giving written notice of revocation to the +Secretary of the Company, (ii) properly submitting to the Company a duly +executed proxy bearing a later date, or (iii) voting in person at the Annual +Meeting. All written notices of revocation and other communications with respect +to revocation of proxies should be addressed to the Company, as follows: +TransAct Technologies Incorporated, 7 Laser Lane, Wallingford, Connecticut +06492, Attention: Corporate Secretary. A proxy appointment will not be revoked +by death or supervening incapacity of the stockholder executing the proxy +unless, before the shares are voted, notice of such death or incapacity is filed +with the Company's Corporate Secretary or other person responsible for +tabulating votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be +borne by the Company. The Company may solicit proxies otherwise than by use of +the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use their personal efforts, by telephone or +otherwise, to obtain proxies. The Company will also request persons, firms and +corporations holding shares in their names, or owned by others, to send this +proxy material to and obtain proxies from such beneficial owners and will +reimburse such holders for their reasonable expenses in doing so. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE +ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS HELPFUL +AND YOUR COOPERATION IS APPRECIATED. +April 23, 2001 +13 +16 +APPENDIX A +TRANSACT TECHNOLOGIES INCORPORATED +AUDIT COMMITTEE CHARTER +1. MISSION STATEMENT +The Audit Committee will assist the Board of Directors of TransAct in +fulfilling its oversight responsibilities. The Audit Committee will review the +financial reporting process, the system of internal control, the independent +audit process, and the Company's process for monitoring compliance with relevant +laws and regulations and with the code of conduct. In performing its duties, the +Audit Committee will maintain effective communication and working relationships +with the Board of Directors, management, and the independent accountants. To +effectively perform their role, Audit Committee members will obtain an +understanding of the detailed responsibilities of committee membership, as well +as the Company's business, operations, and risks. While the Board of Directors +recognizes that the Audit Committee will rely on the advice and information +provided to it by the Company's management and its independent accountants, the +Board expects the Audit Committee to exercise independent judgment in assessing +the quality of the Company's financial reporting process and internal controls. +2. ORGANIZATION +The Audit Committee will be composed of outside directors independent of +management as defined by Nasdaq. The Board of Directors will appoint the +chairman of the Audit Committee. Each member of the Audit Committee shall have +experience or education in business or financial matters sufficient to provide +him or her with a working knowledge with basic finance and accounting matters. A +minimum of four meetings will be held during each calendar year. The Audit +Committee will meet privately with the independent accountants or with the +Company management as appropriate. +3. ROLES AND RESPONSIBILITIES +a. Internal Control +- Evaluate whether management is setting the appropriate tone by +communicating the importance of internal control and ensuring that all +appropriate employees understand their roles and responsibilities in this +regard. +- Discuss at least annually with the Company's independent accountants the +adequacy and effectiveness of the Company's internal controls, including +computer systems and applications. +- Review the management letter issued by the independent accountants and +management's responses and periodically assess action management has +taken or progress it has made in addressing issues raised by the +independent accountants. +- Review all related party transactions and potential conflict of interest +situations. +b. Financial Reporting +Annually +- Review the Company's annual financial statements included in Form 10-K +and the Annual Report to Stockholders with the Company's financial +management and independent accountants. +- Discuss any significant financial judgments made in connection with the +preparation of the Company's financial statements. +- Obtain assurances from financial management that the financial statements +contain no material misstatements, and obtain assurances from the +independent accountants that, in the course of their audit, they learned +of no material misstatement. +17 +- Consider prior to their adoption any material change in accounting +principles by the Company, and report and make recommendations to the +Board of Directors with respect to any such change. +Quarterly +- Review the Company's quarterly financial statements with the Company's +financial management and obtain assurances from financial management and +the independent accountants that generally accepted principles have been +consistently applied. +- Obtain assurances from the Company's financial management that the +financial statements included in the Company's quarterly Form 10-Q do not +contain any material misstatements +- Obtain assurances that the independent accountants learned of no material +misstatements in the course of their review of such financial statements. +- Communicate, as a whole or through the Chair, with the independent +accountants on the results of their review of the quarterly financial +statements prior to the filing of the Form 10-Q. +c. Independent Accountants +- Recommend to the Board of Directors the firm of independent accountants +who are to be engaged to examine the financial statements of the Company, +periodically evaluate the performance of the independent accountants, and +if necessary, recommend to the Board of Directors the replacement of such +accountants. +- Review all audit related and non-audit related services rendered to the +Company by the independent accountants and the costs thereof. +- Obtain written communication from the independent accountants confirming +their independence. +- Review with the independent accountants the scope of their examination +with particular emphasis on the areas to which the Board of Directors, +the Audit Committee or independent accountants believe special attention +should be directed. +- Approve the fees of the independent accountants. +- Review with the independent accountants any problems or difficulties such +accountants might have encountered during their annual audit, including +any restrictions placed on the scope of the audit, difficulties obtaining +required information, significant audit adjustments, and any other +matters required to be discussed. +d. Other +- Review with the Company's legal counsel any legal or regulatory matters +that could have a significant impact on the Company's financial +statements. +- Review the adequacy of the Company's policies and practices concerning +ethical and responsible business conduct. +- Review the policies and procedures in effect for considering officers' +expenses and perquisites. +- Perform other oversight functions as requested by the full Board of +Directors. +- Review this charter on an annual basis and make recommendations to the +Board of Directors concerning any changes deemed appropriate. +A-2 +18 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD WEDNESDAY, MAY 23, 2001 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated +(the "Company"), does hereby nominate, constitute and appoint Thomas R. Schwarz +and Bart C. Shuldman, or either of them, with full power to act alone, my true +and lawful attorney with full power of substitution, for me and in my name, +place and stead to vote all of the shares of Common Stock of the Company +standing in my name on its books on April 12, 2001, at the Annual Meeting of its +stockholders to be held at The Ramada Plaza Hotel, 275 Research Parkway, +Meriden, CT 06450 on Wednesday, May 23, 2001 at 10:00 a.m., or at any +adjournment thereof, with all powers the undersigned would possess if personally +present as follows: +(TO BE SIGNED ON REVERSE SIDE) +19 +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 23, 2001 +A [X] Please mark your +votes as in this +example. +FOR BOTH WITHHOLD FOR +NOMINEES BOTH NOMINEES +1. ELECTION OF [ ] [ ] Nominees: Graham Y. Tanaka +DIRECTORS. Richard L. Cote +For both nominees, except: __________________________ +FOR AGAINST ABSTAIN +2. RATIFICATION of selection [ ] [ ] [ ] +of PricewaterhouseCoopers +LLP as independent accountants +for 2001. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED ON BEHALF OF THE UNDERSIGNED +AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS +PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE DATE , 2001 +------------------------------- ------------------- +SIGNATURE DATE , 2001 +------------------------------- ------------------- +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on the mailing label. When shares +are held by joint tenants, both should sign. When signing as attorney, +executor, administrator, trustee or guardian, please give full title as +such. If signing on behalf of a corporation, please sign the full +corporate name by president or other authorized officer. If signing on +behalf of a partnership, please sign the partnership name by authorized +person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000914039-01-500011/proxy_rpt.txt b/raw/proxies/0001017303/0000914039-01-500011/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..34759ca52ad51c547b887feaee136ef72173af87 --- /dev/null +++ b/raw/proxies/0001017303/0000914039-01-500011/proxy_rpt.txt @@ -0,0 +1,14 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Pursuant to a promissory note dated February 23, 1999, the Company loaned +Bart C. Shuldman, the Chief Executive Officer, President and a director of the +Company, $330,000 to fund his purchase of 104,000 shares of the Company's common +stock. Mr. Shuldman pledged 93,423 of the shares purchased with the loan +proceeds and 50,000 shares of restricted common stock as security for the +promissory note. The principal and any unpaid interest under the note is due in +a balloon payment five years after the date of execution of the note. The +interest rate on the note will be calculated based on the Company's average +variable lending rate under its primary credit facility for each of its fiscal +years. Interest payments are payable in arrears by Mr. Shuldman shortly after +the close of each of the fiscal years. +6 +9 \ No newline at end of file diff --git a/raw/proxies/0001017303/0000914039-02-000160/proxy.txt b/raw/proxies/0001017303/0000914039-02-000160/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..375acbff8e30b1bc0f09e13ab8dffd9644e44a72 --- /dev/null +++ b/raw/proxies/0001017303/0000914039-02-000160/proxy.txt @@ -0,0 +1,875 @@ +DEF 14A +1 +y59492def14a.txt +NOTICE AND PROXY STATEMENT +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (As Permitted By Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Section 240.14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1) Title of each class of securities to which transaction applies: +------------------------------------------------------------------------ +2) Aggregate number of securities to which transaction applies: +------------------------------------------------------------------------ +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +------------------------------------------------------------------------ +4) Proposed maximum aggregate value of transaction: +------------------------------------------------------------------------ +5) Total fee paid: +------------------------------------------------------------------------ +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +------------------------------------------------------------------------ +2) Form, Schedule or Registration Statement No.: +------------------------------------------------------------------------ +3) Filing Party: +------------------------------------------------------------------------ +4) Date Filed: +------------------------------------------------------------------------ +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 17, 2002 +Notice is hereby given that the 2002 Annual Meeting of Stockholders (the +"Annual Meeting") of TransAct Technologies Incorporated (the "Company"), a +Delaware corporation, will be held on Friday, May 17, 2002, at 10:00 a.m. +Eastern Daylight Savings Time, at The Ramada Plaza Hotel, 275 Research Parkway, +Meriden, Connecticut 06450 for the following purposes, all of which are more +completely set forth in the accompanying Proxy Statement: +(1) To elect two directors to serve until the 2005 Annual Meeting of +Stockholders or until their successors have been duly elected and +qualified; +(2) To ratify the selection of PricewaterhouseCoopers LLP as the Company's +independent accountants for 2002; and +(3) To transact such other business as may legally come before the Annual +Meeting. +Stockholders of record at the close of business on April 5, 2002 are +entitled to notice of and to vote at the Annual Meeting. The transfer books will +not be closed for the Annual Meeting. +By Order of the Board of Directors, +RICHARD L. COTE +Secretary +Wallingford, Connecticut +April 19, 2002 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT +YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH +REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT +PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE +IN PERSON. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 17, 2002 +This Proxy Statement is being furnished to the stockholders of TransAct +Technologies Incorporated (the "Company") in connection with the solicitation of +proxies by the Board of Directors of the Company for use at the Annual Meeting +of Stockholders of the Company to be held on May 17, 2002, and any adjournments +or postponements thereof (the "Annual Meeting"). This Proxy Statement, the +foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's +2001 Annual Report to Stockholders are first being mailed or given to +stockholders on or about April 19, 2002. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power +to revoke the same anytime prior to it being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in +such form or at such time as to render it not votable. The proxy is in ballot +form so that a specification may be made to grant or withhold authority to vote +for the election of directors and to indicate separate approval or disapproval +as to the other matter presented to stockholders. All of the proposals will be +presented by the Board of Directors. The shares represented by the proxy will be +voted for the election of the directors named thereon, unless authority to do so +is withheld. With respect to the other proposal presented to stockholders by the +Board of Directors, the shares represented by the proxy will be voted in +accordance with the specification made. Where a choice is not so specified, the +shares represented by the proxy will be voted for the proposal. In addition, the +proxy confers discretionary authority to vote on any matter properly presented +at the Annual Meeting which is not known to the Company as of the date of this +Proxy Statement. +VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF +Stockholders of record on April 5, 2002 are entitled to vote at the Annual +Meeting. Each holder of common stock is entitled to cast one vote for each share +of common stock and each holder of Series B Preferred Stock is entitled to cast +111.11 votes for each share of Series B Preferred Stock held by them on April 5, +2002. There were 5,703,670 shares of common stock and 4,000 shares of Series B +Preferred Stock issued and outstanding and entitled to vote at the close of +business on April 5, 2002. A majority of the shares entitled to vote, present in +person or represented by proxy, will constitute a quorum to transact business at +the Annual Meeting. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information known to the Company regarding +the beneficial ownership of the Company's common stock as of April 5, 2002 by: +(i) each person known by the Company to own beneficially more than 5% of the +Company's common stock; (ii) each director or nominee for director of the +Company; (iii) each current executive officer of the Company named in the +Summary Compensation Table; and (iv) all current directors and executive +officers of the Company as a group. Except as otherwise indicated, each of the +persons named in the table has sole voting power and sole investment power with +respect to the shares set forth opposite their name. +SHARES +BENEFICIALLY PERCENT OF +NAME OF BENEFICIAL OWNER OWNED COMMON STOCK +------------------------ ------------ ------------ +Bart C. Shuldman(1)......................................... 255,296 4.4% +Graham Y. Tanaka(2)......................................... 218,848 3.8% +Charles A. Dill(3).......................................... 116,171 2.0% +Richard L. Cote(4).......................................... 100,251 1.7% +Thomas R. Schwarz(5)........................................ 79,687 1.4% +Michael S. Kumpf(6)......................................... 49,620 * +James B. Stetson(7)......................................... 17,500 * +Jeffrey T. Leeds(8)......................................... 9,585 * +All current directors and executive officers as a group (9 +persons)(9)............................................... 872,758 14.7% +Advance Capital Partners, L.P.(10).......................... 488,888 7.9% +660 Madison Avenue +New York, NY 10021 +Niles Moser(11)............................................. 395,000 6.9% +210 Stokes Farm Road +Franklin Lakes, NJ 07417 +Pequot Capital Management, Inc.(12)......................... 379,600 6.7% +500 Nyala Farm Road +Westport, CT 06880 +--------------- +* Less than 1% of the outstanding common stock. +(1) Includes 116,516 shares owned jointly with Mr. Shuldman's spouse, 1,000 +shares owned by his spouse in an individual retirement account, 3,200 +shares owned by his minor children and 2,500 shares owned by his mother. +Also includes 50,000 unvested shares of restricted stock of the Company and +76,800 shares subject to options exercisable within 60 days of April 5, +2002 granted under the Company's 1996 Stock Plan. +(2) Includes 19,500 shares subject to options exercisable within 60 days of +April 5, 2002 granted under the Company's Non-Employee Directors' Stock +Plan and 4,710 shares deemed beneficially owned by Mr. Tanaka for the +benefit of his children. +(3) Includes 19,500 shares subject to options exercisable within 60 days of +April 5, 2002 granted under the Non-Employee Directors' Stock Plan. Also +includes 57,214 shares with respect to which Mr. Dill is the trustee for +the benefit of his parent and 1,000 shares owned by his spouse. +(4) Includes 27,130 shares owned jointly with Mr. Cote's spouse and 11 shares +held as custodian for his child. Also includes 14,000 unvested shares of +restricted stock of the Company and 48,500 shares subject to options +exercisable within 60 days of April 5, 2002 granted under the 1996 Stock +Plan. +(5) Includes 19,500 shares subject to options exercisable within 60 days of +April 5, 2002 granted under the Non-Employee Directors' Stock Plan. Also +includes 1,000 shares deemed to be beneficially owned by Mr. Schwarz in his +capacity as trustee of a trust for the benefit of his granddaughter and +1,000 shares beneficially owned by his daughter, as to which shares he +disclaims beneficial ownership, and 10,650 shares owned by his spouse. +(6) Includes 28,800 shares subject to options exercisable within 60 days of +April 5, 2002 granted under the 1996 Stock Plan. +(7) Includes 3,000 unvested shares of restricted stock of the Company and +12,500 shares subject to options exercisable within 60 days of April 5, +2002 granted under the 1996 Stock Plan. +(8) Includes 3,500 shares subject to options exercisable within 60 days of +April 5, 2002 granted under the Non-Employee Directors' Stock Plan. See +also Note (10). +(9) Includes 80,000 unvested shares of restricted stock of the Company and +239,400 shares subject to options exercisable within 60 days of April 5, +2002 granted under the 1996 Stock Plan and the Non-Employee Directors' +Stock Plan. +2 +(10) Based on information provided in Schedule 13G as filed with the Securities +and Exchange Commission (the "SEC") on March 19, 2001, which stated that +Advance Capital Partners, L.P. and its affiliate Advance Capital Offshore +Partners, L.P. own in the aggregate 4,000 shares of the Company's Series B +Preferred Stock, which shares are currently convertible into 444,444 shares +of common stock, and warrants to purchase 44,444 shares of common stock. +Mr. Jeffrey T. Leeds is a principal of Advance Capital Management, LLC, the +general partner of the general partner of Advance Capital Partners, L.P. +and the general partner of the majority shareholder of the general partner +of Advance Capital Offshore Partners, L.P., and may be deemed to be the +beneficial owner of the shares owned by Advance Capital Partners, L.P. and +Advance Capital Offshore Partners, L.P. +(11) Based on information provided in Schedule 13D as filed with the SEC on +April 10, 2002, which stated that POS Partners LLC and Niles Moser, its +sole member, beneficially own 275,000 shares of common stock. In addition, +it reported that Mr. Moser is a general partner in Mogen Investment, a New +Jersey general partnership, which beneficially owns 120,000 shares of +common stock; Mr. Moser disclaimed beneficiary ownership of such shares. +(12) Based on information provided in an amended Schedule 13G as filed with the +SEC on February 14, 2002, which stated that Pequot Scout Fund, L.P., which +is managed by Pequot Capital Management, Inc., owns more than 5% of the +common stock. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the +"Exchange Act"), requires the Company's directors, executive officers and +persons who beneficially own more than 10% of the Company's common stock to file +with the SEC and the Nasdaq Stock Market reports of ownership and reports of +changes in ownership of common stock and other equity securities of the Company +and to furnish the Company with copies of all such reports they file. To the +Company's knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2001, all such reports were timely filed. +1. ELECTION OF DIRECTORS +The Board of Directors currently consists of six directors and is divided +into three classes. Five of the directors are elected by the holders of the +Company's common stock to serve three-year terms. The sixth director is elected +by the holders of the Company's Series B Preferred Stock to serve a three-year +term. +At the Annual Meeting, two persons are to be elected to hold office as +directors until the 2005 Annual Meeting of Stockholders or until their +successors are duly elected and qualified. In the absence of instructions to the +contrary, the persons named in the accompanying proxy will vote such proxy "FOR" +the election of the nominees named below. Should a nominee become unavailable, +which is not anticipated, it is intended that proxies will be voted for the +election of such other person, if any, as the Board of Directors may recommend +in place of such nominee. +INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS, WHOSE TERMS WILL +EXPIRE AT THE 2005 ANNUAL MEETING +Thomas R. Schwarz, 65, has been a director of the Company since its +formation in June 1996 and Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman's Inc., a +retailer of building materials, from 1990 until his retirement in 1994. From +1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz is a director +of Tridex Corporation ("Tridex"), Foilmark, Inc., Tanaka Growth Fund, +Lebhar-Friedman Publishing Company and Yorkshire Global Restaurants. +Bart C. Shuldman, 45, has been Chief Executive Officer, President and a +director of the Company since its formation in June 1996 and Chairman of the +Board since February 2001. Previously, Mr. Shuldman was +3 +Vice President of Sales and Marketing of Magnetec Corporation, a former +subsidiary of Tridex, from April 1993 to August 1993, and served as President of +Magnetec and later the combined operations of Magnetec and Ithaca Peripherals +Incorporated, another former Tridex subsidiary, from August 1993 to June 1996. +Prior to joining Magnetec, he held several management positions with Mars +Electronics International, a division of Mars, Incorporated, from 1989 to 1993, +including serving as Business Manager for the North American Amusement, Gaming +and Lottery operations. From 1979 to 1989, he held manufacturing and sales +management positions with General Electric Company. +VOTE REQUIRED +The election of Thomas R. Schwarz and Bart C. Shuldman as directors of the +Company requires the affirmative vote of the holders of a plurality of the +shares of common stock present in person or represented by proxy and entitled to +vote. Abstentions by holders of such shares and broker non-votes with respect to +the election of directors will be included in determining the presence of a +quorum at the Annual Meeting but will not be included in determining whether the +nominee has received the vote of such plurality. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION +OF THOMAS R. SCHWARZ AND BART C. SHULDMAN AS DIRECTORS OF THE COMPANY. +INFORMATION CONCERNING DIRECTOR WHOSE TERM WILL EXPIRE AT THE 2003 ANNUAL +MEETING +Charles A. Dill, 62, has been a director of the Company since its formation +in June 1996. Mr. Dill has been a General Partner of Gateway Associates, a +venture capital firm, since 1996. From 1991 to 1995, Mr. Dill served as +President, Chief Executive Officer and a director of Bridge Information Systems, +Inc. Mr. Dill currently serves as a director of Zoltek Companies, Inc., Stifel +Financial Corp. and DT Industries, Inc. +INFORMATION CONCERNING DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2004 ANNUAL +MEETING +Graham Y. Tanaka, 54, has been a director of the Company since its +formation in June 1996. Mr. Tanaka has been President of Tanaka Capital +Management, Inc., an investment management firm, since 1986. From 1989 until +1996, Mr. Tanaka was a limited partner of McFarland Dewey & Co., a financial +advisor to the Company. He is a director of Tridex and Tanaka Funds, Inc. +Richard L. Cote, 60, has been Executive Vice President, Chief Financial +Officer, Treasurer, Secretary and a director of the Company since its formation +in June 1996. Prior thereto, he served as Senior Vice President and Chief +Financial Officer of Tridex from September 1993 to June 1996 and as Vice +President of Tridex from June 1993 to September 1993. From October 1991 to March +1993, he was a self-employed management consultant. Previously, Mr. Cote held +management positions with Wang Laboratories, Inc., Emhart Corporation, Xerox +Corporation and Price Waterhouse LLP. Mr. Cote is a director of Bead Industries, +Inc. +INFORMATION CONCERNING DIRECTOR ELECTED BY HOLDERS OF SERIES B PREFERRED STOCK +Jeffrey T. Leeds, 46, became a director of the Company in April 2000 for a +term expiring at the 2003 Annual Meeting. Mr. Leeds has been a principal of +Advance Capital Management, LLC, a private investment firm, since October 1995. +He has also been a principal of Leeds Weld & Co., a private investment firm, +since December 2000, Leeds Associates LLC, a private investment firm, since +April 1999 and a principal of Leeds Equity Management, a private equity firm, +since November 1999, and has served as President of Leeds Group Inc., an +investment banking firm, since December 1992. Mr. Leeds serves on the Board of +Directors of Edison Schools Inc., Dominica Management, Inc., Argosy Education +Group, Inc., RealPage, Inc. and DataMark, Inc. He was President and Chief +Executive Officer of Elsinore Corporation from February 1997 to December 1999. +He is a trustee of the Cooper-Hewitt, National Design Museum in New York. +THE BOARD OF DIRECTORS AND ITS COMMITTEES +During the year ended December 31, 2001, the Board of Directors held eight +meetings. Each director attended at least 75% of the meetings of the Board of +Directors and of the committees of the Board of Directors on which such director +served. +4 +The standing committees of the Board of Directors are the Audit Committee, +the Compensation Committee, the Nominating Committee and the Executive +Committee. +The Audit Committee is comprised of Messrs. Charles A. Dill, Jeffrey T. +Leeds, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Dill serving as +Chairman. Each of the members of the Audit Committee is an "independent" +director, as defined in the listing standards of the Nasdaq Stock Market. The +Audit Committee operates under a written charter (the "Charter"), which was +attached as Appendix A to the 2001 Proxy Statement of the Company. See the +"Audit Committee Report" for more information about the roles and +responsibilities of the Audit Committee. The Audit Committee met twice during +2001. +The Compensation Committee is comprised of Messrs. Charles A. Dill, Jeffrey +T. Leeds, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as +Chairman. The Compensation Committee is responsible for reviewing and +recommending the compensation arrangements for all directors and officers of the +Company, approving such arrangements for other senior level employees and +administering and taking such other action as may be required in connection with +certain compensation plans of the Company. The Compensation Committee met five +times during 2001. +The Nominating Committee consists of the full Board of Directors, with Mr. +Tanaka serving as Chairman. The Nominating Committee is responsible for +recommending to the Board of Directors nominees for election to the Board. The +Nominating Committee will also consider nominees recommended by stockholders in +accordance with proper nomination procedures specified in the Company's By-Laws. +The Nominating Committee did not meet during 2001. +The Executive Committee is comprised of Messrs. Charles A. Dill, Jeffrey T. +Leeds, Thomas R. Schwarz, Bart C. Shuldman and Graham Y. Tanaka. The Executive +Committee meets between scheduled meetings of the Board of Directors and has the +power and authority of the Board, except as limited by the Company's By-Laws. +The Executive Committee did not meet during 2001. +AUDIT COMMITTEE REPORT +Pursuant to the Charter, the roles and responsibilities of the Audit +Committee fall within four broad categories: +- Internal Control. The Audit Committee reviews and considers the adequacy +of the Company's internal control procedures and related matters. +- Financial Reporting. The Audit Committee reviews the Company's annual +financial statements with the Company's management and independent +accountants and considers the financial judgments and accounting +principles utilized in their preparation. Through its Chairman, it also +reviews the Company's quarterly financial statements with management and +the independent accountants prior to filing of the quarterly reports with +the SEC. +- Independent Accountants. The Audit Committee recommends to the Board of +Directors the firm to be appointed as independent accountants, evaluates +their performance, recommends any change, if necessary, and approves +their fees. It reviews all audit and non-audit related services rendered +by the independent accountants and their costs and obtains written +communication from them concerning their independence. The Audit +Committee also reviews with the independent accountants the scope of +their audit and discusses with them the conduct of the audit. +- Other. The Audit Committee reviews with legal counsel any matters that +may impact the financial statements, reviews the adequacy of the +Company's policies concerning ethical and responsible business conduct +and performs other functions as requested by the Board of Directors. It +reviews the Charter on an annual basis and recommends to the Board any +appropriate changes. +In connection with its duties, the Audit Committee has taken the following +actions: +- It has reviewed and discussed the audited financial statements with +management, which has responsibility for the preparation of the financial +statements. +5 +- It has discussed with the independent accountants, which are responsible +for expressing an opinion on the financial statements in accordance with +generally accepted accounting principles, the matters required to be +discussed by Statement on Auditing Standards No. 61, "Communication with +Audit Committees", as amended. +- It has received from the independent accountants the written disclosures +describing any relationships between the independent accountants and the +Company and the letter confirming their independence required by +Independence Standards Board Standard No. 1, "Independence Discussions +with Audit Committees," and has discussed with the independent +accountants matters relating to their independence. +Based on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial statements of +the Company for the year ended December 31, 2001 be included in the Company's +Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Jeffrey T. Leeds +Thomas R. Schwarz +Graham Y. Tanaka +COMPENSATION OF DIRECTORS +During the year ended December 31, 2001, each outside director of the +Company received as compensation for services rendered (i) a retainer of $2,000 +for each fiscal quarter served as director, (ii) $750 for each Board of +Directors meeting attended, (iii) $300 for each Board of Directors committee +meeting attended, (iv) $250 for each telephonic Board of Directors meeting and +(v) $100 for each telephonic committee meeting. Chairs of committees received +$600 for each committee meeting attended and $200 for each telephonic meeting. +Mr. Schwarz received compensation of $15,000 for the period he served as +Chairman. Directors are reimbursed expenses incurred in attending meetings. +Pursuant to the terms of the Company's Non-Employee Directors' Stock Plan +(the "Directors' Plan"), each director who is not an employee of the Company +receives an annual grant of a non-qualified option to purchase 7,500 shares of +common stock. In addition, each non-employee director also receives a +non-qualified option to purchase 5,000 shares of common stock upon his or her +initial election to the Board of Directors. Each option is granted at an +exercise price equal to 100% of the fair market value of the common stock on the +date of grant, expires ten years from the date of grant, and becomes exercisable +at a rate of 20% per year on the first through fifth anniversaries of the date +of grant. In the event of a change-in-control, stock options awarded under the +Directors' Plan not previously exercisable shall become fully exercisable. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +On February 23, 1999, the Company loaned Bart C. Shuldman, the Chairman, +Chief Executive Officer and President of the Company, $330,000 to fund his +purchase in the market of 104,000 shares of the Company's common stock. Mr. +Shuldman pledged 93,423 of the shares purchased with the loan proceeds and +50,000 shares of restricted common stock as security for the promissory note. +The principal and any unpaid interest under the note is due in a balloon payment +five years after the date of the loan. The interest rate on the note is +calculated based on the Company's average variable lending rate under its +primary credit facility. Interest payments through December 31, 2001 have been +added to principal, which was increased to $409,340 at that date. During 2002, +interest will be compounded and added to principal monthly and be payable at +maturity. Thereafter, it will accrue annually and be payable at maturity. At +March 31, 2002, the aggregate amount outstanding under the loan was $415,253. +6 +EXECUTIVE COMPENSATION +The following tables set forth information concerning the compensation +earned by the Company's Chief Executive Officer and each of the other four most +highly compensated executive officers (the "Named Executive Officers") in 2001: +SUMMARY COMPENSATION TABLE +LONG TERM +COMPENSATION +----------------------- +AWARDS +----------------------- ALL +ANNUAL COMPENSATION RESTRICTED SECURITIES OTHER +-------------------- STOCK UNDERLYING COMPEN- +FISCAL SALARY(1) BONUS AWARDS(3) OPTIONS(4) SATION(5) +NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) ($) +---------------------------- ------ ---------- ------- ---------- ---------- --------- +Bart C. Shuldman.................... 2001 368,500 -- -- 70,000 8,342 +Chairman, President and 2000 274,500 55,000 -- 17,500 37,539 +Chief Executive Officer 1999 245,000 10,000 -- 25,000 6,653 +Richard L. Cote..................... 2001 198,000 -- 47,500 17,500 10,777 +Executive Vice President, 2000 183,000 45,000 -- 7,500 22,580 +Chief Financial Officer, 1999 170,000 -- -- -- 9,382 +Treasurer and Secretary +James B. Stetson(6)................. 2001 151,333 60,181(2) -- 7,500 7,421 +Executive Vice President -- 2000 128,833 35,462(2) 43,750 25,000 6,272 +Sales and Marketing +Michael S. Kumpf.................... 2001 152,555 -- -- 3,500 7,415 +Senior Vice President -- 2000 140,820 30,000 -- 7,500 8,795 +Engineering 1999 130,686 -- -- -- 5,170 +Lucy H. Staley...................... 2001 148,454 -- -- 2,000 6,377 +Senior Vice President -- 2000 137,034 20,000 -- 2,500 13,082 +General Manager 1999 127,258 -- -- -- 4,279 +(Ithaca, NY facility)(7) +--------------- +(1) None of the Named Executive Officers received perquisites or other personal +benefits in an amount which exceeded 10% of their salary plus bonus during +any fiscal year. +(2) A portion of the bonuses paid to Mr. Stetson represents commissions on sales +by the Company and a portion of the bonus paid in 2001 represents a +relocation bonus. +(3) All restricted stock awards were granted under the Company's 1996 Stock +Plan. The value of the restricted stock awards is based on the closing +market price of the Company's common stock on the date of grant. At the end +of fiscal year 2001, the number of shares of common stock which remain +subject to restricted awards and the value of such shares, based on the +closing price of the Company's common stock of $5.50 on such date, were as +follows: Mr. Shuldman: 52,640 shares and $289,520; Mr. Cote: 15,320 shares +and $84,260; Mr. Stetson: 4,000 shares and $22,000; Mr. Kumpf: 1,000 shares +and $5,500; and Ms. Staley: 1,000 shares and $5,500. All grants of shares of +restricted stock vest in five equal installments beginning on the first +anniversary of the date of grant, except with respect to 50,000 shares +awarded to Mr. Shuldman and 4,000 shares awarded to Mr. Cote, which vest +100% at the end of five years from the date of grant, and with respect to +10,000 shares awarded to Mr. Cote, which vest in two equal installments +beginning on the first anniversary of the date of grant. Currently, no +dividends may be paid on shares of the Company's common stock. +(4) All options were granted under the Company's 1996 Stock Plan. +(5) For all the Named Executive Officers, these amounts consist of Company +contributions under the Company's 401(k) Plan and other benefits, such as +life and disability insurance. Also, for 2000, includes a one-time payment +of accrued vacation as of December 31, 1999 at a rate of 75% of the value of +such accrued vacation. +7 +(6) Mr. Stetson was appointed Senior Vice President -- Worldwide Sales in +February, 2000 and Executive Vice President -- Sales and Marketing in +November, 2001. +(7) Ms. Staley's employment with Company terminated on January 31, 2002. +OPTION GRANTS IN 2001 +POTENTIAL REALIZABLE +INDIVIDUAL GRANTS VALUE AT ASSUMED +--------------------------------------------------------------- ANNUAL RATE OF STOCK +NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION +SECURITIES UNDER- OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(2) +LYING OPTIONS EMPLOYEES IN THE PRICE EXPIRATION --------------------- +NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE 5% 10% +---- ----------------- ------------------ --------- ---------- --------- --------- +Bart C. Shuldman......... 70,000 43.9% 5.125 2/26/11 $225,400 $571,900 +Richard L. Cote.......... 17,500 11.0% 5.125 2/26/11 $ 56,350 $142,975 +James B. Stetson......... 7,500 4.7% 5.125 2/26/11 $ 24,150 $ 61,275 +Michael S. Kumpf......... 3,500 2.2% 5.125 2/26/11 $ 11,270 $ 28,595 +Lucy H. Staley........... 2,000 1.3% 5.125 2/26/11 $ 6,440 $ 16,340 +--------------- +(1) All options were granted under the Company's 1996 Stock Plan. In general, +options granted under the 1996 Plan have an exercise price equal to 100% of +the fair market value of the common stock on the date of grant, expire ten +years from the date of grant, and become exercisable at a rate of 20% per +year on the first through fifth anniversaries of the date of grant. In the +event of a change-in-control of the Company, stock options awarded under the +1996 Stock Plan not previously exercisable shall become fully exercisable. +(2) The potential realizable value portion of the foregoing table illustrates +the value that might be realized upon exercise of the options immediately +prior to the expiration of their term, assuming the specified rates of +appreciation on the Company's common stock compounded annually over the term +of the options. This hypothetical value is based entirely on assumed annual +growth rates of 5% and 10% in the value of the Company's stock price over +the term of the options. The assumed rates of growth were selected by the +SEC for illustration purposes only, and are not intended to predict future +stock prices, which will depend upon market conditions and the Company's +future performance and prospects. These numbers do not take into account +provisions of certain options providing for termination of the option +following termination of employment, non-transferability or vesting over +various periods. +AGGREGATED OPTION EXERCISES IN 2001 AND FISCAL YEAR-END +OPTION VALUES +NUMBER OF SECURITIES VALUE OF UNEXERCISED +UNDERLYING UNEXERCISED IN-THE-MONEY +SHARES VALUE OPTIONS AT OPTIONS AT +ACQUIRED ON REALIZED FISCAL YEAR-END (#) FISCAL YEAR-END ($) +NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE +---- ------------ -------- ------------------------- ------------------------- +Bart C. Shuldman.......... 0 0 62,800/85,000 0/26,250 +Richard L. Cote........... 0 0 45,000/25,500 22,500/21,563 +James B. Stetson.......... 0 0 8,000/22,000 3,000/3,563 +Michael S. Kumpf.......... 0 0 28,100/8,900 15,188/11,438 +Lucy H. Staley............ 0 0 35,600/13,400 14,063/10,125 +OPTION EXCHANGE PROGRAM +In November, 2001, the Company offered an Option Exchange Program to +certain of the Named executive Officers. Under the Option Exchange Program, the +Named Executive Officers could tender for cancellation options they held with an +exercise price of $9.00 or more and receive in exchange a commitment from the +Company to grant options to purchase an equal number of shares at the fair +market value on the date +8 +of grant, which will be at least six months and one day from the cancellation of +the old options. The following Named Executive Officers tendered options to +purchase the number of shares indicated, which tender was accepted by the +Company and the options cancelled: Mr. Shuldman: 112,500 shares; Mr. Cote: +50,000 shares; Mr. Stetson: 10,000 shares; and Mr. Kumpf: 19,500 shares. The +options to be granted in May, 2002 will be 25% vested upon grant and the +remainder will vest equally on each of the next three anniversaries of the date +of grant. +EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +Under the terms of an Employment Agreement dated July 31, 1996 between Bart +C. Shuldman and the Company, Mr. Shuldman serves as President and Chief +Executive Officer at the pleasure of the Board of Directors. If Mr. Shuldman's +employment is terminated other than for cause, Mr. Shuldman shall be entitled to +continue to receive (i) his annual base salary and all other benefits for two +years from the date of termination and (ii) a pro rata portion of his annual +target bonus amount for the year of termination. If Mr. Shuldman's employment is +terminated other than for cause, or if Mr. Shuldman resigns for specified +reasons, within one year of a change-in-control of the Company, Mr. Shuldman +shall be entitled to continue to receive his annual base salary, annual target +bonus and all benefits for a period of three years from the date of termination. +In addition, the Company shall cause the immediate vesting of all stock options +granted to Mr. Shuldman under the 1996 Stock Plan. +Under the terms of an Employment Agreement dated July 31, 1996 between +Richard L. Cote and the Company, Mr. Cote serves as Executive Vice President and +Chief Financial Officer. If Mr. Cote's employment is terminated other than for +cause, Mr. Cote shall be entitled to continue to receive (i) his annual base +salary and all benefits for one year from the date of termination, and (ii) a +pro rata portion of his annual target bonus for the year of termination. If Mr. +Cote's employment is terminated other than for cause, or if Mr. Cote resigns for +specified reasons, within one year of a change-in-control of the Company, Mr. +Cote shall be entitled to continue to receive his annual base salary, annual +target bonus and all benefits for a period of two years from the date of +termination. In addition, the Company shall cause the immediate vesting of all +options granted to Mr. Cote under the 1996 Stock Plan. +Under the terms of Severance Agreements between the Company and James B. +Stetson and Michael S. Kumpf, dated January 24, 2001 and September 4, 1996, +respectively, if the employment of Mr. Stetson or Mr. Kumpf is terminated other +than for cause, each executive shall be entitled to continue to receive, for six +months following the date of termination, the annual base salary, a pro rata +portion of the annual target bonus for the year of termination and all benefits +which would otherwise have been payable to each of them. If the employment of +Mr. Stetson or Mr. Kumpf is terminated other than for cause, or if they resign +for specified reasons, within one year of a change-in-control of the Company, +each shall be entitled to continue to receive his or her annual base salary, +annual target bonus and all benefits for a period of one year from the date of +termination. In addition, the Company shall cause the immediate vesting of all +stock options granted under the 1996 Stock Plan. +Lucy H. Staley had a similar Severance Agreement with the Company dated +September 4, 1996. In connection with the termination of her employment on +January 31, 2002, the Company and Ms. Staley entered a Release and Settlement +Agreement dated December 4, 2001, as amended by a Memorandum of Agreement dated +January 23, 2002 (the "Amended Severance Agreement"). Pursuant to the Amended +Severance Agreement, Ms. Staley received continuation of her salary through +December 31, 2002, a bonus of $30,928 payable in equal monthly payments through +December 31, 2002, vesting of all options and shares of restricted stock and +continuation of insurance benefits through December 31, 2002. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee, which is comprised of non-employee directors of +the Company, is responsible for administering the Company's executive +compensation policies. In connection with such responsibilities, the +Compensation Committee establishes the general compensation policies for the +Company, approves the hiring and termination of all executive officers and any +staff reporting directly to the Chief +9 +Executive Officer of the Company and approves the compensation plans and +specific compensation levels for all executive officers and any staff reporting +directly to the Chief Executive Officer of the Company. The Compensation +Committee also approves the issuance of all awards to employees of the Company +and its subsidiary under the Company's 1996 Stock Plan. +Compensation Policies and Goals +The primary goals of the Company's compensation policies are to attract, +retain, motivate and reward management of the Company and its operating units, +while, at the same time, aligning their interests closely with those of the +Company and its stockholders. The Company seeks to attract and retain management +by offering a competitive total compensation package. To align the interests of +management more closely with those of the Company as a whole and reward +individual initiative and effort, the Company seeks to promote performance-based +compensation where contribution to the Company as a whole is rewarded. Through +the use of performance-based plans that reward attainment of operating unit or +Company goals, the Company seeks to foster an attitude of teamwork. The Company +also believes that the use of equity ownership is an important tool to ensure +that the efforts of management are consistent with the objectives of its +stockholders and seeks to promote increased ownership of the Company by +management through the use of stock awards. +The Compensation Committee has tried to achieve the above goals utilizing +publicly available information regarding competitive compensation. The +Compensation Committee utilizes an independent consultant to ensure that +compensation for the Company's management is competitive, meets the above-stated +objectives and is consistent for all members of management of the Company and +its operating units. +Compensation Components +At present, the compensation of the executive officers of the Company +consists of a combination of salary, cash bonuses, stock options, restricted +stock and participation in the Company's 401(k) Plan, as well as the provision +of medical and other personal benefits typically offered to corporate +executives. The executive officers of the Company are parties to agreements +which provide for severance payments under certain circumstances. These +agreements for the Named Executive Officers are described above under +"Employment Contracts, Termination of Employment and Change-In-Control +Arrangements." +Salaries: Base salaries for the Named Executive Officers were last fixed on +October 31, 2000 based on the Compensation Committee's assessment of competitive +base salaries. The Compensation Committee targets the Chief Executive Officer's +salary at the mean of that for the Company's peer group. The annual base salary +of Bart C. Shuldman, Chairman, President and Chief Executive Officer of the +Company, was further adjusted at $375,000 effective February, 2001 upon his +election as Chairman of the Board. There were no increases to the salaries of +the other Named Executive Officers in 2001, except for Mr. Stetson upon his +appointment as Executive Vice President. +Cash Bonuses: The Company generally maintains an incentive compensation +plan for all salaried employees of the Company and its operating units, +including key executives, which provides for the payment of cash bonuses. Under +the plan, the Board of Directors fixes an incentive target, as well as +individual goals and objectives, for each employee at the beginning of the year +and bonuses are paid shortly after the end of the year. The incentive targets +for 2001 were not achieved and no bonuses were paid with respect to 2001. +Stock Awards: Under the Company's 1996 Stock Plan, stock options and +restricted stock are granted by the Compensation Committee. All salaried +employees are granted an initial award of stock options on their date of hiring +for a fixed number of shares depending on their level, which vests over five +years. In each year following the initial award, eligible employees may be +granted an annual award in varying amounts depending on their level and +individual performance. During 2001, a total of 100,500 stock options were +granted to the Named Executive Officers of the Company, including 70,000 granted +to Mr. Shuldman, and 10,000 shares of restricted stock were granted to the Named +Executive Officers. +In October, 2001, the Compensation Committee considered that in light of +the price of the Company's common stock, stock options with an exercise price of +$9.00 and above no longer provided a meaningful +10 +incentive to the Company's executive officers. In November, 2001, in order to +restore the incentive value of the options, the Board of Directors authorized an +offer to certain executive officers, including certain of the Named Executive +Officers, to cancel their options with an exercise price of $9.00 and above in +exchange for an agreement by the Company to grant options to purchase an equal +number of shares six months and one day thereafter at the then fair market value +of the Company's common stock. +Other Benefit Plans: Executive officers of the Company may participate in +the Company's nondiscriminatory 401(k) Plan. +COMPENSATION COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Jeffrey T. Leeds +Graham Y. Tanaka +11 +CORPORATE PERFORMANCE GRAPH +The following graph compares the cumulative total return on the Company's +common stock from December 31, 1996 through December 31, 2001, with the CRSP +Total Return Index for the Nasdaq Stock Market (US) and the Nasdaq Computer +Manufacturer Stocks Index. The graph assumes that $100 was invested on December +31, 1996 in each of the Company's common stock, the CRSP Total Return Index for +the Nasdaq Stock Market (US) and the Nasdaq Computer Manufacturer Stocks Index +and that all dividends were reinvested. +COMPARISON OF CUMULATIVE TOTAL RETURN AMONG +TRANSACT TECHNOLOGIES INCORPORATED COMMON STOCK, +THE CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (US), +AND THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX +[PERFORMANCE LINE GRAPH] +---------------------------------------------------------------------------------------------------------------- +12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 +---------------------------------------------------------------------------------------------------------------- +TransAct Technologies +Incorporated Common Stock $100.00 $108.43 $ 31.93 $ 72.90 $ 50.60 $ 53.01 +CRSP Total Return Index for the +Nasdaq Stock Market (US) $100.00 $122.48 $172.68 $320.84 $192.99 $153.12 +Nasdaq Computer Manufacturer +Stocks Index $100.00 $120.83 $262.78 $557.80 $314.18 $216.54 +12 +2. RATIFICATION OF SELECTION OF PRICEWATERHOUSECOOPERS LLP AS +INDEPENDENT ACCOUNTANTS FOR 2002 +The Board of Directors has selected, upon the recommendation of the Audit +Committee, PricewaterhouseCoopers LLP as independent accountants to audit the +financial statements of the Company for the 2002 fiscal year. This selection is +being presented to the stockholders for ratification at the Annual Meeting. +PricewaterhouseCoopers LLP has audited the Company's financial statements since +the Company's formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at +the Annual Meeting, will have the opportunity to make a statement, and is +expected to be available to respond to appropriate questions. +INDEPENDENT ACCOUNTANTS' FEES +During 2001, the independent accountants billed the Company for the +following professional services: +- Audit Fees rendered for the audit of the 2001 financial statements and +reviews of the financial statements included in the Company's Form 10-Q +filings with the SEC: $93,000. +- Financial Information Systems Design and Implementation Fees: None. +- All Other Fees: $78,530. These fees included tax services and preparation +and the audit of the 401(k) Plan. +The Audit Committee has considered whether the provision of the above services +other than Audit Fees is compatible with maintaining the accountants' +independence and has determined that, in its opinion, they are compatible. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as +independent accountants for 2002 requires the affirmative vote of a majority of +the shares of common stock and Series B Preferred Stock, voting together with +the shares of common stock as a single class, present in person or represented +by proxy and entitled to vote. Abstentions by holders of such shares with +respect to voting on this matter will have the effect of a negative vote; broker +non-votes with respect to voting on this matter will have no effect on the +outcome of the vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR +2002. +STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year's proxy +materials must be received by the Secretary of the Company on or before December +20, 2002. Proposals should be addressed to TransAct Technologies Incorporated, 7 +Laser Lane, Wallingford, Connecticut 06492, Attention: Secretary. +Stockholders may nominate candidates for election to the Board of Directors +if the proper nomination procedure specified in the Company's By-Laws are +followed. All nominations by stockholders must be delivered to or mailed and +received at the principal executive offices of the Company not less than 30 nor +more than 60 days prior to the meeting at which election of directors will take +place; however, if less than 40 days notice of the date of the meeting is given +to stockholders, nominations will be timely if received not later than 10 days +after notice was given. The notice must set forth in writing (i) for each person +proposed to be nominated, all information relating to each such person that is +required to be disclosed in solicitations of proxies for election of directors +pursuant to Regulation 14A under the Exchange Act, including such person's +written consent to be named in the proxy and to serving as a director, and (ii) +for the stockholder giving notice, the (x) name and address of such stockholder +as they appear on the Company's books and (y) the class and number of shares of +the Company beneficially owned by such stockholder. +13 +ANNUAL REPORT +A COPY OF THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON +FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE +FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS +SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER +RELATIONS DEPARTMENT, 7 LASER LANE, WALLINGFORD, CONNECTICUT 06492. +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise +specified, proxies will be voted for the directors nominated by the Board of +Directors and for ratification of the selection of PricewaterhouseCoopers LLP as +independent accountants for 2002. As of the date of this Proxy Statement, the +Board of Directors is not aware of any matter which is to be presented for +action at the Annual Meeting other than the matters set forth herein. Should any +other matter requiring a vote of the stockholders arise at the Annual Meeting, +the proxies confer upon the persons named in the accompanying proxy the +authority to vote in respect of any such other matter in accordance with the +recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by (i) giving written notice of revocation to the +Secretary of the Company, (ii) properly submitting to the Company a duly +executed proxy bearing a later date, or (iii) voting in person at the Annual +Meeting. All written notices of revocation and other communications with respect +to revocation of proxies should be addressed to the Company, as follows: +TransAct Technologies Incorporated, 7 Laser Lane, Wallingford, Connecticut +06492, Attention: Secretary. A proxy appointment will not be revoked by death or +supervening incapacity of the stockholder executing the proxy unless, before the +shares are voted, notice of such death or incapacity is filed with the Company's +Secretary or other person responsible for tabulating votes on behalf of the +Company. +The cost of preparing, assembling and mailing this proxy material will be +borne by the Company. The Company may solicit proxies otherwise than by use of +the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use their personal efforts, by telephone or +otherwise, to obtain proxies. The Company will also request persons, firms and +corporations holding shares in their names, or owned by others, to send this +proxy material to and obtain proxies from such beneficial owners and will +reimburse such holders for their reasonable expenses in doing so. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE +ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS HELPFUL +AND YOUR COOPERATION IS APPRECIATED. +April 19, 2002 +14 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD FRIDAY, MAY 17, 2002 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated +(the "Company") does hereby nominate, constitute and appoint Richard L. Cote +and Charles A. Dill, or either of them, with full power to act alone, my true +and lawful attorney with full power of substitution, for me and in my name, +place and stead to vote all of the shares of Common Stock of the Company +standing in my name on its books on April 5, 2002, at the Annual Meeting of its +stockholders to be held at The Ramada Plaza Hotel, 275 Research Parkway, +Meriden, CT 06450 on Friday, May 17, 2002 at 10:00 a.m., or at any +adjournment thereof, with all powers the undersigned would possess if personally +present as follows: +(TO BE SIGNED ON REVERSE SIDE) +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 17, 2002 +A [X] Please mark your +votes as in this +example. +FOR BOTH WITHHOLD FOR +NOMINEES BOTH NOMINEES +1. ELECTION OF [ ] [ ] Nominees: Thomas R. Schwarz +DIRECTORS. Bart C. Shuldman +For both nominees, except: __________________________ +FOR AGAINST ABSTAIN +2. RATIFICATION of selection [ ] [ ] [ ] +of PricewaterhouseCoopers +LLP as independent accountants +for 2002. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED ON BEHALF OF THE UNDERSIGNED +AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS +PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE DATE , 2002 +------------------------------- ------------------- +SIGNATURE DATE , 2002 +------------------------------- ------------------- +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on the mailing label. When shares +are held by joint tenants, both should sign. When signing as attorney, +executor, administrator, trustee or guardian, please give full title as +such. If signing on behalf of a corporation, please sign the full +corporate name by president or other authorized officer. If signing on +behalf of a partnership, please sign the partnership name by authorized +person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000914039-02-000160/proxy_rpt.txt b/raw/proxies/0001017303/0000914039-02-000160/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f39adb1bd0d74e9c92a9150ab6cb3c14cd286fd5 --- /dev/null +++ b/raw/proxies/0001017303/0000914039-02-000160/proxy_rpt.txt @@ -0,0 +1,15 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +On February 23, 1999, the Company loaned Bart C. Shuldman, the Chairman, +Chief Executive Officer and President of the Company, $330,000 to fund his +purchase in the market of 104,000 shares of the Company's common stock. Mr. +Shuldman pledged 93,423 of the shares purchased with the loan proceeds and +50,000 shares of restricted common stock as security for the promissory note. +The principal and any unpaid interest under the note is due in a balloon payment +five years after the date of the loan. The interest rate on the note is +calculated based on the Company's average variable lending rate under its +primary credit facility. Interest payments through December 31, 2001 have been +added to principal, which was increased to $409,340 at that date. During 2002, +interest will be compounded and added to principal monthly and be payable at +maturity. Thereafter, it will accrue annually and be payable at maturity. At +March 31, 2002, the aggregate amount outstanding under the loan was $415,253. +6 \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-03-004539/proxy.txt b/raw/proxies/0001017303/0000950123-03-004539/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0a1895b778c6ff7b183e2d348c0380e89fc16212 --- /dev/null +++ b/raw/proxies/0001017303/0000950123-03-004539/proxy.txt @@ -0,0 +1,1503 @@ +DEF 14A +1 +y85218def14a.txt +TRANSACT TECHNOLOGIES INCORPORATED +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (As Permitted By Rule +14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Under Rule 14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +---------------------------------- +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee is +calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 20, 2003 +Notice is hereby given that the 2003 Annual Meeting of Stockholders (the +"Annual Meeting") of TransAct Technologies Incorporated (the "Company"), a +Delaware corporation, will be held on Tuesday, May 20, 2003, at 10:00 a.m. +Eastern Daylight Savings Time, at The Ramada Plaza Hotel, 275 Research Parkway, +Meriden, Connecticut 06450 for the following purposes, all of which are more +completely set forth in the accompanying Proxy Statement: +(1) To elect two directors, one by holders of Common Stock and one by +holders of Series B Preferred Stock, to serve until the 2006 Annual +Meeting of Stockholders or until their successors have been duly +elected and qualified; +(2) To approve an amendment to the Company's Non-Employee Directors' Stock +Plan to increase the number of shares of Common Stock available for +issuance thereunder by 100,000 shares, to an aggregate of 240,000 +shares; +(3) To ratify the selection of PricewaterhouseCoopers LLP as the Company's +independent accountants for 2003; and +(4) To transact such other business as may legally come before the Annual +Meeting. +Stockholders of record at the close of business on April 9, 2003 are +entitled to notice of and to vote at the Annual Meeting. The transfer books will +not be closed for the Annual Meeting. +By Order of the Board of Directors, +RICHARD L. COTE +Secretary +Wallingford, Connecticut +April 21, 2003 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT +YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH +REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT +PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE +IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 20, 2003 +This Proxy Statement is being furnished to the stockholders of TransAct +Technologies Incorporated (the "Company") in connection with the solicitation of +proxies by the Board of Directors of the Company for use at the Annual Meeting +of Stockholders of the Company to be held on May 20, 2003, and any adjournments +or postponements thereof (the "Annual Meeting"). This Proxy Statement, the +foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's +2002 Annual Report to Stockholders are first being mailed or given to +stockholders on or about April 21, 2003. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power +to revoke the same anytime prior to its being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in +such form or at such time as to render it not votable. The proxy is in ballot +form so that a specification may be made to grant or withhold authority to vote +for the election of directors and to indicate separate approval or disapproval +as to the other matter presented to stockholders. All of the proposals will be +presented by the Board of Directors. The shares represented by the proxy will be +voted for the election of the directors named thereon, unless authority to do so +is withheld. With respect to the other proposals presented to stockholders by +the Board of Directors, the shares represented by the proxy will be voted in +accordance with the specification made. Where a choice is not so specified, the +shares represented by the proxy will be voted for the proposal. In addition, the +proxy confers discretionary authority to vote on any matter properly presented +at the Annual Meeting which is not known to the Company as of the date of this +Proxy Statement. +VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF +Stockholders of record on April 9, 2003 are entitled to vote at the Annual +Meeting. Each holder of common stock is entitled to cast one vote for each share +of common stock and each holder of Series B Preferred Stock is entitled to cast +111.11 votes for each share of Series B Preferred Stock held by them on April 9, +2003. There were 5,717,253 shares of common stock and 4,000 shares of Series B +Preferred Stock issued and outstanding and entitled to vote at the close of +business on April 9, 2003. A majority of the shares entitled to vote, present in +person or represented by proxy, will constitute a quorum to transact business at +the Annual Meeting. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information known to the Company regarding +the beneficial ownership of the Company's common stock as of April 9, 2003 by: +(i) each person known by the Company to own beneficially more than 5% of the +Company's common stock; (ii) each director or nominee for director of the +Company; (iii) each current executive officer of the Company named in the +Summary Compensation Table; and (iv) all current directors and executive +officers of the Company as a group. Except as otherwise indicated, each of the +persons named in the table has sole voting power and sole investment power with +respect to the shares set forth opposite their name. +SHARES PERCENT OF +BENEFICIALLY COMMON +NAME OF BENEFICIAL OWNER OWNED STOCK +------------------------ ------------ ------------ +Bart C. Shuldman(1)......................................... 330,546 5.63% +7 Laser Lane +Wallingford, CT 06492 +Graham Y. Tanaka(2)......................................... 223,848 3.90% +Charles A. Dill(3).......................................... 129,671 2.25% +Richard L. Cote(4).......................................... 140,246 2.42% +Thomas R. Schwarz(5)........................................ 76,687 1.34% +Michael S. Kumpf(6)......................................... 62,770 1.09% +James B. Stetson(7)......................................... 28,500 * +Steven A. DeMartino(8)...................................... 47,000 * +Jeffrey T. Leeds(9)......................................... 13,585 * +All current directors and executive officers as a group (9 +persons)(10).............................................. 1,052,853 17.16% +Advance Capital Partners, L.P.(11).......................... 488,888 7.88% +660 Madison Avenue +New York, NY 10021 +Niles Moser(12)............................................. 395,000 6.91% +210 Stokes Farm Road +Franklin Lakes, NJ 07417 +--------------- +* Less than 1% of the outstanding common stock +(1) Includes 116,516 shares owned jointly with Mr. Shuldman's spouse, 1,000 +shares owned by his spouse in an individual retirement account, 3,200 +shares owned by his minor children and 2,500 shares owned by his mother. +Also includes 25,000 unvested shares of restricted stock of the Company and +152,050 shares subject to options exercisable within 60 days of April 9, +2003 granted under the Company's 1996 Stock Plan. +(2) Includes 24,500 shares subject to options exercisable within 60 days of +April 9, 2003 granted under the Company's Non-Employee Directors' Stock +Plan and 4,710 shares deemed beneficially owned by Mr. Tanaka for the +benefit of his children. +(3) Includes 24,500 shares subject to options exercisable within 60 days of +April 9, 2003 granted under the Non-Employee Directors' Stock Plan. Also +includes 57,214 shares with respect to which Mr. Dill is the trustee for +the benefit of his parent and 1,000 shares owned by his spouse. +(4) Includes 27,130 shares owned jointly with Mr. Cote's spouse and 6 shares +held as custodian for his child. Also includes 5,000 unvested shares of +restricted stock of the Company and 88,500 shares subject to options +exercisable within 60 days of April 9, 2003 granted under the 1996 Stock +Plan. +(5) Includes 24,500 shares subject to options exercisable within 60 days of +April 9, 2003 granted under the Non-Employee Directors' Stock Plan. Also +includes 1,000 shares deemed to be beneficially owned by Mr. Schwarz in his +capacity as trustee of a trust for the benefit of his granddaughter and +1,000 shares beneficially owned by his daughter, as to which shares he +disclaims beneficial ownership, and 2,650 shares owned by his spouse. +(6) Includes 41,950 shares subject to options exercisable within 60 days of +April 9, 2003 granted under the 1996 Stock Plan. +(7) Includes 2,000 unvested shares of restricted stock of the Company and +23,500 shares subject to options exercisable within 60 days of April 9, +2003 granted under the 1996 Stock Plan. +(8) Includes 8,666 unvested shares of restricted stock of the Company and +32,000 shares subject to options exercisable within 60 days of April 9, +2003 granted under the 1996 Stock Plan. +2 +(9) Includes 7,500 shares subject to options exercisable within 60 days of +April 9, 2003 granted under the Non-Employee Directors' Stock Plan. See +also Note 11. +(10) Includes 40,666 unvested shares of restricted stock of the Company and +419,000 shares subject to options exercisable within 60 days of April 9, +2003 granted under the 1996 Stock Plan and the Non-Employee Directors' +Stock Plan. +(11) Based on information provided in Schedule 13G as filed with the Securities +and Exchange Commission (the "SEC") on March 19, 2001, which stated that +Advance Capital Partners, L.P. and its affiliate Advance Capital Offshore +Partners, L.P. own in the aggregate 4,000 shares of the Company's Series B +Preferred Stock, which shares are currently convertible into 444,444 shares +of common stock, and warrants to purchase 44,444 shares of common stock. +Mr. Jeffrey T. Leeds is a principal of Advance Capital Management, LLC, the +general partner of the general partner of Advance Capital Partners, L.P. +and the general partner of the majority shareholder of the general partner +of Advance Capital Offshore Partners, L.P., and may be deemed to be the +beneficial owner of the shares owned by Advance Capital Partners, L.P. and +Advance Capital Offshore Partners, L.P. +(12) Based on information provided in Schedule 13D as filed with the SEC on +April 10, 2002, which stated that POS Partners LLC and Niles Moser, its +sole member, beneficially own 275,000 shares of common stock. In addition, +it reported that Mr. Moser is a general partner in Mogen Investment, a New +Jersey general partnership, which beneficially owns 120,000 shares of +common stock; Mr. Moser disclaimed beneficiary ownership of such shares. +Information regarding the Company's equity compensation plan information as +of December 31, 2002 is as follows: +NUMBER OF SECURITIES TO WEIGHTED AVERAGE +BE ISSUED UPON EXERCISE EXERCISE PRICE OF NUMBER OF SECURITIES +OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REMAINING AVAILABLE +WARRANTS AND RIGHTS WARRANTS AND RIGHTS FOR FUTURE ISSUANCE +----------------------- -------------------- -------------------- +Equity compensation plans +approved by security +holders: +1996 Stock Plan............ 757,816 $5.79 188,550 +1996 Non-Employee Director +Plan*................... 132,500 8.09 7,500 +2000 Employee Stock +Purchase Plan........... -- -- 33,881 +2000 Preferred stock +warrants................ 54,444 9.00 -- +2001 Employee Stock Plan... 101,750 4.92 48,250 +--------- ----- ------- +Total........................ 1,046,510 $6.17 278,181 +========= ===== ======= +--------------- +* The 1996 Non-Employee Director Plan includes 10,000 shares (2,500 shares to +be issued upon exercise and 7,500 shares available for future issuance) that +have not been approved by security holders as of December 31, 2002. +Pursuant to the terms of the Directors' Plan, non-employee directors who +were directors at the time of the Company's initial public offering received +non-qualified stock options to purchase 10,000 shares of common stock. Each +non-employee director who is subsequently elected to the Board of Directors for +the first time will be granted non-qualified stock options to purchase 5,000 +shares of common stock. Thereafter, each non-employee director receives an +annual grant of non-qualified stock options to purchase 7,500 shares of common +stock. All options granted under the Directors' Plan are granted at an exercise +price equal to 100% of the fair market value of the common stock on the date of +grant, expire ten years from the date of grant, and become exercisable at a rate +of 20% per year on the first through fifth anniversaries of the date of grant. +3 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the +"Exchange Act"), requires the Company's directors, executive officers and +persons who beneficially own more than 10% of the Company's common stock to file +with the SEC and the Nasdaq Stock Market reports of ownership and reports of +changes in ownership of common stock and other equity securities of the Company +and to furnish the Company with copies of all such reports they file. To the +Company's knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2002, all such reports were timely filed. +1. ELECTION OF DIRECTORS +The Board of Directors currently consists of six directors and is divided +into three classes. Five of the directors are elected by the holders of the +Company's common stock to serve three-year terms. The sixth director is elected +by the holders of the Company's Series B Preferred Stock to serve a three-year +term. +At the Annual Meeting, two persons are to be elected to hold office as +directors until the 2006 Annual Meeting of Stockholders or until their +successors are duly elected and qualified. In the absence of instructions to the +contrary, the persons named in the accompanying proxy will vote such proxy "FOR" +the election of the nominees named below. Should a nominee become unavailable, +which is not anticipated, it is intended that proxies will be voted for the +election of such other person, if any, as the Board of Directors may recommend +in place of such nominee. +INFORMATION CONCERNING NOMINEE FOR ELECTION AS DIRECTOR BY HOLDERS OF COMMON +STOCK, WHOSE TERM WILL EXPIRE AT THE 2006 ANNUAL MEETING +Charles A. Dill, 63, has been a director of the Company since its formation +in June 1996. Mr. Dill has been a General Partner of Gateway Associates, a +venture capital firm, since 1996. From 1991 to 1995, Mr. Dill served as +President, Chief Executive Officer and a director of Bridge Information Systems, +Inc. Mr. Dill currently serves as a director of Zoltek Companies, Inc., Stifel +Financial Corp. and DT Industries, Inc. +VOTE REQUIRED BY HOLDERS OF COMMON STOCK +The election of Charles A. Dill as director of the Company requires the +affirmative vote of the holders of a plurality of the shares of common stock +present in person or represented by proxy and entitled to vote. Abstentions by +holders of such shares and broker non-votes with respect to the election of +directors will be included in determining the presence of a quorum at the Annual +Meeting but will not be included in determining whether the nominee has received +the vote of such plurality. +INFORMATION CONCERNING NOMINEE FOR ELECTION AS DIRECTOR BY HOLDERS OF SERIES B +PREFERRED STOCK WHOSE TERM WILL EXPIRE AT THE 2006 ANNUAL MEETING +Jeffrey T. Leeds, 47, became a director of the Company in April 2000. Mr. +Leeds has been a principal of Advance Capital Management, LLC, a private +investment firm, since October 1995, a principal of Leeds Equity Management, +LLC, a private equity firm, since November 1999, a principal in Leeds Weld +Equity Associates IV, L.L.C., a private equity firm since November 2002, and has +served as President of Leeds Group Inc., an investment banking firm, since +December 1992. Mr. Leeds serves on the Board of Directors of Ross University, +Dominica Management, Inc., Argosy Education Group, Inc. and RealPage, Inc. He +was President and Chief Executive Officer of Elsinore Corporation from February +1997 to December 1999. +VOTE REQUIRED BY HOLDERS OF SERIES B PREFERRED STOCK +The election of Jeffrey T. Leeds as director of the Company requires the +affirmative vote of the holders of a plurality of the shares of Series B +Preferred Stock present in person or represented by proxy and entitled to vote. +Abstentions by holders of such shares and broker non-votes with respect to the +election of directors will +4 +be included in determining the presence of a quorum at the Annual Meeting but +will not be included in determining whether the nominee has received the vote of +such plurality. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION +OF CHARLES A. DILL AND JEFFREY T. LEEDS AS DIRECTORS OF THE COMPANY. +INFORMATION CONCERNING DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2004 ANNUAL +MEETING +Graham Y. Tanaka, 55, has been a director of the Company since its +formation in June 1996. Mr. Tanaka has been President of Tanaka Capital +Management, Inc., an investment management firm, since 1986. From 1989 until +1996, Mr. Tanaka was a limited partner of McFarland Dewey & Co., a financial +advisor to the Company. He is a director of Tanaka Fund Advisers and Tanka +Capital Management. +Richard L. Cote, 61, has been Executive Vice President, Chief Financial +Officer, Treasurer, Secretary and a director of the Company since its formation +in June 1996. Prior thereto, he served as Senior Vice President and Chief +Financial Officer of Tridex from September 1993 to June 1996 and as Vice +President of Tridex Corporation ("Tridex") from June 1993 to September 1993. +From October 1991 to March 1993, he was a self-employed management consultant. +Previously, Mr. Cote held management positions with Wang Laboratories, Inc., +Emhart Corporation, Xerox Corporation and Price Waterhouse LLP. Mr. Cote is a +director of Bead Industries, Inc. +INFORMATION CONCERNING DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2005 ANNUAL +MEETING +Thomas R. Schwarz, 66, has been a director of the Company since its +formation in June 1996 and Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman's Inc., a +retailer of building materials, from 1990 until his retirement in 1994. From +1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz is a director +of Tridex now known as Progressive Software, Tanaka Growth Fund, Lebhar-Friedman +Publishing Company and Yorkshire Global Restaurants. +Bart C. Shuldman, 46, has been Chief Executive Officer, President and a +director of the Company since its formation in June 1996 and Chairman of the +Board since February 2001. Previously, Mr. Shuldman was Vice President of Sales +and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April +1993 to August 1993, and served as President of Magnetec and later the combined +operations of Magnetec and Ithaca Peripherals Incorporated, another former +Tridex subsidiary, from August 1993 to June 1996. Prior to joining Magnetec, he +held several management positions with Mars Electronics International, a +division of Mars, Incorporated, from 1989 to 1993, including serving as Business +Manager for the North American Amusement, Gaming and Lottery operations. From +1979 to 1989, he held manufacturing and sales management positions with General +Electric Company. +THE BOARD OF DIRECTORS AND ITS COMMITTEES +During the year ended December 31, 2002, the Board of Directors held five +meetings. Each director attended all of the meetings of the Board of Directors +and of the committees of the Board of Directors on which such director served. +The standing committees of the Board of Directors are the Audit Committee, +the Compensation Committee, the Nominating Committee and the Executive +Committee. +The Audit Committee is comprised of Messrs. Charles A. Dill, Jeffrey T. +Leeds, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Dill serving as +Chairman. Each of the members of the Audit Committee is an "independent" +director, as defined in the listing standards of the Nasdaq Stock Market. The +Audit Committee operates under a written charter (the "Charter"), which was +revised in October 2002 and is attached as Appendix A. See the "Audit Committee +Report" for more information about the roles and responsibilities of the Audit +Committee. The Audit Committee met four times during 2002. +5 +The Compensation Committee is comprised of Messrs. Charles A. Dill, Jeffrey +T. Leeds, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as +Chairman. The Compensation Committee is responsible for reviewing and +recommending the compensation arrangements for all directors and officers of the +Company, approving such arrangements for other senior level employees and +administering and taking such other action as may be required in connection with +certain compensation plans of the Company. The Compensation Committee met five +times during 2002. +The Nominating Committee is comprised of Messrs. Charles A. Dill, Jeffrey +T. Leeds, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as +Chairman. The Nominating Committee is responsible for recommending to the Board +of Directors nominees for election to the Board. The Nominating Committee will +also consider nominees recommended by stockholders in accordance with proper +nomination procedures specified in the Company's By-Laws. The Nominating +Committee did not meet during 2002. +The Executive Committee is comprised of Messrs. Charles A. Dill, Jeffrey T. +Leeds, Thomas R. Schwarz, Bart C. Shuldman and Graham Y. Tanaka. The Executive +Committee meets between scheduled meetings of the Board of Directors and has the +power and authority of the Board, except as limited by the Company's By-Laws. +The Executive Committee did not meet during 2002. +AUDIT COMMITTEE REPORT +Pursuant to the Charter, the roles and responsibilities of the Audit +Committee fall within four broad categories: +- Internal Control. The Audit Committee reviews and considers the adequacy +of the Company's internal control procedures and related matters. +- Financial Reporting. The Audit Committee reviews the Company's annual +financial statements with the Company's management and independent +accountants and considers the financial judgments and accounting +principles utilized in their preparation. It also reviews the Company's +quarterly financial statements with management and the independent +accountants prior to filing of the quarterly reports with the SEC. +- Independent Accountants. The Audit Committee appoints the firm to act as +independent accountants, evaluates their performance, and approves their +fees. It pre-approves all audit and non-audit related services rendered +by the independent accountants and their costs and obtains written +communication from them concerning their independence. The Audit +Committee also reviews with the independent accountants the scope of +their audit and discusses with them the conduct of the audit. +- Other. The Audit Committee reviews with legal counsel any matters that +may impact the financial statements, reviews the adequacy of the +Company's policies concerning ethical and responsible business conduct +and performs other functions as requested by the Board of Directors. It +reviews the Charter on an annual basis and recommends to the Board any +appropriate changes. +In connection with its duties, the Audit Committee has taken the following +actions: +- It has reviewed and discussed the audited financial statements with +management, which has responsibility for the preparation of the financial +statements. +- It has discussed with the independent accountants, which are responsible +for expressing an opinion on the financial statements in accordance with +generally accepted accounting principles, the matters required to be +discussed by Statement on Auditing Standards No. 61, "Communication with +Audit Committees," as amended. +- It has received from the independent accountants the written disclosures +describing any relationships between the independent accountants and the +Company and the letter confirming their independence required by +Independence Standards Board Standard No. 1, "Independence Discussions +with Audit Committees," and has discussed with the independent +accountants matters relating to their independence. +6 +Based on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial statements of +the Company for the year ended December 31, 2002 be included in the Company's +Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Jeffrey T. Leeds +Thomas R. Schwarz +Graham Y. Tanaka +COMPENSATION OF DIRECTORS +During the year ended December 31, 2002, each outside director of the +Company received as compensation for services rendered (i) a retainer of $2,000 +for each fiscal quarter served as director, (ii) $750 for each Board of +Directors meeting attended, (iii) $300 for each Board of Directors committee +meeting attended, (iv) $250 for each telephonic Board of Directors meeting and +(v) $100 for each telephonic committee meeting. Chairs of committees received +$600 for each committee meeting attended and $200 for each telephonic meeting. +Directors are reimbursed expenses incurred in attending meetings. +Pursuant to the terms of the Company's Non-Employee Directors' Stock Plan +(the "Directors' Plan"), each non-employee director receives a non-qualified +option to purchase 5,000 shares of common stock upon his or her initial election +to the Board of Directors. Thereafter, each director who is not an employee of +the Company receives an annual grant of a non-qualified option to purchase 7,500 +shares of common stock. Each option is granted at an exercise price equal to +100% of the fair market value of the common stock on the date of grant, expires +ten years from the date of grant, and becomes exercisable at a rate of 20% per +year on the first through fifth anniversaries of the date of grant. In the event +of a change-in-control, stock options awarded under the Directors' Plan not +previously exercisable shall become fully exercisable. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +On February 23, 1999, the Company loaned Bart C. Shuldman, the Chairman, +Chief Executive Officer and President of the Company, $330,000 to fund his +purchase in the market of 104,000 shares of the Company's common stock. Mr. +Shuldman pledged 93,423 of the shares purchased with the loan proceeds and +50,000 shares of restricted common stock as security for the promissory note. +The principal and any unpaid interest under the note is due in a balloon payment +five years after the date of the loan. The interest rate on the note is +calculated based on the Company's average variable lending rate under its +primary credit facility. During 2002, interest was compounded and added to +principal monthly and is payable at maturity. Thereafter, it will accrue +annually and be payable at maturity. At March 31, 2003, the aggregate amount +outstanding under the loan was $439,212. +7 +EXECUTIVE COMPENSATION +The following tables set forth information concerning the compensation +earned by the Company's Chief Executive Officer and each of the other four most +highly compensated executive officers (the "Named Executive Officers") in 2002: +SUMMARY COMPENSATION TABLE +LONG TERM +COMPENSATION +----------------------- +AWARDS +----------------------- ALL +ANNUAL COMPENSATION RESTRICTED SECURITIES OTHER +-------------------- STOCK UNDERLYING COMPEN- +FISCAL SALARY(1) BONUS AWARDS(3) OPTIONS(4) SATION(5) +NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) ($) +---------------------------- ------ ---------- ------- ---------- ---------- --------- +Bart C. Shuldman................... 2002 375,000 25,000 -- 112,500 9,003 +Chairman, President and 2001 368,500 -- -- 70,000 8,342 +Chief Executive Officer 2000 274,500 55,000 -- 17,500 37,539 +Richard L. Cote.................... 2002 198,000 7,500 -- 65,000 10,785 +Executive Vice President, 2001 198,000 -- 47,500 17,500 10,777 +Chief Financial Officer, 2000 183,000 45,000 -- 7,500 22,580 +Treasurer and Secretary +James B. Stetson(6)................ 2002 168,000 31,118(2) -- 25,000 8,030 +Executive Vice President -- 2001 151,333 60,181(2) -- 7.500 7,421 +Sales and Marketing 2000 128,833 35,462(2) 43,750 25,000 6,272 +Michael S. Kumpf................... 2002 152,555 6,000 -- 24,500 7,838 +Executive Vice President -- 2001 152,555 -- -- 3,500 7,415 +Engineering 2000 140,820 30,000 -- 7,500 8,795 +Steven A. DeMartino................ 2002 140,000 5,000 -- 38,000 5,060 +Senior Vice President -- 2001 140,000 -- 47,500 2,000 4,895 +Finance and Information +Technology 2000 102,000 40,000 -- 15,000 4,344 +--------------- +(1) None of the Named Executive Officers received perquisites or other personal +benefits in an amount which exceeded 10% of their salary plus bonus during +any fiscal year. +(2) A portion of the bonuses paid to Mr. Stetson represents commissions on sales +by the Company and a portion of the bonus paid in 2001 represents a +relocation bonus. +(3) All restricted stock awards were granted under the Company's 1996 Stock +Plan. The value of the restricted stock awards is based on the closing +market price of the Company's common stock on the date of grant. At the end +of fiscal year 2002, the number of shares of common stock which remain +subject to restricted awards and the value of such shares, based on the +closing price of the Company's common stock of $4.74 on such date, were as +follows: Mr. Shuldman: 25,000 shares and $118,500; Mr. Cote: 10,000 shares +and $47,400; Mr. Stetson: 3,000 shares and $14,220; and Mr. DeMartino: 8,666 +shares and $41,077. All grants of shares of restricted stock vest in five +equal installments beginning on the first anniversary of the date of grant, +except with respect to 50,000 shares awarded to Mr. Shuldman and 4,000 +shares awarded to Mr. Cote, which vest 100% at the end of five years from +the date of grant, and with respect to 10,000 shares awarded to Mr. Cote, +which vest in two equal installments beginning on the first anniversary of +the date of grant. Currently, no dividends may be paid on shares of the +Company's common stock. +(4) All options were granted under the Company's 1996 Stock Plan. +(5) For all the Named Executive Officers, these amounts consist of Company +contributions under the Company's 401(k) Plan and other benefits, such as +life and disability insurance. Also, for 2000, includes a one-time payment +of accrued vacation as of December 31, 1999 at a rate of 75% of the value of +such accrued vacation. +8 +(6) Mr. Stetson was appointed Senior Vice President -- Worldwide Sales in +February, 2000 and Executive Vice President -- Sales and Marketing in +November, 2001. +OPTION GRANTS IN 2002 +POTENTIAL REALIZABLE +INDIVIDUAL GRANTS VALUE AT ASSUMED +--------------------------------------------------------------- ANNUAL RATE OF STOCK +NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION +SECURITIES UNDER- OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(2) +LYING OPTIONS EMPLOYEES IN THE PRICE EXPIRATION --------------------- +NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE 5% 10% +---- ----------------- ------------------ --------- ---------- -------- ---------- +Bart C. Shuldman....... 112,500 33.4% 5.65 5/17/12 $399,375 $1,012,500 +Richard L. Cote........ 65,000 19.3% 5.65 5/17/12 $230,750 $ 585,000 +James B. Stetson....... 10,000 3.0% 5.65 5/17/12 $ 35,500 $ 90,000 +15,000 4.65 11/20/12 $ 42,300 $ 111,150 +Michael S. Kumpf....... 19,500 5.8% 5.65 5/17/12 $ 69,225 $ 175,500 +5,000 4.65 11/20/12 $ 14,100 $ 37,050 +Steven A. DeMartino.... 38,000 11.3% 5.65 5/17/12 $134,900 $ 342,000 +--------------- +(1) All options were granted under the Company's 1996 Stock Plan. The options +granted have an exercise price equal to 100% of the fair market value of the +common stock on the date of grant, expire ten years from the date of grant, +and the 245,000 options granted on May 17, 2002 become exercisable at a rate +of 25% on the date of grant and 25% per year on the first through third +anniversaries of the date of grant. Other options granted become exercisable +at a rate of 33 1/3% on the first through third anniversaries of the date of +grant. In the event of a change-in-control of the Company, stock options +awarded under the 1996 Stock Plan not previously exercisable shall become +fully exercisable. +(2) The potential realizable value portion of the foregoing table illustrates +the value that might be realized upon exercise of the options immediately +prior to the expiration of their term, assuming the specified rates of +appreciation on the Company's common stock compounded annually over the term +of the options. This hypothetical value is based entirely on assumed annual +growth rates of 5% and 10% in the value of the Company's stock price over +the term of the options. The assumed rates of growth were selected by the +SEC for illustration purposes only, and are not intended to predict future +stock prices, which will depend upon market conditions and the Company's +future performance and prospects. These numbers do not take into account +provisions of certain options providing for termination of the option +following termination of employment, non-transferability or vesting over +various periods. +AGGREGATED OPTION EXERCISES IN 2002 AND FISCAL YEAR-END +OPTION VALUES +NUMBER OF SECURITIES VALUE OF UNEXERCISED +SHARES UNDERLYING UNEXERCISED IN-THE-MONEY +ACQUIRED ON VALUE OPTIONS AT OPTIONS AT +EXERCISE REALIZED FISCAL YEAR-END (#) FISCAL YEAR-END($) +NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE +---- ----------- -------- ------------------------- ------------------------- +Bart C. Shuldman........... 0 0 109,925/150,375 0/0 +Richard L. Cote............ 0 0 68,750/66,750 17,760/4,440 +James B. Stetson........... 0 0 16,500/38,500 0/1,350 +Michael S. Kumpf........... 0 0 36,375/25,125 11,998/2,997 +Steven A. DeMartino........ 0 0 22,100/31,900 7,992/1,998 +OPTION EXCHANGE PROGRAM +On November 8, 2001, the Board of Directors approved an option exchange +program under which certain executive officers, including the Named Executive +Officers, of the Company could voluntarily exchange for cancellation outstanding +stock options with an exercise price greater than $9.00 per share. The Board of +9 +Directors agreed that no earlier than six months and one day after the voluntary +cancellation they would grant replacement options to each option holder equal to +the number of options voluntarily cancelled, and that the replacement options +would vest 25% immediately with the remainder vesting annually over the next +three years. The option exchange offer expired on November 16, 2001, and the +Company accepted for cancellation and exchange options to purchase 215,000 +shares of common stock held by five executive officers, all of whom were the +Named Executive Officers. On May 17, 2002, the Board of Directors granted +replacement options to purchase 215,000 shares of common stock at the then fair +market value of Company's common stock. Each of the replacement options has a +ten-year term. The following table sets forth information concerning the options +exchanged with respect to each of the Company's Named Executive Officers. +10-YEAR OPTION REPRICINGS +NO. OF SECURITIES MARKET PRICE OF EXERCISE PRICE LENGTH OF ORIGINAL +UNDERLYING STOCK AT TIME AT TIME OF NEW EXERCISE OPTION TERM +OPTIONS REPRICED OF REPRICING REPRICING PRICE REMAINING AT DATE +NAME DATE # $ $ $ OF REPRICING +---- --------- ------------------ ---------------- -------------- ------------ ------------------ +Bart C. Shuldman.......... 5/17/2002 50,000 5.65 16.375 5.65 69 months +Chairman, President 5/17/2002 20,000 5.65 13.750 5.65 62 months +and CEO 5/17/2002 17,500 5.65 10.125 5.65 102 months +5/17/2002 25,000 5.65 9.125 5.65 78 months +Richard L. Cote........... 5/17/2002 10,000 5.65 16.375 5.65 69 months +Executive Vice 5/17/2002 7,500 5.65 13.750 5.65 62 months +President, +Chief Financial Officer, 5/17/2002 7,500 5.65 10.125 5.65 102 months +Treasurer and Secretary 5/17/2002 25,000 5.65 9.125 5.65 78 months +James B. Stetson.......... 5/17/2002 10,000 5.65 10.125 5.65 102 months +Executive Vice +President -- Sales and +Marketing +Michael S. Kumpf.......... 5/17/2002 2,000 5.65 13.750 5.65 62 months +Executive Vice 5/17/2002 7,500 5.65 10.125 5.65 102 months +President -- Engineering 5/17/2002 10,000 5.65 9.125 5.65 78 months +Steven A. DeMartino....... 5/17/2002 2,000 5.65 13.750 5.65 62 months +Senior Vice President 5/17/2002 1,000 5.65 11.000 5.65 63 months +Finance and Information 5/17/2002 15,000 5.65 10.125 5.65 102 months +5/17/2002 5,000 5.65 9.125 5.65 78 months +EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +Under the terms of an Employment Agreement dated July 31, 1996 between Bart +C. Shuldman and the Company, Mr. Shuldman serves as President and Chief +Executive Officer at the pleasure of the Board of Directors. If Mr. Shuldman's +employment is terminated other than for cause, Mr. Shuldman shall be entitled to +continue to receive (i) his annual base salary and all other benefits for two +years from the date of termination and (ii) a pro rata portion of his annual +target bonus amount for the year of termination. If Mr. Shuldman's employment is +terminated other than for cause, or if Mr. Shuldman resigns for specified +reasons, within one year of a change-in-control of the Company, Mr. Shuldman +shall be entitled to continue to receive his annual base salary, annual target +bonus and all benefits for a period of three years from the date of termination. +In addition, the Company shall cause the immediate vesting of all stock options +granted to Mr. Shuldman under the 1996 Stock Plan. +Under the terms of an Employment Agreement dated July 31, 1996 between +Richard L. Cote and the Company, Mr. Cote serves as Executive Vice President and +Chief Financial Officer. If Mr. Cote's employment is terminated other than for +cause, Mr. Cote shall be entitled to continue to receive (i) his annual base +salary and all benefits for one year from the date of termination, and (ii) a +pro rata portion of his annual target bonus for the year of termination. If Mr. +Cote's employment is terminated other than for cause, or if Mr. Cote resigns for +specified reasons, within one year of a change-in-control of the Company, Mr. +Cote shall be entitled to continue to receive his annual base salary, annual +target bonus and all benefits for a period of two +10 +years from the date of termination. In addition, the Company shall cause the +immediate vesting of all options granted to Mr. Cote under the 1996 Stock Plan. +Under the terms of Severance Agreements between the Company and James B. +Stetson, Michael S. Kumpf and Steven A. DeMartino dated January 24, 2001, +September 4, 1996, and January 21, 1998, respectively, if the employment of Mr. +Stetson, Mr. Kumpf or Mr. DeMartino is terminated other than for cause, each +executive shall be entitled to continue to receive, for six months following the +date of termination, the annual base salary, a pro rata portion of the annual +target bonus for the year of termination and all benefits which would otherwise +have been payable to each of them. If the employment of Mr. Stetson, Mr. Kumpf +or Mr. DeMartino is terminated other than for cause, or if they resign for +specified reasons, within one year of a change-in-control of the Company, each +shall be entitled to continue to receive his or her annual base salary, annual +target bonus and all benefits for a period of one year from the date of +termination. In addition, the Company shall cause the immediate vesting of all +stock options granted under the 1996 Stock Plan. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee, which is comprised of non-employee directors of +the Company, is responsible for administering the Company's executive +compensation policies. In connection with such responsibilities, the +Compensation Committee establishes the general compensation policies for the +Company, approves the hiring and termination of all executive officers and any +staff reporting directly to the Chief Executive Officer of the Company and +approves the compensation plans and specific compensation levels for all +executive officers and any staff reporting directly to the Chief Executive +Officer of the Company. The Compensation Committee also approves the issuance of +all awards to employees of the Company and its subsidiaries under the Company's +1996 Stock Plan and 2001 Employee Stock Plan. +Compensation Policies and Goals +The primary goals of the Company's compensation policies are to attract, +retain, motivate and reward management of the Company and its operating units, +while, at the same time, aligning their interests closely with those of the +Company and its stockholders. The Company seeks to attract and retain management +by offering a competitive total compensation package. To align the interests of +management more closely with those of the Company as a whole and reward +individual initiative and effort, the Company seeks to promote performance-based +compensation where contribution to the Company as a whole is rewarded. Through +the use of performance-based plans that reward attainment of operating unit or +Company goals, the Company seeks to foster an attitude of teamwork. The Company +also believes that the use of equity ownership is an important tool to ensure +that the efforts of management are consistent with the objectives of its +stockholders and seeks to promote increased ownership of the Company by +management through the use of stock awards. +The Compensation Committee has tried to achieve the above goals utilizing +publicly available information regarding competitive compensation. The +Compensation Committee utilizes an independent consultant to ensure that +compensation for the Company's management is competitive, meets the above-stated +objectives and is consistent for all members of management of the Company and +its operating units. +Compensation Components +At present, the compensation of the executive officers of the Company +consists of a combination of salary, cash bonuses, stock options, restricted +stock and participation in the Company's 401(k) Plan, as well as the provision +of medical and other personal benefits typically offered to corporate +executives. The executive officers of the Company are parties to agreements +which provide for severance payments under certain circumstances. These +agreements for the Named Executive Officers are described above under +"Employment Contracts, Termination of Employment and Change-In-Control +Arrangements." +Salaries: Base salaries for the Named Executive Officers were last fixed on +October 31, 2000 based on the Compensation Committee's assessment of competitive +base salaries. The Compensation Committee targets the Chief Executive Officer's +salary at the mean of that for the Company's peer group. The annual base salary +of Bart C. Shuldman, Chairman, President and Chief Executive Officer of the +Company, was further +11 +adjusted at $375,000 effective February, 2001 upon his election as Chairman of +the Board. Mr. Stetson's salary was increased in 2001 upon his appointment as +Executive Vice President. As of January 1, 2003, the salaries of the Named +Executive Officers were increased by 4% to keep them competitive with those of +others in the industry. +Cash Bonuses: The Company generally maintains an incentive compensation +plan for all salaried employees of the Company and its operating units, +including key executives, which provides for the payment of cash bonuses. Under +the plan, the Board of Directors fixes an incentive target, as well as +individual goals and objectives, for each employee at the beginning of the year +and bonuses are paid shortly after the end of the year. Certain incentive +targets for 2002 were achieved, and certain bonuses were paid with respect to +2002. +Stock Awards: Under the Company's 1996 Stock Plan and 2001 Employee Stock +Plan, stock options and restricted stock are granted by the Compensation +Committee. All salaried employees are granted an initial award of stock options +on their date of hiring for a fixed number of shares depending on their level, +which vests over five years. In each year following the initial award, eligible +employees may be granted an annual award in varying amounts depending on their +level and individual performance. During 2002, a total of 265,000 stock options +were granted to the Named Executive Officers of the Company, including 112,500 +granted to Mr. Shuldman. Of the total of 265,000 stock options granted, 215,000 +were granted in conjunction with the option exchange program described below. +On November 8, 2001, the Board of Directors approved an option exchange +program pursuant to which certain executive officers (including the Named +Executive Officers) could voluntarily exchange for cancellation outstanding +stock options with an exercise price equal to or above $9.00 per share. The +stock plans are intended to provide retention and performance incentives for +executive officers and other employees. The Board of Directors, including +members of the Compensation Committee serving at that time, determined that many +of the options outstanding under the stock plans, whether or not they were then +currently exercisable, had exercise prices that were significantly higher than +the then current market price of the Company's common stock. The Board +recognized that the options were unlikely to be exercised in the foreseeable +future and determined that the Company should provide its executive officers +with the benefit of owning options that over time may have a greater potential +to increase in value, create better retention and performance incentives for +those individuals and thereby maximize stockholder value. Accordingly, the Board +authorized the Company to tender an offer to exchange outstanding options with +an exercise price equal to or above $9.00 per share for new options that were +designed to (1) have an exercise price equal to the fair market value of the +Common Stock on the date that the Company granted new options and (2) retain a +similar vesting schedule as the cancelled options. However, in order to assure +that the option exchange program served its primary purposes of assuring the +continued service of executive officers and helping to create stockholder value, +several limitations were imposed. No participant was eligible to receive a +replacement option for his cancelled option unless that individual continued in +the Company's employment until the grant date of the replacement option. Also, +the program was designed to comply with FASB Interpretation No. 44 for fixed +plan accounting. The Board believed that the program struck an appropriate +balance between the interests of the Company's executive officers and those of +the stockholders. +Other Benefit Plans: Executive officers of the Company may participate in +the Company's nondiscriminatory 401(k) Plan. +COMPENSATION COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Jeffrey T. Leeds +Graham Y. Tanaka +12 +CORPORATE PERFORMANCE GRAPH +The following graph compares the cumulative total return on the Company's +common stock from December 31, 1997 through December 31, 2002, with the CRSP +Total Return Index for the Nasdaq Stock Market (US) and the Nasdaq Computer +Manufacturer Stocks Index. The graph assumes that $100 was invested on December +31, 1997 in each of the Company's common stock, the CRSP Total Return Index for +the Nasdaq Stock Market (US) and the Nasdaq Computer Manufacturer Stocks Index +and that all dividends were reinvested. +COMPARISON OF CUMULATIVE TOTAL RETURN AMONG +TRANSACT TECHNOLOGIES INCORPORATED COMMON STOCK, +THE CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (US), +AND THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX +[PERFORMANCE LINE GRAPH] +---------------------------------------------------------------------------------------------------------------- +12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 +---------------------------------------------------------------------------------------------------------------- +TransAct Technologies +Incorporated Common Stock $100.00 $ 29.45 $ 67.23 $ 46.67 $ 48.89 $ 42.13 +CRSP Total Return Index for the +Nasdaq Stock Market (US) $100.00 $132.72 $246.16 $148.19 $117.56 $ 81.27 +Nasdaq Computer Manufacturer +Stocks Index $100.00 $217.48 $461.64 $260.00 $179.13 $119.01 +13 +2. AMENDMENT OF NON-EMPLOYEE DIRECTORS' STOCK PLAN +The Board of Directors has unanimously adopted and recommends that the +stockholders consider and approve an amendment to the Directors' Plan to +increase the number of shares of common stock which may be subject to options +under the Directors' Plan. +The purpose of the Directors' Plan is to promote the interests of the +Company by attracting and retaining qualified persons who are neither employees +nor officers of the Company to serve on the Company's Board of Directors. The +Directors' Plan is intended to further align the interests of outside directors +with stockholders. +The Directors' Plan, as approved by stockholders, authorizes the issuance +of up to 130,000 shares of common stock pursuant to the exercise of options +granted under the Directors' Plan and, as approved by the Board of Directors, +authorizes the issuance of up to an additional 10,000 shares of common stock +pursuant to the exercise of options granted under the Directors' Plan for a +total of 140,000 shares of common stock. As of December 31, 2002, the status of +the Directors' Plan is as follows: +EQUITY COMPENSATION PLAN INFORMATION +NUMBER OF SECURITIES +NUMBER OF SECURITIES REMAINING AVAILABLE FOR +TO BE ISSUED UPON WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER +EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS +OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES +PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A)) +------------- -------------------- -------------------- ------------------------- +(A) (B) (C) +Directors' Plan approved by +stockholders..................... 130,000 $8.14 0 +Directors' Plan not approved by +stockholders..................... 2,500 $5.65 7,500 +To assure that sufficient shares are available to continue the Directors' +Plan and to provide incentives to current directors and attract future +directors, the Board of Directors has adopted the amendment to the Directors' +Plan. The amendment increases by 100,000 shares, to 240,000 shares, the number +of shares of common stock which may be issued pursuant to the exercise of +options granted under the Directors' Plan. +ADMINISTRATION +The Directors' Plan is administered by an administrator appointed by the +Board of Directors of the Company. The Administrator has the authority to +establish rules and regulations that are necessary to administer the Directors' +Plan and to make determinations and take actions in connection with the +Directors' Plan that the Administrator deems necessary or advisable. +ELIGIBILITY +Only Directors who are not otherwise regular employees or officers of the +Company are eligible to participate in the Directors' Plan. There are currently +four such directors. +OPTIONS GRANTED UNDER THE DIRECTORS' PLAN +Pursuant to the terms of the Directors' Plan, non-employee directors who +were directors at the time of the Company's initial public offering received +Non-Qualified Stock Options to purchase 10,000 shares of common stock. Each +non-employee director who is subsequently elected to the Board of Directors for +the first time will be granted Non-Qualified Stock Options to purchase 5,000 +shares of common stock. Thereafter, each non-employee director receives an +annual grant of Non-Qualified Stock Options to purchase 7,500 shares of common +stock. All options granted under the Directors' Plan are granted at an exercise +price equal to 100% of the fair market value of the common stock on the date of +grant, expire ten years from the date of grant, and become exercisable at a rate +of 20% per year on the first through fifth anniversaries of the date of grant. +14 +TERMINATION OF DIRECTORSHIP +If a non-employee director ceases to be a director of the Company for any +reason other than death or disability, all options granted under the Director's +Plan which are not exercisable on such date will terminate immediately, and any +remaining options will terminate if not exercised before 30 days following such +termination as a director, but not after the tenth anniversary of the date of +grant. If a non-employee director ceases to be a director by reason of death or +disability, all options granted under the Director's Plan which are not +exercisable on such date will become immediately exercisable, and may be +exercised by the non-employee director's representative at any time before the +expiration of twelve months following the date of death or disability, but not +after the tenth anniversary of the date of grant. +NON-TRANSFERABILITY +Options granted under the Directors' Plan will not be transferable +otherwise than by will or the laws of descent and distribution and may be +exercised during the non-employee director's lifetime only by the director. +CHANGE IN CONTROL +All options granted under the Directors' Plan become immediately +exercisable in the event of a "change in control" of the Company. For purposes +of the Directors' Plan, a "change in control" means (i) approval by the +Company's stockholders of a merger in which the Company does not survive as an +independent, publicly owned corporation, a consolidation, or a sale, exchange or +other disposition of all or substantially all of the Company's assets, or (ii) +any acquisition of voting securities of the Company by any person or group (as +such term is used in Sections 13(d) and 14(d) of the Exchange Act), but +excluding (a) the Company or any of its subsidiaries, (b) any person who was an +officer or director of the Company on the day immediately prior to July 30, +1996, or (c) any savings, pension or other benefits plan for the benefit of +employees of the Company or any of its subsidiaries, which theretofore did not +beneficially own voting securities representing more than 30% of the voting +power of all outstanding voting securities of the Company, if such acquisition +results in such entity, person or group owning beneficially securities +representing more than 30% of the voting power of all outstanding voting +securities of the Company. "Voting power" means ordinary voting power for the +election of directors of the Company. +ADJUSTMENTS UPON CHANGES IN CAPITALIZATION +In the event of any change in the Company's common stock as a result of any +stock split, stock dividend, combination or exchange of shares, or any other +similar capital adjustment, equitable proportionate adjustments shall +automatically be made in the number of shares available for award under the +Directors' Plan, the number of shares subject to options granted under the +Directors' Plan and the exercise price of options granted under the Directors' +Plan. +TERMINATION AND AMENDMENT +The Board of Directors may terminate or amend the Directors' Plan provided, +however, that any amendment that would increase the aggregate number of shares +of common stock that may be issued, materially increase the benefits accruing to +non-employee directors, or materially modify the requirements as to eligibility +for participation will be subject to the approval of the Company's stockholders +to the extent required by Rule 16b-3 promulgated under Section 16(b) of the +Exchange Act, applicable law or any other governing rules or regulations, except +that any such increase or modification that may result from adjustments +authorized as described in the preceding paragraph does not require such +approval. If the Directors' Plan is terminated, any unexercised option shall +continue to be exercisable in accordance with its terms. +15 +FEDERAL INCOME TAX CONSEQUENCES +All options granted under the Directors' Plan are non-qualified stock +options. As a result, based on current provisions of the Internal Revenue Code, +and the existing regulations thereunder, the anticipated federal income tax +consequences with respect to options granted under the Directors' Plan are as +follows: +There will be no federal income tax consequences to either the non-employee +director or the Company on the grant of a non-qualified stock option. Upon the +exercise of a non-qualified stock option using cash only in payment, the +non-employee director has taxable ordinary income equal to the excess of the +fair market value of the shares of common stock received on the exercise date +over the aggregate option exercise price of the shares. The non-employee +director's aggregate tax basis for the shares of common stock received upon +exercise of the option will be equal to the amount taxable as ordinary income to +the non-employee director plus the amount of cash paid by the non-employee +director upon exercise of the option. Upon exercise of a non-qualified stock +option using shares of common stock already held by the non-employee director in +whole or partial payment, the exercise will not affect the tax treatment +described above, and no gain or loss will generally be recognized to the +non-employee director with respect to the previously acquired shares. The shares +received upon exercise which are equal in number to the shares surrendered will +have the same tax basis as the shares surrendered and will have a holding period +that includes the holding period of the shares surrendered. The value of the +remaining shares received by the non-employee director will be taxable as +ordinary income and will have a tax basis equal to the fair market value +recognized by the non-employee director as ordinary income, and the holding +period will commence on the exercise date. The Company will be entitled to a +federal income tax deduction in an amount equal to the amount taken into income +by the non-employee director, and the Company will be required to comply with +applicable federal income tax withholding requirements with respect to the +amount taken into income by the non-employee director. Upon a subsequent sale or +taxable exchange of shares acquired upon exercise of an option, the non-employee +director will recognize long-term or short-term capital gain or loss (depending +upon the holding period of the shares) equal to the difference between the +amount realized on the sale and the tax basis of such shares. The non-employee +director's holding period for shares acquired after the exercise of an option +begins on the date of exercise of that option. +VOTE REQUIRED +The adoption of the amendment to the Directors' Plan requires the +affirmative vote of a majority of the shares of common stock and Series B +Preferred Stock, voting together with the shares of common stock as a single +class, present in person or represented by proxy and entitled to vote. +Abstentions by holders of such shares with respect to voting on this matter will +have the effect of a negative vote; broker non-votes with respect to voting on +this matter will have no effect on the outcome of the vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" ADOPTION OF +THE AMENDMENT TO THE COMPANY'S NON-EMPLOYEE DIRECTORS' STOCK PLAN. +3. RATIFICATION OF SELECTION OF PRICEWATERHOUSECOOPERS LLP AS +INDEPENDENT ACCOUNTANTS FOR 2003 +The Audit Committee has selected PricewaterhouseCoopers LLP as independent +accountants to audit the financial statements of the Company for the 2003 fiscal +year. This selection is being presented to the stockholders for ratification at +the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company's +financial statements since the Company's formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at +the Annual Meeting, will have the opportunity to make a statement, and is +expected to be available to respond to appropriate questions. +16 +INDEPENDENT ACCOUNTANTS' FEES +During 2002, the independent accountants billed the Company for the +following professional services: +- Audit Fees rendered for the audit of the 2002 financial statements and +reviews of the financial statements included in the Company's Form 10-Q +filings with the SEC: $95,100. +- Financial Information Systems Design and Implementation Fees: None. +- All Other Fees: $64,975. These fees included tax services and +preparation, the audit of the 401(k) Plan and certain accounting +research. +The Audit Committee has considered whether the provision of the above +services other than Audit Fees is compatible with maintaining the accountants' +independence and has determined that, in its opinion, they are compatible. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as +independent accountants for 2003 requires the affirmative vote of a majority of +the shares of common stock and Series B Preferred Stock, voting together with +the shares of common stock as a single class, present in person or represented +by proxy and entitled to vote. Abstentions by holders of such shares with +respect to voting on this matter will have the effect of a negative vote; broker +non-votes with respect to voting on this matter will have no effect on the +outcome of the vote. In the event stockholders do not ratify the appointment, +the Audit Committee will reconsider the appointment. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR +2003. +STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year's proxy +materials must be received by the Secretary of the Company on or before December +22, 2003. Proposals should be addressed to TransAct Technologies Incorporated, 7 +Laser Lane, Wallingford, Connecticut 06492, Attention: Secretary. +Stockholders may nominate candidates for election to the Board of Directors +if the proper nomination procedure specified in the Company's By-Laws are +followed. All nominations by stockholders must be delivered to or mailed and +received at the principal executive offices of the Company not less than 30 nor +more than 60 days prior to the meeting at which election of directors will take +place; however, if less than 40 days' notice or prior public disclosure of the +date of the meeting is given or made to stockholders, nominations will be timely +if received not later than 10 days after notice was given or public disclosure +was made. A stockholder's notice must set forth in writing (i) for each person +proposed to be nominated, all information relating to each such person that is +required to be disclosed in solicitations of proxies for election of directors +pursuant to Regulation 14A under the Exchange Act, including such person's +written consent to be named in the proxy and to serving as a director, and (ii) +for the stockholder giving notice, the (x) name and address of such stockholder +as they appear on the Company's books and (y) the class and number of shares of +the Company beneficially owned by such stockholder. +ANNUAL REPORT +A COPY OF THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON +FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE +FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS +SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER +RELATIONS DEPARTMENT, 7 LASER LANE, WALLINGFORD, CONNECTICUT 06492. +17 +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise +specified, proxies will be voted for the director nominated by the Board of +Directors and the director nominated by the holders of Series B Preferred Stock, +for the increase in shares of Common Stock subject to the Non-Employee +Directors' Stock Plan by 100,000 shares and for ratification of the selection of +PricewaterhouseCoopers LLP as independent accountants for 2003. As of the date +of this Proxy Statement, the Board of Directors is not aware of any matter which +is to be presented for action at the Annual Meeting other than the matters set +forth herein. Should any other matter requiring a vote of the stockholders arise +at the Annual Meeting, the proxies confer upon the persons named in the +accompanying proxy the authority to vote in respect of any such other matter in +accordance with the recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by (i) giving written notice of revocation to the +Secretary of the Company, (ii) properly submitting to the Company a duly +executed proxy bearing a later date, or (iii) voting in person at the Annual +Meeting. All written notices of revocation and other communications with respect +to revocation of proxies should be addressed to the Company, as follows: +TransAct Technologies Incorporated, 7 Laser Lane, Wallingford, Connecticut +06492, Attention: Secretary. A proxy appointment will not be revoked by death or +supervening incapacity of the stockholder executing the proxy unless, before the +shares are voted, notice of such death or incapacity is filed with the Company's +Secretary or other person responsible for tabulating votes on behalf of the +Company. +The cost of preparing, assembling and mailing this proxy material will be +borne by the Company. The Company may solicit proxies otherwise than by use of +the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use their personal efforts, by telephone or +otherwise, to obtain proxies. The Company will also request persons, firms and +corporations holding shares in their names, or owned by others, to send this +proxy material to and obtain proxies from such beneficial owners and will +reimburse such holders for their reasonable expenses in doing so. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE +ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS +HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +April 21, 2003 +18 +APPENDIX A +TRANSACT TECHNOLOGIES INCORPORATED +(the "Company") +AUDIT COMMITTEE CHARTER +(Revised October 24, 2002) +1. MISSION STATEMENT +The Audit Committee will perform the oversight responsibilities of the +Board of Directors of the Company in connection with the financial reporting +process, the system of internal control, the independent audit process, and the +Company's process for monitoring compliance with relevant laws and regulations +and with the code of conduct. In performing its duties, the Audit Committee will +maintain effective communication and working relationships with the Board of +Directors, management, and the independent accountants. To effectively perform +their role, Audit Committee members will obtain an understanding of the detailed +responsibilities of committee membership, as well as the Company's business, +operations, and risks. While the Board of Directors recognizes that the Audit +Committee will rely on the advice and information provided to it by the +Company's management and its independent accountants, the Audit Committee will +exercise independent judgment in assessing the quality of the Company's +financial reporting process and internal controls. +2. ORGANIZATION +The Audit Committee will be composed of outside directors independent of +management as defined by Nasdaq and the rules adopted by the Securities and +Commission (the "SEC") pursuant to Section 301 of the Sarbanes-Oxley Act of 2002 +(the "Act"). The Board of Directors will appoint the Chairperson of the Audit +Committee. Each member of the Audit Committee shall have experience or education +in business or financial matters sufficient to provide him or her with a working +knowledge with basic finance and accounting matters and one member shall be a +"financial expert" as defined in the rules adopted by the SEC pursuant to +Section 407 of the Act. A minimum of four meetings will be held during each +calendar year. The Audit Committee will meet privately and separately with the +independent accountants and with management, as appropriate. The Board of +Directors shall provide sufficient funding to the Audit Committee to permit it +to carry out its functions set forth herein. +3. ROLES AND RESPONSIBILITIES +a. Internal Control +- Evaluate whether management is setting the appropriate tone by +communicating the importance of internal control and ensuring that all +appropriate employees understand their roles and responsibilities in this +regard. +- Discuss at least annually with the Company's independent accountants the +adequacy and effectiveness of the Company's internal controls, including +computer systems and applications. +- Review the management letter issued by the independent accountants and +management's responses and periodically assess action management has +taken or progress it has made in addressing issues raised by the +independent accountants. +- Review all related party transactions and potential conflict of interest +situations. +- Receive, and act upon as appropriate, the disclosures made by the Chief +Executive Officer and the Chief Financial Officer concerning internal +controls and fraud required by Rule 13a-14 of the Securities Exchange Act +of 1934. +A-1 +b. Financial Reporting +Annually +- Review the Company's annual financial statements included in Form 10-K +and the Annual Report to Stockholders with the Company's financial +management and independent accountants. +- Discuss any significant financial judgments made in connection with the +preparation of the Company's financial statements. +- Obtain assurances from financial management that the financial statements +contain no material misstatements, and obtain assurances from the +independent accountants that, in the course of their audit, they learned +of no material misstatement. +- Consider prior to their adoption any material change in accounting +principles by the Company, and report and make recommendations to the +Board of Directors with respect to any such change. +- Review the selection, application and disclosure of critical accounting +policies. +Quarterly +- Review the Company's quarterly financial statements with the Company's +financial management and obtain assurances from financial management and +the independent accountants that generally accepted principles have been +consistently applied. +- Obtain assurances from the Company's financial management that the +financial statements included in the Company's quarterly Form 10-Q do not +contain any material misstatements +- Obtain assurances that the independent accountants learned of no material +misstatements in the course of their review of such financial statements. +- Communicate, as a whole or through the Chairperson, with the independent +accountants on the results of their review of the quarterly financial +statements prior to the filing of the Form 10-Q. +c. Independent Accountants +- Annually appoint the firm of independent accountants who are to be +engaged to examine the financial statements of the Company and approve +the engagement letter describing the services to be performed by them. +- Periodically evaluate the performance of the independent accountants. +- Pre-approve all auditing services and non-audit services rendered to the +Company by the independent accountants other than as described in the +engagement letter. Such pre-approval may be delegated to one or more +designated members of the Audit Committee, which pre-approvals shall be +presented to the Audit Committee at each of its scheduled meetings. Such +pre-approval is waived if in compliance with the de minimus exception +contained in Section 202 of the Act. +- Obtain written communication from the independent accountants confirming +their independence. +- Review with the independent accountants the scope of their examination +with particular emphasis on the areas to which the Audit Committee or the +independent accountants believe special attention should be directed. +- Receive, and act upon as appropriate, the information provided by the +independent accountants pursuant to Section 204 of the Act concerning (i) +all critical accounting policies and practices; (ii) all alternative +treatments of financial information within GAAP that have been discussed +with management, the ramifications of the use of such alternatives and +the treatment preferred by the independent accountants; and (iii) other +material written communications with management. +- Approve the compensation of the independent accountants. +A-2 +- Review with the independent accountants any problems or difficulties such +accountants might have encountered during their annual audit, including +any restrictions placed on the scope of the audit, difficulties obtaining +required information, significant audit adjustments, and any other +matters required to be discussed. +- Resolve any disagreements between management and the independent +accountants regarding financial reporting. +d. Other +- Review with the Company's legal counsel, or independent counsel or other +advisers engaged by it, any legal or regulatory matters that could have a +significant impact on the Company's financial statements, operations or +financial condition. +- Review the adequacy of the Company's policies and practices concerning +ethical and responsible business conduct. +- Review the policies and procedures in effect for considering officers' +expenses and perquisites. +- Establish procedures for (i) the receipt, retention and treatment of +complaints regarding accounting, internal accounting controls or auditing +matters and (ii) the confidential, anonymous submission by employees of +concerns regarding questionable accounting or auditing matters. Perform +other oversight functions as requested by the full Board of Directors. +- Review this charter on an annual basis and make recommendations to the +Board of Directors concerning any changes deemed appropriate. +A-3 +TRANSACT TECHNOLOGIES INCORPORATED +NON-EMPLOYEE DIRECTORS' STOCK PLAN +TransAct Technologies Incorporated. Non-Employee Directors' Stock Plan +(the "Plan") is adopted by TransAct Technologies Incorporated. (the "Company") +for the purpose of advancing the interests of the Company by providing +compensation and other incentives for the continued services of the Company's +non-employee directors and by attracting able individuals to directorships with +the Company. +1. Definitions. For purposes of this Plan, the following terms shall +have the meanings set forth below: +"Administrator" means the person(s) appointed by the Board to +administer the Plan as provided in Paragraph 2 hereof. +"Annual Meeting" means the annual meeting of the Company's +stockholders. +"Board" means the Board of Directors of TransAct Technologies +Incorporated. +"Change of Control" means (i) approval by the Company's stockholders of +a merger in which the Company does not survive as an independent, publicly owned +corporation, a consolidation, or a sale, exchange or other disposition of all or +substantially all the Company's assets, or (ii) any acquisition of voting +securities of the Company by any person or group (as such term is used in +Sections 13(d) and 14(d) of the Exchange Act), but excluding (a) the Company or +any of its subsidiaries, (b) any person who was an officer or director of the +Company on the day prior to the Effective Date, or (c) any savings, pension or +other benefits plan for the benefit of employees of the Company or any of its +subsidiaries, which theretofore did not beneficially own voting securities +representing more than 30% of the voting power of all outstanding voting +securities of the Company, if such acquisition results in such entity, person or +group owning beneficially securities representing more than 30% of the voting +power of all outstanding voting securities of the Company. As used herein, +"voting power" means ordinary voting power for the election of directors of the +Company. +"Common Shares" means the Company's common stock, $.01 par value per +share. +"Company" means TransAct Technologies Incorporated, a Delaware +corporation. +"Effective Date" means the date of the initial offering of the +Company's Common Shares to the public. +"Grant Date" means the effective date of a grant of options pursuant to +Paragraph 4(a) hereof. +"Market Value" means the closing price of the Common Shares as reported +by NASDAQ. +"Participant" means a director who has met the requirements of +eligibility and participation described in Paragraph 3 hereof. +2. Administration. The Plan shall be administered by the Administrator. +The Administrator may establish, subject to the provisions of the Plan, such +rules and regulations as it deems necessary for the proper administration of the +Plan, and make such determination and take such action in connection therewith +or in relation to the Plan as it deems necessary or advisable, consistent with +the Plan. +3. Eligibility and Participation. +(a) A non-employee director of the Company shall automatically become a +Participant in the Plan as of the later of (i) the Effective Date, or (ii) the +date of initial election to the Board. A director who is a regular employee or +officer of the Company is not eligible to participate in the Plan. +(b) A Participant shall cease participation in the Plan as of the date +the Participant (i) fails to be re-elected to the Board, (ii) resigns or +otherwise vacates his position on the Board, or (iii) becomes a regular employee +or officer of the Company. +4. Compensation. For all services rendered as a director of the +Company, the Company shall grant options to each Participant as provided herein. +(a) Grant of Options. Each person who is a Participant on the Effective +Date shall be awarded a non-qualified option to purchase 10,000 Common Shares +effective as of the Effective Date, at a price equal to the Market Value of +Common Shares on that date. Any person who becomes a Participant after the +Effective Date shall be awarded non-qualified options to purchase 5,000 Common +Shares effective as of the date of the Annual Meeting at which such election +occurs, or if the Participant is first elected to the Board other than at an +Annual Meeting, as of the date of such election, at a price equal to the Market +Value of Common Shares on that date. +For years beginning after 1996, on the date of the first Board meeting +following the Annual Meeting of each year, a Participant (other than a director +who is first elected at the Annual Meeting for that year or within six months +prior to such Annual Meeting), shall be awarded non-qualified options to +purchase the applicable number of Common Shares in accordance with the table +below, effective as of the date of such Board meeting, at a price equal to the +Market Value of Common Shares on that date. +Year of Grant Number of Shares +------------- ---------------- +1997-1999 2,500 +2000 5,000 +2001 and subsequent 7,500 +(b) Term and Exercisability. All options shall have a term of 10 years +and shall vest in accordance with the following schedule: +Percentage of Options Vesting Date +--------------------- ------------ +20% 1st anniversary of Grant Date +20% 2nd anniversary of Grant Date +20% 3rd anniversary of Grant Date +20% 4th anniversary of Grant Date +20% 5th anniversary of Grant Date +Notwithstanding the foregoing, all options shall become immediately +exercisable upon a Change of Control of the Company. +(c) Method of exercise. An option granted under the Plan may be +exercised, in whole or in part, by submitting a written notice to the Board, +signed by the Participant or such other person who may be entitled to exercise +such option, and specifying the number of Common Shares as to which the option +is being exercised. Such notice shall be accompanied by the payment of the full +option price for such Common Shares, or shall fix a date (not more than ten +business days from the date of such notice) for the payment of the full option +price of the Common Shares being purchased. Payment shall be made in the form of +cash, Common Shares (to the extent permitted by law), or both. A certificate or +certificates for the Common Shares purchased shall be issued by the Company +after the exercise of the option and full payment therefor. +(d) Termination of Directorship. If a Participant fails to be +re-elected to the Board, resigns or otherwise ceases to be a director of the +Company for reasons other than death or disability (within the meaning of +Section +22(e)(3) of the Internal Revenue Code), all options granted under this Plan to +such Participant which are not exercisable on such date shall immediately +terminate, and any remaining options shall terminate if not exercised before +thirty (30) days following such termination, or at such earlier time as may be +applicable under Paragraph 4(b) above. If the Participant dies or becomes +disabled within the thirty (30) day period described above, such remaining +options may be exercised by the Participant or the Participant's personal +representative at any time before the expiration of twelve (12) months following +the date of death or commencement of disability. If a Participant ceases to be a +director of the Company by reason of death or disability (within the meaning of +Section 22(e)(3) of the Internal Revenue Code), all options granted under this +Plan to such Participant which are not exercisable on such date shall become +immediately exercisable, and may be exercised at any time before the expiration +of twelve (12) months following the date of death or commencement of disability, +or such earlier time as may be applicable under Paragraph 4(b) above. +(e) Non-transferability. Each option and all rights thereunder shall be +exercisable during the Participant's lifetime only by him and shall be +non-assignable and non-transferable by the Participant except, in the event of +the Participant's death, by will or by the laws of descent and distribution. In +the event the death of a Participant occurs, the representative or +representatives of the Participant's estate, or the person or persons who +acquired (by bequest or inheritance) the rights to exercise the Participant's +options in whole or in part may exercise the option prior to the expiration of +the applicable exercise period, as specified in Paragraph 4(d) above. +(f) No rights as stockholder. A Participant shall have no rights as a +stockholder with respect to any Common Shares subject to the option prior to the +date of issuance of a certificate or certificates for such Common Shares. +(g) Compliance with securities laws. Options granted and Common Shares +issued by the Company upon exercise of options shall be granted and issued only +in full compliance with all applicable securities laws, including laws, rules +and regulations of the Securities and Exchange Commission and applicable state +Blue Sky Laws. With respect thereto, the Board may impose such conditions on +transfer, restrictions and limitations as it may deem necessary and appropriate +to assure compliance with such applicable securities laws. +5. Shares Subject to the Plan. +(a) The Common Shares to be issued and delivered by the Company upon +the exercise of options under the Plan may be either authorized but unissued +shares or treasury shares of the Company. +(b) The aggregate number of Common Shares of the Company which may be +issued under the Plan shall not exceed 240,000 shares; subject, however, to the +adjustment provided in Paragraph 6 in the event of stock splits, stock +dividends, exchanges of shares or the like occurring after the effective date of +this Plan. +(c) Common Shares covered by an option which is no longer exercisable +with respect to such shares shall again be available for issuance under this +Plan. +6. Share Adjustments. In the event there is any change in the Company's +Common Shares resulting from stock splits, stock dividends, combinations or +exchanges of shares, or other similar capital adjustments, equitable +proportionate adjustments shall automatically be made without further action by +the Board or Administrator in (i) the number of Common Shares available for +award under this Plan, (ii) the number of Common Shares subject to options +granted under this Plan, and (iii) the option price of options granted under +this Plan. +7. Amendment or Termination. The Board may terminate this Plan at any +time, and may amend the Plan at any time or from time to time; provided, +however, that the Plan shall not be amended more than once every six months, +other than to comport with changes in the Internal Revenue Code, the Employee +Retirement Income Security Act, or the rules thereunder; and further provided +that any amendment that would increase the aggregate number of Common Shares +that may be issued under the Plan, materially increase the benefits accruing to +Participants under the Plan, or materially modify the requirements as to +eligibility for participation in the Plan shall be subject to the +approval of the Company stockholders to the extent required by Rule 16b-3 under +the Securities Exchange Act of 1934, as amended, or any other governing rules or +regulations except that such increase or modification that may result from +adjustments authorized by Paragraph 6 does not require such approval. If the +Plan is terminated, any unexercised option shall continue to be exercisable in +accordance with its terms. +8. Company Responsibility. All expenses of this Plan, including the +cost of maintaining records, shall be borne by the Company. +9. Implied Consent. Every Participant, by acceptance of an award under +this Plan, shall be deemed to have consented to be bound, on his or her own +behalf and on behalf of his or her heirs, assigns, and legal representatives, by +all of the terms and conditions of this Plan. +10. Delaware Law to Govern. This Plan shall be construed and +administered in accordance with and governed by the laws of the State of +Delaware. +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD TUESDAY, MAY 20, 2003 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the +"Company") does hereby nominate, constitute and appoint Bart C. Schuldman and +Richard L. Cote, or either of them, with full power to act alone, my true and +lawful attorney with full power of substitution, for me and in my name, place +and stead to vote all of the shares of Common Stock of the Company standing in +my name on its books on April 9, 2003, at the Annual Meeting of its stockholders +to be held at The Ramada Plaza Hotel, 275 Research Parkway, Meriden, CT 06450 on +Tuesday, May 20, 2003 at 10:00 a.m., or at any adjournment thereof, with all +powers the undersigned would possess if personally present as follows: +(TO BE SIGNED ON REVERSE SIDE) +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 20, 2003 +[X] Please mark your votes as in this example. +FOR WITHHELD +1. ELECTION OF [ ] [ ] Nominee: Charlie A. Dill +DIRECTOR +FOR AGAINST ABSTAIN +2. APPROVAL OF INCREASE [ ] [ ] [ ] +IN SHARES OF COMMON +STOCK SUBJECT TO +NON-EMPLOYEE DIRECTORS' +STOCK PLAN BY 100,000 SHARES +FOR AGAINST ABSTAIN +3. RATIFICATION OF SELECTION [ ] [ ] [ ] +OF PRICEWATERHOUSECOOPERS LLP +AS INDEPENDENT ACCOUNTANTS +FOR 2003 +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED ON BEHALF OF THE UNDERSIGNED +AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS +PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE DATE , 2003 +----------------------------- -------------------- +SIGNATURE DATE , 2003 +----------------------------- -------------------- +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on the mailing label. When +shares are held by joint tenants, both should sign. When signing as +attorney, executor, administrator, trustee or guardian, please give +full title as such. If signing on behalf of a corporation, please sign +the full corporate name by president or other authorized officer. If +signing on behalf of a partnership, please sign the partnership name by +authorized person. +FOR HOLDERS OF PREFERRED STOCK ONLY +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD TUESDAY, MAY 20, 2003 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the +"Company") does hereby nominate, constitute and appoint Bart C. Schuldman and +Richard L. Cote, or either of them, with full power to act alone, my true and +lawful attorney with full power of substitution, for me and in my name, place +and stead to vote all of the shares of Preferred Stock of the Company standing +in my name on its books on April 9, 2003, at the Annual Meeting of its +stockholders to be held at The Ramada Plaza Hotel, 275 Research Parkway, +Meriden, CT 06450 on Tuesday, May 20, 2003 at 10:00 a.m., or at any adjournment +thereof, with all powers the undersigned would possess if personally present as +follows: +(TO BE SIGNED ON REVERSE SIDE) +FOR HOLDERS OF PREFERRED STOCK ONLY +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 20, 2003 +[X] Please mark your votes as in this example. +FOR WITHHELD +1. ELECTION OF [ ] [ ] Nominee: Jeffrey T. Leeds +DIRECTOR BY +HOLDERS OF +PREFERRED STOCK +ONLY +FOR AGAINST ABSTAIN +2. APPROVAL OF INCREASE [ ] [ ] [ ] +IN SHARES OF COMMON +STOCK SUBJECT TO +NON-EMPLOYEE DIRECTORS' +STOCK PLAN BY 100,000 SHARES +FOR AGAINST ABSTAIN +3. RATIFICATION OF SELECTION [ ] [ ] [ ] +OF PRICEWATERHOUSECOOPERS LLP +AS INDEPENDENT ACCOUNTANTS +FOR 2003 +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED ON BEHALF OF THE UNDERSIGNED +AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS +PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE DATE , 2003 +------------------------------- ----------------- +SIGNATURE DATE , 2003 +------------------------------- ----------------- +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on the mailing label. When +shares are held by joint tenants, both should sign. When signing as +attorney, executor, administrator, trustee or guardian, please give +full title as such. If signing on behalf of a corporation, please sign +the full corporate name by president or other authorized officer. If +signing on behalf of a partnership, please sign the partnership name by +authorized person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-03-004539/proxy_rpt.txt b/raw/proxies/0001017303/0000950123-03-004539/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f02bbe376be9d80a9cba0f591a52c534d9f4f5ed --- /dev/null +++ b/raw/proxies/0001017303/0000950123-03-004539/proxy_rpt.txt @@ -0,0 +1,20 @@ +- Review all related party transactions and potential conflict of interest +situations. +- Receive, and act upon as appropriate, the disclosures made by the Chief +Executive Officer and the Chief Financial Officer concerning internal +controls and fraud required by Rule 13a-14 of the Securities Exchange Act +of 1934. +A-1 +b. Financial Reporting +Annually +- Review the Company's annual financial statements included in Form 10-K +and the Annual Report to Stockholders with the Company's financial +management and independent accountants. +- Discuss any significant financial judgments made in connection with the +preparation of the Company's financial statements. +- Obtain assurances from financial management that the financial statements +contain no material misstatements, and obtain assurances from the +independent accountants that, in the course of their audit, they learned +of no material misstatement. +- Consider prior to their adoption any material change in accounting +principles by the Company, and report and make recommendations to the \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-04-005091/proxy.txt b/raw/proxies/0001017303/0000950123-04-005091/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..cd62b90b2ad659f8784d3f35fdb6e05acf26976c --- /dev/null +++ b/raw/proxies/0001017303/0000950123-04-005091/proxy.txt @@ -0,0 +1,1523 @@ +DEF 14A +1 +y96239def14a.txt +TRANSACT TECHNOLOGIES INCORPORATED +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (As Permitted by +Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material under Rule14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +---------------------------------- +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant +to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is +calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 26, 2004 +Notice is hereby given that the 2004 Annual Meeting of Stockholders (the +"Annual Meeting") of TransAct Technologies Incorporated (the "Company"), a +Delaware corporation, will be held on Wednesday, May 26, 2004, at 11:30 a.m. +Eastern Daylight Saving Time, at The Century Club, 7 W. 43rd Street, New York, +New York 10036 for the following purposes, all of which are more completely set +forth in the accompanying Proxy Statement: +(1) To elect one director to serve until the 2007 Annual Meeting of +Stockholders or until the director's successor has been duly elected +and qualified; +(2) To ratify the selection of PricewaterhouseCoopers LLP as the Company's +independent auditors for 2004; and +(3) To transact such other business as may legally come before the Annual +Meeting. +Stockholders of record at the close of business on April 16, 2004 are +entitled to notice of and to vote at the Annual Meeting. The transfer books will +not be closed for the Annual Meeting. +By Order of the Board of Directors, +RICHARD L. COTE +Secretary +Wallingford, Connecticut +April 23, 2004 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT +YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH +REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT +PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE +IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 26, 2004 +This Proxy Statement is being furnished to the stockholders of TransAct +Technologies Incorporated (the "Company") in connection with the solicitation of +proxies by the Board of Directors of the Company for use at the Annual Meeting +of Stockholders of the Company to be held on May 26, 2004, and any adjournments +or postponements thereof (the "Annual Meeting"). This Proxy Statement, the +foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's +2003 Annual Report to Stockholders are first being mailed or given to +stockholders on or about April 26, 2004. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power +to revoke the same anytime prior to its being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in +such form or at such time as to render it not votable. The proxy is in ballot +form so that a specification may be made to grant or withhold authority to vote +for the election of directors and to indicate separate approval or disapproval +as to the other matter presented to stockholders. All of the proposals will be +presented by the Board of Directors. The shares represented by the proxy will be +voted for the election of the director named thereon, unless authority to do so +is withheld. With respect to the other proposals presented to stockholders by +the Board of Directors, the shares represented by the proxy will be voted in +accordance with the specification made. Where a choice is not so specified, the +shares represented by the proxy will be voted for the proposal. In addition, the +proxy confers discretionary authority to vote on any matter properly presented +at the Annual Meeting which is not known to the Company as of the date of this +Proxy Statement. +VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF +Stockholders of record on April 16, 2004 are entitled to vote at the Annual +Meeting. Holder of Common Stock are entitled to cast one vote for each share of +Common Stock and holders of Series B Preferred Stock are entitled to cast +166.665 votes for each share of Series B Preferred Stock they hold on April 16, +2004. There were 9,152,117 shares of Common Stock and 4,000 shares of Series B +Preferred Stock issued and outstanding and entitled to vote at the close of +business on April 16, 2004. Shares representing a majority of the votes entitled +to be cast at the Annual Meeting, present in person or represented by proxy, +will constitute a quorum to transact business. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information known to the Company regarding +the beneficial ownership of the Company's common stock as of April 16, 2004 by: +(i) each person known by the Company to own beneficially more than 5% of the +Company's common stock or Series B Preferred Stock; (ii) each director or +nominee for director of the Company; (iii) each current executive officer of the +Company named in the Summary Compensation Table; and (iv) all current directors +and executive officers of the Company as a group. Except as otherwise indicated, +each of the persons named in the table has sole voting power and sole +dispositive power with respect to the shares set forth opposite such person's +name. The number of shares of Common Stock shown in the following table reflects +the impact of a 3-for-2 stock dividend distributed by the Company on April 2, +2004. +SHARES +BENEFICIALLY PERCENT OF +NAME OF BENEFICIAL OWNER OWNED CLASS +------------------------ ------------ ---------- +COMMON STOCK +Bart C. Shuldman(1)......................................... 333,447 3.56% +7 Laser Lane +Wallingford, CT 06492 +Graham Y. Tanaka(2)......................................... 324,597 3.53% +Charles A. Dill(3).......................................... 203,506 2.21% +Richard L. Cote(4).......................................... 147,057 1.59% +Thomas R. Schwarz(5)........................................ 124,030 1.35% +Michael S. Kumpf(6)......................................... 67,413 * +James B. Stetson(7)......................................... 14,250 * +Steven A. DeMartino(8)...................................... 47,550 * +All current directors and executive officers as a group (8 +persons)(9)............................................... 1,261,850 13.03% +Janus Capital Management LLC(10)............................ 592,200 6.47% +100 Fillmore Street +Denver, CO 80206-4923 +Husic Capital Management(11)................................ 721,600 7.88% +555 California Street, Suite 2900 +San Francisco, CA 94104 +SERIES B PREFERRED STOCK +Janus Capital Management LLC(12)............................ 2,000 50.00% +Swiftcurrent Partners, LP(13)............................... 540 13.50% +Swiftcurrent Offshore, Ltd.(13)............................. 460 11.50% +SLS Investors, LP(14)....................................... 267 6.68% +SLS Offshore, Ltd.(14)...................................... 733 18.32% +--------------- +* Less than 1% of the outstanding Common Stock. +(1) Includes 78,634 owned jointly with Mr. Shuldman's spouse, 1,500 shares +owned by his spouse in an individual retirement account, 4,800 shares owned +by his minor children and 3,750 shares owned by his mother. Also includes +37,500 unvested shares of restricted stock of the Company and 207,262 +shares subject to options exercisable within 60 days of April 16, 2004 +granted under the Company's 1996 Stock Plan. +(2) Includes 45,750 shares subject to options exercisable within 60 days of +April 16, 2004 granted under the Company's Non-Employee Directors' Stock +Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka for the +benefit of his children. +(3) Includes 45,750 shares subject to options exercisable within 60 days of +April 16, 2004 granted under the Non-Employee Directors' Stock Plan. Also +includes 85,821 shares with respect to which Mr. Dill is the trustee for +the benefit of his parent and 1,500 shares owned by his spouse. +(4) Includes 22,165 shares owned jointly with Mr. Cote's spouse and 16 shares +held as custodian for his child. Also includes 750 unvested shares of +restricted stock of the Company and 124,125 shares subject to options +exercisable within 60 days of April 16, 2004 granted under the 1996 Stock +Plan. +(5) Includes 45,750 shares subject to options exercisable within 60 days of +April 16, 2004 granted under the Non-Employee Directors' Stock Plan. Also +includes 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his +capacity as trustee of a trust for the benefit of his granddaughter and +1,500 shares beneficially owned by his daughter, as to which shares he +disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(6) Includes 7,500 unvested shares of restricted stock of the Company and +34,312 shares subject to options exercisable within 60 days of April 16, +2004 granted under the 1996 Stock Plan. +2 +(7) Includes 9,000 unvested shares of restricted stock of the Company and 3,750 +shares subject to options exercisable within 60 days of April 16, 2004 +granted under the 1996 Stock Plan. +(8) Includes 13,999 unvested shares of restricted stock of the Company and +26,550 shares subject to options exercisable within 60 days of April 16, +2004 granted under the 1996 Stock Plan. +(9) Includes 68,749 unvested shares of restricted stock of the Company and +557,350 shares subject to options exercisable within 60 days of April 16, +2004 granted under the 1996 Stock Plan and the Non-Employee Directors' +Stock Plan. +(10) Based on information provided in a Schedule 13G filed with the Securities +and Exchange Commission (the "SEC") on February 17, 2004 by Janus Capital +Management LLC ("Janus Capital") and Janus Venture Fund, Janus Capital is +an investment adviser and indirect majority owner of two other investment +advisers, Enhanced Investment Technologies LLC and Bay Isle Financial LLC, +and such entities have sole voting power and sole dispositive power over +592,200 shares of the Company's Common Stock, including 540,097 shares of +Common Stock with respect to which Janus Venture Fund, a registered +investment company to which Janus Capital provides investment advice, has +sole voting power and sole dispositive power. +(11) Based on information provided in a Schedule 13G filed with the SEC on +February 10, 2004 by Husic Capital Management ("Husic Capital"), Frank J. +Husic and Co. ("Husic Co.") and Frank J. Husic ("Husic"), Husic Capital is +an investment adviser whose sole general partner is Husic Co. which in turn +is wholly-owned by Husic, and such parties have sole voting power and sole +dispositive power over 721,600 shares of the Company's Common Stock. +(12) Based on a telephone conversation with a representative of Janus Capital on +April 12, 2004, Janus Capital has sole voting power and sole dispositive +power over 2,000 shares of the Company's Series B Preferred Stock Common +Stock as a result of providing investment advice to Janus Venture Fund, a +registered investment company which has sole voting power and sole +dispositive power over such shares. +(13) Based on a telephone conversation with a representative of Swiftcurrent +Partners, LP and Swiftcurrent Offshore, Ltd. on April 13, 2004, the +entities are related private investment companies that have sole voting +power and sole dispositive power over the shares of the Company's Series B +Preferred Stock reflected in the table above. +(14) Based on a telephone conversation with a representative of SLS Investors, +LP and SLS Offshore, Ltd. on April 13, 2004, the entities are related +private investment companies that have sole voting power and sole +dispositive power over the shares of the Company's Series B Preferred Stock +reflected in the table above. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the +"Exchange Act"), requires the Company's directors, executive officers and +persons who beneficially own more than 10% of the Company's common stock to file +with the SEC and the Nasdaq Stock Market reports of ownership and reports of +changes in ownership of common stock and other equity securities of the Company +and to furnish the Company with copies of all such reports they file. To the +Company's knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2003, all such reports were timely filed. +Subsequent to the end of such fiscal year (i) Messrs. Shuldman, Cote, Kumpf, +Stetson and DeMartino received grants of restricted stock as of January 2, 2004 +which were reported late on Form 4 on February 10, 2004, and (ii) Mr. Kumpf +exercised an employee stock option and sold shares of the underlying Common +Stock on March 24, 2004 which was reported late on Form 4 on March 30, 2004. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit +the long-term interests of the Company's stockholders by clearly outlining our +duties and responsibilities, providing a framework for +3 +active and fruitful discussions among the members of our Board of Directors and +between the Board and management, and avoiding conflicts of interest and other +legal and ethical problems. Accordingly, the Company's corporate governance +practices are designed not only to satisfy regulatory requirements, but also to +provide for effective management of the Company. +RECENT DEVELOPMENTS +Recently, the Board completed a total review of its corporate governance +practices, which resulted in the adoption of a written charter for our +Compensation Committee, now known as the Compensation and Corporate Governance +Committee, which provides that the Committee will have responsibility for +general oversight of the Company's corporate governance practices and for +periodically recommending revisions to the Board. +The Board also adopted a set of Corporate Governance Principles to serve as +a framework for the way the Board and its Committees will operate. In addition, +the Board revised the charter of its Audit Committee; adopted a new written +charter for its Nominating Committee; adopted a more detailed policy on director +nominations (including nominations from stockholders) to implement the +principles set forth in the Corporate Governance Principles; adopted a policy on +stockholder communications with the Board; and enacted written Standards of +Business Conduct to provide ethics guidelines to the Company directors, officers +and employees. +Information on the Company's corporate governance practices is available to +the public under "Corporate Governance" on the Company's website at +www.transact-tech.com. The information on the website includes the Company's +Corporate Governance Principles, the charters of the Board's Committees, and the +Company's Standards of Business Conduct. +The remainder of this section of the Proxy Statement summarizes the key +features of the Company's corporate governance practices: +BOARD SIZE +The Corporate Governance Principles provide that the Board should generally +have between five and ten members. In establishing the appropriate number of +directors, the Board and the Compensation and Corporate Governance Committee +consider (i) resignations and retirements from the current Board, (ii) the +availability of appropriate, qualified candidates, and (iii) the goal of +assuring that the Board is small enough to facilitate active discussions and +decision-making while, at the same time, is large enough to provide an +appropriate mix of continuity, experience, skills and diversity so that the +Board and its Committees can effectively perform their responsibilities. +In light of the recent resignation of one of the Company's directors and +the decision of Richard L. Cote, a director and the Company's Executive Vice +President, Chief Financial Officer, Treasurer and Secretary, to retire from the +Company and accordingly not to stand for re-election as a director at this +year's Annual Meeting, the Board expects to drop below what it considers an +ideal minimum number of directors. The Board's Nominating Committee is actively +seeking qualified candidates and it is the Board's hope to rectify this +situation as soon as possible. +CRITERIA FOR MEMBERSHIP ON THE BOARD +The Board and its Nominating Committee consider a number of different +factors in selecting nominees for director. Some of these factors, such as +integrity, are applied uniformly to all prospective candidates. Others, such as +specific industry experience, may be adopted on a case by case basis by the +Board and the Nominating Committee based on the Company's business needs at the +time a nomination is under consideration. The Nominating Committee and the Board +of Directors apply the same criteria to each candidate for a particular position +on the Board, regardless of whether the candidate is proposed by a +4 +stockholder or some other source. Specific criteria considered by the Nominating +Committee and the Board include: +Independence. The Board of Directors, in its Corporate Governance +Principles and Committee charters, has established a policy that a substantial +majority of the directors be "independent" members of the Board. The Nominating +Committee and the Board consider the independence of each prospective director +before election and further consider the independence of all continuing +directors on at least an annual basis. Excluding Mr. Cote whose terms as a +director will expire at the Annual Meeting, the Board has determined that three +of the four continuing directors (or 75% of the Board), including Graham Y. +Tanaka who has been renominated for election to the Board at this year's Annual +Meeting, are independent in accordance with the Company's criteria. The Board +applies the following criteria in determining independence, which criteria are +derived from Nasdaq's listing standards as well as certain additional +requirements that are imposed on certain Committee members under the rules and +regulations of the Securities and Exchange Commission and the Internal Revenue +Service: +- Independent Judgment. The director must not have any relationship with +the Company that, in the opinion of the Board, would interfere with the +exercise of independent judgment in carrying out the responsibilities of +a director. In making this determination, the Board considers all +relevant facts and circumstances, including commercial, charitable and +family relationships that might have an impact on the director's +judgment. +- Employment. The director must not have been an employee of the Company +at any time during the past three years. In addition, a member of the +director's immediate family (including the director's spouse, parents, +children, siblings, mother-in-law, father-in-law, brother-in-law, +sister-in-law, son-in-law, daughter-in-law and anyone who resides in the +director's home) must not have been an executive officer of the Company +during the past three years. +- Other Payments. Neither the director nor a member of his or her +immediate family member may have received payments of more than $60,000 +per year from the Company during the current or any of the past three +years, except for director fees, payments arising solely from investments +in the Company's securities, benefits under certain Company plans and +non-discretionary compensation, certain permitted loans and compensation +paid to a family member who is not an executive officer of the Company. +- Auditor Affiliation. Neither the director nor a member of his or her +immediate family may be a current partner of the Company's independent +auditors or have been a partner or employee of the Company's independent +auditors who worked on the Company's audit at any time during the past +three years. +- Interlocking Directorships. Neither the director nor any member of his +or her immediately family may be employed as an executive officer by +another entity where, at any time during the past three years, any of the +Company's executive officers served on the compensation committee. +- Transactions. Neither the director nor any member of his or her +immediately family may be a partner in, or a controlling shareholder or +executive officer of, any organization that, during the current or any +one of the past three years, received payments from the Company, or made +payments to the Company, for property or services that exceed the greater +of $200,000 or 5% of the recipient's annual consolidated gross revenues +for such year (excluding payments arising solely from investments in the +Company's securities or paid under a non-discretionary charitable +matching program). +- Additional Standards for Audit Committee Members. Any director who +serves of the Board's Audit Committee may not, directly or indirectly, +have received any consulting, advisory or other compensatory fee from the +Company (other than certain retirement benefits and deferred +compensation) or be an affiliate of the Company (except as a director, +but including by way of stock ownership). In addition, no such director +may have participated in the preparation of the financial statements of +the Company or any current subsidiary of the Company at any time during +the past three years. +5 +Overall Board Composition. The Board of Directors believes it is important +to consider the professional skills and background, experience in relevant +industries, age and diversity of its directors in light of the Company's current +and future business needs. +Personal Qualities. Each director must possess certain personal qualities, +including integrity, judgment and business acumen. In addition, each director +must be no older than 75 years of age at the time of nomination or renomination. +Commitments. Each director must have the time and ability to make a +constructive contribution to the Board. While the Board does not believe it is +appropriate to establish a single standard regarding the number of other boards +on which a director may sit, this is a factor that may be considered in +reviewing a candidate's suitability. +Additional Criteria for Incumbent Directors. During their terms, all +incumbent directors on the Company's Board are expected to have regular +attendance at Board and Committee meetings; to stay informed about the Company +and its business; to participate in discussions of the Board and its Committees; +to take an interest in the Company's business and provide advice and counsel to +the Company's Chief Executive Officer; and to comply with the Company's +Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the +criteria established from time to time by The Nasdaq Stock Market, the +Securities and Exchange Commission, the Internal Revenue Service and other +applicable regulatory entities for service on the Board and its Committees. +DIRECTOR NOMINATION PROCESS +Under its charter, the Nominating Committee is responsible for identifying, +reviewing and recommending individuals to the Board for nomination or election +as directors. This typically involves the following steps: +- Specific Criteria. The Nominating Committee and the Board review the +overall composition of the Board in light of the Company's current and +expected business needs and, as a result of such assessments, may +establish specific qualifications that the Committee will seek in Board +candidates. +- Identifying New Candidates. The Committee may seek to identify new +candidates for the Board (i) who possess the desired qualifications, and +(ii) who satisfy the other requirements for Board service. In identifying +new director candidates, the Committee may seek advice and names of +candidates from Committee members, other members of the Board, members of +management, and other public and private sources. The Committee may also, +but need not, retain a search firm in order to assist it in these +efforts. +- Reviewing New Candidates. The Committee reviews the potential new +director candidates identified through this process. This involves +reviewing the candidates' qualifications and conducting an appropriate +background investigation. The Committee may also select certain +candidates to be interviewed by one or more Committee members. +- Reviewing Incumbent Candidates. On an annual basis, the Committee also +reviews incumbent candidates for renomination to the Board. This review +involves an analysis of the criteria described above that apply to +incumbent directors. +- Recommending Candidates. The Nominating Committee recommends a slate of +candidates for the Board of Directors to submit for approval to the +stockholders at the Annual Meeting. This slate of candidates may include +both incumbent and new nominees. In addition, apart from this annual +process, the Committee may, in accordance with the Corporate Governance +Principles, recommend that the Board elect new members of the Board who +will serve until the next annual stockholders meeting. At the time of +making any recommendation to the Board, the Committee reports on the +criteria that were applied in making the recommendation and its findings +concerning each candidate's qualifications. +6 +- Stockholder Nominations Submitted to the Committee. Stockholders may +also submit names of director candidates, including their own, to the +Nominating Committee for its consideration. The process for stockholders +to use in submitting suggestions to the Nominating Committee is set forth +below at "Procedures for Submitting Stockholder Proposals -- Procedures +for Submitting Director Nominations and Recommendations." +BOARD RESPONSIBILITIES +The Board's primary responsibility is to maximize long-term stockholder +value. The Board selects the senior management of the Company, monitors senior +management's and the Company's performance, and provides advice and counsel to +senior management. Among other things, at least annually, the Board reviews the +Company's strategy and approves a business plan and budget for the Company. In +fulfilling the Board's responsibilities, directors have full access to the +Company's management, auditors and outside advisors. +BOARD MEETINGS AND EXECUTIVE SESSIONS +The Board of Directors not only holds regular quarterly meetings, but also +holds at least one special-purpose meeting each year to review the Company's +strategy, to approve its annual business plan and annual budget, and to act on +matters relating to the Company's Annual Meeting and filings with the Securities +and Exchange Commission. +Non-employee directors meet by themselves in executive sessions, without +management or employee directors present, at every regularly scheduled Board +meeting. In addition, the non-employee directors and independent directors may +convene additional executive sessions at any time. +These executive sessions are led by the Chair of the committee that is +responsible for the subject matter at issue (e.g., the Audit Committee Chair +would lead a discussion of audit-related matters). When it is not clear which +committee has specific responsibility for the subject matter, the Chair of the +Compensation and Corporate Governance Committee presides. +COMMITTEES OF THE BOARD +The Board has four standing committees: the Audit Committee, the +Compensation and Corporate Governance Committee, the Nominating Committee and +the Executive Committee. +Each Committee, except the Executive Committee, is composed entirely of +independent directors and operates under a written charter. The Chair of each +Committee is elected by the Board. Each Committee, except the Executive +Committee, holds regular executive sessions at which only Committee members are +present. Each Committee is authorized to retain its own outside counsel and +other advisors as it desires. +As noted above, charters for the Audit Committee, the Compensation and +Corporate Governance Committee, and the Nominating Committee are available on +the Company's website, but a brief summary of the committees' responsibilities +follows: +Audit Committee. The Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the quality and integrity of +the Company's financial statements and accounting practices, the Company's +compliance with legal and regulatory requirements, the independent auditor's +qualifications and independence, and the performance of the Company's +independent auditor and internal audit function. +Nominating Committee. The Nominating Committee is responsible for +assisting the Board in carrying out its responsibilities relating to the +composition of the Board, including identifying, reviewing and recommending +candidates to the Board for nomination or election as directors. +Compensation and Corporate Governance Committee. The Compensation and +Corporate Governance Committee is responsible for assisting the Board in +carrying out its responsibilities relating to executive compensation, the +Company's corporate governance practices, CEO performance review and succession +7 +planning, director compensation, Board and Committee performance evaluation and +stockholder communication matters. +Executive Committee. The Executive Committee meets between scheduled +meetings of the Board of Directors and has the power and authority of the Board, +except as limited by the Company's By-Laws. +BOARD AND COMMITTEE PERFORMANCE EVALUATIONS +The Board of Directors conducts periodic evaluations of its composition, +responsibilities, structure, processes and effectiveness. Each Committee of the +Board conducts a similar evaluation with respect to such Committee. These +evaluations are conducted under the auspices of the Compensation and Corporate +Governance Committee. +STANDARDS OF BUSINESS CONDUCT +In order to help assure the highest levels of business ethics at the +Company, the Board of Directors has adopted the Company's Standards of Business +Conduct, which apply to the Company's directors, officers and employees. The +Standards of Business Conduct provide an overview of the Company's policies +pertaining to employee conduct in the workplace, regulatory compliance and +investigations; the Company's relationships with its customers, vendors, +competitors and the public; insider trading; conflicts of interest; lobbying; +political activities and contributions; accuracy of books, records and financial +statements; confidentiality; and the protection of all who come forward to +report suspected violations of the Standards. In addition, with respect to the +Company's officers who are responsible for financial reporting, including the +Chief Executive Officer, Chief Financial Officer and Controller, the Standards +of Business Code are designed to act as a code of ethics that are designed to +promote honest and ethical conduct and mandate that these officers avoid +conflicts of interest and disclose any relationship that could give rise to a +conflict, protect the confidentiality of non-public information about the +Company, work to achieve responsible use of the Company's assets and resources, +comply with all applicable governmental rules and regulations and promptly +report any possible violation of the Standards. In addition, the Standards +require that these individuals promote full, fair, understandable and accurate +disclosure in the Company's publicly filed reports and other public +communications and sets forth standards for accounting practices and records. +Individuals to whom the Standards of Business Conduct apply are held accountable +for their adherence to it. Failure to observe the terms of the Standards of +Business Conduct can result in disciplinary action (including termination of +employment). +1. ELECTION OF DIRECTORS +The Board of Directors currently consists of five directors and is divided +into three classes. The directors are elected by the holders of the Company's +Common Stock to serve three-year terms. +The holders of the Company's Series B Preferred Stock historically held the +right to elect one director to serve a three-year term. As a result of the +transfer of all of the outstanding shares of Series B Preferred Stock on March +9, 2004 this right lapsed. +Richard L. Cote, the Company's Executive Vice President, Chief Financial +Officer, Treasurer, Secretary and a director of the Company since its founding +in June 1996, has announced his intention to retire as an officer of the +Company. Mr. Cote, whose term will expire at the Annual Meeting, has also +decided not to stand for re-election to the Board of Directors. +At the Annual Meeting, one person is to be elected to hold office as a +director until the 2007 Annual Meeting of Stockholders or until successor is +duly elected and qualified. In the absence of instructions to the contrary, the +persons named in the accompanying proxy will vote such proxy "FOR" the election +of the nominee named below. Should the nominee become unavailable, which is not +anticipated, it is intended that proxies will be voted for the election of such +other person, if any, as the Board of Directors may recommend in place of such +nominee. +8 +DIRECTOR INDEPENDENCE AND QUALIFICATIONS +The Board of Directors has determined that this year's director nominee and +two of the three directors whose term of office will extend beyond this year's +Annual Meeting are "independent" within the criteria established under the +Company's Corporate Governance Principles. See "Corporate Governance -- Criteria +for Membership on the Board." In addition, the Board has determined that each +such director is financially literate and possesses the high level of skill, +experience, reputation and commitment that is mandated by the Board. +INFORMATION CONCERNING NOMINEE FOR ELECTION AS DIRECTOR WHOSE TERM WILL EXPIRE +AT THE 2007 ANNUAL MEETING +Graham Y. Tanaka, 56, has been a director of the Company since its +formation in June 1996. Mr. Tanaka has been President of Tanaka Capital +Management, Inc., an investment management firm, since 1986. From 1989 until +1996, Mr. Tanaka was a limited partner of McFarland Dewey & Co., a financial +advisor to the Company. He is a director of Tanaka Fund Advisers and Tanaka +Capital Management. +VOTE REQUIRED +The election of Graham Y. Tanaka as a director of the Company requires the +affirmative vote of the holders of a plurality of the votes of the Company's +Common Stock and Series B Preferred Stock, voting together as a single class, +present in person or represented by proxy and entitled to vote. Abstentions by +holders of such shares and broker non-votes with respect to the election of +directors will be included in determining the presence of a quorum at the Annual +Meeting but will not be included in determining whether the nominee has received +the vote of such plurality. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION OF +GRAHAM Y. TANAKA AS A DIRECTOR OF THE COMPANY. +INFORMATION CONCERNING DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2005 ANNUAL +MEETING +Thomas R. Schwarz, 67, has been a director of the Company since its +formation in June 1996 and Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman's Inc., a +retailer of building materials, from 1990 until his retirement in 1994. From +1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz is a director +of Progressive Software, Tanaka Growth Fund, Lebhar-Friedman Publishing Company +and Yorkshire Global Restaurants. +Bart C. Shuldman, 47, has been Chief Executive Officer, President and a +director of the Company since its formation in June 1996 and Chairman of the +Board since February 2001. Previously, Mr. Shuldman was Vice President of Sales +and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April +1993 to August 1993, and served as President of Magnetec and later the combined +operations of Magnetec and Ithaca Peripherals Incorporated, another former +Tridex subsidiary, from August 1993 to June 1996. Prior to joining Magnetec, he +held several management positions with Mars Electronics International, a +division of Mars, Incorporated, from 1989 to 1993, including serving as Business +Manager for the North American Amusement, Gaming and Lottery operations. From +1979 to 1989, he held manufacturing and sales management positions with General +Electric Company. +INFORMATION CONCERNING DIRECTOR WHOSE TERM WILL EXPIRE AT THE 2006 ANNUAL +MEETING +Charles A. Dill, 64, has been a director of the Company since its formation +in June 1996. Mr. Dill has been a General Partner of Gateway Associates, a +venture capital firm, since 1996. From 1991 to 1995, Mr. Dill served as +President, Chief Executive Officer and a director of Bridge Information Systems, +Inc. Mr. Dill currently serves as a director of Zoltek Companies, Inc., Stifel +Financial Corp. and DT Industries, Inc. +9 +THE BOARD OF DIRECTORS AND ITS COMMITTEES +During the year ended December 31, 2003, the Board of Directors held six +meetings. Each director attended all of the meetings of the Board of Directors +and of the Committees of the Board of Directors on which such director served, +except Jeffrey T. Leeds, a former director of the Company, who attended only 47% +of such meetings. The Company strongly encourages all of the directors to attend +the Annual Meeting of Stockholders. Last year, all of the directors, except +Jeffrey T. Leeds, attended the Annual Meeting. +The standing committees of the Board of Directors are the Audit Committee, +the Compensation and Corporate Governance Committee, the Nominating Committee +and the Executive Committee. +The Audit Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka, with Mr. Dill serving as Chair. As discussed above +under "Corporate Governance -- Criteria for Membership on the Board", the Board +has determined that each member of the Audit Committee is an independent +director and meets the financial literacy requirements of The Nasdaq Stock +Market to serve on the Committee. In addition, the Board has determined that Mr. +Dill is an "audit committee financial expert" as defined under the rules of the +Securities and Exchange Commission. The Audit Committee operates under a written +charter, which was revised in March 2004 and is attached to this Proxy Statement +as Appendix A. The Audit Committee met four times during 2003. +The Compensation and Corporate Governance Committee is comprised of Messrs. +Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz +serving as Chair. The Compensation and Corporate Governance Committee operates +under a written charter, which was adopted in March 2004 and is posted on the +Company's website. See "Corporate Governance -- Recent Developments." The +Compensation and Corporate Governance Committee met five times during 2003. +The Nominating Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating +Committee operates under a written charter, which was adopted in March 2004 and +is posted on the Company's website. See "Corporate Governance -- Recent +Developments." The Nominating Committee did not meet during 2003. +The Executive Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz, Bart C. Shuldman and Graham Y. Tanaka. The Executive Committee did not +meet during 2003. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the quality and integrity of +the Company's financial statements and accounting practices, the Company's +compliance with legal and regulatory requirements, the independent auditor's +qualifications and independence, and the performance of the Company's +independent auditor and internal audit function. +In connection with its duties, the Audit Committee has taken the following +actions: +- It has reviewed and discussed the audited financial statements with +management. +- It has discussed with the independent auditors, which are responsible for +expressing an opinion on the financial statements in accordance with +generally accepted accounting principles, the matters required to be +discussed by Statement on Auditing Standards No. 61, "Communication with +Audit Committees," as amended. +- It has received from the independent auditors the written disclosures +describing any relationships between the independent auditors and the +Company and the letter confirming their independence required by +Independence Standards Board Standard No. 1, "Independence Discussions +with Audit Committees," and has discussed with the independent auditors +matters relating to their independence. +10 +- Based on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial +statements of the Company for the year ended December 31, 2003 be +included in the Company's Annual Report on Form 10-K for filing with the +SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +COMPENSATION OF DIRECTORS +During the year ended December 31, 2003, each outside director of the +Company received as compensation for services rendered (i) a retainer of $2,000 +for each fiscal quarter served as director, (ii) $750 for each Board of +Directors meeting attended, (iii) $300 for each Board of Directors committee +meeting attended, (iv) $250 for each telephonic Board of Directors meeting, and +(v) $100 for each telephonic committee meeting. Chairs of committees received +$600 for each committee meeting attended and $200 for each telephonic meeting. +Directors are reimbursed expenses incurred in attending meetings. +Pursuant to the terms of the Company's Non-Employee Directors' Stock Plan +(the "Directors' Plan"), each non-employee director receives a non-qualified +option to purchase 7,500 shares of common stock upon his or her initial election +to the Board of Directors. Thereafter, each director who is not an employee of +the Company receives an annual grant of a non-qualified option to purchase +11,250 shares of common stock. Each option is granted at an exercise price equal +to 100% of the fair market value of the common stock on the date of grant, +expires ten years from the date of grant, and becomes exercisable at a rate of +20% per year on the first through fifth anniversaries of the date of grant. In +the event of a change-in-control, stock options awarded under the Directors' +Plan not previously exercisable shall become fully exercisable. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +On February 23, 1999, the Company loaned Bart C. Shuldman, the Chairman, +Chief Executive Officer and President of the Company, $330,000 to fund his +purchase in the market of 104,000 shares of the Company's common stock. Mr. +Shuldman pledged 93,423 of the shares purchased with the loan proceeds and +50,000 shares of restricted common stock as security for the promissory note. +The principal and any unpaid interest under the note were due in a balloon +payment five years after the date of the loan. The interest rate on the note was +calculated based on the Company's average variable lending rate under its +primary credit facility. During 2002, interest was compounded and added to +principal monthly and was payable at maturity. Thereafter, it was scheduled to +accrue annually and to be payable at maturity. In June 2003, Mr. Shuldman repaid +the loan in full. +11 +EXECUTIVE COMPENSATION +The following tables set forth information concerning the compensation +earned by the Company's Chief Executive Officer and each of the other four most +highly compensated executive officers (the "Named Executive Officers") in 2003: +SUMMARY COMPENSATION TABLE +LONG TERM +COMPENSATION +----------------------- +AWARDS +----------------------- ALL +ANNUAL COMPENSATION RESTRICTED SECURITIES OTHER +-------------------- STOCK UNDERLYING COMPEN- +FISCAL SALARY(1) BONUS AWARDS(3) OPTIONS(4) SATION(5) +NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) ($) +---------------------------- ------ ---------- ------- ---------- ---------- --------- +Bart C. Shuldman................... 2003 390,000 73,125 -- -- 56,413 +Chairman, President and 2002 375,000 25,000 -- 112,500 9,003 +Chief Executive Officer 2001 368,500 -- -- 70,000 8,342 +Richard L. Cote.................... 2003 206,000 30,900 -- -- 26,124 +Executive Vice President, 2002 198,000 7,500 -- 65,000 10,785 +Chief Financial Officer, 2001 198,000 -- 47,500 17,500 10,777 +Treasurer and Secretary +James B. Stetson(6)................ 2003 174,720 58,633(2) -- -- 22,094 +Executive Vice President 2002 168,000 31,118(2) -- 25,000 8,030 +Sales and Marketing 2001 151,333 60,181(2) -- 7.500 7,421 +Michael S. Kumpf................... 2003 158,600 20,816 -- -- 17,045 +Executive Vice President -- 2002 152,555 6,000 -- 24,500 7,838 +Engineering 2001 152,555 -- -- 3,500 7,415 +Steven A. DeMartino................ 2003 145,600 16,380 -- -- 29,764 +Senior Vice President -- 2002 140,000 5,000 -- 38,000 5,060 +Finance and Information +Technology 2001 140,000 -- 47,500 2,000 4,895 +--------------- +(1) None of the Named Executive Officers received perquisites or other personal +benefits in an amount which exceeded 10% of their salary plus bonus during +any fiscal year. +(2) A portion of the bonuses paid to Mr. Stetson represents commissions on sales +by the Company and a portion of the bonus paid in 2001 represents a +relocation bonus. +(3) All restricted stock awards were granted under the Company's 1996 Stock +Plan. The value of the restricted stock awards is based on the closing +market price of the Company's common stock on the date of grant. At the end +of fiscal year 2003, the number of shares of common stock which remain +subject to restricted awards and the value of such shares, based on the +closing price of the Company's common stock of $24.35 on such date, were as +follows: Mr. Shuldman held no shares of restricted stock; Mr. Cote: 5,000 +shares and $121,750; Mr. Stetson: 2,000 shares and $48,700; and Mr. +DeMartino: 4,333 shares and $105,509. The grants of shares of restricted +stock in 2001 (i) to Mr. Cote vested in two equal installments beginning on +the first anniversary of the date of grant; and (ii) to Mr. DeMartino vested +in three equal installments beginning on the first anniversary of the date +of grant. Currently, no dividends may be paid on shares of the Company's +common stock. +(4) All options were granted under the Company's 1996 Stock Plan. +(5) For all the Named Executive Officers, these amounts consist of Company +contributions under the Company's 401(k) Plan and other benefits, such as +life and disability insurance. Also, for 2003, includes a one-time payment +of accrued vacation as of December 31, 2002. +(6) Mr. Stetson was appointed Senior Vice President -- Worldwide Sales in +February 2000 and Executive Vice President -- Sales and Marketing in +November 2001. +12 +AGGREGATED OPTION EXERCISES IN 2003 AND FISCAL YEAR-END +OPTION VALUES +NUMBER OF SECURITIES VALUE OF UNEXERCISED +SHARES UNDERLYING UNEXERCISED IN-THE-MONEY +ACQUIRED ON VALUE OPTIONS AT OPTIONS AT +EXERCISE REALIZED FISCAL YEAR-END (#) FISCAL YEAR-END($) +NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE +---- ----------- -------- ------------------------- ------------------------- +Bart C. Shuldman.......... 36,000 544,410 121,050/103,250 2,108,205/1,949,825 +Richard L. Cote........... 0 0 92,500/43,000 1,679,875/809,613 +James B. Stetson.......... 29,000 421,194 --/26,000 --/479,663 +Michael S. Kumpf.......... 21,950 154,525 24,367/15,183 405,797/288,358 +Steven A. DeMartino....... 23,000 347,943 10,800/20,200 206,430/378,370 +EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +Under the terms of an Employment Agreement dated July 31, 1996 between Bart +C. Shuldman and the Company, Mr. Shuldman serves as President and Chief +Executive Officer at the pleasure of the Board of Directors. If Mr. Shuldman's +employment is terminated other than for cause, Mr. Shuldman shall be entitled to +continue to receive (i) his annual base salary and all other benefits for two +years from the date of termination and (ii) a pro rata portion of his annual +target bonus amount for the year of termination. If Mr. Shuldman's employment is +terminated other than for cause, or if Mr. Shuldman resigns for specified +reasons, within one year of a change-in-control of the Company, Mr. Shuldman +shall be entitled to continue to receive his annual base salary, annual target +bonus and all benefits for a period of three years from the date of termination. +In addition, the Company shall cause the immediate vesting of all stock options +granted to Mr. Shuldman under the 1996 Stock Plan. +Under the terms of an Employment Agreement dated July 31, 1996 between +Richard L. Cote and the Company, Mr. Cote serves as Executive Vice President and +Chief Financial Officer. If Mr. Cote's employment is terminated other than for +cause, Mr. Cote shall be entitled to continue to receive (i) his annual base +salary and all benefits for one year from the date of termination, and (ii) a +pro rata portion of his annual target bonus for the year of termination. If Mr. +Cote's employment is terminated other than for cause, or if Mr. Cote resigns for +specified reasons, within one year of a change-in-control of the Company, Mr. +Cote shall be entitled to continue to receive his annual base salary, annual +target bonus and all benefits for a period of two years from the date of +termination. In addition, the Company shall cause the immediate vesting of all +options granted to Mr. Cote under the 1996 Stock Plan. +Under the terms of Severance Agreements between the Company and James B. +Stetson, Michael S. Kumpf and Steven A. DeMartino dated January 24, 2001, +September 4, 1996, and January 21, 1998, respectively, if the employment of Mr. +Stetson, Mr. Kumpf or Mr. DeMartino is terminated other than for cause, each +executive shall be entitled to continue to receive, for six months following the +date of termination, the annual base salary, a pro rata portion of the annual +target bonus for the year of termination and all benefits which would otherwise +have been payable to each of them. If the employment of Mr. Stetson, Mr. Kumpf +or Mr. DeMartino is terminated other than for cause, or if they resign for +specified reasons, within one year of a change-in-control of the Company, each +shall be entitled to continue to receive his or her annual base salary, annual +target bonus and all benefits for a period of one year from the date of +termination. In addition, the Company shall cause the immediate vesting of all +stock options granted under the 1996 Stock Plan. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee, which is comprised of independent directors of +the Company, is responsible for administering the Company's executive +compensation policies. In connection with such responsibilities, the +Compensation Committee establishes the general compensation policies for the +Company, approves the hiring and termination of all executive officers and any +staff reporting directly to the Chief Executive Officer of the Company and +approves the compensation plans and specific compensation levels for all +executive officers and any staff reporting directly to the Chief Executive +Officer of the Company. The +13 +Compensation Committee also approves the issuance of all awards to employees of +the Company and its subsidiaries under the Company's 1996 Stock Plan and 2001 +Employee Stock Plan. +Compensation Policies and Goals +The primary goals of the Company's compensation policies are to attract, +retain, motivate and reward management of the Company and its operating units, +while, at the same time, aligning their interests closely with those of the +Company and its stockholders. The Company seeks to attract and retain management +by offering a competitive total compensation package. To align the interests of +management more closely with those of the Company as a whole and reward +individual initiative and effort, the Company seeks to promote performance-based +compensation where contribution to the Company as a whole is rewarded. Through +the use of performance-based plans that reward attainment of operating unit or +Company goals, the Company seeks to foster an attitude of teamwork. The Company +also believes that the use of equity ownership is an important tool to ensure +that the efforts of management are consistent with the objectives of its +stockholders and seeks to promote increased ownership of the Company by +management through the use of stock awards. +The Compensation Committee has tried to achieve the above goals utilizing +publicly available information regarding competitive compensation. The +Compensation Committee utilizes an independent consultant to ensure that +compensation for the Company's management is competitive, meets the above-stated +objectives and is consistent for all members of management of the Company and +its operating units. +Compensation Components +At present, the compensation of the executive officers of the Company +consists of a combination of salary, cash bonuses, stock options, restricted +stock and participation in the Company's 401(k) Plan, as well as the provision +of medical and other personal benefits typically offered to corporate +executives. The executive officers of the Company are parties to agreements +which provide for severance payments under certain circumstances. These +agreements for the Named Executive Officers are described above under +"Employment Contracts, Termination of Employment and Change-In-Control +Arrangements." +Salaries: As of January 1, 2003, the base salaries of the Named Executive +Officers were increased by 4% to keep them competitive with those of others in +the industry. A further adjustment of 3% was approved on October 30, 2003, to be +effective March 1, 2004, for all of the Named Executive Officers except Mr. +Shuldman, the Chairman, President and Chief Executive Officer of the Company. +The Compensation Committee targets the Chief Executive Officer's salary at the +mean of that for the Company's peer group. Although the Compensation Committee +did not approve an increase in Mr. Shuldman's annual base salary, this was done +with the understanding that he would receive additional shares of restricted +stock during fiscal 2004 in order to keep his total compensation package +competitive with those of others in the industry. +Cash Bonuses: The Company generally maintains an incentive compensation +plan for all salaried employees of the Company and its operating units, +including key executives, which provides for the payment of cash bonuses. Under +the plan, the Board of Directors fixes an incentive target, as well as +individual goals and objectives, for each employee at the beginning of the year +and bonuses are paid shortly after the end of the year. During fiscal 2003, the +Company achieved earnings per share performance that entitled the Named +Executive Officers to receive certain bonuses with respect to such year. +Stock Awards: Under the Company's 1996 Stock Plan and 2001 Employee Stock +Plan, stock options and restricted stock are granted by the Compensation +Committee. All salaried employees are granted an initial award of stock options +on their date of hiring for a fixed number of shares depending on their level, +which generally vests over three years. In each year following the initial +award, eligible employees may be granted an annual award in varying amounts +depending on their level and individual performance. However, during 2003 no +options or shares of restricted stock were granted to the Named Executive +Officers of the Company. +14 +Other Benefit Plans: Executive officers of the Company may participate in +the Company's nondiscriminatory 401(k) Plan. +COMPENSATION COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Graham Y. Tanaka +15 +CORPORATE PERFORMANCE GRAPH +The following graph compares the cumulative total return on the Company's +Common Stock from December 31, 1998 through December 31, 2003, with the CRSP +Total Return Index for the Nasdaq Stock Market (US) and the Nasdaq Computer +Manufacturer Stocks Index. The graph assumes that $100 was invested on December +31, 1998 in each of the Company's common stock, the CRSP Total Return Index for +the Nasdaq Stock Market (US) and the Nasdaq Computer Manufacturer Stocks Index +and that all dividends were reinvested. +COMPARISON OF CUMULATIVE TOTAL RETURN AMONG +TRANSACT TECHNOLOGIES INCORPORATED COMMON STOCK, +THE CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (US), +AND THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX +[PERFORMANCE LINE GRAPH] +---------------------------------------------------------------------------------------------------------------- +12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 +---------------------------------------------------------------------------------------------------------------- +TransAct Technologies +Incorporated Common Stock $100.00 $228.28 $158.47 $166.01 $143.07 $734.98 +CRSP Total Return Index for the +Nasdaq Stock Market (US) $100.00 $185.43 $111.83 $ 88.77 $ 61.37 $ 91.75 +Nasdaq Computer Manufacturer +Stocks Index $100.00 $212.27 $121.27 $ 83.37 $ 55.24 $ 76.86 +2. RATIFICATION OF SELECTION OF PRICEWATERHOUSECOOPERS LLP AS +INDEPENDENT AUDITORS FOR 2004 +The Audit Committee has selected PricewaterhouseCoopers LLP as independent +auditors to audit the financial statements of the Company for the 2004 fiscal +year. This selection is being presented to the +16 +stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP +has audited the Company's financial statements since the Company's formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at +the Annual Meeting, will have the opportunity to make a statement, and is +expected to be available to respond to appropriate questions. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT AUDITORS +The Audit Committee has established a policy requiring its pre-approval of +all audit services and permissible non-audit services provided by the +independent auditors, along with the associated fees for those services. The +Policy provides for the annual pre-approval of specific types of services +pursuant to policies and procedures adopted by the Audit Committee, and gives +detailed guidance to management as to the specific services that are eligible +for such annual pre-approval. The Policy requires the specific pre-approval of +all other permitted services. For both types of pre-approval, the Audit +Committee considers whether the provision of a non-audit service is consistent +with the Securities and Exchange Commission's rules on auditor independence, +including whether provision of the service (i) would create a mutual or +conflicting interest between the independent auditors and the Company, (ii) +would place the independent auditors in the position of auditing its own work, +(iii) would result in the independent auditors acting in the role of management +or as an employee of the Company, or (iv) would place the independent auditors +in a position of acting as an advocate for the Company. In addition, the Audit +Committee considers whether the independent auditors are best positioned and +qualified to provide the most effective and efficient service, based on factors +such as the independent auditors' familiarity with the Company's business, +personnel, systems or risk profile and whether provision of the service by the +independent auditors would enhance the Company's ability to manage or control +risk or improve audit quality or would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to +address certain requests for pre-approval of services between meetings of the +Committee, and such Committee member is required to report his or her +pre-approval decisions to the Committee at its next regular meeting. The Policy +is designed to ensure that there is no delegation by the Audit Committee of +authority or responsibility for pre-approval decisions to management of the +Company. The Audit Committee monitors compliance by management with the +pre-approval policy by requiring management, pursuant to the Policy, to report +to the Audit and Finance Committee on a regular basis regarding the pre-approved +services rendered by the independent auditors. +INDEPENDENT AUDITORS' SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, +retention and oversight of the work of the independent auditors. Accordingly, +the Audit Committee has appointed PricewaterhouseCoopers LLP to perform audit +and other services for the Company. In addition, the Committee recently +instituted revised procedures for the pre-approval by the Committee of all +services provided by PricewaterhouseCoopers LLP. These pre-approval procedures, +as amended, are described below under "Policy Regarding Pre-Approval of Services +Provided by the Independent Auditors." +The aggregate fees, including out-of-pocket expenses, billed by +PricewaterhouseCoopers LLP to the Company for the years ended December 31, 2003 +and 2002 are as follows: +2003 2002 +-------- -------- +Audit Fees(1)............................................... $144,700 $102,600 +Audit-Related Fees(2)....................................... 13,500 10,000 +Tax Fees(3)................................................. 53,725 52,300 +All Other Fees.............................................. 0 0 +-------- -------- +Total Fees for Services Provided............................ $211,925 $164,900 +======== ======== +17 +--------------- +(1) Audit Fees were for audit services, including (a) the annual audit +(including required quarterly reviews), subsidiary audits and other +procedures required to be performed by the independent auditors to be able +to form an opinion on the Company's consolidated financial statements, (b) +consultation with management as to the accounting or disclosure treatment of +transactions or events and/or the actual or potential impact of proposed +rules, standards or interpretations by the SEC, FASB or other regulatory or +standard-setting bodies, (c) international statutory audits, and (d) +services that only the independent auditors reasonably can provide, such as +services associated with SEC registration statements and periodic reports +and other documents filed with the SEC or other documents issued in +connection with securities offerings. +(2) Audit-Related Fees were for the audit of the Company's 401(k) Plan. +(3) Tax Fees were for preparation of tax returns and refund claims and +assistance with tax audits. +The Audit Committee has considered whether the provision of the above +services other than Audit Fees is compatible with maintaining the auditors' +independence and has determined that, in its opinion, they are compatible. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as +independent auditors for 2004 requires the affirmative vote of a majority of the +votes of the Common Stock and Series B Preferred Stock, voting together as a +single class, present in person or represented by proxy and entitled to vote. +Abstentions by holders of such shares with respect to voting on this matter will +have the effect of a negative vote; broker non-votes with respect to voting on +this matter will have no effect on the outcome of the vote. In the event +stockholders do not ratify the appointment, the Audit Committee will reconsider +the appointment. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR 2004. +STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year's proxy +materials must be received by the Secretary of the Company on or before December +25, 2004. Proposals should be addressed to TransAct Technologies Incorporated, 7 +Laser Lane, Wallingford, Connecticut 06492, Attention: Secretary. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors +if the proper nomination procedures specified in the Company's By-Laws are +followed. All nominations by stockholders must be delivered to or mailed and +received at the principal executive offices of the Company not less than 30 nor +more than 60 days prior to the meeting at which election of directors will take +place; however, if less than 40 days' notice or prior public disclosure of the +date of the meeting is given or made to stockholders, nominations will be timely +if received not later than 10 days after notice was given or public disclosure +was made. A stockholder's notice must set forth in writing (i) for each person +proposed to be nominated, all information relating to each such person that is +required to be disclosed in solicitations of proxies for election of directors +pursuant to Regulation 14A under the Exchange Act, including such person's +written consent to be named in the proxy and to serving as a director, and (ii) +for the stockholder giving notice, the (x) name and address of such stockholder +as they appear on the Company's books, and (y) the class and number of shares of +the Company beneficially owned by such stockholder. The Nominating Committee +will also consider any stockholder recommendation of a candidate for nomination +by the Board if the stockholder submits his or her recommendation in accordance +with the foregoing procedures. +18 +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder wishing to communicate directly with members of the Board +of Directors should do so in writing. All correspondence addressed to the Board +as a whole, to its independent directors, to any of its Committees or Committee +Chairs, or to individual Board members should be mailed to the following +address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +7 Laser Lane +Wallingford, Connecticut 06492 +- You are welcome to communicate anonymously or confidentially. +- All correspondence addressed to an individual director or Committee +Chair, and marked "Confidential", will be collected in the office of the +Secretary and forwarded unopened to the individual director. +- Other correspondence will be opened by the Secretary, reviewed, copied +and directed as follows: +- Concerns regarding the Company's accounting, internal accounting +controls or auditing matters will be referred to the members of the +Audit Committee. +- Nominations or recommendations of candidates for election to the Board +of Directors will be referred to members of the Nominating Committee. +- Other correspondence will be copied by the Secretary and forwarded to +all of the members of the Board of Directors (or its independent +directors, if so addressed) unless the stockholder directs otherwise. +- A Stockholder may request written acknowledgement of the receipt of his +or her correspondence, which will be provided by the Secretary or, in the +case of correspondence marked "Confidential", by the individual director +or Committee Chair to whom it is addressed. +ANNUAL REPORT +A COPY OF THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON +FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE +FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS +SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER +RELATIONS DEPARTMENT, 7 LASER LANE, WALLINGFORD, CONNECTICUT 06492. +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise +specified, proxies will be voted for the director nominated by the Board of +Directors and for ratification of the selection of PricewaterhouseCoopers LLP as +independent auditors for 2004. As of the date of this Proxy Statement, the Board +of Directors is not aware of any matter which is to be presented for action at +the Annual Meeting other than the matters set forth herein. Should any other +matter requiring a vote of the stockholders arise at the Annual Meeting, the +proxies confer upon the persons named in the accompanying proxy the authority to +vote in respect of any such other matter in accordance with the recommendation +of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by (i) giving written notice of revocation to the +Secretary of the Company, (ii) properly submitting to the Company a duly +executed proxy bearing a later date, or (iii) voting in person at the Annual +Meeting. All written notices of revocation and other communications with respect +to revocation of proxies should be addressed to the Company, as follows: +TransAct Technologies Incorporated, 7 Laser Lane, Wallingford, Connecticut +06492, Attention: Secretary. A proxy appointment will not be revoked by death or +supervening +19 +incapacity of the stockholder executing the proxy unless, before the shares are +voted, notice of such death or incapacity is filed with the Company's Secretary +or other person responsible for tabulating votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be +borne by the Company. The Company may solicit proxies otherwise than by use of +the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use their personal efforts, by telephone or +otherwise, to obtain proxies. The Company will also request persons, firms and +corporations holding shares in their names, or owned by others, to send this +proxy material to and obtain proxies from such beneficial owners and will +reimburse such holders for their reasonable expenses in doing so. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE +ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS +HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +April 23, 2004 +20 +APPENDIX A +TRANSACT TECHNOLOGIES INCORPORATED +AUDIT COMMITTEE CHARTER +INTRODUCTION +The Board of Directors of TransAct Technologies Incorporated (the +"Company") has adopted this charter for its Audit Committee (the "Committee"). +This charter is intended to supplement the provisions in the Company's By-Laws +pertaining to the Committee. +COMMITTEE COMPOSITION +Number and Qualifications +The Committee shall have at least three members. Each director who serves +on the Committee must be affirmatively determined by the Company's Board of +Directors to satisfy the requirements established by the Company's By-Laws and +Corporate Governance Principles, as well as by The Nasdaq Stock Market, to be +considered an "independent" member of the Board. The Board of Directors must +determine that each member of the Committee satisfies the requirements governing +independence of audit committee members established by the Securities and +Exchange Commission (the "SEC"), including those set forth in Rule 10A-3(b)(1) +under the Securities Exchange Act of 1934, as amended. No member of the +Committee may have participated in the preparation of the financial statements +of the Company or any of the Company's current subsidiaries at any time during +the past three years. +The Board must determine that each member of the Committee is able to read +and understand fundamental financial statements, including a company's balance +sheet, income statement and cash flow statement. The Board must also determine +that at least one member of the Committee has past employment experience in +finance or accounting, requisite professional certification in accounting, or +any other comparable experience or background which results in the individual's +financial sophistication (including having been a chief executive officer, chief +financial officer or other senior officer with financial oversight +responsibilities). In addition, at least one member of the Committee should +satisfy the criteria to be an "audit committee financial expert" under the rules +and regulations of the SEC, as those criteria are interpreted by the Board. +Appointment +The Board of Directors, upon the recommendation of the Compensation and +Corporate Governance Committee, shall elect the Chair and other members of the +Committee on an annual basis, generally at the first meeting of the Board of +Directors following the Company's annual stockholders meeting. +Rotation and Removal +The Committee Chair shall be rotated periodically. To assure familiarity +with the issues facing the Committee, a member of the Committee generally should +have served at least one year on the Committee prior to becoming its Chair. The +Board of Directors may, pursuant to the By-Laws, remove a member of the +Committee, or replace the Chair, provided that the Board must, at all times, +assure that the Committee will have a Chair and sufficient members to satisfy +the requirements set forth above relating to the number and qualifications of +Committee members. +PURPOSE +The Committee's purpose is to assist the Board in fulfilling its +responsibilities to oversee the quality and integrity of the Company's financial +statements and accounting practices, the Company's compliance with legal and +regulatory requirements, the independent auditor's qualifications and +independence, and the +A-1 +performance of the Company's internal audit function and independent auditor. In +addition, the Committee shall produce the Committee's report to be included in +the Company's annual proxy statement. +RESPONSIBILITIES +While the fundamental responsibility for the Company's financial statements +rests with management and its independent auditor, and while the internal +auditor and independent auditor are responsible for conducting audits, the +Committee shall have the following authority and responsibilities: +Independent Auditor +- Appointment and Oversight. The Committee is directly responsible for the +appointment, compensation, retention and oversight of any registered +accounting firm engaged for the purpose of preparing or issuing an audit +report and performing other audit, review or attest services for the Company +(the "Independent Auditor"). The Independent Auditor shall report directly to +the Committee. The Committee shall have a clear understanding with the +Independent Auditor that the firm is ultimately accountable to the Committee, +as the stockholders' representative. +- Evaluation. The Committee shall, at least annually (including at the time it +appoints the Independent Auditor), evaluate the Independent Auditor's +qualifications, performance and independence. This evaluation shall include +the review and evaluation of the lead partner of the Independent Auditor. In +making its evaluation, the Committee shall take into account the opinions of +management and the Corporation's internal auditor. The Committee shall report +its findings to the Board. +- Annual Report on Quality Control and Independence. The Committee shall +receive and review, at least annually, a report from the Independent Auditor +relating to the firm's independence and the quality of its internal controls. +This report shall describe (i) the Independent Auditor's internal +quality-control procedures, (ii) any material issues raised by the most recent +peer review or internal quality-control review of the firm, (iii) any material +issues raised by any governmental or professional authority in any inquiry or +investigation, within the preceding five years, regarding any independent +audit carried out by the firm, and (iv) any steps taken to deal with any +issues raised in connection with clauses (ii) and (iii) above. Further, to +assist the Committee in assessing the firm's independence, the report shall +describe all relationships between the Independent Auditor and the Company +(including any significant fees for any anticipated non-audit services), +including those required by Independence Standards Board Standard No. 1, +Independence Discussions with Committees. The Committee shall present its +conclusions with respect to the independence of the Independent Auditor to the +Board. +- Firm and Partner Rotation. The Committee shall consider, at least annually, +whether the Company should have a policy requiring a regular rotation of the +Independent Auditor and report its findings to the Board. The Committee shall +also establish a policy regarding the rotation of the lead partner and +concurring and reviewing partners in accordance with applicable SEC +regulations. +- Hiring Policy. The Committee shall establish a policy regarding the Company's +hiring of current or former employees of the Independent Auditor. +- Independent Auditor Plan. The Committee shall review with the Independent +Auditor and management the plan and scope of the Independent Auditor's +proposed annual financial audit and quarterly reviews, including the +procedures to be utilized and the Independent Auditor's compensation. +The Committee or subcommittee thereof shall also pre-approve all audit, +non-audit and any other services to be provided by the Independent Auditor in +accordance with such policies as may, from time to time, be adopted by the +Committee. +- Audit Reports and Reviews. The Committee shall, in consultation with +management and the Independent Auditor, review the results of the annual +financial audit and limited quarterly reviews of the Company's financial +statements, significant findings thereof, and any other matters required to be +communicated by the Independent Auditor under Generally Accepted Auditing +Standards, including, if applicable, the Indepen- +A-2 +dent Auditor's summary of any significant accounting, auditing and internal +control issues, along with questions, comments and recommendations and +management's corrective action plans, if applicable (i.e., the management or +internal control letter ). In conjunction with its annual audit and its +limited quarterly reviews of the Company's financial statements, the +Independent Auditor will review with the Committee any problems or +difficulties the Independent Auditor encountered in the course of its work, +including any restrictions on the scope of the firm's activities, its access +to information, or any significant disagreements with management and +management's responses to such matters. Management shall notify the Committee +when it seeks a second opinion on a significant accounting issue. The +Committee shall be responsible for the resolution of any disagreements between +management and the Independent Auditor regarding financial reporting. +Internal Audit +- Internal Auditor. The Company's internal audit function may be managed by an +internal auditor, who shall report directly to the Committee or in such other +manner as the Committee shall deem appropriate. The Committee shall have the +sole authority to hire and terminate any internal auditor. An internal auditor +may report, solely for administrative purposes, to the Chief Financial +Officer. +- Internal Audit Reports. The Committee shall receive regular reports from the +internal auditor or other party responsible for the performance of the +internal audit function regarding the results of the internal audits. The +Committee shall also discuss with the internal auditor or such other party, at +least annually, the responsibilities, budget and staffing of the Company's +internal audit function. +Financial Statements +- Form 10-K. The Committee shall review, in consultation with management and +the Independent Auditor, the Company's annual financial statements, the +Independent Auditor's report, and the Company's disclosures under Management's +Discussion and Analysis of Financial Condition and Results of Operations +("MD&A") to be contained in the annual report on Form 10-K (or the annual +report to stockholders if distributed prior to the filing of the Form 10-K) +prior to the filing of the Form 10-K with the SEC. The Committee shall be +responsible for providing the Board with a recommendation as to the inclusion +of the Corporation's financial statements in the Form 10-K. +- Form 10-Q. The Committee shall review, in consultation with management and +the Independent Auditor, the Corporation's interim financial statements and, +prior to filing each of the Company's quarterly reports on Form 10-Q with the +SEC, discuss the results of the period covered by the Form 10-Q. +- Scope of Review. In reviewing the Company's Forms 10-Q and 10-K, the +Committee shall review with management and the Independent Auditor: +- the certifications required to be made by management in relation to the +filings, including regarding any significant deficiencies or weaknesses +in the design or operation of the Company's internal control over +financial reporting and any fraud, whether or not material, involving +management or other employees who have a significant role in the +Company's system of internal control; +- major issues regarding the presentation of, and the clarity of the +disclosure in, the Company's financial statements; +- major issues regarding the Company's accounting principles, including (i) +significant changes in the Company's selection or application of its +accounting principles, (ii) material questions of choice with respect to +the appropriate accounting principles and practices used and to be used +in the preparation of the Company's financial statements, including +judgments about the quality, not just acceptability, of accounting +principles, and (iii) the reasonableness of those significant judgments; +- significant regulatory and accounting initiatives, including material +changes in, or adoptions of, accounting principles and disclosure +practices and standards; +- the effect of off-balance sheet structures on the Company's financial +statements; +A-3 +- any analyses prepared by management or the Independent Auditor regarding +the foregoing matters; and +- other communications regarding the results of the Independent Auditor's +audit or review, including any other matters required to be communicated +to the Committee by the Independent Auditor under Generally Accepted +Auditing Standards. +Earnings Releases and Guidance +- Review of Releases. The Committee (or Committee Chair) shall discuss with +management and the Independent Auditor each of the Corporation's earnings +releases prior to its issuance. +- Periodic Review. In addition, the Committee shall periodically review and +discuss with management and the Independent Auditor the type of presentation +and information to be included in the Company's earnings press releases +(including, but not limited to, the use of "pro forma" and "adjusted non-GAAP +information"), and earnings guidance provided to analysts and rating agencies. +Finance Matters +- Review of Financial Structure. The Committee shall review and make +recommendations to the Board concerning the financial structure, condition and +strategy of the Company, including with respect to annual budgets, long-term +financial plans, corporate borrowings, investments, capital expenditures, +long-term commitments, and the issuance and repurchase of stock. +- Approval of Other Matters. The Committee shall also have the authority to +approve certain transactions and other matters that are consistent with +guidelines that may be established from time to time by the Board, including +related party transactions involving directors and executive officers of the +Company. +Compliance, Internal Controls & Risk Management +- Compliance Program. The Committee shall be responsible for reviewing and +recommending the Company's Standards of Business Conduct for approval by the +Board. The Committee shall oversee the Company's compliance program and +receive regular reports from management on any significant compliance findings +and recommendations. The Committee shall also establish procedures for (i) the +receipt, retention and treatment of complaints received by the Company +regarding accounting, internal accounting controls and auditing matters; and +(ii) the confidential, anonymous submission by the Company's employees of +concerns regarding questionable accounting or auditing matters. +- Regulatory Action and Investigations. Unless otherwise determined by the +Board, the Committee (i) shall have the authority to oversee the Company's +response to regulatory actions, including investigations, involving financial, +accounting and internal control matters, and (ii) may investigate any matter +within the scope of its responsibilities that it determines appropriate. +- Internal Control. The Committee shall review major issues as to the adequacy +of the Company's internal controls and any audit steps taken in light of +material control deficiencies. +- Risk Assessment. The Committee shall discuss the Company's major financial +and other risk exposures and the steps that management has taken to monitor +and control such exposures, including the Company's risk assessment and risk +management policies. In fulfilling this responsibility, the Committee shall +receive a report from management at least annually regarding the manner in +which the Company is assessing and managing the Company's exposure to +financial and other risks. +COMMITTEE OPERATIONS +Meeting Schedule +The Committee shall approve its schedule of meetings and shall meet at +least four times a year. The Committee may also hold additional meetings at the +direction of the Chairman of the Board or at the request +A-4 +of any Committee member. The Committee may meet in person or by telephone +conference call, and may act by unanimous written consent. +Agenda and Materials +The Committee Chair shall approve the agenda for the meetings and any +member may suggest items for the Committee's consideration. Briefing materials +shall be provided to the Committee as far in advance of a meeting as +practicable. +Attendance at Meetings +The Committee, in the discretion of its Chair, may invite members of +management to attend the Committee's meetings. All independent directors who are +not Committee members shall be invited to attend Committee meetings, provided +that (i) the Committee shall meet without such other directors during executive +session, (ii) the Committee Chair may ask non-Committee members to leave the +meeting at any time, and (iii) such non-Committee members may not vote on any +actions considered by the Committee. +Executive Sessions +The Committee shall hold an executive session at each regularly scheduled +meeting. As part of these executive sessions, the Committee shall meet +separately and privately with each of the following (i) management, (ii) the +internal auditor, and (iii) representatives of the Independent Auditor. During +at least some portion of each executive session, no non-Committee member of the +Board or member of management shall be present. +Voting +A majority of the Committee members shall constitute a quorum. Each +Committee member shall have one vote and actions at meetings may be approved by +a majority of the members present. +Delegation +Except as otherwise prohibited by law or the Company's Certificate of +Incorporation or By-Laws, the Committee may delegate any or all of its +responsibilities to a subcommittee of the Committee. +Reporting to the Board +At the Board of Directors meeting following each Committee meeting, the +Committee Chair (or the Chair's designee) shall report to the full Board on the +Committee's actions. +Committee Resources +To assist the Committee in fulfilling its responsibilities, (i) each +Committee member shall have full access to any member of management, the +internal auditor and the Independent Auditor, and (ii) the Committee may retain +such independent consultants, counsel and other advisors as it determines +necessary to carry out its duties. The Committee will have sole authority and +responsibility for hiring, approving the fees and retention terms for, and +terminating the services of, such advisors. +The Company will provide appropriate funding, as determined by the +Committee, for payment of the fees of the Independent Auditor, the +administrative expenses of the Committee, and any advisors that the Committee +may employ in carrying out its duties. +A-5 +Performance Evaluation +The Committee shall conduct a periodic self-evaluation of its performance +within the framework established by the Compensation and Corporate Governance +Committee. The evaluation shall address subjects including the Committee's +composition, responsibilities, structure, processes and effectiveness. As part +of this evaluation, the Committee shall also review the Committee's charter. The +Committee shall make recommendations to management, the Compensation and +Corporate Governance Committee and the full Board based on its performance +evaluation as appropriate. +A-6 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD WEDNESDAY, MAY 26, 2004 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the +"Company") does hereby nominate, constitute and appoint Bart C. Shuldman and +Richard L. Cote, or either of them, with full power to act alone, my true and +lawful attorney with full power of substitution, for me and in my name, place +and stead to vote all of the shares of Common Stock of the Company standing in +my name on its books on April 16, 2004, at the Annual Meeting of its +stockholders to be held at The Century Club, 7 W. 43rd Street, New York, New +York 10036 on Wednesday, May 26, 2004 at 11:30 a.m., or at any adjournment +thereof, with all powers the undersigned would possess if personally present as +follows: +(TO BE SIGNED ON REVERSE SIDE) +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 26, 2004 +[X] Please mark your votes as in this example. +FOR WITHHELD +1. ELECTION OF [ ] [ ] Nominee: Graham Y. Tanaka +DIRECTOR +FOR AGAINST ABSTAIN +2. RATIFICATION OF SELECTION [ ] [ ] [ ] +OF PRICEWATERHOUSECOOPERS LLP +AS INDEPENDENT AUDITORS +FOR 2004 +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED ON BEHALF OF THE UNDERSIGNED +AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS +PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE DATE , 2004 +--------------------------- ----------------- +SIGNATURE DATE , 2004 +--------------------------- ----------------- +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on the mailing label. When +shares are held by joint tenants, both should sign. When signing as +attorney, executor, administrator, trustee or guardian, please give full +title as such. If signing on behalf of a corporation, please sign the +full corporate name by president or other authorized officer. If signing +on behalf of a partnership, please sign the partnership name by +authorized person. +FOR HOLDERS OF PREFERRED STOCK ONLY +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD WEDNESDAY, MAY 26, 2004 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the +"Company") does hereby nominate, constitute and appoint Bart C. Shuldman and +Richard L. Cote, or either of them, with full power to act alone, my true and +lawful attorney with full power of substitution, for me and in my name, place +and stead to vote all of the shares of Preferred Stock of the Company standing +in my name on its books on April 16, 2004, at the Annual Meeting of its +stockholders to be held at The Century Club, 7 W. 43rd Street, New York, New +York 10036 on Wednesday, May 26, 2004 at 11:30 a.m., or at any adjournment +thereof, with all powers the undersigned would possess if personally present as +follows: +Name of Stockholder: +------------------------ +Address of Stockholder: +------------------------ +------------------------ +------------------------ +------------------------ +------------------------ +Number of Shares: +------------------------ +(TO BE SIGNED ON REVERSE SIDE) +FOR HOLDERS OF PREFERRED STOCK ONLY +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 26, 2004 +[X] Please mark your votes as in this example. +FOR WITHHELD +1. ELECTION OF [ ] [ ] Nominee: Graham Y. Tanaka +DIRECTOR +FOR AGAINST ABSTAIN +2. RATIFICATION OF SELECTION [ ] [ ] [ ] +OF PRICEWATERHOUSECOOPERS LLP +AS INDEPENDENT AUDITORS +FOR 2004 +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED ON BEHALF OF THE UNDERSIGNED +AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS +PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE DATE , 2004 +--------------------------- ----------------- +SIGNATURE DATE , 2004 +--------------------------- ----------------- +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on the mailing label. When +shares are held by joint tenants, both should sign. When signing as +attorney, executor, administrator, trustee or guardian, please give full +title as such. If signing on behalf of a corporation, please sign the +full corporate name by president or other authorized officer. If signing +on behalf of a partnership, please sign the partnership name by +authorized person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-04-005091/proxy_rpt.txt b/raw/proxies/0001017303/0000950123-04-005091/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..386ea8b306ddd65655200063c789d61f6464fbe4 --- /dev/null +++ b/raw/proxies/0001017303/0000950123-04-005091/proxy_rpt.txt @@ -0,0 +1,27 @@ +related party transactions involving directors and executive officers of the +Company. +Compliance, Internal Controls & Risk Management +- Compliance Program. The Committee shall be responsible for reviewing and +recommending the Company's Standards of Business Conduct for approval by the +Board. The Committee shall oversee the Company's compliance program and +receive regular reports from management on any significant compliance findings +and recommendations. The Committee shall also establish procedures for (i) the +receipt, retention and treatment of complaints received by the Company +regarding accounting, internal accounting controls and auditing matters; and +(ii) the confidential, anonymous submission by the Company's employees of +concerns regarding questionable accounting or auditing matters. +- Regulatory Action and Investigations. Unless otherwise determined by the +Board, the Committee (i) shall have the authority to oversee the Company's +response to regulatory actions, including investigations, involving financial, +accounting and internal control matters, and (ii) may investigate any matter +within the scope of its responsibilities that it determines appropriate. +- Internal Control. The Committee shall review major issues as to the adequacy +of the Company's internal controls and any audit steps taken in light of +material control deficiencies. +- Risk Assessment. The Committee shall discuss the Company's major financial +and other risk exposures and the steps that management has taken to monitor +and control such exposures, including the Company's risk assessment and risk +management policies. In fulfilling this responsibility, the Committee shall +receive a report from management at least annually regarding the manner in +which the Company is assessing and managing the Company's exposure to +financial and other risks. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-05-005470/proxy.txt b/raw/proxies/0001017303/0000950123-05-005470/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..5f462ec7fd77faac96a5ebfaebc614ce4abea567 --- /dev/null +++ b/raw/proxies/0001017303/0000950123-05-005470/proxy.txt @@ -0,0 +1,1881 @@ +DEF 14A +1 +y08275def14a.txt +TRANSACT TECHNOLOGIES INC. +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (As Permitted by +Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Section 240.14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +---------------------------------- +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant +to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is +calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 25, 2005 +Notice is hereby given that the 2005 Annual Meeting of Stockholders (the +"Annual Meeting") of TransAct Technologies Incorporated (the "Company" or +"TransAct"), a Delaware corporation, will be held on May 25, 2005 at 10:00 a.m. +Eastern Daylight Savings Time, at the Four Points by Sheraton Hotel, 275 +Research Parkway, Meriden, CT 06450 for the following purposes, all of which are +more completely set forth in the accompanying Proxy Statement: +(1) To elect two directors to serve until the 2008 Annual Meeting of +Stockholders or until the director's successor has been duly elected +and qualified; +(2) To ratify the selection of PricewaterhouseCoopers LLP as the Company's +independent registered public accounting firm for 2005; +(3) To approve the 2005 Equity Incentive Plan; and +(4) To transact such other business as may legally come before the Annual +Meeting. +Stockholders of record at the close of business on March 28, 2005 are +entitled to notice of and to vote at the Annual Meeting. The transfer books will +not be closed for the Annual Meeting. +By Order of the Board of Directors, +STEVEN A. DEMARTINO +Secretary +Wallingford, Connecticut +May 2, 2005 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT +YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH +REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT +PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE +IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 25, 2005 +This Proxy Statement is being furnished to the stockholders of TransAct +Technologies Incorporated (the "Company") in connection with the solicitation of +proxies by the Board of Directors of the Company for use at the Annual Meeting +of Stockholders of the Company to be held on May 25, 2005, and any adjournments +or postponements thereof (the "Annual Meeting"). This Proxy Statement, the +foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's +2004 Annual Report to Stockholders are first being mailed or given to +stockholders on or about May 2, 2005. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power +to revoke the same anytime prior to its being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in +such form or at such time as to render it not votable. The proxy is in ballot +form so that a specification may be made to grant or withhold authority to vote +for the election of directors and to indicate separate approval or disapproval +as to the other matters presented to stockholders. All of the proposals will be +presented by the Board of Directors. The shares represented by the proxy will be +voted for the election of the director named thereon, unless authority to do so +is withheld. With respect to the other proposals presented to stockholders by +the Board of Directors, the shares represented by the proxy will be voted in +accordance with the specification made. Where a choice is not so specified, the +shares represented by the proxy will be voted for the proposal. In addition, the +proxy confers discretionary authority to vote on any matter properly presented +at the Annual Meeting which is not known to the Company as of the date of this +Proxy Statement. +VOTING SECURITIES +Stockholders of record on March 28, 2005 are entitled to vote at the Annual +Meeting. Each holder of Common Stock is entitled to cast one vote for each share +of Common Stock held on March 28, 2005. There were 10,194,808 shares of Common +Stock issued and outstanding and entitled to vote at the close of business on +March 28, 2005. Shares representing a majority of the votes entitled to be cast +at the Annual Meeting, present in person or represented by proxy, will +constitute a quorum to transact business. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information known to the Company regarding +the beneficial ownership of the Company's common stock as of March 28, 2005 by: +(i) each person known by the Company to own beneficially more than 5% of the +Company's common stock; (ii) each director or nominee for director of the +Company; (iii) each current executive officer of the Company named in the +Summary Compensation Table; and (iv) all current directors and executive +officers of the Company as a group. Except as otherwise indicated, each of the +persons named in the table has sole voting power and sole dispositive power with +respect to the shares set forth opposite such person's name and the address of +the holder is 7 Laser Lane, Wallingford, CT 06492. +SHARES +BENEFICIALLY PERCENT OF +NAME OF BENEFICIAL OWNER OWNED CLASS +------------------------ ------------ ---------- +COMMON STOCK +Bart C. Shuldman(1)......................................... 373,736 3.46% +Graham Y. Tanaka(2)......................................... 335,097 3.11% +Charles A. Dill(3).......................................... 215,006 1.99% +Michael S. Kumpf(4)......................................... 93,274 * +Steven A. DeMartino(5)...................................... 80,400 * +Thomas R. Schwarz(6)........................................ 63,225 * +James B. Stetson(7)......................................... 43,000 * +All current directors and executive officers as a group (7 +persons)(8)............................................... 1,203,738 11.16% +Janus Capital Management LLC(9)............................. 894,475 8.29% +151 Detroit Street +Denver, CO 80206 +Arbor Capital Management, LLC(10)........................... 892,500 8.27% +One Financial Plaza +120 South Sixth Street, Suite 1000 +Minneapolis, MN 55402 +Barclays Global Investors, NA(11)........................... 590,231 5.47% +45 Fremont Street +San Francisco, CA 94105 +--------------- +* Less than 1% of the outstanding Common Stock. +(1) Includes 78,634 owned jointly with Mr. Shuldman's spouse, 1,500 shares +owned by his spouse in an individual retirement account, 4,800 shares owned +by his minor children and 3,750 shares owned by his mother. Also includes +50,000 unvested shares of restricted stock of the Company and 268,550 +shares subject to options exercisable within 60 days of March 28, 2005 +granted under the Company's 1996 Stock Plan. +(2) Includes 41,250 shares subject to options exercisable within 60 days of +March 28, 2005 granted under the Company's Non-Employee Directors' Stock +Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka for the +benefit of his children. +(3) Includes 56,250 shares subject to options exercisable within 60 days of +March 28, 2005 granted under the Non-Employee Directors' Stock Plan. Also +includes 85,821 shares with respect to which Mr. Dill is the trustee for +the benefit of his parent and 1,500 shares owned by his spouse. +(4) Includes 21,000 unvested shares of restricted stock of the Company and +45,174 shares subject to options exercisable within 60 days of March 28, +2005 granted under the 1996 Stock Plan. +(5) Includes 24,000 unvested shares of restricted stock of the Company and +41,400 shares subject to options exercisable within 60 days of March 28, +2005 granted under the 1996 Stock Plan. +(6) Includes 41,250 shares subject to options exercisable within 60 days of +March 28, 2005 granted under the Non-Employee Directors' Stock Plan. Also +includes 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his +capacity as trustee of a trust for the benefit of his granddaughter and +1,500 shares beneficially owned by his daughter, as to which shares he +disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(7) Includes 16,000 unvested shares of restricted stock of the Company and +22,500 shares subject to options exercisable within 60 days of March 28, +2005 granted under the 1996 Stock Plan. +(8) Includes 111,000 unvested shares of restricted stock of the Company and +517,624 shares subject to options exercisable within 60 days of March 28, +2005 granted under the 1996 Stock Plan and the Non-Employee Directors' +Stock Plan. +2 +(9) Based on information provided in a Schedule 13G filed with the Securities +and Exchange Commission (the "SEC") on February 14, 2005 by Janus Capital +Management LLC ("Janus Capital") and Janus Venture Fund, Janus Capital is +an investment adviser and indirect majority owner of two other investment +advisers, Enhanced Investment Technologies LLC and Bay Isle Financial LLC, +and such entities have sole voting power and sole dispositive power over +894,475 shares of the Company's Common Stock, including 805,350 shares of +Common Stock with respect to which Janus Venture Fund, a registered +investment company to which Janus Capital provides investment advice, has +sole voting power and sole dispositive power. +(10) Based on information provided in a Schedule 13G filed with the SEC on +February 4, 2005 by Arbor Capital Management, LLC ("Arbor Capital") and +Rick D. Leggott, Arbor Capital is an investment adviser and Mr. Leggott is +the CEO of Arbor Capital and beneficially owns a controlling percentage of +its outstanding voting securities, and such parties have sole voting power +and sole dispositive power over 892,500 shares of the Company's Common +Stock. +(11) Based on information provided in a Schedule 13G filed with the SEC on +February 14, 2005, Barclays Global Investors, NA ("Barclays Global +Investors") and Barclays Global Fund Advisors ("Barclays Global Advisors"), +Barclays Global Investors is a bank that has sole voting power over 425,165 +shares and dispositive power over 491,921 shares of the Company's Common +Stock, and Barclays Global Advisors is an investment advisor that has sole +voting power over 92,892 shares and dispositive power over 98,310 shares of +the Company's Common Stock. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the +"Exchange Act"), requires the Company's directors, executive officers and +persons who beneficially own more than 10% of the Company's common stock to file +with the SEC and the Nasdaq Stock Market reports of ownership and reports of +changes in ownership of common stock and other equity securities of the Company +and to furnish the Company with copies of all such reports they file. To the +Company's knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2004, all such reports were timely filed except: +(i) Messrs. Shuldman, Cote, Kumpf, Stetson and DeMartino received grants of +restricted stock as of January 2, 2004 which were reported late on Form 4 on +February 10, 2004, and (ii) Mr. Kumpf exercised an employee stock option and +sold shares of the underlying Common Stock on March 24, 2004 which was reported +late on Form 4 on March 30, 2004. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit +the long-term interests of the Company's stockholders by clearly outlining the +Company's duties and responsibilities, providing a framework for active and +fruitful discussions among the members of the Company's Board of Directors and +between the Board and management, and avoiding conflicts of interest and other +legal and ethical problems. Accordingly, the Company's corporate governance +practices are designed not only to satisfy regulatory requirements, but also to +provide for effective management of the Company. +Information on the Company's corporate governance practices is available to +the public under "Corporate Governance" on the Company's website at +www.transact-tech.com. The information on the website includes the Company's +Corporate Governance Principles, the charters of the Board's Committees, and the +Company's Standards of Business Conduct, which includes a code of ethics +applicable to the officers responsible for financial reporting, including the +Chief Executive Officer, Chief Financial Officer and Controller. +3 +The remainder of this section of the Proxy Statement summarizes the key +features of the Company's corporate governance practices: +BOARD SIZE +The Corporate Governance Principles provide that the Board should generally +have between five and ten members. In establishing the appropriate number of +directors, the Board and the Compensation and Corporate Governance Committee +consider (i) resignations and retirements from the current Board, (ii) the +availability of appropriate, qualified candidates, and (iii) the goal of +assuring that the Board is small enough to facilitate active discussions and +decision-making while, at the same time, is large enough to provide an +appropriate mix of continuity, experience, skills and diversity so that the +Board and its Committees can effectively perform their responsibilities. +The Board's Nominating Committee is considering whether or not at this time +an additional Board member is appropriate. +CRITERIA FOR MEMBERSHIP ON THE BOARD +The Board and its Nominating Committee consider a number of different +factors in selecting nominees for director. Some of these factors, such as +integrity, are applied uniformly to all prospective candidates. Others, such as +specific industry experience, may be adopted on a case by case basis by the +Board and the Nominating Committee based on the Company's business needs at the +time a nomination is under consideration. The Nominating Committee and the Board +of Directors apply the same criteria to each candidate for a particular position +on the Board, regardless of whether the candidate is proposed by a stockholder +or some other source. Specific criteria considered by the Nominating Committee +and the Board include: +Independence. The Board of Directors, in its Corporate Governance +Principles and Committee charters, has established a policy that a substantial +majority of the directors be "independent" members of the Board. The Nominating +Committee and the Board consider the independence of each prospective director +before election and further consider the independence of all continuing +directors on at least an annual basis. The Board has determined that all the +directors, except for Mr. Shuldman, who is the Company's Chief Executive +Officer, are independent in accordance with the Company's criteria. The Board +applies the following criteria in determining independence, which criteria are +derived from Nasdaq's listing standards as well as certain additional +requirements that are imposed on certain Committee members under the rules and +regulations of the Securities and Exchange Commission and the Internal Revenue +Service: +- Independent Judgment. The director must not have any relationship with +the Company that, in the opinion of the Board, would interfere with the +exercise of independent judgment in carrying out the responsibilities of +a director. In making this determination, the Board considers all +relevant facts and circumstances, including commercial, charitable and +familial relationships that might have an impact on the director's +judgment. +- Employment. The director must not have been an employee of the Company +at any time during the past three years. In addition, a member of the +director's immediate family (including the director's spouse, parents, +children, siblings, mother-in-law, father-in-law, brother-in-law, +sister-in-law, son-in-law, daughter-in-law and anyone who resides in the +director's home) must not have been an executive officer of the Company +during the past three years. +- Other Payments. Neither the director nor a member of his or her +immediate family member may have received payments of more than $60,000 +per year from the Company during the current or any of the past three +years, except for director fees, payments arising solely from investments +in the Company's securities, benefits under certain Company plans and +non-discretionary compensation, certain permitted loans and compensation +paid to a family member who is not an executive officer of the Company. +4 +- Auditor Affiliation. Neither the director nor a member of his or her +immediate family may be a current partner of the Company's independent +auditors or have been a partner or employee of the Company's independent +auditors who worked on the Company's audit at any time during the past +three years. +- Interlocking Directorships. Neither the director nor any member of his +or her immediately family may be employed as an executive officer by +another entity where, at any time during the past three years, any of the +Company's executive officers served on the compensation committee. +- Transactions. Neither the director nor any member of his or her +immediately family may be a partner in, or a controlling stockholder or +executive officer of, any organization that, during the current or any +one of the past three years, received payments from the Company, or made +payments to the Company, for property or services that exceed the greater +of $200,000 or 5% of the recipient's annual consolidated gross revenues +for such year (excluding payments arising solely from investments in the +Company's securities or paid under a non-discretionary charitable +matching program). +- Additional Standards for Audit Committee Members. Any director who +serves on the Board's Audit Committee may not, directly or indirectly, +have received any consulting, advisory or other compensatory fee from the +Company (other than certain retirement benefits and deferred +compensation) or be an affiliate of the Company (except as a director, +but including by way of stock ownership). In addition, no such director +may have participated in the preparation of the financial statements of +the Company or any current subsidiary of the Company at any time during +the past three years. +Overall Board Composition. The Board of Directors believes it is important +to consider the professional skills and background, experience in relevant +industries, age and diversity of its directors in light of the Company's current +and future business needs. +Personal Qualities. Each director must possess certain personal qualities, +including integrity, judgment and business acumen. In addition, each director +must be no older than 75 years of age at the time of nomination or renomination. +Commitments. Each director must have the time and ability to make a +constructive contribution to the Board. While the Board does not believe it is +appropriate to establish a single standard regarding the number of other boards +on which a director may sit, this is a factor that may be considered in +reviewing a candidate's suitability. +Additional Criteria for Incumbent Directors. During their terms, all +incumbent directors on the Company's Board are expected to have regular +attendance at Board and Committee meetings; to stay informed about the Company +and its business; to participate in discussions of the Board and its Committees; +to take an interest in the Company's business and provide advice and counsel to +the Company's Chief Executive Officer; and to comply with the Company's +Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the +criteria established from time to time by The Nasdaq Stock Market, the +Securities and Exchange Commission, the Internal Revenue Service and other +applicable regulatory entities for service on the Board and its Committees. +DIRECTOR NOMINATION PROCESS +Under its charter, the Nominating Committee is responsible for identifying, +reviewing and recommending individuals to the Board for nomination or election +as directors. This typically involves the following steps: +- Specific Criteria. The Nominating Committee and the Board review the +overall composition of the Board in light of the Company's current and +expected business needs and, as a result of such assessments, may +establish specific qualifications that the Committee will seek in Board +candidates. +- Identifying New Candidates. The Committee may seek to identify new +candidates for the Board (i) who possess the desired qualifications, and +(ii) who satisfy the other requirements for Board +5 +service. In identifying new director candidates, the Committee may seek +advice and names of candidates from Committee members, other members of +the Board, members of management, and other public and private sources. +The Committee may also, but need not, retain a search firm in order to +assist it in these efforts. +- Reviewing New Candidates. The Committee reviews the potential new +director candidates identified through this process. This involves +reviewing the candidates' qualifications and conducting an appropriate +background investigation. The Committee may also select certain +candidates to be interviewed by one or more Committee members. +- Reviewing Incumbent Candidates. On an annual basis, the Committee also +reviews incumbent candidates for renomination to the Board. This review +involves an analysis of the criteria described above that apply to +incumbent directors. +- Recommending Candidates. The Nominating Committee recommends a slate of +candidates for the Board of Directors to submit for approval to the +stockholders at the Annual Meeting. This slate of candidates may include +both incumbent and new nominees. In addition, apart from this annual +process, the Committee may, in accordance with the Corporate Governance +Principles, recommend that the Board elect new members of the Board who +will serve until the next annual stockholders meeting. At the time of +making any recommendation to the Board, the Committee reports on the +criteria that were applied in making the recommendation and its findings +concerning each candidate's qualifications. +- Stockholder Nominations Submitted to the Committee. Stockholders may +also submit names of director candidates, including their own, to the +Nominating Committee for its consideration. The process for stockholders +to use in submitting suggestions to the Nominating Committee is set forth +below at "Procedures for Submitting Director Nominations and +Recommendations." +BOARD MEETINGS AND EXECUTIVE SESSIONS +The Board of Directors not only holds regular quarterly meetings, but also +holds at least one special-purpose meeting each year to review the Company's +strategy, to approve its annual business plan and annual budget, and to act on +matters relating to the Company's Annual Meeting and filings with the Securities +and Exchange Commission. +Non-employee directors meet by themselves in executive sessions, without +management or employee directors present, at every regularly scheduled Board +meeting. In addition, the non-employee directors and independent directors may +convene additional executive sessions at any time. +These executive sessions are led by the Chair of the committee that is +responsible for the subject matter at issue (e.g., the Audit Committee Chair +would lead a discussion of audit-related matters). When it is not clear which +committee has specific responsibility for the subject matter, the Chair of the +Compensation and Corporate Governance Committee presides. +COMMITTEES OF THE BOARD +The Board has four standing committees: the Audit Committee, the +Compensation and Corporate Governance Committee, the Nominating Committee and +the Executive Committee. +Each Committee is composed entirely of independent directors and operates +under a written charter. The Chair of each Committee is selected by the Board. +Each Committee, except the Executive Committee, holds regular executive sessions +at which only Committee members are present. Each Committee is authorized to +retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance +Committee, and the Nominating Committee are available on the Company's website, +www.transact-tech.com, but a brief summary of the committees' responsibilities +follows: +Audit Committee. The Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the quality and integrity of +the Company's financial statements and accounting practices, the Company's +compliance with legal and regulatory requirements, the independent registered +6 +public accounting firm's qualifications and independence, and the performance of +the Company's independent registered public accounting firm and internal audit +function. +Nominating Committee. The Nominating Committee is responsible for +assisting the Board in carrying out its responsibilities relating to the +composition of the Board, including identifying, reviewing and recommending +candidates to the Board for nomination or election as directors. +Compensation and Corporate Governance Committee. The Compensation and +Corporate Governance Committee is responsible for assisting the Board in +carrying out its responsibilities relating to executive compensation, the +Company's corporate governance practices, CEO performance review and succession +planning, director compensation, Board and Committee performance evaluation and +stockholder communication matters. +Executive Committee. The Executive Committee meets between scheduled +meetings of the Board of Directors and has the power and authority of the Board, +except as limited by the Company's By-Laws. +BOARD AND COMMITTEE PERFORMANCE EVALUATIONS +The Board of Directors conducts periodic evaluations of its composition, +responsibilities, structure, processes and effectiveness. Each Committee of the +Board conducts a similar evaluation with respect to such Committee. These +evaluations are conducted under the auspices of the Compensation and Corporate +Governance Committee. +STANDARDS OF BUSINESS CONDUCT +In order to help assure the highest levels of business ethics at the +Company, the Board of Directors has adopted the Company's Standards of Business +Conduct, which apply to the Company's directors, officers and employees. The +Standards of Business Conduct provide an overview of the Company's policies +pertaining to employee conduct in the workplace, regulatory compliance and +investigations; the Company's relationships with its customers, vendors, +competitors and the public; insider trading; conflicts of interest; lobbying; +political activities and contributions; accuracy of books, records and financial +statements; confidentiality; and the protection of all who come forward to +report suspected violations of the Standards. In addition, with respect to the +Company's officers who are responsible for financial reporting, including the +Chief Executive Officer, Chief Financial Officer and Controller, the Standards +of Business Code are designed to act as a code of ethics that are designed to +promote honest and ethical conduct and mandate that these officers avoid +conflicts of interest and disclose any relationship that could give rise to a +conflict, protect the confidentiality of non-public information about the +Company, work to achieve responsible use of the Company's assets and resources, +comply with all applicable governmental rules and regulations and promptly +report any possible violation of the Standards. In addition, the Standards +require that these individuals promote full, fair, understandable and accurate +disclosure in the Company's publicly filed reports and other public +communications and sets forth standards for accounting practices and records. +Individuals to whom the Standards of Business Conduct apply are held accountable +for their adherence to it. Failure to observe the terms of the Standards of +Business Conduct can result in disciplinary action (including termination of +employment). +1. ELECTION OF DIRECTORS +The Board of Directors currently consists of four directors and is divided +into three classes. Each class of directors are elected by the holders of the +Company's Common Stock to serve staggered three-year terms. +At the Annual Meeting, two people are to be elected to hold office as a +director until the 2008 Annual Meeting of Stockholders or until successor is +duly elected and qualified. In the absence of instructions to the contrary, the +persons named in the accompanying proxy will vote such proxy "FOR" the election +of the nominees named below. Should either nominee become unavailable, which is +not anticipated, votes pursuant to the proxy will be cast for a substitute +candidate as may be designated by the Board of Directors, or in the absence of +such designation, in such other manner as the Board may in their discretion +determine. Alternatively, in such a situation, the Board of Directors may take +action to fix the number of directors for the ensuing year at the number of +nominees and incumbent directors who are then able to serve. +7 +DIRECTOR INDEPENDENCE AND QUALIFICATIONS +The Board of Directors has determined that all of the directors or +nominees, except for Mr. Shuldman, are "independent" within the criteria +established under the Company's Corporate Governance Principles. See "Corporate +Governance -- Criteria for Membership on the Board." In addition, the Board has +determined that each member of the Audit Committee is financially literate and +each director or nominee possesses the high level of skill, experience, +reputation and commitment that is mandated by the Board. +INFORMATION CONCERNING NOMINEE FOR RE-ELECTION AS DIRECTOR WHOSE TERM WILL +EXPIRE AT THE 2008 ANNUAL MEETING +Thomas R. Schwarz, 68, has been a director of the Company since its +formation in June 1996 and Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman's Inc., a +retailer of building materials, from 1990 until his retirement in 1994. From +1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz is a director +of Tanaka Growth Fund. +Bart C. Shuldman, 48, has been Chief Executive Officer, President and a +director of the Company since its formation in June 1996 and Chairman of the +Board since January 2001. Previously, Mr. Shuldman was Vice President of Sales +and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April +1993 to August 1993, and served as President of Magnetec, and later the combined +operations of Magnetec and Ithaca Peripherals Incorporated, another former +Tridex subsidiary, from August 1993 to June 1996. +VOTE REQUIRED +The election of Thomas R. Schwarz and Bart C. Shuldman, respectively, as +directors of the Company requires affirmative votes of the holders of a +plurality of the votes of the Company's Common Stock present in person or +represented by proxy and entitled to vote. Abstentions by holders of such shares +and broker non-votes will have no effect on the election of directors, but will +be included in determining the presence of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION OF +THOMAS R. SCHWARZ AND BART C. SHULDMAN AS DIRECTORS OF THE COMPANY. +INFORMATION CONCERNING DIRECTOR WHOSE TERM WILL EXPIRE AT THE 2006 ANNUAL +MEETING +Charles A. Dill, 65, has been a director of the Company since its formation +in June 1996. From 2004 to the present, Mr. Dill has served as a General Partner +of Two Rivers Advisors, a private equity investment firm. Mr. Dill has been a +General Partner of Gateway Associates, a venture capital firm, since 1996. Mr. +Dill currently serves as a director of Zoltek Companies, Inc. and Stifel +Financial Corp., as well as several other privately held companies. +INFORMATION CONCERNING DIRECTOR WHOSE TERM WILL EXPIRE AT THE 2007 ANNUAL +MEETING +Graham Y. Tanaka, 57, has been a director of the Company since its +formation in June 1996. Mr. Tanaka has been President of Tanaka Capital +Management, Inc., an investment management firm, since 1986. From 1989 until +1996, Mr. Tanaka was a limited partner of McFarland Dewey & Co., a financial +advisor to the Company. He is a director of Tanaka Funds, Inc. and Tanaka +Capital Management, Inc. +THE BOARD OF DIRECTORS AND ITS COMMITTEES +During the year ended December 31, 2004, the Board of Directors held four +meetings. Each director attended all of the meetings of the Board of Directors +and of the Committees of the Board of Directors on which such director served. +The standing committees of the Board of Directors are the Audit Committee, +the Compensation and Corporate Governance Committee, the Nominating Committee +and the Executive Committee. +The Audit Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka, with Mr. Dill serving as Chair. As discussed above +under "Corporate Governance -- Criteria for +8 +Membership on the Board", the Board has determined that each member of the Audit +Committee is an independent director and meets the financial literacy +requirements of The Nasdaq Stock Market to serve on the Committee. In addition, +the Board has determined that Mr. Dill is an "audit committee financial expert" +as defined under the rules of the Securities and Exchange Commission. The Audit +Committee operates under a written charter, which was revised in March 2004 and +is posted on the Company's website. The Audit Committee met four times during +2004. +The Compensation and Corporate Governance Committee is comprised of Messrs. +Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz +serving as Chair. The Compensation and Corporate Governance Committee operates +under a written charter, which was adopted in March 2004 and is posted on the +Company's website. See "Corporate Governance -- Recent Developments." The +Compensation and Corporate Governance Committee met three times during 2004. +The Nominating Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating +Committee operates under a written charter, which was adopted in March 2004 and +is posted on the Company's website. See "Corporate Governance -- Recent +Developments." The Nominating Committee met once during 2004. +The Executive Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka. The Executive Committee did not meet during 2004. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the internal control over +financial reporting and quality and integrity of the Company's financial +statements and accounting practices, the Company's compliance with legal and +regulatory requirements, the independent registered public accounting firm's +qualifications and independence, and the performance of the Company's +independent registered public accounting firm and internal audit function. +Although the Audit Committee oversees the Company's financial reporting +process for the Board of Directors consistent with the Audit Committee charter, +management is responsible for the Company's system of internal controls and the +preparation of the Company's consolidated financial statements in accordance +with generally accepted accounting principles. The independent registered public +accounting firm is responsible for performing independent audits of the +Company's consolidated financial statements and for issuing reports about those +financial statements. The Audit Committee meets with the independent registered +public accounting firm, the Chief Executive Officer and the senior management of +the Company to review the scope and the results of the annual audit, the amount +of audit fees, the Company's system of internal accounting controls over +financial reporting, the financial statements contained in the Company's Annual +Report to Stockholders and other related matters. In addition, the Audit +Committee reviews the Company's quarterly financial statements and discusses +them with both the senior management of the Company and the independent +registered public accounting firm prior to including such interim financial +statements in the Company's quarterly reports on Form 10-Q. Separate meetings +are held with the independent registered public accounting firm and management. +Substantial attention at Audit Committee meetings throughout 2004 was devoted to +progress updates and presentations by management and the independent registered +public accounting firm relative to the Company's Sarbanes-Oxley Section 404 +Internal Control Certification Program. Management's Report on Internal Control, +together with the independent registered public accounting firm's accompanying +report, has been reviewed by the Committee and is contained in the Company's +2004 Annual Report on Form 10-K. +In connection with its duties, the Audit Committee has taken the following +actions: +- It has reviewed and discussed the audited financial statements, as well +as management's assessment of the effectiveness of the Company's internal +controls over financial reporting, with management and the independent +registered public accounting firm. +- It has discussed with the independent registered public accounting firm, +which is responsible for expressing an opinion on the financial +statements in accordance with generally accepted accounting +9 +principles, the matters required to be discussed by Statement on Auditing +Standards No. 61, "Communication with Audit Committees," as amended by +Statement on Auditing Standards No. 90. +- It has received from the independent registered public accounting firm +the written disclosures describing any relationships between the +independent auditors and the Company and the letter confirming their +independence required by Independence Standards Board Standard No. 1, +"Independence Discussions with Audit Committees," and has discussed with +the independent auditors matters relating to their independence. +- Based on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial +statements of the Company for the year ended December 31, 2004 be +included in the Company's Annual Report on Form 10-K for filing with the +SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +COMPENSATION OF DIRECTORS +During the year ended December 31, 2004, each outside director of the +Company received as compensation for services rendered: (i) a retainer of $2,000 +for each fiscal quarter served as director, (ii) $750 for each Board of +Directors meeting attended, (iii) $300 for each Board of Directors committee +meeting attended, (iv) $250 for each telephonic Board of Directors meeting, and +(v) $100 for each telephonic committee meeting. Chairs of committees received +$600 for each committee meeting attended and $200 for each telephonic meeting. +Directors are reimbursed for expenses incurred in attending meetings. +Pursuant to the terms of the Company's Non-Employee Directors' Stock Plan +(the "Directors' Plan"), each non-employee director receives a non-qualified +option to purchase 7,500 shares of common stock upon his or her initial election +to the Board of Directors. Thereafter, each director who is not an employee of +the Company receives an annual grant of a non-qualified option to purchase +11,250 shares of common stock. Each option is granted at an exercise price equal +to 100% of the fair market value of the common stock on the date of grant, +expires ten years from the date of grant, and becomes exercisable at a rate of +20% per year on the first through fifth anniversaries of the date of grant. In +the event of a change-in-control, stock options awarded under the Directors' +Plan not previously exercisable shall become fully exercisable. +On March 25, 2005, the Compensation Committee approved a revised +compensation structure for outside directors. Beginning in April 2005, cash +compensation for non-employee directors will include the following: (i) a +quarterly retainer of $2,500 for each fiscal quarter served as a director, (ii) +1,000 for each Board of Directors meeting attended, (iii) $500 for each Board of +Directors committee meeting attended, (iv) $500 for each telephonic Board of +Directors meeting, and (v) $250 for each telephonic committee meeting. Chairs of +committees will receive $750 for each committee meeting attended and $250 for +each telephonic meeting. +In addition, subject to stockholder approval, the Compensation Committee +approved changes to equity compensation for non-employee directors. Under the +new approach, annual grants to each director of 11,250 non-qualified stock +options will be replaced by annual grants to each director of 5,000 shares of +restricted stock. The restricted stock will vest at the rate of 20% per year +beginning on the first anniversary of the date of grant. +10 +EXECUTIVE COMPENSATION +The following tables set forth information concerning the compensation +earned by the Company's Chief Executive Officer and each of the other four most +highly compensated executive officers (the "Named Executive Officers") in 2004: +SUMMARY COMPENSATION TABLE +LONG-TERM COMPENSATION +----------------------- +AWARDS +----------------------- ALL +ANNUAL COMPENSATION RESTRICTED SECURITIES OTHER +-------------------- STOCK UNDERLYING COMPEN- +FISCAL SALARY(1) BONUS AWARDS(3) OPTIONS(4) SATION(5) +NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) ($) +---------------------------- ------ ---------- ------- ---------- ---------- --------- +Bart C. Shuldman..................... 2004 390,000 52,650 612,500 -- 29,305 +Chairman, President and 2003 390,000 73,125 -- -- 56,413 +Chief Executive Officer 2002 375,000 25,000 -- 168,750 9,003 +Steven A. DeMartino(6)............... 2004 166,759 24,239 220,240 -- 18,521 +Executive Vice President, 2003 145,600 16,380 -- -- 29,764 +Chief Financial Officer, 2002 140,000 5,000 -- 57,000 5,060 +Treasurer and Secretary +Michael S. Kumpf..................... 2004 162,565 20,686 122,500 -- 20,132 +Executive Vice President, 2003 158,600 20,816 -- -- 17,045 +Engineering 2002 152,555 6,000 -- 36,750 7,838 +James B. Stetson(7).................. 2004 179,067 27,569 122,500(2) -- 21,587 +Senior Vice President and 2003 174,720 58,633 -- -- 22,094 +Business Manager, TransAct 2002 168,000 31,118 -- 37,500 8,030 +Services Group +Richard L. Cote(8)................... 2004 157,379 22,925 12,250 -- 25,293 +Vice President, Special Projects 2003 206,000 30,900 -- -- 26,124 +2002 198,000 7,500 -- 97,500 10,785 +--------------- +(1) None of the Named Executive Officers received perquisites or other personal +benefits in an amount which exceeded 10% of their salary plus bonus during +any fiscal year. +(2) A portion of the bonuses paid to Mr. Stetson represents commissions on sales +by the Company. +(3) All restricted stock awards were granted under the Company's 1996 Stock +Plan. The value of the restricted stock awards is based on the closing +market price of the Company's common stock on the date of grant. At the end +of fiscal year 2004, the number of shares of common stock which remain +subject to restricted awards and the value of such shares, based on the +closing price of the Company's common stock of $21.36 on such date, were as +follows: Mr. Shuldman: 37,500 shares and $801,000; Mr. DeMartino: 10,500 +shares and $224,280; Mr. Kumpf: 7,500 shares and $160,200; Mr. Stetson: +9,000 shares and $192,240; and Mr. Cote: 750 shares and $16,020. The grants +of shares of restricted stock in 2004 (i) to Mr. Shuldman, Mr. DeMartino, +Mr. Kumpf and Mr. Stetson vest in five equal installments beginning on the +first anniversary of the date of grant; and (ii) to Mr. Cote vest on the +first anniversary of the date of grant. Currently, no dividends may be paid +on shares of the Company's common stock. +(4) All options were granted under the Company's 1996 Stock Plan. +(5) For all the Named Executive Officers, these amounts consist of automobile +allowances, Company contributions under the Company's 401(k) Plan, and other +benefits such as life and disability insurance. Also, for 2003, includes a +one-time payment of accrued vacation as of December 31, 2002. +(6) Mr. DeMartino was appointed Senior Vice President, Finance and Information +Technology in October 2001, and replaced Richard L. Cote as Executive Vice +President, Chief Financial Officer, Treasurer and Secretary in June 2004. +11 +(7) Mr. Stetson was appointed Executive Vice President, Sales and Marketing in +November 2001 and Senior Vice President and Business Manager, TransAct +Services Group in October 2004. +(8) Mr. Cote stepped down as Executive Vice President, Chief Financial Officer, +Treasurer, Secretary and Director in June 2004 and was appointed Vice +President, Special Projects. Mr. Cote retired from the Company on January 2, +2005. +AGGREGATED OPTION EXERCISES IN 2004 AND FISCAL YEAR-END +OPTION VALUES +NUMBER OF SECURITIES VALUE OF UNEXERCISED +UNDERLYING UNEXERCISED IN-THE-MONEY +SHARES OPTIONS AT OPTIONS AT +ACQUIRED ON VALUE FISCAL YEAR-END FISCAL YEAR-END +EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE +NAME (#) ($) (#) ($) +---- ----------- --------- ------------------------- ------------------------- +Bart C. Shuldman......... 36,400 641,371 215,863/84,187 3,687,396/1,495,830 +Steven A. DeMartino...... 4,500 85,125 26,550/15,450 467,208/272,237 +Michael S. Kumpf......... 10,601 201,666 36,811/11,913 597,994/211,991 +James B. Stetson......... 6,750 109,242 12,000/20,250 215,820/353,540 +Richard L. Cote.......... 161,501 3,277,362 6,875/34,875 107,892/617,242 +EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +Under the terms of an Employment Agreement dated July 31, 1996 between Bart +C. Shuldman and the Company, Mr. Shuldman serves as President and Chief +Executive Officer at the pleasure of the Board of Directors. If Mr. Shuldman's +employment is terminated other than for Cause (as such term is defined in the +employment agreement), Mr. Shuldman shall be entitled to continue to receive: +(i) his annual base salary and all other benefits for two years from the date of +termination and (ii) a pro rata portion of his annual target bonus amount for +the year of termination. If Mr. Shuldman's employment is terminated other than +for Cause, or if Mr. Shuldman resigns for specified reasons, within one year of +a change-in-control of the Company, Mr. Shuldman shall be entitled to continue +to receive his annual base salary, annual target bonus and all benefits for a +period of three years from the date of termination. In addition, the Company +shall cause the immediate vesting of all restricted stock and stock options +granted to Mr. Shuldman under the 1996 Stock Plan. +Under the terms of a Severance Agreement with Steven A. DeMartino dated +June 1, 2004, if the employment of Mr. DeMartino is terminated other than for +Cause (as such term is defined in the severance agreement), Mr. DeMartino shall +be entitled to continue to receive, for one year following the date of +termination, his annual base salary, a pro rata portion of his annual target +bonus for the year of termination and all benefits which would otherwise have +been payable to him. If the employment of Mr. DeMartino is terminated other than +for Cause, or if he resigns for specified reasons, within one year of a +change-in-control of the Company, Mr. DeMartino shall be entitled to continue to +receive his annual base salary, annual target bonus and all benefits for a +period of two years from the date of termination. In addition, the Company shall +cause the immediate vesting of all restricted stock and stock options granted to +Mr. DeMartino under the 1996 Stock Plan. +Under the terms of Severance Agreements between the Company and James B. +Stetson and Michael S. Kumpf dated January 24, 2001 and September 4, 1996, +respectively, if the employment of Mr. Stetson or Mr. Kumpf is terminated other +than for Cause (as such term is defined in the respective severance agreement), +each executive shall be entitled to continue to receive, for six months +following the date of termination, the annual base salary, a pro rata portion of +the annual target bonus for the year of termination and all benefits which would +otherwise have been payable to each of them. If the employment of Mr. Stetson or +Mr. Kumpf is terminated other than for cause, or if they resign for specified +reasons, within one year of a change-in-control of the Company, each shall be +entitled to continue to receive his annual base salary, annual +12 +target bonus and all benefits for a period of one year from the date of +termination. In addition, the Company shall cause the immediate vesting of all +restricted stock and stock options granted under the 1996 Stock Plan. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee, which is comprised of independent directors of +the Company, is responsible for administering the Company's executive +compensation policies. In connection with such responsibilities, the +Compensation Committee establishes the general compensation policies for the +Company, approves the hiring and termination of all executive officers and any +staff reporting directly to the Chief Executive Officer of the Company and +approves the compensation plans and specific compensation levels for all +executive officers and any staff reporting directly to the Chief Executive +Officer of the Company. The Compensation Committee also approves the issuance of +all awards to employees of the Company and its subsidiaries under the Company's +1996 Stock Plan and 2001 Employee Stock Plan. +Compensation Policies and Goals +The primary goals of the Company's compensation policies are to attract, +retain, motivate and reward management of the Company and its operating units, +while, at the same time, aligning their interests closely with those of the +Company and its stockholders. The Company seeks to attract and retain management +by offering a competitive total compensation package. To align the interests of +management more closely with those of the Company as a whole and reward +individual initiative and effort, the Company seeks to promote performance-based +compensation where contribution to the Company as a whole is rewarded. Through +the use of performance-based plans that reward attainment of operating unit or +Company goals, the Company seeks to foster an attitude of teamwork. The Company +also believes that the use of equity ownership is an important tool to ensure +that the efforts of management are consistent with the objectives of its +stockholders and seeks to promote increased ownership of the Company by +management through the use of stock awards. +The Compensation Committee has tried to achieve the above goals utilizing +publicly available information regarding competitive compensation. The +Compensation Committee may utilize an independent consultant to ensure that +compensation for the Company's management is competitive, meets the above-stated +objectives and is consistent for all members of management of the Company and +its operating units. +Compensation Components +At present, the compensation of the executive officers of the Company +consists of a combination of salary, cash bonuses, stock options, restricted +stock and participation in the Company's 401(k) Plan, as well as the provision +of medical and other personal benefits typically offered to corporate +executives. The executive officers of the Company are parties to agreements +which provide for severance payments under certain circumstances. These +agreements for the Named Executive Officers are described above under +"Employment Contracts, Termination of Employment and Change-In-Control +Arrangements." +Salaries: The Compensation Committee targets the Chief Executive Officer's +salary at the mean of that for the Company's peer group and seeks to provide a +total compensation package competitive with those of others in the industry. +Cash Bonuses: The Company generally maintains an incentive compensation +plan for all salaried employees of the Company and its operating units, +including key executives, which provides for the payment of cash bonuses. Under +the plan, the Board of Directors fixes an incentive target, as well as +individual goals and objectives, for each employee at the beginning of the year +and bonuses are paid shortly after the end of the year. During fiscal 2004, the +Company achieved earnings per share performance that entitled the Named +Executive Officers to receive certain bonuses with respect to such year. +Stock Awards: Under the Company's 1996 Stock Plan and 2001 Employee Stock +Plan, stock options and restricted stock are granted by the Compensation +Committee. All salaried employees are granted an initial award of stock options +or restricted stock on their date of hiring for a fixed number of shares +depending on +13 +their level, which vests over three to four years. In each year following the +initial award, eligible employees may be granted an annual award in varying +amounts depending on their level and individual performance. +Other Benefit Plans: Executive officers of the Company may participate in +the Company's nondiscriminatory 401(k) Plan. +Chief Executive Officer Compensation +The Compensation Committee also makes decisions regarding the compensation +of the Chief Executive Officer using the philosophy and criteria set forth +above. Each year, the Company approves the adjustment of salary ranges for the +Chief Executive Officer based on studying the compensation paid to CEOs at peer +group companies. Mr. Shuldman's annual base salary for 2004 was $390,000. +Mr. Shuldman's annual incentive award, shown in the fourth column of the +Summary Compensation Table, was based upon a policy of rewarding performance, +for example increasing of the Company's earnings per share, and on the degree of +achievement of the corporate and individual goals and objectives. The 25,000 +shares of restricted stock granted Mr. Shuldman reflect this policy. +COMPENSATION COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Graham Y. Tanaka +14 +CORPORATE PERFORMANCE GRAPH +The following graph compares the cumulative total return on the Company's +Common Stock from December 31, 1999 through December 31, 2004, with the CRSP +Total Return Index for the Nasdaq Stock Market (U.S.) and the Nasdaq Computer +Manufacturer Stocks Index. The graph assumes that $100 was invested on December +31, 1999 in each of the Company's common stock, the CRSP Total Return Index for +the Nasdaq Stock Market (U.S.) and the Nasdaq Computer Manufacturer Stocks +Index, and that all dividends were reinvested. +COMPARISON OF CUMULATIVE TOTAL RETURN AMONG +TRANSACT TECHNOLOGIES INCORPORATED COMMON STOCK, +THE CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (U.S.), +AND THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX +[PERFORMANCE LINE GRAPH] +---------------------------------------------------------------------------------------------------------------- +12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 +---------------------------------------------------------------------------------------------------------------- +TransAct Technologies +Incorporated Common Stock $100.00 $69.42 $72.72 $62.67 $321.96 $423.64 +CRSP Total Return Index for the +Nasdaq Stock Market (U.S.) $100.00 $60.31 $69.85 $33.07 $ 71.46 $ 53.81 +Nasdaq Computer Manufacturer +Stocks Index $100.00 $57.01 $39.28 $26.03 $ 36.20 $ 47.34 +15 +2. RATIFICATION OF SELECTION OF PRICEWATERHOUSECOOPERS LLP AS +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2005 +The Audit Committee has selected PricewaterhouseCoopers LLP as independent +registered public accounting firm to audit the financial statements of the +Company for the 2005 fiscal year. This selection is being presented to the +stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP +has audited the Company's financial statements since the Company's formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at +the Annual Meeting, will have the opportunity to make a statement, and is +expected to be available to respond to appropriate questions. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring its pre-approval of +all audit services and permissible non-audit services provided by the +independent registered public accounting firm, along with the associated fees +for those services. The Policy provides for the annual pre-approval of specific +types of services pursuant to policies and procedures adopted by the Audit +Committee, and gives detailed guidance to management as to the specific services +that are eligible for such annual pre-approval. The Policy requires the specific +pre-approval of all other permitted services. For both types of pre-approval, +the Audit Committee considers whether the provision of a non-audit service is +consistent with the Securities and Exchange Commission's rules on auditor +independence, including whether provision of the service (i) would create a +mutual or conflicting interest between the independent registered public +accounting firm and the Company, (ii) would place the independent registered +public accounting firm in the position of auditing its own work, (iii) would +result in the independent registered public accounting firm acting in the role +of management or as an employee of the Company, or (iv) would place the +independent registered public accounting firm in a position of acting as an +advocate for the Company. In addition, the Audit Committee considers whether the +independent registered public accounting firm is best positioned and qualified +to provide the most effective and efficient service, based on factors such as +the independent registered public accounting firm's familiarity with the +Company's business, personnel, systems or risk profile and whether provision of +the service by the independent registered public accounting firm would enhance +the Company's ability to manage or control risk or improve audit quality or +would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to +address certain requests for pre-approval of services between meetings of the +Committee, and such Committee member is required to report his or her +pre-approval decisions to the Committee at its next regular meeting. The Policy +is designed to ensure that there is no delegation by the Audit Committee of +authority or responsibility for pre-approval decisions to management of the +Company. The Audit Committee monitors compliance by management with the +pre-approval policy by requiring management, pursuant to the Policy, to report +to the Audit and Finance Committee on a regular basis regarding the pre-approved +services rendered by the independent registered public accounting firm. +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, +retention and oversight of the work of the independent registered public +accounting firm. Accordingly, the Audit Committee has appointed +PricewaterhouseCoopers LLP to perform audit and other services for the Company. +In addition, the Committee has procedures in place, described above, for the +pre-approval by the Committee of all services provided by PricewaterhouseCoopers +LLP. +16 +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for +the years ended December 31, 2004 and 2003 are as follows: +2004 2003 +-------- -------- +Audit Fees(1)............................................... $605,700 $144,700 +Audit-Related Fees(2)....................................... 69,315 13,500 +Tax Fees(3)................................................. 41,400 53,725 +All Other Fees(4)........................................... 1,500 0 +-------- -------- +Total Fees for Services Provided............................ $717,915 $211,925 +======== ======== +--------------- +(1) Audit Fees consist of fees related to: (i) the annual audit of the Company's +financial statements, (ii) the audit of management's assessment of the +effectiveness of internal control over financial reporting in 2004 (as +required by Section 404 of the Sarbanes-Oxley Act of 2002), (iii) reviews of +the Company's quarterly financial statements, (iv) statutory audits for the +Company's UK subsidiary, and (v) the review of registration statements, +periodic reports and other reports filed with the SEC. +(2) Audit-Related Fees consist of fees incurred for the audit of the Company's +401(k) Plan, consultation with management regarding accounting and reporting +matters, and due diligence related to the proposed acquisition of TPG, Inc. +(3) Tax Fees include fees incurred for the preparation of domestic and foreign +tax returns, as well as tax planning and advice. +(4) All Other Fees include software license fees for the use of a web-based +accounting research tool. +The Audit Committee has considered whether the provision of the above +services other than Audit Fees is compatible with maintaining the auditors' +independence and has determined that, in its opinion, they are compatible. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as +independent registered public accounting firm for 2005 requires the affirmative +vote of a majority of the votes of the Common Stock present in person or +represented by proxy and entitled to vote. In the absence of instructions to the +contrary, the persons named in the accompanying proxy will vote such proxy "FOR" +the ratification of PricewaterhouseCoopers LLP. Abstentions by holders of such +shares with respect to voting on this matter will have the effect of a negative +vote; broker non-votes with respect to voting on this matter will have no effect +on the outcome of the vote. In the event stockholders do not ratify the +appointment, the Audit Committee will reconsider the appointment. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM FOR 2005. +3. RATIFICATION OF THE 2005 EQUITY INCENTIVE PLAN +On March 25, 2005, the Board of Directors unanimously voted to adopt the +2005 Equity Incentive Plan (the "Plan") and to recommend approval of the Plan by +stockholders. The following is a summary of the material features of the Plan. +It may not contain all of the information important to you. We urge you to read +the entire Plan, a copy of which appears as Annex A to this Proxy Statement. +DESCRIPTION OF THE PLAN +The purpose of the Plan is to advance the interests of the Company by +providing for the grant to participants of stock-based and other incentive +awards, all as more fully described below. The Plan will +17 +become effective on the date of its approval by the stockholders. A maximum of +600,000 shares of common stock may be delivered in satisfaction of awards made +under the Plan. The maximum number of shares of common stock for which stock +options may be granted to any person in any calendar year and the maximum number +of shares of common stock subject to stock appreciation rights, or "SARs", +granted to any person in any calendar year will each be 500,000. The maximum +number of shares subject to other awards granted to any person in any calendar +year will be 500,000 shares. The maximum amount payable to any person in any +year in the case of an award denominated in cash will be $750,000. In the event +of a stock dividend, stock split or other change in our capital structure, the +Administrator will make appropriate adjustments to the limits described above +and will also make appropriate adjustments to the number and kind of shares of +stock or securities subject to awards, any exercise prices relating to awards +and any other provisions of awards affected by the change. The Administrator may +also make similar adjustments to take into account other distributions to +stockholders or any other event, if the Administrator determines that +adjustments are appropriate to avoid distortion in the operation of the Plan and +to preserve the value of awards. +The maximum number of shares that may be issued under the Plan represents +approximately 5.9% percent of the total number of shares of the Company's common +stock outstanding on Mach 28, 2005, excluding treasury shares. +On March 28, 2005, approximately 315,000 shares remained issuable in +connection with outstanding awards under prior TransAct plans. The total number +of shares issuable under prior TransAct plans, added together with shares +issuable under the proposed Plan, represent approximately 9.0% percent of +Company's outstanding shares on March 28, 2005. However, the Company has +determined that upon approval by the stockholders of the Plan, no new awards +will be made under prior TransAct plans. +No awards may be made after March 24, 2015. +Administration. The Compensation and Corporate Governance Committee will +administer the Plan. The term "Administrator" is used in this proxy statement to +refer to the person (the Committee and its delegates) charged with administering +the Plan. The Administrator has discretionary authority, subject only to the +express provisions of the Plan, to interpret the Plan, determine eligibility for +and grant awards, determine, modify or waive the terms and conditions of any +award; prescribe forms, rules and procedures, and otherwise do all things +necessary to carry out the purposes of the Plan. Determinations of the +Administrator made under the Plan are conclusive and bind all parties. Awards +may be in the form of options, SARs, restricted or unrestricted stock, stock +units (including restricted stock units), performance awards and cash awards. +Eligibility. Participation is limited to those key employees and +directors, as well as consultants and advisors, who in the Administrator's +opinion are in a position to make a significant contribution to the success of +the Company and its affiliated corporations and who are selected by the +Administrator to receive an award. The group of persons from which the +Administrator will select participants consists of approximately 100 +individuals. +Stock Options. The Administrator may from time to time award options to +any participant subject to the limitations described above. Stock options give +the holder the right to purchase shares of common stock of the Company within a +specified period of time at a specified price. Two types of stock options may be +granted under the Plan: incentive stock options, or "ISOs", which are subject to +special tax treatment as described below, and nonstatutory options, or "NSOs". +Eligibility for ISOs is limited to employees of the Company and its +subsidiaries. The exercise price of a stock option cannot be less than the fair +market value of the common stock subject to the stock option at the time of +grant. In addition, the expiration date of an ISO cannot be more than ten years +after the date of the original grant. The Administrator determines all other +terms and conditions related to the exercise of an option, including the +consideration to be paid, if any, for the grant of the option, the time at which +options may be exercised and conditions related to the exercise of options. The +closing price of the Company common stock as reported on the NASDAQ National +Market on April 21, 2005 was $9.41 per share. +Stock Appreciation Rights. The Administrator may grant SARs under the +Plan. An SAR entitles the holder upon exercise to receive an amount, payable in +shares of common stock, equal to the excess of the fair +18 +market value of the shares of common stock subject to the SAR over the fair +market value of such shares at the date of grant. +Stock Awards; Stock Units. The Plan provides for awards of nontransferable +shares of restricted common stock, as well as unrestricted shares of common +stock. Awards of restricted stock and unrestricted stock may be made in exchange +for past services or other lawful consideration. Generally, awards of restricted +stock are subject to the requirement that the shares be forfeited or resold to +the Company unless specified conditions are met. Subject to these restrictions, +conditions and forfeiture provisions, any recipient of an award of restricted +stock will have all the rights of a stockholder of the Company, including the +right to vote the shares and to receive dividends. Other awards under the Plan +may also be settled with restricted stock. The Plan also provides for awards of +stock units, which are unfunded and unsecured promises to deliver common stock +or cash (measured by the value of common stock) in the future. Stock units may +be restricted, meaning that the delivery of common stock or cash with respect to +the stock unit is subject to the satisfaction of specified performance or other +vesting conditions. +Performance Awards. The Administrator may also make awards subject to the +satisfaction of specified performance criteria. Performance awards may consist +of common stock or cash or a combination of the two. The performance criteria +used in connection with a particular performance award will be determined by the +Administrator. In the case of performance awards intended to qualify for +exemption under Section 162(m) of the Internal Revenue Code, the Administrator +will use objectively determinable measures of performance in accordance with +Section 162(m) that are based on any or any combination of the following +(determined either on a consolidated basis or, as the context permits, on a +divisional, subsidiary, line of business, project or geographical basis or in +combinations thereof): sales; revenues; assets; expenses; earnings before or +after deduction for all or any portion of interest, taxes, depreciation, or +amortization, whether or not on a continuing operations or an aggregate or per +share basis; return on equity, investment, capital or assets; one or more +operating ratios; borrowing levels, leverage ratios or credit rating; market +share; capital expenditures; cash flow; stock price; stockholder return; sales +of particular products or services; customer acquisition or retention; +acquisitions and divestitures (in whole or in part); joint ventures and +strategic alliances; spin-offs, split-ups and the like; reorganizations; or +recapitalizations, restructurings, financings (issuance of debt or equity) or +refinancings. The Administrator will determine whether the performance targets +or goals that have been chosen for a particular Performance Award have been met. +General Provisions Applicable to All Awards. Neither ISOs nor, except as +the Administrator otherwise expressly provides, other awards may be transferred +other than by will or by the laws of descent and distribution. During a +recipient's lifetime an ISO and, except as the Administrator may provide, other +non-transferable awards requiring exercise may be exercised only by the +recipient. Shares delivered under the Plan may consist of either authorized but +unissued shares or treasury shares. The number of shares delivered upon exercise +of a stock option is determined net of any shares transferred by the optionee to +the Company (including through the holding back of shares that would otherwise +have been deliverable upon exercise) in payment of the exercise price or tax +withholding. +Change in Control; Other Mergers and Similar Transactions. In the event of +a change in control of the Company, the following rules will apply: +- Each award requiring exercise will become fully exercisable, the +restrictions on each outstanding share of stock will lapse, and the +delivery of shares of stock deliverable under each outstanding award of +stock units (including restricted stock units and performance awards to +the extent consisting of stock units) will be accelerated and such shares +will be delivered, prior to the transaction, in each case on a basis that +gives the holder of the award a reasonable opportunity, as determined by +the Administrator, following exercise of the award or the delivery of the +shares, as the case may be, to participate as a stockholder in the +transaction; and +- With limited exceptions, each award requiring exercise or providing for +the future delivery of stock (unless previously exercised, surrendered, +paid or otherwise terminated) will terminate upon consummation of the +transaction, unless the acquiring company or an affiliate assumes the +awards. +19 +If a merger or similar transaction were to occur involving the Company that +did not constitute a change in control of the Company (for example, because +pre-transaction TransAct stockholders continued to own beneficially more than +50% of the stock of the surviving company), or in the case of a dissolution or +liquidation of the Company, with limited exceptions outstanding awards would +terminate in the transaction but would first vest, be paid out or become +exercisable unless a substitution or assumption of awards had been arranged. +However, the Administrator could impose restrictions on any cash or other +property delivered with respect to the affected awards to reflect any +performance or other vesting conditions to which the awards were subject. +For purposes of the foregoing, a "change in control" of the Company will be +deemed to occur in the following circumstances: Any of (i) a reorganization, +merger, consolidation or similar transaction in which the surviving corporation +is not, and is not a subsidiary of, a publicly owned corporation in which the +stockholders of the Company immediately prior to the transaction continue to own +beneficially securities representing more than 50% of the voting power of all +outstanding voting securities of the Company, (ii) a sale, exchange or other +disposition of all or substantially all the Company's assets, or (iii) any +acquisition of voting securities of the Company by any person or group (as such +term is used in Sections 13(d) and 14(d) of the Exchange Act), but excluding (a) +the Company or any of its subsidiaries, (b) any person who was an officer or +director of the Company on the day prior to the Effective Date, or (c) any +savings, pension or other benefits plan for the benefit of employees of the +Company or any of its subsidiaries, which theretofore did not beneficially own +voting securities representing more than 50% of the voting power of all +outstanding voting securities of the Company, if such acquisition results in +such entity, person or group owning beneficially securities representing more +than 50% of the voting power of all outstanding voting securities of the +Company. As used herein, "voting power" means ordinary voting power for the +election of directors of the Company. +Amendment. The Administrator may at any time or times amend the Plan or +any outstanding award for any purpose which may at the time be permitted by law, +and may at any time terminate the Plan as to any future grants of awards. +The Administrator may not, however, alter the terms of an award so as to +affect adversely the participant's rights under the award without the +participant's consent, unless the Administrator expressly reserved the right to +do so at the time of the award. Any amendments to the Plan shall be conditioned +upon stockholder approval only to the extent, if any, such approval is required +by law (including the Code and applicable stock exchange requirements), as +determined by the Administrator. +NEW PLAN BENEFITS +The future benefits or amounts that would be received under the Plan by +executive officers, non-executive directors and non-executive officer employees +are discretionary and are therefore not determinable at this time. In addition, +the benefits or amounts which would have been received by or allocated to such +persons for the last completed fiscal year if the plan had been in effect cannot +be determined. +20 +EQUITY COMPENSATION PLAN INFORMATION +The following table gives information about the Company's common stock that +may be issued upon the exercise of options, warrants and rights under all of the +Company's existing equity compensation plans as of December 31, 2004. +(A) (B) (C) +NUMBER OF SECURITIES +REMAINING AVAILABLE FOR +NUMBER OF SECURITIES TO WEIGHTED AVERAGE FUTURE ISSUANCE UNDER +BE ISSUED UPON EXERCISE EXERCISE PRICE OF EQUITY COMPENSATION PLANS +OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES +PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A)) +------------- ----------------------- -------------------- ------------------------- +Equity compensation plans approved +by security holders: +1996 Stock Plan.................. 588,899 $3.75 208,649 +1996 Non-Employee Director +Plan............................. 206,250 9.99 112,500 +2000 Employee Stock Purchase +Plan............................. -- -- 39,733 +------- ----- ------- +Total.............................. 795,149 $5.37 360,882 +======= ===== ======= +Equity compensation plans not +approved by security holders: +2001 Employee Stock Plan......... 98,015 5.94 41,859 +======= ===== ======= +FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN AWARDS +The following discussion summarizes certain federal income tax consequences +of the issuance and receipt of options under the Plan under the law as in effect +on the date of this proxy statement. The summary does not purport to cover +federal employment tax or other federal tax consequences that may be associated +with the Plan, nor does it cover state, local or non-U.S. taxes. +ISOs. In general, an optionee realizes no taxable income upon the grant or +exercise of an ISO. However, the exercise of an ISO may result in an alternative +minimum tax liability to the optionee. With certain exceptions, a disposition of +shares purchased under an ISO within two years from the date of grant or within +one year after exercise produces ordinary income to the optionee (and a +deduction to the Company) equal to the value of the shares at the time of +exercise less the exercise price. Any additional gain recognized in the +disposition is treated as a capital gain for which the Company is not entitled +to a deduction. If the optionee does not dispose of the shares until after the +expiration of these one- and two-year holding periods, any gain or loss +recognized upon a subsequent sale is treated as a long-term capital gain or loss +for which the Company is not entitled to a deduction. +Stock Options Other Than ISOs. In general, in the case of a stock option +other than an ISO, the optionee has no taxable income at the time of grant but +realizes income in connection with exercise of the option in an amount equal to +the excess (at the time of exercise) of the fair market value of the shares +acquired upon exercise over the exercise price; a corresponding deduction is +available to the Company; and upon a subsequent sale or exchange of the shares, +any recognized gain or loss after the date of exercise is treated as capital +gain or loss for which the Company is not entitled to a deduction. +In general, an ISO that is exercised by the optionee more than three months +after termination of employment is treated as a non-ISO for federal income tax +purposes. ISOs are also treated as non-ISOs to the extent they first become +exercisable by an individual in any calendar year for shares having a fair +market value (determined as of the date of grant) in excess of $100,000. +The Administrator may award stock options that are exercisable for +restricted stock. Under Section 83 of the Code, an optionee who exercises an +option other than an ISO for restricted stock will generally have income only +when the stock vests. The income will equal the fair market value of the stock +at that time less the exercise price. However, the optionee may make a so-called +"83(b) election" in connection with the exercise to recognize taxable income at +that time. Assuming no other applicable limitations, the amount and +21 +timing of the deduction available to the Company will correspond to the income +recognized by the optionee. The application of Section 83 to ISOs exercisable +for restricted stock is less clear. +Under the so-called "golden parachute" provisions of the Code, the +accelerated vesting of awards in connection with a change in control of the +Company may be required to be valued and taken into account in determining +whether participants have received compensatory payments, contingent on the +change in control, in excess of certain limits. If these limits are exceeded, a +substantial portion of amounts payable to the participant, including income +recognized by reason of the grant, vesting or exercise of awards under the Plan, +may be subject to an additional 20% federal tax and may be nondeductible to the +Company. +VOTE REQUIRED +Approval of the 2005 Equity Incentive Plan requires the affirmative vote of +a majority of the votes of the Common Stock present in person or represented by +proxy and entitled to vote. In the absence of instructions to the contrary, the +persons named in the accompanying proxy will vote such proxy "FOR" the 2005 +Equity Incentive Plan. Abstentions by holders of such shares with respect to +voting on this matter will have the effect of a negative vote; broker non-votes +with respect to voting on this matter will have no effect on the outcome of the +vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" APPROVAL OF +THE 2005 EQUITY INCENTIVE PLAN. +STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year's proxy +materials must be received by the Secretary of the Company on or before January +2, 2006. Proposals should be addressed to TransAct Technologies Incorporated, 7 +Laser Lane, Wallingford, Connecticut 06492, Attention: Secretary. Stockholders +who wish to make a proposal at the 2006 Annual Meeting without regard to whether +it will be included in the Company's proxy materials should notify the Company +no later than February 28, 2006. If a Stockholder who wishes to present a +proposal fails to notify the Company by the due date, the proxies that the +Company solicits for the meeting will accord them discretionary authority to +vote on the Stockholder's proposal if it is properly brought before the meeting. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors +if the proper nomination procedures specified in the Company's By-Laws are +followed. All nominations by stockholders must be delivered to or mailed and +received at the principal executive offices of the Company not less than 30 nor +more than 60 days prior to the meeting at which election of directors will take +place; however, if less than 40 days' notice or prior public disclosure of the +date of the meeting is given or made to stockholders, nominations will be timely +if received not later than 10 days after notice was given or public disclosure +was made. A stockholder's notice must set forth in writing (i) for each person +proposed to be nominated, all information relating to each such person that is +required to be disclosed in solicitations of proxies for election of directors +pursuant to Regulation 14A under the Exchange Act, including such person's +written consent to be named in the proxy and to serving as a director, and (ii) +for the stockholder giving notice, the (x) name and address of such stockholder +as they appear on the Company's books, and (y) the class and number of shares of +the Company beneficially owned by such stockholder. The Nominating Committee +will also consider any stockholder recommendation of a candidate for nomination +by the Board if the stockholder submits his or her recommendation in accordance +with the foregoing procedures. +22 +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder wishing to communicate directly with members of the Board +of Directors should do so in writing. All correspondence addressed to the Board +as a whole, to its independent directors, to any of its Committees or Committee +Chairs, or to individual Board members should be mailed to the following +address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +7 Laser Lane +Wallingford, Connecticut 06492 +- You are welcome to communicate anonymously or confidentially. +- All correspondence addressed to an individual director or Committee +Chair, and marked "Confidential", will be collected in the office of the +Secretary and forwarded unopened to the individual director. +- Other correspondence will be opened by the Secretary, reviewed, copied +and directed as follows: +- Concerns regarding the Company's accounting, internal accounting +controls or auditing matters will be referred to the members of the +Audit Committee. +- Nominations or recommendations of candidates for election to the Board +of Directors will be referred to members of the Nominating Committee. +- Other correspondence will be copied by the Secretary and forwarded to +all of the members of the Board of Directors (or its independent +directors, if so addressed) unless the stockholder directs otherwise. +- A Stockholder may request written acknowledgement of the receipt of his +or her correspondence, which will be provided by the Secretary or, in the +case of correspondence marked "Confidential", by the individual director +or Committee Chair to whom it is addressed. +ANNUAL REPORT +A COPY OF THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON +FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE +FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS +SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER +RELATIONS DEPARTMENT, 7 LASER LANE, WALLINGFORD, CONNECTICUT 06492. +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise +specified, proxies will be voted for the directors nominated by the Board of +Directors, for ratification of the selection of PricewaterhouseCoopers LLP as +independent registered public accounting firm for 2005, and for the 2005 Equity +Incentive Plan. As of the date of this Proxy Statement, the Board of Directors +is not aware of any matter which is to be presented for action at the Annual +Meeting other than the matters set forth herein. Should any other matter +requiring a vote of the stockholders arise at the Annual Meeting, the proxies +confer upon the persons named in the accompanying proxy the authority to vote in +respect of any such other matter in accordance with the recommendation of the +Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by: (i) giving written notice of revocation to +the Secretary of the Company, (ii) properly submitting to the Company a duly +executed proxy bearing a later date, or (iii) voting in person at the Annual +Meeting. All written notices of revocation and other communications with respect +to revocation of proxies should be addressed to the Company, as follows: +TransAct Technologies Incorporated, 7 Laser Lane, Wallingford, +23 +Connecticut 06492, Attention: Secretary. A proxy appointment will not be revoked +by death or supervening incapacity of the stockholder executing the proxy +unless, before the shares are voted, notice of such death or incapacity is filed +with the Company's Secretary or other person responsible for tabulating votes on +behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be +borne by the Company. The Company may solicit proxies otherwise than by use of +the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use their personal efforts, by telephone or +otherwise, to obtain proxies. The Company will also request persons, firms and +corporations holding shares in their names, or owned by others, to send this +proxy material to and obtain proxies from such beneficial owners and will +reimburse such holders for their reasonable expenses in doing so. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE +ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT +RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +May 2, 2005 +24 +ANNEX A +TRANSACT TECHNOLOGIES INCORPORATED +2005 EQUITY INCENTIVE PLAN +1. DEFINED TERMS +Exhibit A, which is incorporated by reference, defines the terms used in +the Plan and sets forth certain operational rules related to those terms. +2. PURPOSE +The Plan has been established to advance the interests of the Company by +providing for the grant to Participants of Stock-based and other incentive +Awards. +3. ADMINISTRATION +The Administrator has discretionary authority, subject only to the express +provisions of the Plan, to interpret the Plan; determine eligibility for and +grant Awards; determine, modify or waive the terms and conditions of any Award; +prescribe forms, rules and procedures; and otherwise do all things necessary to +carry out the purposes of the Plan. In the case of any Award intended to be +eligible for the performance-based compensation exception under Section 162(m), +the Administrator will exercise its discretion consistent with qualifying the +Award for that exception. Determinations of the Administrator made under the +Plan will be conclusive and will bind all parties. +4. LIMITS ON AWARDS UNDER THE PLAN +(A) Number of Shares. A maximum of 600,000 shares of Stock may be +delivered in satisfaction of Awards under the Plan, including without limitation +upon the exercise of ISOs. The number of shares of Stock delivered in +satisfaction of Awards shall, for purposes of the preceding sentence, be +determined net of shares of Stock withheld by the Company in payment of the +exercise price of the Award or in satisfaction of tax withholding requirements +with respect to the Award. The limit set forth in this Section 4(a) shall be +construed to comply with Section 422 of the Code and regulations thereunder. To +the extent consistent with the requirements of Section 422 of the Code and +regulations thereunder, and with other applicable legal requirements (including +applicable stock exchange requirements), Stock issued under awards of an +acquired company that are converted, replaced, or adjusted in connection with +the acquisition shall not reduce the number of shares available for Awards under +the Plan. +(B) Type of Shares. Stock delivered by the Company under the Plan may be +authorized but unissued Stock or previously issued Stock acquired by the +Company. No fractional shares of Stock will be delivered under the Plan. +(C) Section 162(m) Limits. The maximum number of shares of Stock for which +Stock Options may be granted to any person in any calendar year and the maximum +number of shares of Stock subject to SARs granted to any person in any calendar +year will each be 500,000. The maximum number of shares subject to other Awards +granted to any person in any calendar year will be 500,000 shares. The maximum +amount payable to any person in any year under Cash Awards will be $750,000. The +foregoing provisions will be construed in a manner consistent with Section +162(m). +5. ELIGIBILITY AND PARTICIPATION +The Administrator will select Participants from among those key Employees +and directors of, and consultants and advisors to, the Company or its Affiliates +who, in the opinion of the Administrator, are in a position to make a +significant contribution to the success of the Company and its Affiliates. +Eligibility for ISOs is limited to employees of the Company or of a "parent +corporation" or "subsidiary corporation" of the Company as those terms are +defined in Section 424 of the Code. +A-1 +6. RULES APPLICABLE TO AWARDS +(A) All Awards +(1) Award Provisions. The Administrator will determine the terms of all +Awards, subject to the limitations provided herein. By accepting any Award +granted hereunder, the Participant agrees to the terms of the Award and the +Plan. Notwithstanding any provision of this Plan to the contrary, awards of an +acquired company that are converted, replaced or adjusted in connection with the +acquisition may contain terms and conditions that are inconsistent with the +terms and conditions specified herein as determined by the Administrator. +(2) Term of Plan. No Awards may be made after March 24, 2015, but +previously granted Awards may continue beyond that date in accordance with their +terms. +(3) Transferability. Neither ISOs nor, except as the Administrator +otherwise expressly provides, other Awards may be transferred other than by will +or by the laws of descent and distribution, and during a Participant's lifetime +ISOs and, except as the Administrator otherwise expressly provides with respect +to other non-transferable Awards requiring exercise may be exercised only by the +Participant. +(4) Vesting, Etc. The Administrator may determine the time or times at +which an Award will vest or become exercisable and the terms on which an Award +requiring exercise will remain exercisable. Without limiting the foregoing, the +Administrator may at any time accelerate the vesting or exercisability of an +Award, regardless of any adverse or potentially adverse tax consequences +resulting from such acceleration. Unless the Administrator expressly provides +otherwise, however, the following rules will apply: immediately upon the +cessation of the Participant's Employment, each Award requiring exercise that is +then held by the Participant or by the Participant's permitted transferees, if +any, will cease to be exercisable and will terminate, and all other Awards that +are then held by the Participant or by the Participant's permitted transferees, +if any, to the extent not already vested will be forfeited, except that: +(A) subject to (B) and (C) below, all Stock Options and SARs held by +the Participant or the Participant's permitted transferees, if any, +immediately prior to the cessation of the Participant's Employment, to the +extent then exercisable, will remain exercisable for the lesser of (i) a +period of three months or (ii) the period ending on the latest date on +which such Stock Option or SAR could have been exercised without regard to +this Section 6(a)(4), and will thereupon terminate; +(B) all Stock Options and SARs held by a Participant or the +Participant's permitted transferees, if any, immediately prior to the +Participant's death or voluntary resignation from active employment at or +after age 55, to the extent then exercisable, will remain exercisable for +the lesser of (i) the one year period ending with the first anniversary of +the Participant's death or voluntary resignation from active employment at +or after age 55 or (ii) the period ending on the latest date on which such +Stock Option or SAR could have been exercised without regard to this +Section 6(a)(4), and will thereupon terminate; and +(C) all Stock Options and SARs held by a Participant or the +Participant's permitted transferees, if any, immediately prior to the +cessation of the Participant's Employment will immediately terminate upon +such cessation if the Administrator in its sole discretion determines that +such cessation of Employment has resulted for reasons which cast such +discredit on the Participant as to justify immediate termination of the +Award. +(5) Taxes. The Administrator will make such provision for the withholding +of taxes as it deems necessary. The Administrator may, but need not, hold back +shares of Stock from an Award or permit a Participant to tender previously owned +shares of Stock in satisfaction of tax withholding requirements (but not in +excess of the minimum withholding required by law). +(6) Dividend Equivalents, Etc. The Administrator may provide for the +payment of amounts in lieu of cash dividends or other cash distributions with +respect to Stock subject to an Award. +A-2 +(7) Rights Limited. Nothing in the Plan will be construed as giving any +person the right to continued employment or service with the Company or its +Affiliates, or any rights as a stockholder except as to shares of Stock actually +issued under the Plan. The loss of existing or potential profit in Awards will +not constitute an element of damages in the event of termination of Employment +for any reason, even if the termination is in violation of an obligation of the +Company or Affiliate to the Participant. +(8) Section 162(m). This Section 6(a)(8) applies to any Performance Award +intended to qualify as performance-based for the purposes of Section 162(m) +other than a Stock Option or SAR. In the case of any Performance Award to which +this Section 6(a)(8) applies, the Plan and such Award will be construed to the +maximum extent permitted by law in a manner consistent with qualifying the Award +for such exception. With respect to such Performance Awards, the Administrator +will preestablish, in writing, one or more specific Performance Criteria no +later than 90 days after the commencement of the period of service to which the +performance relates (or at such earlier time as is required to qualify the Award +as performance-based under Section 162(m)). Prior to grant, vesting or payment +of the Performance Award, as the case may be, the Administrator will certify +whether the applicable Performance Criteria have been attained and such +determination will be final and conclusive. No Performance Award to which this +Section 6(a)(8) applies may be granted after the first meeting of the +stockholders of the Company held in 2010 until the listed performance measures +set forth in the definition of "Performance Criteria" (as originally approved or +as subsequently amended) have been resubmitted to and reapproved by the +stockholders of the Company in accordance with the requirements of Section +162(m) of the Code, unless such grant is made contingent upon such approval. +(B) Awards Requiring Exercise +(1) Time and Manner of Exercise. Unless the Administrator expressly +provides otherwise, an Award requiring exercise by the holder will not be deemed +to have been exercised until the Administrator receives a notice of exercise (in +form acceptable to the Administrator) signed by the appropriate person and +accompanied by any payment required under the Award. If the Award is exercised +by any person other than the Participant, the Administrator may require +satisfactory evidence that the person exercising the Award has the right to do +so. +(2) Exercise Price. The exercise price (or the base value from which +appreciation is to be measured) of each Award requiring exercise shall be 100% +(in the case of an ISO granted to a ten-percent shareholder within the meaning +of Section 422(b)(6) of the Code, 110%) of the fair market value of the Stock +subject to the Award, determined as of the date of grant, or such higher amount +as the Administrator may determine in connection with the grant. No such Award, +once granted, may be repriced other than in accordance with the applicable +stockholder approval requirements of Nasdaq. +(3) Payment of Exercise Price. Where the exercise of an Award is to be +accompanied by payment, the Administrator may determine the required or +permitted forms of payment, subject to the following: all payments will be by +cash or check acceptable to the Administrator, or, if so permitted by the +Administrator and if legally permissible, (i) through the delivery of shares of +Stock that have been outstanding for at least six months (unless the +Administrator approves a shorter period) and that have a fair market value equal +to the exercise price, (ii) by delivery to the Company of a promissory note of +the person exercising the Award, payable on such terms as are specified by the +Administrator, (iii) through a broker-assisted exercise program acceptable to +the Administrator, (iv) by other means acceptable to the Administrator, or (v) +by any combination of the foregoing permissible forms of payment. The delivery +of shares in payment of the exercise price under clause (a)(i) above may be +accomplished either by actual delivery or by constructive delivery through +attestation of ownership, subject to such rules as the Administrator may +prescribe. +(C) Awards not Requiring Exercise +Restricted Stock and Unrestricted Stock, whether delivered outright or +under Awards of Stock Units or other Awards that do not require exercise, may be +made in exchange for such lawful consideration, including services, as the +Administrator determines. +A-3 +7. EFFECT OF CERTAIN TRANSACTIONS +(A) Mergers, Etc. +(1) Change in Control. In the event of a Change in Control, +(A) each Award requiring exercise shall become fully exercisable, the +restrictions on each outstanding share of Stock shall lapse, and the +delivery of shares of Stock deliverable under each outstanding Stock Unit +(including Restricted Stock Units and Performance Awards consisting of +Stock Units) shall be accelerated and such shares shall be delivered, in +each case prior to the Change in Control on a basis that gives the holder +of the Award a reasonable opportunity, as determined by the Administrator, +following exercise of the Award or the vesting or delivery of the shares, +as the case may be, to participate as a stockholder in the Change in +Control; and +(B) if the Change in Control is also a Covered Transaction, each Award +requiring exercise or providing for the future delivery of Stock, to the +extent not previously exercised, surrendered, paid or otherwise terminated, +shall terminate upon consummation of the Covered Transaction unless the +acquiring entity or an affiliate thereof assumes the Award or provides a +new award in substitution therefor. +(2) Covered Transaction not Constituting a Change in Control. In the event +of a Covered Transaction that does not constitute a Change in Control, +(A) unless assumed (or unless another award is substituted) in the +Covered Transaction, each Award requiring exercise shall become fully +exercisable, and the delivery of shares of Stock deliverable under each +outstanding Stock Unit (including Restricted Stock Units and Performance +Awards consisting of Stock Units) shall be accelerated and such shares +shall be delivered, in each case prior to the Covered Transaction on a +basis that gives the holder of the Award a reasonable opportunity, as +determined by the Administrator, following exercise of the Award, to +participate as a stockholder in the Covered Transaction; provided, that the +Administrator may require that any stock or other property delivered upon +the exercise, surrender or satisfaction of an Award accelerated under this +Section 7(2)(B) be placed in escrow or otherwise made subject to such +restrictions as the Administrator deems appropriate to reflect any +performance or other vesting provisions to which the Award was subject or +otherwise to carry out the intent of the Plan; +(B) each Award (other than outstanding shares of Restricted Stock, +which shall be treated in the same manner as other shares of Stock, subject +to Section 7(2)(C) below), to the extent not previously exercised, +surrendered, paid or otherwise terminated, shall terminate immediately upon +consummation of the Covered Transaction; and +(C) in the case of Restricted Stock, the Administrator may require +that any amounts delivered, exchanged or otherwise paid in respect of such +Stock in connection with the Covered Transaction be placed in escrow or +otherwise made subject to such restrictions as the Administrator deems +appropriate to reflect any performance or other vesting provisions to which +the Award was subject or otherwise to carry out the intent of the Plan. +(B) Change in and Distributions with Respect to Stock +(1) Basic Adjustment Provisions. In the event of a stock dividend, stock +split or combination of shares (including a reverse stock split), +recapitalization or other change in the Company's capital structure, the +Administrator will make appropriate adjustments to the maximum number of shares +specified in Section 4(a) that may be delivered under the Plan and to the +maximum share limits described in Section 4(c), and will also make appropriate +adjustments to the number and kind of shares of stock or securities subject to +Awards then outstanding or subsequently granted, any exercise prices relating to +Awards and any other provision of Awards affected by such change. +(2) Certain Other Adjustments. The Administrator may also make adjustments +of the type described in Section 7(b)(1) above to take into account +distributions to stockholders other than those provided for in +A-4 +Section 7(a) and 7(b)(1), or any other event, if the Administrator determines +that adjustments are appropriate to avoid distortion in the operation of the +Plan and to preserve the value of Awards made hereunder, having due regard for +the qualification of ISOs under Section 422 of the Code and with the +performance-based compensation rules of Section 162(m), where applicable. +(3) Continuing Application of Plan Terms. References in the Plan to shares +of Stock will be construed to include any stock or securities resulting from an +adjustment pursuant to this Section 7. +8. LEGAL CONDITIONS ON DELIVERY OF STOCK +The Company will not be obligated to deliver any shares of Stock pursuant +to the Plan or to remove any restriction from shares of Stock previously +delivered under the Plan until: (i) the Company is satisfied that all legal +matters in connection with the issuance and delivery of such shares have been +addressed and resolved; (ii) if the outstanding Stock is at the time of delivery +listed on any stock exchange or national market system, the shares to be +delivered have been listed or authorized to be listed on such exchange or system +upon official notice of issuance; and (iii) all conditions of the Award have +been satisfied or waived. If the sale of Stock has not been registered under the +Securities Act of 1933, as amended, the Company may require, as a condition to +exercise of the Award, such representations or agreements as counsel for the +Company may consider appropriate to avoid violation of such Act. The Company may +require that certificates evidencing Stock issued under the Plan bear an +appropriate legend reflecting any restriction on transfer applicable to such +Stock, and the Company may hold the certificates pending lapse of the applicable +restrictions. +9. AMENDMENT AND TERMINATION +The Administrator may at any time or times amend the Plan or any +outstanding Award for any purpose which may at the time be permitted by law, and +may at any time terminate the Plan as to any future grants of Awards; provided, +that except as otherwise expressly provided in the Plan the Administrator may +not, without the Participant's consent, alter the terms of an Award so as to +affect adversely the Participant's rights under the Award, unless the +Administrator expressly reserved the right to do so at the time of the Award. +Any amendments to the Plan shall be conditioned upon stockholder approval only +to the extent, if any, such approval is required by law (including the Code and +applicable stock exchange requirements), as determined by the Administrator. +10. OTHER COMPENSATION ARRANGEMENTS +The existence of the Plan or the grant of any Award will not in any way +affect the Company's right to Award a person bonuses or other compensation in +addition to Awards under the Plan. +11. WAIVER OF JURY TRIAL +By accepting an Award under the Plan, each Participant waives any right to +a trial by jury in any action, proceeding or counterclaim concerning any rights +under the Plan and any Award, or under any amendment, waiver, consent, +instrument, document or other agreement delivered or which in the future may be +delivered in connection therewith, and agrees that any such action, proceedings +or counterclaim shall be tried before a court and not before a jury. By +accepting an Award under the Plan, each Participant certifies that no officer, +representative, or attorney of the Company has represented, expressly or +otherwise, that the Company would not, in the event of any action, proceeding or +counterclaim, seek to enforce the foregoing waivers. +A-5 +EXHIBIT A +DEFINITION OF TERMS +The following terms, when used in the Plan, will have the meanings and be +subject to the provisions set forth below: +"ADMINISTRATOR": The Compensation Committee, except that the +Compensation Committee may delegate (i) to one or more of its members such +of its duties, powers and responsibilities as it may determine; (ii) to one +or more officers of the Company the power to grant rights or options to the +extent permitted by Section 157(c) of the Delaware General Corporation Law; +(iii) to one or more officers of the Company the authority to allocate +other Awards among such persons (other than officers of the Company) +eligible to receive Awards under the Plan as such delegated officer or +officers determine consistent with such delegation; provided, that with +respect to any delegation described in this clause (iii) the Compensation +Committee (or a properly delegated member or members of such Committee) +shall have authorized the issuance of a specified number of shares of Stock +under such Awards and shall have specified the consideration, if any, to be +paid therefor; and (iv) to such Employees or other persons as it determines +such ministerial tasks as it deems appropriate. In the event of any +delegation described in the preceding sentence, the term "Administrator" +shall include the person or persons so delegated to the extent of such +delegation. +"AFFILIATE": Any corporation or other entity owning, directly or +indirectly, 50% or more of the outstanding Stock of the Company, or in +which the Company or any such corporation or other entity owns, directly or +indirectly, 50% of the outstanding capital stock (determined by aggregate +voting rights) or other voting interests. +"AWARD": Any or a combination of the following: +(i) Stock Options. +(ii) SARs. +(iii) Restricted Stock. +(iv) Unrestricted Stock. +(v) Stock Units, including Restricted Stock Units. +(vi) Performance Awards. +(vii) Cash Awards. +(viii) Awards (other than Awards described in (i) through (vii) +above) that are convertible into or otherwise based on Stock. +"BOARD": The Board of Directors of the Company. +"CASH AWARD": An Award denominated in cash. +"CHANGE IN CONTROL": Any of (i) a reorganization, merger, consolidation or +similar transaction in which the surviving corporation is not, and is not a +subsidiary of, a publicly owned corporation in which the stockholders of the +Company immediately prior to the transaction continue to own beneficially +securities representing more than 50% of the voting power of all outstanding +voting securities of the Company, (ii) a sale, exchange or other disposition of +all or substantially all the Company's assets, or (iii) any acquisition of +voting securities of the Company by any person or group (as such term is used in +Sections 13(d) and 14(d) of the Exchange Act), but excluding (a) the Company or +any of its subsidiaries, (b) any person who was an officer or director of the +Company on the day prior to the Effective Date, or (c) any savings, pension or +other benefits plan for the benefit of employees of the Company or any of its +subsidiaries, which theretofore did not beneficially own voting securities +representing more than 50% of the voting power of all outstanding voting +securities of the Company, if such acquisition results in such entity, person or +group owning beneficially +A-6 +securities representing more than 50% of the voting power of all outstanding +voting securities of the Company. As used herein, "voting power" means ordinary +voting power for the election of directors of the Company. +"CODE": The U.S. Internal Revenue Code of 1986 as from time to time +amended and in effect, or any successor statute as from time to time in effect. +"COMPENSATION COMMITTEE": The Compensation and Corporate Governance +Committee of the Board. +"COMPANY": TransAct Technologies Incorporated. +"COVERED TRANSACTION": Any of (i) a reorganization, merger, consolidation +or similar transaction or series of related transactions, including a sale or +other disposition of stock, in which the Company is not the surviving +corporation or which results in the acquisition of all or substantially all of +the Company's then outstanding common stock by a single person or entity or by a +group of persons and/or entities acting in concert, (ii) a sale or transfer of +all or substantially all the Company's assets, or (iii) a dissolution or +liquidation of the Company. Where a Covered Transaction involves a tender offer +that is reasonably expected to be followed by a merger described in clause (i) +(as determined by the Administrator), the Covered Transaction shall be deemed to +have occurred upon consummation of the tender offer. +"EMPLOYEE": Any person who is employed by the Company or an Affiliate. +"EMPLOYMENT": A Participant's employment or other service relationship +with the Company and its Affiliates. Employment will be deemed to continue, +unless the Administrator expressly provides otherwise, so long as the +Participant is employed by, or otherwise is providing services in a capacity +described in Section 5 to the Company or its Affiliates. If a Participant's +employment or other service relationship is with an Affiliate and that entity +ceases to be an Affiliate, the Participant's Employment will be deemed to have +terminated when the entity ceases to be an Affiliate unless the Participant +transfers Employment to the Company or its remaining Affiliates. +"ISO": A Stock Option intended to be an "incentive stock option" within +the meaning of Section 422 of the Code. Each option granted pursuant to the Plan +will be treated as providing by its terms that it is to be a non-incentive +option unless, as of the date of grant, it is expressly designated as an ISO. +"PARTICIPANT": A person who is granted an Award under the Plan. +"PERFORMANCE AWARD": An Award subject to Performance Criteria. The +Committee in its discretion may grant Performance Awards that are intended to +qualify for the performance-based compensation exception under Section 162(m) +and Performance Awards that are not intended so to qualify. +"PERFORMANCE CRITERIA": Specified criteria, other than the mere +continuation of Employment or the mere passage of time, the satisfaction of +which is a condition for the grant, exercisability, vesting or full enjoyment of +an Award. For purposes of Awards that are intended to qualify for the +performance-based compensation exception under Section 162(m), a Performance +Criterion will mean an objectively determinable measure of performance relating +to any or any combination of the following (measured either absolutely or by +reference to an index or indices and determined either on a consolidated basis +or, as the context permits, on a divisional, subsidiary, line of business, +project or geographical basis or in combinations thereof): sales; revenues; +assets; expenses; earnings before or after deduction for all or any portion of +interest, taxes, depreciation, or amortization, whether or not on a continuing +operations or an aggregate or per share basis; return on equity, investment, +capital or assets; one or more operating ratios; borrowing levels, leverage +ratios or credit rating; market share; capital expenditures; cash flow; stock +price; stockholder return; sales of particular products or services; customer +acquisition or retention; acquisitions and divestitures (in whole or in part); +joint ventures and strategic alliances; spin-offs, split-ups and the like; +reorganizations; or recapitalizations, restructurings, financings (issuance of +debt or equity) or refinancings. A Performance Criterion and any targets with +respect thereto determined by the Administrator need not be based upon an +increase, a positive or improved result or avoidance of loss. To the extent +consistent with the requirements for satisfying the performance-based +compensation exception under Section 162(m), the Administrator may provide in +the case of any Award intended to qualify for such exception that one or more of +the Performance Criteria applicable to such Award will be adjusted in an +objectively determinable manner to reflect events (for example, but without +A-7 +limitation, acquisitions or dispositions) occurring during the performance +period that affect the applicable Performance Criterion or Criteria. +"PLAN": The TransAct Technologies Incorporated 2005 Equity Incentive Plan +as from time to time amended and in effect. +"RESTRICTED STOCK": An Award of Stock for so long as the Stock remains +subject to restrictions requiring that it be redelivered or offered for sale to +the Company if specified conditions are not satisfied. +"RESTRICTED STOCK UNIT": A Stock Unit that is, or as to which the delivery +of Stock or cash in lieu of Stock is, subject to the satisfaction of specified +performance or other vesting conditions. +"SECTION 162(M)": Section 162(m) of the Code. +"SAR": A right entitling the holder upon exercise to receive an amount +(payable in shares of Stock of equivalent value) equal to the excess of the fair +market value of the shares of Stock subject to the right over the fair market +value of such shares at the date of grant."STOCK": Common Stock of the Company, +par value $0.01 per share. +"STOCK UNIT": An unfunded and unsecured promise, denominated in shares of +Stock, to deliver Stock or cash measured by the value of Stock in the future. +"STOCK OPTIONS": Options entitling the recipient to acquire shares of +Stock upon payment of the exercise price. +"UNRESTRICTED STOCK": An Award of Stock not subject to any restrictions +under the terms of the Award. +A-8 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD WEDNESDAY, MAY 25, 2005 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the +"Company") does hereby nominate, constitute and appoint Bart C. Shuldman and +Steven A. DeMartino, or either of them, with full power to act alone, my true +and lawful attorney with full power of substitution, for me and in my name, +place and stead to vote all of the shares of Common Stock of the Company +standing in my name on its books on March 28, 2005, at the Annual Meeting of its +stockholders to be held at the Four Points by Sheraton Hotel, 275 Research +Parkway, Meriden, CT 06450 on May 25, 2005 at 10:00 a.m., or at any adjournment +thereof, with all powers the undersigned would possess if personally present as +follows: +(TO BE SIGNED ON REVERSE SIDE) +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS OF +TRANSACT TECHNOLOGIES INCORPORATED +MAY 25, 2005 +[X] Please mark your +votes in blue or black ink +as shown here. +FOR ABSTAIN +1. ELECTION OF [ ] [ ] Nominee: Thomas R. Schwarz +DIRECTORS +FOR ABSTAIN +[ ] [ ] Nominee: Bart C. Shuldman +FOR ABSTAIN AGAINST +2. RATIFICATION OF INDEPENDENT [ ] [ ] [ ] +REGISTERED PUBLIC +ACCOUNTING FIRM +FOR ABSTAIN AGAINST +3. APPROVAL OF 2005 EQUITY +INCENTIVE PLAN [ ] [ ] [ ] +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES AS +DIRECTORS AND FOR PROPOSALS 2 AND 3. IF NO DIRECTION IS MADE, THIS PROXY WILL BE +VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS AND FOR PROPOSALS 2 AND 3. +THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME +BEFORE THE MEETING. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED +ENVELOPE. +SIGNATURE DATE , 2005 +---------------------------------- --------------------- +SIGNATURE DATE , 2005 +---------------------------------- --------------------- +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on the mailing label. When +shares are held by joint tenants, both should sign. When signing as +attorney, executor, administrator, trustee or guardian, please give +full title as such. If signing on behalf of a corporation, please +sign the full corporate name by president or other authorized +officer. If signing on behalf of a partnership, please sign the +partnership name by authorized person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-05-005470/proxy_rpt.txt b/raw/proxies/0001017303/0000950123-05-005470/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0001017303/0000950123-06-004896/proxy.txt b/raw/proxies/0001017303/0000950123-06-004896/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..32fd6ff536d36cee1a7dd0a2f9ec9bd3505b4b6a --- /dev/null +++ b/raw/proxies/0001017303/0000950123-06-004896/proxy.txt @@ -0,0 +1,1104 @@ +DEF 14A +1 +y19622def14a.txt +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (As Permitted by Rule +14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Section 240.14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant +to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is +calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 18, 2006 +Notice is hereby given that the 2006 Annual Meeting of Stockholders (the +"Annual Meeting") of TransAct Technologies Incorporated (the "Company" or +"TransAct"), a Delaware corporation, will be held on May 18, 2006 at 10:00 a.m. +Eastern Daylight Savings Time, at the Four Points by Sheraton Hotel, 275 +Research Parkway, Meriden, CT 06450 for the following purposes, all of which are +more completely set forth in the accompanying Proxy Statement: +(1) To elect one director to serve until the 2009 Annual Meeting of +Stockholders or until the director's successor has been duly elected +and qualified; +(2) To ratify the selection of PricewaterhouseCoopers LLP as the Company's +independent registered public accounting firm for 2006; and +(3) To transact such other business as may legally come before the Annual +Meeting. +Stockholders of record at the close of business on March 28, 2006 are +entitled to notice of and to vote at the Annual Meeting. The transfer books will +not be closed for the Annual Meeting. +By Order of the Board of Directors, +STEVEN A. DEMARTINO +Secretary +Wallingford, Connecticut +April 20, 2006 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT +YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH +REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT +PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE +IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +7 LASER LANE +WALLINGFORD, CONNECTICUT 06492 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 18, 2006 +This Proxy Statement is being furnished to the stockholders of TransAct +Technologies Incorporated (the "Company") in connection with the solicitation of +proxies by the Board of Directors of the Company for use at the Annual Meeting +of Stockholders of the Company to be held on May 18, 2006, and any adjournments +or postponements thereof (the "Annual Meeting"). This Proxy Statement, the +foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's +2005 Annual Report to Stockholders are first being mailed or given to +stockholders on or about April 20, 2006. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power +to revoke the same anytime prior to its being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in +such form or at such time as to render it not votable. The proxy is in ballot +form so that a specification may be made to grant or withhold authority to vote +for the election of directors and to indicate separate approval or disapproval +as to the other matters presented to stockholders. All of the proposals will be +presented by the Board of Directors. The shares represented by the proxy will be +voted for the election of the director named thereon, unless authority to do so +is withheld. With respect to the other proposals presented to stockholders by +the Board of Directors, the shares represented by the proxy will be voted in +accordance with the specification made. Where a choice is not so specified, the +shares represented by the proxy will be voted for the proposal. In addition, the +proxy confers discretionary authority to vote on any matter properly presented +at the Annual Meeting which is not known to the Company as of the date of this +Proxy Statement. +VOTING SECURITIES +Stockholders of record on March 28, 2006 are entitled to vote at the Annual +Meeting. Each holder of Common Stock is entitled to cast one vote for each share +of Common Stock held on March 28, 2006. There were 9,688,068 shares of Common +Stock issued and outstanding and entitled to vote at the close of business on +March 28, 2006. Shares representing a majority of the votes entitled to be cast +at the Annual Meeting, present in person or represented by proxy, will +constitute a quorum to transact business. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information known to the Company regarding +the beneficial ownership of the Company's common stock as of March 28, 2006 by: +(i) each person known by the Company to own beneficially more than 5% of the +Company's common stock; (ii) each director or nominee for director of the +Company; (iii) each current executive officer of the Company named in the +Summary Compensation Table; and (iv) all current directors and executive +officers of the Company as a group. Except as otherwise indicated, each of the +persons named in the table has sole voting power and sole dispositive power with +respect to the shares set forth opposite such person's name and the address of +the holder is 7 Laser Lane, Wallingford, CT 06492. +SHARES +BENEFICIALLY PERCENT OF +NAME OF BENEFICIAL OWNER OWNED CLASS +------------------------ ------------ ---------- +COMMON STOCK +Graham Y. Tanaka(1)......................................... 362,597 3.49% +Bart C. Shuldman(2)......................................... 311,549 3.00% +Charles A. Dill(3).......................................... 190,185 1.83% +Michael S. Kumpf(4)......................................... 96,824 * +Thomas R. Schwarz(5)........................................ 90,725 * +Steven A. DeMartino(6)...................................... 81,000 * +James B. Stetson(7)......................................... 48,650 * +Andrew J. Hoffman(8)........................................ 21,299 * +All current directors and executive officers as a group (6 +persons)(9)............................................... 1,283,328 12.34% +Janus Capital Management LLC(10)............................ 856,785 8.24% +151 Detroit Street +Denver, CO 80206 +Bares Capital Management, Inc. (11)......................... 724,223 6.96% +510 South Congress Ave., Suite 306 +Austin, TX 78704 +--------------- +* Less than 1% of the outstanding Common Stock. +(1) Includes 63,750 shares subject to options exercisable within 60 days of +March 28, 2006 granted under the Company's Non-Employee Directors' Stock +Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka for the +benefit of his children. Also includes 5,000 unvested shares of restricted +stock of the Company. +(2) Includes 49,636 owned jointly with Mr. Shuldman's spouse, 1,500 shares +owned by his spouse in an individual retirement account, 4,800 shares owned +by his minor children and 3,750 shares owned by his mother. Also includes +38,500 unvested shares of restricted stock of the Company and 213,363 +shares subject to options exercisable within 60 days of March 28, 2006 +granted under the Company's 1996 Stock Plan. +(3) Includes 63,750 shares subject to options exercisable within 60 days of +March 28, 2006 granted under the Non-Employee Directors' Stock Plan. Also +includes 5,000 unvested shares of restricted stock of the Company and 2,000 +shares owned by his spouse. +(4) Includes 16,500 unvested shares of restricted stock of the Company and +48,724 shares subject to options exercisable within 60 days of March 28, +2006 granted under the 1996 Stock Plan. +(5) Includes 63,750 shares subject to options exercisable within 60 days of +March 28, 2006 granted under the Non-Employee Directors' Stock Plan. Also +includes 5,000 unvested shares of restricted stock of the Company, 1,500 +shares deemed to be beneficially owned by Mr. Schwarz in his capacity as +trustee of a trust for the benefit of his granddaughter, 1,500 shares +beneficially owned by his daughter, as to which shares he disclaims +beneficial ownership, and 3,975 shares owned by his spouse. +(6) Includes 18,900 unvested shares of restricted stock of the Company and +41,000 shares subject to options exercisable within 60 days of March 28, +2006 granted under the 1996 Stock Plan. +(7) Includes 12,500 unvested shares of restricted stock of the Company and +28,150 shares subject to options exercisable within 60 days of March 28, +2006 granted under the 1996 Stock Plan. +(8) Includes 14,000 unvested shares of restricted stock of the Company and +3,799 shares subject to options exercisable within 60 days of March 28, +2006 granted under the 1996 Stock Plan. +(9) Includes 144,400 unvested shares of restricted stock of the Company and +556,286 shares subject to options exercisable within 60 days of March 28, +2006 granted under the 1996 Stock Plan and the Non-Employee Directors' +Stock Plan. +2 +(10) Based on information provided in a Schedule 13G filed with the Securities +and Exchange Commission (the "SEC") on February 14, 2006 by Janus Capital +Management LLC ("Janus Capital") and Janus Venture Fund, Janus Capital is +an investment adviser and indirect majority owner of two other investment +advisers, Enhanced Investment Technologies LLC and Bay Isle Financial LLC, +and such entities have sole voting power and sole dispositive power over +856,785 shares of the Company's Common Stock, including 799,760 shares of +Common Stock with respect to which Janus Venture Fund, a registered +investment company to which Janus Capital provides investment advice, has +sole voting power and sole dispositive power. +(11) Based on information provided in a Schedule 13G filed with the SEC on +February 13, 2006 by Bares Capital Management, Inc. ("Bares Capital") and +Brian T. Bares, Bares Capital is an investment adviser and Mr. Bares is the +President of Bares Capital and beneficially owns a controlling percentage +of its outstanding voting securities, and such parties have sole voting +power and sole dispositive power over 724,223 shares of the Company's +Common Stock. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the +"Exchange Act"), requires the Company's directors, executive officers and +persons who beneficially own more than 10% of the Company's common stock to file +with the SEC and the Nasdaq Stock Market reports of ownership and reports of +changes in ownership of common stock and other equity securities of the Company +and to furnish the Company with copies of all such reports they file. To the +Company's knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2005, all such reports were timely filed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit +the long-term interests of the Company's stockholders by clearly outlining the +Company's duties and responsibilities, providing a framework for active and +fruitful discussions among the members of the Company's Board of Directors and +between the Board and management, and avoiding conflicts of interest and other +legal and ethical problems. Accordingly, the Company's corporate governance +practices are designed not only to satisfy regulatory requirements, but also to +provide for effective management of the Company. +Information on the Company's corporate governance practices is available to +the public under "Corporate Governance" on the Company's website at +www.transact-tech.com. The information on the website includes the Company's +Corporate Governance Principles, the charters of the Board's Committees, and the +Company's Standards of Business Conduct, which includes a code of ethics +applicable to the officers responsible for financial reporting, including the +Chief Executive Officer, Chief Financial Officer and Controller. +The remainder of this section of the Proxy Statement summarizes the key +features of the Company's corporate governance practices: +BOARD SIZE +The Corporate Governance Principles provide that the Board should generally +have between four and ten members. In establishing the appropriate number of +directors, the Board and the Compensation and Corporate Governance Committee +consider (i) resignations and retirements from the current Board, (ii) the +availability of appropriate, qualified candidates, and (iii) the goal of +assuring that the Board is small enough to facilitate active discussions and +decision-making while, at the same time, is large enough to provide an +appropriate mix of continuity, experience, skills and diversity so that the +Board and its Committees can effectively perform their responsibilities. +3 +CRITERIA FOR MEMBERSHIP ON THE BOARD +The Board and its Nominating Committee consider a number of different +factors in selecting nominees for director. Some of these factors, such as +integrity, are applied uniformly to all prospective candidates. Others, such as +specific industry experience, may be adopted on a case by case basis by the +Board and the Nominating Committee based on the Company's business needs at the +time a nomination is under consideration. The Nominating Committee and the Board +of Directors apply the same criteria to each candidate for a particular position +on the Board, regardless of whether the candidate is proposed by a stockholder +or some other source. Specific criteria considered by the Nominating Committee +and the Board include: +Independence. The Board of Directors, in its Corporate Governance +Principles and Committee charters, has established a policy that a substantial +majority of the directors be "independent" members of the Board. The Nominating +Committee and the Board consider the independence of each prospective director +before election and further consider the independence of all continuing +directors on at least an annual basis. The Board has determined that all the +directors, except for Mr. Shuldman, who is the Company's Chief Executive +Officer, are independent in accordance with the Company's criteria. The Board +applies the following criteria in determining independence, which criteria are +derived from Nasdaq's listing standards as well as certain additional +requirements that are imposed on certain Committee members under the rules and +regulations of the Securities and Exchange Commission and the Internal Revenue +Service: +- Independent Judgment. The director must not have any relationship with +the Company that, in the opinion of the Board, would interfere with the +exercise of independent judgment in carrying out the responsibilities of +a director. In making this determination, the Board considers all +relevant facts and circumstances, including commercial, charitable and +familial relationships that might have an impact on the director's +judgment. +- Employment. The director must not have been an employee of the Company +at any time during the past three years. In addition, a member of the +director's immediate family (including the director's spouse, parents, +children, siblings, mother-in-law, father-in-law, brother-in-law, +sister-in-law, son-in-law, daughter-in-law and anyone who resides in the +director's home) must not have been an executive officer of the Company +during the past three years. +- Other Payments. Neither the director nor a member of his or her +immediate family member may have received payments of more than $60,000 +per year from the Company during the current or any of the past three +years, except for director fees, payments arising solely from investments +in the Company's securities, benefits under certain Company plans and +non-discretionary compensation, certain permitted loans and compensation +paid to a family member who is not an executive officer of the Company. +- Auditor Affiliation. Neither the director nor a member of his or her +immediate family may be a current partner of the Company's independent +auditors or have been a partner or employee of the Company's independent +auditors who worked on the Company's audit at any time during the past +three years. +- Interlocking Directorships. Neither the director nor any member of his +or her immediate family may be employed as an executive officer by +another entity where, at any time during the past three years, any of the +Company's executive officers served on the compensation committee. +- Transactions. Neither the director nor any member of his or her +immediate family may be a partner in, or a controlling stockholder or +executive officer of, any organization that, during the current or any +one of the past three years, received payments from the Company, or made +payments to the Company, for property or services that exceed the greater +of $200,000 or 5% of the recipient's annual consolidated gross revenues +for such year (excluding payments arising solely from investments in the +Company's securities or paid under a non-discretionary charitable +matching program). +4 +- Additional Standards for Audit Committee Members. Any director who +serves on the Board's Audit Committee may not, directly or indirectly, +have received any consulting, advisory or other compensatory fee from the +Company (other than certain retirement benefits and deferred +compensation) or be an affiliate of the Company (except as a director, +but including by way of stock ownership). In addition, no such director +may have participated in the preparation of the financial statements of +the Company or any current subsidiary of the Company at any time during +the past three years. +Overall Board Composition. The Board of Directors believes it is important +to consider the professional skills and background, experience in relevant +industries, age and diversity of its directors in light of the Company's current +and future business needs. +Personal Qualities. Each director must possess certain personal qualities, +including integrity, judgment and business acumen. In addition, each director +must be no older than 75 years of age at the time of nomination or renomination. +Commitments. Each director must have the time and ability to make a +constructive contribution to the Board. While the Board does not believe it is +appropriate to establish a single standard regarding the number of other boards +on which a director may sit, this is a factor that may be considered in +reviewing a candidate's suitability. +Additional Criteria for Incumbent Directors. During their terms, all +incumbent directors on the Company's Board are expected to have regular +attendance at Board and Committee meetings; to stay informed about the Company +and its business; to participate in discussions of the Board and its Committees; +to take an interest in the Company's business and provide advice and counsel to +the Company's Chief Executive Officer; and to comply with the Company's +Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the +criteria established from time to time by The Nasdaq Stock Market, the +Securities and Exchange Commission, the Internal Revenue Service and other +applicable regulatory entities for service on the Board and its Committees. +DIRECTOR NOMINATION PROCESS +Under its charter, the Nominating Committee is responsible for identifying, +reviewing and recommending individuals to the Board for nomination or election +as directors. This typically involves the following steps: +- Specific Criteria. The Nominating Committee and the Board review the +overall composition of the Board in light of the Company's current and +expected business needs and, as a result of such assessments, may +establish specific qualifications that the Committee will seek in Board +candidates. +- Identifying New Candidates. The Committee may seek to identify new +candidates for the Board (i) who possess the desired qualifications, and +(ii) who satisfy the other requirements for Board service. In identifying +new director candidates, the Committee may seek advice and names of +candidates from Committee members, other members of the Board, members of +management, and other public and private sources. The Committee may also, +but need not, retain a search firm in order to assist it in these +efforts. +- Reviewing New Candidates. The Committee reviews the potential new +director candidates identified through this process. This involves +reviewing the candidates' qualifications and conducting an appropriate +background investigation. The Committee may also select certain +candidates to be interviewed by one or more Committee members. +- Reviewing Incumbent Candidates. On an annual basis, the Committee also +reviews incumbent candidates for renomination to the Board. This review +involves an analysis of the criteria described above that apply to +incumbent directors. +- Recommending Candidates. The Nominating Committee recommends a slate of +candidates for the Board of Directors to submit for approval to the +stockholders at the Annual Meeting. This slate of +5 +candidates may include both incumbent and new nominees. In addition, +apart from this annual process, the Committee may, in accordance with the +Corporate Governance Principles, recommend that the Board elect new +members of the Board who will serve until the next annual stockholders +meeting. At the time of making any recommendation to the Board, the +Committee reports on the criteria that were applied in making the +recommendation and its findings concerning each candidate's +qualifications. +- Stockholder Nominations Submitted to the Committee. Stockholders may +also submit names of director candidates, including their own, to the +Nominating Committee for its consideration. The process for stockholders +to use in submitting suggestions to the Nominating Committee is set forth +below at "Procedures for Submitting Director Nominations and +Recommendations." +BOARD MEETINGS AND EXECUTIVE SESSIONS +The Board of Directors not only holds regular quarterly meetings, but also +holds at least one special-purpose meeting each year to review the Company's +strategy, to approve its annual business plan and annual budget, and to act on +matters relating to the Company's Annual Meeting and filings with the Securities +and Exchange Commission. +Non-employee directors meet by themselves in executive sessions, without +management or employee directors present, at every regularly scheduled Board +meeting. In addition, the non-employee directors and independent directors may +convene additional executive sessions at any time. +These executive sessions are led by the Chair of the committee that is +responsible for the subject matter at issue (e.g., the Audit Committee Chair +would lead a discussion of audit-related matters). When it is not clear which +committee has specific responsibility for the subject matter, the Chair of the +Compensation and Corporate Governance Committee presides. +COMMITTEES OF THE BOARD +The Board has four standing committees: the Audit Committee, the +Compensation and Corporate Governance Committee, the Nominating Committee and +the Executive Committee. +Each Committee is composed entirely of independent directors and operates +under a written charter. The Chair of each Committee is selected by the Board. +Each Committee, except the Executive Committee, holds regular executive sessions +at which only Committee members are present. Each Committee is authorized to +retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance +Committee, and the Nominating Committee are available on the Company's website, +www.transact-tech.com, but a brief summary of the committees' responsibilities +follows: +Audit Committee. The Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the quality and integrity of +the Company's financial statements and accounting practices, the Company's +compliance with legal and regulatory requirements, the independent auditor's +qualifications and independence, and the performance of the Company's +independent auditor and internal audit function. +Nominating Committee. The Nominating Committee is responsible for +assisting the Board in carrying out its responsibilities relating to the +composition of the Board, including identifying, reviewing and recommending +candidates to the Board for nomination or election as directors. +Compensation and Corporate Governance Committee. The Compensation and +Corporate Governance Committee is responsible for assisting the Board in +carrying out its responsibilities relating to executive compensation, the +Company's corporate governance practices, CEO performance review and succession +planning, director compensation, Board and Committee performance evaluation and +stockholder communication matters. +6 +Executive Committee. The Executive Committee meets between scheduled +meetings of the Board of Directors and has the power and authority of the Board, +except as limited by the Company's By-Laws. +BOARD AND COMMITTEE PERFORMANCE EVALUATIONS +The Board of Directors conducts periodic evaluations of its composition, +responsibilities, structure, processes and effectiveness. Each Committee of the +Board conducts a similar evaluation with respect to such Committee. These +evaluations are conducted under the auspices of the Compensation and Corporate +Governance Committee. +STANDARDS OF BUSINESS CONDUCT +In order to help assure the highest levels of business ethics at the +Company, the Board of Directors has adopted the Company's Standards of Business +Conduct, which apply to the Company's directors, officers and employees. The +Standards of Business Conduct provide an overview of the Company's policies +pertaining to employee conduct in the workplace, regulatory compliance and +investigations; the Company's relationships with its customers, vendors, +competitors and the public; insider trading; conflicts of interest; lobbying; +political activities and contributions; accuracy of books, records and financial +statements; confidentiality; and the protection of all who come forward to +report suspected violations of the Standards. In addition, with respect to the +Company's officers who are responsible for financial reporting, including the +Chief Executive Officer, Chief Financial Officer and Controller, the Standards +of Business Code are designed to act as a code of ethics that are designed to +promote honest and ethical conduct and mandate that these officers avoid +conflicts of interest and disclose any relationship that could give rise to a +conflict, protect the confidentiality of non-public information about the +Company, work to achieve responsible use of the Company's assets and resources, +comply with all applicable governmental rules and regulations and promptly +report any possible violation of the Standards. In addition, the Standards +require that these individuals promote full, fair, understandable and accurate +disclosure in the Company's publicly filed reports and other public +communications and sets forth standards for accounting practices and records. +Individuals to whom the Standards of Business Conduct apply are held accountable +for their adherence to it. Failure to observe the terms of the Standards of +Business Conduct can result in disciplinary action (including termination of +employment). +1. ELECTION OF DIRECTORS +The Board of Directors currently consists of four directors and is divided +into three classes. Each class of directors are elected by the holders of the +Company's Common Stock to serve staggered three-year terms. +At the Annual Meeting, one person is to be elected to hold office as a +director until the 2009 Annual Meeting of Stockholders or until a successor is +duly elected and qualified. In the absence of instructions to the contrary, the +persons named in the accompanying proxy will vote such proxy "FOR" the election +of the nominee named below. Should the nominee become unavailable, which is not +anticipated, votes pursuant to the proxy will be cast for a substitute candidate +as may be designated by the Board of Directors, or in the absence of such +designation, in such other manner as the Board may in their discretion +determine. Alternatively, in such a situation, the Board of Directors may take +action to fix the number of directors for the ensuing year at the number of +nominees and incumbent directors who are then able to serve. +DIRECTOR INDEPENDENCE AND QUALIFICATIONS +The Board of Directors has determined that all of the directors or +nominees, except for Mr. Shuldman, are "independent" within the criteria +established under the Company's Corporate Governance Principles. See "Corporate +Governance -- Criteria for Membership on the Board." In addition, the Board has +determined that each member of the Audit Committee is financially literate and +each director or nominee possesses the high level of skill, experience, +reputation and commitment that is mandated by the Board. +7 +INFORMATION CONCERNING NOMINEE FOR RE-ELECTION AS DIRECTOR WHOSE TERM WILL +EXPIRE AT THE 2009 ANNUAL MEETING +Charles A. Dill, 66, has been a director of the Company since its formation +in June 1996. From 2004 to the present, Mr. Dill has served as a General Partner +of Two Rivers Associates, a private equity investment firm. Mr. Dill was a +General Partner of Gateway Associates, a venture capital firm, from 1996 to +2004. Mr. Dill currently serves as a director of Zoltek Companies, Inc. and +Stifel Financial Corp., as well as several other privately held companies. +VOTE REQUIRED +The election of Charles A. Dill as director of the Company requires +affirmative votes of the holders of a plurality of the votes of the Company's +Common Stock present in person or represented by proxy and entitled to vote. +Abstentions by holders of such shares and broker non-votes will have no effect +on the election of directors, but will be included in determining the presence +of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION OF +CHARLES A. DILL AS DIRECTOR OF THE COMPANY. +INFORMATION CONCERNING DIRECTOR WHOSE TERM WILL EXPIRE AT THE 2007 ANNUAL +MEETING +Graham Y. Tanaka, 58, has been a director of the Company since its +formation in June 1996. Mr. Tanaka has been President of Tanaka Capital +Management, Inc., an investment management firm, since 1986. He is a director of +Tanaka Funds, Inc. and Tanaka Capital Management, Inc. +INFORMATION CONCERNING DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2008 ANNUAL +MEETING +Thomas R. Schwarz, 69, has been a director of the Company since its +formation in June 1996 and was Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman's Inc., a +retailer of building materials, from 1990 until his retirement in 1994. From +1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz is a director +of Tanaka Growth Fund and a privately held company. +Bart C. Shuldman, 49, has been Chief Executive Officer, President and a +director of the Company since its formation in June 1996 and Chairman of the +Board since February 2001. Previously, Mr. Shuldman was Vice President of Sales +and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April +1993 to August 1993, and served as President of Magnetec, and later the combined +operations of Magnetec and Ithaca Peripherals Incorporated, another former +Tridex subsidiary, from August 1993 to June 1996. +THE BOARD OF DIRECTORS AND ITS COMMITTEES +During the year ended December 31, 2005, the Board of Directors held twelve +meetings. Each director attended all of the meetings of the Board of Directors +and of the Committees of the Board of Directors on which such director served. +The standing committees of the Board of Directors are the Audit Committee, +the Compensation and Corporate Governance Committee, the Nominating Committee +and the Executive Committee. +The Audit Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka, with Mr. Dill serving as Chair. As discussed above +under "Corporate Governance -- Criteria for Membership on the Board", the Board +has determined that each member of the Audit Committee is an independent +director and meets the financial literacy requirements of The Nasdaq Stock +Market to serve on the Committee. In addition, the Board has determined that Mr. +Dill is an "audit committee financial expert" as defined under the rules of the +Securities and Exchange Commission. The Audit Committee operates under a written +charter, which was revised in March 2004 and is posted on the Company's website. +The Audit Committee met four times during 2005. +8 +The Compensation and Corporate Governance Committee is comprised of Messrs. +Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz +serving as Chair. The Compensation and Corporate Governance Committee operates +under a written charter, which was adopted in March 2004 and is posted on the +Company's website. See "Corporate Governance -- Recent Developments." The +Compensation and Corporate Governance Committee met five times during 2005. +The Nominating Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating +Committee operates under a written charter, which was adopted in March 2004 and +is posted on the Company's website. See "Corporate Governance -- Recent +Developments." The Nominating Committee met two times during 2005. +The Executive Committee is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka. The Executive Committee did not meet during 2005. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the internal control over +financial reporting and quality and integrity of the Company's financial +statements and accounting practices, the Company's compliance with legal and +regulatory requirements, the independent auditor's qualifications and +independence, and the performance of the Company's independent auditor and +internal audit function. +Management is responsible for preparing complete and accurate consolidated +financial statements in accordance with generally accepted accounting +principals. The independent public accountants are responsible for performing +independent audits of the Company's consolidated financial statements and for +issuing reports about those financial statements. The Audit Committee meets with +the independent public accountants, the Chief Executive Officer and the senior +management of the Company to review the scope and the results of the annual +audit, the amount of audit fees, the Company's system of internal accounting +controls over financial reporting, the financial statements contained in the +Company's Annual Report to Stockholders and other related matters. Separate +meetings are held with the independent public accountants and management. +Substantial attention at Audit Committee meetings throughout 2005 was devoted to +progress updates and presentations by management and the independent public +accountants relative to the Company's Sarbanes-Oxley Section 404 Internal +Control Certification Program. Management's Report on Internal Control, together +with the independent public accountants' accompanying report, has been reviewed +by the Committee and is contained in the Company's 2005 Annual Report on Form +10-K. +In connection with its duties, the Audit Committee has taken the following +actions: +- It has reviewed and discussed the audited financial statements, as well +as the assessment of internal controls over financial reporting, with +management. +- It has discussed with the independent registered public accounting firm, +which is responsible for expressing an opinion on the financial +statements in accordance with generally accepted accounting principles, +the matters required to be discussed by Statement on Auditing Standards +No. 61, "Communication with Audit Committees," as amended. +- It has received from the independent registered public accounting firm +the written disclosures describing any relationships between the +independent registered public accounting firm and the Company and the +letter confirming their independence required by Independence Standards +Board Standard No. 1, "Independence Discussions with Audit Committees," +and has discussed with the independent auditors matters relating to their +independence. +9 +- Based on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial +statements of the Company for the year ended December 31, 2005 be +included in the Company's Annual Report on Form 10-K for filing with the +SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +During the year ended December 31, 2005, each outside director of the +Company received as compensation for services rendered: (i) a retainer of $2,500 +for each fiscal quarter served as director, (ii) $1,000 for each Board of +Directors meeting attended, (iii) $500 for each Board of Directors committee +meeting attended, (iv) $500 for each telephonic Board of Directors meeting, and +(v) $250 for each telephonic committee meeting. Chairs of committees received +$750 for each committee meeting attended and $500 for each telephonic meeting. +Directors are reimbursed for expenses incurred in attending meetings. +Each non-employee director receives an annual grant of 5,000 shares of +restricted stock, pursuant to the terms of the Company's 2005 Equity Incentive +Plan. The restricted stock will vest at the rate of 20% per year beginning on +the first anniversary of the date of grant. +10 +EXECUTIVE COMPENSATION +The following tables set forth information concerning the compensation +earned by the Company's Chief Executive Officer and each of the other four most +highly compensated executive officers (the "Named Executive Officers") in 2005: +SUMMARY COMPENSATION TABLE +LONG-TERM COMPENSATION +----------------------- +AWARDS +----------------------- ALL +ANNUAL COMPENSATION RESTRICTED SECURITIES OTHER +------------------- STOCK UNDERLYING COMPEN- +FISCAL SALARY(1) BONUS AWARDS(3) OPTIONS SATION(4) +NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) ($) +---------------------------- ------ --------- ------- ---------- ---------- --------- +Bart C. Shuldman.................... 2005 403,000 160,000 199,200 -- 29,114 +Chairman, President and 2004 390,000 52,650 612,500 -- 29,305 +Chief Executive Officer 2003 390,000 73,125 -- -- 56,413 +Steven A. DeMartino(5).............. 2005 186,000 75,000 149,400 -- 18,406 +Executive Vice President, 2004 166,759 24,239 220,240 -- 18,521 +Chief Financial Officer, 2003 145,600 16,380 -- -- 29,764 +Treasurer and Secretary +Michael S. Kumpf.................... 2005 168,810 40,000 149,400 -- 19,962 +Executive Vice President, 2004 162,565 20,686 122,500 -- 20,132 +Engineering 2003 158,600 20,816 -- -- 17,045 +James B. Stetson(6)................. 2005 179,067 64,400(2) 99,600 -- 14,430 +Senior Vice President and 2004 179,067 27,569(2) 122,500 -- 21,587 +Business Manager, TransAct 2003 174,720 58,633 -- -- 22,094 +Services Group +Andrew J. Hoffman(7)................ 2005 135,000 35,000 99,600 -- 10,944 +Senior Vice President, 2004 121,930 13,175 122,500 -- 5,288 +Operations 2003 117,850 13,258 -- -- 4,418 +--------------- +(1) None of the Named Executive Officers received perquisites or other personal +benefits in an amount which exceeded 10% of their salary plus bonus during +any fiscal year. +(2) All of the bonuses paid to Mr. Stetson represents commissions on sales by +the Company. +(3) All restricted stock awards were granted under the Company's 1996 Stock +Plan. The value of the restricted stock awards is based on the closing +market price of the Company's common stock on the date of grant. At the end +of fiscal year 2005, the number of shares of common stock which remain +subject to restricted awards and the value of such shares, based on the +closing price of the Company's common stock of $7.90 on such date, were as +follows: Mr. Shuldman: 50,000 shares and $395,000; Mr. DeMartino: 23,400 +shares and $184,860; Mr. Kumpf; 21,000 shares and $165,900; Mr. Stetson: +16,000 shares and $126,400; and Mr. Hoffman: 16,000 shares and $126,400. The +grants of shares of restricted stock in 2005 (i) to Mr. Shuldman, Mr. +DeMartino, Mr. Kumpf, Mr. Stetson and Mr. Hoffman vest in five equal +installments beginning on the first anniversary of the date of grant. +Currently, no dividends may be paid on shares of the Company's common stock. +(4) For all the Named Executive Officers, these amounts consist of automobile +allowances, Company contributions under the Company's 401(k) Plan, and other +benefits such as life and disability insurance. Also, for 2003, includes a +one-time payment of accrued vacation as of December 31, 2002. +(5) Mr. DeMartino was appointed Senior Vice President, Finance and Information +Technology in October 2001, and replaced Richard L. Cote as Executive Vice +President, Chief Financial Officer, Treasurer and Secretary in June 2004. +(6) Mr. Stetson was appointed Executive Vice President, Sales and Marketing in +November 2001 and Senior Vice President and Business Manager, TransAct +Services Group in October 2004. +(7) Mr. Hoffman was appointed Senior Vice President, Operations in November +2004. +11 +AGGREGATED OPTION EXERCISES IN 2005 AND FISCAL YEAR-END +OPTION VALUES +NUMBER OF SECURITIES VALUE OF UNEXERCISED +UNDERLYING UNEXERCISED IN-THE-MONEY +SHARES OPTIONS AT OPTIONS AT +ACQUIRED ON VALUE FISCAL YEAR-END FISCAL YEAR-END +EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE +NAME (#) ($) (#) ($) +---- ----------- -------- ------------------------- ------------------------- +Bart C. Shuldman............. 10,500 142,930 289,550/- 1,121,102/- +Steven A. DeMartino.......... -- -- 42,000/- 174,125/- +Michael S. Kumpf............. -- -- 48,724/- 154,160/- +James B. Stetson............. 4,100 25,256 28,150/- 115,595/- +Andrew J. Hoffman............ -- -- 3,799/- 16,107/- +EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +Under the terms of an Employment Agreement dated July 31, 1996 between Bart +C. Shuldman and the Company, Mr. Shuldman serves as President and Chief +Executive Officer at the pleasure of the Board of Directors. If Mr. Shuldman's +employment is terminated other than for Cause (as such term is defined in the +employment agreement), Mr. Shuldman shall be entitled to continue to receive: +(i) his annual base salary and all other benefits for two years from the date of +termination and (ii) a pro rata portion of his annual target bonus amount for +the year of termination. If Mr. Shuldman's employment is terminated other than +for Cause, or if Mr. Shuldman resigns for specified reasons, within one year of +a change-in-control of the Company, Mr. Shuldman shall be entitled to continue +to receive his annual base salary, annual target bonus and all benefits for a +period of three years from the date of termination. In addition, the Company +shall cause the immediate vesting of all restricted stock and stock options +granted to Mr. Shuldman under the 1996 Stock Plan. +Under the terms of a Severance Agreement with Steven A. DeMartino dated +June 1, 2004, if the employment of Mr. DeMartino is terminated other than for +Cause (as such term is defined in the severance agreement), Mr. DeMartino shall +be entitled to continue to receive, for one year following the date of +termination, his annual base salary, a pro rata portion of his annual target +bonus for the year of termination and all benefits which would otherwise have +been payable to him. If the employment of Mr. DeMartino is terminated other than +for Cause, or if he resigns for specified reasons, within one year of a +change-in-control of the Company, Mr. DeMartino shall be entitled to continue to +receive his annual base salary, annual target bonus and all benefits for a +period of two years from the date of termination. In addition, the Company shall +cause the immediate vesting of all restricted stock and stock options granted to +Mr. DeMartino under the 1996 Stock Plan. +Under the terms of Severance Agreements between the Company and James B. +Stetson, Michael S. Kumpf and Andrew J. Hoffman dated January 24, 2001, +September 4, 1996 and November 18, 2005, respectively, if the employment of Mr. +Stetson or Mr. Kumpf is terminated other than for Cause (as such term is defined +in the respective severance agreement), each executive shall be entitled to +continue to receive, for six months following the date of termination, the +annual base salary, a pro rata portion of the annual target bonus for the year +of termination and all benefits which would otherwise have been payable to each +of them. If the employment of Mr. Stetson or Mr. Kumpf is terminated other than +for cause, or if they resign for specified reasons, within one year of a +change-in-control of the Company, each shall be entitled to continue to receive +his annual base salary, annual target bonus and all benefits for a period of one +year from the date of termination. In addition, the Company shall cause the +immediate vesting of all restricted stock and stock options granted under the +1996 Stock Plan. +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Compensation Committee, which is comprised of independent directors of +the Company, is responsible for administering the Company's executive +compensation policies. In connection with such +12 +responsibilities, the Compensation Committee establishes the general +compensation policies for the Company, approves the hiring and termination of +all executive officers and any staff reporting directly to the Chief Executive +Officer of the Company and approves the compensation plans and specific +compensation levels for all executive officers and any staff reporting directly +to the Chief Executive Officer of the Company. The Compensation Committee also +approves the issuance of all awards to employees of the Company and its +subsidiaries under the Company's 2005 Equity Incentive Plan. +Compensation Policies and Goals +The primary goals of the Company's compensation policies are to attract, +retain, motivate and reward management of the Company, while at the same time, +aligning their interests closely with those of the Company and its stockholders. +The Company seeks to attract and retain management by offering a competitive +total compensation package. To align the interests of management more closely +with those of the Company as a whole and reward individual initiative and +effort, the Company seeks to promote performance-based compensation where +contribution to the Company as a whole is rewarded. Through the use of +performance-based plans that reward attainment of Company goals, the Company +seeks to foster an attitude of teamwork. The Company also believes that the use +of equity ownership is an important tool to ensure that the efforts of +management are consistent with the objectives of its stockholders and seeks to +promote increased ownership of the Company by management through the use of +stock awards. +The Compensation Committee has tried to achieve the above goals utilizing +publicly available information regarding competitive compensation. The +Compensation Committee may utilize an independent consultant to ensure that +compensation for the Company's management is competitive, meets the above-stated +objectives and is consistent for all members of management of the Company. +Compensation Components +At present, the compensation of the executive officers of the Company +consists of a combination of salary, cash bonuses, stock options, restricted +stock and participation in the Company's 401(k) Plan, as well as the provision +of medical and other personal benefits typically offered to corporate +executives. Some of the executive officers of the Company are parties to +agreements which provide for severance payments under certain circumstances. +These agreements for the Named Executive Officers are described above under +"Employment Contracts, Termination of Employment and Change-In-Control +Arrangements." +Salaries: The Compensation Committee targets the Chief Executive Officer's +salary at the mean of that for the Company's peer group and seeks to provide a +total compensation package competitive with those of others in the industry. +Cash Bonuses: The Company generally maintains an incentive compensation +plan for all salaried employees of the Company, including key executives, which +provides for the payment of cash bonuses. Under the plan, the Board of Directors +fixes an incentive target, as well as individual goals and objectives, for each +employee at the beginning of the year and bonuses are paid shortly after the end +of the year. +Stock Awards: Under the Company's 2005 Equity Incentive Plan, stock options +and restricted stock are granted by the Compensation Committee. Prior to 2006, +all salaried employees were granted an initial award of stock options or +restricted stock on their date of hiring for a fixed number of shares depending +on their level, which vests over three to five years. Beginning in 2006, +executives and certain key employees may be granted stock awards as determined +by the Compensation Committee +Other Benefit Plans: Executive officers of the Company may participate in +the Company's nondiscriminatory 401(k) Plan. +13 +Chief Executive Officer Compensation +The Compensation Committee also makes decisions regarding the compensation +of the Chief Executive Officer using the philosophy and criteria set forth +above. Each year, the Company approves the adjustment of salary ranges for the +Chief Executive Officer based on studying the compensation paid to CEOs at peer +group companies. Mr. Shuldman's annual base salary for 2005 was $405,600. +Mr. Shuldman's annual incentive award, shown in the fourth column of the +Summary Compensation Table, was based upon a policy of the degree of achievement +of the corporate and individual goals and objectives. The 20,000 shares of +restricted stock granted to Mr. Shuldman during 2005 reflect this policy. +COMPENSATION COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Graham Y. Tanaka +14 +CORPORATE PERFORMANCE GRAPH +The following graph compares the cumulative total return on the Company's +Common Stock from December 31, 2000 through December 31, 2005, with the CRSP +Total Return Index for the Nasdaq Stock Market (U.S.) and the Nasdaq Computer +Manufacturer Stocks Index. The graph assumes that $100 was invested on December +31, 2000 in each of the Company's common stock, the CRSP Total Return Index for +the Nasdaq Stock Market (U.S.) and the Nasdaq Computer Manufacturer Stocks +Index, and that all dividends were reinvested. +COMPARISON OF CUMULATIVE TOTAL RETURN AMONG +TRANSACT TECHNOLOGIES INCORPORATED COMMON STOCK, +THE CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (U.S.), +AND THE NASDAQ COMPUTER MANUFACTURER STOCKS INDEX +(PERFORMANCE GRAPH) +-------------------------------------------------------------------------- +12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 +-------------------------------------------------------------------------- +TransAct +Technologies +Incorporated +Common Stock $100.00 $104.76 $90.29 $463.81 $610.29 $225.71 +-------------------------------------------------------------------------- +CRSP Total Return +Index for the +Nasdaq Stock +Market (U.S.) $100.00 $ 79.32 $54.84 $ 81.99 $ 89.23 $ 91.12 +-------------------------------------------------------------------------- +Nasdaq Computer +Manufacturer +Stocks Index $100.00 $ 68.89 $45.65 $ 63.50 $ 83.03 $ 84.97 +-------------------------------------------------------------------------- +15 +2. RATIFICATION OF SELECTION OF PRICEWATERHOUSECOOPERS LLP AS +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2006 +The Audit Committee has selected PricewaterhouseCoopers LLP as independent +registered public accounting firm to audit the financial statements of the +Company for the 2006 fiscal year. This selection is being presented to the +stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP +has audited the Company's financial statements since the Company's formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at +the Annual Meeting, will have the opportunity to make a statement, and is +expected to be available to respond to appropriate questions. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring its pre-approval of +all audit services and permissible non-audit services provided by the +independent registered public accounting firm, along with the associated fees +for those services. The Policy provides for the annual pre-approval of specific +types of services pursuant to policies and procedures adopted by the Audit +Committee, and gives detailed guidance to management as to the specific services +that are eligible for such annual pre-approval. The Policy requires the specific +pre-approval of all other permitted services. For both types of pre-approval, +the Audit Committee considers whether the provision of a non-audit service is +consistent with the Securities and Exchange Commission's rules on auditor +independence, including whether provision of the service (i) would create a +mutual or conflicting interest between the independent registered public +accounting firm and the Company, (ii) would place the independent registered +public accounting firm in the position of auditing its own work, (iii) would +result in the independent registered public accounting firm acting in the role +of management or as an employee of the Company, or (iv) would place the +independent registered public accounting firm in a position of acting as an +advocate for the Company. In addition, the Audit Committee considers whether the +independent registered public accounting firm is best positioned and qualified +to provide the most effective and efficient service, based on factors such as +the independent registered public accounting firm's familiarity with the +Company's business, personnel, systems or risk profile and whether provision of +the service by the independent registered public accounting firm would enhance +the Company's ability to manage or control risk or improve audit quality or +would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to +address certain requests for pre-approval of services between meetings of the +Committee, and such Committee member is required to report his or her +pre-approval decisions to the Committee at its next regular meeting. The Policy +is designed to ensure that there is no delegation by the Audit Committee of +authority or responsibility for pre-approval decisions to management of the +Company. The Audit Committee monitors compliance by management with the +pre-approval policy by requiring management, pursuant to the Policy, to report +to the Audit and Finance Committee on a regular basis regarding the pre-approved +services rendered by the independent registered public accounting firm. +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, +retention and oversight of the work of the independent registered public +accounting firm. Accordingly, the Audit Committee has appointed +PricewaterhouseCoopers LLP to perform audit and other services for the Company. +In addition, the Committee has procedures in place for the pre-approval by the +Committee of all services provided by PricewaterhouseCoopers LLP. These +pre-approval procedures, as amended, are described above under "Policy Regarding +Pre-Approval of Services Provided by the Independent Registered Public +Accounting Firm." +16 +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for +the years ended December 31, 2005 and 2004 are as follows: +2005 2004 +-------- -------- +Audit Fees(1)............................................... $468,234 $605,700 +Audit-Related Fees(2)....................................... 35,000 69,315 +Tax Fees(3)................................................. 56,210 41,400 +All Other Fees(4)........................................... 1,515 1,500 +-------- -------- +Total Fees for Services Provided............................ $560,959 $717,915 +======== ======== +--------------- +(1) Audit Fees consist of fees related to: (i) the annual audit of the Company's +financial statements, (ii) the audit of management's assessment of the +effectiveness of internal control over financial reporting (as required by +Section 404 of the Sarbanes-Oxley Act of 2002), (iii) reviews of the +Company's quarterly financial statements, (iv) statutory audits for the +Company's UK subsidiary, and (v) the review of registration statements, +periodic reports and other reports filed with the SEC. +(2) Audit-Related Fees consist of fees incurred for consultations regarding +accounting and financial reporting standards, Sarbanes -- Oxley readiness +assistance, and due diligence work. +(3) Tax Fees include fees incurred for the preparation of domestic and foreign +tax returns and tax planning and advice. +(4) All Other Fees include software license fees for the use of a web-based +accounting research tool. +The Audit Committee has considered whether the provision of the above +services other than Audit Fees is compatible with maintaining the auditors' +independence and has determined that, in its opinion, they are compatible. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as +independent registered public accounting firm for 2006 requires the affirmative +vote of a majority of the votes of the Common Stock present in person or +represented by proxy and entitled to vote. In the absence of instructions to the +contrary, the persons named in the accompanying proxy will vote such proxy "FOR" +the ratification of PricewaterhouseCoopers LLP. Abstentions by holders of such +shares with respect to voting on this matter will have the effect of a negative +vote; broker non-votes with respect to voting on this matter will have no effect +on the outcome of the vote. In the event stockholders do not ratify the +appointment, the Audit Committee will reconsider the appointment. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM FOR 2006. +STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year's proxy +materials must be received by the Secretary of the Company on or before January +2, 2007. Proposals should be addressed to TransAct Technologies Incorporated, 7 +Laser Lane, Wallingford, Connecticut 06492, Attention: Secretary. Stockholders +who wish to make a proposal at the 2007 Annual Meeting without regard to whether +it will be included in the Company's proxy materials should notify the Company +no later than February 28, 2007. If a Stockholder who wishes to present a +proposal fails to notify the Company by the due date, the proxies that the +Company solicits for the meeting will accord them discretionary authority to +vote on the Stockholder's proposal if it is properly brought before the meeting. +17 +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors +if the proper nomination procedures specified in the Company's By-Laws are +followed. All nominations by stockholders must be delivered to or mailed and +received at the principal executive offices of the Company not less than 30 nor +more than 60 days prior to the meeting at which election of directors will take +place; however, if less than 40 days' notice or prior public disclosure of the +date of the meeting is given or made to stockholders, nominations will be timely +if received not later than 10 days after notice was given or public disclosure +was made. A stockholder's notice must set forth in writing (i) for each person +proposed to be nominated, all information relating to each such person that is +required to be disclosed in solicitations of proxies for election of directors +pursuant to Regulation 14A under the Exchange Act, including such person's +written consent to be named in the proxy and to serving as a director, and (ii) +for the stockholder giving notice, the (x) name and address of such stockholder +as they appear on the Company's books, and (y) the class and number of shares of +the Company beneficially owned by such stockholder. The Nominating Committee +will also consider any stockholder recommendation of a candidate for nomination +by the Board if the stockholder submits his or her recommendation in accordance +with the foregoing procedures. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder wishing to communicate directly with members of the Board +of Directors should do so in writing. All correspondence addressed to the Board +as a whole, to its independent directors, to any of its Committees or Committee +Chairs, or to individual Board members should be mailed to the following +address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +7 Laser Lane +Wallingford, Connecticut 06492 +- You are welcome to communicate anonymously or confidentially. +- All correspondence addressed to an individual director or Committee +Chair, and marked "Confidential", will be collected in the office of the +Secretary and forwarded unopened to the individual director. +- Other correspondence will be opened by the Secretary, reviewed, copied +and directed as follows: +- Concerns regarding the Company's accounting, internal accounting +controls or auditing matters will be referred to the members of the +Audit Committee. +- Nominations or recommendations of candidates for election to the Board +of Directors will be referred to members of the Nominating Committee. +- Other correspondence will be copied by the Secretary and forwarded to +all of the members of the Board of Directors (or its independent +directors, if so addressed) unless the stockholder directs otherwise. +- A Stockholder may request written acknowledgement of the receipt of his +or her correspondence, which will be provided by the Secretary or, in the +case of correspondence marked "Confidential", by the individual director +or Committee Chair to whom it is addressed. +18 +ANNUAL REPORT +A COPY OF THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON +FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE +FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS +SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER +RELATIONS DEPARTMENT, 7 LASER LANE, WALLINGFORD, CONNECTICUT 06492. +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise +specified, proxies will be voted for the director nominated by the Board of +Directors, and for ratification of the selection of PricewaterhouseCoopers LLP +as independent registered public accounting firm for 2006. As of the date of +this Proxy Statement, the Board of Directors is not aware of any matter which is +to be presented for action at the Annual Meeting other than the matters set +forth herein. Should any other matter requiring a vote of the stockholders arise +at the Annual Meeting, the proxies confer upon the persons named in the +accompanying proxy the authority to vote in respect of any such other matter in +accordance with the recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by: (i) giving written notice of revocation to +the Secretary of the Company, (ii) properly submitting to the Company a duly +executed proxy bearing a later date, or (iii) voting in person at the Annual +Meeting. All written notices of revocation and other communications with respect +to revocation of proxies should be addressed to the Company, as follows: +TransAct Technologies Incorporated, 7 Laser Lane, Wallingford, Connecticut +06492, Attention: Secretary. A proxy appointment will not be revoked by death or +supervening incapacity of the stockholder executing the proxy unless, before the +shares are voted, notice of such death or incapacity is filed with the Company's +Secretary or other person responsible for tabulating votes on behalf of the +Company. +The cost of preparing, assembling and mailing this proxy material will be +borne by the Company. The Company may solicit proxies otherwise than by use of +the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use the telephone or otherwise to obtain proxies. +The Company will also request persons, firms and corporations holding shares in +their names, or owned by others, to send this proxy material to and obtain +proxies from, such beneficial owners and will reimburse such holders for their +reasonable expenses in doing so. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE +ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS +HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +April 20, 2006 +19 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD WEDNESDAY, MAY 18, 2006 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the +"Company") does hereby nominate, constitute and appoint Bart C. Shuldman and +Steven A. DeMartino, or either of them, with full power to act alone, my true +and lawful attorney with full power of substitution, for me and in my name, +place and stead to vote all of the shares of Common Stock of the Company +standing in my name on its books on March 28, 2006, at the Annual Meeting of its +stockholders to be held at the Four Points by Sheraton Hotel, 275 Research +Parkway, Meriden, CT 06450 on May 18, 2006 at 10:00 a.m., or at any adjournment +thereof, with all powers the undersigned would possess if personally present as +follows: +(TO BE SIGNED ON REVERSE SIDE) +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 18, 2006 +[X] Please mark your +votes as in this +example. +FOR ABSTAIN +1. ELECTION OF [ ] [ ] Nominee: Charles A. Dill +DIRECTOR +FOR ABSTAIN AGAINST +2. RATIFICATION OF INDEPENDENT [ ] [ ] [ ] +REGISTERED PUBLIC +ACCOUNTING FIRM +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE AS +DIRECTOR AND FOR PROPOSAL 2. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED +FOR THE ELECTION OF THE NOMINEE FOR DIRECTOR AND FOR PROPOSAL 2. THE PROXY IS +AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE +MEETING. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE _________________________ DATE _________________________, 2006 +SIGNATURE _________________________ DATE _________________________, 2006 +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on this proxy. When shares +are held jointly, each holder should sign. When signing as executor, +administrator, attorney, trustee or guardian, please give full title +as such. If the signer is a corporation, please sign full corporate +name by duly authorized officer, giving full title as such. If +signer is a partnership, please sign in partnership name by +authorized person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-06-004896/proxy_rpt.txt b/raw/proxies/0001017303/0000950123-06-004896/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0001017303/0000950123-07-005676/proxy.txt b/raw/proxies/0001017303/0000950123-07-005676/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6bdd1f3ba29179b1bf21454bdad27638ead08c05 --- /dev/null +++ b/raw/proxies/0001017303/0000950123-07-005676/proxy.txt @@ -0,0 +1,1577 @@ +DEF 14A +1 +y33383def14a.txt +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (As Permitted by Rule +14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Section 240.14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +------------------------------------------------ +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant +to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is +calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +LOGO +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 15, 2007 +To the Stockholders of TransAct Technologies Incorporated: +Notice is hereby given that the 2007 Annual Meeting of Stockholders (the +"Annual Meeting") of TransAct Technologies Incorporated (the "Company" or +"TransAct"), a Delaware corporation, will be held on May 15, 2007 at 10:00 a.m. +Eastern Time, at the Clarion Hotel & Suites, 2260 Whitney Avenue, Hamden, CT +06518 for the following purposes: +(1) To elect one director to serve until the 2010 Annual Meeting of +Stockholders or until the director's successor has been duly elected +and qualified; +(2) To ratify the selection of PricewaterhouseCoopers LLP as the Company's +independent registered public accounting firm for 2007; and +(3) To transact such other business as may legally come before the Annual +Meeting. +Stockholders of record at the close of business on March 23, 2007 are +entitled to notice of and to vote at the Annual Meeting. +By Order of the Board of Directors, +LOGO +STEVEN A. DEMARTINO +Secretary +Hamden, Connecticut +April 19, 2007 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT +YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH +REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT +PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE +IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +ONE HAMDEN CENTER +2319 WHITNEY AVENUE +SUITE 3B +HAMDEN, CONNECTICUT 06518 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 15, 2007 +This Proxy Statement is being furnished to the stockholders of TransAct +Technologies Incorporated (the "Company") in connection with the solicitation of +proxies by the Board of Directors of the Company for use at the Annual Meeting +of Stockholders of the Company to be held on May 15, 2007, and any adjournments +or postponements thereof (the "Annual Meeting"). This Proxy Statement, the +foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company's +2006 Annual Report to Stockholders are first being mailed or given to +stockholders on or about April 19, 2007. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power +to revoke the same anytime prior to its being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in +such form or at such time as to render it not votable. The proxy is in ballot +form so that a specification may be made to grant or withhold authority to vote +for the election of directors and to indicate separate approval or disapproval +as to the other matters presented to stockholders. All of the proposals will be +presented by the Board of Directors. The shares represented by the proxy will be +voted for the election of the director named thereon, unless authority to do so +is withheld. With respect to the other proposals presented to stockholders by +the Board of Directors, the shares represented by the proxy will be voted in +accordance with the specification made. Where an executed proxy has been +received, but a choice is not so specified, the shares represented by the proxy +will be voted to elect the director nominee and for proposal 2. In addition, the +proxy confers discretionary authority to vote on any matter properly presented +at the Annual Meeting which is not known to the Company as of the date of this +Proxy Statement. +VOTING SECURITIES +Stockholders of record on March 23, 2007 are entitled to vote at the Annual +Meeting. Each holder of Common Stock is entitled to cast one vote for each share +of Common Stock held on March 23, 2007. There were 9,504,780 shares of Common +Stock issued and outstanding and entitled to vote at the close of business on +March 23, 2007. Shares representing a majority of the shares issued, outstanding +and entitled to be voted at the Annual Meeting, present in person or represented +by proxy, will constitute a quorum to transact business. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth information known to the Company regarding +the beneficial ownership of the Company's common stock as of March 23, 2007 by: +(i) each person known by the Company to own beneficially more than 5% of the +Company's common stock; (ii) each director or nominee for director of the +Company; (iii) each current executive officer of the Company named in the +Summary Compensation Table; and (iv) all current directors and executive +officers of the Company as a group. Except as otherwise indicated, each of the +persons named in the table has sole voting power and sole dispositive power with +respect to the shares set forth opposite such person's name and the address of +the holder is One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT +06518. +SHARES +BENEFICIALLY PERCENT OF +NAME OF BENEFICIAL OWNER OWNED CLASS +------------------------ ------------ ---------- +COMMON STOCK +Bares Capital Management, Inc.(1)............................ 486,296 5.12% +221 West Sixth Street, Suite 1225 +Austin, TX 78701 +Graham Y. Tanaka(2).......................................... 367,597 3.87% +Bart C. Shuldman(3).......................................... 293,299 3.09% +Charles A. Dill(4)........................................... 201,735 2.12% +Thomas R. Schwarz(5)......................................... 95,725 1.01% +Steven A. DeMartino(6)....................................... 85,000 * +Michael S. Kumpf(7).......................................... 69,824 * +Jon D. Berkley(8)............................................ 57,999 * +James B. Stetson(9).......................................... 37,900 * +All current directors and executive officers as a group (10 +persons)(10)............................................... 1,243,878 13.09% +-------- +* Less than 1% of the outstanding Common Stock. +(1) Based on information provided in a Schedule 13G filed with the SEC on +March 13, 2007 by Bares Capital Management, Inc. ("Bares Capital") and +Brian T. Bares. Bares Capital is an investment adviser and Mr. Bares is +the President of Bares Capital and beneficially owns a controlling +percentage of its outstanding voting securities, and such parties have +sole voting power and sole dispositive power over 486,296 shares of the +Company's Common Stock. +(2) Includes 63,750 shares subject to options exercisable within 60 days of +March 23, 2007 granted under the Company's Non-Employee Directors' Stock +Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka that are +directly owned by his children. Also includes 9,000 unvested shares of +restricted stock of the Company. +(3) Includes 1,500 shares owned by his spouse in an individual retirement +account, 4,800 shares owned by his minor children and 3,750 shares owned +by his mother. Also includes 31,000 unvested shares of restricted stock +of the Company and 242,113 shares subject to options exercisable within +60 days of March 23, 2007 granted under the Company's 1996 Stock Plan +and 2005 Equity Incentive Plan. +(4) Includes 48,750 shares subject to options exercisable within 60 days of +March 23, 2007 granted under the Company's Non-Employee Directors' Stock +Plan. Also includes 9,000 unvested shares of restricted stock of the +Company and 1,550 shares directly owned by his spouse. +(5) Includes 63,750 shares subject to options exercisable within 60 days of +March 23, 2007 granted under the Company's Non-Employee Directors' Stock +Plan. Also includes 9,000 unvested shares of restricted stock of the +Company, 1,500 shares deemed to be beneficially owned by Mr. Schwarz in +his capacity as trustee of a trust for the benefit of his granddaughter, +1,500 shares beneficially owned by his daughter, as to which shares he +disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(6) Includes 16,800 unvested shares of restricted stock of the Company and +45,000 shares subject to options exercisable within 60 days of March 23, +2007 granted under the Company's 1996 Stock Plan and 2005 Equity +Incentive Plan. +(7) Includes 15,000 unvested shares of restricted stock of the Company and +24,724 shares subject to options exercisable within 60 days of March 23, +2007 granted under the Company's 1996 Stock Plan and 2005 Equity +Incentive Plan. +(8) Includes 2,800 shares owned by his mother, 2,800 shares owned by his +father and 1,000 shares owned by his sister. Also includes 8,000 +unvested shares of restricted stock of the Company and 32,000 shares +subject to options exercisable within 60 days of March 23, 2007 granted +under the Company's 1996 Stock Plan and 2005 Equity Incentive Plan. +2 +(9) Includes 11,000 unvested shares of restricted stock of the Company and +17,400 shares subject to options exercisable within 60 days of March 23, +2007 granted under the Company's 1996 Stock Plan and 2005 Equity +Incentive Plan. +(10) Includes 129,800 unvested shares of restricted stock of the Company and +544,786 shares subject to options exercisable within 60 days of March +23, 2007 granted under the Company's 1996 Stock Plan, 2005 Equity +Incentive Plan and Non-Employee Directors' Stock Plan. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934, as amended (the +"Exchange Act"), requires the Company's directors, executive officers and +persons who beneficially own more than 10% of the Company's common stock to file +with the SEC and the Nasdaq Stock Market reports of ownership and reports of +changes in ownership of common stock and other equity securities of the Company +and to furnish the Company with copies of all such reports they file. To the +Company's knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2006, all such reports were timely filed. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review +and approval of related party transactions. As part of a review of possible +related person transactions, the Company annually distributes and collects +questionnaires that solicit information about any direct or indirect +transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and +employees to avoid any situation that involves an actual or apparent conflict of +interest in personal and professional relationships or with their duty to, or +with any interest of, the Company. Under the Standards of Business Conduct, +situations that involve, or may reasonably be inferred to involve, a conflict +between a director, officer or employee's personal interests and the interests +of the Company should be disclosed to the Chair of the Audit Committee. No +related party transaction shall be approved or ratified if such transaction is +contrary to the best interests of the Company. +From January 1, 2006 to the date of this proxy statement, there have not +been any transactions of the type described in Item 404 of Regulation S-K, and +currently no such transactions are proposed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit +the long-term interests of the Company's stockholders by clearly outlining the +Company's duties and responsibilities, providing a framework for active and +fruitful discussions among the members of the Board of Directors and between the +Board and management, and avoiding conflicts of interest and other legal and +ethical problems. Accordingly, the Company's corporate governance practices are +designed not only to satisfy regulatory requirements, but also to provide for +effective management of the Company. +Information on the Company's corporate governance practices is available to +the public under "Corporate Governance" on the Company's website at +www.transact-tech.com. The information on the website includes the Company's +Corporate Governance Principles, the charters of each of the Company's +Committees, and the Company's Standards of Business Conduct, which includes a +code of ethics applicable to the officers responsible for financial reporting, +the Chief Executive Officer, Chief Financial Officer and Controller. The Company +encourages its directors to attend all Board meetings as well as the Annual +Meeting. All of the directors attended the Company's 2006 Annual Meeting, except +for Mr. Schwarz who was absent due to illness. Each director attended at least +90% of the Company's Board meetings held in 2006 and at least 80% of applicable +Committee meetings. +3 +BOARD SIZE +The Corporate Governance Principles provide that the Board should generally +have between four and ten members. In establishing the appropriate number of +directors, the Board and the Compensation and Corporate Governance Committee +consider (i) resignations and retirements from the current Board, (ii) the +availability of appropriate, qualified candidates, and (iii) the goal of +assuring that the Board is small enough to facilitate active discussions and +decision-making while, at the same time, is large enough to provide an +appropriate mix of continuity, experience, skills and diversity so that the +Board and its Committees can effectively perform their responsibilities. +CRITERIA FOR MEMBERSHIP ON THE BOARD +The Board and its Nominating Committee consider a number of different +factors in selecting nominees for director. Some of these factors, such as +integrity, are applied uniformly to all prospective candidates. Others, such as +specific industry experience, may be adopted on a case by case basis by the +Board and the Nominating Committee based on the Company's business needs at the +time a nomination is under consideration. The Nominating Committee and the Board +of Directors apply the same criteria to each candidate for the Board, regardless +of whether the candidate is proposed by a stockholder or some other source. +Specific criteria considered by the Nominating Committee and the Board include: +Independence. The Board of Directors, in its Corporate Governance +Principles and Committee charters, has established a policy that a substantial +majority of the directors be "independent" members of the Board. The Nominating +Committee and the Board consider the independence of each prospective director +before election and further consider the independence of all continuing +directors on at least an annual basis. The Board has determined that Messrs. +Dill, Schwarz and Tanaka are independent in accordance with the Company's +criteria and Mr. Shuldman, the Company's Chief Executive Officer, is not +independent. The Board applies the following criteria in determining +independence, which criteria are derived from Nasdaq's listing standards as well +as certain additional requirements that are imposed on certain Committee members +under the rules and regulations of the Securities and Exchange Commission and +the Internal Revenue Service: +- Independent Judgment. The director must not have any relationship with +the Company that, in the opinion of the Board, would interfere with the +exercise of independent judgment in carrying out the responsibilities of +a director. In making this determination, the Board considers all +relevant facts and circumstances, including commercial, charitable and +familial relationships that might have an impact on the director's +judgment. +- Employment. The director must not have been an employee of the Company +or any parent or subsidiary of the Company at any time during the past +three years. In addition, a member of the director's immediate family +(including the director's spouse, parents, stepparents, children, +stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, +sister-in-law, son-in-law, daughter-in-law and anyone who resides in the +director's home other than a tenant or employee) must not have been an +executive officer of the Company during the past three years. +- Other Payments. Neither the director nor a member of his or her +immediate family member may have received compensation of more than +$100,000 per year from the Company during any period of twelve +consecutive months during the past three years, except for director fees, +payments arising solely from investments in the Company's securities, +benefits under certain Company plans and non-discretionary compensation, +certain permitted loans and compensation paid to a family member who is +not an executive officer of the Company. +- Auditor Affiliation. Neither the director nor a member of his or her +immediate family may be a current partner of the Company's independent +auditors or have been a partner or employee of the Company's independent +auditors who worked on the Company's audit at any time during the past +three years. +- Interlocking Directorships. Neither the director nor any member of his +or her immediate family may be employed as an executive officer by +another entity where, at any time during the past three years, any of the +Company's executive officers served on the compensation committee. +4 +- Transactions. Neither the director nor any member of his or her +immediate family may be a partner in, or a controlling stockholder or +executive officer of, any organization that, during the current or any +one of the past three years, received payments from the Company, or made +payments to the Company, for property or services that exceed the greater +of $200,000 or 5% of the recipient's annual consolidated gross revenues +for such year (excluding payments arising solely from investments in the +Company's securities or paid under a non-discretionary charitable +matching program). +- Additional Standards for Audit Committee Members. Any director who +serves on the Board's Audit Committee may not, directly or indirectly, +have received any consulting, advisory or other compensatory fee from the +Company (other than certain retirement benefits and deferred +compensation) or be an affiliate of the Company (except as a director, +but including by way of stock ownership). In addition, no such director +may have participated in the preparation of the financial statements of +the Company or any current subsidiary of the Company at any time during +the past three years. +Overall Board Composition. The Board of Directors believes it is important +to consider the professional skills and background, experience in relevant +industries, age and diversity of its directors in light of the Company's current +and future business needs. +Personal Qualities. Each director must possess certain personal qualities, +including integrity, judgment and business acumen. In addition, each director +must be no older than 75 years of age at the time of nomination or renomination. +Commitments. Each director must have the time and ability to make a +constructive contribution to the Board. While the Board does not believe it is +appropriate to establish a single standard regarding the number of other boards +on which a director may sit, this is a factor that may be considered in +reviewing a candidate's suitability. +Additional Criteria for Incumbent Directors. During their terms, all +incumbent directors on the Company's Board are expected to have regular +attendance at Board and Committee meetings; to stay informed about the Company +and its business; to participate in discussions of the Board and its Committees; +to take an interest in the Company's business and provide advice and counsel to +the Company's Chief Executive Officer; and to comply with the Company's +Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the +criteria established from time to time by The Nasdaq Global Market, the +Securities and Exchange Commission, the Internal Revenue Service and other +applicable regulatory entities for service on the Board and its Committees. +DIRECTOR NOMINATION PROCESS +Under its charter, the Nominating Committee is responsible for identifying, +reviewing and recommending individuals to the Board for nomination or election +as directors. This typically involves the following steps: +- Specific Criteria. The Nominating Committee and the Board review the +overall composition of the Board in light of the Company's current and +expected business needs and, as a result of such assessments, may +establish specific qualifications that the Committee will seek in Board +candidates. +- Identifying New Candidates. The Committee may seek to identify new +candidates for the Board (i) who possess the desired qualifications, and +(ii) who satisfy the other requirements for Board service. In identifying +new director candidates, the Committee may seek advice and names of +candidates from Committee members, other members of the Board, members of +management, and other public and private sources. The Committee may also, +but need not, retain a search firm in order to assist it in these +efforts. +- Reviewing New Candidates. The Committee reviews the potential new +director candidates identified through this process. This involves +reviewing the candidates' qualifications and conducting an appropriate +background investigation. The Committee may also select certain +candidates to be interviewed by one or more Committee members. +5 +- Reviewing Incumbent Candidates. On an annual basis, the Committee also +reviews incumbent candidates for renomination to the Board. This review +involves an analysis of the criteria described above that apply to +incumbent directors. +- Recommending Candidates. The Nominating Committee recommends a slate of +candidates for the Board of Directors to submit for approval to the +stockholders at the Annual Meeting. This slate of candidates may include +both incumbent and new nominees. In addition, apart from this annual +process, the Committee may, in accordance with the Corporate Governance +Principles, recommend that the Board elect new members of the Board who +will serve until the next annual stockholders meeting. At the time of +making any recommendation to the Board, the Committee reports on the +criteria that were applied in making the recommendation and its findings +concerning each candidate's qualifications. +- Stockholder Nominations Submitted to the Committee. Stockholders may +also submit names of director candidates, including their own, to the +Nominating Committee for its consideration. The process for stockholders +to use in submitting suggestions to the Nominating Committee is set forth +below at "Procedures for Submitting Director Nominations and +Recommendations." Candidates who are nominated for the Board of Directors +by shareholders are evaluated in the same manner as recommendations +received from other sources. +BOARD MEETINGS AND EXECUTIVE SESSIONS +The Board of Directors not only holds regular quarterly meetings, but also +holds at least one special-purpose meeting each year to review the Company's +strategy, to approve its annual business plan and annual budget, and to act on +matters relating to the Company's Annual Meeting and filings with the Securities +and Exchange Commission. In 2006, the Board of Directors held twelve meetings. +Non-employee directors meet by themselves in executive sessions, without +management or employee directors present, at most regularly scheduled Board +meetings. In addition, the non-employee directors and independent directors may +convene additional executive sessions at any time. +These executive sessions are led by the Chair of the committee that is +responsible for the subject matter at issue (e.g., the Audit Committee Chair +would lead a discussion of audit-related matters). When it is not clear which +committee has specific responsibility for the subject matter, the Chair of the +Compensation and Corporate Governance Committee presides. +COMMITTEES OF THE BOARD +The Board has four standing committees: the Audit Committee, the +Compensation and Corporate Governance Committee, the Nominating Committee and +the Executive Committee. +Each Committee is composed entirely of independent directors and operates +under a written charter. The Chair of each Committee is selected by the Board. +Each Committee, except the Executive Committee, holds regular executive sessions +at which only Committee members are present. Each Committee is authorized to +retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance +Committee, and the Nominating Committee are available on the Company's website, +www.transact-tech.com, but a brief summary of the committees' responsibilities +follows: +Audit Committee. The Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the quality and integrity of +the Company's financial statements and accounting practices, the Company's +compliance with legal and regulatory requirements, the independent auditor's +qualifications and independence, and the performance of the Company's +independent registered public accounting firm and internal audit function. It is +comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, +with Mr. Dill serving as Chair. The Board has determined that each member of the +Audit Committee is an independent director and meets the financial literacy +requirements of The Nasdaq Global Market to serve on the Committee. In addition, +the Board has determined that Mr. Dill is an "audit committee financial expert" +as defined under the rules of the Securities and +6 +Exchange Commission. The Audit Committee operates under a written charter, which +was revised in March 2004 and is posted on the Company's website. The Audit +Committee met five times during 2006. +Nominating Committee. The Nominating Committee is responsible for +assisting the Board in carrying out its responsibilities relating to the +composition of the Board, including identifying, reviewing and recommending +candidates to the Board for nomination or election as directors. It is comprised +of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. +Tanaka serving as Chair. The Nominating Committee operates under a written +charter, which was adopted in March 2004 and is posted on the Company's website. +The Nominating Committee met two times during 2006. +Compensation and Corporate Governance Committee. The Compensation and +Corporate Governance Committee is responsible for assisting the Board in +carrying out its responsibilities relating to executive compensation, the +Company's corporate governance practices, CEO performance review and succession +planning, director compensation, Board and Committee performance evaluation and +stockholder communication matters. It is comprised of Messrs. Charles A. Dill, +Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as Chair. The +Compensation and Corporate Governance Committee operates under a written +charter, which was adopted in March 2004 and is posted on the Company's website. +The Compensation and Corporate Governance Committee met six times during 2006. +Executive Committee. The Executive Committee meets between scheduled +meetings of the Board of Directors and has the power and authority of the Board, +except as limited by the Company's By-Laws. It is comprised of Messrs. Charles +A. Dill, Thomas R. Schwarz and Graham Y. Tanaka. The Executive Committee did not +meet during 2006. +BOARD AND COMMITTEE PERFORMANCE EVALUATIONS +The Board of Directors conducts annual evaluations of its composition, +responsibilities, structure, processes and effectiveness. Each Committee of the +Board conducts a similar evaluation with respect to such Committee. These +evaluations are conducted under the auspices of the Compensation and Corporate +Governance Committee. +STANDARDS OF BUSINESS CONDUCT +In order to help assure the highest levels of business ethics at the +Company, the Board of Directors has approved and the Company has adopted +Standards of Business Conduct (the "Standards"), which apply to the Company's +directors, officers and employees. The Standards provide an overview of the +Company's policies related to employee conduct in the workplace, regulatory +compliance and investigations; the Company's relationships with its customers, +vendors, competitors and the public; insider trading; conflicts of interest; +lobbying; political activities and contributions; accuracy of books, records and +financial statements; confidentiality; and the protection of all who come +forward to report suspected violations of the Standards. In addition, the +Standards act as a code of ethics promoting honest and ethical conduct on the +part of the Company's officers who are responsible for financial reporting, +including the Chief Executive Officer, Chief Financial Officer and Controller. +The Standards mandate that these officers avoid conflicts of interest and +disclose any relationship that could give rise to a conflict, protect the +confidentiality of non-public information about the Company, work to achieve +responsible use of the Company's assets and resources, comply with all +applicable governmental rules and regulations, and promptly report any possible +violation of the Standards. The Standards require these individuals to promote +full, fair, understandable and accurate disclosure in the Company's publicly +filed reports and other public communications. It sets forth standards for +accounting practices and maintenance of records. Individuals who fail to observe +the terms of the Standards may face disciplinary action, including possible +employment termination. +PROPOSAL 1: +ELECTION OF DIRECTORS +The Board of Directors currently consists of four directors and is divided +into three classes. Each class of directors is elected by the holders of the +Company's Common Stock to serve a staggered three-year term. +7 +At the Annual Meeting, one person is to be elected to hold office as a +director until the 2010 Annual Meeting of Stockholders or until a successor is +duly elected and qualified. In the absence of instructions to the contrary, the +persons named in the accompanying proxy will vote such proxy "FOR" the election +of the nominee named below. Should the nominee become unavailable, which is not +anticipated, votes pursuant to the proxy will be cast for a substitute candidate +as may be designated by the Board of Directors, or in the absence of such +designation, in such other manner as the Board may in their discretion +determine. Alternatively, in such a situation, the Board of Directors may take +action to fix the number of directors for the ensuing year at the number of +nominees and incumbent directors who are then able to serve. +DIRECTOR INDEPENDENCE AND QUALIFICATIONS +The Board of Directors has determined that all of the directors or +nominees, except for Mr. Shuldman, are "independent" within the criteria +established under the Company's Corporate Governance Principles. See "Corporate +Governance -- Criteria for Membership on the Board." In addition, the Board has +determined that each member of the Audit Committee is financially literate and +each director or nominee possesses the high level of skill, experience, +reputation and commitment that is mandated by the Board. +INFORMATION CONCERNING NOMINEE FOR RE-ELECTION AS DIRECTOR WHOSE TERM WILL +EXPIRE AT THE 2010 ANNUAL MEETING +Graham Y. Tanaka, 59, has been a director of the Company since its +formation in June 1996. Mr. Tanaka has been President of Tanaka Capital +Management, Inc., an investment management firm, since 1986. He is a director of +Tanaka Funds, Inc. and Tanaka Capital Management, Inc. +VOTE REQUIRED +The election of Graham Y. Tanaka as director of the Company requires +affirmative votes of the holders of a plurality of the votes of the Company's +Common Stock present in person or represented by proxy and entitled to vote. +Abstentions by holders of such shares and broker non-votes will have no effect +on the election of directors, but will be included in determining the presence +of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION +OF GRAHAM Y. TANAKA AS DIRECTOR OF THE COMPANY. +INFORMATION CONCERNING DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2008 ANNUAL +MEETING +Thomas R. Schwarz, 70, has been a director of the Company since its +formation in June 1996 and was Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman's Inc., a +retailer of building materials, from 1990 until his retirement in 1994. From +1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz is a director +of Tanaka Growth Fund and another privately held company. +Bart C. Shuldman, 50, has been Chief Executive Officer, President and a +director of the Company since its formation in June 1996 and has been Chairman +of the Board since February 2001. Previously, Mr. Shuldman was Vice President of +Sales and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from +April 1993 to August 1993, and served as President of Magnetec, and later the +combined operations of Magnetec and Ithaca Peripherals Incorporated, another +former Tridex subsidiary, from August 1993 to June 1996. +INFORMATION CONCERNING DIRECTOR WHOSE TERM WILL EXPIRE AT THE 2009 ANNUAL +MEETING +Charles A. Dill, 67, has been a director of the Company since its formation +in June 1996. From 2004 to the present, Mr. Dill has served as a General Partner +of Two Rivers Advisors, a private equity investment firm. Mr. Dill was a General +Partner of Gateway Associates, a venture capital firm, from 1996 to 2004. Mr. +Dill currently serves as a director of Zoltek Companies, Inc. and Stifel +Financial Corp., as well as several other privately held companies. +8 +PROPOSAL 2: +RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2007 +The Audit Committee has selected PricewaterhouseCoopers LLP as the +independent registered public accounting firm to audit the financial statements +of the Company for the 2007 fiscal year. This selection is being presented to +the stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers +LLP has audited the Company's financial statements since the Company's +formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at +the Annual Meeting, will have the opportunity to make a statement, and is +expected to be available to respond to appropriate questions. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as +independent registered public accounting firm for 2007 requires the affirmative +vote of a majority of the votes of the Common Stock present in person or +represented by proxy and entitled to vote. In the absence of instructions to the +contrary, the persons named in the accompanying proxy will vote such proxy "FOR" +the ratification of PricewaterhouseCoopers LLP. Abstentions by holders of such +shares with respect to voting on this matter will have the effect of a negative +vote; broker non-votes with respect to voting on this matter will have no effect +on the outcome of the vote. In the event stockholders do not ratify the +appointment, the Audit Committee will reconsider the appointment. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM FOR 2007. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring its pre-approval of +all audit services and permissible non-audit services provided by the +independent registered public accounting firm, along with the associated fees +for those services. The Policy provides for the annual pre-approval of specific +types of services pursuant to policies and procedures adopted by the Audit +Committee, and gives detailed guidance to management as to the specific services +that are eligible for such annual pre-approval. The Policy requires the specific +pre-approval of all other permitted services. For both types of pre-approval, +the Audit Committee considers whether the provision of a non-audit service is +consistent with the Securities and Exchange Commission's rules on auditor +independence, including whether provision of the service (i) would create a +mutual or conflicting interest between the independent registered public +accounting firm and the Company, (ii) would place the independent registered +public accounting firm in the position of auditing its own work, (iii) would +result in the independent registered public accounting firm acting in the role +of management or as an employee of the Company, or (iv) would place the +independent registered public accounting firm in a position of acting as an +advocate for the Company. In addition, the Audit Committee considers whether the +independent registered public accounting firm is best positioned and qualified +to provide the most effective and efficient service, based on factors such as +the independent registered public accounting firm's familiarity with the +Company's business, personnel, systems or risk profile and whether provision of +the service by the independent registered public accounting firm would enhance +the Company's ability to manage or control risk or improve audit quality or +would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to +address certain requests for pre-approval of services between meetings of the +Committee, and such Committee member is required to report his or her pre- +approval decisions to the Committee at its next regular meeting. The Policy is +designed to ensure that there is no delegation by the Audit Committee of +authority or responsibility for pre-approval decisions to management of the +Company. The Audit Committee monitors compliance by management with the pre- +approval policy by requiring management, pursuant to the Policy, to report to +the Audit Committee on a regular basis regarding the pre-approved services +rendered by the independent registered public accounting firm. +9 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, +retention and oversight of the work of the independent registered public +accounting firm. Accordingly, the Audit Committee has appointed +PricewaterhouseCoopers LLP to perform audit and other services for the Company. +In addition, the Audit Committee has procedures in place for the pre-approval by +the Audit Committee of all services provided by PricewaterhouseCoopers LLP. +These pre-approval procedures, as amended, are described below under "Policy +Regarding Pre-Approval of Services Provided by the Independent Registered Public +Accounting Firm." +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for +the years ended December 31, 2006 and 2005 are as follows: +2006 2005 +-------- -------- +Audit Fees(1)................................................ $435,034 $468,234 +Audit-Related Fees(2)........................................ 37,000 35,000 +Tax Fees(3).................................................. 53,068 56,210 +All Other Fees(4)............................................ 1,515 1,515 +-------- -------- +Total Fees for Services Provided............................. $526,617 $560,959 +======== ======== +-------- +(1) Audit Fees consist of fees related to: (i) the annual audit of the +Company's financial statements and of internal controls, (ii) reviews of +the Company's quarterly financial statements, (iii) statutorily required +audits for the Company's UK subsidiary and (iv) the review of +registration statements, periodic reports and other reports filed with +the SEC. +(2) Audit-Related Fees consist of fees incurred for consultations regarding +accounting and financial reporting standards and acquisition due +diligence work. +(3) Tax Fees include fees incurred for tax planning and advice, preparation +of domestic and foreign tax returns, and review of tax accruals. +(4) All Other Fees include software license fees for the use of a web-based +accounting research tool. +The Audit Committee has considered whether the provision of the above +services, other than Audit Fees, is compatible with maintaining the auditors' +independence and has determined that, in its opinion, they are compatible. All +of the above services during the year ended December 31, 2006, other than those +covered by Audit Fees, were either approved by the Audit Committee or were +performed pursuant to pre-approval policies and procedures. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the +Board in fulfilling its responsibilities to oversee the internal control over +financial reporting and quality and integrity of the Company's financial +statements and accounting practices, the Company's compliance with legal and +regulatory requirements, the independent registered public accounting firm's +qualifications and independence, and the performance of the Company's +independent registered public accounting firm and internal audit function. +Management is responsible for preparing complete and accurate consolidated +financial statements in accordance with generally accepted accounting +principals. The independent registered public accounting firm is responsible for +performing independent audits of the Company's consolidated financial statements +and for issuing reports about those financial statements. The Audit Committee +meets with the independent registered public accounting firm, the Chief +Executive Officer and the senior management of the Company to review the scope +and the results of the annual audit, the amount of audit fees, the Company's +system of internal accounting controls over financial reporting, the financial +statements contained in the Company's Annual Report to Stockholders and other +related matters. Separate meetings are held with the independent registered +public accounting firm and management. +10 +In connection with its duties, the Audit Committee has taken the following +actions: +- It has reviewed and discussed the audited financial statements, as well +as the assessment of internal controls over financial reporting, with +management. +- It has discussed with the independent registered public accounting firm, +which is responsible for expressing an opinion on the financial +statements in accordance with generally accepted accounting principles, +the matters required to be discussed by Statement on Auditing Standards +No. 61, "Communication with Audit Committees," as amended. +- It has received from the independent registered public accounting firm +the written disclosures describing any relationships between the +independent registered public accounting firm and the Company and the +letter confirming their independence required by Independence Standards +Board Standard No. 1, "Independence Discussions with Audit Committees," +and has discussed with the independent registered public accounting firm +matters relating to their independence. +- Based on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial +statements of the Company for the year ended December 31, 2006 be +included in the Company's Annual Report on Form 10-K for filing with the +SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +11 +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +OVERVIEW +This Compensation Discussion and Analysis describes the philosophy, +approach, and elements used by us and the Compensation and Corporate Governance +Committee (the "Compensation Committee") of our Board of Directors, which is +composed entirely of independent directors of the Company, to define, manage, +and review compensation paid to our executives. Our philosophy and approach to +executive compensation apply to all executive officers of the Company, including +those executives designated as named executive officers. +Our Compensation Committee provides oversight for the hiring and +termination of all executive officers of the Company, the design and management +of the executive compensation programs, and our philosophy and programs for all +employee compensation and benefit programs worldwide. The Compensation Committee +also approves the issuance of all equity awards to employees, including +executive officers, of the Company and its subsidiaries. The Committee maintains +a written charter statement (the "Compensation Committee Charter") that is +formally reviewed by the Compensation Committee on an annual basis. The +Compensation Committee Charter is available on our Internet website at +www.transact-tech.com under the Investor Relations tab. +PHILOSOPHY AND OBJECTIVES OF THE COMPENSATION PROGRAM +Our Compensation Committee's philosophy is that our executive compensation +program is to be based on our performance and be competitive with other similar- +sized companies in similar industries. The primary objectives of our +compensation program are to: +- Attract, engage, retain, and reward executive officers; +- Motivate employees and encourage individual initiative and effort; +- Help to achieve key business objectives and attain Company goals; and +- Align executives' interests closely with those of the Company and its +shareholders. +Our executive compensation program principally includes base salary, +incentive cash performance bonus and equity incentive awards. The Compensation +Committee believes that each element of the total compensation program helps to +ensure that the efforts of our executive officers support the creation of +stockholder value, whether through focusing on short-term and long-term +performance goals, promoting an ownership mentality or linking individual +performance to the Company's overall performance. +The elements of our executive compensation program are periodically +analyzed using current publicly available market data, contemporary market +trends and other information from established compensation and benefit surveys. +In addition, in 2006 the Compensation Committee engaged an independent +compensation consultant, Towers Perrin, to examine the total compensation +package for the Company's Chief Executive Officer, Chief Financial Officer and +Executive Vice President, Engineering. The survey data used for the analysis +included (1) comparable high technology companies, (2) companies in our industry +of similar size in terms of revenue and market capitalization, (3) companies in +our geographic area and (4) companies which are otherwise relevant. The +Compensation Committee also reviewed other compensation surveys including the +National Executive Compensation Survey, among others, to supplement the findings +from the Towers Perrin study. These studies were one factor in evaluating the +current total compensation of the Chief Executive Officer, Chief Financial +Officer and the Executive Vice President, Engineering. +Although we regularly use salary surveys and occasionally use compensation +consultants to analyze elements of our compensation program, we do not believe +that it is appropriate to establish compensation levels based solely on the use +of such surveys. We rely upon our judgment in making compensation decisions, +after reviewing the financial performance of the Company and carefully +evaluating an executive officer's performance during the year against +established goals, leadership qualities, operational performance, business +responsibilities, number of years of experience in the industry and/or with the +Company, current compensation arrangements and long-term potential +12 +to enhance shareholder value. While competitive market compensation paid by +other companies is one of the many factors that we consider in assessing the +reasonableness of compensation, we do not attempt to maintain a certain target +percentile within a peer group or otherwise rely on those data to solely +determine executive officer compensation. Instead, we incorporate flexibility +into our compensation program and in the assessment process to respond to and +adjust for the evolving business environment. We strive to achieve an +appropriate mix between cash payments and equity incentive awards to meet our +objectives. Any apportionment goal is not applied rigidly and does not control +our compensation decisions. Our mix of compensation elements is designed to +reward recent results and motivate long-term performance through a combination +of cash and equity awards. We believe one of the most important indicators of +whether our compensation objectives are being met is our ability to motivate our +executive officers to deliver superior performance. +The Compensation Committee, on occasion, meets with the Chief Executive +Officer and Chief Financial Officer to obtain recommendations with respect to +the Company's compensation programs, practices and packages for executive +officers, senior managers and other employees. Our Chief Executive Officer and +Chief Financial Officer, with the assistance and support of the human resources +department, provide recommendations regarding the design of the Company's +compensation program to the Compensation Committee. The Compensation Committee +considers, but is not bound to accept, management's recommendations with respect +to executive compensation. +ELEMENTS OF THE COMPANY'S COMPENSATION PLAN +The principal elements of the Company's compensation program are base +salary, incentive cash bonus and equity incentive awards. +Base Salary: In general, base salaries for employees, including executive +officers, are established based on the scope of their responsibilities, +individual contribution, prior experience, sustained performance, external +market data and anticipated level of difficulty of replacing the employee with +someone of comparable experience and skill. Base salary for each executive is +reviewed on an annual basis as part of our companywide merit review process. The +amount of any merit increase to an executive's base salary is determined based +on a combination of the current position of the executive's pay against market +data and the executive's performance and results during the past year. Our Chief +Executive Officer is responsible for assessing the performance of each executive +reporting to him. Our Compensation Committee assesses the performance of our +Chief Executive Officer. +Incentive Cash Bonus: We maintain an incentive cash compensation plan for +all executive officers, except for those who receive sales commissions. Our +incentive cash compensation awards under the plan emphasize pay-for-performance +by providing our executives with the opportunity to receive performance bonuses +only upon the attainment of certain annual financial objectives, as well as +individual performance objectives. The incentive cash bonus is designed to be a +significant portion of executive compensation in order to create and maintain a +significant incentive for our executives to achieve or exceed our strategic and +annual financial objectives. +To ensure alignment of compensation with our business objectives and +performance, our Chief Executive Officer and other executive officers establish +specific performance objectives/metrics and goals at the corporate, department +and individual levels each fiscal year. Our performance objectives (as used for +incentive cash bonus) are reviewed and approved by our Compensation Committee. +The objectives and goals are quantifiable and aligned with our strategic and +annual business plans. Our corporate objectives and strategic plans and progress +towards these objectives are regularly reviewed by our Board of Directors and +Compensation Committee. For 2006, our corporate performance metric consisted of +a target level of diluted earnings per share. +Our executive officers, except for those that receive sales commissions, +participate in the incentive cash bonus plan. Bonuses are paid under the +incentive cash bonus program only if the Company meets specified performance +objectives. The incentive cash bonus that any particular executive is eligible +to earn is established as a percentage of the individual's base salary ("Target +Bonus"). If we reach our target performance objective, which in 2006 was based +on a level of diluted earnings per share, bonuses are paid at 100% of the Target +Bonus amount. If we under-achieve or over-achieve our target performance +objective, the Target Bonus is adjusted accordingly on a sliding scale. For +2006, the estimated bonus payout upon reaching the minimum threshold was 25% of +Target Bonus and the estimated maximum bonus payout was 150% of Target Bonus. In +addition, if performance objectives are +13 +achieved, the actual bonus amount payable to an executive could be modified +based on an evaluation of the executive's individual performance. The +Compensation Committee sets the target diluted earnings per share amount at a +level which it believes is challenging, yet achievable by the Company. The +maximum bonus payout requires very high levels of both individual and Company +performance, which the Compensation Committee believes are possible but +extremely difficult to meet. +Equity Incentive Awards: The goal of our equity-based incentive awards is +to align the interests of our executives with our shareholders and to provide +executives with an incentive to manage the Company from the perspective of an +owner with an equity stake in the business. We believe that our long-term +performance is improved by encouraging ownership by our executives through the +use of stock-based grants. Because vesting of our stock awards is based on +continued employment, our equity-based incentives also facilitate the retention +of executives through the term of the awards. Generally, we believe that stock +options are the most effective tool for meeting our compensation goal of +increasing long-term shareholder value by tying the value of stock options to +our future performance -- i.e. executives are able to profit from stock options +only if our stock price increases in value over the stock option's exercise +price. +Grants of stock options are typically approved by the Compensation +Committee at its regularly scheduled meeting on or about March 1. While the +majority of stock option awards to our employees have been made under our annual +grant program, the Compensation Committee may make stock option awards to +employees at other times, including at the time of hire of an employee, +promotion of an employee, to reward an employee, for retention purposes or for +other circumstances as recommended by the Chief Executive Officer or the +Compensation Committee. In determining the size of the long-term equity +incentives to be awarded to employees, we take into consideration a number of +factors including but not limited to relative job scope, individual performance +level, prior contributions to the Company, the need to retain the employee, the +size of prior grants and competitive market data. Based upon these factors, the +Compensation Committee determines the size of the equity incentives at levels it +considers appropriate to create meaningful opportunity for reward predicated on +the creation of long-term shareholder value. +The exercise price of options granted is set at the closing price of our +common stock on the date of grant. Grants of options generally vest in equal +annual installments over a three- to five-year period and have a ten-year term. +2006 EXECUTIVE COMPENSATION +The specific compensation decisions made for each of our executive officers +for 2006 reflect the performance of the Company against key financial and +operational measurements, as well as performance against individual objectives. +Base Salary: In determining the base salary of the Named Executive +Officers, the Compensation Committee evaluated the overall performance of the +Company and the individual's contributions to that performance, as well as the +performance of the sales unit or function that each leads when relevant. Based +on this evaluation, the Compensation Committee increased the base salaries of +Mr. Shuldman, Mr. DeMartino and Mr. Kumpf by 5% in March 2006 to $425,900, +$196,560 and $178,400, respectively. In addition, in 2006 the Compensation +Committee retained an independent compensation consultant, Towers Perrin, to +ensure that compensation for Mr. Shuldman, Mr. DeMartino and Mr. Kumpf were +competitive. Under the direction of the Compensation Committee, Towers Perrin +provided a competitive analysis of total compensation including base salary, +incentive cash bonus, long-term equity compensation and certain employee +benefits. Based on this analysis, the Compensation Committee concluded that Mr. +DeMartino's base salary should be increased to $230,000 effective October 2006 +and Mr. Kumpf's salary should be increased at the time of the companywide annual +merit increase in March 2007. +In March 2007, the Compensation Committee conducted an annual review and +evaluation of the compensation levels of Mr. Shuldman, Mr. DeMartino and Mr. +Kumpf, including taking into consideration the recently completed compensation +study prepared by Towers Perrin. The Compensation Committee concluded that Mr. +Shuldman's base salary level was competitive, and accordingly, no increase in +base salary was warranted. In addition, Mr. Kumpf's base salary was increased by +12% to $200,000 and Mr. DeMartino's base salary was increased by 3% to $236,900. +14 +Incentive Cash Bonus: During 2006, the Company achieved its diluted +earnings per share performance objective as reviewed and approved by the +Compensation Committee at the beginning of 2006. Therefore, for 2006, the cash +bonus payout for all eligible employees, including executives, was 100% of the +annual target amount. However, the actual cash bonus payouts for executives in +2006 represented only 75% of each executive's full target bonus, as each +executive exchanged 25% of their target cash bonus in 2006 for an additional +grant of stock options in January 2006. For 2006, Mr. Shuldman, Mr. DeMartino +and Mr. Kumpf were paid an incentive cash bonus of $191,646, $86,250 and +$46,829, respectively. These amounts are shown in the "Summary Compensation +Table" below under the column "Non-Equity Incentive Plan Compensation." These +bonuses were calculated as a percentage of each executive's base salary in +effect as of March 2006, except for Mr. DeMartino whose cash incentive bonus was +based on his salary in effect as of October 2006. Mr. Berkley and Mr. Stetson +were not eligible to participate in the cash incentive program as they earned +commission based on annual sales from their respective sales unit, as well as a +cash bonus based on the attainment of certain individual objectives. +Equity Incentive Awards: With regard to equity incentive compensation, +during 2006 two equity incentive awards were granted to the executives. In +January 2006, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. +DeMartino, Mr. Kumpf, Mr. Berkley and Mr. Stetson of stock options to purchase +12,500, 10,000, 7,500, 5,000 and 5,000 shares, respectively. This grant was a +special grant of options to executives in exchange for a 25% reduction in each +executive's target cash incentive bonus for 2006. In addition, in March 2006, +the Compensation Committee awarded a second grant to Mr. Shuldman, Mr. +DeMartino, Mr. Kumpf, Mr. Berkley and Mr. Stetson of stock options to purchase +15,000, 10,000, 7,500, 5,000 and 5,000 shares, respectively. The vesting terms +of both grants of stock options are outlined in the table entitled "Grants of +Plan-Based Awards in 2006." +In February 2007, the Compensation Committee awarded an annual grant to Mr. +Shuldman, Mr. DeMartino, Mr. Kumpf, Mr. Berkley and Mr. Stetson of stock options +to purchase 25,000, 15,000, 15,000, 7,500 and 7,500 shares, respectively. These +stock options have an exercise price of $9.51 per share and vest 20% per year +over five years. +TAX DEDUCTIBILITY OF COMPENSATION +Limitations on the deductibility of compensation may occur under Section +162(m) of the Internal Revenue Code of 1986, which generally limits a publicly +held corporation's tax deduction for compensation paid to its Chief Executive +Officer and next four most highly compensated executive officers to $1 million +in any year. In addition, Section 162(m) specifically exempts certain +performance-based compensation from the deduction limit. The levels of base +salary, annual cash incentive bonus and equity compensation we generally pay to +our executive officers do not exceed this limit. The intent of our Compensation +Committee is to design compensation that will be deductible without limitation, +where doing so will further the objectives of our executive compensation +program. However, the Compensation Committee will take into consideration +various other factors, together with Section 162(m) considerations, in making +executive compensation decisions and could, in certain circumstances, approve +and authorize compensation that is not fully tax deductible. +COMPENSATION COMMITTEE REPORT +The Compensation Committee has reviewed and discussed the Compensation +Discussion and Analysis with management. Based on its review and discussions +with management, the Compensation Committee recommended to the Board of +Directors that the Compensation Discussion and Analysis be included in +TransAct's proxy statement for the 2007 Annual Meeting. +COMPENSATION AND CORPORATE +GOVERNANCE COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Graham Y. Tanaka +15 +SUMMARY COMPENSATION TABLE +The following table sets forth information concerning the compensation +earned by the Company's Chief Executive Officer, Chief Financial Officer and +each of the other three most highly compensated executive officers (the "Named +Executive Officers") in 2006: +NON-EQUITY +STOCK OPTION INCENTIVE +NAME AND PRINCIPAL AWARDS AWARDS PLAN ALL OTHER +POSITION YEAR SALARY ($) BONUS ($) (3)($) (4)($) COMPENSATION ($) COMPENSATION ($) TOTAL ($) +------------------ ---- ---------- --------- ------- ------ ---------------- ---------------- --------- +Bart C. Shuldman(1)...... 2006 422,517 -- 162,578 29,236 191,646(5) 34,231(6) 840,208 +Chairman, President and +Chief Executive Officer +Steven A. DeMartino...... 2006 203,360 -- 73,466 21,222 86,250(5) 18,961(7) 403,259 +Executive Vice +President, +Chief Financial +Officer, +Treasurer and Secretary +Michael S. Kumpf......... 2006 176,983 -- 54,244 15,923 46,829(5) 20,661(7) 314,640 +Executive Vice +President, +Engineering +Jon D. Berkley........... 2006 140,000 105,176(2) 19,761 10,617 -- 12,442(8) 287,996 +Senior Vice President +and +Business Manager, +Gaming and Lottery +James B. Stetson......... 2006 140,000 71,732(2) 44,354 10,617 -- 14,312(7) 281,015 +Senior Vice President +and Business Manager, +TransAct Services Group +-------- +(1) Mr. Shuldman was a director of the Company in 2006, but he did not +receive any compensation for those services other than what is contained +in this table. +(2) All of the bonuses paid to Mr. Berkley and Mr. Stetson represent +commissions on sales by the Company. +(3) All restricted stock awards were granted prior to January 1, 2006 under +the Company's 1996 Stock Plan. There were no forfeitures of restricted +stock awards by this group during the year. For information on the +valuation assumptions with respect to these awards, refer to note 2 of +the Company's financial statements in the Form 10-K for the year ended +December 31, 2006, as filed with the SEC. +(4) All stock option awards in 2006 were granted under the company's 2005 +Equity Incentive Plan. The amounts shown here represent compensation +expense incurred by us in 2006 in connection with those options, +calculated in accordance with SFAS 123(R). For information on the +valuation assumptions with respect to these awards, refer to note 2 of +the Company's financial statements in the Form 10-K for the year ended +December 31, 2006, as filed with the SEC. Please see the "Outstanding +Equity Awards at 2006 Fiscal Year-End" table for a description of option +awards. There were no forfeitures of stock option awards by this group +during the year. +(5) For Mr. Shuldman, DeMartino and Kumpf, these amounts represents incentive +cash bonuses earned in 2006 based on achievement of the Company's diluted +earnings per share performance objective as reviewed and approved by the +Compensation Committee at the beginning of 2006. +(6) For Mr. Shuldman, this amount consists of an automobile allowance, +Company contributions under the Company's 401(k) Plan, life insurance, +disability insurance and tax return preparation fees. +(7) For Mr. DeMartino, Kumpf and Stetson, these amounts consist of automobile +allowances, Company contributions under the Company's 401(k) Plan, life +insurance and disability insurance. +(8) For Mr. Berkley, this amount consists of an automobile allowance and +Company contributions under the Company's 401(k) Plan. +Our compensation package for each Named Executive Officer consists of a +combination of base salary, incentive cash bonus and equity compensation in the +form of stock options and restricted stock awards. Messrs. Shuldman, DeMartino +and Kumpf received cash bonus payments pursuant to the Company's non-equity +incentive plan, while Messrs. Berkley and Stetson received cash bonus payments +in the form of commissions earned +16 +on Company sales. In 2006, cash compensation in the form of base salary and cash +bonus, including amounts paid pursuant to our non-equity incentive plan, +represented between approximately 71% and 85% of the total compensation paid to +each Named Executive Officer. +GRANT OF PLAN-BASED AWARDS IN 2006 +The following table sets forth information concerning the grant of plan- +based awards to Named Executive Officers in 2006: +ALL OTHER +OPTION EXERCISE +ESTIMATED FUTURE PAYOUTS AWARDS: OR BASE GRANT DATE +UNDER NON-EQUITY INCENTIVE NUMBER OF PRICE OF FAIR VALUE OF +PLAN AWARDS SECURITIES OPTION STOCK AND +GRANT ---------------------------------------- UNDERLYING AWARDS OPTION +NAME DATE THRESHOLD ($) TARGET ($) MAXIMUM ($) OPTIONS(1)(#) ($/SH) AWARDS(2)($) +---- ------ ------------- ---------- ----------- ------------- -------- ------------- +Bart C. Shuldman......... 1/2/06 -- -- -- 12,500 7.90 65,975 +3/1/06 -- -- -- 15,000 9.75 98,151 +3/1/06 63,882 255,528 383,292 -- -- -- +Steven A. DeMartino...... 1/2/06 -- -- -- 10,000 7.90 52,780 +3/1/06 -- -- -- 10,000 9.75 65,434 +3/1/06 28,750 115,000 172,500 -- -- -- +Michael S. Kumpf......... 1/2/06 -- -- -- 7,500 7.90 39,585 +3/1/06 -- -- -- 7,500 9.75 49,076 +3/1/06 15,610 62,438 93,657 -- -- -- +Jon D. Berkley........... 1/2/06 -- -- -- 5,000 7.90 26,390 +3/1/06 -- -- -- 5,000 9.75 32,717 +James B. Stetson......... 1/2/06 -- -- -- 5,000 7.90 26,390 +3/1/06 -- -- -- 5,000 9.75 32,717 +-------- +(1) Each stock option award disclosed in the Grants of Plan-Based Awards in +2006 table was issued under our 2005 Equity Incentive Plan and was +granted with an exercise price per share equal to the fair market value +of our common stock on the date of grant, as determined by the closing +price of the stock on the date the option was granted. Subject to the +terms of our 2005 Equity Incentive Plan and the option agreements issued +in connection with these grants, each option award granted in 2006 to a +Named Executive Officer vests at a rate of 20% per year over five years. +(2) All stock option awards in 2006 were granted under the company's 2005 +Equity Incentive Plan. The amounts shown represent the fair value of +stock options granted in 2006 calculated in accordance with SFAS 123(R). +For information on the valuation assumptions with respect to these +awards, refer to note 2 of the Company's financial statements in the Form +10-K for the year ended December 31, 2006, as filed with the SEC. Please +see the "Outstanding Equity Awards at 2006 Fiscal Year-End" table for a +description of option awards. There were no forfeitures of stock option +awards by this group during the year. +17 +OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END +The following table shows outstanding equity awards for the named executive +officers as of December 31, 2006: +STOCK AWARDS +----------------------- +OPTION AWARDS MARKET +------------------------------------------------------------ VALUE OF +NUMBER OF NUMBER OF NUMBER OF SHARES +SECURITIES SECURITIES SHARES OR OR UNITS +UNDERLYING UNDERLYING UNITS OF OF STOCK +UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT THAT HAVE +GRANT OPTIONS OPTIONS EXERCISE EXPIRATION HAVE NOT NOT VESTED +NAME DATE (# EXERCISABLE) (# UNEXERCISABLE) PRICE ($) DATE VESTED (#) (1)($) +---- -------- --------------- ----------------- --------- ---------- ---------- ---------- +Bart C. Shuldman...... 8/24/99 7,500 -- 4.17 8/24/09 -- -- +2/26/01 60,363 -- 3.42 2/26/11 -- -- +5/17/02 168,750 -- 3.77 5/17/12 -- -- +1/2/04 -- -- -- -- 22,500 186,750 +3/25/05 -- -- -- -- 16,000 132,800 +1/2/06 -- 12,500 7.90 1/2/16 -- -- +3/1/06 -- 15,000 9.75 3/1/16 -- -- +Steven A. DeMartino... 2/26/01 500 -- 3.42 2/26/11 -- -- +5/17/02 40,500 -- 3.77 5/17/12 -- -- +1/2/04 -- -- -- -- 4,500 37,350 +6/1/04 -- -- -- -- 1,800 14,940 +3/25/05 -- -- -- -- 12,000 99,600 +1/2/06 -- 10,000 7.90 1/2/16 -- -- +3/1/06 -- 10,000 9.75 3/1/16 -- -- +Michael S. Kumpf...... 2/26/01 2,100 -- 3.42 2/26/11 -- -- +5/17/02 14,625 -- 3.77 5/17/12 -- -- +11/20/02 4,999 -- 3.10 11/20/12 -- -- +1/2/04 -- -- -- -- 4,500 37,350 +3/25/05 -- -- -- -- 12,000 99,600 +1/2/06 -- 7,500 7.90 1/2/16 -- -- +3/1/06 -- 7,500 9.75 3/1/16 -- -- +Jon D. Berkley........ 4/28/03 30,000 -- 4.60 4/28/13 -- -- +3/25/05 -- -- -- -- 8,000 66,400 +1/2/06 -- 5,000 7.90 1/2/16 -- -- +3/1/06 -- 5,000 9.75 3/1/16 -- -- +James B. Stetson...... 2/26/01 4,500 -- 3.42 2/26/11 -- -- +5/17/02 7,500 -- 3.77 5/17/12 -- -- +11/20/02 3,400 -- $3.10 11/20/12 -- -- +1/2/04 -- -- -- -- 4,500 37,350 +3/25/05 -- -- -- -- 8,000 66,400 +1/2/06 -- 5,000 7.90 1/2/16 -- -- +3/1/06 -- 5,000 9.75 3/1/16 -- -- +-------- +(1) Calculated based on the closing price of the Company's stock on December +29, 2006, the last trading day of the fiscal year. +18 +OPTIONS AWARDS VESTING SCHEDULE +GRANT DATE VESTING SCHEDULE +---------- ---------------- +8/24/99............................................. 20% per year for five years +2/26/01............................................. 20% per year for five years +5/17/02............................................. 20% per year for five years +11/20/02............................................ 20% per year for five years +4/28/03............................................. 20% per year for five years +1/2/06.............................................. 20% per year for five years +3/1/06.............................................. 20% per year for five years +STOCK AWARDS VESTING SCHEDULE +GRANT DATE VESTING SCHEDULE +---------- ---------------- +1/2/04.............................................. 20% per year for five years +6/1/04.............................................. 20% per year for five years +3/25/05............................................. 20% per year for five years +OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2006 +OPTION AWARDS STOCK AWARDS +----------------------------------- --------------------------------- +NUMBER OF NUMBER OF +SHARES SHARES +ACQUIRED VALUE REALIZED ACQUIRED VALUE REALIZED +NAME ON EXERCISE (#) ON EXERCISE(1)($) ON VESTING (#) ON VESTING(2)($) +---- --------------- ----------------- -------------- ---------------- +Bart C. Shuldman.................... 52,937 289,244 11,500 96,850 +Steven A. DeMartino................. 1,000 4,663 5,100 48,546 +Michael S. Kumpf.................... 27,000 142,945 4,500 40,050 +James B. Stetson.................... 12,750 125,368 3,500 30,650 +Jon D. Berkley...................... -- -- 2,000 18,800 +-------- +(1) Calculated based on the difference between the market price of the +underlying securities at exercise and the exercise price of the options. +(2) Calculated based on the market value on the vesting date of the shares +underlying each award. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has entered into certain agreements and maintains certain plans +that may require payments be made, and/or benefits be provided, to the Named +Executive Officers: (i) in the event a Named Executive Officer's employment is +terminated other than for Cause, as defined below, (a "Termination Event"), (ii) +if a change in control (as defined by the applicable agreement or plan) occurs +(a "Change in Control Event") or (iii) if a Termination Event occurs or a Named +Executive Officer resigns for certain specified reasons within one year of a +change in control (a "Change in Control and Termination Event"). The payments +and benefits that each Named Executive Officer may be entitled to receive upon a +Termination Event, Change in Control Event or a Change in Control and +Termination Event are described in the applicable employment agreement or +severance agreement and the Company's 1996 Stock Plan and 2005 Equity Incentive +Plan. Below is a description of the types of events that would trigger payments +under these agreements and plans and the potential payments to each such Named +Executive Officer assuming that a triggering event occurred on December 31, +2006, the last day of the Company's most recent fiscal year. +19 +EMPLOYMENT AND SEVERANCE AGREEMENTS +Events That Trigger a Termination Event or Change in Control Event. The +applicable employment and severance agreements generally define Cause as a +termination for the following reasons: (i) action or inaction by the Named +Executive Officer that constitutes larceny, fraud, gross negligence, a willful +or negligent misrepresentation to the Board or officers of the Company or a +commission of a crime of moral turpitude; (ii) material, repetitive, unjustified +and unexcused refusal to follow the reasonable and lawful written instruction of +the Board -- or in the case of the Named Executive Officers other than Mr. +Shuldman, the Board or the Company's President; or (iii) death or disability. +Change in control is generally defined in each agreement to include (i) a merger +of the Company with another company where the majority of board of the surviving +company is not comprised of directors of the Company in office immediately prior +to the transaction, (ii) a change in the board of directors of the Company such +that after an election a majority of the directors in office are not directors +that were nominated by two-thirds of board members prior to the election or +(iii) a complete liquidation of the Company. +Effect of a Termination Event or Change in Control and Termination +Event. Under the terms of an Employment Agreement dated July 31, 1996 between +Bart C. Shuldman and the Company, if a Termination Event or Change in Control +Event were to occur, Mr. Shuldman would continue to receive: (i) his annual base +salary and (ii) all other benefits (including health, disability and life +insurance benefits; participation in any ERISA benefit plans and 401(k) plans; +an automobile allowance; and certain service fees related to medical exams, +income tax planning and estate planning) for two years and three years, +respectively, from the date of termination. In connection with a Termination +Event, Mr. Shuldman would receive a pro rata portion of his annual target bonus +amount for the year of termination. If a Change in Control Event were to occur +and within one year thereafter either Mr. Shuldman's employment is terminated +other than for Cause, or Mr. Shuldman resigns following a significant reduction +in the nature or scope of his responsibilities or authorities, a decrease in +salary other than resulting from a reduction that applies generally to all +management personnel or specified relocations of the Company's facilities, Mr. +Shuldman would be entitled to continue to receive, in addition to the amounts +listed in the first sentence, his annual target bonus for a period of three +years from the date of termination and all stock options and other awards +granted to Mr. Shuldman under the Company's stock plans would immediately vest. +Under the terms of a Severance Agreement with Steven A. DeMartino dated +June 1, 2004, if a Termination Event were to occur, Mr. DeMartino would be +entitled to continue to receive, for one year following the date of termination +(i) his annual base salary, (ii) a pro rata portion of his annual target bonus +for the year of termination and (iii) medical, dental, vision, life and long +term disability insurance benefits. If a Change in Control Event were to occur +and the employment of Mr. DeMartino is terminated other than for Cause, or if he +resigns for specified reasons, within one year of a change in control, Mr. +DeMartino would be entitled to receive for two years after his termination (i) +his annual base salary, (ii) annual target bonus, (iii) medical, dental, vision, +life and long term disability insurance benefits and (iv) all stock options +granted to Mr. DeMartino would immediately vest. +Under the terms of Severance Agreements with Michael S. Kumpf, Jon D. +Berkley and James B. Stetson dated September 4, 1996, April 4, 2003 and January +24, 2001, respectively, if a Termination Event were to occur, the applicable +Named Executive Officer would be entitled to continue to receive, for six months +following the date of termination (i) a pro rata portion of his annual base +salary, (ii) a pro rata portion of his annual target bonus for the year of +termination or, in the case of Messrs. Berkley and Stetson, the full amount of +the applicable annual target bonus for the year of termination, and (iii) only +in the case of Mr. Kumpf, all benefits which would otherwise have been payable. +If a Change in Control Event were to occur, the applicable Named Executive +Officer would be entitled to continue to receive for a period of one year from +the date of termination (i) base salary, (ii) annual target bonus, (iii) in the +case of Mr. Kumpf, all benefits and (iv) all stock options granted to the +applicable Named Executive Officer would immediately vest. +EQUITY PLANS +2005 Equity Incentive Plan. The terms of the Company's 2005 Equity +Incentive Plan provide that all awards issued under the plan would accelerate +and either become exercisable or vest, as applicable, immediately prior to any +of the following: (i) a reorganization, merger, consolidation or similar +transaction in which the surviving corporation is not the Company or a publicly +owned corporation (or a subsidiary thereof) in which the stockholders +20 +of the Company immediately prior to the transaction continue to beneficially own +50% or more of the voting securities of the Company, (ii) a sale, transfer, +exchange or other disposition of all or substantially all of the Company's +assets, (iii) any acquisition of 50% or more of the voting securities of the +Company excluding acquisitions by specified parties or (iv) any dissolution or +liquidation of the Company. Upon the occurrence of some of the foregoing Change +in Control Events, stock or other property to be delivered upon acceleration of +any award may be placed in escrow, rather than actually delivered, under terms +set by the Compensation and Corporate Governance Committee. +1996 Stock Plan. The terms of the Company's 1996 Stock Plan do not provide +for the acceleration of all awards issued under the plan in the event of a +change in control of the Company. Instead, the plan provides that acceleration +upon a change in control is permitted and that the terms of the individual +awards issued under the plan control whether the awards accelerate upon +occurrence of a Change in Control Event. +Payments Upon a Change in Control Event. If a Change in Control Event had +occurred on December 31, 2006 that triggered acceleration of all of the equity +awards outstanding to each Named Executive Officer under each of the 1996 Stock +Plan and the 2005 Equity Incentive Plan that accelerate either by their terms or +the terms of the applicable plan, the following amounts would have been paid to +the Named Executive Officers: +STOCK STOCK +NAME OPTIONS(1) AWARDS(2) TOTAL +---- ---------- --------- ---------- +Bart C. Shuldman................................... $1,095,772 $319,550 $1,415,322 +Steven A. DeMartino................................ 190,042 151,890 341,932 +Michael S. Kumpf................................... 105,550 136,950 242,500 +Jon D. Berkley..................................... 113,000 66,400 179,400 +James B. Stetson................................... 75,655 103,750 179,405 +-------- +(1) Accelerated stock options were valued using the spread between the +exercise price of the applicable award and the closing price of $8.30 per +share of our common stock on December 29, 2006, which was the last +trading day of the year. +(2) Accelerated stock awards were valued using the closing price of $8.30 per +share of our common stock on December 29, 2006, which was the last +trading day of the year. +PAYMENTS UPON A TERMINATION EVENT +The following table summarizes the potential payments to each Named +Executive Officer, over the course of the applicable time period for which such +payments would be owed, assuming that a Termination Event occurred on December +31, 2006, the last day of the Company's fiscal year. +PRO RATA +PORTION OF +ANNUAL +BASE TARGET STOCK STOCK +NAME SALARY BONUS BENEFITS(1) OPTIONS AWARDS TOTAL +---- -------- ---------- ----------- ------- ------ ---------- +Bart C. Shuldman................ $851,760 $255,528 $43,284 -- -- $1,150,572 +Steven A. DeMartino............. 230,000 115,000 28,014 -- -- 373,014 +Michael S. Kumpf................ 89,198 31,219 13,135 -- -- 133,552 +Jon D. Berkley.................. 70,000 -- -- -- -- 70,000 +James B. Stetson................ 70,000 -- -- -- -- 70,000 +-------- +The following assumptions were used to calculate these payments: +(1) Benefits were valued using the same assumptions that the Company uses for +our financial reporting under generally accepted accounting principles, +with the exception that the Company's cost of medical premiums is +included here. +21 +PAYMENTS UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The following table summarizes the potential payments to each Named +Executive Officer, over the course of the applicable time period for which such +payments would be owed, assuming that a Change in Control and Termination Event +occurred on December 31, 2006, the last day of the Company's fiscal year. +ANNUAL +BASE TARGET STOCK STOCK +NAME SALARY BONUS BENEFITS(1) OPTIONS(2) AWARDS(3) TOTAL +---- ---------- -------- ----------- ---------- --------- ---------- +Bart C. Shuldman........... $1,277,640 $766,584 $129,852 $1,095,772 $319,550 $3,589,398 +Steven A. DeMartino........ 460,000 230,000 56,028 190,042 151,890 1,087,960 +Michael S. Kumpf........... 178,395 62,438 26,270 105,550 136,950 509,603 +Jon D. Berkley............. 140,000 -- -- 113,000 66,400 319,400 +James B. Stetson........... 140,000 -- -- 75,655 103,750 319,405 +-------- +The following assumptions were used to calculate these payments: +(1) Benefits were valued using the same assumptions that the Company uses for +our financial reporting under generally accepted accounting principles, +with the exception that the Company's cost of medical premiums is +included here. +(2) Accelerated stock options were valued using the spread between the +exercise price of the applicable award and the closing price of $8.30 per +share of our common stock on December 29, 2006, which was the last +trading day of the year. +(3) Accelerated stock awards were valued using the closing price of $8.30 per +share of our common stock on December 29, 2006, which was the last +trading day of the year. +NON-COMPETITION PROVISIONS THAT APPLY TO A TERMINATION EVENT OR CHANGE IN +CONTROL EVENT +Pursuant to Mr. Shuldman's Employment Agreement, upon the occurrence of a +Termination Event while he is receiving severance payments under the agreement, +Mr. Shuldman agrees that for two years, or in the case of a Change in Control +Event, for three years, that he will not directly or indirectly engage in any +business or activity that is competitive with the Company in a geography where +the Company is selling its products. Further, Mr. Shuldman agrees not to attempt +to recruit any employees of the Company or encourage them to leave the Company +and agrees not to encourage any of the Company's customers to direct their +business elsewhere. The other Named Executive Officers have the same provisions +in their Severance Agreements, except that they apply for six months upon the +occurrence of a Termination Event or one year upon the occurrence of a Change in +Control Event and they are not contingent upon the payment of the benefits +described in each agreement by the Company to the Named Executive Officer. +DIRECTOR COMPENSATION FOR FISCAL YEAR 2006 +FEES EARNED OR STOCK +PAID IN AWARDS +NAME CASH ($) (2),(3),(4)($) TOTAL ($) +---- -------------- -------------- --------- +Thomas R. Schwarz............................ $24,250 $17,948 $42,198 +Charles A. Dill.............................. 26,250 17,948 44,198 +Graham Y. Tanaka............................. 26,000 17,948 43,948 +Bart C. Shuldman(1).......................... -- -- -- +-------- +(1) Mr. Shuldman did not receive any compensation for director services other +than what is contained in the "Summary Compensation Table" above. +(2) On May 18, 2006, Mr. Schwarz, Dill and Tanaka were each awarded 5,000 +shares of restricted stock, at a grant date fair value of $68,900, as +calculated in accordance with the guidance under SFAS 123(R). +22 +(3) All stock awards in 2006 were granted under the Company's 2005 Equity +Incentive Plan and the amounts shown represent compensation expense +incurred in 2006 in connection with those awards, calculated in +accordance with SFAS 123(R), as discussed in footnote 2 to the Financial +Statements in the Company's filing on Form 10K for the year ended +December 31, 2006. +(4) As of December 31, 2006, Mr. Schwarz held 63,750 fully vested stock +options at exercise prices ranging from $2.33 to $31.82 and 9,000 shares +of unvested restricted stock grants, Mr. Dill held 48,750 fully vested +stock options at exercise prices ranging from $3.77 to $31.82 and 9,000 +shares of unvested restricted stock grants, Mr. Tanaka held 63,750 fully +vested stock options at exercise prices ranging from $2.33 to $31.82 and +9,000 shares of unvested restricted stock grants, and Mr. Shuldman held +no stock option or restricted stock grants other than those shown in the +"Outstanding Equity Awards at 2006 Fiscal Year-End" table above. +During the year ended December 31, 2006, each outside director of the +Company received as compensation for services rendered: (i) a retainer of $2,500 +for each fiscal quarter served as director, (ii) $1,000 for each Board of +Directors meeting attended, (iii) $500 for each Board of Directors committee +meeting attended, (iv) $500 for each telephonic Board of Directors meeting, and +(v) $250 for each telephonic committee meeting. Chairs of committees received +$750 for each committee meeting attended and $500 for each telephonic meeting. +Directors are also reimbursed for reasonable expenses incurred in attending +meetings. +Each non-employee director receives an annual grant of 5,000 shares of +restricted stock, pursuant to the terms of the Company's 2005 Equity Incentive +Plan. The restricted stock will vest at the rate of 20% per year beginning on +the first anniversary of the date of grant. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member of the Board's Compensation and Corporate Governance Committee +has served as an officer or employee of the Company at any time. None of the +Company's executive officers serve as a member of the compensation committee of +any other company that has an executive officer serving as a member of the +Company's Board. None of the Company's executive officers serve as a member of +the board of directors of any other company that has an executive officer +serving as a member of the Board's Compensation and Corporate Governance +Committee. +STOCKHOLDER PROPOSALS FOR 2008 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year's proxy +materials must be received by the Secretary of the Company on or before January +2, 2008. Proposals should be addressed to TransAct Technologies Incorporated, +One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: +Secretary. Stockholders who wish to make a proposal at the 2008 Annual Meeting +without regard to whether it will be included in the Company's proxy materials +should notify the Company no later than February 28, 2008. If a Stockholder who +wishes to present a proposal fails to notify the Company by the due date, the +proxies that the Company solicits for the meeting will accord them discretionary +authority to vote on the Stockholder's proposal if it is properly brought before +the meeting. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors +if the proper nomination procedures specified in the Company's By-Laws are +followed. All nominations by stockholders must be delivered to or mailed and +received at the principal executive offices of the Company not less than 30 nor +more than 60 days prior to the meeting at which election of directors will take +place; however, if less than 40 days' notice or prior public disclosure of the +date of the meeting is given or made to stockholders, nominations will be timely +if received not later than 10 days after notice was given or public disclosure +was made. A stockholder's notice must set forth in writing (i) for each person +proposed to be nominated, all information relating to each such person that is +required to be disclosed in solicitations of proxies for election of directors +pursuant to Regulation 14A under the Exchange Act, including such person's +written consent to be named in the proxy and to serving as a director, and (ii) +for the +23 +stockholder giving notice, the (x) name and address of such stockholder as they +appear on the Company's books, and (y) the class and number of shares of the +Company beneficially owned by such stockholder. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder wishing to communicate directly with members of the Board +of Directors should do so in writing. All correspondence addressed to the Board +as a whole, to its independent directors, to any of its Committees or Committee +Chairs, or to individual Board members should be mailed to the following +address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +- You are welcome to communicate anonymously or confidentially. +- All correspondence addressed to an individual director or Committee +Chair, and marked "Confidential", will be collected in the office of the +Secretary and forwarded unopened to the individual director. +- Other correspondence will be opened by the Secretary, reviewed, copied +and directed as follows: +- Concerns regarding the Company's accounting, internal accounting +controls or auditing matters will be referred to the members of the +Audit Committee. +- Nominations or recommendations of candidates for election to the Board +of Directors will be referred to members of the Nominating Committee. +- Other correspondence will be copied by the Secretary and forwarded to +all of the members of the Board of Directors (or its independent +directors, if so addressed) unless the stockholder directs otherwise. +- A Stockholder may request written acknowledgement of the receipt of his +or her correspondence, which will be provided by the Secretary or, in the +case of correspondence marked "Confidential", by the individual director +or Committee Chair to whom it is addressed. +ANNUAL REPORT +A COPY OF THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON +FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE +FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS +SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER +RELATIONS DEPARTMENT, ONE HAMDEN CENTER, 2319 WHITNEY AVENUE, SUITE 3B, HAMDEN, +CT 06518. +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise +specified, proxies will be voted for the director nominated by the Board of +Directors, and for ratification of the selection of PricewaterhouseCoopers LLP +as independent registered public accounting firm for 2007. As of the date of +this Proxy Statement, the Board of Directors is not aware of any matter which is +to be presented for action at the Annual Meeting other than the matters set +forth herein. Should any other matter requiring a vote of the stockholders arise +at the Annual Meeting, the proxies confer upon the persons named in the +accompanying proxy the authority to vote in respect of any such other matter in +accordance with the recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by: (i) giving written notice of revocation to +the Secretary of the Company, (ii) properly submitting to the Company a +24 +duly executed proxy bearing a later date, or (iii) voting in person at the +Annual Meeting. All written notices of revocation and other communications with +respect to revocation of proxies should be addressed to the Company, as follows: +TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, +Suite 3B, Hamden, CT 06518, Attention: Secretary. A proxy appointment will not +be revoked by death or supervening incapacity of the stockholder executing the +proxy unless, before the shares are voted, notice of such death or incapacity is +filed with the Company's Secretary or other person responsible for tabulating +votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be +borne by the Company. The Company may solicit proxies otherwise than by use of +the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use the telephone or otherwise to obtain proxies. +The Company will also request persons, firms and corporations holding shares in +their names, or owned by others, to send this proxy material to and obtain +proxies from, such beneficial owners and will reimburse such holders for their +reasonable expenses in doing so. +No director or executive officer of the Company has any direct or indirect +substantial interest, whether by security holdings or otherwise, in the +ratification of PricewaterhouseCoopers LLP as independent registered public +accounting firm for the Company's 2007 fiscal year. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE +ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS +HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +April 19, 2007 +25 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD WEDNESDAY, MAY 15, 2007 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the +"Company") does hereby nominate, constitute and appoint Bart C. Shuldman and +Steven A. DeMartino, or either of them, with full power to act alone, my true +and lawful attorney with full power of substitution, for me and in my name, +place and stead to vote all of the shares of Common Stock of the Company +standing in my name on its books on March 23, 2007, at the Annual Meeting of its +stockholders to be held at the Clarion Hotel & Suites, 2260 Whitney Avenue, +Hamden, CT 06518 on May 15, 2007 at 10:00 a.m., or at any adjournment thereof, +with all powers the undersigned would possess if personally present as follows: +(TO BE SIGNED ON REVERSE SIDE) +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 15, 2007 +[X] Please mark your +votes as in this +example. +FOR ABSTAIN +1. ELECTION OF [ ] [ ] Nominee: Graham Y. Tanaka +DIRECTOR +FOR ABSTAIN AGAINST +2. RATIFICATION OF INDEPENDENT [ ] [ ] [ ] +REGISTERED PUBLIC +ACCOUNTING FIRM +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE AS +DIRECTOR AND FOR PROPOSAL 2. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED +FOR THE ELECTION OF THE NOMINEE FOR DIRECTOR AND FOR PROPOSAL 2. THE PROXY IS +AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE +MEETING. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE _____________________________ DATE ______________________ ____ , 2007 +SIGNATURE _____________________________ DATE ______________________ ____ , 2007 +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on this proxy. When shares are +held jointly, each holder should sign. When signing as executor, +administrator, attorney, trustee or guardian, please give full title as +such. If the signer is a corporation, please sign full corporate name by +duly authorized officer, giving full title as such. If signer is a +partnership, please sign in partnership name by authorized person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0000950123-07-005676/proxy_rpt.txt b/raw/proxies/0001017303/0000950123-07-005676/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..9de13dca1f3c37ce683ccb70b31f5e6ddf56eec7 --- /dev/null +++ b/raw/proxies/0001017303/0000950123-07-005676/proxy_rpt.txt @@ -0,0 +1,18 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review +and approval of related party transactions. As part of a review of possible +related person transactions, the Company annually distributes and collects +questionnaires that solicit information about any direct or indirect +transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and +employees to avoid any situation that involves an actual or apparent conflict of +interest in personal and professional relationships or with their duty to, or +with any interest of, the Company. Under the Standards of Business Conduct, +situations that involve, or may reasonably be inferred to involve, a conflict +between a director, officer or employee's personal interests and the interests +of the Company should be disclosed to the Chair of the Audit Committee. No +related party transaction shall be approved or ratified if such transaction is +contrary to the best interests of the Company. +From January 1, 2006 to the date of this proxy statement, there have not +been any transactions of the type described in Item 404 of Regulation S-K, and +currently no such transactions are proposed. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-09-000008/proxy.txt b/raw/proxies/0001017303/0001017303-09-000008/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b27b117b142d86e48e14b024644331ff27e897b1 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-09-000008/proxy.txt @@ -0,0 +1,2804 @@ +DEF 14A +1 +proxy.htm +DEFINITIVE PROXY STATEMENT +proxy.htm +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +WASHINGTON, +D.C. 20549 +SCHEDULE +14A INFORMATION +PROXY +STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES +EXCHANGE +ACT OF 1934 (AMENDMENT NO. ___ ) +Filed +by the Registrant x +Filed +by a Party other than the Registrant ¨ +Check the +appropriate box: +¨ +Preliminary +Proxy Statement +¨ +Confidential, +for Use of the Commission Only (As Permitted by Rule +14a-6(e)(2)) +x +Definitive +Proxy Statement +¨ +Definitive +Additional Materials +¨ +Soliciting +Material Pursuant to §240.14a-12 +(Name +of Registrant as Specified In Its Charter) +Payment +of Filing Fee (Check the appropriate box): +x +No +fee required. +¨ +Fee +computed on table below per Exchange Act Rules 14a-6(i)(4) and +0-11. +(1) +Title +of each class of securities to which transaction +applies: +(2) +Aggregate +number of securities to which transaction +applies: +(3) +Per +unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee is +calculated and state how it was +determined): +(4) +Proposed +maximum aggregate value of +transaction: +(4) +Total +fee paid: +¨ +Fee +paid previously with preliminary +materials. +¨ +Check +box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its +filing. +(1) +Amount +Previously Paid: +(2) +Form, +Schedule or Registration Statement +No.: +(3) +Filing +Party: +(4) +Date +Filed: +NOTICE +OF ANNUAL MEETING OF STOCKHOLDERS +TO +BE HELD ON MAY 28, 2009 +To the +Stockholders of TransAct Technologies Incorporated: +Notice is +hereby given that the 2009 Annual Meeting of Stockholders (the “Annual Meeting”) +of TransAct Technologies Incorporated (the “Company” or “TransAct”), a Delaware +corporation, will be held on May 28, 2009 at 10:00 a.m. Eastern Time, at the +Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, +Suite 3B, Hamden, CT 06518 for the following purposes: +(1) +To +vote on a proposal to elect Charles A. Dill as a director to serve until +the 2012 Annual Meeting of Stockholders or until the director’s successor +has been duly elected and +qualified; +(2) +To +vote on a proposal to ratify the selection of PricewaterhouseCoopers LLP +as the Company’s independent registered public accounting firm for 2009; +and +(3) +To +transact such other business as may legally come before the Annual +Meeting. +Stockholders +of record at the close of business on April 3, 2009 are entitled to notice of +and to vote at the Annual Meeting. +By +Order of the Board of Directors, +STEVEN +A. DEMARTINO +Secretary +Hamden, +Connecticut +April 30, +2009 +YOUR +VOTE IS IMPORTANT. +WHETHER +OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT YOU FILL +IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH REQUIRES +NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF YOU +DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. +PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT +TECHNOLOGIES INCORPORATED +One +Hamden Center +2319 +Whitney Avenue +Suite +3B +Hamden, +Connecticut 06518 +PROXY +STATEMENT FOR ANNUAL MEETING +OF +STOCKHOLDERS TO BE HELD ON MAY 28, 2009 +Important +Notice Regarding the Availability of Proxy Materials for the +Shareholder +Meeting +To Be Held on May 28, 2009. +This +proxy statement and our 2008 Annual Report +are +available at www.transact-tech.com/proxymaterials . +This +Proxy Statement is being furnished to the stockholders of TransAct Technologies +Incorporated (the “Company”) in connection with the solicitation of proxies by +the Board of Directors of the Company for use at the Annual Meeting of +Stockholders of the Company to be held on May 28, 2009, and any adjournments or +postponements thereof (the “Annual Meeting”). This Proxy Statement, +the foregoing Notice of Annual Meeting, the enclosed form of proxy and the +Company’s 2008 Annual Report to Stockholders are first being mailed or given to +stockholders on or about April 30, 2009. +SOLICITATION +AND REVOCATION OF PROXY +Any +stockholder who executes and returns the enclosed proxy has the power to revoke +the same anytime prior to its being voted. The accompanying proxy +will be voted as specified thereon. The proxy is in ballot form so +that a specification may be made to grant or withhold authority to vote for the +election of the director and to indicate separate approval or disapproval as to +the other matters presented to stockholders. Where an executed proxy +has been received, but a choice is not so specified, the shares represented by +the proxy will be voted to elect the director nominee and for the proposal to +ratify PricewaterhouseCoopers LLP as the Company’s independent registered +accounting firm. In addition, the proxy confers discretionary +authority to vote on any matter properly presented at the Annual Meeting, which +is not known to the Company as of the date of this Proxy Statement. +VOTING +SECURITIES +Stockholders +of record on April 3, 2009 are entitled to vote at the Annual +Meeting. Each holder of Common Stock is entitled to cast one vote for +each share of Common Stock held on April 3, 2009. There were +9,302,988 shares of +Common Stock issued and outstanding and entitled to vote at the close of +business on April 3, 2009. Shares representing a majority of the +shares issued, outstanding and entitled to be voted at the Annual Meeting, +present in person or represented by proxy, will constitute a quorum to transact +business. +Security +Ownership of Certain Beneficial Owners and Management +The +following table sets forth information known to the Company regarding the +beneficial ownership of the Company’s common stock as of April 3, 2009 by: (i) +each person known by the Company to own beneficially more than 5% of the +Company’s common stock; (ii) each director or nominee for director of the +Company; (iii) each current executive officer of the Company named in the +Summary Compensation Table; and (iv) all current directors and executive +officers of the Company as a group. Except as otherwise indicated, +each of the persons named in the table has sole voting power and sole +dispositive power with respect to the shares set forth opposite such person’s +name and the address of the holder is One Hamden Center, 2319 Whitney Avenue, +Suite 3B, Hamden, CT 06518. +1 +Name of Beneficial +Owner +Shares +Beneficially +Owned +Percent +of +Class +More +than 5% Stockholders: +Mario +J. Gabelli (1) +488,050 +5.25 +% +Directors +and Executive Officers: +Bart +C. Shuldman (2) +294,863 +3.09 +% +Graham +Y. Tanaka (3) +269,847 +2.88 +% +Charles +A. Dill (4) +210,235 +2.25 +% +Thomas +R. Schwarz (5) +114,975 +1.23 +% +Steven +A. DeMartino (6) +93,701 +1.00 +% +Michael +S. Kumpf (7) +69,824 +* +James +B. Stetson (8) +24,500 +* +Tracey +S. Chernay (9) +14,500 +* +All +current directors and executive officers as a group (9 persons) +(10). +1,117,445 +11.34 +% +________ +* +Less +than 1% of the outstanding Common +Stock. +(1) +This +information listed in the table and this footnote is based solely on the +Schedule 13D filed on March 2, 2009 by Gabelli Funds, LLC (“Gabelli +Funds”), GAMCO Asset Management Inc. (“GAMCO”), Teton Advisors, Inc., +(“Teton Advisors”) GAMCO Investors, Inc (“GBL”) and Mario J. +Gabelli. According to the Schedule 13G, GAMCO, GAMC, and Teton +Advisors beneficially own 124,200, 42,850, and 321,000 shares of our +common stock, respectively. Mario Gabelli either directly or +indirectly controls the foregoing entities or acts as their chief +investment officer and is deemed to have beneficial ownership either +directly or indirectly of the securities owned beneficially by each of the +foregoing persons. Each of the beneficial owners holds the securities +reported by it for investment for one or more accounts over which it has +shared, sole, or both investment and/or voting power, for its own account, +or both. GBL is the largest shareholder of Teton Advisors and +Gabelli Funds is an investment adviser to certain of the aforementioned +entities and both may be deemed to have beneficial ownership interests in +certain of the securities. The address of each of the +entities listed in this footnote is One Corporate Center, Rye, New York +10580. +(2) +Includes +1,500 shares owned by his spouse in an individual retirement account, +4,800 shares owned by his minor children and 3,750 shares owned by his +mother. Also includes 4,000 unvested shares of restricted stock +of the Company and 250,313 shares subject to options exercisable within 60 +days of April 3, 2009 granted under the Company’s 1996 Stock Plan and 2005 +Equity Incentive Plan. +(3) +Includes +62,250 shares subject to options exercisable within 60 days of April 3, +2009 granted under the Company’s Non-Employee Directors’ Stock Plan and +2005 Equity Incentive Plan and 7,065 shares deemed beneficially owned by +Mr. Tanaka that are directly owned by his children. Also +includes 5,000 unvested shares of restricted stock of the +Company. +(4) +Includes +47,250 shares subject to options exercisable within 60 days of April 3, +2009 granted under the Company’s Non-Employee Directors’ Stock Plan and +2005 Equity Incentive Plan. Also includes 5,000 unvested shares +of restricted stock of the Company and 1,550 shares directly owned by his +spouse. +(5) +Includes +62,250 shares subject to options exercisable within 60 days of April 3, +2009 granted under the Company’s Non-Employee Directors’ Stock Plan and +2005 Equity Incentive Plan. Also includes 5,000 unvested shares +of restricted stock of the Company, 1,500 shares deemed to be beneficially +owned by Mr. Schwarz in his capacity as trustee of a trust for the benefit +of his granddaughter, 1,500 shares beneficially owned by his daughter, as +to which shares he disclaims beneficial ownership, and 3,975 shares owned +by his spouse. +(6) +Includes +3,600 unvested shares of restricted stock of the Company and 64,000 shares +subject to options exercisable within 60 days of April 3, 2009 granted +under the Company’s 1996 Stock Plan and 2005 Equity Incentive +Plan. +2 +(7) +Includes +3,000 unvested shares of restricted stock of the Company and 35,725 shares +subject to options exercisable within 60 days of April 3, 2009 granted +under the Company’s 1996 Stock Plan and 2005 Equity Incentive +Plan. +(8) +Includes +2,000 unvested shares of restricted stock of the Company and 5,500 shares +subject to options exercisable within 60 days of April 3, 2009 granted +under the 2005 Equity Incentive +Plan. +(9) +Includes +12,500 shares subject to options exercisable within 60 days of April 3, +2009 granted under the Company’s 2005 Equity Incentive +Plan. +(10) +Includes +29,600 unvested shares of restricted stock of the Company and 552,288 +shares subject to options exercisable within 60 days of April 3, 2009 +granted under the Company’s 1996 Stock Plan, 2001 Employee Stock Plan, +2005 Equity Incentive Plan and Non-Employee Directors’ Stock +Plan. +Section +16(a) Beneficial Ownership Reporting Compliance +Section +16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), +requires the Company’s directors, executive officers and persons who +beneficially own more than 10% of the Company’s common stock to file with the +SEC and the Nasdaq Stock Market reports of ownership and reports of changes in +ownership of common stock and other equity securities of the Company and to +furnish the Company with copies of all such reports they file. To the +Company’s knowledge, based solely on review of the copies of such reports +furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the +fiscal year ended December 31, 2008, all such reports were timely +filed. +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS +The +Company maintains policies that relate to the identification, review and +approval of related party transactions. As part of a review of +possible related person transactions, the Company annually distributes and +collects questionnaires that solicit information about any direct or indirect +transactions with the Company from each of our directors and +officers. +Our +Standards of Business Conduct require all directors, officers and employees to +avoid any situation that involves an actual or apparent conflict of interest in +personal and professional relationships or with their duty to, or with any +interest of, the Company. Under the Standards of Business Conduct, +situations that involve, or may reasonably be inferred to involve, a conflict +between a director, officer or employee’s personal interests and the interests +of the Company should be disclosed to the Chair of the Audit +Committee. The Audit Committee is then +responsible for reviewing the related party transaction. No +related party transaction shall be approved or ratified if such transaction is +contrary to the best interests of the Company. In determining whether to approve or ratify a related +party transaction, the Audit Committee takes into account such factors as it +deems appropriate, which may include whether the interested transaction is on +terms no less favorable than terms generally available to an unaffiliated third +party under the same or similar circumstances and the extent of the related +person’s interest in the transaction . +From +January 1, 2008 to the date of this proxy statement, there have not been any +transactions of the type described in Item 404 of Regulation S-K, and currently +no such transactions are proposed. +CORPORATE +GOVERNANCE +The +Company strives to maintain corporate governance practices that benefit the +long-term interests of the Company’s stockholders by clearly outlining the +Company’s duties and responsibilities, providing a framework for active and +fruitful discussions among the members of the Board of Directors and between the +Board and management, and avoiding conflicts of interest and other legal and +ethical problems. Accordingly, the Company’s corporate governance practices are +designed not only to satisfy regulatory requirements, but also to provide for +effective management of the Company. +3 +Information +on the Company’s corporate governance practices is available to the public under +“Corporate Governance” on the Company’s website at www.transact-tech.com. The +information on the website includes the Company’s Corporate Governance +Principles, the charters of each of the Company’s Committees, and the Company’s +Standards of Business Conduct, which includes a code of ethics applicable to the +officers responsible for financial reporting, the Chief Executive Officer, Chief +Financial Officer and Controller. The Company encourages its +directors to attend all Board meetings as well as the Annual +Meeting. One of the directors attended the Company’s 2008 Annual +Meeting. Each director attended at least 90% of the Company’s Board +meetings held in 2008 and 100% of applicable Committee meetings. +Board +Size +The +Corporate Governance Principles provide that the Board should generally have +between four and ten members. In establishing the appropriate number +of directors, the Board and the Compensation and Corporate Governance Committee +consider (i) resignations and retirements from the current Board, (ii) the +availability of appropriate, qualified candidates, and (iii) the goal of +assuring that the Board is small enough to facilitate active discussions and +decision-making while, at the same time, is large enough to provide an +appropriate mix of continuity, experience, skills and diversity so that the +Board and its Committees can effectively perform their +responsibilities. +Criteria +for Membership on the Board +The Board +and its Nominating Committee consider a number of different factors in selecting +nominees for director. Some of these factors, such as integrity, are +applied uniformly to all prospective candidates. Others, such as +specific industry experience, may be adopted on a case by case basis by the +Board and the Nominating Committee based on the Company’s business needs at the +time a nomination is under consideration. The Nominating Committee +and the Board of Directors apply the same criteria to each candidate for the +Board, regardless of whether the candidate is proposed by a stockholder or some +other source. Specific criteria considered by the Nominating +Committee and the Board include: +Independence . The Board of +Directors, in its Corporate Governance Principles and Committee charters, has +established a policy that a substantial majority of the directors be +“independent” members of the Board. The Nominating Committee and the +Board consider the independence of each prospective director before election and +further consider the independence of all continuing directors on at least an +annual basis. The Board has determined that Messrs. Dill, Schwarz and +Tanaka are independent in accordance with the Company’s criteria and Mr. +Shuldman, the Company’s Chief Executive Officer, is not +independent. The Board applies the following criteria in determining +independence, which criteria are derived from Nasdaq’s listing standards as well +as certain additional requirements that are imposed on certain Committee members +under the rules and regulations of the Securities and Exchange Commission and +the Internal Revenue Service: +· +Independent +Judgment . +The director must not have any relationship with the Company that, in the +opinion of the Board, would interfere with the exercise of independent +judgment in carrying out the responsibilities of a director. In +making this determination, the Board considers all relevant facts and +circumstances, including commercial, charitable and familial relationships +that might have an impact on the director’s +judgment. +· +Employment . +The director must not have been an employee of the Company or any parent +or subsidiary of the Company at any time during the past three +years. In addition, a member of the director’s immediate family +(including the director’s spouse, parents, stepparents, children, +stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, +sister-in-law, son-in-law, daughter-in-law and anyone who resides in the +director’s home other than a tenant or employee) must not have been an +executive officer of the Company during the past three +years. +· +Other +Payments . Neither the director nor a member of his or her immediate +family member may have received compensation of more than $100,000 per +year from the Company during any period of twelve consecutive months +during the past three years, except for director fees, payments arising +solely from investments in the Company’s securities, benefits under +certain Company plans and non-discretionary compensation, certain +permitted loans and compensation paid to a family member who is not an +executive officer of the +Company. +· +Auditor +Affiliation . Neither the director nor a member of his or her +immediate family may be a current partner of the Company’s independent +auditors or have been a partner or employee of the Company’s independent +auditors who worked on the Company’s audit at any time during the past +three years. +4 +· +Interlocking +Directorships . Neither the director nor any member of his or her +immediate family may be employed as an executive officer by another entity +where, at any time during the past three years, any of the Company’s +executive officers served on the compensation +committee. +· +Transactions . +Neither the director nor any member of his or her immediate family may be +a partner in, or a controlling stockholder or executive officer of, any +organization that, during the current or any one of the past three years, +received payments from the Company, or made payments to the Company, for +property or services that exceed the greater of $200,000 or 5% of the +recipient’s annual consolidated gross revenues for such year (excluding +payments arising solely from investments in the Company’s securities or +paid under a non-discretionary charitable matching +program). +· +Additional +Standards for Audit Committee Members . Any director who serves on +the Board’s Audit Committee may not, directly or indirectly, have received +any consulting, advisory or other compensatory fee from the Company (other +than certain retirement benefits and deferred compensation) or be an +affiliate of the Company (except as a director, but including by way of +stock ownership). In addition, no such director may have +participated in the preparation of the financial statements of the Company +or any current subsidiary of the Company at any time during the past three +years. +Overall Board Composition. +The Board of Directors believes it is important to consider the professional +skills and background, experience in relevant industries, age and diversity of +its directors in light of the Company’s current and future business +needs. +Personal Qualities. Each +director must possess certain personal qualities, including integrity, judgment +and business acumen. In addition, each director must be no older than +75 years of age at the time of nomination or renomination. +Commitments. Each director +must have the time and ability to make a constructive contribution to the +Board. While the Board does not believe it is appropriate to +establish a single standard regarding the number of other boards on which a +director may sit, this is a factor that may be considered in reviewing a +candidate’s suitability. +Additional Criteria for Incumbent +Directors. During their terms, all incumbent directors on the Company’s +Board are expected to have regular attendance at Board and Committee meetings; +to stay informed about the Company and its business; to participate in +discussions of the Board and its Committees; to take an interest in the +Company’s business and provide advice and counsel to the Company’s Chief +Executive Officer; and to comply with the Company’s Corporate Governance +Principles and other applicable policies. +Regulatory Requirements. The +Board must have directors who meet the criteria established from time to time by +The Nasdaq Global Market, the Securities and Exchange Commission, the Internal +Revenue Service and other applicable regulatory entities for service on the +Board and its Committees. +Director +Nomination Process +Under its +charter, the Nominating Committee is responsible for identifying, reviewing and +recommending individuals to the Board for nomination or election as directors. +This typically involves the following steps: +· +Specific +Criteria . The Nominating Committee and the Board review the overall +composition of the Board in light of the Company’s current and expected +business needs and, as a result of such assessments, may establish +specific qualifications that the Committee will seek in Board +candidates. +· +Identifying +New Candidates . The Committee may seek to identify new candidates +for the Board (i) who possess the desired qualifications, and (ii) who +satisfy the other requirements for Board service. In +identifying new director candidates, the Committee may seek advice and +names of candidates from Committee members, other members of the Board, +members of management, and other public and private +sources. The Committee may also, but need not, retain a search +firm in order to assist it in these +efforts. +5 +· +Reviewing +New Candidates . +The Committee reviews the potential new director candidates +identified through this process. This involves reviewing the +candidates’ qualifications and conducting an appropriate background +investigation. The Committee may also select certain candidates +to be interviewed by one or more Committee +members. +· +Reviewing +Incumbent Candidates . On an annual basis, the Committee also +reviews incumbent candidates for renomination to the Board. This review +involves an analysis of the criteria described above that apply to +incumbent directors. +· +Recommending +Candidates . The Nominating Committee recommends a slate of +candidates for the Board of Directors to submit for approval to the +stockholders at the Annual Meeting. This slate of candidates +may include both incumbent and new nominees. In addition, apart +from this annual process, the Committee may, in accordance with the +Corporate Governance Principles, recommend that the Board elect new +members of the Board who will serve until the next annual stockholders +meeting. At the time of making any recommendation to the Board, +the Committee reports on the criteria that were applied in making the +recommendation and its findings concerning each candidate’s +qualifications. +· +Stockholder +Nominations Submitted to the Committee . Stockholders may also +submit names of director candidates, including their own, to the +Nominating Committee for its consideration. The process for +stockholders to use in submitting suggestions to the Nominating Committee +is set forth below at “Procedures for Submitting Director Nominations and +Recommendations.” Candidates who are nominated for the Board of +Directors by shareholders are evaluated in the same manner as +recommendations received from other +sources. +Board +Meetings and Executive Sessions +The Board +of Directors holds regular quarterly meetings, as well as periodic special +meetings. In 2008, the Board of Directors held eleven +meetings. +Independent +directors meet by themselves in executive sessions, without management or +employee directors present, at most regularly scheduled Board +meetings. In addition, independent directors may convene additional +executive sessions at any time. +These +executive sessions are led by the Chair of the committee that is responsible for +the subject matter at issue ( e.g. , the Audit Committee +Chair would lead a discussion of audit-related matters). When it is +not clear which committee has specific responsibility for the subject matter, +the Chair of the Compensation and Corporate Governance Committee +presides. +Committees +of the Board +The Board +has four standing committees: the Audit Committee, the Compensation and +Corporate Governance Committee, the Nominating Committee and the Executive +Committee. +Each +Committee is composed entirely of independent directors and operates under a +written charter. The Chair of each Committee is selected by the +Board. Each Committee, except the Executive Committee, holds regular +executive sessions at which only Committee members are present. Each +Committee is authorized to retain its own outside counsel and other advisors as +it desires. +Charters +for the Audit Committee, the Compensation and Corporate Governance Committee, +and the Nominating Committee are available on the Company’s website, www.transact-tech.com , but a +brief summary of the committees’ responsibilities follows: +6 +Audit Committee . The Audit Committee is +responsible for assisting the Board in fulfilling its responsibilities to +oversee the quality and integrity of the Company’s financial statements and +accounting practices, the Company’s compliance with legal and regulatory +requirements, the independent registered public accounting firm’s qualifications +and independence, and the performance of the Company’s independent registered +public accounting firm and internal audit function. It is comprised +of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. +Dill serving as Chair. The Board has determined that each member of +the Audit Committee is an independent director and meets the financial literacy +requirements of The Nasdaq Global Market to serve on the +Committee. In addition, the Board has determined that Mr. Dill is an +“audit committee financial expert” as defined under the rules of the Securities +and Exchange Commission. The Audit Committee operates under a written +charter, which was revised in March 2004 and is posted on the Company’s +website. The Audit Committee met four times during 2008. +Nominating Committee . The +Nominating Committee is responsible for assisting the Board in carrying out its +responsibilities relating to the composition of the Board, including +identifying, reviewing and recommending candidates to the Board for nomination +or election as directors. It is comprised of Messrs. Charles A. Dill, +Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as +Chair. The Nominating Committee operates under a written charter, +which was adopted in March 2004 and is posted on the Company’s +website. The Nominating Committee met one time during +2008. +Compensation and Corporate +Governance Committee . The Compensation Committee provides oversight for +the hiring and termination of all executive officers of the Company, the +Company’s corporate governance practices, CEO performance review and succession +planning, director compensation, Board and Committee performance evaluation, +stockholder communication matters, the design and management of the executive +compensation programs, and the philosophy and programs for all employee +compensation and benefit programs worldwide . The Committee +is responsible for determining the compensation (including salary, +bonus, equity-based grants, and any other long-term cash compensation) for the +Company’s Chief Executive Officer and for other senior executives as are subject +to the Committee’s direct purview. It is comprised of Messrs. Charles +A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as +Chair. The Compensation and Corporate Governance Committee operates +under a written charter, which was adopted in March 2004 and is posted on the +Company’s website. The Compensation and Corporate Governance +Committee met three times during 2008. +Executive Committee . The +Executive Committee meets between scheduled meetings of the Board of Directors +and has the power and authority of the Board, except as limited by the Company’s +By-Laws. It is comprised of Messrs. Charles A. Dill, Thomas R. +Schwarz and Graham Y. Tanaka. The Executive Committee did not meet +during 2008. +Standards +of Business Conduct +In order +to help assure the highest levels of business ethics at the Company, the Board +of Directors has approved and the Company has adopted Standards of Business +Conduct (the "Standards"), which apply to the Company’s directors, officers and +employees. The Standards provide an overview of the Company’s +policies related to employee conduct in the workplace, regulatory compliance and +investigations; the Company’s relationships with its customers, vendors, +competitors and the public; insider trading; conflicts of interest; lobbying; +political activities and contributions; accuracy of books, records and financial +statements; confidentiality; and the protection of all who come forward to +report suspected violations of the Standards. In addition, the +Standards act as a code of ethics promoting honest and ethical conduct on the +part of the Company’s officers who are responsible for financial reporting, +including the Chief Executive Officer, Chief Financial Officer and +Controller. The Standards mandate that these officers avoid conflicts +of interest and disclose any relationship that could give rise to a conflict, +protect the confidentiality of non-public information about the Company, work to +achieve responsible use of the Company’s assets and resources, comply with all +applicable governmental rules and regulations, and promptly report any possible +violation of the Standards. The Standards require these individuals +to promote full, fair, understandable and accurate disclosure in the Company’s +publicly filed reports and other public communications. It sets forth +standards for accounting practices and maintenance of +records. Individuals who fail to observe the terms of the Standards +may face disciplinary action, including possible employment +termination. +PROPOSAL +1: +ELECTION +OF DIRECTORS +The Board +of Directors currently consists of four directors and is divided into three +classes. Each class of directors is elected by the holders of the +Company’s Common Stock to serve a staggered three-year term. +7 +At the +Annual Meeting, one person is to be elected to hold office as a director until +the 2012 Annual Meeting of Stockholders or until a successor is duly elected and +qualified. The nominee for election is Charles A. Dill. In +the absence of instructions to the contrary, the persons named in the +accompanying proxy will vote such proxy “ FOR ” the election of +the nominee. Should the nominee become unavailable, which is not +anticipated, votes pursuant to the proxy will be cast for a substitute candidate +as may be designated by the Board of Directors, or in the absence of such +designation, in such other manner as the Board may in their discretion +determine. Alternatively, in such a situation, the Board of Directors +may take action to fix the number of directors for the ensuing year at the +number of nominees and incumbent directors who are then able to +serve. +Director +Independence and Qualifications +The Board +of Directors has determined that Messrs. Dill, +Schwarz and Tanaka are “independent” within the criteria established +under the Company’s Corporate Governance Principles. Mr. Shuldman, as Chief Executive Officer of +the Company, is not independent . See “Corporate Governance – +Criteria for Membership on the Board.” In addition, the Board has +determined that each director or nominee possesses the high level of skill, +experience, reputation and commitment that is mandated by the +Board. +Information +Concerning Nominee for Re-election as Director Whose Terms Will Expire at the +2012 Annual Meeting +Charles A. Dill , 69, has been +a director of the Company since its formation in June 1996. From 2004 +to the present, Mr. Dill has served as a General Partner of Two Rivers +Associates, a private equity investment firm. Mr. Dill was a General +Partner of Gateway Associates, a venture capital firm, from 1996 to +2004. Mr. Dill currently serves as a director of Zoltek Companies, +Inc. and Stifel Financial Corp., as well as several other privately held +companies. +VOTE +REQUIRED +The +election of Charles A. Dill as director of the Company requires affirmative +votes of the holders of a plurality of the votes of the Company’s Common Stock +present in person or represented by proxy and entitled to +vote. Abstentions by holders of such shares and broker non-votes will +have no effect on the election of directors, but will be included in determining +the presence of a quorum at the Annual Meeting. +THE +BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE ELECTION OF +CHARLES A. DILL +AS DIRECTOR OF THE COMPANY. +Information +Concerning Director Whose Term Will Expire at the 2010 Annual +Meeting +Graham Y. Tanaka , 61, has +been a director of the Company since its formation in June 1996. Mr. +Tanaka has been President of Tanaka Capital Management, Inc., an investment +management firm, since 1986. He is a director of Tanaka Funds, Inc. +and Tanaka Capital Management, Inc. +Information +Concerning Directors Whose Term Will Expire at the 2011 Annual +Meeting +Thomas R. Schwarz , 72, has +been a director of the Company since its formation in June 1996 and was Chairman +of the Board from June 1996 to February 2001. Mr. Schwarz was +Chairman and Chief Executive Officer of Grossman’s Inc., a retailer of building +materials, from 1990 until his retirement in 1994. From 1980 to 1990, +he was President, Chief Operating Officer and a director of Dunkin’ Donuts +Incorporated, a food service company. Mr. Schwarz is a director of +Tanaka Growth Fund and another privately held company. +Bart C. Shuldman , 52, has +been Chief Executive Officer, President and a director of the Company since its +formation in June 1996 and has been Chairman of the Board since February +2001. Previously, Mr. Shuldman was Vice President of Sales and +Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April +1993 to August 1993, and served as President of Magnetec, and later the combined +operations of Magnetec and Ithaca Peripherals Incorporated, another former +Tridex subsidiary, from August 1993 to June 1996. +8 +PROPOSAL +2: +RATIFICATION +OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM FOR 2009 +The Audit +Committee has selected PricewaterhouseCoopers LLP as the independent registered +public accounting firm to audit the financial statements of the Company for the +2009 fiscal year. This selection is being presented to the +stockholders for ratification at the Annual +Meeting. PricewaterhouseCoopers LLP has audited the Company’s +financial statements since the Company’s formation in 1996. In the +event stockholders do not ratify the appointment, the Audit Committee will +reconsider the appointment. +A +representative of PricewaterhouseCoopers LLP is expected to be present at the +Annual Meeting, will have the opportunity to make a statement, and is expected +to be available to respond to appropriate questions. +VOTE +REQUIRED +The +ratification of the selection of PricewaterhouseCoopers LLP as independent +registered public accounting firm for 2009 requires the affirmative vote of a +majority of the votes of the Common Stock present in person or represented by +proxy and entitled to vote. In the absence of instructions to the +contrary, the persons named in the accompanying proxy will vote such proxy +“ FOR ” the +ratification of PricewaterhouseCoopers LLP. Abstentions by holders of +such shares with respect to voting on this matter will have the effect of a +negative vote; broker non-votes with respect to voting on this matter will have +no effect on the outcome of the vote. +THE +BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” RATIFICATION OF +THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM FOR 2009. +POLICY +REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY +THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit +Committee has established a policy requiring its pre-approval of all audit +services and permissible non-audit services provided by the independent +registered public accounting firm, along with the associated fees for those +services. The Policy provides for the annual pre-approval of specific +types of services pursuant to policies and procedures adopted by the Audit +Committee, and gives detailed guidance to management as to the specific services +that are eligible for such annual pre-approval. The Policy requires +the specific pre-approval of all other permitted services. For both +types of pre-approval, the Audit Committee considers whether the provision of a +non-audit service is consistent with the Securities and Exchange Commission’s +rules on auditor independence, including whether provision of the service (i) +would create a mutual or conflicting interest between the independent registered +public accounting firm and the Company, (ii) would place the independent +registered public accounting firm in the position of auditing its own work, +(iii) would result in the independent registered public accounting firm acting +in the role of management or as an employee of the Company, or (iv) would place +the independent registered public accounting firm in a position of acting as an +advocate for the Company. In addition, the Audit Committee considers +whether the independent registered public accounting firm is best positioned and +qualified to provide the most effective and efficient service, based on factors +such as the independent registered public accounting firm’s familiarity with the +Company’s business, personnel, systems or risk profile and whether provision of +the service by the independent registered public accounting firm would enhance +the Company’s ability to manage or control risk or improve audit quality or +would otherwise be beneficial to the Company. +The Audit +Committee may delegate to one of its members the authority to address certain +requests for pre-approval of services between meetings of the Committee, and +such Committee member is required to report his or her pre-approval decisions to +the Committee at its next regular meeting. The Policy is designed to +ensure that there is no delegation by the Audit Committee of authority or +responsibility for pre-approval decisions to management of the +Company. The Audit Committee monitors compliance by management with +the pre-approval policy by requiring management, pursuant to the Policy, to +report to the Audit Committee on a regular basis regarding the pre-approved +services rendered by the independent registered public accounting +firm. +9 +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM’S SERVICES AND FEES +The Audit +Committee is responsible for the appointment, compensation, retention and +oversight of the work of the independent registered public accounting +firm. Accordingly, the Audit Committee has appointed +PricewaterhouseCoopers LLP to perform audit and other services for the +Company. In addition, the Audit Committee has procedures in place for +the pre-approval by the Audit Committee of all services provided by +PricewaterhouseCoopers LLP. These pre-approval procedures, as +amended, are described below under “Policy Regarding Pre-Approval of Services +Provided by the Independent Registered Public Accounting Firm.” +The +aggregate fees billed by PricewaterhouseCoopers LLP to the Company for the years +ended December 31, 2008 and 2007 are as follows: +2008 +2007 +Audit +Fees(1) +$ +412,192 +$ +402,580 +Audit-Related +Fees (2) +6,000 +40,000 +Tax +Fees (3) +6,200 +95,184 +All +Other Fees (4) +1,515 +1,515 +Total +Fees for Services Provided +$ +425,907 +$ +539,279 +________ +(1) +Audit +Fees consist of fees related to: (i) the annual audit of the Company’s +financial statements and of internal controls, (ii) reviews of the +Company’s quarterly financial statements, (iii) statutorily required +audits for the Company’s UK subsidiary and (iv) the review of registration +statements, periodic reports and other reports filed with the +SEC. +(2) +Audit-Related +Fees consist of fees incurred for consultations regarding accounting and +financial reporting +standards. +(3) +Tax +Fees include fees incurred for tax planning and advice, preparation of +domestic and foreign tax returns, research and development tax credit +study, and review of tax +accruals. +(4) +All +Other Fees include software license fees for the use of a web-based +accounting research tool. +The Audit +Committee has considered whether the provision of the above services, other than +Audit Fees, is compatible with maintaining the auditors’ independence and has +determined that, in its opinion, they are compatible. All of the +above services during the year ended December 31, 2008, other than those covered +by Audit Fees, were either approved by the Audit Committee or were performed +pursuant to pre-approval policies and procedures. +AUDIT +COMMITTEE REPORT +Under its +charter, the Audit Committee is responsible for assisting the Board in +fulfilling its responsibilities to oversee the internal control over financial +reporting and quality and integrity of the Company’s financial statements and +accounting practices, the Company’s compliance with legal and regulatory +requirements, the independent registered public accounting firm’s qualifications +and independence, and the performance of the Company’s independent registered +public accounting firm and internal audit function. +Management +is responsible for preparing complete and accurate consolidated financial +statements in accordance with generally accepted accounting +principles. The independent registered public accounting firm is +responsible for performing independent audits of the Company’s consolidated +financial statements and for issuing reports about those financial +statements. The Audit Committee meets with the independent registered +public accounting firm, the Chief Executive Officer, the Chief Financial Officer +and the senior management of the Company to review the scope and the results of +the annual audit, the amount of audit fees, the Company’s system of internal +accounting controls over financial reporting, the financial statements contained +in the Company’s Annual Report to Stockholders and other related +matters. Separate meetings are held with the independent registered +public accounting firm and management. +In +connection with its duties, the Audit Committee has taken the following +actions: +· +It +has reviewed and discussed the audited financial statements, as well as +the assessment of internal controls over financial reporting, with +management. +10 +· +It +has discussed with the independent registered public accounting firm, +which is responsible for expressing an opinion on the financial statements +in accordance with generally accepted accounting principles, the matters +required to be discussed by Statement on Auditing Standards No. 61, +“Communication with Audit Committees,” as +amended. +· +It +has received from the independent registered public accounting firm the +written disclosures describing any relationships between the independent +registered public accounting firm and the Company and the letter +confirming their independence required by Independence Standards Board +Standard No. 1, “Independence Discussions with Audit Committees,” and has +discussed with the independent registered public accounting firm matters +relating to their +independence. +· +Based +on its review and discussions described above, the Audit Committee +recommended to the Board of Directors that the audited financial +statements of the Company for the year ended December 31, 2008 be included +in the Company’s Annual Report on Form 10-K for filing with the +SEC. +AUDIT +COMMITTEE +Charles A. Dill, +Chairman +Thomas R. +Schwarz +Graham Y. +Tanaka +EXECUTIVE +COMPENSATION +COMPENSATION +DISCUSSION AND ANALYSIS +Overview +This +Compensation Discussion and Analysis describes the philosophy, approach, and +elements used by us and the Compensation and Corporate Governance Committee (the +“Compensation Committee”) of our Board of Directors, which is composed entirely +of independent directors of the Company, to define, manage, and review +compensation paid to our executives. Our philosophy and approach to +executive compensation apply to all executive officers of the Company, including +those executives designated as named executive officers. +Philosophy +and Objectives of the Compensation Program +Our +Compensation Committee’s philosophy is that our executive compensation program +is to be based on our performance and be competitive with other similar-sized +companies in similar industries. The primary objectives of our +compensation program are to: +· +Attract, +engage, retain, and reward executive officers; +· +Motivate +employees and encourage individual initiative and +effort; +· +Help +to achieve key business objectives and attain Company goals; +and +· +Align +executives’ interests closely with those of the Company and its +shareholders. +Our +executive compensation program principally includes base salary, an incentive +cash performance bonus program and equity incentive awards. The +Compensation Committee believes that each element of the total compensation +program helps to ensure that the efforts of our executive officers support the +creation of stockholder value, whether through focusing on short-term and +long-term performance goals, promoting an ownership mentality or linking +individual performance to the Company’s overall performance. The Committee retains its discretion to modify the +compensation program elements in response to the needs of the +Company. +The +elements of our executive compensation program are periodically analyzed using +current publicly available market data, contemporary market trends in the industries in which the Company operates and +periodic reviews of compensation and benefit +surveys. Although we perform periodic +reviews of salary surveys and occasionally use compensation consultants +to analyze elements of our compensation program, we do not believe that it is +appropriate to establish compensation levels based solely on the use of such +surveys. The Committee did not utilize a compensation consultant in +fiscal 2008, but it determined that a compensation consultant should be retained +in fiscal 2009 to help the committee with its review of compensation information +against market data. +11 +We rely +upon our judgment in making compensation decisions, after reviewing the +financial performance of the Company and carefully evaluating an executive +officer’s performance, business achievements, leadership qualities, operational +performance, business responsibilities, number of years of experience in the +industry and/or with the Company, current compensation arrangements and +long-term potential to enhance shareholder value. While competitive +market compensation paid by other companies is one of the many factors that we +consider in assessing the reasonableness of compensation, we do not attempt to +maintain a certain target percentile within a peer group or otherwise rely on +that data to solely determine executive officer +compensation. Instead, we incorporate flexibility into our +compensation program and in the assessment process to respond to and adjust for +the evolving business environment. We strive to achieve an +appropriate mix between cash payments and equity incentive awards to meet our +objectives. Any apportionment goal is not applied rigidly and does +not control our compensation decisions. Our mix of compensation +elements is designed to reward recent results and motivate long-term performance +through a combination of cash and equity awards. We believe the most +important indicators of whether our compensation objectives are being met is our +ability to motivate our executive officers to deliver superior performance and +to achieve short-term and long-term strategic goals, including financial metrics +related to revenue growth and profitability. +The +Compensation Committee, on occasion, meets with the Chief Executive Officer and +Chief Financial Officer to obtain recommendations with respect to the Company’s +compensation programs, practices and packages for executive officers, senior +managers and other employees. Our Chief Executive Officer and Chief +Financial Officer, with the assistance and support of the human resources +department, provide recommendations regarding the design of the Company’s +compensation program to the Compensation Committee. The Compensation +Committee considers, but is not bound to accept, management’s recommendations +with respect to executive compensation. +Elements +of the Company’s Compensation Plan +The +principal elements of the Company’s compensation program are base salary, an +incentive cash bonus program and equity incentive awards. +Base Salary : In general, base +salaries for employees, including executive officers, are established based on +the scope of their responsibilities, individual contribution, prior experience, +sustained performance, external market data and anticipated level of difficulty +of replacing the employee with someone of comparable experience and +skill. Base salary for each executive is reviewed on an annual basis +as part of our companywide merit review process. The amount of any +merit increase to an executive’s base salary is determined based on a +combination of the current position of the executive’s pay against market data +and the executive’s performance and results during the past year. Our +Chief Executive Officer is responsible for assessing the performance of each +executive reporting to him. Our Compensation Committee assesses the +performance of our Chief Executive Officer. +Incentive Cash Bonus Program : +We have historically maintained an +incentive cash compensation plan for all executive officers, except for those +who receive sales commissions, which provides our executives with the +opportunity to receive performance bonuses upon the attainment of certain annual +financial objectives, as well as individual performance +objectives. The incentive cash bonus is designed to be a significant +portion of executive compensation in order to create and maintain a significant +incentive for our executives to achieve or exceed our strategic and annual +financial objectives. +To ensure +alignment of compensation with our business objectives and performance, our +Chief Executive Officer and other executive officers establish specific +performance metrics each fiscal year. Our performance metrics (as +used for incentive cash bonus) are reviewed and approved by our Compensation +Committee. The metrics are quantifiable and aligned with our +strategic and annual business plans and are regularly reviewed by our Board of +Directors and Compensation Committee. For 2008, we had a single +performance metric which consisted of a target level of diluted earnings per +share of $0.30, excluding legal fees associated with the FutureLogic +lawsuit. The minimum and maximum diluted earnings per share set forth +in the incentive cash compensation plan by our Compensation Committee was $0.21 +and $0.50, respectively, excluding legal fees associated with the FutureLogic +lawsuit. +12 +Our +executive officers, except for those that receive sales commissions, participate +in the incentive cash bonus plan. Bonuses are paid under the +incentive cash bonus program only if the Company meets specified performance +objectives. The incentive cash bonus that any particular executive is +eligible to earn is established as a percentage of the individual’s base salary +(“Target Bonus”). If we reach our target performance objective, which +in 2008 was based on a level of diluted earnings per share, bonuses are paid at +100% of the Target Bonus amount. If we under-achieve or over-achieve +our target performance objective, the Target Bonus is adjusted accordingly on a +sliding scale. For 2008, the estimated bonus payout upon reaching the +minimum threshold was 60% of Target Bonus and the estimated maximum bonus payout +was 140% of Target Bonus. In addition, if performance objectives are +achieved, the actual bonus amount payable to an executive could be modified +based on an evaluation of the executive’s individual performance. The +Compensation Committee sets the target diluted earnings per share amount at a +level which it believes is challenging, yet achievable by the +Company. The maximum bonus payout requires very high levels of both +individual and Company performance, which the Compensation Committee believes +are possible but extremely difficult to meet. +Equity Incentive Awards : The +goal of our equity-based incentive awards is to align the interests of our +executives with our shareholders and to provide executives with an incentive to +manage the Company from the perspective of an owner with an equity stake in the +business. We believe that our long-term performance is improved by +encouraging ownership by our executives through the use of stock-based +grants. Because vesting of our stock awards is based on continued +employment, our equity-based incentives also facilitate the retention of +executives through the term of the awards. Generally, we believe that +stock options are the most effective tool for meeting our compensation goal of +increasing long-term shareholder value by tying the value of stock options to +our future performance – i.e. executives are able to profit from stock options +only if our stock price increases in value over the stock option’s exercise +price. +Grants of +stock options are typically approved by the Compensation Committee at its +regularly scheduled meeting on or about March 1. While the majority +of stock option awards to our employees have been made under our annual grant +program, the Compensation Committee may make stock option awards to employees at +other times, including at the time of hire of an employee, promotion of an +employee, to reward an employee, for retention purposes or for other +circumstances as recommended by the Chief Executive Officer or the Compensation +Committee. In determining the size of the long-term equity incentives +to be awarded to employees, we take into consideration a number of factors +including but not limited to relative job scope, individual performance level, +prior contributions to the Company, the need to retain the employee, the size of +prior grants and competitive market data. Based upon these factors, +the Compensation Committee determines the size of the equity incentives at +levels it considers appropriate to create meaningful opportunity for reward +predicated on the creation of long-term shareholder value. +The +exercise price of options granted is set at the closing price of our common +stock on the date of grant. Grants of options generally vest in equal +annual installments over a three- to five-year period and have a ten-year +term. +2008 +Executive Compensation +The +specific compensation decisions made for each of our executive officers for 2008 +reflect the performance of the Company against key financial and operational +measurements, as well as performance against individual objectives. +Base Salary : In +determining the base salary of the Named Executive Officers, the Compensation +Committee evaluated the overall performance of the Company and the individual’s +contributions to that performance, as well as the performance of the sales unit +or function that each leads when relevant. In March 2008, the +Compensation Committee conducted an annual review and evaluation of the +compensation levels of Mr. Shuldman, Mr. DeMartino and Mr. +Kumpf. Although the Compensation Committee conducted its annual +review, the Company’s executives, including Mr. Shuldman, Mr. DeMartino, Mr. +Kumpf, Mr. Stetson and Mrs. Chernay, elected to receive no increase in base +salary during 2008, due to the Company’s performance in 2007 and to control +costs in 2008. +13 +Incentive Cash +Bonus: During 2008, the Company achieved and exceeded by 20% +its diluted earnings per share performance objective of $0.30 diluted earnings +per share, excluding legal fees associated with the FutureLogic lawsuit, as +reviewed and approved by the Compensation Committee at the beginning of +2008. Therefore, for 2008, the cash bonus payout for all eligible +employees, including executives, was 112% of the annual target +amount. For 2008, Mr. Shuldman, Mr. DeMartino and Mr. Kumpf were paid +an incentive cash bonus of $357,739, $132,664 and $78,400, +respectively. These amounts are shown in the “Summary Compensation +Table” below under the column “Bonus.” These bonuses were calculated +as a percentage of each executive’s base salary in effect as of March +2008. Mr. Stetson and Mrs. Chernay were not eligible to participate +in the cash incentive program as they earned commission based on annual sales +from their respective sales unit, as well as a cash bonus based on the +attainment of certain individual objectives. Mr. Stetson and Mrs. +Chernay received a commission, paid monthly, equal to 0.7% and 0.3% of sales +achieved by each of them in the fiscal year and also included a discretionary +bonus for Mrs. Chernay of $5,000 which the Committee determined was appropriate +given the overall increase in sales in the fiscal year. +Equity Incentive +Awards : With regard to equity incentive compensation, during +2008 one equity incentive award was granted to the executives. In +February 2008, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. +DeMartino, Mr. Kumpf, Mr. Stetson and Mrs. Chernay of stock options to purchase +21,000, 25,000, 20,000, 10,000 and 10,000 shares, respectively. The +vesting terms of the grant of stock options are outlined in the table entitled +“Grants of Plan-Based Awards in 2008.” The level of awards granted +was consistent with the level of historical grants over the previous five +years. Upon completion of their evaluation, the Compensation +Committee planned to grant Mr. Shuldman stock options to purchase 30,000 +shares. Mr. Shuldman asked the Committee to reduce his grant by 9,000 +stock options in order to provide certain non-executive employees, who do not +ordinarily receive equity incentive awards, with stock options. +Tax +Deductibility of Compensation +Under Section 162(m) of the Internal Revenue +Code, publicly held corporations may be prohibited from deducting as an expense +for federal income tax purposes total compensation in excess of $1 million paid +to certain executive officers in a single year. Section 162(m) +specifically exempts certain performance-based compensation from the deduction +limit. The levels of base salary, annual cash incentive bonus and +equity compensation we generally pay to our executive officers do not exceed +this limit , and thus compensation decisions are +not driven by the requirements of Section 162(m). +Compensation +Committee Report +The +Compensation Committee has reviewed and discussed the Compensation Discussion +and Analysis with management. Based on its review and discussions +with management, the Compensation Committee recommended to the Board of +Directors that the Compensation Discussion and Analysis be included in +TransAct’s proxy statement for the 2009 annual meeting. +COMPENSATION AND +CORPORATE +GOVERNANCE +COMMITTEE +Thomas R. Schwarz, +Chairman +Charles A. +Dill +Graham Y. +Tanaka +14 +SUMMARY +COMPENSATION TABLE +The +following table sets forth information concerning the compensation earned by the +Company’s Chief Executive Officer, Chief Financial Officer and each of the other +three most highly compensated executive officers (the “Named Executive +Officers”) in 2008, 2007 and 2006: +Name +and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +(3)($) +Option +Awards +(4)($) +Non-Equity +Incentive +Plan +Compensation +(8)($) +All Other +Compensation ($) +Total ($) +Bart C. Shuldman(1) +2008 +425,880 +- +158,530 +74,337 +357,739 +39,984 +(5) +1,056,470 +Chairman, +President and +Chief Executive Officer +2007 +425,880 +- +160,157 +58,629 +- +34,589 +(5) +679,255 +2006 +422,517 +- +162,578 +29,236 +191,646 +34,231 +(5) +840,208 +Steven +A. DeMartino +2008 +236,900 +- +72,996 +54,589 +132,664 +22,293 +(6) +519,442 +Executive +Vice President, +Chief Financial Officer, Treasurer and Secretary +2007 +235,493 +39,089 +(7) +73,128 +39,084 +- +19,195 +(6) +405,989 +2006 +203,360 +- +73,466 +21,222 +86,250 +18,961 +(6) +403,259 +Michael +S. Kumpf +2008 +200,000 +- +53,513 +46,270 +78,400 +27,721 +(6) +405,904 +Executive +Vice President, +Engineering +2007 +193,538 +23,100 +(7) +53,711 +33,226 +- +20,630 +(6) +324,205 +2006 +176,983 +- +54,244 +15,923 +46,829 +20,661 +(6) +314,640 +James +B. Stetson +2008 +140,000 +80,353 +(2) +43,613 +26,068 +- +19,120 +(6) +309,154 +Senior +Vice President and +Business Manager, TransAct Services Group +2007 +140,000 +104,500 +(2) +43,850 +19,535 +- +15,623 +(6) +323,508 +2006 +140,000 +71,732 +(2) +44,354 +10,617 +- +14,312 +(6) +281,015 +Tracey +S. Chernay +2008 +155,600 +87,388 +(2) +13,021 +32,229 +- +16,255 +(6) +304,493 +Senior +Vice President, Sales +and Marketing +2007 +150,985 +76,384 +(2) +27,316 +24,155 +- +12,600 +(6) +291,440 +2006 +144,667 +34,000 +(2) +27,316 +7,908 +16,380 +11,780 +(6) +242,051 +________ +(1) +Mr. +Shuldman is a director of the Company, but does not receive any separate +compensation for those +services. +(2) +Bonuses +paid to Mr. Stetson and Mrs. Chernay represent commissions on sales by the +Company. In fiscal 2008, commissions were paid in the amounts +of 80,353 and 82,388, respectively, plus a discretionary bonus +for Mrs. Chernay of $5,000. In fiscal 2007, commissions were +paid in the amounts of 99,500 and 71,384, respectively, plus discretionary +bonuses of $5,000 and $5,000, respectively, and in fiscal 2006, +commissions were paid in the amounts of $71,732 and 34,000, +respectively.. +(3) +All +restricted stock awards were under the Company’s 1996 Stock +Plan. The amounts shown here +represent compensation expense incurred by us in 2006, 200 7 and +200 8 in connection with restricted stock awards, +calculated in accordance with SFAS 123(R). There were no +forfeitures of restricted stock awards by this group during the +year. For information on the valuation assumptions with respect +to these awards, refer to note 12 of the Company’s financial statements in +the Form 10-K for the years ended December 31, 2007 and 2008, and note 13 +of the Company’s financial statements in the Form 10-K for the year ended +December 31, 2006, as filed with the +SEC. +15 +(4) +All +stock option awards in 2006, 2007 and 2008 were granted under the +company’s 2005 Equity Incentive Plan. The amounts shown here +represent compensation expense incurred by us in 2006, 2007 and 2008 in +connection with those options, calculated in accordance with SFAS +123(R). For information on the valuation assumptions with +respect to these awards, refer to note 12 of the Company's financial +statements in the Form 10-K for the year ended December 31, 2007 and 2008, +and note 13 of the Company’s financial statements in the Form 10-K for the +year ended December 31, 2006, as filed with the SEC. Please see +the “Outstanding Equity Awards at 2008 Fiscal Year-End” table for a +description of option awards. There were no forfeitures of +stock option awards by this group during the +year. +(5) +For +Mr. Shuldman, this amount consisted of $19,200 for an automobile +allowance, Company contributions under the Company’s 401(k) Plan, life +insurance, disability insurance and tax return preparation +fees. +(6) +For +Mr. DeMartino, Kumpf, Stetson and Mrs. Chernay, these amounts consist of +automobile allowances, Company contributions under the Company’s 401(k) +Plan, life insurance and disability +insurance. +(7) +For +Mr. DeMartino and Mr. Kumpf, these amounts represent cash bonuses earned +in 2007 and awarded by the Compensation Committee as a discretionary +bonus. +(8) +These +amounts represent incentive cash bonuses earned under the Company’s Cash +Incentive Program. +GRANT +OF PLAN-BASED AWARDS IN 2008 +The +following table sets forth information concerning the grant of plan-based awards +to Named Executive Officers in 2008: +Name +Grant +Date +Estimated +Future Payouts Under Non-Equity Incentive Plan Awards (1) +All +Other +Option +Awards: +Number +of +Securities +Underlying +Options(2)(#) +Exercise +or +Base +Price +of +Option +Awards +($/Sh) +Grant Date +Fair Value of +Stock +and +Option +Awards(3)($) +Threshold +($) +Target +($) +Maximum +($) +Bart +C. Shuldman +2/27/08 +191,646 +319,410 +447,174 +21,000 +5.24 +61,637 +Steven +A. DeMartino +2/27/08 +71,070 +118,450 +165,830 +25,000 +5.24 +73,378 +Michael +S. Kumpf +2/27/08 +42,000 +70,000 +98,000 +20,000 +5.24 +58,702 +James +B. Stetson +2/27/08 +- +- +- +10,000 +5.24 +29,351 +Tracey +S. Chernay +2/27/08 +- +- +- +10,000 +5.24 +29,351 +________ +(1) +Represents +target payout under our annual cash incentive plan for +2008. Actual amounts paid in March 2009 are included in the +"Non-Equity Incentive Plan Compensation" column of the Summary +Compensation Table on page 15. The maximum amounts assume a +payout of 140% of the corporate component of the named executive officer's +annual cash incentive. The annual cash incentive program is +described in the "Compensation Discussion and Analysis" on page +12. +(2) +Each +stock option award disclosed in the Grants of Plan-Based Awards in 2008 +table was issued under our 2005 Equity Incentive Plan and was granted with +an exercise price per share equal to the fair market value of our common +stock on the date of grant, as determined by the closing price of the +stock on the date the option was granted. Subject to the terms +of our 2005 Equity Incentive Plan and the option agreements issued in +connection with these grants, each option award granted in 2008 to a Named +Executive Officer vests at a rate of 20% per year over five +years. +(3) +The +amounts shown represent the fair value of stock options granted in 2008 +calculated in accordance with SFAS 123(R). For information on +the valuation assumptions with respect to these awards, refer to note 12 +of the Company's financial statements in the Form 10-K for the year ended +December 31, 2008, as filed with the SEC. Please see the +“Outstanding Equity Awards at 2008 Fiscal Year-End” table for a +description of option awards. There were no forfeitures of +stock option awards by this group during the +year. +16 +OUTSTANDING +EQUITY AWARDS AT 2008 FISCAL YEAR-END +The +following table shows outstanding equity awards for the Named Executive Officers +as of December 31, 2008: +Stock +Awards +Option +Awards +Number of +Shares +or +Units +of +Stock That +Have +Not +Vested (#) +Market +Value of +Shares +or +Units of +Stock +That Have +Not Vested +(1)($) +Name +Grant +Date +Number +of +Securities +Underlying +Unexercised +Options +(# Exercisable) +Number +of +Securities +Underlying +Unexercised +Options +(# Unexercisable) +Option +Exercise +Price ($) +Option +Expiration +Date +Bart +C. Shuldman +2/26/01 +54,863 +- +3.42 +2/26/11 +- +- +5/17/02 +166,750 +- +3.77 +5/17/12 +- +- +1/2/04 +- +- +- +- +7,500 +34,425 +3/25/05 +- +- +- +- +8,000 +36,720 +1/2/06 +5,000 +7,500 +7.90 +1/2/16 +- +- +3/1/06 +6,000 +9,000 +9.75 +3/1/16 +- +- +2/28/07 +5,000 +20,000 +9.51 +2/28/17 +- +- +2/27/08 +- +21,000 +5.24 +2/27/18 +- +- +Steven +A. DeMartino +2/26/01 +500 +- +3.42 +2/26/11 +- +- +5/17/02 +40,500 +- +3.77 +5/17/12 +- +- +1/2/04 +- +- +- +- +1,500 +6,885 +6/1/04 +- +- +- +- +600 +2,754 +3/25/05 +- +- +- +- +6,000 +27,540 +1/2/06 +4,000 +6,000 +7.90 +1/2/16 +- +- +3/1/06 +4,000 +6,000 +9.75 +3/1/16 +- +- +2/28/07 +3,000 +12,000 +9.51 +2/28/17 +- +- +2/27/08 +- +25,000 +5.24 +2/27/18 +- +- +Michael +S. Kumpf +2/26/01 +2,100 +- +3.42 +2/26/11 +- +- +5/17/02 +14,625 +- +3.77 +5/17/12 +- +- +1/2/04 +- +- +- +- +1,500 +6,885 +3/25/05 +- +- +- +- +6,000 +27,540 +1/2/06 +3,000 +4,500 +7.90 +1/2/16 +- +- +3/1/06 +3,000 +4,500 +9.75 +3/1/16 +- +- +2/28/07 +3,000 +12,000 +9.51 +2/28/17 +- +- +2/27/08 +- +20,000 +5.24 +2/27/18 +- +- +James +B. Stetson +1/2/04 +- +- +- +- +1,500 +6,885 +3/25/05 +- +- +- +- +4,000 +18,360 +1/2/06 +- +3,000 +7.90 +1/2/16 +- +- +3/1/06 +- +3,000 +9.75 +3/1/16 +- +- +2/28/07 +- +6,000 +9.51 +2/28/17 +- +- +2/27/08 +- +10,000 +5.24 +2/27/18 +- +- +Tracey +S. Chernay +1/2/06 +2,000 +3,000 +7.90 +1/2/16 +- +- +3/1/06 +1,000 +1,500 +9.75 +3/1/16 +- +- +2/28/07 +3,000 +12,000 +9.51 +2/28/17 +- +- +2/27/08 +- +10,000 +5.24 +2/27/18 +- +- +________ +(1) +Calculated +based on the closing price of the Company’s stock on December 31, 2008, +the last trading day of the fiscal +year. +17 +Options +Awards Vesting Schedule +Grant +Date +Vesting +Schedule +2/26/01 +20% per year for five years +5/17/02 +20% per year for five years +1/2/06 +20% per year for five years +3/1/06 +20% per year for five years +2/28/07 +20% per year for five years +2/27/08 +20% per year for five years +Stock +Awards Vesting Schedule +Grant +Date +Vesting +Schedule +1/2/04 +20% per year for five years +6/1/04 +20% per year for five years +3/25/05 +20% per year for five years +OPTION +EXERCISES AND STOCK VESTED IN FISCAL YEAR 2008 +Option +Awards +Stock +Awards +Name +Number of +Shares +Acquired +On Exercise (#) +Value Realized +on Exercise(1)($) +Number of +Shares +Acquired +on Vesting (#) +Value Realized +on Vesting(2)($) +Bart +C. Shuldman +12,000 +65,415 +11,500 +57,780 +Steven +A. DeMartino +- +- +5,100 +27,804 +Michael +S. Kumpf +4,999 +6,049 +4,500 +22,710 +James +B. Stetson +20,900 +164,776 +3,500 +17,640 +Tracey +S. Chernay +- +- +10,000 +75,500 +________ +(1) +Calculated +based on the difference between the market price of the underlying +securities at exercise and the exercise price of the +options. +(2) +Calculated +based on the market value on the vesting date of the shares underlying +each award. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The +Company has entered into certain agreements and maintains certain plans that may +require payments be made, and/or benefits be provided, to the Named Executive +Officers: (i) in the event a Named Executive Officer’s employment is terminated +other than for Cause, as defined below, (a “Termination Event”), (ii) if a +change in control (as defined by the applicable agreement or plan) occurs (a +“Change in Control Event”) or (iii) if a Termination Event occurs or a Named +Executive Officer resigns for certain specified reasons within one year of a +change in control (a “Change in Control and Termination Event”). The +payments and benefits that each Named Executive Officer may be entitled to +receive upon a Termination Event, Change in Control Event or a Change in Control +and Termination Event are described in the applicable employment agreement or +severance agreement and the Company’s 1996 Stock Plan and 2005 Equity Incentive +Plan. Below is a description of the types of events that would +trigger payments under these agreements and plans and the potential payments to +each such Named Executive Officer assuming that a triggering event occurred on +December 31, 2008, the last day of our most recent fiscal year. +18 +Employment +and Severance Agreements +Events That Trigger a Termination +Event or Change in Control Event. The applicable +employment and severance agreements generally define Cause as a termination for +the following reasons: (i) action or inaction by the Named Executive Officer +that constitutes larceny, fraud, gross negligence, a willful or negligent +misrepresentation to the Board or officers of the Company or a commission of a +crime of moral turpitude; (ii) material, repetitive, unjustified and unexcused +refusal to follow the reasonable and lawful written instruction of the Board—or +in the case of the Named Executive Officers other than Mr. Shuldman, the Board +or the Company’s President; or (iii) death or disability. Change in +control is generally defined in each agreement to include (i) a merger of the +Company with another company where the majority of the board of the surviving +company is not comprised of directors of the Company in office immediately prior +to the transaction, (ii) a change in the board of directors of the Company such +that after an election a majority of the directors in office are not directors +that were nominated by two-thirds of board members prior to the election or +(iii) a complete liquidation of the Company. +Effect of a Termination Event or +Change in Control and Termination Event. Under the terms of an +Employment Agreement dated July 31, 1996 between Bart C. Shuldman and the +Company, if a Termination Event or Change in Control Event were to occur, Mr. +Shuldman would continue to receive: (i) his annual base salary and (ii) all +other benefits (including health, disability and life insurance benefits; +participation in any ERISA benefit plans and 401(k) plans; an automobile +allowance; and certain service fees related to medical exams, income tax +planning and estate planning) for two years and three years, respectively, from +the date of termination. In connection with a Termination Event, Mr. +Shuldman would receive a pro rata portion of his annual target bonus amount for +the year of termination. If a Change in Control Event were to occur +and within one year thereafter either Mr. Shuldman’s employment is terminated +other than for Cause, or Mr. Shuldman resigns following a significant reduction +in the nature or scope of his responsibilities or authorities, a decrease in +salary other than resulting from a reduction that applies generally to all +management personnel or specified relocations of the Company’s facilities, Mr. +Shuldman would be entitled to continue to receive, in addition to the amounts +listed in the first sentence, his annual target bonus for a period of three +years from the date of termination and all stock options and other awards +granted to Mr. Shuldman under the Company's stock plans would immediately +vest. +Under the +terms of a Severance Agreement with Steven A. DeMartino dated June 1, 2004, if a +Termination Event were to occur, Mr. DeMartino would be entitled to continue to +receive, for one year following the date of termination (i) his annual base +salary, (ii) a pro rata portion of his annual target bonus for the year of +termination and (iii) medical, dental, vision, life and long term disability +insurance benefits. If a Change in Control Event were to occur and +the employment of Mr. DeMartino is terminated other than for Cause, or if he +resigns for specified reasons, within one year of a change in control, Mr. +DeMartino would be entitled to receive for two years after his termination (i) +his annual base salary, (ii) annual target bonus, (iii) medical, dental, vision, +life and long term disability insurance benefits and (iv) all stock options +granted to Mr. DeMartino would immediately vest. +Under the +terms of Severance Agreements with Michael S. Kumpf, James B. Stetson, and +Tracey S. Chernay dated September 4, 1996, January 24, 2001 and July 29, 2005, +respectively, if a Termination Event were to occur, the applicable Named +Executive Officer would be entitled to continue to receive, for six months +following the date of termination (i) a pro rata portion of his or her annual +base salary, (ii) a pro rata portion of his or her annual target bonus for the +year of termination or, in the case of Messrs. Stetson, the full amount of the +applicable annual target bonus for the year of termination, and (iii) only in +the case of Mr. Kumpf and Mrs. Chernay, all benefits which would otherwise have +been payable. If a Change in Control Event were to occur, the +applicable Named Executive Officer would be entitled to continue to receive for +a period of one year from the date of termination (i) base salary, (ii) annual +target bonus, (iii) in the case of Mr. Kumpf and Mrs. Chernay, all benefits and +(iv) all stock options granted to the applicable Named Executive Officer would +immediately vest. +19 +Equity +Plans +2005 Equity Incentive +Plan. The +terms of the Company’s 2005 Equity Incentive Plan provide that all awards issued +under the plan would accelerate and either become exercisable or vest, as +applicable, immediately prior to any of the following: (i) a reorganization, +merger, consolidation or similar transaction in which the surviving corporation +is not the Company or a publicly owned corporation (or a subsidiary thereof) in +which the stockholders of the Company immediately prior to the transaction +continue to beneficially own 50% or more of the voting securities of the +Company, (ii) a sale, transfer, exchange or other disposition of all or +substantially all of the Company’s assets, (iii) any acquisition of 50% or more +of the voting securities of the Company excluding acquisitions by specified +parties or (iv) any dissolution or liquidation of the Company. Upon +the occurrence of some of the foregoing Change in Control Events, stock or other +property to be delivered upon acceleration of any award may be placed in escrow, +rather than actually delivered, under terms set by the Compensation and +Corporate Governance Committee. +1996 Stock Plan. The terms of the +Company’s 1996 Stock Plan do not provide for the acceleration of all awards +issued under the plan in the event of a change in control of the +Company. Instead, the plan provides that acceleration upon a change +in control is permitted and that the terms of the individual awards issued under +the plan control whether the awards accelerate upon occurrence of a Change in +Control Event. +Payments Upon a Change in Control +Event. If a Change in Control Event had occurred on December +31, 2008 that triggered acceleration of all of the equity awards outstanding to +each Named Executive Officer under each of the 1996 Stock Plan and the 2005 +Equity Incentive Plan that accelerate either by their terms or the terms of the +applicable plan, the following amounts would have been paid to the Named +Executive Officers: +Name +Stock +Options(1) +Stock +Awards(2) +Total +Bart +C. Shuldman +$ +201,663 +$ +71,145 +$ +272,808 +Steven +A. DeMartino +33,932 +37,179 +71,111 +Michael +S. Kumpf +14,505 +34,425 +48,930 +James +B. Stetson +- +25,245 +25,245 +Tracey +S. Chernay +- +- +- +________ +(1) +Accelerated +stock options were valued using the spread between the exercise price of +the applicable award and the closing price of $4.59 per share of our +common stock on December 31, 2008, which was the last trading day of the +year. +(2) +Accelerated +stock awards were valued using the closing price of $4.59 per share of our +common stock on December 31, 2008, which was the last trading day of the +year. +20 +PAYMENTS +UPON A TERMINATION EVENT +The +following table summarizes the potential payments to each Named Executive +Officer, over the course of the applicable time period for which such payments +would be owed, assuming that a Termination Event occurred on December 31, 2008, +the last day of the Company’s fiscal year. +Name +Base +Salary +Pro +Rata +Portion +of +Annual +Target +Bonus +Benefits(1) +Stock +Options +Stock +Awards +Total +Bart +C. Shuldman +$ +851,760 +$ +319,410 +$ +96,249 +- +- +$ +1,267,419 +Steven +A. DeMartino +236,900 +118,450 +12,254 +- +- +367,604 +Michael +S. Kumpf +100,000 +35,000 +6,657 +- +- +141,657 +James +B. Stetson +70,000 +- +- +- +- +70,000 +Tracey +S. Chernay +77,800 +- +4,315 +- +- +82,115 +________ +The +following assumptions were used to calculate these payments: +(1) +Benefits +were valued using the same assumptions that the Company uses for our +financial reporting under generally accepted accounting principles, with +the exception that the Company’s cost of medical premiums is included +here. +PAYMENTS +UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The +following table summarizes the potential payments to each Named Executive +Officer, over the course of the applicable time period for which such payments +would be owed, assuming that a Change in Control and Termination Event occurred +on December 31, 2008, the last day of the Company’s fiscal year. +Name +Base +Salary +Annual +Target +Bonus +Benefits(1) +Stock +Options +(2) +Stock +Awards +(3) +Total +Bart +C. Shuldman +$ +1,277,640 +$ +958,230 +$ +144,373 +$ +201,663 +$ +71,145 +$ +2,653,051 +Steven +A. DeMartino +473,800 +236,900 +24,509 +33,932 +37,179 +806,320 +Michael +S. Kumpf +200,000 +70,000 +13,314 +14,505 +34,425 +332,244 +James +B. Stetson +140,000 +- +- +- +25,245 +165,245 +Tracey +S. Chernay +155,600 +- +8,631 +- +- +164,231 +________ +The +following assumptions were used to calculate these payments: +(1) +Benefits +were valued using the same assumptions that the Company uses for our +financial reporting under generally accepted accounting principles, with +the exception that the Company’s cost of medical premiums is included +here. +(2) +Accelerated +stock options were valued using the spread between the exercise price of +the applicable award and the closing price of $4.59 per share of our +common stock on December 31, 2008, which was the last trading day of the +year. +(3) +Accelerated +stock awards were valued using the closing price of $4.59 per share of our +common stock on December 31, 2008, which was the last trading day of the +year. +21 +Non-Competition +Provisions That Apply to a Termination Event or Change in Control +Event +Pursuant +to Mr. Shuldman’s Employment Agreement, upon the occurrence of a Termination +Event while he is receiving severance payments under the agreement, Mr. Shuldman +agrees that for two years, or in the case of a Change in Control Event, for +three years, that he will not directly or indirectly engage in any business or +activity that is competitive with the Company in a geography where the Company +is selling its products. Further, Mr. Shuldman agrees not to attempt +to recruit any employees of the Company or encourage them to leave the Company +and agrees not to encourage any of the Company’s customers to direct their +business elsewhere. The other Named Executive Officers have the same +provisions in their Severance Agreements, except that they apply for six months +upon the occurrence of a Termination Event or one year upon the occurrence of a +Change in Control Event and they are not contingent upon the payment of the +benefits described in each agreement by the Company to the Named Executive +Officer. +DIRECTOR +COMPENSATION FOR FISCAL YEAR 2008 +Name +Fees Earned +Or +Paid in +Cash +($) +Stock +Options(2)($) +Stock +Awards +(3),(4)($) +Total +($) +Thomas +R. Schwarz +$ +29,000 +$ +6,439 +$ +23,461 +$ +58,900 +Charles +A. Dill +29,500 +6,439 +23,461 +59,400 +Graham +Y. Tanaka +28,500 +6,439 +23,461 +58,400 +Bart +C. Shuldman (1) +- +- +- +- +________ +(1) +Mr. +Shuldman did not receive any compensation for director services other than +what is contained in the "Summary Compensation Table" +above. +(2) +On +May 28, 2008, Mr. Schwarz, Dill and Tanaka were each awarded 10,000 stock +options granted under the Company’s 2005 Equity Incentive +Plan. The amounts shown here represent compensation expense +incurred by us in 2008 in connection with those options, calculated in +accordance with SFAS 123(R). Each of these option grants have +an aggregate grant date fair value of $56,043, or $5.60 per share, +computed in accordance with SFAS 123R. For information on the +valuation assumptions with respect to these awards, refer to note 12 of +the Company's financial statements in the Form 10-K for the year ended +December 31, 2008, as filed with the +SEC. +(3) +The +amounts shown represent compensation expense incurred in 2008 in +connection with previously granted stock awards, calculated in accordance +with SFAS 123(R), as discussed in footnote 12 to the Financial Statements +in the Company’s filing on Form 10-K for the year ended December 31, 2008, +as filed with the SEC. +(4) +As +of December 31, 2008, Mr. Schwarz held 58,250 fully vested stock options +at exercise prices ranging from $2.33 to $31.82 and 5,000 shares of +unvested restricted stock grants as well as 18,000 unvested stock options +at exercise prices ranging from $6.38 to $7.80, Mr. Dill held 43,250 fully +vested stock options at exercise prices ranging from $5.93 to $31.82 and +5,000 shares of unvested restricted stock grants as well as 18,000 +unvested stock options at exercise prices ranging from $6.38 to $7.80, Mr. +Tanaka held 58,250 fully vested stock options at exercise prices ranging +from $2.33 to $31.82 and 5,000 shares of unvested restricted stock grants +as well as 18,000 unvested stock options at exercise prices ranging from +$6.38 to $7.80, and Mr. Shuldman held no stock option or restricted stock +grants other than those shown in the “Outstanding Equity Awards at 2008 +Fiscal Year-End” table above. +For the +first six months of 2008, each non-employee director of the Company received as +compensation for services rendered: (i) a retainer of $2,500 for each fiscal +quarter served as director, (ii) $1,000 for each Board of Directors meeting +attended, (iii) $500 for each Board of Directors committee meeting attended, +(iv) $500 for each telephonic Board of Directors meeting, and (v) $250 for each +telephonic committee meeting. Chairs of committees received $750 for +each committee meeting attended and $500 for each telephonic +meeting. Directors are also reimbursed for reasonable expenses +incurred in attending meetings. In July 2008, the Compensation +Committee conducted a review of the compensation levels of the outside +directors, including taking into consideration a study of director’s +compensation prepared by Towers Perrin in October 2006. Based on the +Compensation Committee review, as of July 1, 2008, the compensation for services +rendered was changed to a quarterly retainer of $9,000 for each fiscal quarter +served as director, with no further compensation for individual Board or +Committee meetings attended. +22 +Each +non-employee director receives an annual grant of 10,000 stock options, pursuant +to the terms of the Company’s 2005 Equity Incentive Plan. The stock +options will vest at the rate of 20% per year beginning on the first anniversary +of the date of grant. +COMPENSATION +COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member +of the Board’s Compensation and Corporate Governance Committee has served as an +officer or employee of the Company at any time. None of the Company’s +executive officers serve as a member of the compensation committee of any other +company that has an executive officer serving as a member of the Company’s +Board. None of the Company’s executive officers serve as a member of +the board of directors of any other company that has an executive officer +serving as a member of the Board’s Compensation and Corporate Governance +Committee. +STOCKHOLDER +PROPOSALS FOR 2010 ANNUAL MEETING +Stockholder +proposals submitted for inclusion in next year’s proxy materials must be +received by the Secretary of the Company on or before December 28, +2009. Proposals should be addressed to TransAct Technologies +Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT +06518, Attention: Secretary. Stockholders who wish to make a proposal +at the 2010 Annual Meeting without regard to whether it will be included in the +Company’s proxy materials should notify the Company no later than March 13, +2010. If a Stockholder who wishes to present a proposal fails to +notify the Company by the due date, the proxies that the Company solicits for +the meeting will accord them discretionary authority to vote on the +Stockholder’s proposal if it is properly brought before the +meeting. +PROCEDURES +FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders +may nominate candidates for election to the Board of Directors if the proper +nomination procedures specified in the Company’s By-Laws are +followed. All nominations by stockholders must be delivered to or +mailed and received at the principal executive offices of the Company not less +than 30 nor more than 60 days prior to the meeting at which election of +directors will take place; however, if less than 40 days’ notice or prior public +disclosure of the date of the meeting is given or made to stockholders, +nominations will be timely if received not later than 10 days after notice was +given or public disclosure was made. A stockholder’s notice must set +forth in writing (i) for each person proposed to be nominated, all information +relating to each such person that is required to be disclosed in solicitations +of proxies for election of directors pursuant to Regulation 14A under the +Exchange Act, including such person’s written consent to be named in the proxy +and to serving as a director, and (ii) for the stockholder giving notice, the +(x) name and address of such stockholder as they appear on the Company’s books, +and (y) the class and number of shares of the Company beneficially owned by such +stockholder. +STOCKHOLDER +COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any +stockholder wishing to communicate directly with members of the Board of +Directors should do so in writing. All correspondence addressed to +the Board as a whole, to its independent directors, to any of its Committees or +Committee Chairs, or to individual Board members should be mailed to the +following address: +Board of +Directors/Independent Directors/Committee/Director +c/o +Secretary +TransAct +Technologies Incorporated +One +Hamden Center +2319 +Whitney Avenue, Suite 3B +Hamden, +CT 06518 +· +You +are welcome to communicate anonymously or +confidentially. +· +All +correspondence addressed to an individual director or Committee Chair, and +marked “Confidential”, will be collected in the office of the Secretary +and forwarded unopened to the individual +director. +23 +· +Other +correspondence will be opened by the Secretary, reviewed, copied and +directed as follows: +o Concerns +regarding the Company’s accounting, internal accounting controls or +auditing matters will be referred to the members of the Audit +Committee. +o Nominations +or recommendations of candidates for election to the Board of Directors +will be referred to members of the Nominating +Committee. +o Other +correspondence will be copied by the Secretary and forwarded to all of the +members of the Board of Directors (or its independent directors, if so +addressed) unless the stockholder directs +otherwise. +· +A +Stockholder may request written acknowledgement of the receipt of his or +her correspondence, which will be provided by the Secretary or, in the +case of correspondence marked “Confidential”, by the individual director +or Committee Chair to whom it is +addressed. +GENERAL +As of the +date of this Proxy Statement, the Board of Directors is not aware of any matter +which is to be presented for action at the Annual Meeting other than the matters +set forth herein. Should any other matter requiring a vote of the +stockholders arise at the Annual Meeting, the proxies confer upon the persons +named in the accompanying proxy the authority to vote in respect of any such +other matter in accordance with the recommendation of the Board of +Directors. +A +stockholder who has given a proxy may revoke it at any time prior to its +exercise at the Annual Meeting by: (i) giving written notice of revocation to +the Secretary of the Company, (ii) properly submitting to the Company a duly +executed proxy bearing a later date, or (iii) voting in person at the Annual +Meeting. All written notices of revocation and other communications +with respect to revocation of proxies should be addressed to the Company, as +follows: TransAct Technologies Incorporated, One Hamden Center, 2319 +Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. A +proxy appointment will not be revoked by death or supervening incapacity of the +stockholder executing the proxy unless, before the shares are voted, notice of +such death or incapacity is filed with the Company’s Secretary or other person +responsible for tabulating votes on behalf of the Company. +The cost +of preparing, assembling and mailing this proxy material will be borne by the +Company. The Company may solicit proxies otherwise than by use of the +mail, in that certain officers and regular employees of the Company, without +additional compensation, may use the telephone or otherwise to obtain +proxies. The Company will also request persons, firms and +corporations holding shares in their names, or owned by others, to send this +proxy material to and obtain proxies from, such beneficial owners and will +reimburse such holders for their reasonable expenses in doing so. +No +director or executive officer of the Company has any direct or indirect +substantial interest, whether by security holdings or otherwise, in the +ratification of PricewaterhouseCoopers LLP as independent registered public +accounting firm for the Company’s 2009 fiscal year. +STOCKHOLDERS +ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN +THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR +COOPERATION IS APPRECIATED. +April 30, +2009 +24 +TRANSACT +TECHNOLOGIES INCORPORATED +PROXY +FOR ANNUAL MEETING OF STOCKHOLDERS +TO +BE HELD THURSDAY, MAY 28, 2009 +THIS +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT +TECHNOLOGIES INCORPORATED +The +undersigned stockholder of TransAct Technologies Incorporated (the “Company”) +does hereby nominate, constitute and appoint Bart C. Shuldman and Steven A. +DeMartino, or either of them, with full power to act alone, my true and lawful +attorney with full power of substitution, for me and in my name, place and stead +to vote all of the shares of Common Stock of the Company standing in my name on +its books on April 3, 2009, at the Annual Meeting of its stockholders to be held +at the Company’s executive offices located at One Hamden Center, 2319 Whitney +Avenue, Suite 3B, Hamden, CT 06518 on May 28, 2009 at 10:00 a.m., or at any +adjournment thereof, with all powers the undersigned would possess if personally +present as follows: +(TO +BE SIGNED ON REVERSE SIDE) +25 +ANNUAL +MEETING OF STOCKHOLDERS OF +TRANSACT +TECHNOLOGIES INCORPORATED +MAY +28, 2009 +Important +Notice Regarding the Availability of Proxy Materials for the +Shareholder +Meeting +To Be Held on May 28, 2009. +This +proxy statement and our 2008 Annual Report +are +available at www.transact-tech.com/proxymaterials . +PLEASE +SIGN, DATE AND MAIL YOUR +PROXY +CARD BACK IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. +Please +detach along perforated line and mail in the envelope provided. +Please +sign, date and return promptly in the enclosed envelope. Please +mark your vote in blue or black ink as shown here x +Nominee: +1. ELECTION +OF DIRECTOR +¨ +FOR +THE NOMINEE +Charles +A. Dill +¨ +WITHHOLD +AUTHORITY FOR THE NOMINEE +FOR +AGAINST +ABSTAIN +2. RATIFICATION +OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING +FIRM +¨ +¨ +¨ +THIS +PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED +HEREIN. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF +THE NOMINEE AS DIRECTOR AND FOR PROPOSAL 2. IF NO DIRECTION IS MADE, +THIS PROXY WILL BE VOTED FOR THE ELECTION OF +THE NOMINEE FOR DIRECTOR AND FOR PROPOSAL +2. THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS +MAY PROPERLY COME BEFORE THE MEETING. +PLEASE +MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +To change +the address on your account, please check the box at right and indicate your new +address in the address space above. Please note that changes to the +registered name(s) on the account may not be submitted via this +method. +Signature +of Stockholder +DATE: +Signature +of Stockholder +DATE: +NOTE: Please +sign exactly as your name or names appear on this proxy. When shares +are held jointly, each holder should sign. When signing as executor, +administrator, attorney, trustee or guardian, please give full title as +such. If the signer is a corporation, please sign full corporate name +by duly authorized officer, giving full title as such. If signer is a +partnership, please sign in partnership name by authorized person. +26 \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-09-000008/proxy_rpt.txt b/raw/proxies/0001017303/0001017303-09-000008/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..13b3fb889e3d8c4d51e4ed3242799a12937f243f --- /dev/null +++ b/raw/proxies/0001017303/0001017303-09-000008/proxy_rpt.txt @@ -0,0 +1,53 @@ +approval of related party transactions. As part of a review of +possible related person transactions, the Company annually distributes and +collects questionnaires that solicit information about any direct or indirect +transactions with the Company from each of our directors and +officers. +Our +Standards of Business Conduct require all directors, officers and employees to +avoid any situation that involves an actual or apparent conflict of interest in +personal and professional relationships or with their duty to, or with any +interest of, the Company. Under the Standards of Business Conduct, +situations that involve, or may reasonably be inferred to involve, a conflict +between a director, officer or employee’s personal interests and the interests +of the Company should be disclosed to the Chair of the Audit +Committee. The Audit Committee is then +responsible for reviewing the related party transaction. No +related party transaction shall be approved or ratified if such transaction is +contrary to the best interests of the Company. In determining whether to approve or ratify a related +party transaction, the Audit Committee takes into account such factors as it +deems appropriate, which may include whether the interested transaction is on +terms no less favorable than terms generally available to an unaffiliated third +party under the same or similar circumstances and the extent of the related +person’s interest in the transaction . +From +January 1, 2008 to the date of this proxy statement, there have not been any +transactions of the type described in Item 404 of Regulation S-K, and currently +no such transactions are proposed. +CORPORATE +GOVERNANCE +The +Company strives to maintain corporate governance practices that benefit the +long-term interests of the Company’s stockholders by clearly outlining the +Company’s duties and responsibilities, providing a framework for active and +fruitful discussions among the members of the Board of Directors and between the +Board and management, and avoiding conflicts of interest and other legal and +ethical problems. Accordingly, the Company’s corporate governance practices are +designed not only to satisfy regulatory requirements, but also to provide for +effective management of the Company. +3 +Information +on the Company’s corporate governance practices is available to the public under +“Corporate Governance” on the Company’s website at www.transact-tech.com. The +information on the website includes the Company’s Corporate Governance +Principles, the charters of each of the Company’s Committees, and the Company’s +Standards of Business Conduct, which includes a code of ethics applicable to the +officers responsible for financial reporting, the Chief Executive Officer, Chief +Financial Officer and Controller. The Company encourages its +directors to attend all Board meetings as well as the Annual +Meeting. One of the directors attended the Company’s 2008 Annual +Meeting. Each director attended at least 90% of the Company’s Board +meetings held in 2008 and 100% of applicable Committee meetings. +Board +Size +The \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-10-000010/proxy.txt b/raw/proxies/0001017303/0001017303-10-000010/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1150d5e3e4cc1c13ed7b284058b5a099cf3ccf9a --- /dev/null +++ b/raw/proxies/0001017303/0001017303-10-000010/proxy.txt @@ -0,0 +1,1353 @@ +DEF 14A +1 +proxy.htm +DEFINITIVE PROXY STATEMENT +proxy.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant To Section 14(a) Of The Securities Exchange Act Of 1934 +(Amendment No. ___ ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (As Permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 27, 2010 +To the Stockholders of TransAct Technologies Incorporated: +Notice is hereby given that the 2010 Annual Meeting of Stockholders (the “Annual Meeting”) of TransAct Technologies Incorporated (the “Company” or “TransAct”), a Delaware corporation, will be held on May 27, 2010 at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 for the following purposes: +(1) +To vote on a proposal to elect Graham Y. Tanaka as a director to serve until the 2013 Annual Meeting of Stockholders or until the director’s successor has been duly elected and qualified; +(2) +To vote on a proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2010; +(3) +To approve an amendment to the Company's 2005 Equity Incentive Plan to increase the number of shares that are available for issuance; and +(4) +To transact such other business as may legally come before the Annual Meeting. +Stockholders of record at the close of business on April 5, 2010 are entitled to notice of and to vote at the Annual Meeting. +By Order of the Board of Directors, +STEVEN A. DEMARTINO +Secretary +Hamden, Connecticut +April 23, 2010 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +One Hamden Center +2319 Whitney Avenue +Suite 3B +Hamden, Connecticut 06518 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 27, 2010 +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting To Be Held on May 27, 2010. +This proxy statement and our 2009 Annual Report +are available at www.transact-tech.com/proxymaterials . +This Proxy Statement is being furnished to the stockholders of TransAct Technologies Incorporated (the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company for use at the Annual Meeting of Stockholders of the Company to be held on May 27, 2010, and any adjournments or postponements thereof (the “Annual Meeting”). This Proxy Statement, the foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company’s 2009 Annual Report to Stockholders are first being mailed or given to stockholders on or about April 23, 2010. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power to revoke the same any time prior to its being voted. The accompanying proxy will be voted as specified thereon. A specification on the proxy card may be made to grant or withhold authority to vote for the election of the director and to indicate separate approval or disapproval as to the other matters presented to stockholders. Where an executed proxy has been received, but a choice is not so specified, the shares represented by the proxy will be voted to elect the director nominee, to ratify PricewaterhouseCoopers LLP as the Company’s independent registered accounting firm and to approve the proposed amendment to the Company’s 2005 Equity Incentive Plan. In addition, the proxy confers discretionary authority to vote on any matter properly presented at the Annual Meeting, which is not known to the Company as of the date of this Proxy Statement. Brokers are not permitted to vote your shares with respect to election of directors and the amendment to the Company’s 2005 Equity Incentive Plan without instructions from you. If your shares are held in the name of a broker or nominee and you do not instruct the broker or nominee how to vote with respect to the election of directors and the amendment to the 2005 Equity Incentive Plan or if you abstain or withhold authority to vote on any matter, your shares will not be counted as having been voted on that matter, but will be counted as in attendance at the meeting for purposes of a quorum. +VOTING SECURITIES +Stockholders of record on April 5, 2010 are entitled to vote at the Annual Meeting. Each holder of Common Stock is entitled to cast one vote for each share of Common Stock held on April 5, 2010. There were 9,387,736 shares of Common Stock issued and outstanding and entitled to vote at the close of business on April 5, 2010. Shares representing a majority of the shares issued, outstanding and entitled to be voted at the Annual Meeting, present in person or represented by proxy, will constitute a quorum to transact business. +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information known to the Company regarding the beneficial ownership of the Company’s common stock as of April 5, 2010 by: (i) each person known by the Company to own beneficially more than 5% of the Company’s common stock; (ii) each director or nominee for director of the Company; (iii) each current executive officer of the Company named in the Summary Compensation Table; and (iv) all current directors and executive officers of the Company as a group. Except as otherwise indicated, each of the persons named in the table has sole voting power and sole dispositive power with respect to the shares set forth opposite such person’s name and the address of the holder is One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +1 +Name of Beneficial Owner +Shares +Beneficially +Owned +Percent +of +Class +More than 5% Stockholders: +Burnham Asset Management Corporation +Burnham Securities Inc. (1) +867,272 +9.24 +% +Directors and Executive Officers: +Graham Y. Tanaka (2) +272,847 +2.89 +% +Bart C. Shuldman (3) +275,273 +2.86 +% +Charles A. Dill (4) +215,735 +2.29 +% +Thomas R. Schwarz (5) +112,975 +1.20 +% +Steven A. DeMartino (6) +112,724 +1.19 +% +Michael S. Kumpf (7) +83,824 +* +James B. Stetson (8) +33,000 +* +Tracey S. Chernay (9) +22,000 +* +All current directors and executive officers as a group (11 persons) (10) +1,167,228 +11.71 +% +________ +* +Less than 1% of the outstanding Common Stock. +(1) +This information listed in the table and this footnote is based solely on the Schedule 13G filed on February 16, 2010 by Burnham Asset Management Corporation, (“Burnham Corporation”) and Burnham Securities Inc. (“Burnham Securities”). According to the Schedule 13G, Burnham Corporation and Burnham Securities beneficially own 755,272, and 112,000 shares of our common stock, respectively. Burnham Corporation serves as the investment manager for a number of managed accounts with respect to which it has dispositive authority over the shares reported in the Schedule 13G. Burnham Securities is a registered broker-dealer with a number of discretionary accounts with respect to which it has dispositive authority over the shares reported in the Schedule 13G. The address of each of the entities listed in this footnote is 1325 Avenue of the Americas, New York, New York 10019. +(2) +Includes 61,500 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka that are directly owned by his children. Also includes 3,000 unvested shares of restricted stock of the Company. +(3) +Includes 1,500 shares owned by his spouse in an individual retirement account, 4,800 shares owned by his minor children and 3,750 shares owned by his mother. Includes 224,042 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. Also includes 8,181 deferred stock units issued under the Company’s 2009 Incentive Bonus Program, which are fully vested and convertible into shares of common stock as of April 5, 2010. +(4) +Includes 52,750 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 3,000 unvested shares of restricted stock of the Company and 1,550 shares directly owned by his spouse. +(5) +Includes 56,500 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 3,000 unvested shares of restricted stock of the Company, 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his capacity as trustee of a trust for the benefit of his granddaughter, 1,500 shares beneficially owned by his daughter, as to which shares he disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(6) +Includes 81,000 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. Also includes 2,023 deferred stock units issued under the Company’s 2009 Incentive Bonus Program, which are fully vested and convertible into shares of common stock as of April 5, 2010. +(7) +Includes 45,625 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. +(8) +Includes 14,000 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the 2005 Equity Incentive Plan. +(9) +Includes 22,000 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s 2005 Equity Incentive Plan. +2 +(10) +Includes 9,000 unvested shares of restricted stock of the Company and 581,017 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2010 granted under the Company’s 1996 Stock Plan, 2001 Employee Stock Plan, 2005 Equity Incentive Plan and Non-Employee Directors’ Stock Plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive officers and persons who beneficially own more than 10% of the Company’s common stock to file with the SEC and the Nasdaq Stock Market reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company and to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, or written representations that no other reports were required to be filed by those persons, the Company believes that, during the fiscal year ended December 31, 2009, all of the Company’s officers, directors and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements, except for Ms. Chernay, who did not timely complete a Form 4 filing relating to one transaction. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. +From January 1, 2009 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit the long-term interests of the Company’s stockholders by clearly outlining the Company’s duties and responsibilities, providing a framework for active and fruitful discussions among the members of the Board of Directors and between the Board and management, and avoiding conflicts of interest and other legal and ethical problems. Accordingly, the Company’s corporate governance practices are designed not only to satisfy regulatory requirements, but also to provide for effective management of the Company. +Information on the Company’s corporate governance practices is available to the public under “Corporate Governance” on the Company’s website at www.transact-tech.com . The information on the website includes the Company’s Corporate Governance Principles, the charters of each of the Company’s Committees, and the Company’s Standards of Business Conduct, which includes a code of ethics applicable to the officers responsible for financial reporting, the Chief Executive Officer, Chief Financial Officer and Controller. The Company encourages its directors to attend all Board meetings as well as the Annual Meeting. All of the directors attended the Company’s 2009 Annual Meeting. Each director attended at least 85% of the Company’s Board meetings held in 2009 and 90% of applicable Committee meetings. +Board Leadership Structure +At present, the Board has chosen to combine the positions of Chief Executive Officer and Chairman of the Board. The Board believes it is important to retain the organizational flexibility to determine whether the roles of Chairman of the Board and Chief Executive Officer should be separated or combined in one individual. While there may be circumstances in which an independent Chairman is appropriate, the Board currently believes that the Chief Executive Officer is the individual with the necessary experience, commitment and support of the other Board members to effectively carry out the role of Chairman. +3 +The Board believes this structure promotes better alignment of strategic development and execution, more effective implementation of strategic initiatives, and clearer accountability for their success or failure. Moreover, the Board believes that combining the Chairman and Chief Executive Officer positions does not impede independent oversight. Three of the four members of the Board are independent under The Nasdaq Global Market rules. +Board's Role in Risk Oversight +Senior management is responsible for assessing and managing our various exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and programs. The Company has a strong internal control environment to identify and manage risks. These include Standards of Business Conduct, quarterly internal management disclosure committee meetings, robust product quality standards and processes, and a comprehensive internal and external audit process. Management communicates routinely with the Board, Board Committees and individual Directors on the significant risks identified and how they are being managed. The Board of Directors is responsible for overseeing management in the execution of its responsibilities and for assessing the overall approach to risk management. The Board of Directors exercises these responsibilities periodically as part of its meetings and also through its four committees, each of which examines various components of enterprise risk as part of their responsibilities. The Compensation and Corporate Governance Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks, as well as our policies with respect to risk assessment and risk management. The Nominating Committee manages risks associated with board independence and potential conflicts of interest. In addition, an overall review of risk is inherent in the Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board of Director’s role in risk oversight is consistent with our leadership structure, with the Chief Executive Officer and other members of senior management having responsibility for assessing and managing our risk exposure, and the Board and its committees providing oversight in connection with these efforts. +Board Size +The Corporate Governance Principles provide that the Board should generally have between four and ten members. In establishing the appropriate number of directors, the Board and the Compensation and Corporate Governance Committee consider (i) resignations and retirements from the current Board, (ii) the availability of appropriate, qualified candidates, and (iii) the goal of assuring that the Board is small enough to facilitate active discussions and decision-making while, at the same time, is large enough to provide an appropriate mix of continuity, experience, skills and diversity so that the Board and its Committees can effectively perform their responsibilities. +Criteria for Membership on the Board +The Board and its Nominating Committee consider a number of different factors in selecting nominees for director. Some of these factors, such as integrity, are applied uniformly to all prospective candidates. Others, such as specific industry experience, may be adopted on a case by case basis by the Board and the Nominating Committee based on the Company’s business needs at the time a nomination is under consideration. The Nominating Committee and the Board of Directors apply the same criteria to each candidate for the Board, regardless of whether the candidate is proposed by a stockholder or some other source. Specific criteria considered by the Nominating Committee and the Board include: +Independence . The Board of Directors, in its Corporate Governance Principles and Committee charters, has established a policy that a substantial majority of the directors be “independent” members of the Board. The Nominating Committee and the Board consider the independence of each prospective director before election and further consider the independence of all continuing directors on at least an annual basis. The Board has determined that Messrs. Dill, Schwarz and Tanaka are independent in accordance with the Company’s criteria and Mr. Shuldman, the Company’s Chief Executive Officer, is not independent. The Board applies the following criteria in determining independence, which criteria are derived from Nasdaq’s listing standards as well as certain additional requirements that are imposed on certain Committee members under the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the Internal Revenue Service (the “IRS”): +· +Independent Judgment . The director must not have any relationship with the Company that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the Board considers all relevant facts and circumstances, including commercial, charitable and familial relationships that might have an impact on the director’s judgment. +· +Employment . The director must not have been an employee of the Company or any parent or subsidiary of the Company at any time during the past three years. In addition, a member of the director’s immediate family (including the director’s spouse, parents, stepparents, children, stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law and anyone who resides in the director’s home other than a tenant or employee) must not have been an executive officer of the Company during the past three years. +4 +· +Other Payments . Neither the director nor a member of his or her immediate family member may have received compensation of more than $100,000 per year from the Company during any period of twelve consecutive months during the past three years, except for director fees, payments arising solely from investments in the Company’s securities, benefits under certain Company plans and non-discretionary compensation, certain permitted loans and compensation paid to a family member who is not an executive officer of the Company. +· +Auditor Affiliation . Neither the director nor a member of his or her immediate family may be a current partner of the Company’s independent auditors or have been a partner or employee of the Company’s independent auditors who worked on the Company’s audit at any time during the past three years. +· +Interlocking Directorships . Neither the director nor any member of his or her immediate family may be employed as an executive officer by another entity where, at any time during the past three years, any of the Company’s executive officers served on the compensation committee. +· +Transactions . Neither the director nor any member of his or her immediate family may be a partner in, or a controlling stockholder or executive officer of, any organization that, during the current or any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $200,000 or 5% of the recipient’s annual consolidated gross revenues for such year (excluding payments arising solely from investments in the Company’s securities or paid under a non-discretionary charitable matching program). +· +Additional Standards for Audit Committee Members . Any director who serves on the Board’s Audit Committee may not, directly or indirectly, have received any consulting, advisory or other compensatory fee from the Company (other than certain retirement benefits and deferred compensation) or be an affiliate of the Company (except as a director, but including by way of stock ownership). In addition, no such director may have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years. +Overall Board Composition. The Board of Directors believes it is important to consider the professional skills and background, experience in relevant industries, age and diversity of its directors in light of the Company’s current and future business needs. +Personal Qualities. Each director must possess certain personal qualities, including integrity, judgment and business acumen. In addition, each director must be no older than 75 years of age at the time of nomination or renomination. +Diversity. The Board has not adopted a formal policy with respect to its consideration of diversity and does not follow any ratio or formula to determine the appropriate mix; rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service. +Commitments. Each director must have the time and ability to make a constructive contribution to the Board. While the Board does not believe it is appropriate to establish a single standard regarding the number of other boards on which a director may sit, this is a factor that may be considered in reviewing a candidate’s suitability. +Additional Criteria for Incumbent Directors. During their terms, all incumbent directors on the Company’s Board are expected to attend Board and Committee meetings regularly; to stay informed about the Company and its business; to participate in discussions of the Board and its Committees; to take an interest in the Company’s business and provide advice and counsel to the Company’s Chief Executive Officer; and to comply with the Company’s Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the criteria established from time to time by The Nasdaq Global Market, the SEC, the IRS and other applicable regulatory entities for service on the Board and its Committees. +Director Nomination Process +Under its charter, the Nominating Committee is responsible for identifying, reviewing and recommending individuals to the Board for nomination or election as directors. This typically involves the following steps: +· +Specific Criteria . The Nominating Committee and the Board review the overall composition of the Board in light of the Company’s current and expected business needs and, as a result of such assessments, may establish specific qualifications that the Committee will seek in Board candidates. +5 +· +Identifying New Candidates . The Nominating Committee may seek to identify new candidates for the Board (i) who possess the desired qualifications and (ii) who satisfy the other requirements for Board service. In identifying new director candidates, the Committee may seek advice and names of candidates from Committee members, other members of the Board, members of management, and other public and private sources. The Committee may also, but need not, retain a search firm in order to assist it in these efforts. +· +Reviewing New Candidates . The Nominating Committee reviews the potential new director candidates identified through this process. This involves reviewing the candidates’ qualifications and conducting an appropriate background investigation. The Committee may also select certain candidates to be interviewed by one or more Committee members. +· +Reviewing Incumbent Candidates . On an annual basis, the Nominating Committee also reviews incumbent candidates for renomination to the Board. This review involves an analysis of the criteria described above that apply to incumbent directors. +· +Recommending Candidates . The Nominating Committee recommends a slate of candidates for the Board of Directors to submit for approval to the stockholders at the Annual Meeting. This slate of candidates may include both incumbent directors and new nominees. In addition, apart from this annual process, the Committee may, in accordance with the Corporate Governance Principles, recommend that the Board elect new members of the Board who will serve until the next annual meeting of stockholders. At the time of making any recommendation to the Board, the Committee reports on the criteria that were applied in making the recommendation and its findings concerning each candidate’s qualifications. +· +Stockholder Nominations Submitted to the Committee . Stockholders may also submit names of director candidates, including their own, to the Nominating Committee for its consideration. The process for stockholders to use in submitting suggestions to the Nominating Committee is set forth below at “Procedures for Submitting Director Nominations and Recommendations.” Candidates who are nominated for the Board of Directors by stockholders are evaluated in the same manner as recommendations received from other sources. +Board Meetings and Executive Sessions +The Board of Directors holds regular quarterly meetings, as well as periodic special meetings. In 2009, the Board of Directors held nine meetings. +Independent directors meet by themselves in executive sessions, without management or employee directors present, at most regularly scheduled Board meetings. In addition, independent directors may convene additional executive sessions at any time. +These executive sessions are led by the Chair of the committee that is responsible for the subject matter at issue ( e.g. , the Audit Committee Chair would lead a discussion of audit-related matters). When it is not clear which committee has specific responsibility for the subject matter, the Chair of the Compensation and Corporate Governance Committee presides. +Committees of the Board +The Board has four standing committees: the Audit Committee, the Compensation and Corporate Governance Committee, the Nominating Committee and the Executive Committee. +Each Committee is composed entirely of independent directors and operates under a written charter. The Chair of each Committee is selected by the Board. Each Committee, except the Executive Committee, holds regular executive sessions at which only Committee members are present. Each Committee is authorized to retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance Committee, and the Nominating Committee are available on the Company’s website, www.transact-tech.com , but a brief summary of the committees’ responsibilities follows: +Audit Committee . The Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Dill serving as Chair. The Board has determined that each member of the Audit Committee is an independent director and meets the financial literacy requirements of The Nasdaq Global Market to serve on the Committee. In addition, the Board has determined that Mr. Dill is an “audit committee financial expert” as defined under the rules of the Securities and Exchange Commission. The Audit Committee operates under a written charter, which was revised in March 2004 and is posted on the Company’s website. The Audit Committee met four times during 2009. +6 +Nominating Committee . The Nominating Committee is responsible for assisting the Board in carrying out its responsibilities relating to the composition of the Board, including identifying, reviewing and recommending candidates to the Board for nomination as directors. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Nominating Committee met two times during 2009. +Compensation and Corporate Governance Committee . The Compensation Committee provides oversight for the hiring and termination of all executive officers of the Company, the Company’s corporate governance practices, CEO performance review and succession planning, director compensation, Board and Committee performance evaluation, stockholder communication matters, the design and management of the executive compensation programs, and the philosophy and programs for all employee compensation and benefit programs worldwide . The Committee is responsible for determining the compensation (including salary, bonus, equity-based grants, and any other long-term cash compensation) for the Company’s Chief Executive Officer and for other senior executives as are subject to the Committee’s direct purview. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as Chair. The Compensation and Corporate Governance Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Compensation and Corporate Governance Committee met five times during 2009. +Executive Committee . The Executive Committee meets between scheduled meetings of the Board of Directors and has the power and authority of the Board, except as limited by the Company’s By-Laws. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka. The Executive Committee did not meet during 2009. +Standards of Business Conduct +In order to help assure the highest levels of business ethics at the Company, the Board of Directors has approved and the Company has adopted Standards of Business Conduct (the "Standards"), which apply to the Company’s directors, officers and employees. The Standards provide an overview of the Company’s policies related to employee conduct in the workplace, regulatory compliance and investigations; the Company’s relationships with its customers, vendors, competitors and the public; insider trading; conflicts of interest; lobbying; political activities and contributions; accuracy of books, records and financial statements; confidentiality; and the protection of all who come forward to report suspected violations of the Standards. In addition, the Standards act as a code of ethics promoting honest and ethical conduct on the part of the Company’s officers who are responsible for financial reporting, including the Chief Executive Officer, Chief Financial Officer and Controller. The Standards mandate that these officers avoid conflicts of interest and disclose any relationship that could give rise to a conflict, protect the confidentiality of non-public information about the Company, work to achieve responsible use of the Company’s assets and resources, comply with all applicable governmental rules and regulations, and promptly report any possible violation of the Standards. The Standards require these individuals to promote full, fair, understandable and accurate disclosure in the Company’s publicly filed reports and other public communications. It sets forth standards for accounting practices and maintenance of records. Individuals who fail to observe the terms of the Standards may face disciplinary action, including possible employment termination. +PROPOSAL 1: +ELECTION OF DIRECTORS +The Board of Directors currently consists of four directors and is divided into three classes. Each class of directors is elected by the holders of the Company’s Common Stock to serve a staggered three-year term. At the Annual Meeting, one person is to be elected to hold office as a director until the 2013 Annual Meeting of Stockholders or until a successor is duly elected and qualified. The nominee for election is Graham Y. Tanaka. Should the nominee become unavailable, which is not anticipated, votes pursuant to the proxy will be cast for a substitute candidate as may be designated by the Board of Directors, or in the absence of such designation, in such other manner as the Board may in their discretion determine. Alternatively, in such a situation, the Board of Directors may take action to fix the number of directors for the ensuing year at the number of nominees and incumbent directors who are then able to serve. +Information Concerning Nominee for Re-election as Director Who’s Term Will Expire at the 2013 Annual Meeting +Graham Y. Tanaka , 62, has been a director of the Company since its formation in June 1996. Mr. Tanaka has been President of Tanaka Capital Management, Inc., an investment management firm, since 1986. He is a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. +7 +Mr. Tanaka’s qualifications for election to the Company’s Board of Directors include private investment management experience as President of Tanaka Capital Management, Inc. and board experience as a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. He has been a director of the Company since its inception and is Chairman of the Nominating Committee. With his varied experiences as a director and investment manager working in the financial markets, Mr. Tanaka brings extensive knowledge of financial markets and financial analysis gained through his experience. +VOTE REQUIRED +The election of Graham Y. Tanaka as director of the Company requires the affirmative vote of a plurality of the votes of the Company’s Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares and broker non-votes will have no effect on the election of directors, but will be included in determining the presence of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE ELECTION OF GRAHAM Y. TANAKA AS DIRECTOR OF THE COMPANY. +Information Concerning Directors Whose Terms Will Expire at the 2011 Annual Meeting +Thomas R. Schwarz , 73, has been a director of the Company since its formation in June 1996 and was Chairman of the Board from June 1996 to February 2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman’s Inc., a retailer of building materials, from 1990 until his retirement in 1994. From 1980 to 1990, he was President, Chief Operating Officer and a director of Dunkin’ Donuts Incorporated, a food service company. Mr. Schwarz is a director of Tanaka Growth Fund and another privately held company. +Mr. Schwarz’s qualifications for election to the Company’s Board of Directors include public company leadership experience as President, Chief Operating Officer of Dunkin’ Donuts Incorporated and outside board experience as a director of Dunkin’ Donuts Incorporated, Grossman’s Inc., and The Tanaka Growth Fund. He has been a director of the Company since its inception and is Chairman of the Compensation Committee. From his past executive positions, Mr. Schwarz brings to our Board his extensive executive experience and knowledge operating and managing complex operating companies. +Bart C. Shuldman , 53, has been Chief Executive Officer, President and a director of the Company since its formation in June 1996 and has been Chairman of the Board since February 2001. Previously, Mr. Shuldman was Vice President of Sales and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April 1993 to August 1993, and served as President of Magnetec, and later the combined operations of Magnetec and Ithaca Peripherals Incorporated, another former Tridex subsidiary, from August 1993 to June 1996. Mr. Shuldman is also the director of another privately held company. +Mr. Shuldman’s qualifications for election to the Company’s Board of Directors include public company leadership experience as Chief Executive Officer and President of the Company since its inception and board experience as a director and currently Chairman of the Board of the Company. Mr. Shuldman brings to our Board his experience and knowledge of our business derived from his current position as Chief Executive Officer and President. +Information Concerning Directors Who’s Term Will Expire at the 2012 Annual Meeting +Charles A. Dill , 70, has been a director of the Company since its formation in June 1996. From 2004 to the present, Mr. Dill has served as a General Partner of Two Rivers Associates, a private equity investment firm. Mr. Dill was a General Partner of Gateway Associates, a venture capital firm, from 1996 to 2004. Mr. Dill currently serves as a director of Zoltek Companies, Inc. and Stifel Financial Corp., as well as several other privately held companies. +Mr. Dill’s qualifications for election to the Company’s Board of Directors include private company leadership experience from his time as President and Chief Executive Officer of Bridge Information Systems, Inc. and President of AVX Corporation. Mr. Dill also has outside public company board experience as a director of Zoltek Companies, Inc. and Stifel Financial Corp. He has been a director of the Company since its inception and is Chairman of the Audit Committee. From his past executive and director positions, Mr. Dill brings to our Board his extensive executive experience and knowledge operating and managing complex manufacturing organizations. +PROPOSAL 2: +RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010 +8 +The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of the Company for the 2010 fiscal year. This selection is being presented to the stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company’s financial statements since the Company’s formation in 1996. In the event stockholders do not ratify the appointment, the Audit Committee will reconsider the appointment. +A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement, and is expected to be available to respond to appropriate questions. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2010 requires the affirmative vote of a majority of the Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring it’s pre-approval of all audit services and permissible non-audit services provided by the independent registered public accounting firm, along with the associated fees for those services (the “Policy”). The Policy provides for the annual pre-approval of specific types of services pursuant to policies and procedures adopted by the Audit Committee, and gives detailed guidance to management as to the specific services that are eligible for such annual pre-approval. The Policy requires the specific pre-approval of all other permitted services. For both types of pre-approval, the Audit Committee considers whether the provision of a non-audit service is consistent with the Securities and Exchange Commission’s rules on auditor independence, including whether provision of the service (i) would create a mutual or conflicting interest between the independent registered public accounting firm and the Company, (ii) would place the independent registered public accounting firm in the position of auditing its own work, (iii) would result in the independent registered public accounting firm acting in the role of management or as an employee of the Company, or (iv) would place the independent registered public accounting firm in a position of acting as an advocate for the Company. In addition, the Audit Committee considers whether the independent registered public accounting firm is best positioned and qualified to provide the most effective and efficient service, based on factors such as the independent registered public accounting firm’s familiarity with the Company’s business, personnel, systems or risk profile and whether provision of the service by the independent registered public accounting firm would enhance the Company’s ability to manage or control risk or improve audit quality or would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to address certain requests for pre-approval of services between meetings of the Committee, and such Committee member is required to report his or her pre-approval decisions to the Committee at its next regular meeting. The Policy is designed to ensure that there is no delegation by the Audit Committee of authority or responsibility for pre-approval decisions to management of the Company. The Audit Committee monitors compliance by management with the pre-approval policy by requiring management, pursuant to the Policy, to report to the Audit Committee on a regular basis regarding the pre-approved services rendered by the independent registered public accounting firm. +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm. Accordingly, the Audit Committee has appointed PricewaterhouseCoopers LLP to perform audit and other services for the Company. In addition, the Audit Committee has procedures in place for the pre-approval by the Audit Committee of all services provided by PricewaterhouseCoopers LLP. These pre-approval procedures, as amended, are described above under “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm.” +9 +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for the years ended December 31, 2009 and 2008 are as follows: +2009 +2008 +Audit Fees(1) +$ +418,720 +$ +412,192 +Audit-Related Fees (2) +12,500 +6,000 +Tax Fees (3) +5,275 +6,200 +All Other Fees (4) +1,515 +1,515 +Total Fees for Services Provided +$ +438,010 +$ +425,907 +________ +(1) +Audit Fees consist of fees related to: (i) the annual audit of the Company’s financial statements and of internal controls, (ii) reviews of the Company’s quarterly financial statements, (iii) statutorily required audits for the Company’s UK subsidiary and (iv) the review of registration statements, periodic reports and other reports filed with the SEC. +(2) +Audit-Related Fees consist of fees incurred for consultations regarding accounting and financial reporting standards. +(3) +Tax Fees include fees incurred for tax planning and advice, preparation of domestic and foreign tax returns, research and development tax credit study, and review of tax accruals. +(4) +All Other Fees include software license fees for the use of a web-based accounting research tool. +The Audit Committee has considered whether the provision of the above services, other than Audit Fees, is compatible with maintaining the auditors’ independence and has determined that, in its opinion, they are compatible. All of the above services during the year ended December 31, 2009, other than those covered by Audit Fees, were either approved by the Audit Committee or were performed pursuant to pre-approval policies and procedures. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the internal control over financial reporting and quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. +Management is responsible for preparing complete and accurate consolidated financial statements in accordance with generally accepted accounting principles. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and for issuing reports about those financial statements. The Audit Committee meets with the independent registered public accounting firm, the Chief Executive Officer, the Chief Financial Officer and the Corporate Controller of the Company to review the scope and the results of the annual audit, the amount of audit fees, the Company’s system of internal accounting controls over financial reporting, the financial statements contained in the Company’s Annual Report to Stockholders and other related matters. Separate meetings are held with the independent registered public accounting firm and management. +In connection with its duties, the Audit Committee has taken the following actions: +· +It has reviewed and discussed the audited financial statements, as well as the assessment of internal controls over financial reporting, with management. +· +It has discussed with the independent registered public accounting firm, which is responsible for expressing an opinion on the financial statements in accordance with generally accepted accounting principles, the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended. +· +It has received from the independent registered public accounting firm the written disclosures describing any relationships between the independent registered public accounting firm and the Company and the letter confirming their independence required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with the independent registered public accounting firm matters relating to their independence. +10 +· +Based on its review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company for the year ended December 31, 2009 be included in the Company’s Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +PROPOSAL 3: +TO APPROVE AN AMENDMENT TO THE COMPANY’S 2005 EQUITY INCENTIVE PLAN +The Board of Directors has unanimously adopted and recommends that the stockholders consider and approve an amendment to the 2005 Equity Incentive Plan (the “Plan”) to increase the number of shares by 600,000 shares of common stock which may be subject to awards granted under the Plan from its current level of 600,000 to 1,200,000. +The purpose of the Plan is to provide a way for the Company to attract and retain the best available talent and encourage the highest level of performance by employees and other persons who perform services with the Company. By affording eligible persons the opportunity to acquire proprietary interests in the Company and by providing them incentives to put forth maximum efforts for the success of the Company, the Plan is expected to serve the best interests of the Company and its stockholders. +The Plan currently authorizes the issuance of up to 600,000 shares of common stock pursuant to awards granted under the Plan. As of April 5, 2010, 527,500 stock options to purchase common stock have been granted and were outstanding, 31,000 shares of common stock have been issued pursuant to the grant of restricted stock awards, 10,204 shares of common stock have been issued pursuant to the grant of deferred stock units and 5,500 shares of common stock have been issued pursuant to the exercise of stock options granted under the Plan. Therefore, only 25,796 shares were available for future grant under the Plan as of April 5, 2010. +To assure that sufficient shares are available to provide incentives to those employees, directors, officers and consultants of the Company and any subsidiaries who will be responsible for the Company's future growth and continued success, and to attract new employees, the Board of Directors has adopted an amendment to the Plan. The amendment increases by 600,000 shares, to 1,200,000 shares, the number of shares of common stock which may be issued pursuant to awards granted under the Plan. The maximum number of future shares that may be issued under the Plan, as amended, represents approximately 6.7% of the total number of shares of the Company’s common stock outstanding on April 5, 2010, excluding treasury shares. +A discussion of the material features of the Plan follows, which discussion is subject to and qualified by the complete text of the Plan. +DESCRIPTION OF THE PLAN +The purpose of the Plan is to advance the interests of the Company by providing for the grant to participants of stock-based and other incentive awards, all as more fully described below. If the amendment is approved, the Plan will increase by 600,000 shares to a maximum of 1,200,000 shares of common stock that may be delivered in satisfaction of awards made under the Plan. The maximum number of shares of common stock for which stock options may be granted to any person in any calendar year and the maximum number of shares of common stock subject to stock appreciation rights, or “SARs”, granted to any person in any calendar year will each be 500,000. The maximum number of shares subject to other awards granted to any person in any calendar year will be 500,000 shares. The maximum amount payable to any person in any year in the case of an award denominated in cash will be $750,000. In the event of a stock dividend, stock split or other change in our capital structure, the Administrator (as defined below) will make appropriate adjustments to the limits described above and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to awards, any exercise prices relating to awards and any other provisions of awards affected by the change. The Administrator may also make similar adjustments to take into account other distributions to stockholders or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of awards. +11 +Administration. The Compensation and Corporate Governance Committee will administer the Plan. The term “Administrator” is used in this proxy statement to refer to the person (the Committee and its delegates) charged with administering the Plan. The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan, determine eligibility for and grant awards, determine, modify or waive the terms and conditions of any award; prescribe forms, rules and procedures, and otherwise do all things necessary to carry out the purposes of the Plan. Determinations of the Administrator made under the Plan are conclusive and bind all parties. Awards may be in the form of options, SARs, restricted or unrestricted stock, stock units (including restricted stock units), performance awards and cash awards. +Eligibility. Participation is limited to those key employees and directors, as well as consultants and advisors, who in the Administrator’s opinion are in a position to make a significant contribution to the success of the Company and its affiliated corporations and who are selected by the Administrator to receive an award. The group of persons from which the Administrator will select participants consists of approximately 100 individuals. +Stock Options. The Administrator may from time to time award options to any participant subject to the limitations described above. Stock options give the holder the right to purchase shares of common stock of the Company within a specified period of time at a specified price. Two types of stock options may be granted under the Plan: incentive stock options, or “ISOs”, which are subject to special tax treatment as described below, and nonstatutory options, or “NSOs”. Eligibility for ISOs is limited to employees of the Company and its subsidiaries. The exercise price of a stock option cannot be less than the fair market value of the common stock subject to the stock option at the time of grant. In addition, the expiration date of an ISO cannot be more than ten years after the date of the original grant. The Administrator determines all other terms and conditions related to the exercise of an option, including the consideration to be paid, if any, for the grant of the option, the time at which options may be exercised and conditions related to the exercise of options. +Stock Appreciation Rights. The Administrator may grant SARs under the Plan. An SAR entitles the holder upon exercise to receive an amount, payable in shares of common stock, equal to the excess of the fair market value of the shares of common stock subject to the SAR over the fair market value of such shares at the date of grant. +Stock Awards; Stock Units. The Plan provides for awards of nontransferable shares of restricted common stock, as well as unrestricted shares of common stock. Awards of restricted stock and unrestricted stock may be made in exchange for past services or other lawful consideration. Generally, awards of restricted stock are subject to the requirement that the shares be forfeited or resold to the Company unless specified conditions are met. Subject to these restrictions, conditions and forfeiture provisions, any recipient of an award of restricted stock will have all the rights of a stockholder of the Company, including the right to vote the shares and to receive dividends. Other awards under the Plan may also be settled with restricted stock. The Plan also provides for awards of stock units, which are unfunded and unsecured promises to deliver common stock or cash (measured by the value of common stock) in the future. Stock units may be restricted, meaning that the delivery of common stock or cash with respect to the stock unit is subject to the satisfaction of specified performance or other vesting conditions. +Performance Awards. The Administrator may also make awards subject to the satisfaction of specified performance criteria. Performance awards may consist of common stock or cash or a combination of the two. The performance criteria used in connection with a particular performance award will be determined by the Administrator. In the case of performance awards intended to qualify for exemption under Section 162(m) of the Internal Revenue Code, the Administrator will use objectively determinable measures of performance in accordance with Section 162(m) that are based on any or any combination of the following (determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. The Administrator will determine whether the performance targets or goals that have been chosen for a particular Performance Award have been met. +General Provisions Applicable to All Awards. Neither ISOs nor, except as the Administrator otherwise expressly provides, other awards may be transferred other than by will or by the laws of descent and distribution. During a recipient’s lifetime an ISO and, except as the Administrator may provide, other non-transferable awards requiring exercise may be exercised only by the recipient. Shares delivered under the Plan may consist of either authorized but unissued shares or treasury shares. The number of shares delivered upon exercise of a stock option is determined net of any shares transferred by the optionee to the Company (including through the holding back of shares that would otherwise have been deliverable upon exercise) in payment of the exercise price or tax withholding. +Change in Control; Other Mergers and Similar Transactions. In the event of a change in control of the Company, the following rules will apply: +12 +· +Each award requiring exercise will become fully exercisable, the restrictions on each outstanding share of stock will lapse, and the delivery of shares of stock deliverable under each outstanding award of stock units (including restricted stock units and performance awards to the extent consisting of stock units) will be accelerated and such shares will be delivered, prior to the transaction, in each case on a basis that gives the holder of the award a reasonable opportunity, as determined by the Administrator, following exercise of the award or the delivery of the shares, as the case may be, to participate as a stockholder in the transaction; and +· +With limited exceptions, each award requiring exercise or providing for the future delivery of stock (unless previously exercised, surrendered, paid or otherwise terminated) will terminate upon consummation of the transaction, unless the acquiring company or an affiliate assumes the awards. +If a merger or similar transaction were to occur involving the Company that did not constitute a change in control of the Company (for example, because pre-transaction TransAct stockholders continued to own beneficially more than 50% of the stock of the surviving company), or in the case of a dissolution or liquidation of the Company, with limited exceptions outstanding awards would terminate in the transaction but would first vest, be paid out or become exercisable unless a substitution or assumption of awards had been arranged. However, the Administrator could impose restrictions on any cash or other property delivered with respect to the affected awards to reflect any performance or other vesting conditions to which the awards were subject. +For purposes of the foregoing, a “change in control” of the Company will be deemed to occur in the following circumstances: any of (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not, and is not a subsidiary of, a publicly owned corporation in which the stockholders of the Company immediately prior to the transaction continue to own beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company, (ii) a sale, exchange or other disposition of all or substantially all the Company's assets, or (iii) any acquisition of voting securities of the Company by any person or group (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), but excluding (a) the Company or any of its subsidiaries, (b) any person who was an officer or director of the Company on the day prior to the Effective Date, or (c) any savings, pension or other benefits plan for the benefit of employees of the Company or any of its subsidiaries, which theretofore did not beneficially own voting securities representing more than 50% of the voting power of all outstanding voting securities of the Company, if such acquisition results in such entity, person or group owning beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company. As used herein, “voting power” means ordinary voting power for the election of directors of the Company. +Amendment. The Administrator may at any time or times amend the Plan or any outstanding award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of awards. The Administrator may not, however, alter the terms of an award so as to affect adversely the participant’s rights under the award without the participant’s consent, unless the Administrator expressly reserved the right to do so at the time of the award. Any amendments to the Plan shall be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by the Administrator. +NEW PLAN BENEFITS +The future benefits or amounts that would be received under the Plan by executive officers, non-executive directors and non-executive officer employees are discretionary and are therefore not determinable at this time. In addition, the benefits or amounts which would have been received by or allocated to such persons for the last completed fiscal year if the plan had been in effect cannot be determined. In March 2009, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. DeMartino, Mr. Kumpf, Mr. Stetson and Mrs. Chernay of stock options to purchase 30,000, 25,000, 20,000, 15,000 and 15,000 shares, respectively. The vesting terms of the grant of stock options are outlined in the table entitled “Grants of Plan-Based Awards in 2009.” The level of awards granted was consistent with the level of historical grants over the previous five years. +EQUITY COMPENSATION PLAN INFORMATION +The following table gives information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as of December 31, 2009. +13 +Plan category +(a) +Number of securities to be issued upon exercise of outstanding options, warrants and rights +(b) +Weighted average exercise price of outstanding options, warrants and rights +(c) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +Equity compensation plans approved by security holders: +1996 Stock Plan +249,117 +$ +3.62 +- +1996 Non-Employee Director Plan +146,250 +11.97 +- +2005 Equity Incentive Plan +536,500 +5.93 +36,000 +Total +931,867 +$ +6.26 +36,000 +Equity compensation plans not approved by security holders: +2001 Employee Stock Plan +30,161 +$ +4.89 +- +962,028 +$ +6.22 +36,000 +FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN AWARDS +The following discussion summarizes certain federal income tax consequences of the issuance and receipt of options under the Plan under the law as in effect on the date of this proxy statement. The summary does not purport to cover federal employment tax or other federal tax consequences that may be associated with the Plan, nor does it cover state, local or non-U.S. taxes. +ISOs. In general, an optionee realizes no taxable income upon the grant or exercise of an ISO. However, the exercise of an ISO may result in an alternative minimum tax liability to the optionee. With certain exceptions, a disposition of shares purchased under an ISO within two years from the date of grant or within one year after exercise produces ordinary income to the optionee (and a deduction to the Company) equal to the value of the shares at the time of exercise less the exercise price. Any additional gain recognized in the disposition is treated as a capital gain for which the Company is not entitled to a deduction. If the optionee does not dispose of the shares until after the expiration of these one- and two-year holding periods, any gain or loss recognized upon a subsequent sale is treated as a long-term capital gain or loss for which the Company is not entitled to a deduction. +Stock Options Other Than ISOs. In general, in the case of a stock option other than an ISO, the optionee has no taxable income at the time of grant but realizes income in connection with exercise of the option in an amount equal to the excess (at the time of exercise) of the fair market value of the shares acquired upon exercise over the exercise price; a corresponding deduction is available to the Company; and upon a subsequent sale or exchange of the shares, any recognized gain or loss after the date of exercise is treated as capital gain or loss for which the Company is not entitled to a deduction. +In general, an ISO that is exercised by the optionee more than three months after termination of employment is treated as a non-ISO for federal income tax purposes. ISOs are also treated as non-ISOs to the extent they first become exercisable by an individual in any calendar year for shares having a fair market value (determined as of the date of grant) in excess of $100,000. +In general, under the so-called “golden parachute” provisions of the Code, the accelerated vesting of awards in connection with a change in control of the Company may be required to be valued and taken into account in determining whether participants have received compensatory payments, contingent on the change in control, in excess of certain limits. If these limits are exceeded, a substantial portion of amounts payable to the participant, including income recognized by reason of the grant, vesting or exercise of awards under the Plan, may be subject to an additional 20% federal tax and may be nondeductible to the Company. +Section 409A. Awards under the Plan are intended either to be exempt from the rules of Section 409A of the Code or to satisfy those rules and shall be construed accordingly. However, the Company will not be liable to any participant or other holder of an award with respect to any award-related adverse tax consequences arising under Section 409A or any other provision of the Code. +VOTE REQUIRED +Approval of the amendment to the 2005 Equity Incentive Plan requires the affirmative vote of a majority of the Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE COMPANY’S 2005 EQUITY INCENTIVE PLAN. +14 +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Overview +This Compensation Discussion and Analysis describes the philosophy, approach, and elements used by us and the Compensation and Corporate Governance Committee (the “Compensation Committee”) of our Board of Directors, which is composed entirely of independent directors of the Company, to define, manage, and review compensation paid to our executives. Our philosophy and approach to executive compensation apply to all executive officers of the Company, including those executives designated as named executive officers. +Philosophy and Objectives of the Compensation Program +Our Compensation Committee’s philosophy is that our executive compensation program is to be based on our performance and be competitive with other similar-sized companies in similar industries. The primary objectives of our compensation program are to: +· +Attract, engage, retain, and reward executive officers; +· +Motivate employees and encourage individual initiative and effort; +· +Help to achieve key business objectives and attain Company goals; and +· +Align executives’ interests closely with those of the Company and its stockholders to drive long term sustainable earnings growth. +Our executive compensation program principally includes base salary, an incentive cash performance bonus program and equity incentive awards. The Compensation Committee believes that each element of the total compensation program helps to ensure that the efforts of our executive officers support the creation of stockholder value, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality or linking individual performance to the Company’s overall performance. The Committee retains its discretion to modify the compensation program elements in response to the needs of the Company. +The elements of our executive compensation program are periodically analyzed using current publicly available market data, contemporary market trends in the industries in which the Company operates and periodic reviews of compensation and benefit surveys. Although we perform periodic reviews of salary surveys and occasionally use compensation consultants to analyze elements of our compensation program, we do not believe that it is appropriate to establish compensation levels based solely on the use of such surveys. +The Compensation Committee reviews Company executive officer compensation and performance data to determine whether the Company’s executive compensation program is competitive and reasonable. The Compensation Committee, on occasion, meets with the Chief Executive Officer and Chief Financial Officer to obtain recommendations with respect to the Company’s compensation programs, practices and packages for the other executive officers, senior managers and other employees. Our Chief Executive Officer and Chief Financial Officer, with the assistance and support of the human resources department, provide recommendations regarding the design of the Company’s compensation program to the Compensation Committee. The Compensation Committee considers, but is not bound to accept, management’s recommendations with respect to executive compensation. +In May 2009, the Compensation Committee retained Towers Watson, an independent compensation consultant, to assist the Compensation Committee in assessing the competitiveness of the Company's total compensation program for the Company’s CEO, CFO and EVP, Engineering, with the goal of implementing compensation changes in 2010, if any, based on Towers Watson’s advice and/or recommendations. The Compensation Committee directed Towers Watson to collect and analyze compensation data for the Company’s CEO, CFO and EVP, Engineering and assess their compensation relative to individuals holding similar positions at companies in similar industries and size. Towers Watson provided comparative market-based compensation data for base salaries, annual cash incentive awards and long-term equity awards for the CEO, CFO and EVP, Engineering. Towers Watson developed a peer group of companies consisting of U.S.-based information technology companies with revenue, percentage of foreign sales and product diversity generally comparable to the Company’s executives (the “Peer Group”) mainly from the same Standard Industrial Classification codes. The Peer Group consisted of LTX-Credence Corp.; Spectrum Control, Inc.; Communications Systems, Inc.; Rimage Corp.; Mad Catz Interactive, Inc.; Maxwell Technologies, Inc.; FSI International, Inc.; Perceptron, Inc.; DRI Corporation; Vicon Industries, Inc.; IntriCon Corp.; Optical Cable Corp.; Optelecom-NKF, Inc.; ClearOne Communications, Inc.; and Alliance Fiber Optic Products, Inc. The Peer Group data was based on compensation paid predominantly in 2008. +15 +In addition, Towers Watson examined the Company’s executive compensation programs generally to ensure their ongoing support of the Company’s business strategy, informed the Compensation Committee of developing legal and regulatory considerations affecting executive compensation and benefit programs, and provided general advice to the Compensation Committee with respect to all compensation decisions pertaining to the CEO, CFO and EVP, Engineering. As a result, and at the conclusion of the review process, the Compensation Committee revised the Company's annual incentive bonus program in an effort to further align the Company’s CEO and CFO's annual incentive compensation with building longer-term stockholder value. Based on the recommendation of Towers Watson, the Compensation Committee approved a change to the annual incentive bonus plan so that for Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of the Target Bonus amount earned going forward, be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan, with the number of deferred stock units to be based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. This new compensation program was implemented for the 2009 annual incentive bonus plan. +Towers Watson did not advise management of the Company and received no compensation from the Company for services other than those performed for the Compensation Committee. +Elements of the Company’s Compensation Plan +The principal elements of the Company’s compensation program are base salary, an incentive cash bonus program and equity incentive awards. +Base Salary : In general, base salaries for employees, including executive officers, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance, external market data and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Base salary for each executive is reviewed on an annual basis as part of our companywide merit review process. The amount of any merit increase to an executive’s base salary is determined based on a combination of the current position of the executive’s pay against market data and the executive’s performance and results during the past year. Our Chief Executive Officer is responsible for assessing the performance of each executive reporting to him. Our Compensation Committee assesses the performance of our Chief Executive Officer. +Incentive Cash and Deferred Stock Unit Bonus Program : We have historically maintained an incentive cash compensation plan for all executive officers, except for those who receive sales commissions, which provides our executives with the opportunity to receive performance bonuses in the form of cash upon the attainment of certain annual financial objectives, as well as performance and business objectives. The incentive bonus is designed to be a significant portion of executive compensation in order to create and maintain a significant incentive for our executives to achieve or exceed our strategic and annual financial objectives. +To ensure alignment of compensation with our business objectives, our Chief Executive Officer and other executive officers establish specific quantitative and qualitative performance metrics each fiscal year. Our performance metrics (as used for incentive bonus) are reviewed and approved by our Compensation Committee. The metrics are aligned with our strategic and annual business plans and are reviewed by our Board of Directors and Compensation Committee. For 2009, the quantifiable metric of our annual incentive bonus program consisted of a target level of diluted earnings per share of $0.18, excluding the after-tax effect of external, pre-closing and post-closing acquisition related expenses (the “EPS Target”). The minimum and maximum diluted earnings per share set forth in the incentive bonus program by our Compensation Committee was $0.12 and $0.42, respectively, excluding the after-tax effect of external, pre-closing and post-closing acquisition related expenses. +Our executive officers, except for those that receive sales commissions, participate in the incentive bonus program. Bonuses are paid under the incentive bonus program only if the Company meets the specified quantifiable performance objectives and/or the executive meets specified performance and business objectives. The incentive cash bonus that any particular executive is eligible to earn is established as a percentage (the “Target Percentage”) of the individual’s base salary (“Target Bonus”). For 2009, 75% of each executive’s Target Bonus was based on achievement of the EPS Target (the “EPS Bonus Amount”) and 25% was based solely on achievement of performance and business objectives established by the Chief Executive Officer and the Compensation Committee (the “Performance Bonus Amount”). +In past years, for performance that met the target quantitative and qualitative objectives, the executive would receive 100% of the Target Bonus. However, in light of the difficult economic environment and its expected impact on the Company’s financial results for 2009, the Compensation Committee decided to reduce the percent of salary paid represented by the Target Bonus from a range of 30% to 75% to a range of 15% to 37.5% if the Company met the EPS Target and fully satisfied all performance and business objectives. No EPS Bonus Amount is payable unless diluted earnings per share exceeds a specified threshold ($0.12 for 2009). Above the threshold, the EPS Bonus Amount is adjusted upward on a sliding scale ranging from 10% to 85% of the Target Percentage for 2009. +16 +The Compensation Committee is responsible for determining achievement of performance and business objectives for the CEO. The CEO is responsible for determining achievement of performance and business objectives for each of his direct reports. For other participants, achievement of performance and business objectives will be determined by the appropriate Vice President or manager. Performance objectives include personal goals that support the Company’s overall business objectives as well as other financial and non-financial measurements. For 2009, such objectives consisted of achievement of certain strategic objectives such as expanding our international sales through the establishment of new relationships, relocating a large portion of our production overseas and designing and launching new products. For 2009, the Performance Bonus Amount ranged from 0% to 25% of the Target Percentage depending on the level of achievement. +In addition, for 2009, based on the recommendations from Towers Watson, in an effort to further align the Company’s CEO and CFO with building longer-term stockholder value, the Compensation Committee approved a change that for Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of the Target Bonus amount earned for 2009, be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. +Equity Incentive Awards : The goal of our equity-based incentive awards is to align the interests of our executives with our stockholders and to provide executives with an incentive to manage the Company from the perspective of an owner with an equity stake in the business. We believe that our long-term performance is improved by encouraging ownership by our executives through the use of stock-based grants. Because vesting of our stock awards is based on continued employment, our equity-based incentives also facilitate the retention of executives through the term of the awards. Generally, we believe that stock options are the most effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of stock options to our future performance – i.e. executives are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price. +Grants of stock options are approved by the Compensation Committee at its regularly scheduled meeting typically on or about March 1. While the majority of stock option awards to our employees have been made under our annual grant program, the Compensation Committee may make stock option awards to employees at other times, including at the time of hire of an employee, promotion of an employee, to reward an employee, for retention purposes or for other circumstances as recommended by the Chief Executive Officer or the Compensation Committee. In determining the size of the long-term equity incentives to be awarded to employees, we take into consideration a number of factors including but not limited to relative job scope, individual performance level, prior contributions to the Company, the need to retain the employee, the size of prior grants and competitive market data. Based upon these factors, the Compensation Committee determines the size of the equity incentives at levels it considers appropriate to create meaningful opportunity for reward predicated on the creation of long-term stockholder value. +The exercise price of options granted is set at the closing price of our common stock on the date of grant. Grants of options generally vest in equal annual installments over a three- to five-year period and have a ten-year term. +2009 Executive Compensation +The specific compensation decisions made for each of our executive officers for 2009 reflect the performance of the Company against key financial and operational measurements, as well as performance against objectives. +Base Salary : The Company’s Vice President, Human Resources and the CEO and CFO review and discuss the Named Executive Officers’ (other than the CEO, CFO and EVP, Engineering) base salaries. In connection with establishing the Named Executive Officers’ (other than the CEO, CFO and EVP, Engineering) base salary adjustments, the Company’s Vice President, Human Resources provides merit increase percentage guidelines based on market-based compensation data, its knowledge of competitive market practices and the Company’s salary budget. The merit increase percentage guidelines (the “Merit Increase Guideline”) for the 2009 base salary increases for all Named Executive Officers serving at the time were from 0% to 3%. After considering the Merit Increase Guideline and evaluating a Named Executive Officer’s performance and the position of his or her current base salary, the CEO, as direct supervisor, makes a specific base salary adjustment recommendation to the Compensation Committee. Each Named Executive Officer’s (other than the CEO, CFO and EVP, Engineering) actual base salary adjustment, if any, is determined by the Compensation Committee. +In determining the base salary of the Named Executive Officers, the Compensation Committee evaluated the overall performance of the Company and the individual’s contributions to that performance, as well as the performance of the sales unit or function that each leads when relevant. Based on individual considerations with respect to each Named Executive Officer (other than the CEO, CFO and EVP, Engineering) such as his or her experience and contributions to the Company, and recognizing that the Company must also react to a competitive marketplace on a case-by-case basis when seeking to recruit and retain executives, the Compensation Committee strives to set each Named Officer’s base salary within the Merit Increase Guideline, if warranted. +17 +In January 2009, the Compensation Committee conducted an annual review and evaluation of the compensation levels of Mr. Shuldman, Mr. DeMartino and Mr. Kumpf and the remaining Named Executive Officers. For the one-year period beginning January 1, 2009, the Committee increased the base salaries for Mr. Shuldman, Mr. DeMartino, Mr. Kumpf and the remaining Named Executive Officers by 3% over their respective base salaries for the prior one-year period. In May 2009, the Compensation Committee compared the base salaries of Mr. Shuldman, Mr. DeMartino and Mr. Kumpf with the Peer Group prepared by Towers Watson. Based on this review and the advice and recommendation of Towers Watson, the Compensation Committee concluded that the then-current base salaries of Mr. Shuldman, Mr. DeMartino and Mr. Kumpf were appropriate for 2009. +Incentive Cash and Equity Bonus Program: During 2009, the Company achieved and exceeded by 28% its diluted earnings per share performance objective of $0.18, excluding the after-tax effect of external, pre-closing and post-closing acquisition related expenses, as reviewed and approved by the Compensation Committee. Each Named Executive Officer also achieved all of their performance objectives set for 2009. Therefore, for 2009, the incentive cash and equity bonus payout for all eligible employees based on both financial and performance objectives achievement was approved at 62.5% of the annual target amount. For 2009, Mr. Shuldman, Mr. DeMartino and Mr. Kumpf were paid an incentive bonus of $205,620, $76,252 and $45,063, respectively. For 2009, 30% and 20% of Mr. Shuldman’s and Mr. DeMartino’s incentive bonus was issued in the form of vested deferred stock units. These amounts are shown in the “Summary Compensation Table” below under the columns “Stock Awards” and “Non-Equity Incentive Plan Compensation.” These bonuses were calculated as a percentage of each executive’s base salary in effect as of March 2009. Mr. Stetson and Mrs. Chernay were not eligible to participate in the incentive bonus program as they earned commissions based on annual sales from their respective sales unit. Mr. Stetson and Mrs. Chernay received a commission, paid monthly, equal to 0.6% and 0.3% of sales achieved by each of them in the fiscal year. +Equity Incentive Awards : For 2009, Mr. Shuldman recommended to the Compensation Committee a total equity award dollar value range for each Named Executive Officer based on factors including the Named Executive Officer’s performance evaluation, his/her overall compensation package and his/her perceived potential and contributions to the Company. After considering Mr. Shuldman’s recommendations, the Compensation Committee, with Mr. Shuldman’s participation, determined the total equity award dollar value for each Named Executive Officer other than Mr. Shuldman. The Compensation Committee considered several factors in making its determinations, including Mr. Shuldman’s recommendations, the Company’s performance, each Named Executive Officer’s position within the Company, his/her perceived potential and contributions to the Company, and the Compensation Committee’s subjective understanding of competitive practices in the marketplace with respect to equity awards. The factors used by Mr. Shuldman to determine recommendations regarding total equity award dollar value ranges for each Named Executive Officer and by the Compensation Committee to establish each Named Executive Officer’s total equity award dollar value were assessed by Mr. Shuldman and the Compensation Committee, respectively, on a subjective basis. In March 2009, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. DeMartino, Mr. Kumpf, Mr. Stetson and Mrs. Chernay of stock options to purchase 30,000, 25,000, 20,000, 15,000 and 15,000 shares, respectively. The vesting terms of the grant of stock options are outlined in the table entitled “Grants of Plan-Based Awards in 2009.” The level of awards granted was consistent with the level of historical grants over the previous five years. +Tax Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code, publicly held corporations may be prohibited from deducting as an expense for federal income tax purposes total compensation in excess of $1 million paid to certain executive officers in a single year. Section 162(m) specifically exempts certain performance-based compensation from the deduction limit. The levels of base salary, annual cash incentive bonus and equity compensation we generally pay to our executive officers do not exceed this limit, and thus compensation decisions are not driven by the requirements of Section 162(m). +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in TransAct’s proxy statement for the 2010 annual meeting. +COMPENSATION AND CORPORATE +GOVERNANCE COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Graham Y. Tanaka +18 +SUMMARY COMPENSATION TABLE +The following table sets forth information concerning the compensation earned by the Company’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers (the “Named Executive Officers”) in 2009, 2008 and 2007: +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +(3)($) +Option +Awards +(4)($) +Non-Equity +Incentive Plan +Compensation +(8)($) +All Other +Compensation ($) +Total ($) +Bart C. Shuldman(1) +2009 +438,656 +- +- +39,243 +205,620 +40,526 +(5) +724,045 +Chairman, President +2008 +425,880 +- +- +61,637 +357,739 +39,984 +(5) +885,240 +and Chief Executive Officer +2007 +425,880 +- +- +158,048 +- +34,589 +(5) +618,517 +Steven A. DeMartino +2009 +244,007 +- +- +32,703 +76,252 +22,143 +(6) +375,105 +Executive Vice +2008 +236,900 +- +- +73,378 +132,664 +22,293 +(6) +465,235 +President, Chief Financial Officer, Treasurer and Secretary +2007 +235,493 +39,089 +(7) +- +94,829 +- +19,195 +(6) +388,606 +Michael S. Kumpf +2009 +206,000 +- +- +26,162 +45,063 +27,320 +(6) +304,545 +Executive Vice +2008 +200,000 +- +- +58,702 +78,400 +27,721 +(6) +364,823 +President, Engineering +2007 +193,538 +23,100 +(7) +- +94,829 +- +20,630 +(6) +332,097 +James B. Stetson +2009 +144,200 +85,169 +(2) +- +19,622 +- +18,639 +(6) +267,630 +Senior Vice President +2008 +140,000 +80,353 +(2) +- +29,351 +- +19,120 +(6) +268,824 +and Business Manager, TransAct Services Group +2007 +140,000 +104,500 +(2) +- +47,414 +- +15,623 +(6) +307,537 +Tracey S. Chernay +2009 +160,268 +100,781 +(2) +- +19,622 +- +13,661 +(6) +294,332 +Senior Vice President, +2008 +155,600 +87,388 +(2) +- +29,351 +- +16,255 +(6) +288,594 +Sales and Marketing +2007 +150,985 +76,384 +(2) +- +94,829 +- +12,600 +(6) +334,798 +________ +(1) +Mr. Shuldman is a director of the Company, but does not receive any separate compensation for those services. +(2) +Bonuses paid to Mr. Stetson and Mrs. Chernay represent commissions on sales by the Company. In fiscal 2009, commissions were paid in the amounts of 85,169 and 100,781, respectively. In fiscal 2008, commissions were paid in the amounts of 80,353 and 82,388, respectively, plus a discretionary bonus for Mrs. Chernay of $5,000 and in fiscal 2007, commissions were paid in the amounts of 99,500 and 71,384, respectively, plus discretionary bonuses of $5,000 and $5,000, respectively. +(3) +Amounts in this column reflect the grant date fair value of restricted stock awards, calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. All restricted stock awards were granted under the Company’s 1996 Stock Plan. There were no forfeitures of restricted stock awards by this group during the year. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company’s financial statements in the Form 10-K for the years ended December 31, 2007, 2008 and 2009, as filed with the SEC. +(4) +Amounts in this column reflect the grant date fair value of option awards, calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. All option awards in 2007, 2008 and 2009 were granted under the Company’s 2005 Equity Incentive Plan. For information on the valuation assumptions with respect to these option awards, refer to note 12 of the Company's financial statements in the Form 10-K for the years ended December 31, 2007, 2008 and 2009, as filed with the SEC. Please see the “Outstanding Equity Awards at 2009 Fiscal Year-End” table for a description of option awards. There were no forfeitures of option awards by this group during the year. +19 +(5) +For Mr. Shuldman, this amount consists of an automobile allowance, Company contributions under the Company’s 401(k) Plan, life insurance, disability insurance and tax return preparation fees. +(6) +For Mr. DeMartino, Kumpf, Stetson and Mrs. Chernay, these amounts consist of automobile allowances, Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(7) +For Mr. DeMartino and Mr. Kumpf, these amounts represent cash bonuses earned in 2007 and awarded by the Compensation Committee as a discretionary bonus. +(8) +For Mr. Shuldman and Mr. DeMartino, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program for 2008 and 2007. For 2009, 30% and 20%, respectively, of these incentive bonus amounts were paid in 2010 in the form of deferred stock units with the remainder paid in cash. For Mr. Kumpf, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. +GRANT OF PLAN-BASED AWARDS IN 2009 +The following table sets forth information concerning the grant of plan-based awards to Named Executive Officers in 2009: +Name +Grant +Date +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +All Other +Option +Awards: +Number of +Securities +Underlying +Options(2)(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value of +Stock and +Option +Awards(3)($) +Threshold ($) +Target ($) +Maximum ($) +Bart C. Shuldman +3/5/09 +82,248 +164,496 +361,891 +30,000 +2.18 +39,243 +Steven A. DeMartino +3/5/09 +30,501 +61,002 +134,204 +25,000 +2.18 +32,703 +Michael S. Kumpf +3/5/09 +18,025 +36,050 +79,310 +20,000 +2.18 +26,162 +James B. Stetson +3/5/09 +- +- +- +15,000 +2.18 +19,622 +Tracey S. Chernay +3/5/09 +- +- +- +15,000 +2.18 +19,622 +________ +(1) +Represents target payout under our annual incentive cash and equity bonus program for 2009. Actual amounts paid in March 2010 are included in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. For Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of these incentive bonus amounts were paid in 2010 in the form of deferred stock units with the remainder paid in cash. The maximum amounts assume a payout of 110% of the Named Executive Officer's annual incentive bonus. The annual incentive cash and equity bonus program is described in the "Compensation Discussion and Analysis". +(2) +Each stock option award disclosed in the Grants of Plan-Based Awards in 2009 table was issued under our 2005 Equity Incentive Plan and was granted with an exercise price per share equal to the fair market value of our common stock on the date of grant, as determined by the closing price of the stock on the date the option was granted. Subject to the terms of our 2005 Equity Incentive Plan and the option agreements issued in connection with these grants, each option award granted in 2009 to a Named Executive Officer vests at a rate of 20% per year over five years. +(3) +The amounts shown represent the grant date fair value of stock options granted in 2009 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2009, as filed with the SEC. Please see the “Outstanding Equity Awards at 2009 Fiscal Year-End” table for a description of option awards. There were no forfeitures of stock option awards by this group during the year. +20 +OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR-END +The following table shows outstanding equity awards for the Named Executive Officers as of December 31, 2009: +Stock Awards +Option Awards +Number of +Shares or +Units of +Stock That +Have Not +Vested (#) +Market Value of +Shares +or Units of +Stock +That Have +Not Vested +(1)($) +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +(# Exercisable) +Number of +Securities +Underlying +Unexercised +Options +(# Unexercisable) +Option +Exercise +Price ($) +Option +Expiration +Date +Bart C. Shuldman +2/26/01 +7,892 +- +3.42 +2/26/11 +- +- +5/17/02 +164,750 +- +3.77 +5/17/12 +- +- +3/25/05 +- +- +- +- +4,000 +27,760 +1/2/06 +7,500 +5,000 +7.90 +1/2/16 +- +- +3/1/06 +9,000 +6,000 +9.75 +3/1/16 +- +- +2/28/07 +10,000 +15,000 +9.51 +2/28/17 +- +- +2/27/08 +4,200 +16,800 +5.24 +2/27/18 +- +- +3/5/09 +- +30,000 +2.18 +3/5/19 +- +- +Steven A. DeMartino +2/26/01 +500 +- +3.42 +2/26/11 +- +- +5/17/02 +40,500 +- +3.77 +5/17/12 +- +- +3/25/05 +- +- +- +- +3,000 +20,820 +1/2/06 +6,000 +4,000 +7.90 +1/2/16 +- +- +3/1/06 +6,000 +4,000 +9.75 +3/1/16 +- +- +2/28/07 +6,000 +9,000 +9.51 +2/28/17 +- +- +2/27/08 +5,000 +20,000 +5.24 +2/27/18 +- +- +3/5/09 +- +25,000 +2.18 +3/5/19 +- +- +Michael S. Kumpf +5/17/02 +12,625 +- +3.77 +5/17/12 +- +- +3/25/05 +- +- +- +- +3,000 +20,820 +1/2/06 +4,500 +3,000 +7.90 +1/2/16 +- +- +3/1/06 +4,500 +3,000 +9.75 +3/1/16 +- +- +2/28/07 +6,000 +9,000 +9.51 +2/28/17 +- +- +2/27/08 +4,000 +16,000 +5.24 +2/27/18 +- +- +3/5/09 +- +20,000 +2.18 +3/5/19 +- +- +James B. Stetson +3/25/05 +- +- +- +- +2,000 +13,880 +1/2/06 +1,000 +2,000 +7.90 +1/2/16 +- +- +3/1/06 +1,000 +2,000 +9.75 +3/1/16 +- +- +2/28/07 +1,500 +4,500 +9.51 +2/28/17 +- +- +2/27/08 +2,000 +8,000 +5.24 +2/27/18 +- +- +3/5/09 +- +15,000 +2.18 +3/5/19 +- +- +Tracey S. Chernay +1/2/06 +3,000 +2,000 +7.90 +1/2/16 +- +- +3/1/06 +1,500 +1,000 +9.75 +3/1/16 +- +- +2/28/07 +6,000 +9,000 +9.51 +2/28/17 +- +- +2/27/08 +2,000 +8,000 +5.24 +2/27/18 +- +- +3/5/09 +- +15,000 +2.18 +3/5/19 +- +- +________ +(1) +Calculated based on the closing price of the Company’s stock on December 31, 2009, the last trading day of the fiscal year. +Options Awards Vesting Schedule +Grant Dates +Vesting Schedule +2/26/2001, 5/17/2002, 1/2/2006, 3/1/2006, 2/28/2007, 2/27/2008, 3/5/2009 +20% per year for five years +Stock Awards Vesting Schedule +Grant Dates +Vesting Schedule +3/25/2005 +20% per year for five years +21 +OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2009 +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +On Exercise (#) +Value Realized +on Exercise(1)($) +Number of +Shares +Acquired +on Vesting (#) +Value Realized +on Vesting(2)($) +Bart C. Shuldman +48,971 +140,820 +11,500 +42,955 +Steven A. DeMartino +- +- +5,100 +17,697 +Michael S. Kumpf +4,100 +2,307 +4,500 +14,685 +James B. Stetson +- +- +3,500 +11,915 +Tracey S. Chernay +- +- +- +- +________ +(1) +Calculated based on the difference between the market price of the underlying securities at exercise and the exercise price of the options. +(2) +Calculated based on the market value on the vesting date of the shares underlying each award. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has entered into certain agreements and maintains certain plans that may require payments be made, and/or benefits be provided, to the Named Executive Officers: (i) in the event a Named Executive Officer’s employment is terminated other than for Cause, as defined below, (a “Termination Event”), (ii) if a change in control (as defined by the applicable agreement or plan) occurs (a “Change in Control Event”) or (iii) if a Termination Event occurs or a Named Executive Officer resigns for certain specified reasons within one year following a change in control (a “Change in Control and Termination Event”). The payments and benefits that each Named Executive Officer may be entitled to receive upon a Termination Event, Change in Control Event or a Change in Control and Termination Event are described in the applicable employment agreement or severance agreement and the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. Below is a description of the types of events that would trigger payments under these agreements and plans and the potential payments to each such Named Executive Officer assuming that a triggering event occurred on December 31, 2009, the last day of our most recent fiscal year. +Employment and Severance Agreements +Events That Trigger a Termination Event or Change in Control Event. The applicable employment and severance agreements generally define Cause as a termination for the following reasons: (i) action or inaction by the Named Executive Officer that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the Board or officers of the Company or a commission of a crime of moral turpitude; (ii) material, repetitive, unjustified and unexcused refusal to follow the reasonable and lawful written instruction of the Board—or in the case of the Named Executive Officers other than Mr. Shuldman, the Board or the Company’s President; or (iii) death or disability. Change in control is generally defined in each agreement to include (i) a merger of the Company with another company where the majority of the board of the surviving company is not comprised of directors of the Company in office immediately prior to the transaction, (ii) a change in the board of directors of the Company such that after an election a majority of the directors in office are not directors that were nominated by two-thirds of board members prior to the election or (iii) a complete liquidation of the Company. +Effect of a Termination Event or Change in Control and Termination Event. Under the terms of an Employment Agreement dated July 31, 1996 between Bart C. Shuldman and the Company, if a Termination Event or Change in Control Event were to occur, Mr. Shuldman would continue to receive: (i) his annual base salary and (ii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; an automobile allowance; and certain service fees related to medical exams, income tax planning and estate planning) for two years and three years, respectively, from the date of termination. In connection with a Termination Event, Mr. Shuldman would receive a pro rata portion of his annual target bonus amount for the year of termination. If a Change in Control Event were to occur and within one year thereafter either Mr. Shuldman’s employment is terminated other than for Cause, or Mr. Shuldman resigns following a significant reduction in the nature or scope of his responsibilities or authorities, a decrease in salary other than resulting from a reduction that applies generally to all management personnel or specified relocations of the Company’s facilities, Mr. Shuldman would be entitled to continue to receive, in addition to the amounts listed in the first sentence, his annual target bonus for a period of three years from the date of termination and all stock options and other awards granted to Mr. Shuldman under the Company's stock plans would immediately vest. +22 +Under the terms of a Severance Agreement with Steven A. DeMartino dated June 1, 2004, if a Termination Event were to occur, Mr. DeMartino would be entitled to continue to receive, for one year following the date of termination (i) his annual base salary, (ii) a pro rata portion of his annual target bonus for the year of termination and (iii) medical, dental, vision, life and long term disability insurance benefits. If a Change in Control Event were to occur and the employment of Mr. DeMartino is terminated other than for Cause, or if he resigns for specified reasons within one year following a Change in Control Event, Mr. DeMartino would be entitled to receive for two years after his termination (i) his annual base salary, (ii) annual target bonus, (iii) medical, dental, vision, life and long term disability insurance benefits and (iv) all stock options granted to Mr. DeMartino would immediately vest. +Under the terms of Severance Agreements with Michael S. Kumpf, James B. Stetson, and Tracey S. Chernay dated September 4, 1996, January 24, 2001 and July 29, 2005, respectively, if a Termination Event were to occur, the applicable Named Executive Officer would be entitled to continue to receive, for six months following the date of termination (i) a pro rata portion of his or her annual base salary, (ii) a pro rata portion of his or her annual target bonus for the year of termination or, in the case of Mr. Stetson, the full amount of the applicable annual target bonus for the year of termination, and (iii) only in the case of Mr. Kumpf and Mrs. Chernay, all benefits which would otherwise have been payable. If a Change in Control Event were to occur, the applicable Named Executive Officer would be entitled to continue to receive for a period of one year from the date of termination (i) base salary, (ii) annual target bonus, (iii) in the case of Mr. Kumpf and Mrs. Chernay, all benefits and (iv) all stock options granted to the applicable Named Executive Officer would immediately vest. +Equity Plans +2005 Equity Incentive Plan. The terms of the Company’s 2005 Equity Incentive Plan provide that all awards issued under the plan would accelerate and either become exercisable or vest, as applicable, immediately prior to any of the following: (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not the Company or a publicly owned corporation (or a subsidiary thereof) in which the stockholders of the Company immediately prior to the transaction continue to beneficially own 50% or more of the voting securities of the Company, (ii) a sale, transfer, exchange or other disposition of all or substantially all of the Company’s assets, (iii) any acquisition of 50% or more of the voting securities of the Company excluding acquisitions by specified parties or (iv) any dissolution or liquidation of the Company. Upon the occurrence of some of the foregoing Change in Control Events, stock or other property to be delivered upon acceleration of any award may be placed in escrow, rather than actually delivered, under terms set by the Compensation and Corporate Governance Committee. +1996 Stock Plan. The terms of the Company’s 1996 Stock Plan do not provide for the acceleration of all awards issued under the plan in the event of a change in control of the Company. Instead, the plan provides that acceleration upon a change in control is permitted and that the terms of the individual awards issued under the plan control whether the awards accelerate upon occurrence of a Change in Control Event. +Payments Upon a Change in Control Event. If a Change in Control Event had occurred on December 31, 2009 that triggered acceleration of all of the equity awards outstanding to each Named Executive Officer under each of the 1996 Stock Plan and the 2005 Equity Incentive Plan that accelerate either by their terms or the terms of the applicable plan, the following amounts would have been paid to the Named Executive Officers: +Name +Stock +Options(1) +Stock +Awards(2) +Total +Bart C. Shuldman +$ +729,112 +$ +27,760 +$ +756,872 +Steven A. DeMartino +291,782 +20,820 +312,602 +Michael S. Kumpf +169,263 +20,820 +190,083 +James B. Stetson +88,400 +13,880 +102,280 +Tracey S. Chernay +88,400 +- +88,400 +________ +(1) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $6.94 per share of our common stock on December 31, 2009, which was the last trading day of the year. +(2) +Accelerated stock awards were valued using the closing price of $6.94 per share of our common stock on December 31, 2009, which was the last trading day of the year. +23 +PAYMENTS UPON A TERMINATION EVENT +The following table summarizes the potential payments to each Named Executive Officer, over the course of the applicable time period for which such payments would be owed, assuming that a Termination Event occurred on December 31, 2009, the last day of the Company’s fiscal year. +Name +Base +Salary +Pro Rata +Portion of +Annual +Target +Bonus +Benefits(1) +Stock +Options +Stock +Awards +Total +Bart C. Shuldman +$ +877,312 +$ +328,992 +$ +104,592 +- +- +$ +1,310,896 +Steven A. DeMartino +244,007 +122,003 +14,286 +- +- +380,296 +Michael S. Kumpf +103,000 +36,050 +7,640 +- +- +146,690 +James B. Stetson +72,100 +- +- +- +- +72,100 +Tracey S. Chernay +80,134 +- +5,638 +- +- +85,772 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +PAYMENTS UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The following table summarizes the potential payments to each Named Executive Officer, over the course of the applicable time period for which such payments would be owed, assuming that a Change in Control and Termination Event occurred on December 31, 2009, the last day of the Company’s fiscal year. +Name +Base +Salary +Annual +Target +Bonus +Benefits(1) +Stock +Options (2) +Stock +Awards (3) +Total +Bart C. Shuldman +$ +1,315,968 +$ +986,976 +$ +156,889 +$ +729,112 +$ +27,760 +$ +3,216,705 +Steven A. DeMartino +488,014 +244,007 +28,573 +291,782 +20,820 +1,073,196 +Michael S. Kumpf +206,000 +72,100 +15,280 +169,263 +20,820 +483,463 +James B. Stetson +144,200 +- +- +88,400 +13,880 +246,480 +Tracey S. Chernay +160,268 +- +11,277 +88,400 +- +259,945 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $6.94 per share of our common stock on December 31, 2009, which was the last trading day of the year. +(3) +Accelerated stock awards were valued using the closing price of $6.94 per share of our common stock on December 31, 2009, which was the last trading day of the year. +Non-Competition Provisions That Apply to a Termination Event or Change in Control Event +Pursuant to Mr. Shuldman’s Employment Agreement, upon the occurrence of a Termination Event while he is receiving severance payments under the agreement, Mr. Shuldman agrees that for two years, or in the case of a Change in Control Event, for three years, that he will not directly or indirectly engage in any business or activity that is competitive with the Company in a geography where the Company is selling its products. Further, Mr. Shuldman agrees not to attempt to recruit any employees of the Company or encourage them to leave the Company and agrees not to encourage any of the Company’s customers to direct their business elsewhere. The other Named Executive Officers have the same provisions in their Severance Agreements, except that they apply for six months upon the occurrence of a Termination Event or one year upon the occurrence of a Change in Control Event and they are not contingent upon the payment of the benefits described in each agreement by the Company to the Named Executive Officer. +24 +DIRECTOR COMPENSATION FOR FISCAL YEAR 2009 +Name +Fees Earned +Or Paid in +Cash ($) +Stock +Options(2)($) +Stock +Awards +(3)($) +Total ($) +Thomas R. Schwarz +$ +36,000 +$ +26,304 +$ +- +$ +62,304 +Charles A. Dill +36,000 +26,304 +- +62,304 +Graham Y. Tanaka +36,000 +26,304 +- +62,304 +Bart C. Shuldman (1) +- +- +- +- +________ +(1) +Mr. Shuldman did not receive any compensation for director services other than what is reflected in the "Summary Compensation Table" above. +(2) +On May 28, 2009, Mr. Schwarz, Mr. Dill and Mr. Tanaka were each awarded 7,500 stock options granted under the Company’s 2005 Equity Incentive Plan. The amounts shown represent the grant date fair value of stock options granted in 2009 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2009, as filed with the SEC. +(3) +As of December 31, 2009, Mr. Schwarz held 58,500 fully vested stock options at exercise prices ranging from $3.77 to $31.82 and 3,000 shares of unvested restricted stock grants as well as 21,500 unvested stock options at exercise prices ranging from $4.84 to $7.80, Mr. Dill held 47,250 fully vested stock options at exercise prices ranging from $5.93 to $31.82 and 3,000 shares of unvested restricted stock grants as well as 21,500 unvested stock options at exercise prices ranging from $4.84 to $7.80, Mr. Tanaka held 58,500 fully vested stock options at exercise prices ranging from $3.77 to $31.82 and 3,000 shares of unvested restricted stock grants as well as 21,500 unvested stock options at exercise prices ranging from $4.84 to $7.80, and Mr. Shuldman held no stock option or restricted stock grants other than those shown in the “Outstanding Equity Awards at 2009 Fiscal Year-End” table above. +For 2009, each non-employee director of the Company received a retainer of $9,000 for each fiscal quarter served as director as compensation for services rendered. Directors are also reimbursed for reasonable expenses incurred in attending meetings. +Each non-employee director receives an annual grant of 7,500 stock options, pursuant to the terms of the Company’s 2005 Equity Incentive Plan. The stock options vest at the rate of 20% per year beginning on the first anniversary of the date of grant. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member of the Board’s Compensation and Corporate Governance Committee has served as an officer or employee of the Company at any time. None of the Company’s executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of the Company’s Board. None of the Company’s executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of the Board’s Compensation and Corporate Governance Committee. +STOCKHOLDER PROPOSALS FOR 2011 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year’s proxy materials must be received by the Secretary of the Company on or before December 27, 2010. Proposals should be addressed to TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. Stockholders who wish to make a proposal at the 2011 Annual Meeting without regard to whether it will be included in the Company’s proxy materials should notify the Company no later than March 12, 2011. If a Stockholder who wishes to present a proposal fails to notify the Company by the due date, the proxies that the Company solicits for the meeting will accord them discretionary authority to vote on the Stockholder’s proposal if it is properly brought before the meeting. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +25 +Stockholders may nominate candidates for election to the Board of Directors if the proper nomination procedures specified in the Company’s By-Laws are followed. All nominations by stockholders must be delivered to or mailed and received at the principal executive offices of the Company not less than 30 nor more than 60 days prior to the meeting at which election of directors will take place; however, if less than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, nominations will be timely if received not later than 10 days after notice was given or public disclosure was made. A stockholder’s notice must set forth in writing (i) for each person proposed to be nominated, all information relating to each such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to be named in the proxy and to serving as a director, and (ii) for the stockholder giving notice, the (x) name and address of such stockholder as they appear on the Company’s books, and (y) the class and number of shares of the Company beneficially owned by such stockholder. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder or interested party wishing to communicate directly with members of the Board of Directors should do so in writing. All correspondence addressed to the Board as a whole, to its independent directors, to any of its Committees or Committee Chairs, or to individual Board members should be mailed to the following address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +· +You are welcome to communicate anonymously or confidentially. +· +All correspondence addressed to an individual director or Committee Chair, and marked “Confidential”, will be collected in the office of the Secretary and forwarded unopened to the individual director. +· +Other correspondence will be opened by the Secretary, reviewed, copied and directed as follows: +o Concerns regarding the Company’s accounting, internal accounting controls or auditing matters will be referred to the members of the Audit Committee. +o Nominations or recommendations of candidates for election to the Board of Directors will be referred to members of the Nominating Committee. +o Other correspondence will be copied by the Secretary and forwarded to all of the members of the Board of Directors (or its independent directors, if so addressed) unless the stockholder directs otherwise. +GENERAL +As of the date of this Proxy Statement, the Board of Directors is not aware of any matter which is to be presented for action at the Annual Meeting other than the matters set forth herein. Should any other matter requiring a vote of the stockholders arise at the Annual Meeting, the proxies confer upon the persons named in the accompanying proxy the authority to vote in respect of any such other matter in accordance with the recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its exercise at the Annual Meeting by: (i) giving written notice of revocation to the Secretary of the Company, (ii) properly submitting to the Company a duly executed proxy bearing a later date, or (iii) voting in person at the Annual Meeting. All written notices of revocation and other communications with respect to revocation of proxies should be addressed to the Company, as follows: TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. A proxy appointment will not be revoked by death or supervening incapacity of the stockholder executing the proxy unless, before the shares are voted, notice of such death or incapacity is filed with the Company’s Secretary or other person responsible for tabulating votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be borne by the Company. The Company may solicit proxies otherwise than by use of the mail, in that certain officers and regular employees of the Company, without additional compensation, may use the telephone or otherwise to obtain proxies. The Company will also request persons, firms and corporations holding shares in their names, or owned by others, to send this proxy material to and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in doing so. +26 +No director or executive officer of the Company has any direct or indirect substantial interest, whether by security holdings or otherwise, in the ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company’s 2010 fiscal year. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +27 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD THURSDAY, MAY 27, 2010 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies Incorporated (the “Company”) does hereby nominate, constitute and appoint Bart C. Shuldman and Steven A. DeMartino, or either of them, with full power to act alone, my true and lawful attorney with full power of substitution, for me and in my name, place and stead to vote all of the shares of Common Stock of the Company standing in my name on its books on April 5, 2010, at the Annual Meeting of its stockholders to be held at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 on May 27, 2010 at 10:00 a.m., or at any adjournment thereof, with all powers the undersigned would possess if personally present as follows: +(TO BE SIGNED ON REVERSE SIDE) +28 +ANNUAL MEETING OF STOCKHOLDERS OF +TRANSACT TECHNOLOGIES INCORPORATED +MAY 27, 2010 +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting To Be Held on May 27, 2010. +This proxy statement and our 2009 Annual Report +are available at www.transact-tech.com/proxymaterials . +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. +Please detach along perforated line and mail in the envelope provided. +Please sign, date and return promptly in the enclosed envelope. Please mark your vote in blue or black ink as shown here x +Nominee: +1. ELECTION OF DIRECTOR +¨ +FOR THE NOMINEE +Graham Y. Tanaka +¨ +WITHHOLD AUTHORITY FOR THE NOMINEE +FOR +AGAINST +ABSTAIN +2. RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +¨ +¨ +¨ +FOR +AGAINST +ABSTAIN +3. APPROVAL OF AMENDMENT TO 2005 EQUITY INCENTIVE PLAN +¨ +¨ +¨ +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE AS DIRECTOR AND FOR PROPOSAL 2 AND PROPOSAL 3. THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED POSTAGE-PAID ENVELOPE. +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +Signature of Stockholder +DATE: +Signature of Stockholder +DATE: +NOTE: Please sign exactly as your name or names appear on this proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +29 \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-10-000010/proxy_rpt.txt b/raw/proxies/0001017303/0001017303-10-000010/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..2333719d972d08351a9104419c5fb0d314c66b86 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-10-000010/proxy_rpt.txt @@ -0,0 +1,4 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. +From January 1, 2009 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-11-000008/proxy.txt b/raw/proxies/0001017303/0001017303-11-000008/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a620fb0c3f7620839d1a46f1b2f5c59b61f02bef --- /dev/null +++ b/raw/proxies/0001017303/0001017303-11-000008/proxy.txt @@ -0,0 +1,1208 @@ +DEF 14A +1 +proxy.htm +DEFINITIVE PROXY STATEMENT +proxy.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant To Section 14(a) Of The Securities Exchange Act Of 1934 +(Amendment No. ___ ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (As Permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 27, 2011 +To the Stockholders of TransAct Technologies Incorporated: +Notice is hereby given that the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) of TransAct Technologies Incorporated (the “Company” or “TransAct”), a Delaware corporation, will be held on May 27, 2011 at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 for the following purposes: +(1) +To vote on a proposal to elect Thomas R. Schwarz and Bart C. Shuldman as directors to serve until the 2014 Annual Meeting of Stockholders or until each director’s successor has been duly elected and qualified; +(2) +To vote on a proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2011; +(3) +To transact such other business as may legally come before the Annual Meeting. +Stockholders of record at the close of business on April 4, 2011 are entitled to notice of and to vote at the Annual Meeting. +By Order of the Board of Directors, +STEVEN A. DEMARTINO +Secretary +Hamden, Connecticut +April 15, 2011 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +One Hamden Center +2319 Whitney Avenue +Suite 3B +Hamden, Connecticut 06518 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 27, 2011 +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting To Be Held on May 27, 2011. +This proxy statement is being made available to our stockholders in connection with a solicitation of proxies by the Board of Directors of TransAct Technologies Incorporated (“TransAct” the “Corporation,” “we,” “us,” or “our”) for use at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”) and at any adjournment or postponement of the meeting. The meeting will be held on Friday, May 27, 2011, beginning at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +We are furnishing the proxy materials over the Internet under the rules of the Securities and Exchange Commission (“SEC”). On or about April 15, 2011, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to shareholders of record of our common stock with a proxy card to be mailed 10 business days after the Notice. If you receive the Notice by mail, you will not receive a paper copy of the proxy materials unless you request one. The Notice will instruct you as to how you may access and review the proxy materials on the Internet and how to cast your vote over the Internet or by telephone. The Notice also contains instructions on how to request a paper copy of our proxy materials, free of charge. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held on May 27, 2011: This proxy statement, our 2010 Annual Report, the form of proxy and voting instructions are being made available to shareholders on or about April 15, 2011, at www.proxyvote.com. If you receive the Notice and would still like to receive a printed copy of the proxy materials or our 2010 Annual Report, including audited financial statements, for the year ended December 31, 2010, you may request a printed copy by any of the following methods: (a) telephone at 1-800-579-1639; (b) Internet at www.proxyvote.com; or (c) e-mail at sendmaterial@proxyvote.com. Please make the request as instructed above on or before May 17, 2011 to facilitate timely delivery. +All proxies will be voted in accordance with the instructions they contain. If you do not specify your voting instructions on your proxy card with respect to a particular matter, your shares will be voted in accordance with the recommendations of our Board. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power to revoke the same any time prior to its being voted. The accompanying proxy will be voted as specified thereon. A specification on the proxy card may be made to grant or withhold authority to vote for the election of a director and to indicate separate approval or disapproval as to the other matters presented to stockholders. Where an executed proxy has been received, but a choice is not specified, the shares represented by the proxy will be voted to elect each of the director nominees and to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered accounting firm. In addition, the proxy confers discretionary authority to vote on any matter properly presented at the Annual Meeting which is not known to the Company as of the date of this Proxy Statement. Brokers are not permitted to vote your shares with respect to election of directors without instructions from you. If your shares are held in the name of a broker or nominee and you do not instruct the broker or nominee how to vote with respect to the election of directors or if you abstain or withhold authority to vote on any matter, your shares will not be counted as having been voted on that matter, but will be counted as in attendance at the meeting for purposes of a quorum. +VOTING SECURITIES +Stockholders of record on April 4, 2011 are entitled to vote at the Annual Meeting. Each holder of Common Stock is entitled to cast one vote for each share of Common Stock held on April 4, 2011. There were 9,395,532 shares of Common Stock issued and outstanding and entitled to vote at the close of business on April 4, 2011. Shares representing a majority of the shares issued, outstanding and entitled to be voted at the Annual Meeting, present in person or represented by proxy, will constitute a quorum to transact business. +1 +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information known to the Company regarding the beneficial ownership of the Company’s common stock as of April 4, 2011 by: (i) each person known by the Company to own beneficially more than 5% of the Company’s common stock; (ii) each director or nominee for director of the Company; (iii) each current executive officer of the Company named in the Summary Compensation Table; and (iv) all current directors and executive officers of the Company as a group. Except as otherwise indicated, each of the persons named in the table has sole voting power and sole dispositive power with respect to the shares set forth opposite such person’s name and the address of the holder is One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +Name of Beneficial Owner +Shares +Beneficially +Owned +Percent +of +Class +More than 5% Stockholders: +Roumell Asset Management, LLC and +James C. Roumell (1) +966,912 +10.21% +Burnham Asset Management Corporation +Burnham Securities Inc. (2) +954,272 +10.15% +Directors and Executive Officers: +Graham Y. Tanaka (3) +275,222 +2.91% +Bart C. Shuldman (4) +237,450 +2.48% +Charles A. Dill (5) +169,610 +1.80% +Steven A. DeMartino (6) +127,820 +1.35% +Thomas R. Schwarz (7) +120,350 +1.27% +Michael S. Kumpf (8) +92,574 +* +Tracey S. Chernay (9) +32,750 +* +Benjamin C. Wyatt (10) +10,250 +* +All current directors and executive officers as a group (10 persons) (11) +1,109,126 +11.09% +________ +* +Less than 1% of the outstanding Common Stock. +(1) +This information listed in the table and this footnote is based solely on the Schedule 13G filed on January 10, 2011 by Roumell Asset Management, LLC (“RAM”) and James C. Roumell. According to the Schedule 13G, RAM and James C. Roumell beneficially own 961,472 and 5,440 shares of our common stock, respectively. RAM serves as the investment adviser for a number of managed accounts with respect to which it has dispositive authority over the shares reported in the Schedule 13G. James C. Roumell is the president of RAM with respect to which it has dispositive authority over the shares reported in the Schedule 13G. The address of each of the entities referenced by this footnote is 2 Wisconsin Circle, Suite 660, Chevy Chase, Maryland 20815. +(2) +This information listed in the table and this footnote is based solely on the Schedule 13G filed on October 8, 2010 by Burnham Asset Management Corporation, (“Burnham Corporation”) and Burnham Securities Inc. (“Burnham Securities”). According to the Schedule 13G, Burnham Corporation and Burnham Securities beneficially own 826,272 and 128,000 shares of our common stock, respectively. Burnham Corporation serves as the investment manager for a number of managed accounts with respect to which it has dispositive authority over the shares reported in the Schedule 13G. Burnham Securities is a registered broker-dealer with a number of discretionary accounts with respect to which it has dispositive authority over the shares reported in the Schedule 13G. The address of each of the entities referenced by this footnote is 1325 Avenue of the Americas, New York, New York 10019. +(3) +Includes 63,875 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka that are directly owned by his children. +(4) +Includes 1,500 shares owned by his spouse in an individual retirement account, 4,800 shares owned by his minor children and 3,750 shares owned by his mother. Includes 195,492 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. Also includes 19,408 deferred stock units issued under the Company’s 2009 and 2010 Incentive Bonus Program, which are fully vested and convertible into shares of common stock as of April 4, 2011. +(5) +Includes 52,625 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 1,550 shares directly owned by Mr. Dill’s spouse. +2 +(6) +Includes 93,000 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. Also includes 5,119 deferred stock units issued under the Company’s 2009 and 2010 Incentive Bonus Program, which are fully vested and convertible into shares of common stock as of April 4, 2011. +(7) +Includes 63,875 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his capacity as trustee of a trust for the benefit of his granddaughter, 1,500 shares beneficially owned by his daughter, as to which shares he disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(8) +Includes 63,375 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. +(9) +Includes 32,750 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s 2005 Equity Incentive Plan. +(10) +Includes 7,750 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s 2005 Equity Incentive Plan. +(11) +Includes 603,092 shares subject to options currently exercisable or to become exercisable within 60 days of April 4, 2011 granted under the Company’s 1996 Stock Plan, 2001 Employee Stock Plan, 2005 Equity Incentive Plan and Non-Employee Directors’ Stock Plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive officers and persons who beneficially own more than 10% of the Company’s common stock to file with the SEC and the Nasdaq Stock Market reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company and to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, or written representations that no other reports were required to be filed by those persons, the Company believes that, during the fiscal year ended December 31, 2010, each of the Company’s officers, directors and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. +From January 1, 2010 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit the long-term interests of the Company’s stockholders by clearly outlining the Company’s duties and responsibilities, providing a framework for active and fruitful discussions among the members of the Board of Directors and between the Board and management, and avoiding conflicts of interest and other legal and ethical problems. Accordingly, the Company’s corporate governance practices are designed not only to satisfy regulatory requirements, but also to provide for effective management of the Company. +3 +Information on the Company’s corporate governance practices is available to the public under “Corporate Governance” on the Company’s website at www.transact-tech.com . The information on the website includes the Company’s Corporate Governance Principles, the charters of each of the Company’s Committees, and the Company’s Standards of Business Conduct, which includes a code of ethics applicable to the officers responsible for financial reporting, the Chief Executive Officer, Chief Financial Officer and Corporate Controller. The Company encourages its directors to attend all Board meetings as well as the Annual Meeting. All of the directors attended the Company’s 2010 Annual Meeting. Each director attended 100% of the Company’s Board meetings held in 2010 and 100% of applicable Committee meetings. +Board Leadership Structure +At present, the Board has chosen to combine the positions of Chief Executive Officer and Chairman of the Board. The Board believes it is important to retain the organizational flexibility to determine whether the roles of Chairman of the Board and Chief Executive Officer should be separated or combined in one individual. While there may be circumstances in which an independent Chairman is appropriate, the Board currently believes that the Chief Executive Officer is the individual with the necessary experience, commitment and support of the other Board members to effectively carry out the role of Chairman. +The Board believes this structure promotes better alignment of strategic development and execution, more effective implementation of strategic initiatives, and clearer accountability for their success or failure. Moreover, the Board believes that combining the Chairman and Chief Executive Officer positions does not impede independent oversight. Three of the four members of the Board are independent under The Nasdaq Global Market rules. +Board's Role in Risk Oversight +Senior management is responsible for assessing and managing the various exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and programs. The Company has a strong internal control environment to identify and manage risks. These include Standards of Business Conduct, quarterly internal management disclosure committee meetings, robust product quality standards and processes, and a comprehensive internal and external audit process. Management communicates routinely with the Board, Board Committees and individual Directors on the significant risks identified and how they are being managed. The Board of Directors is responsible for overseeing management in the execution of its responsibilities and for assessing the overall approach to risk management. The Board of Directors exercises these responsibilities periodically as part of its meetings and also through its four committees, each of which examines various components of enterprise risk as part of its responsibilities. The Compensation and Corporate Governance Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks, as well as our policies with respect to risk assessment and risk management. The Nominating Committee manages risks associated with board independence and potential conflicts of interest. In addition, an overall review of risk is inherent in the Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board of Director’s role in risk oversight is consistent with our leadership structure, with the Chief Executive Officer, President and other members of senior management having responsibility for assessing and managing our risk exposure, and the Board and its committees providing oversight in connection with these efforts. +Board Size +The Corporate Governance Principles provide that the Board should generally have between four and ten members. In establishing the appropriate number of directors, the Board along with the Compensation and Corporate Governance Committee consider (i) resignations and retirements from the current Board, (ii) the availability of appropriate, qualified candidates, and (iii) the goal of assuring that the Board is small enough to facilitate active discussions and decision-making while, at the same time, is large enough to provide an appropriate mix of continuity, experience, skills and diversity so that the Board and its Committees can effectively perform their responsibilities. +Criteria for Membership on the Board +The Board and its Nominating Committee consider a number of different factors in selecting nominees for director. Some of these factors, such as integrity, are applied uniformly to all prospective candidates. Others, such as specific industry experience, may be adopted on a case-by-case basis by the Board and the Nominating Committee based on the Company’s business needs at the time a nomination is under consideration. The Nominating Committee and the Board of Directors apply the same criteria to each candidate for the Board, regardless of whether the candidate is proposed by a stockholder or some other source. Specific criteria considered by the Nominating Committee and the Board include: +Independence . The Board of Directors, in its Corporate Governance Principles and Committee charters, has established a policy that a substantial majority of the directors be “independent” members of the Board. The Nominating Committee and the Board consider the independence of each prospective director before election and further consider the independence of all continuing +4 +directors on at least an annual basis. The Board has determined that Messrs. Dill, Schwarz and Tanaka are independent in accordance with the Company’s criteria and Mr. Shuldman, the Company’s Chief Executive Officer, is not independent. The Board applies the following criteria in determining independence, which criteria are derived from Nasdaq’s listing standards as well as certain additional requirements that are imposed on certain Committee members under the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the Internal Revenue Service (the “IRS”): +· +Independent Judgment . The director must not have any relationship with the Company that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the Board considers all relevant facts and circumstances, including commercial, charitable and familial relationships that might have an impact on the director’s judgment. +· +Employment . The director must not have been an employee of the Company or any parent or subsidiary of the Company at any time during the past three years. In addition, a member of the director’s immediate family (including the director’s spouse, parents, stepparents, children, stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law and anyone who resides in the director’s home other than a tenant or employee) must not have been an executive officer of the Company during the past three years. +· +Other Payments . Neither the director nor a member of his or her immediate family member may have received compensation of more than $100,000 per year from the Company during any period of twelve consecutive months during the past three years, except for director fees, payments arising solely from investments in the Company’s securities, benefits under certain Company plans and non-discretionary compensation, certain permitted loans and compensation paid to a family member who is not an executive officer of the Company. +· +Auditor Affiliation . Neither the director nor a member of his or her immediate family may be a current partner of the Company’s independent auditors or have been a partner or employee of the Company’s independent auditors who worked on the Company’s audit at any time during the past three years. +· +Interlocking Directorships . Neither the director nor any member of his or her immediate family may be employed as an executive officer by another entity where, at any time during the past three years, any of the Company’s executive officers served on the compensation committee. +· +Transactions . Neither the director nor any member of his or her immediate family may be a partner in, or a controlling stockholder or executive officer of, any organization that, during the current or any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $200,000 or 5% of the recipient’s annual consolidated gross revenues for such year (excluding payments arising solely from investments in the Company’s securities or paid under a non-discretionary charitable matching program). +· +Additional Standards for Audit Committee Members . Any director who serves on the Board’s Audit Committee may not, directly or indirectly, have received any consulting, advisory or other compensatory fee from the Company (other than certain retirement benefits and deferred compensation) or be an affiliate of the Company (except as a director, but including by way of stock ownership). In addition, no such director may have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years. +Overall Board Composition. The Board of Directors believes it is important to consider the professional skills and background, experience in relevant industries, age and diversity of its directors in light of the Company’s current and future business needs. +Personal Qualities. Each director must possess certain personal qualities, including integrity, judgment and business acumen. In addition, each director must be no older than 75 years of age at the time of nomination or renomination. +Diversity. The Board has not adopted a formal policy with respect to its consideration of diversity and does not follow any ratio or formula to determine the appropriate mix; rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service. +Commitments. Each director must have the time and ability to make a constructive contribution to the Board. While the Board does not believe it is appropriate to establish a single standard regarding the number of other boards on which a director may sit, this is a factor that may be considered in reviewing a candidate’s suitability. +Additional Criteria for Incumbent Directors. During their terms, all incumbent directors on the Company’s Board are expected to attend Board and Committee meetings regularly; to stay informed about the Company and its business; to participate in discussions of the Board and its Committees; to take an interest in the Company’s business and provide advice and counsel to the Company’s Chief Executive Officer; and to comply with the Company’s Corporate Governance Principles and other applicable policies. +5 +Regulatory Requirements. The Board must have directors who meet the criteria established from time to time by The Nasdaq Global Market, the SEC, the IRS and other applicable regulatory entities for service on the Board and its Committees. +Director Nomination Process +Under its charter, the Nominating Committee is responsible for identifying, reviewing and recommending individuals to the Board for nomination or election as directors. This typically involves the following steps: +· +Specific Criteria . The Nominating Committee and the Board review the overall composition of the Board in light of the Company’s current and expected business needs and, as a result of such assessments, may establish specific qualifications that the Committee will seek in Board candidates. +· +Identifying New Candidates . The Nominating Committee may seek to identify new candidates for the Board (i) who possess the desired qualifications and (ii) who satisfy the other requirements for Board service. In identifying new director candidates, the Committee may seek advice and names of candidates from Committee members, other members of the Board, members of management, and other public and private sources. The Committee may also, but need not, retain a search firm in order to assist in these efforts. +· +Reviewing New Candidates . The Nominating Committee reviews the potential new director candidates identified through this process. This involves reviewing the candidates’ qualifications and conducting an appropriate background investigation. The Committee may also select certain candidates to be interviewed by one or more Committee members. +· +Reviewing Incumbent Candidates . On an annual basis, the Nominating Committee also reviews incumbent candidates for renomination to the Board. This review involves an analysis of the criteria described above that apply to incumbent directors. +· +Recommending Candidates . The Nominating Committee recommends a slate of candidates for the Board of Directors to submit for approval to the stockholders at the Annual Meeting. This slate of candidates may include both incumbent directors and new nominees. In addition, apart from this annual process, the Committee may, in accordance with the Corporate Governance Principles, recommend that the Board elect new members of the Board who will serve until the next annual meeting of stockholders. At the time of making any recommendation to the Board, the Committee reports on the criteria that were applied in making the recommendation and its findings concerning each candidate’s qualifications. +· +Stockholder Nominations Submitted to the Committee . Stockholders may also submit names of director candidates, including their own, to the Nominating Committee for its consideration. The process for stockholders to use in submitting suggestions to the Nominating Committee is set forth below at “Procedures for Submitting Director Nominations and Recommendations.” Candidates who are nominated for the Board of Directors by stockholders are evaluated in the same manner as recommendations received from other sources. +Board Meetings and Executive Sessions +The Board of Directors holds regular quarterly meetings, as well as periodic special meetings. In 2010, the Board of Directors held eight meetings. +Independent directors meet by themselves in executive sessions, without management or employee directors present, at most regularly scheduled Board meetings. In addition, independent directors may convene additional executive sessions at any time. +The executive sessions are led by the Chair of the committee that is responsible for the subject matter at issue ( e.g. , the Audit Committee Chair would lead a discussion of audit-related matters). When it is not clear which committee has specific responsibility for the subject matter, the Chair of the Compensation and Corporate Governance Committee presides. +Committees of the Board +The Board has four standing committees: the Audit Committee, the Compensation and Corporate Governance Committee, the Nominating Committee and the Executive Committee. +Each Committee is composed entirely of independent directors and operates under a written charter. The Chair of each Committee is selected by the Board. Each Committee, except the Executive Committee, holds regular executive sessions at which only Committee members are present. Each Committee is authorized to retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance Committee, and the Nominating Committee are available on the Company’s website, www.transact-tech.com , but a brief summary of the committees’ responsibilities follows: +6 +Audit Committee . The Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Dill serving as Chair. The Board has determined that each member of the Audit Committee is an independent director and meets the financial literacy requirements of The Nasdaq Global Market to serve on the Committee. In addition, the Board has determined that Mr. Dill is an “audit committee financial expert” as defined under the rules of the Securities and Exchange Commission. The Audit Committee operates under a written charter, which was revised in March 2004 and is posted on the Company’s website. The Audit Committee met four times during 2010. +Nominating Committee . The Nominating Committee is responsible for assisting the Board in carrying out its responsibilities relating to the composition of the Board, including identifying, reviewing and recommending candidates to the Board for nomination as directors. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Nominating Committee met two times during 2010. +Compensation and Corporate Governance Committee . The Compensation and Corporate Governance Committee provides oversight for the hiring and termination of all executive officers of the Company, the Company’s corporate governance practices, CEO performance review and succession planning, director compensation, Board and Committee performance evaluation, stockholder communication matters, the design and management of the executive compensation programs, and the philosophy and programs for all employee compensation and benefit programs worldwide . The Committee is responsible for determining the compensation (including salary, bonus, equity-based grants, and any other long-term cash compensation) for the Company’s Chief Executive Officer and for other senior executives as are subject to the Committee’s direct purview. The Committee is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as Chair. The Compensation and Corporate Governance Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Compensation and Corporate Governance Committee met three times during 2010. +Executive Committee . The Executive Committee meets between scheduled meetings of the Board of Directors and has the power and authority of the Board, except as limited by the Company’s By-Laws. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka. The Executive Committee did not meet during 2010. +Standards of Business Conduct +In order to help assure the highest levels of business ethics at the Company, the Board of Directors has approved and the Company has adopted Standards of Business Conduct (the "Standards"), which apply to the Company’s directors, officers and employees. The Standards provide an overview of the Company’s policies related to employee conduct in the workplace, regulatory compliance and investigations; the Company’s relationships with its customers, vendors, competitors and the public; insider trading; conflicts of interest; lobbying; political activities and contributions; accuracy of books, records and financial statements; confidentiality; and the protection of all who come forward to report suspected violations of the Standards. In addition, the Standards act as a code of ethics promoting honest and ethical conduct on the part of the Company’s officers who are responsible for financial reporting, including the Chief Executive Officer, Chief Financial Officer and Controller. The Standards mandate that these officers avoid conflicts of interest and disclose any relationship that could give rise to a conflict, protect the confidentiality of non-public information about the Company, work to achieve responsible use of the Company’s assets and resources, comply with all applicable governmental rules and regulations, and promptly report any possible violation of the Standards. The Standards require these individuals to promote full, fair, understandable and accurate disclosure in the Company’s publicly filed reports and other public communications. It sets forth standards for accounting practices and maintenance of records. Individuals who fail to observe the terms of the Standards may face disciplinary action, including possible employment termination. +PROPOSAL 1: +ELECTION OF DIRECTORS +The Board of Directors currently consists of four directors and is divided into three classes. Each class of directors is elected by the holders of the Company’s Common Stock to serve a staggered three-year term. At the Annual Meeting, two persons are to be elected to hold office as a director until the 2014 Annual Meeting of Stockholders or until a successor is duly elected and qualified. The nominees for election are Thomas R. Schwarz and Bart C. Shuldman. Should the nominees become unavailable, which is not anticipated, votes pursuant to the proxy will be cast for a substitute candidate as may be designated by the Board of Directors, or in the absence of such designation, in such other manner as the Board may in their discretion determine. Alternatively, in such a situation, the Board of Directors may take action to fix the number of directors for the ensuing year at the number of nominees and incumbent directors who are then able to serve. +7 +Information Concerning Nominees for Re-election as Director Whose Terms Will Expire at the 2014 Annual Meeting +Thomas R. Schwarz , 74, has been a director of the Company since its formation in June 1996 and was Chairman of the Board from June 1996 to February 2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman’s Inc., a retailer of building materials, from 1990 until his retirement in 1994. From 1980 to 1990, he was President, Chief Operating Officer and a director of Dunkin’ Donuts Incorporated, a food service company. Mr. Schwarz is a director of Tanaka Growth Fund and another privately held company. +Mr. Schwarz’s qualifications for election to the Company’s Board of Directors include public company leadership experience as President, Chief Operating Officer of Dunkin’ Donuts Incorporated and outside board experience as a director of Dunkin’ Donuts Incorporated, Grossman’s Inc., and The Tanaka Growth Fund. He has been a director of the Company since its inception and is Chairman of the Compensation Committee. From his past executive positions, Mr. Schwarz brings to our Board his extensive executive experience and knowledge of operating and managing complex operating companies. +Bart C. Shuldman , 54, has been Chief Executive Officer and a director of the Company since its formation in June 1996 and has been Chairman of the Board since February 2001. Mr. Shuldman also served as the Company’s President from 1996 until June 2010. Previously, Mr. Shuldman was Vice President of Sales and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April 1993 to August 1993, and served as President of Magnetec, and later the combined operations of Magnetec and Ithaca Peripherals Incorporated, another former Tridex subsidiary, from August 1993 to June 1996. Mr. Shuldman is also the director of another privately held company. +Mr. Shuldman’s qualifications for election to the Company’s Board of Directors include public company leadership experience as Chief Executive Officer of the Company since its inception and board experience as a director and currently Chairman of the Board of the Company. Mr. Shuldman brings to our Board his experience and knowledge of our business derived from his current position as Chief Executive Officer. +VOTE REQUIRED +The election of Thomas R. Schwarz and Bart C. Shuldman, respectively, as directors of the Company requires the affirmative vote of a plurality of the votes of the Company’s Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares and broker non-votes will have no effect on the election of directors, but will be included in determining the presence of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE ELECTION OF THOMAS R. SCHWARZ AND BART C. SHULDMAN AS DIRECTORS OF THE COMPANY. +Information Concerning Directors Whose Terms Will Expire at the 2012 Annual Meeting +Charles A. Dill , 71, has been a director of the Company since its formation in June 1996. From 2004 to the present, Mr. Dill has served as a General Partner of Two Rivers Associates, a private equity investment firm. Mr. Dill was a General Partner of Gateway Associates, a venture capital firm, from 1996 to 2004. Mr. Dill currently serves as a director of Zoltek Companies, Inc. and Stifel Financial Corp., as well as several privately-held companies. +Mr. Dill’s qualifications for election to the Company’s Board of Directors include private company leadership experience from his time as President and Chief Executive Officer of Bridge Information Systems, Inc. and President of AVX Corporation. Mr. Dill also has outside public company board experience as a director of Zoltek Companies, Inc. and Stifel Financial Corp. He has been a director of the Company since its inception and is Chairman of the Audit Committee. From his past executive and director positions, Mr. Dill brings to our Board his extensive executive experience and knowledge operating and managing complex manufacturing organizations. +Information Concerning Directors Whose Term Will Expire at the 2013 Annual Meeting +Graham Y. Tanaka , 63, has been a director of the Company since its formation in June 1996. Mr. Tanaka has been President of Tanaka Capital Management, Inc., an investment management firm, since 1986. He is a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. +Mr. Tanaka’s qualifications for election to the Company’s Board of Directors include private investment management experience as President of Tanaka Capital Management, Inc. and board experience as a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. He has been a director of the Company since its inception and is Chairman of the Nominating Committee. With his varied experiences as a director and investment manager working in the financial markets, Mr. Tanaka brings extensive knowledge of financial markets and financial analysis gained through his experience. +8 +PROPOSAL 2: +RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2011 +The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of the Company for the 2011 fiscal year. This selection is being presented to the stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company’s financial statements since the Company’s formation in 1996. In the event stockholders do not ratify the appointment, the Audit Committee will reconsider the appointment. +A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement, and is expected to be available to respond to appropriate questions. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2011 requires the affirmative vote of a majority of the Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2011. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring its pre-approval of all audit services and permissible non-audit services provided by the independent registered public accounting firm, along with the associated fees for those services (the “Policy”). The Policy provides for the annual pre-approval of specific types of services pursuant to policies and procedures adopted by the Audit Committee, and gives detailed guidance to management as to the specific services that are eligible for such annual pre-approval. The Policy requires the specific pre-approval of all other permitted services. For both types of pre-approval, the Audit Committee considers whether the provision of a non-audit service is consistent with the Securities and Exchange Commission’s rules on auditor independence, including whether provision of the service (i) would create a mutual or conflicting interest between the independent registered public accounting firm and the Company, (ii) would place the independent registered public accounting firm in the position of auditing its own work, (iii) would result in the independent registered public accounting firm acting in the role of management or as an employee of the Company, or (iv) would place the independent registered public accounting firm in a position of acting as an advocate for the Company. In addition, the Audit Committee considers whether the independent registered public accounting firm is best positioned and qualified to provide the most effective and efficient service, based on factors such as the independent registered public accounting firm’s familiarity with the Company’s business, personnel, systems or risk profile and whether provision of the service by the independent registered public accounting firm would enhance the Company’s ability to manage or control risk or improve audit quality or would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to address certain requests for pre-approval of services between meetings of the Committee, and such Committee member is required to report his or her pre-approval decisions to the Committee at its next regular meeting. The Policy is designed to ensure that there is no delegation by the Audit Committee of authority or responsibility for pre-approval decisions to management of the Company. The Audit Committee monitors compliance by management with the pre-approval policy by requiring management, pursuant to the Policy, to report to the Audit Committee on a regular basis regarding the pre-approved services rendered by the independent registered public accounting firm. +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm. Accordingly, the Audit Committee has appointed PricewaterhouseCoopers LLP to perform audit and other services for the Company. In addition, the Audit Committee has procedures in place for the pre-approval by the Audit Committee of all services provided by PricewaterhouseCoopers LLP. These pre-approval procedures, as amended, are described above under “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm.” +9 +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for the years ended December 31, 2010 and 2009 are as follows: +2010 +2009 +Audit Fees(1) +$ +362,050 +$ +418,720 +Audit-Related Fees (2) +23,000 +12,500 +Tax Fees (3) +3,585 +5,275 +All Other Fees (4) +1,818 +1,515 +Total Fees for Services Provided +$ +390,453 +$ +438,010 +________ +(1) +Audit Fees consist of fees related to: (i) the annual audit of the Company’s financial statements, (ii) reviews of the Company’s quarterly financial statements, (iii) statutorily required audits for the Company’s UK subsidiary and (iv) the review of registration statements, periodic reports and other reports filed with the SEC. +(2) +Audit-Related Fees consist of fees incurred for consultations regarding accounting and financial reporting standards. +(3) +Tax Fees consist of fees for the preparation of tax returns for our UK subsidiary. +(4) +All Other Fees include software license fees for the use of a web-based accounting research tool. +The Audit Committee has considered whether the provision of the above services, other than Audit Fees, is compatible with maintaining the auditors’ independence and has determined that, in its opinion, they are compatible. All of the above services during the year ended December 31, 2010, other than those covered by Audit Fees, were either approved by the Audit Committee or were performed pursuant to pre-approval policies and procedures. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the internal control over financial reporting and quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. +Management is responsible for preparing complete and accurate consolidated financial statements in accordance with generally accepted accounting principles. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and for issuing reports about those financial statements. The Audit Committee meets with the independent registered public accounting firm, the Chief Executive Officer, the Chief Financial Officer and the Corporate Controller of the Company to review the scope and the results of the annual audit, the amount of audit fees, the Company’s system of internal accounting controls over financial reporting, the financial statements contained in the Company’s Annual Report to Stockholders and other related matters. Separate meetings are held with the independent registered public accounting firm and management. +In connection with its duties, the Audit Committee has taken the following actions: +· +It has reviewed and discussed the audited financial statements, as well as the assessment of internal controls over financial reporting, with management. +· +It has discussed with the independent registered public accounting firm, which is responsible for expressing an opinion on the financial statements in accordance with generally accepted accounting principles, the matters required to be discussed by the statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. +· +It has received from the independent registered public accounting firm the written disclosures describing any relationships between the independent registered public accounting firm and the Company and the letter confirming their independence required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with the independent registered public accounting firm matters relating to their independence. +10 +· +Based on its review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company for the year ended December 31, 2010 be included in the Company’s Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Overview +This Compensation Discussion and Analysis describes the philosophy, approach, and elements used by us and the Compensation and Corporate Governance Committee (the “Compensation Committee”) of our Board of Directors, which is composed entirely of independent directors of the Company, to define, manage, and review the compensation paid to our executives. Our philosophy and approach to executive compensation apply to all executive officers of the Company, including those executives designated as Named Executive Officers (“NEO’s”). +Philosophy and Objectives of the Compensation Program +Our Compensation Committee’s philosophy is that our executive compensation program is to be based on our performance and be competitive with other similarly-sized companies in similar industries. The primary objectives of our compensation program are to: +· +Attract, engage, retain, and reward executive officers; +· +Motivate employees and encourage individual initiative and effort; +· +Help to achieve key business objectives and attain Company goals; and +· +Align executives’ interests closely with those of the Company and its stockholders to drive long term sustainable earnings growth. +Our executive compensation program principally includes base salary, an incentive cash performance bonus program and equity incentive awards. The Compensation Committee believes that each element of the total compensation program helps to ensure that the efforts of our executive officers support the creation of stockholder value, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality or linking individual performance to the Company’s overall performance. The Committee retains its discretion to modify the compensation program elements in response to the needs of the Company. Except as otherwise prohibited by law or the Company’s organizational documents, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee. +The elements of our executive compensation program are periodically analyzed using current publicly available market data, contemporary market trends in the industries in which the Company operates and periodic reviews of compensation and benefit surveys. Although we perform periodic reviews of salary surveys and occasionally use compensation consultants to analyze elements of our compensation program, we do not believe that it is appropriate to establish compensation levels based solely on the use of such surveys. +The Compensation Committee reviews Company executive officer compensation and performance data to determine whether the Company’s executive compensation program is competitive and reasonable. The Compensation Committee, on occasion, meets with the Chief Executive Officer and Chief Financial Officer to obtain recommendations with respect to the Company’s compensation programs, practices and packages for the other executive officers, senior managers and other employees. Our Chief Executive Officer and Chief Financial Officer, with the assistance and support of the human resources department, provide recommendations regarding the design of the Company’s compensation program to the Compensation Committee. The Compensation Committee considers, but is not bound to accept, management’s recommendations with respect to executive compensation. +In May 2009, the Compensation Committee retained Towers Watson, an independent compensation consultant, to assist the Compensation Committee in assessing the competitiveness of the Company's total compensation program for the Company’s CEO, CFO and EVP, Engineering, with the goal of implementing compensation changes based on Towers Watson’s advice and/or recommendations, if any, in 2010. The Compensation Committee directed Towers Watson to collect and analyze compensation data for the Company’s CEO, CFO and EVP, Engineering and assess their compensation relative to individuals holding similar positions at companies in similar industries and size. Towers Watson provided comparative market-based compensation data for base salaries, +11 +annual cash incentive awards and long-term equity awards for the CEO, CFO and EVP, Engineering. Towers Watson developed a peer group of companies consisting of U.S.-based information technology companies with revenue, percentage of foreign sales and product diversity generally comparable to the Company’s executives (the “Peer Group”) mainly from the same Standard Industrial Classification codes. The Peer Group consisted of LTX-Credence Corp.; Spectrum Control, Inc.; Communications Systems, Inc.; Rimage Corp.; Mad Catz Interactive, Inc.; Maxwell Technologies, Inc.; FSI International, Inc.; Perceptron, Inc.; DRI Corporation; Vicon Industries, Inc.; IntriCon Corp.; Optical Cable Corp.; Optelecom-NKF, Inc.; ClearOne Communications, Inc.; and Alliance Fiber Optic Products, Inc. The Peer Group data was based on compensation paid predominantly in 2008. +In addition, Towers Watson examined the Company’s executive compensation programs generally to ensure their ongoing support of the Company’s business strategy, informed the Compensation Committee of developing legal and regulatory considerations affecting executive compensation and benefit programs, and provided general advice to the Compensation Committee with respect to all compensation decisions pertaining to the CEO, CFO and EVP, Engineering. As a result, and at the conclusion of the review process, the Compensation Committee revised the Company's annual incentive bonus program in an effort to further align the Company’s CEO and CFO's annual incentive compensation with the goal of building longer-term stockholder value. Based on the recommendation of Towers Watson, the Compensation Committee approved a change to the annual incentive bonus plan so that for Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of the Target Bonus amount earned going forward, be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan, with the number of deferred stock units to be based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. This new compensation program was implemented beginning with the 2009 annual incentive bonus plan. +Towers Watson did not advise management of the Company and received no compensation from the Company for services other than those performed for the Compensation Committee. +Elements of the Company’s Compensation Plan +The principal elements of the Company’s compensation program are base salary, an incentive cash bonus program and equity incentive awards. +Base Salary : In general, base salaries for employees, including executive officers, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance, external market data and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Base salary for each executive is reviewed on an annual basis as part of our companywide merit review process. The amount of any merit increase to an executive’s base salary is determined based on a combination of the current position of the executive’s pay against market data and the executive’s performance and results during the past year. Our Chief Executive Officer is responsible for assessing the performance of each executive reporting to him. Our Compensation Committee assesses the performance of our Chief Executive Officer. +Incentive Cash and Deferred Stock Unit Bonus Program : We have historically maintained an incentive cash compensation plan for all executive officers, except for those who receive sales commissions, which provides our executives with the opportunity to receive performance bonuses in the form of cash upon the attainment of certain annual financial objectives, as well as performance and business objectives. The incentive bonus is designed to be a significant portion of executive compensation in order to create and maintain a significant incentive for our executives to achieve or exceed our strategic and annual financial objectives. +To ensure alignment of compensation with our business objectives, our Chief Executive Officer and other executive officers establish specific quantitative and qualitative performance metrics each fiscal year. Our performance metrics (as used for incentive bonus) are reviewed and approved by our Compensation Committee. The metrics are aligned with our strategic and annual business plans and are reviewed by our Board of Directors and Compensation Committee. For 2010, the quantifiable metric of our annual incentive bonus program consisted of a target level of diluted earnings per share of $0.36, excluding the after-tax effect of external, pre-closing and post-closing acquisition related expenses (the “EPS Target”). The minimum and maximum diluted earnings per share set forth in the incentive bonus program by our Compensation Committee was $0.23 and $0.44, respectively, excluding the after-tax effect of external, pre-closing and post-closing acquisition related expenses. +Our executive officers, except for those that receive sales commissions, participate in the incentive bonus program. Bonuses are paid under the incentive bonus program only if the Company meets the specified quantifiable performance objectives and/or the executive meets specified performance and business objectives. The incentive cash bonus that any particular executive is eligible to earn is established as a percentage (the “Target Percentage”) of the individual’s base salary (“Target Bonus”). For 2010, 75% of each executive’s Target Bonus was based on achievement of the EPS Target (the “EPS Bonus Amount”) and 25% was based solely on achievement of performance and business objectives established by the Chief Executive Officer and the Compensation Committee (the “Performance Bonus Amount”). No EPS Bonus Amount is payable unless diluted earnings per share exceeds a specified threshold ($0.23 for 2010). Above the threshold, the EPS Bonus Amount is adjusted upward on a sliding scale ranging from 25% to 95% of the Target Percentage for 2010. +12 +The Compensation Committee is responsible for determining achievement of performance and business objectives for the CEO. The CEO is responsible for determining achievement of performance and business objectives for each of his direct reports. For other participants, achievement of performance and business objectives will be determined by the President or the appropriate Vice President or manager. Performance objectives include personal goals that support the Company’s overall business objectives as well as other financial and non-financial measurements. For 2010, such objectives consisted of achievement of certain financial and strategic objectives such as generating $3,000,000 of free cash flow (operating cash flow less capital expenditures), reorganizing and realigning casino and gaming sales organization, identifying and implementing a second source for overseas manufacturing and completing the next generation Gtech lottery printer. For 2010, the Performance Bonus Amount ranged from 0% to 25% of the Target Percentage depending on the level of achievement. +In addition, for 2010, to continue the efforts to further align the incentives of the Company’s CEO and CFO with building longer-term stockholder value, the Compensation Committee again required that for Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of the Target Bonus amount earned for 2010 be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. +Equity Incentive Awards : The goal of our equity-based incentive awards is to align the interests of our executives with our stockholders and to provide executives with an incentive to manage the Company from the perspective of an owner with an equity stake in the business. We believe that our long-term performance is improved by encouraging ownership by our executives through the use of stock-based grants. Because vesting of our stock awards is based on continued employment, our equity-based incentives also facilitate the retention of executives through the term of the awards. Generally, we believe that stock options are the most effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of stock options to our future performance – i.e. executives are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price. +Grants of stock options are approved by the Compensation Committee at its regularly scheduled meeting typically on or about March 1. While the majority of stock option awards to our employees have been made under our annual grant program, the Compensation Committee may make stock option awards to employees at other times, including at the time of hire or promotion of an employee, promotion of an employee, to reward an employee, for retention purposes or for other circumstances as recommended by the Chief Executive Officer or the Compensation Committee. In determining the size of the long-term equity incentives to be awarded to employees, we take into consideration a number of factors including but not limited to relative job scope, individual performance level, prior contributions to the Company, the need to retain the employee, the size of prior grants and competitive market data. Based upon these factors, the Compensation Committee determines the size of the equity incentives at levels it considers appropriate to create meaningful opportunity for reward predicated on the creation of long-term stockholder value. +The exercise price of options granted is set at the closing price of our common stock on the date of grant. Grants of options generally vest in equal annual installments over a three- to five-year period and have a ten-year term. +2010 Executive Compensation +The specific compensation decisions made for each of our executive officers for 2010 reflect the performance of the Company against key financial and operational measurements, as well as performance against objectives. +Base Salary : The Company’s Vice President, Human Resources and the CEO and CFO review and discuss the NEOs’ (other than the CEO, CFO and EVP, Engineering) base salaries. In connection with establishing the NEOs’ (other than the CEO, CFO and EVP, Engineering) base salary adjustments, the Company’s Vice President, Human Resources provides merit increase percentage guidelines based on market-based compensation data, its knowledge of competitive market practices and the Company’s salary budget. The merit increase percentage guidelines (the “Merit Increase Guideline”) for the 2010 base salary increases for all NEOs serving at the time were from 0% to 3%. After considering the Merit Increase Guideline and evaluating a NEO’s performance and the position of his or her current base salary, the CEO, as direct supervisor, makes a specific base salary adjustment recommendation to the Compensation Committee. Each NEO’s (other than the CEO, CFO and EVP, Engineering) actual base salary adjustment, if any, is determined by the Compensation Committee. +In determining the base salary of the NEOs, the Compensation Committee evaluated the overall performance of the Company and the individual’s contributions to that performance, as well as the performance of the sales unit or function that each leads when relevant. Based on individual considerations with respect to each NEO (other than the CEO, CFO and EVP, Engineering) such as his or her experience and contributions to the Company, and recognizing that the Company must also react to a competitive marketplace on a case-by-case basis when seeking to recruit and retain executives, the Compensation Committee strives to set each NEO’s base salary within the Merit Increase Guideline, if warranted. +13 +In January 2010, the Compensation Committee conducted an annual review and evaluation of the compensation levels of Mr. Shuldman, Mr. DeMartino and Mr. Kumpf and the remaining NEOs. For the one-year period beginning January 1, 2010, the Committee increased the base salaries for Mr. DeMartino and Mr. Kumpf by 3% and Mr. Wyatt by 6% over their respective base salaries for the prior one-year period. No increase in base salary was given to Mr. Shuldman or Mrs. Chernay. In June 2010, Mr. DeMartino was promoted to President, Chief Financial Officer, Treasurer and Secretary and Mrs. Chernay was promoted to Executive Vice President, Sales and Marketing. As a result of the promotions and the increased level of responsibilities, the Compensation Committee authorized the CEO to increase Mr. DeMartino’s and Mrs. Chernay’s base salaries by up to 15% at his discretion for their approved promotions, effective June 1, 2010. +Incentive Cash and Equity Bonus Program: During 2010, the Company achieved and exceeded by 14% its diluted earnings per share performance objective of $0.36, excluding the after-tax effect of external, pre-closing and post-closing acquisition related expenses, as reviewed and approved by the Compensation Committee. Each NEO also achieved all of their performance objectives set for 2010. Therefore, for 2010, the incentive cash and equity bonus payout for all eligible employees based on both financial and performance objectives achievement was approved at 112.5% of the annual target amount. For 2010, Mr. Shuldman, Mr. DeMartino, Mr. Kumpf and Mr. Wyatt were paid an incentive bonus of $370,116, $153,076, $83,546 and $55,272, respectively. For 2010, 30% and 20% of Mr. Shuldman’s and Mr. DeMartino’s incentive bonus was issued in the form of vested deferred stock units. These amounts are shown in the “Summary Compensation Table” below under the columns “Stock Awards” and “Non-Equity Incentive Plan Compensation.” These bonuses were calculated as a percentage of each executive’s base salary in effect as of March 2010, except for Mr. DeMartino, as his bonus was pro-rated to include his base salary prior to his promotion as well as after his promotion. Mrs. Chernay was not eligible to participate in the incentive bonus program as she earned commissions based on annual sales from her sales units. Mrs. Chernay received a commission, paid monthly, equal to 0.2% of sales achieved in the fiscal year. +Equity Incentive Awards : For 2010, Mr. Shuldman recommended to the Compensation Committee a total equity award dollar value range for each NEO based on factors including the NEO’s performance evaluation, his/her overall compensation package and his/her perceived potential and contributions to the Company. After considering Mr. Shuldman’s recommendations, the Compensation Committee, with Mr. Shuldman’s participation, determined the total equity award dollar value for each NEO other than Mr. Shuldman. The Compensation Committee considered several factors in making its determinations, including Mr. Shuldman’s recommendations, the Company’s performance, each NEO’s position within the Company, his/her perceived potential and contributions to the Company, and the Compensation Committee’s subjective understanding of competitive practices in the marketplace with respect to equity awards. The factors used by Mr. Shuldman to determine recommendations regarding total equity award dollar value ranges for each NEO and by the Compensation Committee to establish each NEO’s total equity award dollar value were assessed by Mr. Shuldman and the Compensation Committee, respectively, on a subjective basis. In May 2010, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. DeMartino, Mr. Kumpf, Mrs. Chernay and Mr. Wyatt of stock options to purchase 25,000, 20,000, 15,000, 5,000 and 15,000 shares, respectively. The vesting terms of the grant of stock options are outlined in the table entitled “Grants of Plan-Based Awards in 2010.” The level of awards granted was consistent with the level of historical grants over the previous five years. +Tax Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code, publicly held corporations may be prohibited from deducting as an expense for federal income tax purposes total compensation in excess of $1 million paid to certain executive officers in a single year. Section 162(m) specifically exempts certain performance-based compensation from the deduction limit. The levels of base salary, annual cash incentive bonus and equity compensation we generally pay to our executive officers do not exceed this limit, and thus compensation decisions are not driven by the requirements of Section 162(m). +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in TransAct’s proxy statement for the 2011 annual meeting. +COMPENSATION AND CORPORATE +GOVERNANCE COMMITTEE +Thomas R. Schwarz, Chairman +Charles A. Dill +Graham Y. Tanaka +14 +SUMMARY COMPENSATION TABLE +The following table sets forth information concerning the compensation earned by the Company’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers (the “NEOs”) in 2010, 2009 and 2008: +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($) +Option +Awards +(3)($) +Non-Equity +Incentive Plan +Compensation +(7)($) +All Other +Compensation ($) +Total ($) +Bart C. Shuldman(1) +2010 +438,656 +- +- +114,763 +370,116 +39,408 +(4) +962,943 +Chairman and Chief +2009 +438,656 +- +- +39,243 +205,620 +40,526 +(4) +724,045 +Executive Officer +2008 +425,880 +- +- +61,637 +357,739 +39,984 +(4) +885,240 +Steven A. DeMartino +2010 +270,641 +- +- +91,810 +153,076 +22,370 +(5) +537,897 +President, Chief +2009 +244,007 +- +- +32,703 +76,252 +22,143 +(5) +375,105 +Financial Officer, Treasurer and Secretary +2008 +236,900 +- +- +73,378 +132,664 +22,293 +(5) +465,235 +Michael S. Kumpf +2010 +211,110 +- +- +68,858 +83,546 +27,609 +(5) +391,123 +Executive Vice +2009 +206,000 +- +- +26,162 +45,063 +27,320 +(5) +304,545 +President, Engineering +2008 +200,000 +- +- +58,702 +78,400 +27,721 +(5) +364,823 +Tracey S. Chernay +2010 +173,383 +99,002 +(2) +- +22,953 +- +15,367 +(5) +310,705 +Executive Vice +2009 +160,268 +100,781 +(2) +- +19,622 +- +13,661 +(5) +294,332 +President, Sales and Marketing +2008 +155,600 +87,388 +(2) +- +29,351 +- +16,255 +(5) +288,594 +Benjamin C. Wyatt +2010 +162,166 +- +- +68,858 +55,272 +6,670 +(6) +292,966 +Vice President, Software +2009 +154,500 +- +- +13,081 +28,969 +7,215 +(6) +203,765 +Products & Business Development +2008 +150,000 +- +- +44,167 +50,400 +2,555 +(6) +247,122 +________ +(1) +Mr. Shuldman is a director of the Company, but does not receive any separate compensation for those services. +(2) +Bonuses paid to Mrs. Chernay represent commissions on sales by the Company. In fiscal 2010 and 2009, commissions were paid in the amount of 99,002 and 100,781, respectively. In fiscal 2008, commissions were paid in the amount of 82,388, plus a discretionary bonus of $5,000. +(3) +Amounts in this column reflect the grant date fair value of option awards, calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. All option awards in 2008, 2009 and 2010 were granted under the Company’s 2005 Equity Incentive Plan. For information on the valuation assumptions with respect to these option awards, refer to note 12 of the Company's financial statements in the Form 10-K for the years ended December 31, 2008, 2009 and 2010, as filed with the SEC. Please see the “Outstanding Equity Awards at 2010 Fiscal Year-End” table for a description of option awards. There were no forfeitures of option awards by this group during the year. +(4) +For Mr. Shuldman, this amount consists of an automobile allowance, Company contributions under the Company’s 401(k) Plan, life insurance, disability insurance and tax return preparation fees. +(5) +For Mr. DeMartino, Kumpf, Mrs. Chernay and Mr. Hoffman, these amounts consist of automobile allowances, Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(6) +For Mr. Wyatt, these amounts consist of Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(7) +For Mr. Shuldman and Mr. DeMartino, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program for 2008. For 2009 and 2010, 30% and 20%, respectively, of these incentive bonus amounts were paid in the form of deferred stock units with the remainder paid in cash. For Mr. Kumpf and Mr. Wyatt, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. +15 +GRANTS OF PLAN-BASED AWARDS IN 2010 +The following table sets forth information concerning the grant of plan-based awards to NEOs in 2010: +Name +Grant +Date +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +All Other +Option +Awards: +Number of +Securities +Underlying +Options(2)(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value of +Stock and +Option +Awards(3)($) +Threshold ($) +Target ($) +Maximum ($) +Bart C. Shuldman +5/27/2010 +82,248 +328,992 +394,790 +25,000 +7.45 +114,763 +Steven A. DeMartino +5/27/2010 +34,017 +136,067 +163,280 +20,000 +7.45 +91,810 +Michael S. Kumpf +5/27/2010 +18,566 +74,263 +89,116 +15,000 +7.45 +68,858 +Tracey S. Chernay +5/27/2010 +- +- +- +5,000 +7.45 +22,953 +Benjamin C. Wyatt +5/27/2010 +12,283 +49,131 +58,957 +15,000 +7.45 +68,858 +________ +(1) +Represents target payout under our annual incentive bonus program for 2010. Actual amounts paid in March 2011 are included in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. For Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of these incentive bonus amounts were paid in 2011 in the form of deferred stock units with the remainder paid in cash. The maximum amounts assume a payout of 120% of the NEO's annual incentive bonus. The annual incentive cash and equity bonus program is described in the "Compensation Discussion and Analysis". +(2) +Each stock option award disclosed in the Grants of Plan-Based Awards in 2010 table was issued under our 2005 Equity Incentive Plan and was granted with an exercise price per share equal to the fair market value of our common stock on the date of grant, as determined by the closing price of the stock on the date the option was granted. Subject to the terms of our 2005 Equity Incentive Plan and the option agreements issued in connection with these grants, each option award granted in 2010 to a NEO vests at a rate of 25% per year over four years. +(3) +The amounts shown represent the grant date fair value of stock options granted in 2010 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2010, as filed with the SEC. Please see the “Outstanding Equity Awards at 2010 Fiscal Year-End” table for a description of option awards. There were no forfeitures of stock option awards by this group during the year. +16 +OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END +The following table shows outstanding equity awards for the NEOs as of December 31, 2010: +Option Awards +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +(# Exercisable) +Number of +Securities +Underlying +Unexercised +Options +(# Unexercisable) +Option +Exercise +Price ($) +Option +Expiration +Date +Bart C. Shuldman +2/26/01 +2,892 +- +3.42 +2/26/11 +5/17/02 +138,250 +- +3.77 +5/17/12 +1/2/06 +10,000 +2,500 +7.90 +1/2/16 +3/1/06 +12,000 +3,000 +9.75 +3/1/16 +2/28/07 +15,000 +10,000 +9.51 +2/28/17 +2/27/08 +8,400 +12,600 +5.24 +2/27/18 +3/5/09 +6,000 +24,000 +2.18 +3/5/19 +5/27/10 +- +25,000 +7.45 +5/27/20 +Steven A. DeMartino +5/17/02 +31,000 +- +3.77 +5/17/12 +1/2/06 +8,000 +2,000 +7.90 +1/2/16 +3/1/06 +8,000 +2,000 +9.75 +3/1/16 +2/28/07 +9,000 +6,000 +9.51 +2/28/17 +2/27/08 +10,000 +15,000 +5.24 +2/27/18 +3/5/09 +5,000 +20,000 +2.18 +3/5/19 +5/27/10 +- +20,000 +7.45 +5/27/20 +Michael S. Kumpf +5/17/02 +12,625 +- +3.77 +5/17/12 +1/2/06 +6,000 +1,500 +7.90 +1/2/16 +3/1/06 +6,000 +1,500 +9.75 +3/1/16 +2/28/07 +9,000 +6,000 +9.51 +2/28/17 +2/27/08 +8,000 +12,000 +5.24 +2/27/18 +3/5/09 +4,000 +16,000 +2.18 +3/5/19 +5/27/10 +- +15,000 +7.45 +5/27/20 +Tracey S. Chernay +1/2/06 +4,000 +1,000 +7.90 +1/2/16 +3/1/06 +2,000 +500 +9.75 +3/1/16 +2/28/07 +9,000 +6,000 +9.51 +2/28/17 +2/27/08 +4,000 +6,000 +5.24 +2/27/18 +3/5/09 +3,000 +12,000 +2.18 +3/5/19 +5/27/10 +- +5,000 +7.45 +5/27/20 +Benjamin C. Wyatt +5/28/08 +- +10,000 +7.80 +5/28/18 +3/5/09 +2,000 +8,000 +2.18 +3/5/19 +5/27/10 +- +15,000 +7.45 +5/27/20 +Options Awards Vesting Schedule +Grant Dates +Vesting Schedule +2/26/2001, 5/17/2002, 1/2/2006, 3/1/2006, 2/28/2007, 2/27/2008, 3/5/2009 +20% per year for five years +5/28/2008 +100% after four years +5/27/2010 +25% per year for four years +17 +OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2010 +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +On Exercise (#) +Value Realized +on Exercise(1)($) +Number of +Shares +Acquired +on Vesting (2)(#) +Value Realized +on Vesting(3)($) +Bart C. Shuldman +31,500 +149,305 +12,181 +107,025 +Steven A. DeMartino +10,000 +54,142 +5,023 +41,464 +Michael S. Kumpf +- +- +3,000 +22,470 +Tracey S. Chernay +- +- +- +- +Benjamin C. Wyatt +- +- +- +- +________ +(1) +Calculated based on the difference between the market price of the underlying securities at exercise and the exercise price of the options. +(2) +Includes the underlying shares of the fully vested stock units granted on March 1, 2010 to Mr. Shuldman and Mr. DeMartino under the 2005 Equity Incentive Plan, which are payable upon the sale of the Company, the executive leaving the Company or on the third year anniversary from the date of grant in the form of shares of the Company’s common stock on a one-for-one basis. +(3) +Amounts for shares underlying deferred fully vested stock units are calculated based on the closing price of the Company’s stock on December 31, 2010, the last trading day of the fiscal year, the remaining amounts are calculated based on the market value on the vesting date of the shares underlying each award. +NON-QUALIFIED DEFERRED COMPENSATION +Under the Company’s incentive bonus plan, the Company’s Compensation Committee may provide that the target bonus amount for certain executives may be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan with the number of deferred stock units to be based on the closing price of the Company’s common stock on the date the target bonus is approved for payment by the Compensation Committee. These stock units are payable in the form of shares of the Company’s common stock on a one-for-one basis upon the earliest to occur of the following: a sale of the Company, the executive leaves the Company or the third year anniversary of the grant date of the stock units. This new compensation program was implemented beginning with the 2009 annual incentive bonus plan. +Name +Registrant +Contributions in +Last FY (1) ($) +Aggregate Earnings +in Last FY ($) +Aggregate +Withdrawals / +Distributions ($) +Aggregate Balance at +Last FYE (1) ($) +Bart C. Shuldman +77,065 +- +- +77,065 +Steven A. DeMartino +19,057 +- +- +19,057 +________ +(1) +These amounts were reported in the Summary Compensation Table and are based on the closing price of the Company’s stock on December 31, 2010, the last trading day of the fiscal year. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has entered into certain agreements and maintains certain plans that may require payments be made, and/or benefits be provided, to the NEOs: (i) in the event a NEO’s employment is terminated other than for Cause, as defined below, (a “Termination Event”), (ii) if a change in control (as defined by the applicable agreement or plan) occurs (a “Change in Control Event”) or (iii) if a Termination Event occurs or a NEO resigns for certain specified reasons within one year following a change in control (a “Change in Control and Termination Event”). The payments and benefits that each NEO may be entitled to receive upon a Termination Event, Change in Control Event or a Change in Control and Termination Event are described in the applicable employment agreement or severance agreement and the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. None of the agreements for our NEOs include a gross up for any taxes as a result of golden parachute payments. Below is a description of the types of events that would trigger payments under these agreements and plans and the potential payments to each such Named Executive Officer assuming that a triggering event occurred on December 31, 2010, the last day of our most recent fiscal year. +18 +Employment and Severance Agreements +Events That Trigger a Termination Event or Change in Control Event. The applicable employment and severance agreements generally define Cause as a termination for the following reasons: (i) action or inaction by the NEO that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the Board or officers of the Company or a commission of a crime of moral turpitude; (ii) material, repetitive, unjustified and unexcused refusal to follow the reasonable and lawful written instruction of the Board—or in the case of the NEOs other than Mr. Shuldman, the Board or the Company’s President; or (iii) death or disability. Change in control is generally defined in each agreement to include (i) a merger of the Company with another company where the majority of the board of the surviving company is not comprised of directors of the Company in office immediately prior to the transaction, (ii) a change in the board of directors of the Company such that after an election a majority of the directors in office are not directors that were nominated by two-thirds of board members prior to the election or (iii) a complete liquidation of the Company. +Effect of a Termination Event or Change in Control and Termination Event. Under the terms of an Employment Agreement dated July 31, 1996 between Bart C. Shuldman and the Company, if a Termination Event or Change in Control Event were to occur, Mr. Shuldman would continue to receive: (i) his annual base salary and (ii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; an automobile allowance; and certain service fees related to medical exams, income tax planning and estate planning) for two years and three years, respectively, from the date of termination. In connection with a Termination Event, Mr. Shuldman would receive a pro rata portion of his annual target bonus amount for the year of termination. If a Change in Control Event were to occur and within one year thereafter either Mr. Shuldman’s employment is terminated other than for Cause, or Mr. Shuldman resigns following a significant reduction in the nature or scope of his responsibilities or authorities, a decrease in salary other than resulting from a reduction that applies generally to all management personnel or specified relocations of the Company’s facilities, Mr. Shuldman would be entitled to continue to receive, in addition to the amounts listed in the first sentence, his annual target bonus for a period of three years from the date of termination and all stock options and other awards granted to Mr. Shuldman under the Company's stock plans would immediately vest. +Under the terms of a Severance Agreement with Steven A. DeMartino dated June 1, 2004, if a Termination Event were to occur, Mr. DeMartino would be entitled to continue to receive, for one year following the date of termination (i) his annual base salary, (ii) a pro rata portion of his annual target bonus for the year of termination and (iii) medical, dental, vision, life and long term disability insurance benefits. If a Change in Control Event were to occur and the employment of Mr. DeMartino is terminated other than for Cause, or if he resigns for specified reasons within one year following a Change in Control Event, Mr. DeMartino would be entitled to receive for two years after his termination (i) his annual base salary, (ii) annual target bonus, (iii) medical, dental, vision, life and long term disability insurance benefits and (iv) all stock options granted to Mr. DeMartino would immediately vest. +Under the terms of Severance Agreements with Michael S. Kumpf, Tracey S. Chernay and Benjamin C. Wyatt dated September 4, 1996, July 29, 2005 and May 27, 2008, respectively, if a Termination Event were to occur, the applicable NEO would be entitled to continue to receive, for six months following the date of termination (i) a pro rata portion of his or her annual base salary, (ii) a pro rata portion of his or her annual target bonus for the year of termination, and (iii) in the case of Mrs. Chernay and Mr. Wyatt, continuation in the Company’s group medical and dental plans and in the case of Mr. Kumpf, all benefits which would otherwise have been payable. If a Change in Control Event were to occur, the applicable NEO would be entitled to continue to receive for a period of one year from the date of termination (i) base salary, (ii) annual target bonus, (iii) in the case of Mrs. Chernay and Mr. Wyatt, continuation in the Company’s group medical and dental plans and in the case of Mr. Kumpf, all benefits and (iv) all stock options granted to the applicable NEO would immediately vest. +Equity Plans +2005 Equity Incentive Plan. The terms of the Company’s 2005 Equity Incentive Plan provide that all awards issued under the plan would accelerate and either become exercisable or vest, as applicable, immediately prior to any of the following: (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not the Company or a publicly owned corporation (or a subsidiary thereof) in which the stockholders of the Company immediately prior to the transaction continue to beneficially own 50% or more of the voting securities of the Company, (ii) a sale, transfer, exchange or other disposition of all or substantially all of the Company’s assets, (iii) any acquisition of 50% or more of the voting securities of the Company excluding acquisitions by specified parties or (iv) any dissolution or liquidation of the Company. Upon the occurrence of some of the foregoing Change in Control Events, stock or other property to be delivered upon acceleration of any award may be placed in escrow, rather than actually delivered, under terms set by the Compensation and Corporate Governance Committee. +1996 Stock Plan. The terms of the Company’s 1996 Stock Plan do not provide for the acceleration of all awards issued under the plan in the event of a change in control of the Company. Instead, the plan provides that acceleration upon a change in control is permitted and that the terms of the individual awards issued under the plan control whether the awards accelerate upon occurrence of a Change in Control Event. +19 +Payments Upon a Change in Control Event. If a Change in Control Event had occurred on December 31, 2010 that triggered acceleration of all of the equity awards outstanding to each NEO under each of the 1996 Stock Plan and the 2005 Equity Incentive Plan that accelerate either by their terms or the terms of the applicable plan, the following amounts would have been paid to the NEOs: +Name +Stock +Awards (1) +Option +Awards (2) +Total +Bart C. Shuldman +$ +77,065 +$ +1,172,165 +$ +1,249,230 +Steven A. DeMartino +19,057 +515,353 +534,410 +Michael S. Kumpf +- +340,723 +340,723 +Tracey S. Chernay +- +167,850 +167,850 +Benjamin C. Wyatt +- +118,150 +118,150 +________ +(1) +Accelerated stock awards were valued using the closing price of $9.42 per share of our common stock on December 31, 2010, which was the last trading date of the year. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $9.42 per share of our common stock on December 31, 2010, which was the last trading day of the year. +PAYMENTS UPON A TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Termination Event occurred on December 31, 2010, the last day of the Company’s fiscal year. +Name +Base +Salary +Pro Rata +Portion of +Annual +Target +Bonus +Benefits(1) +Stock +Options +Stock +Awards +Total +Bart C. Shuldman +$ +877,312 +$ +328,992 +$ +101,829 +- +- +$ +1,308,133 +Steven A. DeMartino +287,000 +143,500 +14,526 +- +- +445,026 +Michael S. Kumpf +106,090 +37,132 +7,730 +- +- +150,952 +Tracey S. Chernay +91,500 +- +3,601 +- +- +95,101 +Benjamin C. Wyatt +81,885 +24,566 +5,753 +- +- +112,204 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +PAYMENTS UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Change in Control and Termination Event occurred on December 31, 2010, the last day of the Company’s fiscal year. +Name +Base +Salary +Annual +Target +Bonus +Benefits(1) +Stock +Options (2) +Stock +Awards (3) +Total +Bart C. Shuldman +$ +1,315,968 +$ +986,976 +$ +152,743 +$ +1,172,165 +$ +77,065 +$ +3,704,917 +Steven A. DeMartino +574,000 +287,000 +29,052 +515,353 +19,057 +1,424,462 +Michael S. Kumpf +212,180 +74,263 +15,461 +340,723 +- +642,627 +Tracey S. Chernay +183,000 +- +7,202 +167,850 +- +358,052 +Benjamin C. Wyatt +163,770 +49,131 +11,506 +118,150 +- +342,557 +________ +The following assumptions were used to calculate these payments: +20 +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $9.42 per share of our common stock on December 31, 2010, which was the last trading day of the year. +(3) +Accelerated stock awards were valued using the closing price of $9.42 per share of our common stock on December 31, 2010, which was the last trading day of the year. +Non-Competition Provisions That Apply to a Termination Event or Change in Control Event +Pursuant to Mr. Shuldman’s Employment Agreement, upon the occurrence of a Termination Event while he is receiving severance payments under the agreement, Mr. Shuldman agrees that for two years, or in the case of a Change in Control Event, for three years, that he will not directly or indirectly engage in any business or activity that is competitive with the Company in a geography where the Company is selling its products. Further, Mr. Shuldman agrees not to attempt to recruit any employees of the Company or encourage them to leave the Company and agrees not to encourage any of the Company’s customers to direct their business elsewhere. The other NEOs have the same provisions in their Severance Agreements, except that they apply for six months upon the occurrence of a Termination Event or one year upon the occurrence of a Change in Control Event and they are not contingent upon the payment of the benefits described in each agreement by the Company to the NEO. +DIRECTOR COMPENSATION FOR FISCAL YEAR 2010 +Name +Fees Earned +Or Paid in +Cash ($) +Stock +Options(2)($) +Stock +Awards +(3)($) +Total ($) +Thomas R. Schwarz +36,000 +39,019 +- +75,019 +Charles A. Dill +36,000 +39,019 +- +75,019 +Graham Y. Tanaka +36,000 +39,019 +- +75,019 +Bart C. Shuldman (1) +- +- +- +- +________ +(1) +Mr. Shuldman did not receive any compensation for director services other than what is reflected in the "Summary Compensation Table" above. +(2) +On May 27, 2010, Mr. Schwarz, Mr. Dill and Mr. Tanaka were each awarded 7,500 stock options granted under the Company’s 2005 Equity Incentive Plan. The amounts shown represent the grant date fair value of stock options granted in 2010 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2010, as filed with the SEC. +(3) +As of December 31, 2010, Mr. Schwarz held 56,500 fully vested stock options at exercise prices ranging from $3.77 to $31.82 and 1,000 shares of unvested restricted stock grants as well as 23,500 unvested stock options at exercise prices ranging from $4.84 to $7.80, Mr. Dill held 45,250 fully vested stock options at exercise prices ranging from $4.84 to $31.82 and 1,000 shares of unvested restricted stock grants as well as 23,500 unvested stock options at exercise prices ranging from $4.84 to $7.80, Mr. Tanaka held 56,500 fully vested stock options at exercise prices ranging from $3.77 to $31.82 and 1,000 shares of unvested restricted stock grants as well as 23,500 unvested stock options at exercise prices ranging from $4.84 to $7.80, and Mr. Shuldman held no stock option or restricted stock grants other than those shown in the “Outstanding Equity Awards at 2010 Fiscal Year-End” table above. +For 2010, each non-employee director of the Company received a retainer of $9,000 for each fiscal quarter served as director as compensation for services rendered. Directors are also reimbursed for reasonable expenses incurred in attending meetings. +Each non-employee director receives an annual grant of 7,500 stock options, pursuant to the terms of the Company’s 2005 Equity Incentive Plan. The stock options vest at the rate of 25% per year beginning on the first anniversary of the date of grant. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member of the Board’s Compensation and Corporate Governance Committee has served as an officer or employee of the Company at any time. None of the Company’s executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of the Company’s Board. None of the Company’s executive officers serve +21 +as a member of the board of directors of any other company that has an executive officer serving as a member of the Board’s Compensation and Corporate Governance Committee. +STOCKHOLDER PROPOSALS FOR 2012 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year’s proxy materials must be received by the Secretary of the Company on or before December 16, 2011. Proposals should be addressed to TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. Stockholders who wish to make a proposal at the 2012 Annual Meeting without regard to whether it will be included in the Company’s proxy materials should notify the Company no later than March 12, 2012. If a Stockholder who wishes to present a proposal fails to notify the Company by the due date, the proxies that the Company solicits for the meeting will accord them discretionary authority to vote on the Stockholder’s proposal if it is properly brought before the meeting. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors if the proper nomination procedures specified in the Company’s By-Laws are followed. All nominations by stockholders must be delivered to or mailed and received at the principal executive offices of the Company not less than 30 nor more than 60 days prior to the meeting at which election of directors will take place; however, if less than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, nominations will be timely if received not later than 10 days after notice was given or public disclosure was made. A stockholder’s notice must set forth in writing (i) for each person proposed to be nominated, all information relating to each such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to be named in the proxy and to serving as a director, and (ii) for the stockholder giving notice, the (x) name and address of such stockholder as they appear on the Company’s books, and (y) the class and number of shares of the Company beneficially owned by such stockholder. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder or interested party wishing to communicate directly with members of the Board of Directors should do so in writing. All correspondence addressed to the Board as a whole, to its independent directors, to any of its Committees or Committee Chairs, or to individual Board members should be mailed to the following address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +· +You are welcome to communicate anonymously or confidentially. +· +All correspondence addressed to an individual director or Committee Chair, and marked “Confidential”, will be collected in the office of the Secretary and forwarded unopened to the individual director. +· +Other correspondence will be opened by the Secretary, reviewed, copied and directed as follows: +o Concerns regarding the Company’s accounting, internal accounting controls or auditing matters will be referred to the members of the Audit Committee. +o Nominations or recommendations of candidates for election to the Board of Directors will be referred to members of the Nominating Committee. +o Other correspondence will be copied by the Secretary and forwarded to all of the members of the Board of Directors (or its independent directors, if so addressed) unless the stockholder directs otherwise. +GENERAL +As of the date of this Proxy Statement, the Board of Directors is not aware of any matter which is to be presented for action at the Annual Meeting other than the matters set forth herein. Should any other matter requiring a vote of the stockholders arise at the Annual Meeting, the proxies confer upon the persons named in the accompanying proxy the authority to vote in respect of any such other matter in accordance with the recommendation of the Board of Directors. +22 +A stockholder who has given a proxy may revoke it at any time prior to its exercise at the Annual Meeting by: (i) giving written notice of revocation to the Secretary of the Company, (ii) properly submitting to the Company a duly executed proxy bearing a later date, or (iii) voting in person at the Annual Meeting. All written notices of revocation and other communications with respect to revocation of proxies should be addressed to the Company, as follows: TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. A proxy appointment will not be revoked by death or supervening incapacity of the stockholder executing the proxy unless, before the shares are voted, notice of such death or incapacity is filed with the Company’s Secretary or other person responsible for tabulating votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be borne by the Company. The Company may solicit proxies otherwise than by use of the mail, in that certain officers and regular employees of the Company, without additional compensation, may use the telephone or otherwise to obtain proxies. The Company will also request persons, firms and corporations holding shares in their names, or owned by others, to send this proxy material to and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in doing so. +No director or executive officer of the Company has any direct or indirect substantial interest, whether by security holdings or otherwise, in the ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company’s 2011 fiscal year. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +23 +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Form 10-K, Notice & Proxy Statement is/are is/ are available at www.proxyvote.com . +TRANSACT TECHNOLOGIES INCORPORATED +ANNUAL MEETING OF STOCKHOLDERS +MAY 27, 2011 10:00 AM +THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS +The undersigned stockholder of TransAct Technologies Incorporated (the “Company”) does hereby nominate, constitute and appoint Bart C. Shuldman and Steven A. DeMartino, or either of them, with full power to act alone, my true and lawful attorney with full power of substitution, for me and in my name, place and stead to vote all of the shares of Common Stock of the Company standing in my name on its books on April 4, 2011, at the Annual Meeting of its stockholders to be held at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 on May 27, 2011 at 10:00 a.m., or at any adjournment thereof, with all powers the undersigned would possess if personally present as follows: +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR PROPOSAL2. THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. +PLEASE SIGN, DATE AND MAIL YOUR PROXY CARD BACK IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. +Address change/comments: +(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +24 +TransAct Technologies Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +Electronic Delivery of Future PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +For All +Withhold All +For All Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. +The Board of Directors recommends you vote FOR the following: +1. +Election of Directors +□ +□ +□ +Nominees +01 +Thomas R. Schwarz +02 Bart C. Shuldman +The Board of Directors recommends you vote FOR the following proposal: +For +Against +Abstain +2. +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. +□ +□ +□ +NOTE: Such other business as may properly come before the meeting or any adjournment thereof. +For address change/comments, mark here. +(see reverse side for instructions) +□ +Yes +No +Please indicate if you plan to attend this meeting +□ +□ +Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +25 \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-11-000008/proxy_rpt.txt b/raw/proxies/0001017303/0001017303-11-000008/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a57c8bb0e91fbd67148b9eb966bc84150d4a7dc1 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-11-000008/proxy_rpt.txt @@ -0,0 +1,4 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. +From January 1, 2010 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-12-000022/proxy.txt b/raw/proxies/0001017303/0001017303-12-000022/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..dde25658340e8135a5635f5045c41e0f36530bef --- /dev/null +++ b/raw/proxies/0001017303/0001017303-12-000022/proxy.txt @@ -0,0 +1,1156 @@ +DEF 14A +1 +formdef14a.htm +TRANSACT TECHNOLOGIES INCORPORATED DEF 14A +formdef14a.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant To Section 14(a) Of The Securities Exchange Act Of 1934 +(Amendment No. ___ ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (As Permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 30, 2012 +To the Stockholders of TransAct Technologies Incorporated: +Notice is hereby given that the 2012 Annual Meeting of Stockholders (the “Annual Meeting”) of TransAct Technologies Incorporated (the “Company” or “TransAct”), a Delaware corporation, will be held on May 30, 2012 at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 for the following purposes: +(1) +To vote on a proposal to elect John M. Dillon as director to serve until the 2015 Annual Meeting of Stockholders or until the director’s successor has been duly elected and qualified; +(2) +To vote on a proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2012; +(3) +To transact such other business as may legally come before the Annual Meeting. +Stockholders of record at the close of business on April 5, 2012 are entitled to notice of and to vote at the Annual Meeting. +By Order of the Board of Directors, +STEVEN A. DEMARTINO +Secretary +Hamden, Connecticut +April 20, 2012 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +One Hamden Center +2319 Whitney Avenue +Suite 3B +Hamden, Connecticut 06518 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 30, 2012 +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting To Be Held on May 30, 2012. +This Proxy Statement, the TransAct Technologies Incorporated 2011 Annual Report and the means to vote by Internet are +available at www.proxyvote.com. +This proxy statement is being made available to our stockholders in connection with a solicitation of proxies by the Board of Directors of TransAct Technologies Incorporated (“TransAct” the “Company,” “we,” “us,” or “our”) for use at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”) and at any adjournment or postponement of the meeting. The meeting will be held on Wednesday, May 30, 2012, beginning at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +We are furnishing the proxy materials over the Internet under the rules of the Securities and Exchange Commission (“SEC”). On or about April 20, 2012, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to shareholders of record of our common stock with a proxy card to be mailed 10 business days after the Notice. If you receive the Notice by mail, you will not receive a paper copy of the proxy materials unless you request one. The Notice will instruct you as to how you may access and review the proxy materials on the Internet and how to cast your vote over the Internet or by telephone. The Notice also contains instructions on how to request a paper copy of our proxy materials, free of charge. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held on May 30, 2012: This proxy statement, our 2011 Annual Report, the form of proxy and voting instructions are being made available to shareholders on or about April 20, 2012, at www.proxyvote.com. If you receive the Notice and would still like to receive a printed copy of the proxy materials or our 2011 Annual Report, including audited financial statements, for the year ended December 31, 2011, you may request a printed copy by any of the following methods: (a) telephone at 1-800-579-1639; (b) Internet at www.proxyvote.com; or (c) e-mail at sendmaterial@proxyvote.com. Please make the request as instructed above on or before May 16, 2012 to facilitate timely delivery. +All proxies will be voted in accordance with the instructions they contain. If you do not specify your voting instructions on your proxy card with respect to a particular matter, your shares will be voted in accordance with the recommendations of our Board. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power to revoke the same any time prior to its being voted. The accompanying proxy will be voted as specified thereon. A specification on the proxy card may be made to grant or withhold authority to vote for the election of a director and to indicate separate approval or disapproval as to the other matters presented to stockholders. Where an executed proxy has been received, but a choice is not specified, the shares represented by the proxy will be voted to elect the director nominee and to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered accounting firm. In addition, the proxy confers discretionary authority to vote on any matter properly presented at the Annual Meeting which is not known to the Company as of the date of this Proxy Statement. Brokers are not permitted to vote your shares with respect to election of directors without instructions from you. If your shares are held in the name of a broker or nominee and you do not instruct the broker or nominee how to vote with respect to the election of directors or if you abstain or withhold authority to vote on any matter, your shares will not be counted as having been voted on that matter, but will be counted as in attendance at the meeting for purposes of a quorum. +VOTING SECURITIES +Stockholders of record on April 5, 2012 are entitled to vote at the Annual Meeting. Each holder of Common Stock is entitled to cast one vote for each share of Common Stock held on April 5, 2012. There were 9,411,762 shares of Common Stock issued and outstanding and entitled to vote at the close of business on April 5, 2012. Shares representing a majority of the shares issued, outstanding and entitled to be voted at the Annual Meeting, present in person or represented by proxy, will constitute a quorum to transact business. +1 +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information known to the Company regarding the beneficial ownership of the Company’s common stock as of April 5, 2012 by: (i) each person known by the Company to own beneficially more than 5% of the Company’s common stock; (ii) each director or nominee for director of the Company; (iii) each current executive officer of the Company named in the Summary Compensation Table; and (iv) all current directors and executive officers of the Company as a group. Except as otherwise indicated, each of the persons named in the table has sole voting power and sole dispositive power with respect to the shares set forth opposite such person’s name and the address of the holder is One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +Name of Beneficial Owner +Shares +Beneficially +Owned +Percent +of +Class +More than 5% Stockholders: +Roumell Asset Management, LLC and +1,253,648 +13.32 +% +James C. Roumell (1) +Directors and Executive Officers: +Graham Y. Tanaka (2) +284,472 +3.00 +% +Bart C. Shuldman (3) +166,062 +1.75 +% +Charles A. Dill (4) +151,628 +1.60 +% +Steven A. DeMartino (5) +122,005 +1.28 +% +Thomas R. Schwarz (6) +118,350 +1.25 +% +Michael S. Kumpf (7) +101,224 +1.07 +% +Tracey S. Chernay (8) +44,500 +* +Benjamin C. Wyatt (9) +22,000 +* +All current directors and executive officers as a group (10 persons) (10) +1,050,477 +10.58 +% +________ +* +Less than 1% of the outstanding Common Stock. +(1) +This information listed in the table and this footnote is based solely on the Schedule 13D/A filed on April 6, 2012 by Roumell Asset Management, LLC (“RAM”) and James C. Roumell. According to the Schedule 13D/A, RAM and James C. Roumell beneficially own 1,243,318 and 10,330 shares of our common stock, respectively. RAM serves as the investment adviser for a number of managed accounts with respect to which it has dispositive authority over the shares reported in the Schedule 13D/A. James C. Roumell is the president of RAM with respect to which it has dispositive authority over the shares reported in the Schedule 13D/A. The address of each of the entities referenced by this footnote is 2 Wisconsin Circle, Suite 660, Chevy Chase, Maryland 20815. +(2) +Includes 61,875 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka that are directly owned by his children. +(3) +Includes 1,500 shares owned by his spouse in an individual retirement account, 4,800 shares owned by his minor children and 3,750 shares owned by his mother. Includes 98,675 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s 2005 Equity Incentive Plan. Also includes 34,945 deferred stock units issued under the Company’s 2009, 2010 and 2011 Incentive Bonus Programs, which are fully vested and convertible into shares of common stock as of April 5, 2012. +(4) +Includes 50,625 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 1,550 shares directly owned by Mr. Dill’s spouse. Mr. Dill will not seek re-election to the Board of Directors due to his retirement effective May 30, 2012. +(5) +Includes 84,375 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s 2005 Equity Incentive Plan. Also includes 9,637 deferred stock units issued under the Company’s 2009, 2010 and 2011 Incentive Bonus Programs, which are fully vested and convertible into shares of common stock as of April 5, 2012. +(6) +Includes 61,875 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his capacity as trustee of a trust for the benefit of his granddaughter, 1,500 shares beneficially owned by his daughter, as to which shares he disclaims beneficial ownership, and 3,975 shares owned by his spouse. +2 +(7) +Includes 68,000 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s 2005 Equity Incentive Plan. On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +(8) +Represents 44,500 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s 2005 Equity Incentive Plan. +(9) +Represents 22,000 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s 2005 Equity Incentive Plan. +(10) +Includes 519,661 shares subject to options currently exercisable or to become exercisable within 60 days of April 5, 2012 granted under the Company’s 2005 Equity Incentive Plan and Non-Employee Directors’ Stock Plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive officers and persons who beneficially own more than 10% of the Company’s common stock to file with the SEC and the Nasdaq Stock Market reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company and to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, or written representations that no other reports were required to be filed by those persons, the Company believes that, during the fiscal year ended December 31, 2011, each of the Company’s officers, directors and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction . +From January 1, 2011 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit the long-term interests of the Company’s stockholders by clearly outlining the Company’s duties and responsibilities, providing a framework for active and fruitful discussions among the members of the Board of Directors and between the Board and management, and avoiding conflicts of interest and other legal and ethical problems. Accordingly, the Company’s corporate governance practices are designed not only to satisfy regulatory requirements, but also to provide for effective management of the Company. +Information on the Company’s corporate governance practices is available to the public under “Corporate Governance” on the Company’s website at www.transact-tech.com . The information on the website includes the Company’s Corporate Governance Principles, the charters of each of the Company’s Committees, and the Company’s Standards of Business Conduct, which includes a code of ethics applicable to the officers responsible for financial reporting, the Chief Executive Officer, Chief Financial Officer and Corporate Controller. None of the directors attended the Company’s 2011 Annual Meeting. Each director attended 100% of the quarterly Board meetings. Additionally, each Director attended 100% of the supplemental Board Meetings with the exception of Mr. Schwarz and Mr. Dill who each missed one such meeting. Each Director attended 100% of the applicable Committee meetings. +3 +Board Leadership Structure +At present, the Board has chosen to combine the positions of Chief Executive Officer and Chairman of the Board. The Board believes it is important to retain the organizational flexibility to determine whether the roles of Chairman of the Board and Chief Executive Officer should be separated or combined in one individual. While there may be circumstances in which an independent Chairman is appropriate, the Board currently believes that the Chief Executive Officer is the individual with the necessary experience, commitment and support of the other Board members to effectively carry out the role of Chairman. +The Board believes this structure promotes better alignment of strategic development and execution, more effective implementation of strategic initiatives, and clearer accountability for their success or failure. Moreover, the Board believes that combining the Chairman and Chief Executive Officer positions does not impede independent oversight. All of the members of the Board are independent under The Nasdaq Global Market rules except for the Chairman and Chief Executive Officer. +Board's Role in Risk Oversight +Senior management is responsible for assessing and managing the various exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and programs. The Company has a strong internal control environment to identify and manage risks. These include Standards of Business Conduct, quarterly internal management disclosure committee meetings, robust product quality standards and processes, and a comprehensive internal and external audit process. Management communicates routinely with the Board, Board Committees and individual Directors on the significant risks identified and how they are being managed. The Board of Directors is responsible for overseeing management in the execution of its responsibilities and for assessing the overall approach to risk management. The Board of Directors exercises these responsibilities periodically as part of its meetings and also through its four committees, each of which examines various components of enterprise risk as part of its responsibilities. The Compensation and Corporate Governance Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks, as well as our policies with respect to risk assessment and risk management. The Nominating Committee manages risks associated with board independence and potential conflicts of interest. In addition, an overall review of risk is inherent in the Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board of Director’s role in risk oversight is consistent with our leadership structure, with the Chief Executive Officer, President and other members of senior management having responsibility for assessing and managing our risk exposure, and the Board and its committees providing oversight in connection with these efforts. +Board Size +The Corporate Governance Principles provide that the Board should generally have between four and ten members. In establishing the appropriate number of directors, the Board along with the Compensation and Corporate Governance Committee consider (i) resignations and retirements from the current Board, (ii) the availability of appropriate, qualified candidates, and (iii) the goal of assuring that the Board is small enough to facilitate active discussions and decision-making while, at the same time, is large enough to provide an appropriate mix of continuity, experience, skills and diversity so that the Board and its Committees can effectively perform their responsibilities. +Criteria for Membership on the Board +The Board and its Nominating Committee consider a number of different factors in selecting nominees for director. Some of these factors, such as integrity, are applied uniformly to all prospective candidates. Others, such as specific industry experience, may be adopted on a case-by-case basis by the Board and the Nominating Committee based on the Company’s business needs at the time a nomination is under consideration. The Nominating Committee and the Board of Directors apply the same criteria to each candidate for the Board, regardless of whether the candidate is proposed by a stockholder or some other source. On June 6, 2011, the Nominating Committee appointed John M. Dillon to the Board of Directors for a one year term through the 2012 Annual Meeting. Specific criteria considered by the Nominating Committee and the Board include: +Independence . The Board of Directors, in its Corporate Governance Principles and Committee charters, has established a policy that a substantial majority of the directors be “independent” members of the Board. The Nominating Committee and the Board consider the independence of each prospective director before election and further consider the independence of all continuing directors on at least an annual basis. The Board has determined that Messrs. Dill, Dillon, Schwarz and Tanaka are independent in accordance with the Company’s criteria and Mr. Shuldman, the Company’s Chief Executive Officer, is not independent. The Board applies the following criteria in determining independence, which criteria are derived from Nasdaq’s listing standards as well as certain additional requirements that are imposed on certain Committee members under the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the Internal Revenue Service (the “IRS”): +4 +● +Independent Judgment . The director must not have any relationship with the Company that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the Board considers all relevant facts and circumstances, including commercial, charitable and familial relationships that might have an impact on the director’s judgment. +● +Employment . The director must not have been an employee of the Company or any parent or subsidiary of the Company at any time during the past three years. In addition, a member of the director’s immediate family (including the director’s spouse, parents, stepparents, children, stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law and anyone who resides in the director’s home other than a tenant or employee) must not have been an executive officer of the Company during the past three years. +● +Other Payments . Neither the director nor a member of his or her immediate family member may have received compensation of more than $100,000 per year from the Company during any period of twelve consecutive months during the past three years, except for director fees, payments arising solely from investments in the Company’s securities, benefits under certain Company plans and non-discretionary compensation, certain permitted loans and compensation paid to a family member who is not an executive officer of the Company. +● +Auditor Affiliation . Neither the director nor a member of his or her immediate family may be a current partner of the Company’s independent auditors or have been a partner or employee of the Company’s independent auditors who worked on the Company’s audit at any time during the past three years. +● +Interlocking Directorships . Neither the director nor any member of his or her immediate family may be employed as an executive officer by another entity where, at any time during the past three years, any of the Company’s executive officers served on the compensation committee. +● +Transactions . Neither the director nor any member of his or her immediate family may be a partner in, or a controlling stockholder or executive officer of, any organization that, during the current or any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $200,000 or 5% of the recipient’s annual consolidated gross revenues for such year (excluding payments arising solely from investments in the Company’s securities or paid under a non-discretionary charitable matching program). +● +Additional Standards for Audit Committee Members . Any director who serves on the Board’s Audit Committee may not, directly or indirectly, have received any consulting, advisory or other compensatory fee from the Company (other than certain retirement benefits and deferred compensation) or be an affiliate of the Company (except as a director, but including by way of stock ownership). In addition, no such director may have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years. +Overall Board Composition. The Board of Directors believes it is important to consider the professional skills and background, experience in relevant industries, age and diversity of its directors in light of the Company’s current and future business needs. +Personal Qualities. Each director must possess certain personal qualities, including integrity, judgment and business acumen. In addition, each director must be no older than 75 years of age at the time of nomination or re-nomination. +Diversity. The Board has not adopted a formal policy with respect to its consideration of diversity and does not follow any ratio or formula to determine the appropriate mix; rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service. +Commitments. Each director must have the time and ability to make a constructive contribution to the Board. While the Board does not believe it is appropriate to establish a single standard regarding the number of other boards on which a director may sit, this is a factor that may be considered in reviewing a candidate’s suitability. +Additional Criteria for Incumbent Directors. During their terms, all incumbent directors on the Company’s Board are expected to attend Board and Committee meetings regularly; to stay informed about the Company and its business; to participate in discussions of the Board and its Committees; to take an interest in the Company’s business and provide advice and counsel to the Company’s Chief Executive Officer; and to comply with the Company’s Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the criteria established from time to time by The Nasdaq Global Market, the SEC, the IRS and other applicable regulatory entities for service on the Board and its Committees. +5 +Director Nomination Process +Under its charter, the Nominating Committee is responsible for identifying, reviewing and recommending individuals to the Board for nomination or election as directors. This typically involves the following steps: +● +Specific Criteria . The Nominating Committee and the Board review the overall composition of the Board in light of the Company’s current and expected business needs and, as a result of such assessments, may establish specific qualifications that the Committee will seek in Board candidates. +● +Identifying New Candidates . The Nominating Committee may seek to identify new candidates for the Board (i) who possess the desired qualifications and (ii) who satisfy the other requirements for Board service. In identifying new director candidates, the Committee may seek advice and names of candidates from Committee members, other members of the Board, members of management, and other public and private sources. The Committee may also, but need not, retain a search firm in order to assist in these efforts. +● +Reviewing New Candidates . The Nominating Committee reviews the potential new director candidates identified through this process. This involves reviewing the candidates’ qualifications and conducting an appropriate background investigation. The Committee may also select certain candidates to be interviewed by one or more Committee members. +● +Reviewing Incumbent Candidates . On an annual basis, the Nominating Committee also reviews incumbent candidates for re-nomination to the Board. This review involves an analysis of the criteria described above that apply to incumbent directors. +● +Recommending Candidates . The Nominating Committee recommends a slate of candidates for the Board of Directors to submit for approval to the stockholders at the Annual Meeting. This slate of candidates may include both incumbent directors and new nominees. In addition, apart from this annual process, the Committee may, in accordance with the Corporate Governance Principles, recommend that the Board elect new members of the Board who will serve until the next annual meeting of stockholders. At the time of making any recommendation to the Board, the Committee reports on the criteria that were applied in making the recommendation and its findings concerning each candidate’s qualifications. +● +Stockholder Nominations Submitted to the Committee . Stockholders may also submit names of director candidates, including their own, to the Nominating Committee for its consideration. The process for stockholders to use in submitting suggestions to the Nominating Committee is set forth below at “Procedures for Submitting Director Nominations and Recommendations.” Candidates who are nominated for the Board of Directors by stockholders are evaluated in the same manner as recommendations received from other sources. +Board Meetings and Executive Sessions +The Board of Directors holds regular quarterly meetings, as well as periodic special meetings. In 2011, the Board of Directors held seven meetings. +Independent directors meet by themselves in executive sessions, without management or employee directors present, at most regularly scheduled Board meetings. In addition, independent directors may convene additional executive sessions at any time. +The executive sessions are led by the Chair of the committee that is responsible for the subject matter at issue ( e.g. , the Audit Committee Chair would lead a discussion of audit-related matters). When it is not clear which committee has specific responsibility for the subject matter, the Chair of the Compensation and Corporate Governance Committee presides. +Committees of the Board +The Board has four standing committees: the Audit Committee, the Compensation and Corporate Governance Committee, the Nominating Committee and the Executive Committee. +Each Committee is composed entirely of independent directors and operates under a written charter. The Chair of each Committee is selected by the Board. Each Committee, except the Executive Committee, holds regular executive sessions at which only Committee members are present. Each Committee is authorized to retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance Committee, and the Nominating Committee are available on the Company’s website, www.transact-tech.com , but a brief summary of the committees’ responsibilities follows: +6 +Audit Committee . The Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. It is comprised of Messrs. Charles A. Dill, John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Dill serving as Chair. The Board has determined that each member of the Audit Committee is an independent director and meets the financial literacy requirements of The Nasdaq Global Market to serve on the Committee. In addition, the Board has determined that Mr. Dill is an “audit committee financial expert” as defined under the rules of the Securities and Exchange Commission. The Audit Committee operates under a written charter, which was revised in March 2004 and is posted on the Company’s website. The Audit Committee met four times during 2011. +Nominating Committee . The Nominating Committee is responsible for assisting the Board in carrying out its responsibilities relating to the composition of the Board, including identifying, reviewing and recommending candidates to the Board for nomination as directors. It is comprised of Messrs. Charles A. Dill, John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Nominating Committee met two times during 2011. +Compensation and Corporate Governance Committee . The Compensation and Corporate Governance Committee provides oversight for the hiring and termination of all executive officers of the Company, the Company’s corporate governance practices, CEO performance review and succession planning, director compensation, Board and Committee performance evaluation, stockholder communication matters, the design and management of the executive compensation programs, and the philosophy and programs for all employee compensation and benefit programs worldwide. The Committee is responsible for determining the compensation (including salary, bonus, equity-based grants, and any other long-term cash compensation) for the Company’s Chief Executive Officer and for other senior executives as are subject to the Committee’s direct purview. The Committee is comprised of Messrs. Charles A. Dill, John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as Chair. The Compensation and Corporate Governance Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Compensation and Corporate Governance Committee met once during 2011. +Executive Committee . The Executive Committee meets between scheduled meetings of the Board of Directors and has the power and authority of the Board, except as limited by the Company’s By-Laws. It is comprised of Messrs. Charles A. Dill, John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka. The Executive Committee did not meet during 2011. +Standards of Business Conduct +In order to help assure the highest levels of business ethics at the Company, the Board of Directors has approved and the Company has adopted Standards of Business Conduct (the "Standards"), which apply to the Company’s directors, officers and employees. The Standards provide an overview of the Company’s policies related to employee conduct in the workplace, regulatory compliance and investigations; the Company’s relationships with its customers, vendors, competitors and the public; insider trading; conflicts of interest; lobbying; political activities and contributions; accuracy of books, records and financial statements; confidentiality; and the protection of all who come forward to report suspected violations of the Standards. In addition, the Standards act as a code of ethics promoting honest and ethical conduct on the part of the Company’s officers who are responsible for financial reporting, including the Chief Executive Officer, Chief Financial Officer and Controller. The Standards mandate that these officers avoid conflicts of interest and disclose any relationship that could give rise to a conflict, protect the confidentiality of non-public information about the Company, work to achieve responsible use of the Company’s assets and resources, comply with all applicable governmental rules and regulations, and promptly report any possible violation of the Standards. The Standards require these individuals to promote full, fair, understandable and accurate disclosure in the Company’s publicly filed reports and other public communications. It sets forth standards for accounting practices and maintenance of records. Individuals who fail to observe the terms of the Standards may face disciplinary action, including possible employment termination. +PROPOSAL 1: +ELECTION OF DIRECTOR +The Board of Directors currently consists of five directors and is divided into three classes. Each class of directors is elected by the holders of the Company’s Common Stock to serve a staggered three-year term. At the Annual Meeting, one person is to be elected to hold office as a director until the 2015 Annual Meeting of Stockholders or until a successor is duly elected and qualified. The nominee for election is John M. Dillon. Mr. Dillon, who joined the Board on June 6, 2011, was initially recommended to the Nominating Committee by an independent director search firm. Should the nominee become unavailable, which is not anticipated, votes pursuant to the proxy will be cast for a substitute candidate as may be designated by the Board of Directors, or in the absence of such designation, in such other manner as the Board may in their discretion determine. Alternatively, in such a situation, the Board of Directors may take action to fix the number of directors for the ensuing year at the number of nominees and incumbent directors who are then able to serve. +7 +Information Concerning Nominees for Director Whose Terms Expire at the 2015 Annual Meeting +John M. Dillon , 62, was appointed by the Board as a director of the Company on June 6, 2011. Mr. Dillon is currently the CEO of Engine Yard, Inc., the leading cloud platform for automating and developing Ruby on Rails and PHP applications. Prior to joining Engine Yard, Mr. Dillon served as CEO for Navis, Inc., a private company specializing in software systems for operating large marine container terminals and distribution centers, from 2002-2008. Before Navis, he also served as CEO for Salesforce.com and President and CEO of Hyperion Solutions. He began his career as a Systems Engineer for EDS (Electronic Data Systems) and then moved into a variety of sales management positions for various high-tech companies, including Oracle Corporation. Mr. Dillon holds a Bachelor’s degree in Engineering from the United States Naval Academy and an MBA from Golden Gate University. He served on active duty in the nuclear submarine service for five years before beginning his civilian career. +Mr. Dillon’s qualifications for election to the Company’s Board of Directors include private company leadership in his current CEO role at Engine Yard, Inc. and in previous CEO roles as previously discussed. Mr. Dillon is also a Director at Intacct Corporation and Centerpointe Community Bank and previously served as Director of several other companies. From his past executive and director positions, Mr. Dillon brings to our Board his extensive executive experience and knowledge operating and managing complex software and technology companies. +VOTE REQUIRED +The election of John M. Dillon as director of the Company requires the affirmative vote of a plurality of the votes of the Company’s Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares and broker non-votes will have no effect on the election of the director, but will be included in determining the presence of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE ELECTION OF JOHN M. DILLON AS DIRECTOR OF THE COMPANY. +Information Concerning Directors Whose Term Will Expire at the 2012 Annual Meeting +Charles A. Dill , 72, has been a director of the Company since its formation in June 1996. Mr. Dill will not seek re-election to the Board of Directors due to his retirement effective May 30, 2012. +Information Concerning Directors Whose Term Will Expire at the 2013 Annual Meeting +Graham Y. Tanaka , 64, has been a director of the Company since its formation in June 1996. Mr. Tanaka has been President of Tanaka Capital Management, Inc., an investment management firm, since 1986. He is a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. +Mr. Tanaka’s qualifications for election to the Company’s Board of Directors include private investment management experience as President of Tanaka Capital Management, Inc. and board experience as a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. He has been a director of the Company since its inception and is Chairman of the Nominating Committee. With his varied experiences as a director and investment manager working in the financial markets, Mr. Tanaka brings extensive knowledge of financial markets and financial analysis gained through his experience. +Information Concerning Directors Whose Terms Will Expire at the 2014 Annual Meeting +Thomas R. Schwarz , 75, has been a director of the Company since its formation in June 1996 and was Chairman of the Board from June 1996 to February 2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman’s Inc., a retailer of building materials, from 1990 until his retirement in 1994. From 1980 to 1990, he was President, Chief Operating Officer and a director of Dunkin’ Donuts Incorporated, a food service company. Mr. Schwarz is a director of Tanaka Growth Fund and another privately held company. +Mr. Schwarz’s qualifications for election to the Company’s Board of Directors include public company leadership experience as President, Chief Operating Officer of Dunkin’ Donuts Incorporated and outside board experience as a director of Dunkin’ Donuts Incorporated, Grossman’s Inc., and The Tanaka Growth Fund. He has been a director of the Company since its inception and is Chairman of the Compensation Committee. From his past executive positions, Mr. Schwarz brings to our Board his extensive executive experience and knowledge of operating and managing complex operating companies. +8 +Bart C. Shuldman , 55, has been Chief Executive Officer and a director of the Company since its formation in June 1996 and has been Chairman of the Board since February 2001. Mr. Shuldman also served as the Company’s President from 1996 until June 2010. Previously, Mr. Shuldman was Vice President of Sales and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April 1993 to August 1993, and served as President of Magnetec, and later the combined operations of Magnetec and Ithaca Peripherals Incorporated, another former Tridex subsidiary, from August 1993 to June 1996. Mr. Shuldman is also the director of another privately held company. +Mr. Shuldman’s qualifications for election to the Company’s Board of Directors include public company leadership experience as Chief Executive Officer of the Company since its inception and board experience as a director and currently Chairman of the Board of the Company. Mr. Shuldman brings to our Board his experience and knowledge of our business derived from his current position as Chief Executive Officer. +PROPOSAL 2: +RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2012 +The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of the Company for the 2012 fiscal year. This selection is being presented to the stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company’s financial statements since the Company’s formation in 1996. In the event stockholders do not ratify the appointment, the Audit Committee will reconsider the appointment. +A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement, and is expected to be available to respond to appropriate questions. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2012 requires the affirmative vote of a majority of the Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2012. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring its pre-approval of all audit services and permissible non-audit services provided by the independent registered public accounting firm, along with the associated fees for those services (the “Policy”). The Policy provides for the annual pre-approval of specific types of services pursuant to policies and procedures adopted by the Audit Committee, and gives detailed guidance to management as to the specific services that are eligible for such annual pre-approval. The Policy requires the specific pre-approval of all other permitted services. For both types of pre-approval, the Audit Committee considers whether the provision of a non-audit service is consistent with the Securities and Exchange Commission’s rules on auditor independence, including whether provision of the service (i) would create a mutual or conflicting interest between the independent registered public accounting firm and the Company, (ii) would place the independent registered public accounting firm in the position of auditing its own work, (iii) would result in the independent registered public accounting firm acting in the role of management or as an employee of the Company, or (iv) would place the independent registered public accounting firm in a position of acting as an advocate for the Company. In addition, the Audit Committee considers whether the independent registered public accounting firm is best positioned and qualified to provide the most effective and efficient service, based on factors such as the independent registered public accounting firm’s familiarity with the Company’s business, personnel, systems or risk profile and whether provision of the service by the independent registered public accounting firm would enhance the Company’s ability to manage or control risk or improve audit quality or would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to address certain requests for pre-approval of services between meetings of the Committee, and such Committee member is required to report his or her pre-approval decisions to the Committee at its next regular meeting. The Policy is designed to ensure that there is no delegation by the Audit Committee of authority or responsibility for pre-approval decisions to management of the Company. The Audit Committee monitors compliance by management with the pre-approval policy by requiring management, pursuant to the Policy, to report to the Audit Committee on a regular basis regarding the pre-approved services rendered by the independent registered public accounting firm. +9 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm. Accordingly, the Audit Committee has appointed PricewaterhouseCoopers LLP to perform audit and other services for the Company. In addition, the Audit Committee has procedures in place for the pre-approval by the Audit Committee of all services provided by PricewaterhouseCoopers LLP. These pre-approval procedures, as amended, are described above under “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm.” +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for the years ended December 31, 2011 and 2010 are as follows: +2011 +2010 +Audit Fees (1) +$ +450,071 +$ +362,050 +Audit-Related Fees (2) +15,000 +23,000 +Tax Fees (3) +3,848 +3,585 +All Other Fees (4) +1,818 +1,818 +Total Fees for Services Provided +$ +470,737 +$ +390,453 +(1) +Audit Fees consist of fees related to: (i) the annual audit of the Company’s financial statements (2011 was an integrated audit which included testing the effectiveness of the Company’s internal control over financial reporting , based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), while this testing was not required in the 2010 audit), (ii) reviews of the Company’s quarterly financial statements, (iii) statutorily required audits for the Company’s UK subsidiary and (iv) the review of registration statements, periodic reports and other reports filed with the SEC. +(2) +Audit-Related Fees consist of fees incurred for consultations regarding accounting and financial reporting standards. +(3) +Tax Fees consist of fees for the preparation of tax returns for our UK subsidiary. +(4) +All Other Fees include software license fees for the use of a web-based accounting research tool. +The Audit Committee has considered whether the provision of the above services, other than Audit Fees, is compatible with maintaining the auditors’ independence and has determined that, in its opinion, they are compatible. All of the above services during the year ended December 31, 2011, other than those covered by Audit Fees, were either approved by the Audit Committee or were performed pursuant to pre-approval policies and procedures. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the internal control over financial reporting and quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. +Management is responsible for preparing complete and accurate consolidated financial statements in accordance with generally accepted accounting principles. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and for issuing reports about those financial statements. The Audit Committee meets with the independent registered public accounting firm, the Chief Executive Officer, the Chief Financial Officer and the Corporate Controller of the Company to review the scope and the results of the annual audit, the amount of audit fees, the Company’s system of internal accounting controls over financial reporting, the financial statements contained in the Company’s Annual Report to Stockholders and other related matters. Separate meetings are held with the independent registered public accounting firm and management. +In connection with its duties, the Audit Committee has taken the following actions: +● +It has reviewed and discussed the audited financial statements, as well as the assessment of internal controls over financial reporting, with management. +● +It has discussed with the independent registered public accounting firm, which is responsible for expressing an opinion on the financial statements in accordance with generally accepted accounting principles, the matters required to be discussed by the statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. +10 +● +It has received from the independent registered public accounting firm the written disclosures describing any relationships between the independent registered public accounting firm and the Company and the letter confirming their independence required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with the independent registered public accounting firm matters relating to their independence. +● +Based on its review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company for the year ended December 31, 2011 be included in the Company’s Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +Charles A. Dill, Chair +John M. Dillon +Thomas R. Schwarz +Graham Y. Tanaka +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Overview +This Compensation Discussion and Analysis describes the philosophy, approach, and elements used by us and the Compensation and Corporate Governance Committee (the “Compensation Committee”) of our Board of Directors, which is composed entirely of independent directors of the Company, to define, manage, and review the compensation paid to our executives. Our philosophy and approach to executive compensation apply to all executive officers of the Company, including those executives designated as Named Executive Officers (“NEO’s”). +Philosophy and Objectives of the Compensation Program +Our Compensation Committee’s philosophy is that our executive compensation program is to be based on our performance and be competitive with other similarly-sized companies in similar industries. The primary objectives of our compensation program are to: +● +Attract, engage, retain, and reward executive officers; +● +Motivate employees and encourage individual initiative and effort; +● +Help to achieve key business objectives and attain Company goals; and +● +Align executives’ interests closely with those of the Company and its stockholders to drive long term sustainable earnings growth. +Our executive compensation program principally includes base salary, an incentive cash performance bonus program and equity incentive awards. The Compensation Committee believes that each element of the total compensation program helps to ensure that the efforts of our executive officers support the creation of stockholder value, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality or linking individual performance to the Company’s overall performance. The Committee retains its discretion to modify the compensation program elements in response to the needs of the Company. Except as otherwise prohibited by law or the Company’s organizational documents, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee. +The elements of our executive compensation program are periodically analyzed using current publicly available market data, contemporary market trends in the industries in which the Company operates and periodic reviews of compensation and benefit surveys. Although we perform periodic reviews of salary surveys and occasionally use compensation consultants to analyze elements of our compensation program, we do not believe that it is appropriate to establish compensation levels based solely on the use of such surveys. +The Compensation Committee reviews Company executive officer compensation and performance data to determine whether the Company’s executive compensation program is competitive and reasonable. The Compensation Committee, on occasion, meets with the Chief Executive Officer and Chief Financial Officer to obtain recommendations with respect to the Company’s compensation programs, practices and packages for the other executive officers, senior managers and other employees. Our Chief Executive Officer and Chief Financial Officer, with the assistance and support of the human resources department, provide recommendations regarding the design of the Company’s compensation program to the Compensation Committee. The Compensation Committee considers, but is not bound to accept, management’s recommendations with respect to executive compensation. +11 +In May 2009, the Compensation Committee retained Towers Watson, an independent compensation consultant, to assist the Compensation Committee in assessing the competitiveness of the Company's total compensation program for the Company’s CEO, CFO and EVP Engineering, with the goal of implementing compensation changes based on Towers Watson’s advice and/or recommendations, if any, in 2010. The Compensation Committee directed Towers Watson to collect and analyze compensation data for the Company’s CEO, CFO and EVP Engineering and assess their compensation relative to individuals holding similar positions at companies in similar industries and size. Towers Watson provided comparative market-based compensation data for base salaries, annual cash incentive awards and long-term equity awards for the CEO, CFO and EVP Engineering. Towers Watson developed a peer group of companies consisting of U.S.-based information technology companies with revenue, percentage of foreign sales and product diversity generally comparable to the Company’s executives (the “Peer Group”) mainly from the same Standard Industrial Classification codes. The Peer Group consisted of LTX-Credence Corp.; Spectrum Control, Inc.; Communications Systems, Inc.; Rimage Corp.; Mad Catz Interactive, Inc.; Maxwell Technologies, Inc.; FSI International, Inc.; Perceptron, Inc.; DRI Corporation; Vicon Industries, Inc.; IntriCon Corp.; Optical Cable Corp.; Optelecom-NKF, Inc.; ClearOne Communications, Inc.; and Alliance Fiber Optic Products, Inc. The Peer Group data was based on compensation paid predominantly in 2008. +In addition, Towers Watson examined the Company’s executive compensation programs generally to ensure their ongoing support of the Company’s business strategy, informed the Compensation Committee of developing legal and regulatory considerations affecting executive compensation and benefit programs, and provided general advice to the Compensation Committee with respect to all compensation decisions pertaining to the CEO, CFO and EVP Engineering. As a result, and at the conclusion of the review process, the Compensation Committee revised the Company's annual incentive bonus program in an effort to further align the Company’s CEO and CFO's annual incentive compensation with the goal of building longer-term stockholder value. Based on the recommendation of Towers Watson, the Compensation Committee approved a change to the annual incentive bonus plan so that for Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of the Target Bonus amount earned going forward, be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan, with the number of deferred stock units to be based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. This new compensation program was implemented beginning with the 2009 annual incentive bonus plan. +Towers Watson did not advise management of the Company and neither it nor its affiliates received any compensation from the Company for services other than those performed for the Compensation Committee. +Elements of the Company’s Compensation Plan +The principal elements of the Company’s compensation program are base salary, an incentive cash bonus program and equity incentive awards. +Base Salary : In general, base salaries for employees, including executive officers, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance, external market data and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Base salary for each executive is reviewed on an annual basis as part of our companywide merit review process. The amount of any merit increase to an executive’s base salary is determined based on a combination of the current position of the executive’s pay against market data and the executive’s performance and results during the past year. Our Chief Executive Officer is responsible for assessing the performance of each executive reporting to him. Our Compensation Committee assesses the performance of our Chief Executive Officer. +Incentive Cash and Deferred Stock Unit Bonus Program : We have historically maintained an incentive cash compensation plan for all executive officers, except for those who receive sales commissions, which provides our executives with the opportunity to receive performance bonuses in the form of cash upon the attainment of certain annual financial objectives, as well as performance and business objectives. The incentive bonus is designed to be a significant portion of executive compensation in order to create and maintain a significant incentive for our executives to achieve or exceed our strategic and annual financial objectives. +To ensure alignment of compensation with our business objectives, our Chief Executive Officer and other executive officers establish specific quantitative and qualitative performance metrics each fiscal year. Our performance metrics (as used for incentive bonus) are reviewed and approved by our Compensation Committee. The metrics are aligned with our strategic and annual business plans and are reviewed by our Board of Directors and Compensation Committee. For 2011, the quantifiable metric of our annual incentive bonus program consisted of a target level of diluted earnings per share of $0.50, excluding the after-tax effect of external acquisition related expenses (the “EPS Target”). The minimum and maximum diluted earnings per share set forth in the incentive bonus program by our Compensation Committee was $0.36 and $0.66, respectively, excluding the after-tax effect of external acquisition related expenses. +Our executive officers, except for those that receive sales commissions, participate in the incentive bonus program. Bonuses are paid under the incentive bonus program only if the Company meets the specified quantifiable performance objectives and/or the +12 +executive meets specified performance and business objectives. The incentive cash bonus that any particular executive is eligible to earn is established as a percentage (the “Target Percentage”) of the individual’s base salary (“Target Bonus”). For 2011, 75% of each executive’s Target Bonus was based on achievement of the EPS Target (the “EPS Bonus Amount”) and 25% was based solely on achievement of performance and business objectives established by the Chief Executive Officer and the Compensation Committee (the “Performance Bonus Amount”). No EPS Bonus Amount is payable unless diluted earnings per share exceeds a specified threshold ($0.36 for 2011). Above the threshold, the EPS Bonus Amount is adjusted upward on a sliding scale ranging from 5% to 115% of the Target Percentage for 2011. +The Compensation Committee is responsible for determining achievement of performance and business objectives for the CEO. The CEO is responsible for determining achievement of performance and business objectives for each of his direct reports. For other participants, achievement of performance and business objectives will be determined by the President or the appropriate Vice President or manager. Performance objectives include personal goals that support the Company’s overall business objectives as well as other financial and non-financial measurements. For 2011, such objectives consisted of achievement of certain financial and strategic objectives such as completing the development of the EPICENTRAL TM Print System, expanding the Company’s core network of casino and gaming distributors, executing and closing the acquisition of Printrex, Inc., and generating a target level of free cash flow. For 2011, the Performance Bonus Amount ranged from 0% to 25% of the Target Percentage depending on the level of achievement. +In addition, for 2011, to continue the efforts to further align the incentives of the Company’s CEO and CFO with building longer-term stockholder value, the Compensation Committee again required that for Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of the Target Bonus amount earned for 2011 be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. +Equity Incentive Awards : The goal of our equity-based incentive awards is to align the interests of our executives with our stockholders and to provide executives with an incentive to manage the Company from the perspective of an owner with an equity stake in the business. We believe that our long-term performance is improved by encouraging ownership by our executives through the use of stock-based grants. Because vesting of our stock awards is based on continued employment, our equity-based incentives also facilitate the retention of executives through the term of the awards. Generally, we believe that stock options are the most effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of stock options to our future performance – i.e. executives are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price. +Grants of stock options are approved by the Compensation Committee at its regularly scheduled meeting typically on or about March 1. While the majority of stock option awards to our employees have been made under our annual grant program, the Compensation Committee may make stock option awards to employees at other times, including at the time of hire of an employee, promotion of an employee, to reward an employee, for retention purposes or for other circumstances as recommended by the Chief Executive Officer or the Compensation Committee. In determining the size of the long-term equity incentives to be awarded to employees, we take into consideration a number of factors including but not limited to relative job scope, individual performance level, prior contributions to the Company, the need to retain the employee, the size of prior grants and competitive market data. Based upon these factors, the Compensation Committee determines the size of the equity incentives at levels it considers appropriate to create meaningful opportunity for reward predicated on the creation of long-term stockholder value. +The exercise price of options granted is set at the closing price of our common stock on the date of grant. Grants of options generally vest in equal annual installments over a three- to five-year period and have a ten-year term. +2011 Executive Compensation +The specific compensation decisions made for each of our executive officers for 2011 reflect the performance of the Company against key financial and operational measurements, as well as performance against objectives. +Base Salary : The Company’s Vice President, Human Resources and the CEO and CFO review and discuss the NEOs’ (other than the CEO, CFO and EVP, Engineering) base salaries. In connection with establishing the NEOs’ (other than the CEO, CFO and EVP, Engineering) base salary adjustments, the Company’s Vice President, Human Resources provides merit increase percentage guidelines based on market-based compensation data, its knowledge of competitive market practices and the Company’s salary budget. The merit increase percentage guidelines (the “Merit Increase Guideline”) for the 2011 base salary increases for all NEOs serving at the time were from 0% to 2.9%. After considering the Merit Increase Guideline and evaluating a NEO’s performance and the position of his or her current base salary, the CEO, as direct supervisor, makes a specific base salary adjustment recommendation to the Compensation Committee. Each NEO’s (other than the CEO, CFO and EVP, Engineering) actual base salary adjustment, if any, is determined by the Compensation Committee. +13 +In determining the base salary of the NEOs, the Compensation Committee evaluated the overall performance of the Company and the individual’s contributions to that performance, as well as the performance of the sales unit or function that each leads when relevant. Based on individual considerations with respect to each NEO (other than the CEO, CFO and EVP, Engineering) such as his or her experience and contributions to the Company, and recognizing that the Company must also react to a competitive marketplace on a case-by-case basis when seeking to recruit and retain executives, the Compensation Committee strives to set each NEO’s base salary within the Merit Increase Guideline, if warranted. +Following an extensive review and evaluation of executive compensation levels in 2010 based on the results of a compensation study and recommendations provided by an independent compensation consultant, no additional adjustments were considered necessary to executive compensation in 2011 other than the customary annual base salary increases previously discussed. +Incentive Cash and Equity Bonus Program: During 2011, the Company achieved and exceeded by 2% its diluted earnings per share performance objective of $0.50, excluding the after-tax effect of external acquisition related expenses, as reviewed and approved by the Compensation Committee. Each NEO also achieved all of their performance objectives set for 2011. Therefore, for 2011, the incentive cash and equity bonus payout for all eligible employees based on both financial and performance objectives achievement was approved at 102.5% of the annual target amount. For 2011, Mr. Shuldman, Mr. DeMartino, Mr. Kumpf and Mr. Wyatt were paid an incentive bonus of $242,897, $121,082, $78,327 and $55,350, respectively. Mr. Wyatt also received an additional cash bonus of $21,250 during 2011 for achievement of certain objectives related to the Company’s EPICENTRAL TM Print System. For 2011, 30% and 20% of Mr. Shuldman’s and Mr. DeMartino’s incentive bonus was issued in the form of vested deferred stock units. These amounts are shown in the “Summary Compensation Table” below under the columns “Stock Awards” and “Non-Equity Incentive Plan Compensation.” These bonuses were calculated as a percentage of each executive’s base salary in effect as of March 2011. Mrs. Chernay was not eligible to participate in the incentive bonus program as she earned commissions based on annual sales from her sales units. Mrs. Chernay received a commission, paid monthly, equal to approximately 0.2% of sales achieved in the fiscal year. +Equity Incentive Awards : For 2011, Mr. Shuldman recommended to the Compensation Committee a total equity award dollar value range for each NEO based on factors including the NEO’s performance evaluation, his/her overall compensation package and his/her perceived potential and contributions to the Company. After considering Mr. Shuldman’s recommendations, the Compensation Committee, with Mr. Shuldman’s participation, determined the total equity award dollar value for each NEO other than Mr. Shuldman. The Compensation Committee considered several factors in making its determinations, including Mr. Shuldman’s recommendations, the Company’s performance, each NEO’s position within the Company, his/her perceived potential and contributions to the Company, and the Compensation Committee’s subjective understanding of competitive practices in the marketplace with respect to equity awards. The factors used by Mr. Shuldman to determine recommendations regarding total equity award dollar value ranges for each NEO and by the Compensation Committee to establish each NEO’s total equity award dollar value were assessed by Mr. Shuldman and the Compensation Committee, respectively, on a subjective basis. In March 2011, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. DeMartino, Mr. Kumpf, Mrs. Chernay and Mr. Wyatt of stock options to purchase 17,500, 17,500, 10,000, 10,000 and 10,000 shares, respectively. The vesting terms of the grant of stock options are outlined in the table entitled “Grants of Plan-Based Awards in 2011.” The level of awards granted was consistent with the level of historical grants over the previous five years. +Tax Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code, publicly held corporations may be prohibited from deducting as an expense for federal income tax purposes total compensation in excess of $1 million paid to certain executive officers in a single year. Section 162(m) specifically exempts certain performance-based compensation from the deduction limit. The levels of base salary, annual cash incentive bonus and equity compensation we generally pay to our executive officers do not exceed this limit , and thus compensation decisions are not driven by the requirements of Section 162(m). +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in TransAct’s proxy statement for the 2012 annual meeting. +COMPENSATION AND CORPORATE +GOVERNANCE COMMITTEE +Thomas R. Schwarz, Chair +Charles A. Dill +John M. Dillon +Graham Y. Tanaka +14 +SUMMARY COMPENSATION TABLE +The following table sets forth information concerning the compensation earned by the Company’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers (the “NEOs”) in 2011, 2010 and 2009: +Name and Principal Position +Year +Salary ($) +Bonus (2)($) +Stock +Awards +($) +Option +Awards +(3)($) +Non-Equity +Incentive Plan +Compensation +(7)($) +All Other +Compensation ($) +Total ($) +Bart C. Shuldman (1) +2011 +449,126 +- +- +104,204 +346,996 +41,438 +(4) +941,764 +Chairman and Chief +2010 +438,656 +- +- +114,763 +370,116 +39,408 +(4) +962,943 +Executive Officer +2009 +438,656 +- +- +39,243 +205,620 +40,526 +(4) +724,045 +Steven A. DeMartino +2011 +293,851 +- +- +104,204 +151,353 +22,362 +(5) +571,770 +President, Chief +2010 +270,641 +- +- +91,810 +153,076 +22,370 +(5) +537,897 +Financial Officer, +Treasurer and Secretary +2009 +244,007 +- +- +32,703 +76,252 +22,143 +(5) +375,105 +Michael S. Kumpf (8) +2011 +217,245 +- +- +59,545 +78,327 +27,491 +(5) +382,608 +Executive Vice +2010 +211,110 +- +- +68,858 +83,546 +27,609 +(5) +391,123 +President, Engineering +2009 +206,000 +- +- +26,162 +45,063 +27,320 +(5) +304,545 +Tracey S. Chernay +2011 +183,000 +107,753 +- +59,545 +- +17,498 +(5) +367,796 +Executive Vice +2010 +173,383 +99,002 +- +22,953 +- +15,367 +(5) +310,705 +President, Casino & +Gaming Sales and +Marketing +2009 +160,268 +100,781 +- +19,622 +- +13,661 +(5) +294,332 +Benjamin C. Wyatt +2011 +180,624 +21,250 +- +59,545 +55,350 +8,159 +(6) +324,928 +Vice President, Software +2010 +162,166 +- +- +68,858 +55,272 +6,670 +(6) +292,966 +Products & Business +Development +2009 +154,500 +- +- +13,081 +28,969 +7,215 +(6) +203,765 +________ +(1) +Mr. Shuldman is a director of the Company, but does not receive any separate compensation for those services. +(2) +Bonuses paid to Mrs. Chernay represent commissions on sales by the Company. Bonuses paid to Mr. Wyatt represent the achievement of certain objectives related to the Company’s EPICENTRAL TM Print System. +(3) +Amounts in this column reflect the grant date fair value of option awards, calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. All option awards in 2009, 2010 and 2011 were granted under the Company’s 2005 Equity Incentive Plan. For information on the valuation assumptions with respect to these option awards, refer to the notes of the Company's financial statements in the Form 10-K for the years ended December 31, 2009, 2010 and 2011, as filed with the SEC. Please see the “Outstanding Equity Awards at 2011 Fiscal Year-End” table for a description of option awards. There were no forfeitures of option awards by this group during the year. +(4) +For Mr. Shuldman, this amount consists of an automobile allowance, Company contributions under the Company’s 401(k) Plan, life insurance, disability insurance and tax return preparation fees. +(5) +For Mr. DeMartino, Mr. Kumpf and Mrs. Chernay, these amounts consist of automobile allowances, Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(6) +For Mr. Wyatt, these amounts consist of Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(7) +For Mr. Shuldman and Mr. DeMartino, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. For 2011, 2010 and 2009, 30% and 20%, respectively, of these incentive bonus amounts were paid in the form of deferred stock units with the remainder paid in cash. For Mr. Kumpf and Mr. Wyatt, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. +(8) +On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +15 +GRANTS OF PLAN-BASED AWARDS IN 2011 +The following table sets forth information concerning the grant of plan-based awards to NEOs in 2011: +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +All Other +Option +Awards: +Number of +Securities +Underlying +Exercise +or Base +Price of +Option +Awards +Grant Date +Fair Value of +Stock and +Option +Name +Grant Date +Threshold ($) +Target ($) +Maximum ($) +Options(2)(#) +($/Sh) +Awards(3)($) +Bart C. Shuldman +3/7/2011 +84,633 +338,533 +473,946 +17,500 +9.89 +104,204 +Steven A. DeMartino +3/7/2011 +36,916 +147,662 +206,727 +17,500 +9.89 +104,204 +Michael S. Kumpf (4) +3/7/2011 +19,104 +76,417 +106,984 +10,000 +9.89 +59,545 +Tracey S. Chernay +3/7/2011 +- +- +- +10,000 +9.89 +59,545 +Benjamin C. Wyatt +3/7/2011 +13,500 +54,000 +75,600 +10,000 +9.89 +59,545 +________ +(1) +Represents target payout under our annual incentive bonus program for 2011. Actual amounts paid in March 2012 are included in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. For Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of these incentive bonus amounts were paid in 2012 in the form of deferred stock units with the remainder paid in cash. The maximum amounts assume a payout of 140% of the NEO's annual incentive bonus. The annual incentive cash and equity bonus program is described in the "Compensation Discussion and Analysis". +(2) +Each stock option award disclosed in the Grants of Plan-Based Awards in 2011 table was issued under our 2005 Equity Incentive Plan and was granted with an exercise price per share equal to the fair market value of our common stock on the date of grant, as determined by the closing price of the stock on the date the option was granted. Subject to the terms of our 2005 Equity Incentive Plan and the option agreements issued in connection with these grants, each option award granted in 2011 to a NEO vests at a rate of 25% per year over four years. +(3) +The amounts shown represent the grant date fair value of stock options granted in 2011 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 13 of the Company's financial statements in the Form 10-K for the year ended December 31, 2011, as filed with the SEC. Please see the “Outstanding Equity Awards at 2011 Fiscal Year-End” table for a description of option awards. There were no forfeitures of stock option awards by this group during the year. +(4) +On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +16 +OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END +The following table shows outstanding equity awards for the NEOs as of December 31, 2011: +Option Awards +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +(# Exercisable) +Number of +Securities +Underlying +Unexercised +Options +(# Unexercisable) +Option +Exercise +Price ($) +Option +Expiration +Date +Bart C. Shuldman +1/2/2006 +12,500 +- +7.90 +1/2/2016 +3/1/2006 +15,000 +- +9.75 +3/1/2016 +2/28/2007 +20,000 +5,000 +9.51 +2/28/2017 +2/27/2008 +12,600 +8,400 +5.24 +2/27/2018 +3/5/2009 +8,000 +18,000 +2.18 +3/5/2019 +5/27/2010 +6,250 +18,750 +7.45 +5/27/2020 +3/7/2011 +- +17,500 +9.89 +3/7/2021 +Steven A. DeMartino +1/2/2006 +10,000 +- +7.90 +1/2/2016 +3/1/2006 +10,000 +- +9.75 +3/1/2016 +2/28/2007 +12,000 +3,000 +9.51 +2/28/2017 +2/27/2008 +15,000 +10,000 +5.24 +2/27/2018 +3/5/2009 +10,000 +15,000 +2.18 +3/5/2019 +5/27/2010 +5,000 +15,000 +7.45 +5/27/2020 +3/7/2011 +- +17,500 +9.89 +3/7/2021 +Michael S. Kumpf (1) +5/17/2002 +12,625 +- +3.77 +5/17/2012 +1/2/2006 +7,500 +- +7.90 +1/2/2016 +3/1/2006 +7,500 +- +9.75 +3/1/2016 +2/28/2007 +12,000 +3,000 +9.51 +2/28/2017 +2/27/2008 +12,000 +8,000 +5.24 +2/27/2018 +3/5/2009 +8,000 +12,000 +2.18 +3/5/2019 +5/27/2010 +3,750 +11,250 +7.45 +5/27/2020 +3/7/2011 +- +10,000 +9.89 +3/7/2021 +Tracey S. Chernay +1/2/2006 +5,000 +- +7.90 +1/2/2016 +3/1/2006 +2,500 +- +9.75 +3/1/2016 +2/28/2007 +12,000 +3,000 +9.51 +2/28/2017 +2/27/2008 +6,000 +4,000 +5.24 +2/27/2018 +3/5/2009 +6,000 +9,000 +2.18 +3/5/2019 +5/27/2010 +1,250 +3,750 +7.45 +5/27/2020 +3/7/2011 +- +10,000 +9.89 +3/7/2021 +Benjamin C. Wyatt +5/28/2008 +- +10,000 +7.80 +5/28/2018 +3/5/2009 +- +6,000 +2.18 +3/5/2019 +5/27/2010 +3,750 +11,250 +7.45 +5/27/2020 +3/7/2011 +- +10,000 +9.89 +3/7/2021 +(1) +On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +Options Awards Vesting Schedule +Grant Dates +Vesting Schedule +5/17/2002, 1/2/2006, 3/1/2006, 2/28/2007, 2/27/2008, 3/5/2009 +20% per year for five years +5/28/2008 +100% after four years +5/27/2010, 3/7/2011 +25% per year for four years +17 +OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2011 +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +On Exercise (#) +Value Realized +on Exercise(1)($) +Number of +Shares +Acquired +on Vesting (2)(#) +Value Realized +on Vesting(3)($) +Bart C. Shuldman +145,142 +911,119 +11,227 +81,508 +Steven A. DeMartino +31,000 +241,649 +3,096 +22,477 +Michael S. Kumpf (4) +- +- +- +- +Tracey S. Chernay +- +- +- +- +Benjamin C. Wyatt +4,000 +41,040 +- +- +________ +(1) +Calculated based on the difference between the market price of the underlying securities at exercise and the exercise price of the options. +(2) +Includes the underlying shares of the fully vested stock units granted on March 7, 2011 to Mr. Shuldman and Mr. DeMartino under the 2005 Equity Incentive Plan, which are payable upon the sale of the Company, the executive leaving the Company or on the third year anniversary from the date of grant in the form of shares of the Company’s common stock on a one-for-one basis. +(3) +Amounts for shares underlying deferred fully vested stock units are calculated based on the closing price of the Company’s stock on December 30, 2011, the last trading day of the fiscal year, the remaining amounts are calculated based on the market value on the vesting date of the shares underlying each award. +(4) +On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has entered into certain agreements and maintains certain plans that may require payments be made, and/or benefits be provided, to the NEOs: (i) in the event a NEO’s employment is terminated other than for Cause, as defined below, (a “Termination Event”), (ii) if a change in control (as defined by the applicable agreement or plan) occurs (a “Change in Control Event”) or (iii) if a Termination Event occurs or a NEO resigns for certain specified reasons within one year following a change in control (a “Change in Control and Termination Event”). The payments and benefits that each NEO may be entitled to receive upon a Termination Event, Change in Control Event or a Change in Control and Termination Event are described in the applicable employment agreement or severance agreement and the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. None of the agreements for our NEOs include a gross up for any taxes as a result of golden parachute payments. Below is a description of the types of events that would trigger payments under these agreements and plans and the potential payments to each such Named Executive Officer assuming that a triggering event occurred on December 31, 2011, the last day of our most recent fiscal year. +Employment and Severance Agreements +Events That Trigger a Termination Event or Change in Control Event. The applicable employment and severance agreements generally define Cause as a termination for the following reasons: (i) action or inaction by the NEO that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the Board or officers of the Company or a commission of a crime of moral turpitude; (ii) material, repetitive, unjustified and unexcused refusal to follow the reasonable and lawful written instruction of the Board—or in the case of the NEOs other than Mr. Shuldman, the Board or the Company’s President; or (iii) death or disability. Change in control is generally defined in each agreement to include (i) a merger of the Company with another company where the majority of the board of the surviving company is not comprised of directors of the Company in office immediately prior to the transaction, (ii) a change in the board of directors of the Company such that after an election a majority of the directors in office are not directors that were nominated by two-thirds of board members prior to the election or (iii) a complete liquidation of the Company. +Effect of a Termination Event or Change in Control and Termination Event. Under the terms of an Employment Agreement dated July 31, 1996 between Bart C. Shuldman and the Company, if a Termination Event or Change in Control Event were to occur, Mr. Shuldman would continue to receive: (i) his annual base salary and (ii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; an automobile allowance; and certain service fees related to medical exams, income tax planning and estate planning) for two years and three years, respectively, from the date of termination. In connection with a Termination Event, Mr. Shuldman would receive a pro rata portion of his annual target bonus amount for the year of termination. If a Change in Control Event were to occur and within one year thereafter either Mr. Shuldman’s +18 +employment is terminated other than for Cause, or Mr. Shuldman resigns following a significant reduction in the nature or scope of his responsibilities or authorities, a decrease in salary other than resulting from a reduction that applies generally to all management personnel or specified relocations of the Company’s facilities, Mr. Shuldman would be entitled to continue to receive, in addition to the amounts listed in the first sentence, his annual target bonus for a period of three years from the date of termination and all stock options and other awards granted to Mr. Shuldman under the Company's stock plans would immediately vest. +Under the terms of a Severance Agreement with Steven A. DeMartino dated June 1, 2004, if a Termination Event were to occur, Mr. DeMartino would be entitled to continue to receive, for one year following the date of termination (i) his annual base salary, (ii) a pro rata portion of his annual target bonus for the year of termination and (iii) medical, dental, vision, life and long term disability insurance benefits. If a Change in Control Event were to occur and the employment of Mr. DeMartino is terminated other than for Cause, or if he resigns for specified reasons within one year following a Change in Control Event, Mr. DeMartino would be entitled to receive for two years after his termination (i) his annual base salary, (ii) annual target bonus, (iii) medical, dental, vision, life and long term disability insurance benefits and (iv) all stock options granted to Mr. DeMartino would immediately vest. +Under the terms of Severance Agreements with Michael S. Kumpf, Tracey S. Chernay and Benjamin C. Wyatt dated September 4, 1996, July 29, 2005 and May 27, 2008, respectively, if a Termination Event were to occur, the applicable NEO would be entitled to continue to receive, for six months following the date of termination (i) a pro rata portion of his or her annual base salary, (ii) a pro rata portion of his or her annual target bonus for the year of termination, and (iii) in the case of Mrs. Chernay and Mr. Wyatt, continuation in the Company’s group medical and dental plans and in the case of Mr. Kumpf, all benefits which would otherwise have been payable. If a Change in Control Event were to occur, the applicable NEO would be entitled to continue to receive for a period of one year from the date of termination (i) base salary, (ii) annual target bonus, (iii) in the case of Mrs. Chernay and Mr. Wyatt, continuation in the Company’s group medical and dental plans and in the case of Mr. Kumpf, all benefits and (iv) all stock options granted to the applicable NEO would immediately vest. +Equity Plans +2005 Equity Incentive Plan. The terms of the Company’s 2005 Equity Incentive Plan provide that all awards issued under the plan would accelerate and either become exercisable or vest, as applicable, immediately prior to any of the following: (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not the Company or a publicly owned corporation (or a subsidiary thereof) in which the stockholders of the Company immediately prior to the transaction continue to beneficially own 50% or more of the voting securities of the Company, (ii) a sale, transfer, exchange or other disposition of all or substantially all of the Company’s assets, (iii) any acquisition of 50% or more of the voting securities of the Company excluding acquisitions by specified parties or (iv) any dissolution or liquidation of the Company. Upon the occurrence of some of the foregoing Change in Control Events, stock or other property to be delivered upon acceleration of any award may be placed in escrow, rather than actually delivered, under terms set by the Compensation and Corporate Governance Committee. +1996 Stock Plan. The terms of the Company’s 1996 Stock Plan do not provide for the acceleration of all awards issued under the plan in the event of a change in control of the Company. Instead, the plan provides that acceleration upon a change in control is permitted and that the terms of the individual awards issued under the plan control whether the awards accelerate upon occurrence of a Change in Control Event. +Payments Upon a Change in Control Event. If a Change in Control Event had occurred on December 31, 2011 that triggered acceleration of all of the equity awards outstanding to each NEO under each of the 1996 Stock Plan and the 2005 Equity Incentive Plan that accelerate either by their terms or the terms of the applicable plan, the following amounts would have been paid to the NEOs: +Name +Stock +Awards (1) +Option +Awards (2) +Total +Bart C. Shuldman +$ +140,902 +$ +174,500 +$ +315,402 +Steven A. DeMartino +37,164 +177,500 +214,664 +Michael S. Kumpf (3) +- +142,000 +142,000 +Tracey S. Chernay +- +96,400 +96,400 +Benjamin C. Wyatt +- +30,480 +30,480 +________ +(1) +Accelerated stock awards were valued using the closing price of $7.26 per share of our common stock on December 30, 2011, which was the last trading date of the year. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $7.26 per share of our common stock on December 30, 2011, which was the last trading day of the year. +(3) +On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +19 +PAYMENTS UPON A TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Termination Event occurred on December 30, 2011, the last day of the Company’s fiscal year. +Name +Base +Salary +Pro Rata +Portion of +Annual +Target +Bonus +Benefits(1) +Stock +Options +Stock +Awards +Total +Bart C. Shuldman +$ +902,754 +$ +338,533 +$ +107,489 +- +- +$ +1,348,776 +Steven A. DeMartino +295,323 +147,662 +15,319 +- +- +458,304 +Michael S. Kumpf (2) +109,167 +38,208 +7,919 +- +- +155,294 +Tracey S. Chernay +91,500 +- +3,848 +- +- +95,348 +Benjamin C. Wyatt +90,000 +27,000 +6,153 +- +- +123,153 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +(2) +On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +PAYMENTS UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Change in Control and Termination Event occurred on December 30, 2011, the last day of the Company’s fiscal year. +Name +Base +Salary +Annual +Target +Bonus +Benefits(1) +Stock +Options (2) +Stock +Awards (3) +Total +Bart C. Shuldman +$ +1,354,131 +$ +1,015,598 +$ +161,233 +$ +174,500 +$ +140,902 +$ +2,846,364 +Steven A. DeMartino +590,646 +295,323 +30,638 +177,500 +37,164 +1,131,271 +Michael S. Kumpf (4) +218,333 +76,417 +15,838 +142,000 +- +452,588 +Tracey S. Chernay +183,000 +- +7,697 +96,400 +- +287,097 +Benjamin C. Wyatt +180,000 +54,000 +12,307 +30,480 +- +276,787 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $7.26 per share of our common stock on December 30, 2011, which was the last trading day of the year. +(3) +Accelerated stock awards were valued using the closing price of $7.26 per share of our common stock on December 30, 2011, which was the last trading day of the year. +(4) +On March 19, 2012, the Company announced that Mr. Kumpf will retire as Executive Vice President of Engineering effective April 4, 2012. The Company simultaneously announced that Don Brooks will succeed Mr. Kumpf and be promoted to Senior Vice President of Engineering. +20 +Non-Competition Provisions That Apply to a Termination Event or Change in Control Event +Pursuant to Mr. Shuldman’s Employment Agreement, upon the occurrence of a Termination Event while he is receiving severance payments under the agreement, Mr. Shuldman agrees that for two years, or in the case of a Change in Control Event, for three years, that he will not directly or indirectly engage in any business or activity that is competitive with the Company in a geography where the Company is selling its products. Further, Mr. Shuldman agrees not to attempt to recruit any employees of the Company or encourage them to leave the Company and agrees not to encourage any of the Company’s customers to direct their business elsewhere. The other NEOs have the same provisions in their Severance Agreements, except that they apply for six months upon the occurrence of a Termination Event or one year upon the occurrence of a Change in Control Event and they are not contingent upon the payment of the benefits described in each agreement by the Company to the NEO. +DIRECTOR COMPENSATION FOR FISCAL YEAR 2011 +Name +Fees Earned +Or Paid in +Cash ($) +Stock +Options(2)($) +Stock +Awards +(3)($) +Total ($) +Thomas R. Schwarz +36,000 +57,077 +- +93,077 +Charles A. Dill (1) +36,000 +57,077 +- +93,077 +Graham Y. Tanaka +36,000 +57,077 +- +93,077 +John M. Dillon +20,500 +75,525 +- +96,025 +Bart C. Shuldman (4) +- +- +- +- +________ +(1) +Mr. Dill will not seek re-election to the Board of Directors due to his retirement effective May 30, 2012. +(2) +On May 27, 2011, Mr. Schwarz, Mr. Dill and Mr. Tanaka were each awarded 7,500 stock options granted under the Company’s 2005 Equity Incentive Plan. On June 6, 2011, Mr. Dillon was awarded 10,000 stock options granted under the Company’s 2005 Equity Incentive Plan. The amounts shown represent the grant date fair value of stock options granted in 2011 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 13 of the Company's financial statements in the Form 10-K for the year ended December 31, 2011, as filed with the SEC. +(3) +As of December 31, 2011, Mr. Schwarz held 52,625 fully vested stock options at exercise prices ranging from $3.77 to $31.82 as well as 23,625 unvested stock options at exercise prices ranging from $4.84 to $11.71, Mr. Dill held 41,375 fully vested stock options at exercise prices ranging from $4.84 to $31.82 as well as 23,625 unvested stock options at exercise prices ranging from $4.84 to $11.71, Mr. Tanaka held 52,625 fully vested stock options at exercise prices ranging from $3.77 to $31.82 as well as 23,625 unvested stock options at exercise prices ranging from $4.84 to $11.71, Mr. Dillon held 10,000 unvested stock options at an exercise price of $11.65 and Mr. Shuldman held no stock option or restricted stock grants other than those shown in the “Outstanding Equity Awards at 2011 Fiscal Year-End” table above. +(4) +Mr. Shuldman did not receive any compensation for director services other than what is reflected in the "Summary Compensation Table" above. +For 2011, each non-employee director of the Company received a retainer of $9,000 for each fiscal quarter served as director as compensation for services rendered, other than Mr. Dillon who received a pro-rata share of the retainer fee based on when he became a non-employee director during 2011. Directors are also reimbursed for reasonable expenses incurred in attending meetings. +Each non-employee director receives an annual grant of 7,500 stock options, pursuant to the terms of the Company’s 2005 Equity Incentive Plan. Because Mr. Dillon was in his first year serving as Director, he received 10,000 stock options pursuant to the terms of the Company’s 2005 Equity Incentive Plan. The stock options vest at the rate of 25% per year beginning on the first anniversary of the date of grant. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member of the Board’s Compensation and Corporate Governance Committee has served as an officer or employee of the Company at any time. None of the Company’s executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of the Company’s Board. None of the Company’s executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of the Board’s Compensation and Corporate Governance Committee. +21 +STOCKHOLDER PROPOSALS FOR 2013 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year’s proxy materials must be received by the Secretary of the Company on or before December 14, 2012. Proposals should be addressed to TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. Stockholders who wish to make a proposal at the 2013 Annual Meeting without regard to whether it will be included in the Company’s proxy materials should notify the Company no later than March 11, 2013. If a Stockholder who wishes to present a proposal fails to notify the Company by the due date, the proxies that the Company solicits for the meeting will accord them discretionary authority to vote on the Stockholder’s proposal if it is properly brought before the meeting. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors if the proper nomination procedures specified in the Company’s By-Laws are followed. All nominations by stockholders must be delivered to or mailed and received at the principal executive offices of the Company not less than 30 nor more than 60 days prior to the meeting at which election of directors will take place; however, if less than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, nominations will be timely if received not later than 10 days after notice was given or public disclosure was made. A stockholder’s notice must set forth in writing (i) for each person proposed to be nominated, all information relating to each such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to be named in the proxy and to serving as a director, and (ii) for the stockholder giving notice, the (x) name and address of such stockholder as they appear on the Company’s books, and (y) the class and number of shares of the Company beneficially owned by such stockholder. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder or interested party wishing to communicate directly with members of the Board of Directors should do so in writing. All correspondence addressed to the Board as a whole, to its independent directors, to any of its Committees or Committee Chairs, or to individual Board members should be mailed to the following address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +● +You are welcome to communicate anonymously or confidentially. +● +All correspondence addressed to an individual director or Committee Chair, and marked “Confidential”, will be collected in the office of the Secretary and forwarded unopened to the individual director. +● +Other correspondence will be opened by the Secretary, reviewed, copied and directed as follows: +o +Concerns regarding the Company’s accounting, internal accounting controls or auditing matters will be referred to the members of the Audit Committee. +o +Nominations or recommendations of candidates for election to the Board of Directors will be referred to members of the Nominating Committee. +o +Other correspondence will be copied by the Secretary and forwarded to all of the members of the Board of Directors (or its independent directors, if so addressed) unless the stockholder directs otherwise. +GENERAL +As of the date of this Proxy Statement, the Board of Directors is not aware of any matter which is to be presented for action at the Annual Meeting other than the matters set forth herein. Should any other matter requiring a vote of the stockholders arise at the Annual Meeting, the proxies confer upon the persons named in the accompanying proxy the authority to vote in respect of any such other matter in accordance with the recommendation of the Board of Directors. +22 +A stockholder who has given a proxy may revoke it at any time prior to its exercise at the Annual Meeting by: (i) giving written notice of revocation to the Secretary of the Company, (ii) properly submitting to the Company a duly executed proxy bearing a later date, or (iii) voting in person at the Annual Meeting. All written notices of revocation and other communications with respect to revocation of proxies should be addressed to the Company, as follows: TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. A proxy appointment will not be revoked by death or supervening incapacity of the stockholder executing the proxy unless, before the shares are voted, notice of such death or incapacity is filed with the Company’s Secretary or other person responsible for tabulating votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be borne by the Company. The Company may solicit proxies otherwise than by use of the mail, in that certain officers and regular employees of the Company, without additional compensation, may use the telephone or otherwise to obtain proxies. The Company will also request persons, firms and corporations holding shares in their names, or owned by others, to send this proxy material to and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in doing so. +No director or executive officer of the Company has any direct or indirect substantial interest, whether by security holdings or otherwise, in the ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company’s 2012 fiscal year. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +23 \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-12-000022/proxy_rpt.txt b/raw/proxies/0001017303/0001017303-12-000022/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e82a200afd907bc9757e93cc22dfd87a70b3fb78 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-12-000022/proxy_rpt.txt @@ -0,0 +1,4 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction . +From January 1, 2011 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-13-000019/proxy.txt b/raw/proxies/0001017303/0001017303-13-000019/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..8198d36428cab9c694dcbf23f15aa39df73b9ee5 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-13-000019/proxy.txt @@ -0,0 +1,1138 @@ +DEF 14A +1 +proxy2012.htm +2012 PROXY STATEMENT +proxy2012.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant To Section 14(a) Of The Securities Exchange Act Of 1934 +(Amendment No. ___ ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (As Permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 28, 2013 +To the Stockholders of TransAct Technologies Incorporated: +Notice is hereby given that the 2013 Annual Meeting of Stockholders (the “Annual Meeting”) of TransAct Technologies Incorporated (the “Company” or “TransAct”), a Delaware corporation, will be held on May 28, 2013 at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 for the following purposes: +(1) +To vote on a proposal to elect Graham Y. Tanaka as director to serve until the 2016 Annual Meeting of Stockholders or until the director’s successor has been duly elected and qualified; +(2) +To vote on a proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2013; +(3) +To vote on a proposal, on an advisory basis, regarding the Company’s compensation of our named executive officers as disclosed in the “Compensation Discussion and Analysis” section of this Proxy Statement; +(4) +To vote, on an advisory basis, on the frequency of future non-binding advisory votes on compensation for our named executive officers; +(5) +To transact such other business as may legally come before the Annual Meeting. +Stockholders of record at the close of business on April 1, 2013 are entitled to notice of and to vote at the Annual Meeting. +By Order of the Board of Directors, +/s/ Steven A. DeMartino +STEVEN A. DEMARTINO +Secretary +Hamden, Connecticut +April 18, 2013 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +TRANSACT TECHNOLOGIES INCORPORATED +One Hamden Center +2319 Whitney Avenue +Suite 3B +Hamden, Connecticut 06518 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 28, 2013 +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting To Be Held on May 28, 2013. +This Proxy Statement, the TransAct Technologies Incorporated 2012 Annual Report and the means to vote by Internet are available at www.proxyvote.com. +This proxy statement is being made available to our stockholders in connection with a solicitation of proxies by the Board of Directors of TransAct Technologies Incorporated (“TransAct” the “Company,” “we,” “us,” or “our”) for use at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”) and at any adjournment or postponement of the meeting. The meeting will be held on Tuesday, May 28, 2013, beginning at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +We are furnishing the proxy materials over the Internet under the rules of the Securities and Exchange Commission (“SEC”). On or about April 18, 2013, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to shareholders of record of our common stock with a proxy card to be mailed 10 business days after the Notice. If you receive the Notice by mail, you will not receive a paper copy of the proxy materials unless you request one. The Notice will instruct you as to how you may access and review the proxy materials on the Internet and how to cast your vote over the Internet or by telephone. The Notice also contains instructions on how to request a paper copy of our proxy materials, free of charge. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held on May 28, 2013: This proxy statement, our 2012 Annual Report, the form of proxy and voting instructions are being made available to shareholders on or about April 18, 2013, at www.proxyvote.com. If you receive the Notice and would still like to receive a printed copy of the proxy materials or our 2012 Annual Report, including audited financial statements, for the year ended December 31, 2012, you may request a printed copy by any of the following methods: (a) telephone at 1-800-579-1639; (b) Internet at www.proxyvote.com; or (c) e-mail at sendmaterial@proxyvote.com. Please make the request as instructed above on or before May 14, 2013 to facilitate timely delivery. +All proxies will be voted in accordance with the instructions they contain. If you do not specify your voting instructions on your proxy card with respect to a particular matter, your shares will be voted in accordance with the recommendations of our Board. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power to revoke the same any time prior to it being voted. The accompanying proxy will be voted as specified thereon. A specification on the proxy card may be made to grant or withhold authority to vote for the election of a director and to indicate separate approval or disapproval as to the other matters presented to stockholders. Where an executed proxy has been received, but a choice is not specified, the shares represented by the proxy will be voted to elect the director nominee, to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered accounting firm, to approve, on an advisory basis, the Company’s compensation of our named executive officers and to approve, on an advisory basis, the frequency of “Three Years” for future non-binding advisory votes on compensation for our named executive officers. In addition, the proxy confers discretionary authority to vote on any matter properly presented at the Annual Meeting which is not known to the Company as of the date of this Proxy Statement. Brokers are not permitted to vote your shares with respect to election of directors without instructions from you. If your shares are held in the name of a broker or nominee and you do not instruct the broker or nominee how to vote with respect to the election of directors or if you abstain or withhold authority to vote on any matter, your shares will not be counted as having been voted on that matter, but will be counted as in attendance at the meeting for purposes of a quorum. +VOTING SECURITIES +Stockholders of record on April 1, 2013 are entitled to vote at the Annual Meeting. Each holder of Common Stock is entitled to cast one vote for each share of Common Stock held on April 1, 2013. There were 8,701,460 shares of Common Stock issued and outstanding and entitled to vote at the close of business on April 1, 2013. Shares representing a majority of the shares issued, outstanding and entitled to be voted at the Annual Meeting, present in person or represented by proxy, will constitute a quorum to transact business. +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information known to the Company regarding the beneficial ownership of the Company’s common stock as of April 1, 2013 by: (i) each person known by the Company to own beneficially more than 5% of the Company’s common stock; (ii) each director or nominee for director of the Company; (iii) each current executive officer of the Company named in the Summary Compensation Table; and (iv) all current directors and executive officers of the Company as a group. Except as otherwise indicated, each of the persons named in the table has sole voting power and sole dispositive power with respect to the shares set forth opposite such person’s name and the address of the holder is One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +Name of Beneficial Owner +Shares +Beneficially +Owned +Percent +of +Class +More than 5% Stockholders: +Roumell Asset Management, LLC and +James C. Roumell (1) +828,010 +9.52% +Directors and Executive Officers: +Graham Y. Tanaka (2) +282,347 +3.22% +Bart C. Shuldman (3) +179,099 +2.03% +Steven A. DeMartino (4) +151,729 +1.72% +Thomas R. Schwarz (5) +104,975 +1.20% +Andrew J. Hoffman (6) +50,486 +* +Tracey S. Chernay (7) +45,500 +* +Benjamin C. Wyatt (8) +32,750 +* +John M. Dillon (9) +9,375 +* +All current directors and executive officers as a group (10 persons) (10) +869,036 +9.47% +________ +* +Less than 1% of the outstanding Common Stock. +(1) +This information listed in the table and this footnote is based solely on the Schedule 13D/A filed on November 7, 2012 by Roumell Asset Management, LLC (“RAM”) and James C. Roumell. According to the Schedule 13D/A, RAM and James C. Roumell beneficially own 817,680 and 10,330 shares of our common stock, respectively. RAM serves as the investment adviser for a number of managed accounts with respect to which it has dispositive authority over the shares reported in the Schedule 13D/A. James C. Roumell is the president of RAM with respect to which it has dispositive authority over the shares reported in the Schedule 13D/A. The address of each of the entities referenced by this footnote is 2 Wisconsin Circle, Suite 660, Chevy Chase, Maryland 20815. +(2) +Includes 59,750 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka that are directly owned by his children. +(3) +Includes 1,500 shares owned by his spouse in an individual retirement account, 4,800 shares owned by his minor children and 3,750 shares owned by his mother. Includes 125,125 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s 2005 Equity Incentive Plan. Also includes 39,028 deferred stock units issued under the Company’s 2010, 2011 and 2012 Incentive Bonus Programs, which are fully vested and convertible into shares of common stock as of April 1, 2013. +(4) +Includes 108,750 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s 2005 Equity Incentive Plan. Also includes 12,963 deferred stock units issued under the Company’s 2010, 2011 and 2012 Incentive Bonus Programs, which are fully vested and convertible into shares of common stock as of April 1, 2013. +(5) +Includes 48,500 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his capacity as trustee of a trust for the benefit of his granddaughter, 1,500 shares beneficially owned by his daughter, as to which shares he disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(6) +Includes 37,986 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s 2005 Equity Incentive Plan. +(7) +Represents 45,500 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s 2005 Equity Incentive Plan. +(8) +Represents 32,750 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s 2005 Equity Incentive Plan. +(9) +Includes 4,375 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s 2005 Equity Incentive Plan. +(10) +Includes 475,261 shares subject to options currently exercisable or to become exercisable within 60 days of April 1, 2013 granted under the Company’s 2005 Equity Incentive Plan and Non-Employee Directors’ Stock Plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive officers and persons who beneficially own more than 10% of the Company’s common stock to file with the SEC and the Nasdaq Stock Market reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company and to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, or written representations that no other reports were required to be filed by those persons, the Company believes that, during the fiscal year ended December 31, 2012, each of the Company’s officers, directors and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transactions is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person's interest in the transaction. +From January 1, 2012 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit the long-term interests of the Company’s stockholders by clearly outlining the Company’s duties and responsibilities, providing a framework for active and fruitful discussions among the members of the Board of Directors and between the Board and management, and avoiding conflicts of interest and other legal and ethical problems. Accordingly, the Company’s corporate governance practices are designed not only to satisfy regulatory requirements, but also to provide for effective management of the Company. +Information on the Company’s corporate governance practices is available to the public under “Corporate Governance” on the Company’s website at www.transact-tech.com . The information on the website includes the Company’s Corporate Governance Principles, the charters of each of the Company’s Committees, and the Company’s Standards of Business Conduct, which includes a code of ethics applicable to the officers responsible for financial reporting, the Chief Executive Officer, Chief Financial Officer and Corporate Controller. All of the directors attended the Company’s 2012 Annual Meeting. Each director attended 100% of the quarterly Board meetings. Additionally, each Director attended 100% of the supplemental Board Meetings. Each Director attended 100% of the applicable Committee meetings. Effective May 30, 2012, Charles A. Dill retired from the Board of Directors. +Board Leadership Structure +At present, the Board has chosen to combine the positions of Chief Executive Officer and Chairman of the Board. The Board believes it is important to retain the organizational flexibility to determine whether the roles of Chairman of the Board and Chief Executive Officer should be separated or combined in one individual. While there may be circumstances in which an independent Chairman is appropriate, the Board currently believes that the Chief Executive Officer is the individual with the necessary experience, commitment and support of the other Board members to effectively carry out the role of Chairman. The Board believes this structure promotes better alignment of strategic development and execution, more effective implementation of strategic initiatives, and clearer accountability for their success or failure. Moreover, the Board believes that combining the Chairman and Chief Executive Officer positions does not impede independent oversight. All of the members of the Board are independent under The Nasdaq Global Market rules except for the Chairman and Chief Executive Officer. +Board's Role in Risk Oversight +Senior management is responsible for assessing and managing the various exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and programs. The Company has a strong internal control environment to identify and manage risks. These include Standards of Business Conduct, robust product quality standards and processes, and a comprehensive internal and external audit process. Management communicates routinely with the Board, Board Committees and individual Directors on the significant risks identified and how they are being managed. The Board of Directors is responsible for overseeing management in the execution of its responsibilities and for assessing the overall approach to risk management. The Board of Directors exercises these responsibilities periodically as part of its meetings and also through its four committees, each of which examines various components of enterprise risk as part of its responsibilities. The Compensation and Corporate Governance Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks, as well as our policies with respect to risk assessment and risk management. The Nominating Committee manages risks associated with board independence and potential conflicts of interest. In addition, an overall review of risk is inherent in the Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board of Director’s role in risk oversight is consistent with our leadership structure, with the Chief Executive Officer, President and other members of senior management having responsibility for assessing and managing our risk exposure, and the Board and its committees providing oversight in connection with these efforts. +Board Size +The Corporate Governance Principles provide that the Board should generally have between four and ten members. In establishing the appropriate number of directors, the Board along with the Compensation and Corporate Governance Committee consider (i) resignations and retirements from the current Board, (ii) the availability of appropriate, qualified candidates, and (iii) the goal of assuring that the Board is small enough to facilitate active discussions and decision-making while, at the same time, is large enough to provide an appropriate mix of continuity, experience, skills and diversity so that the Board and its Committees can effectively perform their responsibilities. +Criteria for Membership on the Board +The Board and its Nominating Committee consider a number of different factors in selecting nominees for director. Some of these factors, such as integrity, are applied uniformly to all prospective candidates. Others, such as specific industry experience, may be adopted on a case-by-case basis by the Board and the Nominating Committee based on the Company’s business needs at the time a nomination is under consideration. The Nominating Committee and the Board of Directors apply the same criteria to each candidate for the Board, regardless of whether the candidate is proposed by a stockholder or some other source. Specific criteria considered by the Nominating Committee and the Board include: +Independence . The Board of Directors, in its Corporate Governance Principles and Committee charters, has established a policy that a substantial majority of the directors be “independent” members of the Board. The Nominating Committee and the Board consider the independence of each prospective director before election and further consider the independence of all continuing directors on at least an annual basis. The Board has determined that Messrs. Dillon, Schwarz and Tanaka are independent in accordance with the Company’s criteria and Mr. Shuldman, the Company’s Chief Executive Officer, is not independent. The Board applies the following criteria in determining independence, which criteria are derived from Nasdaq’s listing standards as well as certain additional requirements that are imposed on certain Committee members under the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the Internal Revenue Service (the “IRS”): +· +Independent Judgment . The director must not have any relationship with the Company that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the Board considers all relevant facts and circumstances, including commercial, charitable and familial relationships that might have an impact on the director’s judgment. +· +Employment . The director must not have been an employee of the Company or any parent or subsidiary of the Company at any time during the past three years. In addition, a member of the director’s immediate family (including the director’s spouse, parents, stepparents, children, stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law and anyone who resides in the director’s home other than a tenant or employee) must not have been an executive officer of the Company during the past three years. +· +Other Payments . Neither the director nor a member of his or her immediate family member may have received compensation of more than $100,000 per year from the Company during any period of twelve consecutive months during the past three years, except for director fees, payments arising solely from investments in the Company’s securities, benefits under certain Company plans and non-discretionary compensation, certain permitted loans and compensation paid to a family member who is not an executive officer of the Company. +· +Auditor Affiliation . Neither the director nor a member of his or her immediate family may be a current partner of the Company’s independent auditors or have been a partner or employee of the Company’s independent auditors who worked on the Company’s audit at any time during the past three years. +· +Interlocking Directorships . Neither the director nor any member of his or her immediate family may be employed as an executive officer by another entity where, at any time during the past three years, any of the Company’s executive officers served on the compensation committee. +· +Transactions . Neither the director nor any member of his or her immediate family may be a partner in, or a controlling stockholder or executive officer of, any organization that, during the current or any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $200,000 or 5% of the recipient’s annual consolidated gross revenues for such year (excluding payments arising solely from investments in the Company’s securities or paid under a non-discretionary charitable matching program). +· +Additional Standards for Audit Committee Members . Any director who serves on the Board’s Audit Committee may not, directly or indirectly, have received any consulting, advisory or other compensatory fee from the Company (other than certain retirement benefits and deferred compensation) or be an affiliate of the Company (except as a director, but including by way of stock ownership). In addition, no such director may have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years. +Overall Board Composition. The Board of Directors believes it is important to consider the professional skills and background, experience in relevant industries, age and diversity of its directors in light of the Company’s current and future business needs. +Personal Qualities. Each director must possess certain personal qualities, including integrity, judgment and business acumen. In addition, each director must be no older than 78 years of age at the time of nomination or re-nomination. +Diversity. The Board has not adopted a formal policy with respect to its consideration of diversity and does not follow any ratio or formula to determine the appropriate mix; rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service. +Commitments. Each director must have the time and ability to make a constructive contribution to the Board. While the Board does not believe it is appropriate to establish a single standard regarding the number of other boards on which a director may sit, this is a factor that may be considered in reviewing a candidate’s suitability. +Additional Criteria for Incumbent Directors. During their terms, all incumbent directors on the Company’s Board are expected to attend Board and Committee meetings regularly; to stay informed about the Company and its business; to participate in discussions of the Board and its Committees; to take an interest in the Company’s business and provide advice and counsel to the Company’s Chief Executive Officer; and to comply with the Company’s Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the criteria established from time to time by The Nasdaq Global Market, the SEC, the IRS and other applicable regulatory entities for service on the Board and its Committees. +Director Nomination Process +Under its charter, the Nominating Committee is responsible for identifying, reviewing and recommending individuals to the Board for nomination or election as directors. This typically involves the following steps: +· +Specific Criteria . The Nominating Committee and the Board review the overall composition of the Board in light of the Company’s current and expected business needs and, as a result of such assessments, may establish specific qualifications that the Committee will seek in Board candidates. +· +Identifying New Candidates . The Nominating Committee may seek to identify new candidates for the Board (i) who possess the desired qualifications and (ii) who satisfy the other requirements for Board service. In identifying new director candidates, the Committee may seek advice and names of candidates from Committee members, other members of the Board, members of management, and other public and private sources. The Committee may also, but need not, retain a search firm in order to assist in these efforts. +· +Reviewing New Candidates . The Nominating Committee reviews the potential new director candidates identified through this process. This involves reviewing the candidates’ qualifications and conducting an appropriate background investigation. The Committee may also select certain candidates to be interviewed by one or more Committee members. +· +Reviewing Incumbent Candidates . On an annual basis, the Nominating Committee also reviews incumbent candidates for re-nomination to the Board. This review involves an analysis of the criteria described above that apply to incumbent directors. +· +Recommending Candidates . The Nominating Committee recommends a slate of candidates for the Board of Directors to submit for approval to the stockholders at the Annual Meeting. This slate of candidates may include both incumbent directors and new nominees. In addition, apart from this annual process, the Committee may, in accordance with the Corporate Governance Principles, recommend that the Board elect new members of the Board who will serve until the next annual meeting of stockholders. At the time of making any recommendation to the Board, the Committee reports on the criteria that were applied in making the recommendation and its findings concerning each candidate’s qualifications. +· +Stockholder Nominations Submitted to the Committee . Stockholders may also submit names of director candidates, including their own, to the Nominating Committee for its consideration. The process for stockholders to use in submitting suggestions to the Nominating Committee is set forth below at “Procedures for Submitting Director Nominations and Recommendations.” Candidates who are nominated for the Board of Directors by stockholders are evaluated in the same manner as recommendations received from other sources. +Board Meetings and Executive Sessions +The Board of Directors holds regular quarterly meetings, as well as periodic special meetings. In 2012, the Board of Directors held thirteen meetings. +Independent directors meet by themselves in executive sessions, without management or employee directors present, at most regularly scheduled Board meetings. In addition, independent directors may convene additional executive sessions at any time. +The executive sessions are led by the Chair of the committee that is responsible for the subject matter at issue ( e.g. , the Audit Committee Chair would lead a discussion of audit-related matters). When it is not clear which committee has specific responsibility for the subject matter, the Chair of the Compensation and Corporate Governance Committee presides. +Committees of the Board +The Board has four standing committees: the Audit Committee, the Compensation and Corporate Governance Committee, the Nominating Committee and the Executive Committee. +Each Committee is composed entirely of independent directors and operates under a written charter. The Chair of each Committee is selected by the Board. Each Committee, except the Executive Committee, holds regular executive sessions at which only Committee members are present. Each Committee is authorized to retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance Committee, and the Nominating Committee are available on the Company’s website, www.transact-tech.com , but a brief summary of the committees’ responsibilities follows: +Audit Committee . The Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. It is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Dillon serving as Chair. The Board has determined that each member of the Audit Committee is an independent director and meets the financial literacy requirements of The Nasdaq Global Market to serve on the Committee. In addition, the Board has determined that Mr. Dillon is an “audit committee financial expert” as defined under the rules of the Securities and Exchange Commission. The Audit Committee operates under a written charter, which was revised in March 2004 and is posted on the Company’s website. The Audit Committee met four times during 2012. +Nominating Committee . The Nominating Committee is responsible for assisting the Board in carrying out its responsibilities relating to the composition of the Board, including identifying, reviewing and recommending candidates to the Board for nomination as directors. It is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Nominating Committee met twice during 2012. +Compensation and Corporate Governance Committee . The Compensation and Corporate Governance Committee provides oversight for the hiring and termination of all executive officers of the Company, the Company’s corporate governance practices, CEO performance review and succession planning, director compensation, Board and Committee performance evaluation, stockholder communication matters, the design and management of the executive compensation programs, and the philosophy and programs for all employee compensation and benefit programs worldwide. The Committee is responsible for determining the compensation (including salary, bonus, equity-based grants, and any other long-term cash compensation) for the Company’s Chief Executive Officer and for other senior executives as are subject to the Committee’s direct purview. The Committee is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as Chair. The Compensation and Corporate Governance Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Compensation and Corporate Governance Committee met three times during 2012. +Executive Committee . The Executive Committee meets between scheduled meetings of the Board of Directors and has the power and authority of the Board, except as limited by the Company’s By-Laws. It is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka. The Executive Committee did not meet during 2012. +Standards of Business Conduct +In order to help assure the highest levels of business ethics at the Company, the Board of Directors has approved and the Company has adopted Standards of Business Conduct (the "Standards"), which apply to the Company’s directors, officers and employees. The Standards provide an overview of the Company’s policies related to employee conduct in the workplace, regulatory compliance and investigations; the Company’s relationships with its customers, vendors, competitors and the public; insider trading; conflicts of interest; lobbying; political activities and contributions; accuracy of books, records and financial statements; confidentiality; and the protection of all who come forward to report suspected violations of the Standards. In addition, the Standards act as a code of ethics promoting honest and ethical conduct on the part of the Company’s officers who are responsible for financial reporting, including the Chief Executive Officer, Chief Financial Officer and Controller. The Standards mandate that these officers avoid conflicts of interest and disclose any relationship that could give rise to a conflict, protect the confidentiality of non-public information about the Company, work to achieve responsible use of the Company’s assets and resources, comply with all applicable governmental rules and regulations, and promptly report any possible violation of the Standards. The Standards require these individuals to promote full, fair, understandable and accurate disclosure in the Company’s publicly filed reports and other public communications. It sets forth standards for accounting practices and maintenance of records. Individuals who fail to observe the terms of the Standards may face disciplinary action, including possible employment termination. +PROPOSAL 1: +ELECTION OF DIRECTOR +The Board of Directors currently consists of four directors and is divided into three classes. Each class of directors is elected by the holders of the Company’s Common Stock to serve a staggered three-year term. At the Annual Meeting, one person is to be elected to hold office as a director until the 2016 Annual Meeting of Stockholders or until a successor is duly elected and qualified. The nominee for election is Graham Y. Tanaka. Mr. Tanaka has been a director of the Company since its formation in June 1996. Should the nominee become unavailable, which is not anticipated, votes pursuant to the proxy will be cast for a substitute candidate as may be designated by the Board of Directors, or in the absence of such designation, in such other manner as the Board may in their discretion determine. Alternatively, in such a situation, the Board of Directors may take action to fix the number of directors for the ensuing year at the number of nominees and incumbent directors who are then able to serve. +Information Concerning Nominees for Director Whose Terms Expire at the 2016 Annual Meeting +Graham Y. Tanaka , 65, has been a director of the Company since its formation in June 1996. Mr. Tanaka has been President of Tanaka Capital Management, Inc., an investment management firm, since 1986. He is a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. +Mr. Tanaka’s qualifications for election to the Company’s Board of Directors include private investment management experience as President of Tanaka Capital Management, Inc. and board experience as a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. He has been a director of the Company since its inception and is Chairman of the Nominating Committee. With his varied experiences as a director and investment manager working in the financial markets, Mr. Tanaka brings extensive knowledge of financial markets and financial analysis gained through his experience. +VOTE REQUIRED +The election of Graham Y. Tanaka as director of the Company requires the affirmative vote of a plurality of the votes of the Company’s Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares and broker non-votes will have no effect on the election of the director, but will be included in determining the presence of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE ELECTION OF GRAHAM Y. TANAKA AS DIRECTOR OF THE COMPANY. +Information Concerning Directors Whose Terms Will Expire at the 2014 Annual Meeting +Thomas R. Schwarz , 76, has been a director of the Company since its formation in June 1996 and was Chairman of the Board from June 1996 to February 2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman’s Inc., a retailer of building materials, from 1990 until his retirement in 1994. From 1980 to 1990, he was President, Chief Operating Officer and a director of Dunkin’ Donuts Incorporated, a food service company. Mr. Schwarz is a director of Tanaka Growth Fund and another privately held company. +Mr. Schwarz’s qualifications for election to the Company’s Board of Directors include public company leadership experience as President, Chief Operating Officer of Dunkin’ Donuts Incorporated and outside board experience as a director of Dunkin’ Donuts Incorporated, Grossman’s Inc., and The Tanaka Growth Fund. He has been a director of the Company since its inception and is Chairman of the Compensation and Corporate Governance Committee. From his past executive positions, Mr. Schwarz brings to our Board his extensive executive experience and knowledge of operating and managing complex operating companies. +Bart C. Shuldman , 56, has been Chief Executive Officer and a director of the Company since its formation in June 1996 and has been Chairman of the Board since February 2001. Mr. Shuldman also served as the Company’s President from 1996 until June 2010. Previously, Mr. Shuldman was Vice President of Sales and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April 1993 to August 1993, and served as President of Magnetec, and later the combined operations of Magnetec and Ithaca Peripherals Incorporated, another former Tridex subsidiary, from August 1993 to June 1996. Mr. Shuldman is also the director of another privately held company. +Mr. Shuldman’s qualifications for election to the Company’s Board of Directors include public company leadership experience as Chief Executive Officer of the Company since its inception and board experience as a director and currently Chairman of the Board of the Company. Mr. Shuldman brings to our Board his experience and knowledge of our business derived from his current position as Chief Executive Officer. +Information Concerning Directors Whose Terms Will Expire at the 2015 Annual Meeting +John M. Dillon , 63, has been a director of the Company since 2011. Mr. Dillon is currently the CEO of Engine Yard, Inc., the leading cloud platform for automating and developing Ruby on Rails and PHP applications. Prior to joining Engine Yard, Mr. Dillon served as CEO for Navis, Inc., a private company specializing in software systems for operating large marine container terminals and distribution centers, from 2002-2008. Before Navis, he also served as CEO for Salesforce.com and President and CEO of Hyperion Solutions. He began his career as a Systems Engineer for EDS (Electronic Data Systems) and then moved into a variety of sales management positions for various high-tech companies, including Oracle Corporation. Mr. Dillon holds a Bachelor’s degree in Engineering from the United States Naval Academy and an MBA from Golden Gate University. He served on active duty in the nuclear submarine service for five years before beginning his civilian career. +Mr. Dillon’s qualifications for election to the Company’s Board of Directors include private company leadership in his current CEO role at Engine Yard, Inc. and in previous CEO roles as previously discussed. Mr. Dillon is also a Director at BMC Corporation, Intacct Corporation and Centerpointe Community Bank and previously served as Director of several other companies. From his past executive and director positions, Mr. Dillon brings to our Board his extensive executive experience and knowledge operating and managing complex software and technology companies. +PROPOSAL 2: +RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2013 +The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of the Company for the 2013 fiscal year. This selection is being presented to the stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company’s financial statements since the Company’s formation in 1996. In the event stockholders do not ratify the appointment, the Audit Committee will reconsider the appointment. +A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement, and is expected to be available to respond to appropriate questions. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2013 requires the affirmative vote of a majority of the Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2013. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring its pre-approval of all audit services and permissible non-audit services provided by the independent registered public accounting firm, along with the associated fees for those services (the “Policy”). The Policy provides for the annual pre-approval of specific types of services pursuant to policies and procedures adopted by the Audit Committee, and gives detailed guidance to management as to the specific services that are eligible for such annual pre-approval. The Policy requires the specific pre-approval of all other permitted services. For both types of pre-approval, the Audit Committee considers whether the provision of a non-audit service is consistent with the Securities and Exchange Commission’s rules on auditor independence, including whether provision of the service (i) would create a mutual or conflicting interest between the independent registered public accounting firm and the Company, (ii) would place the independent registered public accounting firm in the position of auditing its own work, (iii) would result in the independent registered public accounting firm acting in the role of management or as an employee of the Company, or (iv) would place the independent registered public accounting firm in a position of acting as an advocate for the Company. In addition, the Audit Committee considers whether the independent registered public accounting firm is best positioned and qualified to provide the most effective and efficient service, based on factors such as the independent registered public accounting firm’s familiarity with the Company’s business, personnel, systems or risk profile and whether provision of the service by the independent registered public accounting firm would enhance the Company’s ability to manage or control risk or improve audit quality or would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to address certain requests for pre-approval of services between meetings of the Committee, and such Committee member is required to report his or her pre-approval decisions to the Committee at its next regular meeting. The Policy is designed to ensure that there is no delegation by the Audit Committee of authority or responsibility for pre-approval decisions to management of the Company. The Audit Committee monitors compliance by management with the pre-approval policy by requiring management, pursuant to the Policy, to report to the Audit Committee on a regular basis regarding the pre-approved services rendered by the independent registered public accounting firm. +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm. Accordingly, the Audit Committee has appointed PricewaterhouseCoopers LLP to perform audit and other services for the Company. In addition, the Audit Committee has procedures in place for the pre-approval by the Audit Committee of all services provided by PricewaterhouseCoopers LLP. These pre-approval procedures, as amended, are described above under “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm.” +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for the years ended December 31, 2012 and 2011 are as follows: +2012 +2011 +Audit Fees (1) +$ +316,804 +$ +450,071 +Audit-Related Fees (2) +- +15,000 +Tax Fees (3) +3,861 +3,848 +All Other Fees (4) +1,818 +1,818 +Total Fees for Services Provided +$ +322,483 +$ +470,737 +________ +(1) +Audit Fees consist of fees related to: (i) the annual integrated audit of the Company’s financial statements which included testing the effectiveness of the Company’s internal control over financial reporting, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), (ii) reviews of the Company’s quarterly financial statements and the (iii) statutorily required audits for the Company’s UK subsidiary. +(2) +Audit-Related Fees consist of fees incurred for consultations regarding accounting and financial reporting standards. +(3) +Tax Fees consist of fees for the preparation of tax returns for our UK subsidiary. +(4) +All Other Fees include software license fees for the use of a web-based accounting research tool. +The Audit Committee has considered whether the provision of the above services, other than Audit Fees, is compatible with maintaining the auditors’ independence and has determined that, in its opinion, they are compatible. All of the above services during the year ended December 31, 2012, other than those covered by Audit Fees, were either approved by the Audit Committee or were performed pursuant to pre-approval policies and procedures. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the internal control over financial reporting and quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. +Management is responsible for preparing complete and accurate consolidated financial statements in accordance with generally accepted accounting principles. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and for issuing reports about those financial statements. The Audit Committee meets with the independent registered public accounting firm, the Chief Executive Officer, the Chief Financial Officer and the Corporate Controller of the Company to review the scope and the results of the annual audit, the amount of audit fees, the Company’s system of internal accounting controls over financial reporting, the financial statements contained in the Company’s Annual Report to Stockholders and other related matters. Separate meetings are held with the independent registered public accounting firm and management. +In connection with its duties, the Audit Committee has taken the following actions: +· +It has reviewed and discussed the audited financial statements, as well as the assessment of internal controls over financial reporting, with management. +· +It has discussed with the independent registered public accounting firm, which is responsible for expressing an opinion on the financial statements in accordance with generally accepted accounting principles, the matters required to be discussed by the statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. +· +It has received from the independent registered public accounting firm the written disclosures describing any relationships between the independent registered public accounting firm and the Company and the letter confirming their independence required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with the independent registered public accounting firm matters relating to their independence. +· +Based on its review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company for the year ended December 31, 2012 be included in the Company’s Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +John M. Dillon, Chair +Thomas R. Schwarz +Graham Y. Tanaka +PROPOSAL 3: +ADVISORY VOTE ON EXECUTIVE COMPENSATION +The Company seeks your advisory vote on the compensation of the Company’s named executive officers as described in the “Compensation, Discussion and Analysis” section, tabular disclosure regarding such compensation and accompanying narrative disclosure set forth in this proxy statement. We ask that you support the compensation of our named executive officers as disclosed below. Your vote is advisory only, and therefore non-binding, but we can assure you that whatever the outcome of the vote, the Compensation Committee and the Board will review the results carefully and take the results into account in future compensation decisions. The Compensation Committee believes the Company’s executive compensation program reflects a strong pay-for-performance philosophy and is aligned with the shareholders’ long-term interests. +We believe that our programs are currently structured in the best manner possible to sustain our organizational and strategic goals, as well as to support our unique culture. These structural elements include: +• +Ensuring alignment between the incentive metrics (for the short-term, those would be net sales, EBITDA and earnings per share) and for the long-term (stock price) and shareholder value. +• +Maintaining the highest level of corporate governance over our executive compensation programs by reviewing them frequently and engaging a compensation consultant that does not work for the Company’s management as necessary. +• +Closely monitoring our programs against the other companies in the marketplace with whom we compete for talent and against whom we measure our success, noting in particular that this group of companies may change rapidly as the Company experiences its own growth. +• +Engaging in rigorous talent reviews of our senior executives to ensure they remain committed to the Company’s short and long-term goals, developing or obtaining the skills to manage in the current economy and preparing for the inevitable succession that naturally occurs in any organization. +• +Maintaining conservative benefit programs primarily directed and offered to all employees. +• +Providing executive officers nominal perquisites. +VOTE REQUIRED +Shareholders are being asked to vote on the following resolution: +RESOLVED: That the shareholders of the Company approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure, set forth below. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPANY’S COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE “COMPENSATION DISCUSSION AND ANALYSIS” SECTION OF THIS PROXY STATEMENT AS SET FORTH BELOW. +PROPOSAL 4: +ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION +OF THE NAMED EXECUTIVE OFFICERS +The Company also seeks your advisory input with regard to the frequency of future shareholder advisory votes on our executive compensation provided for in PROPOSAL 3 above. The applicable rules allow us to ask you for your input on having you give us your advisory vote on our executive compensation every three, two or one years. +A shareholder advisory vote on executive compensation is very important to the Board. We greatly appreciate the support our shareholders have provided to us in the past by approving all of the required incentive plans we have put before you. These plans have been designed to provide, and we believe have provided, a strong alignment between executive compensation and financial performance results. +As noted in the Compensation Discussion and Analysis, one of the core principles of our executive compensation is creating long-term sustainable earnings growth. Consequently, by setting a three-year period for holding this shareholder vote, we will enhance shareholder communication by providing a clear, simple means for the Company to obtain information on investor sentiment about our executive compensation philosophy in a timeframe that matches our program’s design. +We will carefully review our executive compensation programs during the period between shareholder votes and review these programs against the marketplace to ensure ourselves that such programs are properly designed and implemented and delivering the appropriate value to our named executive officers and you, our shareholders. By then getting your feedback triennially, we will have the benefit of your views, on a longer term perspective, on the effectiveness of our programs, and we will then have a more efficient and effective timeframe for the Company to respond to shareholders’ feedback and provide the Company with sufficient time to engage with shareholders to understand and respond to the vote results. Our executive compensation programs are based on our long-term business strategy, which is more appropriately reflected with a three year timeframe. +The proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining) and, therefore, shareholders will not be voting to approve or disapprove the Board’s recommendation. +VOTE REQUIRED +The shareholders of the Company approve, on an advisory basis, the frequency of future non-binding advisory votes on compensation for our named executive officers. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE, ON AN ADVISORY BASIS, FOR A FREQUENCY OF “THREE YEARS” FOR FUTURE NON-BINDING ADVISORY VOTES ON COMPENSATION FOR OUR NAMED EXECUTIVE OFFICERS. +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Overview +This Compensation Discussion and Analysis describes the philosophy, approach, and elements used by us and the Compensation and Corporate Governance Committee (the “Compensation Committee”) of our Board of Directors, which is composed entirely of independent directors of the Company, to define, manage, and review the compensation paid to our executives. Our philosophy and approach to executive compensation apply to all executive officers of the Company, including those executives designated as Named Executive Officers (“NEO’s”). +Philosophy and Objectives of the Compensation Program +Our Compensation Committee’s philosophy is that our executive compensation program is to be based on our performance and be competitive with other similarly-sized companies in similar industries. The primary objectives of our compensation program are to: +· +Attract, engage, retain, and reward executive officers; +· +Motivate employees and encourage individual initiative and effort; +· +Help to achieve key business objectives and attain Company goals; and +· +Align executives’ interests closely with those of the Company and its stockholders to drive long term sustainable earnings growth. +Our executive compensation program principally includes base salary, an incentive cash performance bonus program and equity incentive awards. The Compensation Committee believes that each element of the total compensation program helps to ensure that the efforts of our executive officers support the creation of stockholder value, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality or linking individual performance to the Company’s overall performance. The Committee retains its discretion to modify the compensation program elements in response to the needs of the Company. Except as otherwise prohibited by law or the Company’s organizational documents, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee. +The elements of our executive compensation program are periodically analyzed using current publicly available market data, contemporary market trends in the industries in which the Company operates and periodic reviews of compensation and benefit surveys. Although we perform periodic reviews of salary surveys and occasionally use compensation consultants to analyze elements of our compensation program, we do not believe that it is appropriate to establish compensation levels based solely on the use of such surveys. +The Compensation Committee reviews Company executive officer compensation and performance data to determine whether the Company’s executive compensation program is competitive and reasonable. The Compensation Committee, on occasion, meets with the Chief Executive Officer and Chief Financial Officer to obtain recommendations with respect to the Company’s compensation programs, practices and packages for the other executive officers, senior managers and other employees. Our Chief Executive Officer and Chief Financial Officer, with the assistance and support of the human resources department, provide recommendations regarding the design of the Company’s compensation program to the Compensation Committee. The Compensation Committee considers, but is not bound to accept, management’s recommendations with respect to executive compensation. +In May 2009, the Compensation Committee retained Towers Watson, an independent compensation consultant, to assist the Compensation Committee in assessing the competitiveness of the Company's total compensation program for the Company’s CEO, CFO and EVP Engineering, with the goal of implementing compensation changes based on Towers Watson’s advice and/or recommendations, if any, in 2010. The Compensation Committee directed Towers Watson to collect and analyze compensation data for the Company’s CEO, CFO and EVP Engineering and assess their compensation relative to individuals holding similar positions at companies in similar industries and size. Towers Watson provided comparative market-based compensation data for base salaries, annual cash incentive awards and long-term equity awards for the CEO, CFO and EVP Engineering. Towers Watson developed a peer group of companies consisting of U.S.-based information technology companies with revenue, percentage of foreign sales and product diversity generally comparable to the Company’s executives (the “Peer Group”) mainly from the same Standard Industrial Classification codes. The Peer Group consisted of LTX-Credence Corp.; Spectrum Control, Inc.; Communications Systems, Inc.; Rimage Corp.; Mad Catz Interactive, Inc.; Maxwell Technologies, Inc.; FSI International, Inc.; Perceptron, Inc.; DRI Corporation; Vicon Industries, Inc.; IntriCon Corp.; Optical Cable Corp.; Optelecom-NKF, Inc.; ClearOne Communications, Inc.; and Alliance Fiber Optic Products, Inc. The Peer Group data was based on compensation paid predominantly in 2008. +In addition, Towers Watson examined the Company’s executive compensation programs generally to ensure their ongoing support of the Company’s business strategy, informed the Compensation Committee of developing legal and regulatory considerations affecting executive compensation and benefit programs, and provided general advice to the Compensation Committee with respect to all compensation decisions pertaining to the CEO, CFO and EVP Engineering. As a result, and at the conclusion of the review process, the Compensation Committee revised the Company's annual incentive bonus program in an effort to further align the Company’s CEO and CFO's annual incentive compensation with the goal of building longer-term stockholder value. Based on the recommendation of Towers Watson, the Compensation Committee approved a change to the annual incentive bonus plan so that for Mr. Shuldman and Mr. DeMartino, 30% and 20%, respectively, of the Target Bonus amount earned going forward, be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan, with the number of deferred stock units to be based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). This new compensation program was implemented beginning with the 2009 annual incentive bonus plan. Beginning 2012, Mr. DeMartino requested, and the Compensation Committee approved, increasing the percentage of Mr. DeMartino’s Target Bonus to be paid in the form of fully vested stock units from 20% to 30%. These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. +Towers Watson did not advise management of the Company and neither it nor its affiliates received any compensation from the Company for services other than those performed for the Compensation Committee. +Elements of the Company’s Compensation Plan +The principal elements of the Company’s compensation program are base salary, an incentive cash bonus program and equity incentive awards. +Base Salary : In general, base salaries for employees, including executive officers, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance, external market data and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Base salary for each executive is reviewed on an annual basis as part of our companywide merit review process. The amount of any merit increase to an executive’s base salary is determined based on a combination of the current position of the executive’s pay against market data and the executive’s performance and results during the past year. Our Chief Executive Officer is responsible for assessing the performance of each executive reporting to him. Our Compensation Committee assesses the performance of our Chief Executive Officer. +Incentive Cash and Deferred Stock Unit Bonus Program : We have historically maintained an incentive cash compensation plan for all executive officers, except for those who receive sales commissions, which provides our executives with the opportunity to receive performance bonuses in the form of cash upon the attainment of certain annual financial objectives, as well as performance and business objectives. The incentive bonus is designed to be a significant portion of executive compensation in order to create and maintain a significant incentive for our executives to achieve or exceed our strategic and annual financial objectives. +To ensure alignment of compensation with our business objectives, our Chief Executive Officer and other executive officers establish specific quantitative and qualitative performance metrics each fiscal year. Our performance metrics (as used for incentive bonus) are reviewed and approved by our Compensation Committee. The metrics are aligned with our strategic and annual business plans and are reviewed by our Board of Directors and Compensation Committee. For 2012, the quantifiable metric of our annual incentive bonus program consisted of a target level of diluted earnings per share of $0.55, excluding the after-tax effect of external acquisition related expenses, the removal of the impact from treasury share repurchases exceeding 120,000 shares and adjusting to add back the effect of the 2012 Research & Development credit that was enacted into law on January 3, 2013, and therefore won’t be recorded for accounting purposes until 2013 (the “EPS Target”). The minimum and maximum diluted earnings per share set forth in the incentive bonus program by our Compensation Committee was $0.39 and $0.69, respectively, after adjusting for the above items. +Our executive officers, except for those that receive sales commissions, participate in the incentive bonus program. Bonuses are paid under the incentive bonus program only if the Company meets the specified quantifiable performance objectives and/or the executive meets specified performance and business objectives. The incentive cash bonus that any particular executive is eligible to earn is established as a percentage (the “Target Percentage”) of the individual’s base salary (“Target Bonus”). For 2012, 75% of each executive’s Target Bonus was based on achievement of the EPS Target (the “EPS Bonus Amount”) and 25% was based solely on achievement of performance and business objectives established by the Chief Executive Officer and the Compensation Committee (the “Performance Bonus Amount”). No EPS Bonus Amount is payable unless diluted earnings per share exceeds a specified threshold ($0.39 for 2012). Above the threshold, the EPS Bonus Amount is adjusted upward on a sliding scale ranging from 5% to 114% of the Target Percentage for 2012. +The Compensation Committee is responsible for determining achievement of performance and business objectives for the CEO. The CEO is responsible for determining achievement of performance and business objectives for each of his direct reports. For other participants, achievement of performance and business objectives will be determined by the President or the appropriate Vice President or manager. Performance objectives include personal goals that support the Company’s overall business objectives as well as other financial and non-financial measurements. For 2012, such objectives consisted of achievement of certain financial and strategic objectives such as completing the development and launching the Ithaca 9700 food safety terminal and two new color Printrex ® printers for the oil and gas market; integrating and consolidating the operations of Printrex, Inc. into our Ithaca, NY facility; signing a target level of deals for the EPICENTRAL TM Print System; and generating a target level of free cash flow. For 2012, the Performance Bonus Amount ranged from 0% to 25% of the Target Percentage depending on the level of achievement. +In addition, for 2012, to continue the efforts to further align the incentives of the Company’s CEO and CFO with building longer-term stockholder value, the Compensation Committee again required that for Mr. Shuldman and Mr. DeMartino, 30% of the Target Bonus amount earned for 2012 be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. +Equity Incentive Awards : The goal of our equity-based incentive awards is to align the interests of our executives with our stockholders and to provide executives with an incentive to manage the Company from the perspective of an owner with an equity stake in the business. We believe that our long-term performance is improved by encouraging ownership by our executives through the use of stock-based grants. Because vesting of our stock awards is based on continued employment, our equity-based incentives also facilitate the retention of executives through the term of the awards. Generally, we believe that stock options are the most effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of stock options to our future performance – i.e. executives are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price. +Grants of stock options are approved by the Compensation Committee at its regularly scheduled meeting typically on or about March 1. While the majority of stock option awards to our employees have been made under our annual grant program, the Compensation Committee may make stock option awards to employees at other times, including at the time of hire of an employee, promotion of an employee, to reward an employee, for retention purposes or for other circumstances as recommended by the Chief Executive Officer or the Compensation Committee. In determining the size of the long-term equity incentives to be awarded to employees, we take into consideration a number of factors including but not limited to relative job scope, individual performance level, prior contributions to the Company, the need to retain the employee, the size of prior grants and competitive market data. Based upon these factors, the Compensation Committee determines the size of the equity incentives at levels it considers appropriate to create meaningful opportunity for reward predicated on the creation of long-term stockholder value. +The exercise price of options granted is set at the closing price of our common stock on the date of grant. Grants of options generally vest in equal annual installments over a four-year period and have a ten-year term. +2012 Executive Compensation +The specific compensation decisions made for each of our executive officers for 2012 reflect the performance of the Company against key financial and operational measurements, as well as performance against objectives. +Base Salary : The Company’s Vice President, Human Resources and the CEO and CFO review and discuss the NEOs’ (other than the CEO and CFO) base salaries. In connection with establishing the NEOs’ (other than the CEO and CFO) base salary adjustments, the Company’s Vice President, Human Resources provides merit increase percentage guidelines based on market-based compensation data, its knowledge of competitive market practices and the Company’s salary budget. The merit increase percentage guidelines (the “Merit Increase Guideline”) for the 2012 base salary increases for all NEOs serving at the time were from 0% to 2.9%. After considering the Merit Increase Guideline and evaluating a NEO’s performance and the position of his or her current base salary, the CEO, as direct supervisor, makes a specific base salary adjustment recommendation to the Compensation Committee. Each NEO’s (other than the CEO and CFO) actual base salary adjustment, if any, is determined by the Compensation Committee. +In determining the base salary of the NEOs, the Compensation Committee evaluated the overall performance of the Company and the individual’s contributions to that performance, as well as the performance of the sales unit or function that each leads when relevant. Based on individual considerations with respect to each NEO (other than the CEO and CFO) such as his or her experience and contributions to the Company, and recognizing that the Company must also react to a competitive marketplace on a case-by-case basis when seeking to recruit and retain executives, the Compensation Committee strives to set each NEO’s base salary within the Merit Increase Guideline, if warranted. No additional adjustments were considered necessary to executive compensation in 2012 other than the customary annual base salary increases previously discussed. +Incentive Cash and Equity Bonus Program: During 2012, the Company achieved adjusted diluted earnings per share of $0.52, as reviewed and approved by the Compensation Committee. These results were approximately 5% below the EPS Target of $0.55. Each NEO also achieved all of his/ her performance objectives set for 2012. Therefore, for 2012, the incentive cash and equity bonus payout for all eligible employees based on both financial and performance objectives achievement was approved at 92.5% of the annual target amount. For 2012, Mr. Shuldman, Mr. DeMartino, Mr. Hoffman and Mr. Wyatt were paid a cash incentive bonus of $225,776, $98,479, $55,736 and $51,449, respectively. In addition, for 2012, 30% of Mr. Shuldman’s and Mr. DeMartino’s individual incentive bonuses were issued in the form of vested deferred stock units. These amounts are shown in the “Summary Compensation Table” below under the columns “Stock Awards” and “Non-Equity Incentive Plan Compensation.” These bonuses were calculated as a percentage of each executive’s base salary in effect as of March 2012. Mrs. Chernay was not eligible to participate in the incentive bonus program as she earned commissions based on annual sales from her sales units. Mrs. Chernay received a commission, paid monthly, equal to approximately 0.3% of sales achieved by her sales unit in the fiscal year. +Equity Incentive Awards : For 2012, Mr. Shuldman recommended to the Compensation Committee a total equity award dollar value range for each NEO based on factors including the NEO’s performance evaluation, his/her overall compensation package and his/her perceived potential and contributions to the Company. After considering Mr. Shuldman’s recommendations, the Compensation Committee, with Mr. Shuldman’s participation, determined the total equity award dollar value for each NEO other than Mr. Shuldman. The Compensation Committee considered several factors in making its determinations, including Mr. Shuldman’s recommendations, the Company’s performance, each NEO’s position within the Company, his/her perceived potential and contributions to the Company, and the Compensation Committee’s subjective understanding of competitive practices in the marketplace with respect to equity awards. The factors used by Mr. Shuldman to determine recommendations regarding total equity award dollar value ranges for each NEO and by the Compensation Committee to establish each NEO’s total equity award dollar value were assessed by Mr. Shuldman and the Compensation Committee, respectively, on a subjective basis. In March 2012, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. DeMartino, Mrs. Chernay, Mr. Hoffman and Mr. Wyatt of stock options to purchase 22,500, 20,000, 5,000, 15,000 and 10,000 shares, respectively. The vesting terms of the grant of stock options are outlined in the table entitled “Grants of Plan-Based Awards in 2012.” The level of awards granted was consistent with the level of historical grants over the previous five years. +Tax Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code, publicly held corporations may be prohibited from deducting as an expense for federal income tax purposes total compensation in excess of $1 million paid to certain executive officers in a single year. Section 162(m) specifically exempts certain performance-based compensation from the deduction limit. The levels of base salary, annual cash incentive bonus and equity compensation we generally pay to our executive officers do not exceed this limit, and thus compensation decisions are not driven by the requirements of Section 162(m). +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in TransAct’s proxy statement for the 2013 annual meeting. +COMPENSATION AND CORPORATE +GOVERNANCE COMMITTEE +Thomas R. Schwarz, Chair +John M. Dillon +Graham Y. Tanaka +SUMMARY COMPENSATION TABLE +The following table sets forth information concerning the compensation earned by the Company’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers (the “NEOs”) in 2012, 2011 and 2010: +Name and Principal Position +Year +Salary ($) +Bonus (2)($) +Stock +Awards +($) +Option +Awards +(3)($) +Non-Equity +Incentive Plan +Compensation +(7)($) +All Other +Compensation ($) +Total ($) +Bart C. Shuldman (1) +2012 +462,418 +- +- +83,135 +322,537 +43,192 (4) +911,282 +Chairman and Chief +2011 +449,126 +- +- +104,204 +346,996 +41,438 (4) +941,764 +Executive Officer +2010 +438,656 +- +- +114,763 +370,116 +39,408 (4) +962,943 +Steven A. DeMartino +2012 +302,547 +- +- +73,898 +140,685 +22,559 (5) +539,689 +President, Chief +2011 +293,851 +- +- +104,204 +151,353 +22,362 (5) +571,770 +Financial Officer, Treasurer and Secretary +2010 +270,641 +- +- +91,810 +153,076 +22,370 (5) +537,897 +Andrew J. Hoffman +2012 +199,770 +- +- +55,424 +55,736 +19,228 (5) +330,158 +Senior Vice-President +2011 +170,436 +- +- +22,953 +52,466 +18,036 (5) +263,891 +Operations +2010 +157,119 +- +- +29,773 +53,296 +16,647 (5) +256,835 +Tracey S. Chernay +2012 +183,000 +94,581 +- +18,475 +- +17,856 (5) +313,912 +Executive Vice +2011 +183,000 +107,753 +- +59,545 +- +17,498 (5) +367,796 +President, Casino & Gaming Sales and Marketing +2010 +173,383 +99,002 +- +22,953 +- +15,367 (5) +310,705 +Benjamin C. Wyatt +2012 +184,403 +- +- +36,949 +51,449 +8,204 (6) +281,005 +Vice President, Software +2011 +180,624 +21,250 +- +59,545 +55,350 +8,159 (6) +324,928 +Products & Business +Development +2010 +162,166 +- +- +68,858 +55,272 +6,670 (6) +292,966 +________ +(1) +Mr. Shuldman is a director of the Company, but does not receive any separate compensation for those services. +(2) +Bonuses paid to Mrs. Chernay represent commissions on sales by the Company. Bonuses paid to Mr. Wyatt represent the achievement of certain objectives related to the Company’s EPICENTRAL TM Print System. +(3) +Amounts in this column reflect the grant date fair value of option awards, calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. All option awards in 2010, 2011 and 2012 were granted under the Company’s 2005 Equity Incentive Plan. For information on the valuation assumptions with respect to these option awards, refer to the notes of the Company's financial statements in the Form 10-K for the years ended December 31, 2010, 2011 and 2012, as filed with the SEC. Please see the “Outstanding Equity Awards at 2012 Fiscal Year-End” table for a description of option awards. There were no forfeitures of option awards by this group during the year. +(4) +For Mr. Shuldman, this amount consists of an automobile allowance, Company contributions under the Company’s 401(k) Plan, life insurance, disability insurance and tax return preparation fees. +(5) +For Mr. DeMartino, Mr. Hoffman and Mrs. Chernay, these amounts consist of automobile allowances, Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(6) +For Mr. Wyatt, these amounts consist of Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(7) +For Mr. Shuldman and Mr. DeMartino, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. For 2012, 30% of these incentive bonus amounts were paid in the form of deferred stock units with the remainder paid in cash. For 2011 and 2010, 30% and 20%, respectively, of these incentive bonus amounts were paid in the form of deferred stock units with the remainder paid in cash. For Mr. Hoffman and Mr. Wyatt, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. +GRANTS OF PLAN-BASED AWARDS IN 2012 +The following table sets forth information concerning the grant of plan-based awards to NEOs in 2012: +Name +Grant +Date +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +All Other +Option +Awards: +Number of +Securities +Underlying +Options(2)(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value of +Stock and +Option +Awards(3)($) +Threshold ($) +Target ($) +Maximum ($) +Bart C. Shuldman +3/5/2012 +87,172 +348,689 +484,678 +22,500 +6.70 +83,135 +Steven A. DeMartino +3/5/2012 +38,023 +152,092 +211,406 +20,000 +6.70 +73,898 +Andrew J. Hoffman +3/5/2012 +15,064 +60,255 +83,754 +15,000 +6.70 +55,424 +Tracey S. Chernay +3/5/2012 +- +- +- +5,000 +6.70 +18,475 +Benjamin C. Wyatt +3/5/2012 +13,905 +55,620 +77,312 +10,000 +6.70 +36,949 +________ +(1) +Represents target payout under our annual incentive bonus program for 2012. Actual amounts paid in March 2013 are included in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. For Mr. Shuldman and Mr. DeMartino, 30% of these incentive bonus amounts were paid in 2013 in the form of deferred stock units with the remainder paid in cash. The maximum amounts assume a payout of 139% of the NEO's annual incentive bonus. The annual incentive cash and equity bonus program is described in the "Compensation Discussion and Analysis". +(2) +Each stock option award disclosed in the Grants of Plan-Based Awards in 2012 table was issued under our 2005 Equity Incentive Plan and was granted with an exercise price per share equal to the fair market value of our common stock on the date of grant, as determined by the closing price of the stock on the date the option was granted. Subject to the terms of our 2005 Equity Incentive Plan and the option agreements issued in connection with these grants, each option award granted in 2012 to a NEO vests at a rate of 25% per year over four years. +(3) +The amounts shown represent the grant date fair value of stock options granted in 2012 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2012, as filed with the SEC. Please see the “Outstanding Equity Awards at 2012 Fiscal Year-End” table for a description of option awards. There were no forfeitures of stock option awards by this group during the year. +OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END +The following table shows outstanding equity awards for the NEOs as of December 31, 2012: +Option Awards +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +(# Exercisable) +Number of +Securities +Underlying +Unexercised +Options +(# Unexercisable) +Option +Exercise +Price ($) +Option +Expiration +Date +Bart C. Shuldman +1/2/2006 +12,500 +- +7.90 +1/2/2016 +3/1/2006 +15,000 +- +9.75 +3/1/2016 +2/28/2007 +25,000 +- +9.51 +2/28/2017 +2/27/2008 +16,800 +4,200 +5.24 +2/27/2018 +3/5/2009 +12,500 +12,000 +2.18 +3/5/2019 +5/27/2010 +12,500 +12,500 +7.45 +5/27/2020 +3/7/2011 +4,375 +13,125 +9.89 +3/7/2021 +3/5/2012 +- +22,500 +6.70 +3/5/2022 +Steven A. DeMartino +1/2/2006 +10,000 +- +7.90 +1/2/2016 +3/1/2006 +10,000 +- +9.75 +3/1/2016 +2/28/2007 +15,000 +- +9.51 +2/28/2017 +2/27/2008 +20,000 +5,000 +5.24 +2/27/2018 +3/5/2009 +15,000 +10,000 +2.18 +3/5/2019 +5/27/2010 +10,000 +10,000 +7.45 +5/27/2020 +3/7/2011 +4,375 +13,125 +9.89 +3/7/2021 +3/5/2012 +- +20,000 +6.70 +3/5/2022 +Andrew J. Hoffman +1/2/2006 +5,000 +- +7.90 +1/2/2016 +3/1/2006 +5,000 +- +9.75 +3/1/2016 +2/28/2007 +7,500 +- +9.51 +2/28/2017 +2/27/2008 +2,000 +2,000 +5.24 +2/27/2018 +3/5/2009 +4,486 +4,000 +2.18 +3/5/2019 +5/27/2010 +2,500 +2,500 +7.45 +5/27/2020 +3/7/2011 +1,250 +3,750 +9.89 +3/7/2021 +3/5/2012 +- +15,000 +6.70 +3/5/2022 +Tracey S. Chernay +1/2/2006 +5,000 +- +7.90 +1/2/2016 +3/1/2006 +2,500 +- +9.75 +3/1/2016 +2/28/2007 +15,000 +- +9.51 +2/28/2017 +2/27/2008 +8,000 +2,000 +5.24 +2/27/2018 +3/5/2009 +- +6,000 +2.18 +3/5/2019 +5/27/2010 +2,500 +2,500 +7.45 +5/27/2020 +3/7/2011 +2,500 +7,500 +9.89 +3/7/2021 +3/5/2012 +- +5,000 +6.70 +3/5/2022 +Benjamin C. Wyatt +5/28/2008 +10,000 +- +7.80 +5/28/2018 +3/5/2009 +2,000 +4,000 +2.18 +3/5/2019 +5/27/2010 +7,500 +7,500 +7.45 +5/27/2020 +3/7/2011 +2,500 +7,500 +9.89 +3/7/2021 +3/5/2012 +- +10,000 +6.70 +3/5/2022 +Options Awards Vesting Schedule +Grant Dates +Vesting Schedule +1/2/2006, 3/1/2006, 2/28/2007, 2/27/2008, 3/5/2009 +20% per year for five years +5/28/2008 +100% after four years +5/27/2010, 3/7/2011, 3/5/2012 +25% per year for four years +OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2012 +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +On Exercise (#) +Value Realized +on Exercise(1)($) +Number of +Shares +Acquired +on Vesting (2)(#) +Value Realized +on Vesting(3)($) +Bart C. Shuldman +1,500 +6,975 +15,537 +112,177 +Steven A. DeMartino +- +- +4,518 +32,620 +Andrew J. Hoffman +- +- +- +- +Tracey S. Chernay +9,000 +50,400 +- +- +Benjamin C. Wyatt +- +- +- +- +________ +(1) +Calculated based on the difference between the market price of the underlying securities at exercise and the exercise price of the options. +(2) +Includes the underlying shares of the fully vested stock units granted on March 5, 2012 to Mr. Shuldman and Mr. DeMartino under the 2005 Equity Incentive Plan, which are payable upon the sale of the Company, the executive leaving the Company or on the third year anniversary from the date of grant in the form of shares of the Company’s common stock on a one-for-one basis. +(3) +Amounts for shares underlying deferred fully vested stock units are calculated based on the closing price of the Company’s stock on December 31, 2012, the last trading day of the fiscal year, the remaining amounts are calculated based on the market value on the vesting date of the shares underlying each award. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has entered into certain agreements and maintains certain plans that may require payments be made, and/or benefits be provided, to the NEOs: (i) in the event a NEO’s employment is terminated other than for Cause, as defined below, (a “Termination Event”), (ii) if a change in control (as defined by the applicable agreement or plan) occurs (a “Change in Control Event”) or (iii) if a Termination Event occurs or a NEO resigns for certain specified reasons within one year following a change in control (a “Change in Control and Termination Event”). The payments and benefits that each NEO may be entitled to receive upon a Termination Event, Change in Control Event or a Change in Control and Termination Event are described in the applicable employment agreement or severance agreement and the Company’s 2005 Equity Incentive Plan. None of the agreements for our NEOs include a gross up for any taxes as a result of golden parachute payments. Below is a description of the types of events that would trigger payments under these agreements and plans and the potential payments to each such Named Executive Officer assuming that a triggering event occurred on December 31, 2012, the last day of our most recent fiscal year. +Employment and Severance Agreements +Events That Trigger a Termination Event or Change in Control Event. The applicable employment and severance agreements generally define Cause as a termination for the following reasons: (i) action or inaction by the NEO that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the Board or officers of the Company or a commission of a crime of moral turpitude; (ii) material, repetitive, unjustified and unexcused refusal to follow the reasonable and lawful written instruction of the Board—or in the case of the NEOs other than Mr. Shuldman, the Board or the Company’s President; or (iii) death or disability. Change in control is generally defined in each agreement to include (i) a merger of the Company with another company where the majority of the board of the surviving company is not comprised of directors of the Company in office immediately prior to the transaction, (ii) a change in the board of directors of the Company such that after an election a majority of the directors in office are not directors that were nominated by two-thirds of board members prior to the election or (iii) a complete liquidation of the Company. +Effect of a Termination Event or Change in Control and Termination Event. Under the terms of an Employment Agreement dated July 31, 1996 between Bart C. Shuldman and the Company, if a Termination Event or Change in Control Event were to occur, Mr. Shuldman would continue to receive: (i) his annual base salary and (ii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; an automobile allowance; and certain service fees related to medical exams, income tax planning and estate planning) for two years and three years, respectively, from the date of termination. In connection with a Termination Event, Mr. Shuldman would receive a pro rata portion of his annual target bonus amount for the year of termination. If a Change in Control Event were to occur and within one year thereafter either Mr. Shuldman’s employment is terminated other than for Cause, or Mr. Shuldman resigns following a significant reduction in the nature or scope of his responsibilities or authorities, a decrease in salary other than resulting from a reduction that applies generally to all management personnel or specified relocations of the Company’s facilities, Mr. Shuldman would be entitled to continue to receive, in addition to the amounts listed in the first sentence, his annual target bonus for a period of three years from the date of termination and all stock options and other awards granted to Mr. Shuldman under the Company's stock plans would immediately vest. +Under the terms of a Severance Agreement with Steven A. DeMartino dated June 1, 2004, if a Termination Event were to occur, Mr. DeMartino would be entitled to continue to receive, for one year following the date of termination (i) his annual base salary, (ii) a pro rata portion of his annual target bonus for the year of termination and (iii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; and an automobile allowance.) If a Change in Control Event were to occur and the employment of Mr. DeMartino is terminated other than for Cause, or if he resigns for specified reasons within one year following a Change in Control Event, Mr. DeMartino would be entitled to receive for two years after his termination (i) his annual base salary, (ii) annual target bonus, (iii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; and an automobile allowance) and (iv) all stock options granted to Mr. DeMartino would immediately vest. +Under the terms of Severance Agreements with Andrew J. Hoffman, Tracey S. Chernay and Benjamin C. Wyatt dated November 18, 2005, July 29, 2005 and May 27, 2008, respectively, if a Termination Event were to occur, the applicable NEO would be entitled to continue to receive, for six months following the date of termination (i) a pro rata portion of his or her annual base salary, (ii) a pro rata portion of his or her annual target bonus for the year of termination, and (iii) group medical and dental benefits. If a Change in Control Event were to occur, the applicable NEO would be entitled to continue to receive for a period of one year from the date of termination his/ her (i) base salary, (ii) annual target bonus, (iii) group medical and dental benefits and (iv) all stock options granted to the applicable NEO would immediately vest. +Equity Plans +2005 Equity Incentive Plan. The terms of the Company’s 2005 Equity Incentive Plan provide that all awards issued under the plan would accelerate and either become exercisable or vest, as applicable, immediately prior to any of the following: (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not the Company or a publicly owned corporation (or a subsidiary thereof) in which the stockholders of the Company immediately prior to the transaction continue to beneficially own 50% or more of the voting securities of the Company, (ii) a sale, transfer, exchange or other disposition of all or substantially all of the Company’s assets, (iii) any acquisition of 50% or more of the voting securities of the Company excluding acquisitions by specified parties or (iv) any dissolution or liquidation of the Company. Upon the occurrence of some of the foregoing Change in Control Events, stock or other property to be delivered upon acceleration of any award may be placed in escrow, rather than actually delivered, under terms set by the Compensation and Corporate Governance Committee. +Payments Upon a Change in Control Event. If a Change in Control Event had occurred on December 31, 2012 that triggered acceleration of all of the equity awards outstanding to each NEO under the 2005 Equity Incentive Plan that accelerate either by their terms or the terms of the applicable plan, the following amounts would have been paid to the NEOs: +Name +Stock +Awards (1) +Option +Awards (2) +Total +Bart C. Shuldman +$ +252,303 +$ +176,760 +$ +429,063 +Steven A. DeMartino +69,579 +185,900 +255,479 +Andrew J. Hoffman +- +58,489 +58,489 +Tracey S. Chernay +- +52,640 +52,640 +Benjamin C. Wyatt +- +35,440 +35,440 +________ +(1) +Accelerated stock awards were valued using the closing price of $7.22 per share of our common stock on December 31, 2012, which was the last trading date of the year. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $7.22 per share of our common stock on December 31, 2012, which was the last trading day of the year. +PAYMENTS UPON A TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Termination Event occurred on December 31, 2012, the last day of the Company’s fiscal year. +Name +Base +Salary +Pro Rata +Portion of +Annual +Target +Bonus +Benefits(1) +Stock +Options +Stock +Awards +Total +Bart C. Shuldman +$ +929,836 +$ +348,689 +$ +112,050 +- +- +$ +1,390,575 +Steven A. DeMartino +304,183 +152,091 +35,392 +- +- +491,666 +Andrew J. Hoffman +100,425 +30,128 +6,417 +- +- +136,970 +Benjamin C. Wyatt +92,700 +27,810 +6,417 +- +- +126,927 +Tracey S. Chernay +91,500 +- +4,009 +- +- +95,509 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +PAYMENTS UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Change in Control and Termination Event occurred on December 31, 2012, the last day of the Company’s fiscal year. +Name +Base +Salary +Annual +Target +Bonus +Benefits(1) +Stock +Options (2) +Stock +Awards (3) +Total +Bart C. Shuldman +$ +1,394,755 +$ +1,046,066 +$ +168,075 +$ +176,760 +$ +252,303 +$ +3,037,959 +Steven A. DeMartino +608,365 +304,183 +70,784 +185,900 +69,579 +1,238,811 +Andrew J. Hoffman +200,850 +60,255 +12,833 +58,489 +- +332,427 +Benjamin C. Wyatt +185,400 +55,620 +12,833 +35,440 +- +289,293 +Tracey S. Chernay +183,000 +- +8,019 +52,640 +- +243,659 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $7.22 per share of our common stock on December 31, 2012, which was the last trading day of the year. +(3) +Accelerated stock awards were valued using the closing price of $7.22 per share of our common stock on December 31, 2012, which was the last trading day of the year. +Non-Competition Provisions That Apply to a Termination Event or Change in Control Event +Pursuant to Mr. Shuldman’s Employment Agreement, upon the occurrence of a Termination Event while he is receiving severance payments under the agreement, Mr. Shuldman agrees that for two years, or in the case of a Change in Control Event, for three years, that he will not directly or indirectly engage in any business or activity that is competitive with the Company in a geography where the Company is selling its products. Further, Mr. Shuldman agrees not to attempt to recruit any employees of the Company or encourage them to leave the Company and agrees not to encourage any of the Company’s customers to direct their business elsewhere. The other NEOs have the same provisions in their Severance Agreements, except that they apply for six months upon the occurrence of a Termination Event or one year upon the occurrence of a Change in Control Event and they are not contingent upon the payment of the benefits described in each agreement by the Company to the NEO. +DIRECTOR COMPENSATION FOR FISCAL YEAR 2012 +Name +Fees Earned +Or Paid in +Cash ($) +Stock +Options(2)($) +Stock +Awards +(3)($) +Total ($) +Thomas R. Schwarz +36,000 +35,212 +- +71,212 +John M. Dillon +36,000 +35,212 +- +71,212 +Graham Y. Tanaka +36,000 +35,212 +- +71,212 +Charles A. Dill (1) +15,000 +- +- +15,000 +Bart C. Shuldman (4) +- +- +- +- +________ +(1) +Mr. Dill retired from the Board of Directors effective May 30, 2012. +(2) +On May 30, 2012, Mr. Schwarz, Mr. Dillon and Mr. Tanaka were each awarded 7,500 stock options granted under the Company’s 2005 Equity Incentive Plan. The amounts shown represent the grant date fair value of stock options granted in 2012 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2012, as filed with the SEC. +(3) +As of December 31, 2012, Mr. Schwarz held 50,625 fully vested stock options at exercise prices ranging from $4.84 to $31.82 as well as 21,875 unvested stock options at exercise prices ranging from $4.84 to $11.71, Mr. Dillon held 2,500 fully vested stock options at an exercise price of $11.65 as well as 15,000 unvested stock options at exercise prices ranging from $7.82 to $11.65, Mr. Tanaka held 50,625 fully vested stock options at exercise prices ranging from $4.84 to $31.82 as well as 21,875 unvested stock options at exercise prices ranging from $4.84 to $11.71, Mr. Dill held 50,625 fully vested stock options at exercise prices ranging from $4.84 to $31.82 and no unvested stock options and Mr. Shuldman held no stock option or restricted stock grants other than those shown in the “Outstanding Equity Awards at 2012 Fiscal Year-End” table above. +(4) +Mr. Shuldman did not receive any compensation for director services other than what is reflected in the "Summary Compensation Table" above. +For 2012, each non-employee director of the Company received a retainer of $9,000 for each fiscal quarter served as director as compensation for services rendered. Effective April 1, 2013, the retainer increased to $10,000 for each quarter served as a director. Directors are also reimbursed for reasonable expenses incurred in attending meetings. +Each non-employee director receives an annual grant of 7,500 stock options, pursuant to the terms of the Company’s 2005 Equity Incentive Plan. The stock options vest at the rate of 25% per year beginning on the first anniversary of the date of grant. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member of the Board’s Compensation and Corporate Governance Committee has served as an officer or employee of the Company at any time. None of the Company’s executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of the Company’s Board. None of the Company’s executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of the Board’s Compensation and Corporate Governance Committee. +STOCKHOLDER PROPOSALS FOR 2014 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year’s proxy materials must be received by the Secretary of the Company on or before December 13, 2013. Proposals should be addressed to TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. Stockholders who wish to make a proposal at the 2014 Annual Meeting without regard to whether it will be included in the Company’s proxy materials should notify the Company no later than March 10, 2014. If a Stockholder who wishes to present a proposal fails to notify the Company by the due date, the proxies that the Company solicits for the meeting will accord them discretionary authority to vote on the Stockholder’s proposal if it is properly brought before the meeting. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors if the proper nomination procedures specified in the Company’s By-Laws are followed. All nominations by stockholders must be delivered to or mailed and received at the principal executive offices of the Company not less than 30 nor more than 60 days prior to the meeting at which election of directors will take place; however, if less than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, nominations will be timely if received not later than 10 days after notice was given or public disclosure was made. A stockholder’s notice must set forth in writing (i) for each person proposed to be nominated, all information relating to each such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to be named in the proxy and to serving as a director, and (ii) for the stockholder giving notice, the (x) name and address of such stockholder as they appear on the Company’s books, and (y) the class and number of shares of the Company beneficially owned by such stockholder. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder or interested party wishing to communicate directly with members of the Board of Directors should do so in writing. All correspondence addressed to the Board as a whole, to its independent directors, to any of its Committees or Committee Chairs, or to individual Board members should be mailed to the following address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +· +You are welcome to communicate anonymously or confidentially. +· +All correspondence addressed to an individual director or Committee Chair, and marked “Confidential”, will be collected in the office of the Secretary and forwarded unopened to the individual director. +· +Other correspondence will be opened by the Secretary, reviewed, copied and directed as follows: +o Concerns regarding the Company’s accounting, internal accounting controls or auditing matters will be referred to the members of the Audit Committee. +o Nominations or recommendations of candidates for election to the Board of Directors will be referred to members of the Nominating Committee. +o Other correspondence will be copied by the Secretary and forwarded to all of the members of the Board of Directors (or its independent directors, if so addressed) unless the stockholder directs otherwise. +GENERAL +As of the date of this Proxy Statement, the Board of Directors is not aware of any matter which is to be presented for action at the Annual Meeting other than the matters set forth herein. Should any other matter requiring a vote of the stockholders arise at the Annual Meeting, the proxies confer upon the persons named in the accompanying proxy the authority to vote in respect of any such other matter in accordance with the recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its exercise at the Annual Meeting by: (i) giving written notice of revocation to the Secretary of the Company, (ii) properly submitting to the Company a duly executed proxy bearing a later date, or (iii) voting in person at the Annual Meeting. All written notices of revocation and other communications with respect to revocation of proxies should be addressed to the Company, as follows: TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. A proxy appointment will not be revoked by death or supervening incapacity of the stockholder executing the proxy unless, before the shares are voted, notice of such death or incapacity is filed with the Company’s Secretary or other person responsible for tabulating votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be borne by the Company. The Company may solicit proxies otherwise than by use of the mail, in that certain officers and regular employees of the Company, without additional compensation, may use the telephone or otherwise to obtain proxies. The Company will also request persons, firms and corporations holding shares in their names, or owned by others, to send this proxy material to and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in doing so. +No director or executive officer of the Company has any direct or indirect substantial interest, whether by security holdings or otherwise, in the ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company’s 2013 fiscal year. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-13-000019/proxy_rpt.txt b/raw/proxies/0001017303/0001017303-13-000019/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..b0129a2e3bea20501dcdf5f18170b7e1a79006c4 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-13-000019/proxy_rpt.txt @@ -0,0 +1,4 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transactions is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person's interest in the transaction. +From January 1, 2012 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-14-000017/proxy.txt b/raw/proxies/0001017303/0001017303-14-000017/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b500b193a24bb921afffafa645d1b316e8aa45d7 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-14-000017/proxy.txt @@ -0,0 +1,1473 @@ +DEF 14A +1 +proxy2013.htm +2013 PROXY STATEMENT +proxy2013.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant To Section 14(a) Of The Securities Exchange Act Of 1934 +(Amendment No. ___ ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (As Permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +1 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 15, 2014 +To the Stockholders of TransAct Technologies Incorporated: +Notice is hereby given that the 2014 Annual Meeting of Stockholders (the “Annual Meeting”) of TransAct Technologies Incorporated (the “Company” or “TransAct”), a Delaware corporation, will be held on May 15, 2014 at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 for the following purposes: +(1) +To vote on a proposal to elect Thomas R. Schwarz and Bart C. Shuldman as directors to serve until the 2017 Annual Meeting of Stockholders or until the director’s successor has been duly elected and qualified; +(2) +To vote on a proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2014; +(3) +To vote on a proposal, on an advisory basis, regarding the Company’s compensation of our named executive officers as disclosed in the “Compensation Discussion and Analysis” section of this Proxy Statement; +(4) +To approve the Company’s 2014 Equity Incentive Plan; and +(5) +To transact such other business as may legally come before the Annual Meeting. +Stockholders of record at the close of business on March 21, 2014 are entitled to notice of and to vote at the Annual Meeting. +By Order of the Board of Directors, +STEVEN A. DEMARTINO +Secretary +Hamden, Connecticut +April 3, 2014 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +2 +TRANSACT TECHNOLOGIES INCORPORATED +One Hamden Center +2319 Whitney Avenue +Suite 3B +Hamden, Connecticut 06518 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 15, 2014 +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting To Be Held on May 15, 2014. +This Proxy Statement, the TransAct Technologies Incorporated 2013 Annual Report and the means to vote by Internet are available at www.proxyvote.com. +This proxy statement is being made available to our stockholders in connection with a solicitation of proxies by the Board of Directors of TransAct Technologies Incorporated (“TransAct” the “Company,” “we,” “us,” or “our”) for use at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”) and at any adjournment or postponement of the meeting. The meeting will be held on Thursday, May 15, 2014, beginning at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +We are furnishing the proxy materials over the Internet under the rules of the Securities and Exchange Commission (“SEC”). On or about April 3, 2014, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to stockholders of record of our common stock with a proxy card to be mailed 10 business days after the Notice. If you receive the Notice by mail, you will not receive a paper copy of the proxy materials unless you request one. The Notice will instruct you as to how you may access and review the proxy materials on the Internet and how to cast your vote over the Internet or by telephone. The Notice also contains instructions on how to request a paper copy of our proxy materials, free of charge. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held on May 15, 2014: This proxy statement, our 2013 Annual Report, the form of proxy and voting instructions are being made available to stockholders on or about April 4, 2014, at www.proxyvote.com. If you receive the Notice and would still like to receive a printed copy of the proxy materials or our 2013 Annual Report, including audited financial statements, for the year ended December 31, 2013, you may request a printed copy by any of the following methods: (a) telephone at 1-800-579-1639; (b) Internet at www.proxyvote.com; or (c) e-mail at sendmaterial@proxyvote.com. Please make the request as instructed above on or before May 1, 2014 to facilitate timely delivery. +All proxies will be voted in accordance with the instructions they contain. If you do not specify your voting instructions on your proxy card with respect to a particular matter, your shares will be voted in accordance with the recommendations of our Board. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power to revoke the same any time prior to it being voted. The accompanying proxy will be voted as specified thereon. A specification on the proxy card may be made to grant or withhold authority to vote for the election of a director and to indicate separate approval or disapproval as to the other matters presented to stockholders. Where an executed proxy has been received, but a choice is not specified, the shares represented by the proxy will be voted to elect the director nominees, to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered accounting firm, to approve, on an advisory basis, the Company’s compensation of our named executive officers and to approve an amendment to the Company’s 2005 Equity Incentive Plan to increase the number of shares that are available for issuance. In addition, the proxy confers discretionary authority to vote on any matter properly presented at the Annual Meeting which is not known to the Company as of the date of this Proxy Statement. Brokers are not permitted to vote your shares with respect to election of directors without instructions from you. If your shares are held in the name of a broker or nominee and you do not instruct the broker or nominee how to vote with respect to the election of directors or if you abstain or withhold authority to vote on any matter, your shares will not be counted as having been voted on that matter, but will be counted as in attendance at the meeting for purposes of a quorum. +VOTING SECURITIES +Stockholders of record on March 21, 2014 are entitled to vote at the Annual Meeting. Each holder of Common Stock is entitled to cast one vote for each share of Common Stock held on March 21, 2014. There were 8,329,255 shares of Common Stock issued and outstanding and entitled to vote at the close of business on March 21, 2014. Shares representing a majority of the shares issued, outstanding and entitled to be voted at the Annual Meeting, present in person or represented by proxy, will constitute a quorum to transact business. +3 +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information known to the Company regarding the beneficial ownership of the Company’s common stock as of March 21, 2014 by: (i) each person known by the Company to own beneficially more than 5% of the Company’s common stock; (ii) each director or nominee for director of the Company; (iii) each current executive officer of the Company named in the Summary Compensation Table; and (iv) all current directors and executive officers of the Company as a group. Except as otherwise indicated, each of the persons named in the table has sole voting power and sole dispositive power with respect to the shares set forth opposite such person’s name and the address of the holder is One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +Name of Beneficial Owner +Shares +Beneficially +Owned +Percent +of +Class +More than 5% Stockholders: +Grand Slam Asset Management, LLC and +Mitchell Sacks (1) +604,580 +7.26% +Directors and Executive Officers: +Graham Y. Tanaka (2) +257,475 +3.07% +Bart C. Shuldman (3) +178,976 +2.12% +Steven A. DeMartino (4) +153,735 +1.82% +Thomas R. Schwarz (5) +104,975 +1.25% +Andrew J. Hoffman (6) +45,125 +* +Benjamin C. Wyatt (7) +37,125 +* +Tracey S. Chernay (8) +14,875 +* +John M. Dillon (9) +11,875 +* +All current directors and executive officers as a group (9 persons) (10) +820,661 +9.36% +________ +* +Less than 1% of the outstanding Common Stock. +(1) +This information listed in the table and this footnote is based solely on the Schedule 13G/A filed on March 20, 2014 by Grand Slam Asset Management, LLC (“GSAM”) and Mitchell Sacks. According to the Schedule 13G/A, GSAM and Mitchell Sacks beneficially own 498,331 and 106,249 shares of our common stock, respectively. GSAM serves as the investment manager for a private investment fund with respect to which it has dispositive authority over the shares reported in the Schedule 13G/A. Mitchell Sacks is the Chief Investment Officer of GSAM with respect to which it has dispositive authority over the shares reported in the Schedule 13G/A. The address of GSAM and Mitchell Sacks is 2160 North Central Road, Suite 306, Fort Lee, NJ 07024. +(2) +Includes 48,500 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka that are directly owned by his children. +(3) +Includes 1,500 shares owned by his spouse in an individual retirement account, 4,800 shares owned by his minor children and 3,750 shares owned by his mother. Includes 128,250 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s 2005 Equity Incentive Plan. Also includes 33,833 deferred stock units issued under the Company’s 2011, 2012 and 2013 Incentive Bonus Programs, which are fully vested and convertible into shares of common stock as of March 21, 2014. +(4) +Includes 108,125 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s 2005 Equity Incentive Plan. Also includes 12,498 deferred stock units issued under the Company’s 2011, 2012 and 2013 Incentive Bonus Programs, which are fully vested and convertible into shares of common stock as of March 21, 2014. +(5) +Includes 48,500 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity Incentive Plan. Also includes 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his capacity as trustee of a trust for the benefit of his granddaughter, 1,500 shares beneficially owned by his daughter, as to which shares he disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(6) +Includes 32,625 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s 2005 Equity Incentive Plan. +4 +(7) +Represents 37,125 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s 2005 Equity Incentive Plan. +(8) +Represents 14,875 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s 2005 Equity Incentive Plan. +(9) +Includes 6,875 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s 2005 Equity Incentive Plan. +(10) +Includes 441,125 shares subject to options currently exercisable or to become exercisable within 60 days of March 21, 2014 granted under the Company’s 2005 Equity Incentive Plan and Non-Employee Directors’ Stock Plan. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive officers and persons who beneficially own more than 10% of the Company’s common stock to file with the SEC and the Nasdaq Stock Market reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company and to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, or written representations that no other reports were required to be filed by those persons, the Company believes that, during the fiscal year ended December 31, 2013, each of the Company’s officers, directors and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under our Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction . +From January 1, 2013 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance practices that benefit the long-term interests of the Company’s stockholders by clearly outlining the Company’s duties and responsibilities, providing a framework for active and fruitful discussions among the members of the Board of Directors and between the Board and management, and avoiding conflicts of interest and other legal and ethical problems. Accordingly, the Company’s corporate governance practices are designed not only to satisfy regulatory requirements, but also to provide for effective management of the Company. +Information on the Company’s corporate governance practices is available to the public under “Corporate Governance” on the Company’s website at www.transact-tech.com . The information on the website includes the Company’s Corporate Governance Principles, the charters of each of the Company’s Committees, and the Company’s Standards of Business Conduct, which includes a code of ethics applicable to the officers responsible for financial reporting, the Chief Executive Officer, Chief Financial Officer and Controller. None of the directors with the exception of Mr. Shuldman attended the Company’s 2013 Annual Meeting. Each director attended 100% of the quarterly Board meetings. Additionally, each Director attended 100% of the supplemental Board Meetings with the exception of Mr. Schwarz who missed one such meeting. Each Director attended 100% of the applicable Committee meetings with the exception of Mr. Dillon who missed two such meetings and Mr. Schwarz who missed one such meeting. +5 +Board Leadership Structure +At present, the Board has chosen to combine the positions of Chief Executive Officer and Chairman of the Board. The Board believes it is important to retain the organizational flexibility to determine whether the roles of Chairman of the Board and Chief Executive Officer should be separated or combined in one individual. While there may be circumstances in which an independent Chairman is appropriate, the Board currently believes that the Chief Executive Officer is the individual with the necessary experience, commitment and support of the other Board members to effectively carry out the role of Chairman. The Company has not designated any of the independent directors as a “lead director.” +The Board believes this structure promotes better alignment of strategic development and execution, more effective implementation of strategic initiatives, and clearer accountability for their success or failure. Moreover, the Board believes that combining the Chairman and Chief Executive Officer positions does not impede independent oversight. All of the members of the Board are independent under The NASDAQ Global Market rules except for the Chairman and Chief Executive Officer. +Board's Role in Risk Oversight +Senior management is responsible for assessing and managing the various exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and programs. The Company has a strong internal control environment to identify and manage risks. These include Standards of Business Conduct, robust product quality standards and processes, and a comprehensive internal and external audit process. Management communicates routinely with the Board, Board Committees and individual Directors on the significant risks identified and how they are being managed. The Board of Directors is responsible for overseeing management in the execution of its responsibilities and for assessing the overall approach to risk management. The Board of Directors exercises these responsibilities periodically as part of its meetings and also through its four committees, each of which examines various components of enterprise risk as part of its responsibilities. The Compensation and Corporate Governance Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks, as well as our policies with respect to risk assessment and risk management. The Nominating Committee manages risks associated with board independence and potential conflicts of interest. In addition, an overall review of risk is inherent in the Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board of Director’s role in risk oversight is consistent with our leadership structure, with the Chief Executive Officer, President and other members of senior management having responsibility for assessing and managing our risk exposure, and the Board and its committees providing oversight in connection with these efforts. +Board Size +The Corporate Governance Principles provide that the Board should generally have between five and ten members. In establishing the appropriate number of directors, the Board along with the Compensation and Corporate Governance Committee consider (i) resignations and retirements from the current Board, (ii) the availability of appropriate, qualified candidates, and (iii) the goal of assuring that the Board is small enough to facilitate active discussions and decision-making while, at the same time, is large enough to provide an appropriate mix of continuity, experience, skills and diversity so that the Board and its Committees can effectively perform their responsibilities. The Board has determined that four directors is an appropriate number of members to effectively perform their responsibilities. +Criteria for Membership on the Board +The Board and its Nominating Committee consider a number of different factors in selecting nominees for director. Some of these factors, such as integrity, are applied uniformly to all prospective candidates. Others, such as specific industry experience, may be adopted on a case-by-case basis by the Board and the Nominating Committee based on the Company’s business needs at the time a nomination is under consideration. The Nominating Committee and the Board of Directors apply the same criteria to each candidate for the Board, regardless of whether the candidate is proposed by a stockholder or some other source. Specific criteria considered by the Nominating Committee and the Board include: +Independence . The Board of Directors, in its Corporate Governance Principles and Committee charters, has established a policy that a substantial majority of the directors be “independent” members of the Board. The Nominating Committee and the Board consider the independence of each prospective director before election and further consider the independence of all continuing directors on at least an annual basis. The Board has determined that Messrs. Dillon, Schwarz and Tanaka are independent in accordance with the Company’s criteria and Mr. Shuldman, the Company’s Chief Executive Officer, is not independent. The Board applies the following criteria in determining independence, which criteria are derived from NASDAQ’s listing standards as well as certain additional requirements that are imposed on certain Committee members under the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the Internal Revenue Service (the “IRS”): +6 +· +Independent Judgment . The director must not have any relationship with the Company that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the Board considers all relevant facts and circumstances, including commercial, charitable and familial relationships that might have an impact on the director’s judgment. +· +Employment . The director must not have been an employee of the Company or any parent or subsidiary of the Company at any time during the past three years. In addition, a member of the director’s immediate family (including the director’s spouse, parents, stepparents, children, stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law and anyone who resides in the director’s home other than a tenant or employee) must not have been an executive officer of the Company during the past three years. +· +Other Payments . Neither the director nor a member of his or her immediate family member may have received compensation of more than $120,000per year from the Company during any period of twelve consecutive months during the past three years, except for director fees, payments arising solely from investments in the Company’s securities, benefits under certain Company plans and non-discretionary compensation, certain permitted loans and compensation paid to a family member who is not an executive officer of the Company. +· +Auditor Affiliation . Neither the director nor a member of his or her immediate family may be a current partner of the Company’s independent auditors or have been a partner or employee of the Company’s independent auditors who worked on the Company’s audit at any time during the past three years. +· +Interlocking Directorships . Neither the director nor any member of his or her immediate family may be employed as an executive officer by another entity where, at any time during the past three years, any of the Company’s executive officers served on the compensation committee. +· +Transactions . Neither the director nor any member of his or her immediate family may be a partner in, or a controlling stockholder or executive officer of, any organization that, during the current or any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $200,000 or 5% of the recipient’s annual consolidated gross revenues for such year (excluding payments arising solely from investments in the Company’s securities or paid under a non-discretionary charitable matching program). +· +Additional Standards for Audit Committee Members . Any director who serves on the Board’s Audit Committee may not, directly or indirectly, have received any consulting, advisory or other compensatory fee from the Company (other than certain retirement benefits and deferred compensation) or be an affiliate of the Company (except as a director, but including by way of stock ownership). In addition, no such director may have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years. +Overall Board Composition. The Board of Directors believes it is important to consider the professional skills and background, experience in relevant industries, age and diversity of its directors in light of the Company’s current and future business needs. +Personal Qualities. Each director must possess certain personal qualities, including integrity, judgment and business acumen. In addition, each director must be no older than 78 years of age at the time of nomination or re-nomination. +Diversity. The Board has not adopted a formal policy with respect to its consideration of diversity and does not follow any ratio or formula to determine the appropriate mix; rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service. +Commitments. Each director must have the time and ability to make a constructive contribution to the Board. While the Board does not believe it is appropriate to establish a single standard regarding the number of other boards on which a director may sit, this is a factor that may be considered in reviewing a candidate’s suitability. +Additional Criteria for Incumbent Directors. During their terms, all incumbent directors on the Company’s Board are expected to attend Board and Committee meetings regularly; to stay informed about the Company and its business; to participate in discussions of the Board and its Committees; to take an interest in the Company’s business and provide advice and counsel to the Company’s Chief Executive Officer; and to comply with the Company’s Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the criteria established from time to time by The NASDAQ Global Market, the SEC, the IRS and other applicable regulatory entities for service on the Board and its Committees. +7 +Director Nomination Process +Under its charter, the Nominating Committee is responsible for identifying, reviewing and recommending individuals to the Board for nomination or election as directors. This typically involves the following steps: +· +Specific Criteria . The Nominating Committee and the Board review the overall composition of the Board in light of the Company’s current and expected business needs and, as a result of such assessments, may establish specific qualifications that the Committee will seek in Board candidates. +· +Identifying New Candidates . The Nominating Committee may seek to identify new candidates for the Board (i) who possess the desired qualifications and (ii) who satisfy the other requirements for Board service. In identifying new director candidates, the Committee may seek advice and names of candidates from Committee members, other members of the Board, members of management, and other public and private sources. The Committee may also, but need not, retain a search firm in order to assist in these efforts. +· +Reviewing New Candidates . The Nominating Committee reviews the potential new director candidates identified through this process. This involves reviewing the candidates’ qualifications and conducting an appropriate background investigation. The Committee may also select certain candidates to be interviewed by one or more Committee members. +· +Reviewing Incumbent Candidates . On an annual basis, the Nominating Committee also reviews incumbent candidates for re-nomination to the Board. This review involves an analysis of the criteria described above that apply to incumbent directors. +· +Recommending Candidates . The Nominating Committee recommends a slate of candidates for the Board of Directors to submit for approval to the stockholders at the Annual Meeting. This slate of candidates may include both incumbent directors and new nominees. In addition, apart from this annual process, the Committee may, in accordance with the Corporate Governance Principles, recommend that the Board elect new members of the Board who will serve until the next annual meeting of stockholders. At the time of making any recommendation to the Board, the Committee reports on the criteria that were applied in making the recommendation and its findings concerning each candidate’s qualifications. +· +Stockholder Nominations Submitted to the Committee . Stockholders may also submit names of director candidates, including their own, to the Nominating Committee for its consideration. The process for stockholders to use in submitting suggestions to the Nominating Committee is set forth below at “Procedures for Submitting Director Nominations and Recommendations.” Candidates who are nominated for the Board of Directors by stockholders are evaluated in the same manner as recommendations received from other sources. +Board Meetings and Executive Sessions +The Board of Directors holds regular quarterly meetings, as well as periodic special meetings. In 2013, the Board of Directors held thirteen meetings. +Independent directors meet by themselves in executive sessions, without management or employee directors present, at most regularly scheduled Board meetings. In addition, independent directors may convene additional executive sessions at any time. +The executive sessions are led by the Chair of the committee that is responsible for the subject matter at issue ( e.g. , the Audit Committee Chair would lead a discussion of audit-related matters). When it is not clear which committee has specific responsibility for the subject matter, the Chair of the Compensation and Corporate Governance Committee presides. +Committees of the Board +The Board has four standing committees: the Audit Committee, the Compensation and Corporate Governance Committee, the Nominating Committee and the Executive Committee. +Each Committee is composed entirely of independent directors and operates under a written charter. The Chair of each Committee is selected by the Board. Each Committee, except the Executive Committee, holds regular executive sessions at which only Committee members are present. Each Committee is authorized to retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance Committee, and the Nominating Committee are available on the Company’s website, www.transact-tech.com , but a brief summary of the committees’ responsibilities follows: +Audit Committee . The Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. It is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Dillon serving as Chair. The Board has determined that each member of the Audit Committee is an independent director and meets the financial literacy requirements of The NASDAQ Global Market to serve on the Committee. In addition, the Board has determined that Mr. Dillon is an “audit committee financial expert” as defined under the rules of the Securities and Exchange Commission. The Audit Committee operates under a written charter, which was revised in March 2004 and is posted on the Company’s website. The Audit Committee met four times during 2013. +8 +Compensation and Corporate Governance Committee . The Compensation and Corporate Governance Committee provides oversight for the hiring and termination of all executive officers of the Company, the Company’s corporate governance practices, CEO performance review and succession planning, director compensation, Board and Committee performance evaluation, stockholder communication matters, the design and management of the executive compensation programs, and the philosophy and programs for all employee compensation and benefit programs worldwide. The Committee is responsible for determining the compensation (including salary, bonus, equity-based grants, and any other long-term cash compensation) for the Company’s Chief Executive Officer and for other senior executives as are subject to the Committee’s direct purview. The Committee is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as Chair. The Compensation and Corporate Governance Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Compensation and Corporate Governance Committee met three times during 2013. +Nominating Committee . The Nominating Committee is responsible for assisting the Board in carrying out its responsibilities relating to the composition of the Board, including identifying, reviewing and recommending candidates to the Board for nomination as directors. It is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Tanaka serving as Chair. The Nominating Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Nominating Committee met once during 2013. +Executive Committee . The Executive Committee meets between scheduled meetings of the Board of Directors and has the power and authority of the Board, except as limited by the Company’s By-Laws. It is comprised of Messrs. John M. Dillon, Thomas R. Schwarz and Graham Y. Tanaka. The Executive Committee met four times during 2013. +Standards of Business Conduct +In order to help assure the highest levels of business ethics at the Company, the Board of Directors has approved and the Company has adopted Standards of Business Conduct (the "Standards"), which apply to the Company’s directors, officers and employees. The Standards provide an overview of the Company’s policies related to employee conduct in the workplace, regulatory compliance and investigations; the Company’s relationships with its customers, vendors, competitors and the public; insider trading; conflicts of interest; lobbying; political activities and contributions; accuracy of books, records and financial statements; confidentiality; and the protection of all who come forward to report suspected violations of the Standards. In addition, the Standards act as a code of ethics promoting honest and ethical conduct on the part of the Company’s officers who are responsible for financial reporting, including the Chief Executive Officer and Chief Financial Officer. The Standards mandate that these officers avoid conflicts of interest and disclose any relationship that could give rise to a conflict, protect the confidentiality of non-public information about the Company, work to achieve responsible use of the Company’s assets and resources, comply with all applicable governmental rules and regulations, and promptly report any possible violation of the Standards. The Standards require these individuals to promote full, fair, understandable and accurate disclosure in the Company’s publicly filed reports and other public communications. It sets forth standards for accounting practices and maintenance of records. Individuals who fail to observe the terms of the Standards may face disciplinary action, including possible employment termination. +PROPOSAL 1: +ELECTION OF DIRECTORS +The Board of Directors currently consists of four directors and is divided into three classes. Each class of directors is elected by the holders of the Company’s Common Stock to serve a staggered three-year term. At the Annual Meeting, two persons are to be elected to hold office as a director until the 2017 Annual Meeting of Stockholders or until a successor is duly elected and qualified. The nominees for election are Thomas R. Schwarz and Bart C. Shuldman. Both Mr. Schwarz and Mr. Shuldman have been directors of the Company since its formation in June 1996. Should the nominees become unavailable, which is not anticipated, votes pursuant to the proxy will be cast for a substitute candidate as may be designated by the Board of Directors, or in the absence of such designation, in such other manner as the Board may in their discretion determine. Alternatively, in such a situation, the Board of Directors may take action to fix the number of directors for the ensuing year at the number of nominees and incumbent directors who are then able to serve. +9 +Information Concerning Nominees for Director Whose Terms Expire at the 2017 Annual Meeting +Thomas R. Schwarz , 77, has been a director of the Company since its formation in June 1996 and was Chairman of the Board from June 1996 to February 2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman’s Inc., a retailer of building materials, from 1990 until his retirement in 1994. From 1980 to 1990, he was President, Chief Operating Officer and a director of Dunkin’ Donuts Incorporated, a food service company. Mr. Schwarz is a director of Tanaka Growth Fund and another privately held company. +Mr. Schwarz’s qualifications for election to the Company’s Board of Directors include public company leadership experience as President, Chief Operating Officer of Dunkin’ Donuts Incorporated and outside board experience as a director of Dunkin’ Donuts Incorporated, Grossman’s Inc., and The Tanaka Growth Fund. He has been a director of the Company since its inception and is Chairman of the Compensation and Corporate Governance Committee. From his past executive positions, Mr. Schwarz brings to our Board his extensive executive experience and knowledge of operating and managing complex operating companies. +Bart C. Shuldman , 57, has been Chief Executive Officer and a director of the Company since its formation in June 1996 and has been Chairman of the Board since February 2001. Mr. Shuldman also served as the Company’s President from 1996 until June 2010. Previously, Mr. Shuldman was Vice President of Sales and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April 1993 to August 1993, and served as President of Magnetec, and later the combined operations of Magnetec and Ithaca Peripherals Incorporated, another former Tridex subsidiary, from August 1993 to June 1996. Mr. Shuldman is also the director of another privately held company. +Mr. Shuldman’s qualifications for election to the Company’s Board of Directors include public company leadership experience as Chief Executive Officer of the Company since its inception and board experience as a director and currently Chairman of the Board of the Company. Mr. Shuldman brings to our Board his experience and knowledge of our business derived from his current position as Chief Executive Officer. +VOTE REQUIRED +The election of Thomas R. Schwarz and Bart C. Shuldman, respectively, as directors of the Company requires the affirmative vote of a plurality of the votes of the Company’s Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares and broker non-votes will have no effect on the election of the director, but will be included in determining the presence of a quorum at the Annual Meeting. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE ELECTION OF THOMAS R. SCHWARZ AND BART C. SHULDMAN AS DIRECTORS OF THE COMPANY. +Information Concerning Directors Whose Terms Will Expire at the 2015 Annual Meeting +John M. Dillon , 64, has been a director of the Company since 2011. Mr. Dillon is currently the CEO of Engine Yard, Inc., the leading cloud platform for automating and developing Ruby on Rails and PHP applications. Prior to joining Engine Yard, Mr. Dillon served as CEO for Navis, Inc., a private company specializing in software systems for operating large marine container terminals and distribution centers, from 2002-2008. Before Navis, he also served as CEO for Salesforce.com and President and CEO of Hyperion Solutions. He began his career as a Systems Engineer for EDS (Electronic Data Systems) and then moved into a variety of sales management positions for various high-tech companies, including Oracle Corporation. Mr. Dillon holds a Bachelor’s degree in Engineering from the United States Naval Academy and an MBA from Golden Gate University. He served on active duty in the nuclear submarine service for five years before beginning his civilian career. +Mr. Dillon’s qualifications for election to the Company’s Board of Directors include private company leadership in his current CEO role at Engine Yard, Inc. and in previous CEO roles as previously discussed. Mr. Dillon is also a director at Intacct Corporation and Centerpointe Community Bank and previously served as director of several other companies. From his past executive and director positions, Mr. Dillon brings to our Board his extensive executive experience and knowledge operating and managing complex software and technology companies. +Information Concerning Directors Whose Terms Will Expire at the 2016 Annual Meeting +Graham Y. Tanaka , 66, has been a director of the Company since its formation in June 1996. Mr. Tanaka has been President of Tanaka Capital Management, Inc., an investment management firm, since 1986. He is a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. Mr. Tanaka holds a Bachelor’s degree in Engineering and Urban Studies from Brown University and an MBA from Stanford University and is a Chartered Financial Analyst (CFA). Mr. Tanaka also is the author of Digital Deflation , a book that describes technology’s effects on the economy. +10 +Mr. Tanaka’s qualifications for election to the Company’s Board of Directors include private investment management experience as President of Tanaka Capital Management, Inc. and board experience as a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. He has been a director of the Company since its inception and is Chairman of the Nominating Committee. With his varied experiences as a director and investment manager working in the financial markets, Mr. Tanaka brings extensive knowledge of financial markets and financial analysis gained through his experience. +PROPOSAL 2: +RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014 +The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of the Company for the 2014 fiscal year. This selection is being presented to the stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company’s financial statements since the Company’s formation in 1996. In the event stockholders do not ratify the appointment, the Audit Committee will reconsider the appointment. +A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement, and is expected to be available to respond to appropriate questions. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2014 requires the affirmative vote of a majority of the Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy requiring its pre-approval of all audit services and permissible non-audit services provided by the independent registered public accounting firm, along with the associated fees for those services (the “Policy”). The Policy provides for the annual pre-approval of specific types of services pursuant to policies and procedures adopted by the Audit Committee, and gives detailed guidance to management as to the specific services that are eligible for such annual pre-approval. The Policy requires the specific pre-approval of all other permitted services. For both types of pre-approval, the Audit Committee considers whether the provision of a non-audit service is consistent with the Securities and Exchange Commission’s rules on auditor independence, including whether provision of the service (i) would create a mutual or conflicting interest between the independent registered public accounting firm and the Company, (ii) would place the independent registered public accounting firm in the position of auditing its own work, (iii) would result in the independent registered public accounting firm acting in the role of management or as an employee of the Company, or (iv) would place the independent registered public accounting firm in a position of acting as an advocate for the Company. In addition, the Audit Committee considers whether the independent registered public accounting firm is best positioned and qualified to provide the most effective and efficient service, based on factors such as the independent registered public accounting firm’s familiarity with the Company’s business, personnel, systems or risk profile and whether provision of the service by the independent registered public accounting firm would enhance the Company’s ability to manage or control risk or improve audit quality or would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to address certain requests for pre-approval of services between meetings of the Committee, and such Committee member is required to report his or her pre-approval decisions to the Committee at its next regular meeting. The Policy is designed to ensure that there is no delegation by the Audit Committee of authority or responsibility for pre-approval decisions to management of the Company. The Audit Committee monitors compliance by management with the pre-approval policy by requiring management, pursuant to the Policy, to report to the Audit Committee on a regular basis regarding the pre-approved services rendered by the independent registered public accounting firm. +11 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S SERVICES AND FEES +The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm. Accordingly, the Audit Committee has appointed PricewaterhouseCoopers LLP to perform audit and other services for the Company. In addition, the Audit Committee has procedures in place for the pre-approval by the Audit Committee of all services provided by PricewaterhouseCoopers LLP. These pre-approval procedures, as amended, are described above under “Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm.” +The aggregate fees billed by PricewaterhouseCoopers LLP to the Company for the years ended December 31, 2013 and 2012 are as follows: +2013 +2012 +Audit Fees (1) +$350,328 +$316,804 +Audit-Related Fees (2) +- +- +Tax Fees (3) +4,868 +3,861 +All Other Fees (4) +1,818 +1,818 +Total Fees for Services Provided +$357,014 +$322,483 +________ +(1) +Audit Fees consist of fees related to: (i) the annual integrated audit of the Company’s financial statements which included testing the effectiveness of the Company’s internal control over financial reporting, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), (ii) reviews of the Company’s quarterly financial statements and the (iii) statutorily required audits for the Company’s UK subsidiary. +(2) +Audit-Related Fees consist of fees incurred for consultations regarding accounting and financial reporting standards. +(3) +Tax Fees consist of fees for the preparation of tax returns for our UK subsidiary. +(4) +All Other Fees include software license fees for the use of a web-based accounting research tool. +The Audit Committee has considered whether the provision of the above services, other than Audit Fees, is compatible with maintaining the auditors’ independence and has determined that, in its opinion, they are compatible. All of the above services during the year ended December 31, 2013, other than those covered by Audit Fees, were either approved by the Audit Committee or were performed pursuant to pre-approval policies and procedures. +AUDIT COMMITTEE REPORT +Under its charter, the Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the internal control over financial reporting and quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. +Management is responsible for preparing complete and accurate consolidated financial statements in accordance with generally accepted accounting principles. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and for issuing reports about those financial statements. The Audit Committee meets with the independent registered public accounting firm, the Chief Executive Officer and the Chief Financial Officer of the Company to review the scope and the results of the annual audit, the amount of audit fees, the Company’s system of internal accounting controls over financial reporting, the financial statements contained in the Company’s Annual Report to Stockholders and other related matters. Separate meetings are held with the independent registered public accounting firm and management. +In connection with its duties, the Audit Committee has taken the following actions: +· +It has reviewed and discussed the audited financial statements, as well as the assessment of internal controls over financial reporting, with management. +· +It has discussed with the independent registered public accounting firm, which is responsible for expressing an opinion on the financial statements in accordance with generally accepted accounting principles, the matters required to be discussed by the statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. +12 +· +It has received from the independent registered public accounting firm the written disclosures describing any relationships between the independent registered public accounting firm and the Company and the letter confirming their independence required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with the independent registered public accounting firm matters relating to their independence. +· +Based on its review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company for the year ended December 31, 2013 be included in the Company’s Annual Report on Form 10-K for filing with the SEC. +AUDIT COMMITTEE +John M. Dillon, Chair +Thomas R. Schwarz +Graham Y. Tanaka +PROPOSAL 3: +ADVISORY VOTE ON EXECUTIVE COMPENSATION +In accordance with Section 14A of the Exchange Act, we seek your advisory vote on the compensation of the Company’s named executive officers as described in the “Compensation, Discussion and Analysis” section, tabular disclosure regarding such compensation and accompanying narrative disclosure set forth in this proxy statement. We ask that you support the compensation of our named executive officers as disclosed below. Your vote is advisory only, and therefore non-binding, but we can assure you that whatever the outcome of the vote, the Compensation Committee and the Board will review the results carefully and take the results into account in future compensation decisions. The Compensation Committee believes the Company’s executive compensation program reflects a strong pay-for-performance philosophy and is aligned with the stockholders’ long-term interests. +We believe that our programs are currently structured in the best manner possible to sustain our organizational and strategic goals, as well as to support our unique culture. These structural elements include: +• +Ensuring alignment between short-term incentive metrics such as EBITDA and stock price and stockholder value over the long term. +• +Maintaining the highest level of corporate governance over our executive compensation programs by reviewing them frequently and engaging a compensation consultant that does not work for the Company’s management as necessary. +• +Closely monitoring our programs against the other companies in the marketplace with whom we compete for talent and against whom we measure our success, noting in particular that this group of companies may change rapidly as the Company experiences its own growth. +• +Engaging in rigorous talent reviews of our senior executives to ensure they remain committed to the Company’s short and long-term goals, developing or obtaining the skills to manage in the current economy and preparing for the inevitable succession that naturally occurs in any organization. +• +Maintaining conservative benefit programs primarily directed and offered to all employees. +• +Providing executive officers nominal perquisites. +VOTE REQUIRED +Stockholders are being asked to vote on the following resolution: +RESOLVED: That the stockholders of the Company approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure, set forth below. +Because this vote is advisory, there is no vote required and it will not be binding upon the Board. However, the Board values stockholders’ opinions and the Board and Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPANY’S COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE “COMPENSATION DISCUSSION AND ANALYSIS” SECTION OF THIS PROXY STATEMENT AS SET FORTH BELOW. +13 +PROPOSAL 4: +TO APPROVE THE COMPANY’S 2014 EQUITY INCENTIVE PLAN +On April 1, 2014, the Board of Directors unanimously voted to adopt the 2014 Equity Incentive Plan (the “Plan”) and to recommend approval of the Plan by stockholders. The following is a summary of the material features of the Plan. It may not contain all of the information important to you. We urge you to read the entire Plan, a copy of which appears as Annex A to the Proxy Statement. +DESCRIPTION OF THE PLAN +The purpose of the Plan is to advance the interests of the Company by providing for the grant to participants of stock-based and other incentive awards, all as more fully described below. The Plan will become effective on the date of its approval by the stockholders. A maximum of 600,000 shares of common stock may be delivered in satisfaction of awards made under the Plan. In 2011, 2012 and 2013, the Company made equity awards under the 2005 Equity Incentive Plan totaling approximately 142,000 shares, 165,000 shares, and 147,000 shares, respectively. The Company estimates that the 600,000 shares under the new Plan will provide a sufficient number of shares to enable the Company to continue to make awards at historical average annual rates for approximately four to five years, which the Board determined to be sufficient to provide the flexibility to attract and retain directors, executives and other employees with equity incentives. +The maximum number of shares of common stock for which stock options may be granted to any person in any calendar year and the maximum number of shares of common stock subject to stock appreciation rights, or “SARs”, granted to any person in any calendar year will each be 500,000. The maximum number of shares subject to other awards granted to any person in any calendar year will be 500,000 shares. The maximum amount payable to any person in any year in the case of an award denominated in cash will be $750,000. In the event of a stock dividend, stock split or other change in our capital structure that constitutes an equity restructuring within the meaning of FASB ASC Topic 718, the Administrator (as defined below) will make appropriate adjustments to the limits described above and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to awards, any exercise prices relating to awards and any other provisions of awards affected by the change. The Administrator may also make similar adjustments to take into account other distributions to stockholders or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of awards. +The maximum number of shares that may be issued under the Plan represents approximately 7.2% percent of the total number of shares of the Company’s common stock outstanding on March 21, 2014, excluding treasury shares. As of March 21, 2014, 833,975 stock options to purchase common stock (with a weighted average exercise price of $8.98 and weighted average remaining term of 6.5 years and 46,331 deferred stock units have been granted and remain outstanding, and approximately 72,000 shares remain available for awards issuable under prior Company equity plans. The total number of shares issuable under the Company’s prior equity plans, added together with shares issuable under the proposed Plan, represent approximately 8.1% percent of Company’s outstanding shares on March 21, 2014. However, the Company has determined that upon approval by the stockholders of the Plan, no new awards will be made under the Company’s prior equity plans. +A combination of factors, including among other things, increased reliance upon restricted stock units for equity compensation, have driven increased share usage under the Company’s prior equity plans, thereby reducing the shares remaining available for future issuance. In addition, the Company’s 2005 Equity Incentive Plan will terminate in accordance with its terms in 2015. Therefore, to (i) continue to secure for the Company and its stockholders the benefits arising from capital stock ownership, (ii) assure that sufficient shares are available to provide incentives to those employees, directors, officers and consultants of the Company and any subsidiaries who will be responsible for the Company's future growth and continued success, and (3) attract new employees, the Board of Directors has adopted the Plan. The Company therefore asks stockholders to consider the following factors and to vote for the proposed Plan: +Equity incentive awards are an important part of the Company’s overall compensation philosophy. The Plan is critical to the Company’s ongoing effort to build stockholder value. Equity incentive awards have historically been and remain a critically important component of the Company’s compensation program. The Compensation Committee believes that the Company’s ability to grant equity incentive awards to employees is an important factor in our ability to attract, retain and motivate key employees. The Compensation Committee believes that equity compensation provides a strong incentive for employees to work to grow the business, build stockholder value over the long term and strongly align the interests of the Company’s employees with other stockholders. Moreover, equity awards made under the Plan to the Company’s senior executives reflect the Compensation Committee’s “pay for performance” philosophy since payout amounts are “at risk” and contingent on Company performance as described in the “Compensation Discussion and Analysis” section of this Proxy Statement. +Share exhaustion under the Company’s prior equity plans would harm the competiveness of the Company’s compensation offering. We believe that the remaining shares in the Company’s prior plans are insufficient to meet the Company’s future compensation requirements if grants continue to be made consistent with historic grant levels and with the Compensation Committee’s practices as described in the “Compensation Discussion and Analysis” section of this Proxy Statement. The Company believes it must continue to offer a competitive equity compensation plan to attract and motivate the Company’s workforce. If the prior plans were to run out of shares available for grant, the Company would not be able to issue additional equity awards. The Company also believes that its inability to award equity compensation will result in difficulty in attracting, retaining, and motivating its employees, whose efforts are a necessary element to implement its strategic plan and to ensure its future success. Therefore, the Company is asking our stockholders to approve the Plan. +14 +A discussion of the material features of the Plan follows, which discussion is subject to and qualified by the complete text of the Plan. +PLAN FEATURES THAT PROTECT STOCKHOLDER INTERESTS +The Plan contains several features that are intended to protect the interests of our stockholders. The more prominent of these include: +· +I ndependent Plan Administration. The Compensation Committee, comprised solely of nonemployee, independent Directors, will administer the Plan. +· +N o Re-pricing. Awards may not be re-priced without stockholder approval. +· +N o In-the-Money Grants . Options may not be granted with exercise prices below market value. +· +No “Evergreen” Provisions. The Plan does not contain “evergreen” share reserve provisions which have the potential for built-in dilution to stockholder value. +GENERAL TERMS +Administration. The Compensation and Corporate Governance Committee will administer the Plan. The term “Administrator” is used in this proxy statement to refer to the person (the Committee and its delegates) charged with administering the Plan. The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan, determine eligibility for and grant awards, determine, modify or waive the terms and conditions of any award; prescribe forms, rules and procedures, and otherwise do all things necessary to carry out the purposes of the Plan. Determinations of the Administrator made under the Plan are conclusive and bind all parties. Awards may be in the form of options, SARs, restricted or unrestricted stock, stock units (including restricted stock units), performance awards and cash awards. +Eligibility. Participation is limited to those key employees and directors, as well as consultants and advisors, who are selected by the Administrator to receive an award. +Stock Options. The Administrator may from time to time award options to any participant subject to the limitations described above. Stock options give the holder the right to purchase shares of common stock of the Company within a specified period of time at a specified price. Two types of stock options may be granted under the Plan: incentive stock options, or “ISOs”, which are subject to special tax treatment as described below, and nonstatutory options, or “NSOs”. Eligibility for ISOs is limited to employees of the Company and its subsidiaries. The exercise price of a stock option cannot be less than the fair market value of the common stock subject to the stock option at the time of grant. The Administrator determines all other terms and conditions related to the exercise of an option, including the consideration to be paid, if any, for the grant of the option, the time at which options may be exercised and conditions related to the exercise of options. The maximum term of stock options and SARs granted under the Plan cannot exceed ten years. +Stock Appreciation Rights. The Administrator may grant SARs under the Plan. An SAR entitles the holder upon exercise to receive an amount, payable in shares of common stock, equal to the excess of the fair market value of the shares of common stock subject to the SAR over the fair market value of such shares at the date of grant. +Stock Awards; Stock Units. The Plan provides for awards of nontransferable shares of restricted common stock, as well as unrestricted shares of common stock. Generally, awards of restricted stock are subject to the requirement that the shares be forfeited or resold to the Company unless specified conditions are met. Subject to these restrictions, conditions and forfeiture provisions, any recipient of an award of restricted stock will have all the rights of a stockholder of the Company, including the right to vote the shares and to receive dividends. Other awards under the Plan may also be settled with restricted stock. The Plan also provides for awards of stock units, which are unfunded and unsecured promises to deliver common stock or cash (measured by the value of common stock) in the future. Stock units may be restricted, meaning that the delivery of common stock or cash with respect to the stock unit is subject to the satisfaction of specified performance or other vesting conditions. +Performance Awards. The Administrator may also make awards subject to the satisfaction of specified performance criteria. The performance criteria used in connection with a particular performance award will be determined by the Administrator. In the case of performance awards intended to qualify for exemption under Section 162(m) of the Internal Revenue Code, the Administrator will use objectively determinable measures of performance in accordance with Section 162(m) that are based on any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. The Administrator will determine whether the performance targets or goals that have been chosen for a particular Performance Award have been met. +15 +General Provisions Applicable to All Awards. Neither ISOs nor, except as the Administrator otherwise expressly provides, other awards may be transferred other than by will or by the laws of descent and distribution. During a recipient’s lifetime an ISO and, except as the Administrator may provide, other non-transferable awards requiring exercise may be exercised only by the recipient. Shares delivered under the Plan may consist of either authorized but unissued shares or treasury shares. The number of shares delivered upon exercise of a stock option is determined net of any shares transferred by the optionee to the Company (including through the holding back of shares that would otherwise have been deliverable upon exercise) in payment of the exercise price or tax withholding. +Change in Control. In the event of a change in control of the Company, each award requiring exercise will become fully exercisable, the restrictions (including service-based and performance-based restrictions) on each outstanding share of stock and each outstanding stock unit will lapse, and the delivery of shares of stock deliverable under each outstanding award of stock units will, to the extent consistent with the deferred compensation rules under Section 409A of the Internal Revenue Code, be accelerated and such shares will be delivered, prior to the transaction, in each case on a basis that gives the holder of the award a reasonable opportunity, as determined by the Administrator, following exercise of the award or the delivery of the shares, as the case may be, to participate as a stockholder in the transaction. +For purposes of the foregoing, a “change in control” of the Company will be deemed to occur upon any of (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not, and is not a subsidiary of, a publicly owned corporation in which the stockholders of the Company immediately prior to the transaction continue to own beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company, (ii) a sale, exchange or other disposition of all or substantially all the Company's assets, or (iii) any acquisition of voting securities of the Company by any person or group (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), but excluding (a) the Company or any of its subsidiaries, (b) any person who was an officer or director of the Company on the day prior to the Effective Date, or (c) any savings, pension or other benefits plan for the benefit of employees of the Company or any of its subsidiaries, which theretofore did not beneficially own voting securities representing more than 50% of the voting power of all outstanding voting securities of the Company, if such acquisition results in such entity, person or group owning beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company. As used herein, “voting power” means ordinary voting power for the election of directors of the Company. +After the foregoing change in control vesting and acceleration provisions, if applicable, have been given effect, awards that are not assumed and that involve restricted stock or the future delivery of stock will terminate upon a change in control (or other corporate transaction or series of transactions) in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding stock, or a sale or transfer of all or substantially all of the Company’s assets, or a dissolution or liquidation of the Company. The Administrator may, but need not, provide for a substitution or assumption of awards or a cash-out of awards in connection with any such transaction, or for acceleration even where acceleration is not otherwise required, on terms specified in the Plan. +Amendment. The Administrator may at any time or times amend the Plan or any outstanding award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of awards. The Administrator may not, however, alter the terms of an award so as to affect adversely the participant’s rights under the award without the participant’s consent, unless the Administrator expressly reserved the right to do so at the time of the award. Any amendments to the Plan shall be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by the Administrator. +NEW PLAN BENEFITS +The future benefits or amounts that would be received under the Plan by executive officers, non-executive directors and non-executive officer employees are discretionary and are therefore not determinable at this time. In addition, the benefits or amounts which would have been received by or allocated to such persons for the last completed fiscal year if the plan had been in effect cannot be determined. +16 +EQUITY COMPENSATION PLAN INFORMATION +The following table gives information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as of December 31, 2013. +Plan category +(a) +Number of securities to be issued upon exercise of outstanding options, warrants and rights +(b) +Weighted average exercise price of outstanding options, warrants and rights +(c) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +Equity compensation plans approved by security holders: +1996 Non-Employee Director Plan +22,500 +$31.82 +- +2005 Equity Incentive Plan +746,966 +7.73 +195,755 +Total +769,466 +$6.43 +195,755 +Equity compensation plans not approved by security holders: +2001 Employee Stock Plan +1,000 +$26.23 +- +770,466 +$8.46 +195,755 +HISTORICAL EQUITY GRANT INFORMATION +The following table presents the benefits and amounts which were received by or allocated to our executive officers, non-executive directors and non-executive officer employees such persons for the fiscal year ended December 31, 2013 under the Company’s prior equity plans. +2005 EQUITY INCENTIVE PLAN +AWARDS GRANTED IN THE 2013 FISCAL YEAR +Name and Position +Grant Date +Fair Value of +Awards ($) +Number of Shares +of Common Stock +Underlying Awards +Bart C. Shuldman +168,475 +34,764 +Chairman and Chief Executive Officer +Steven A. DeMartino +105,951 +25,349 +President, Chief Financial Officer, Treasurer and Secretary +Tracey S. Chernay +23,905 +7,500 +Executive Vice President, Casino & Gaming Sales and Marketing +Andrew J. Hoffman +23,905 +7,500 +Senior Vice President Operations +Benjamin C. Wyatt +23,905 +7,500 +Vice President, Software Products & Business Development +John M. Dillon +25,164 +7,500 +Director +Thomas R. Schwarz +25,164 +7,500 +Director +Graham Y. Tanaka +25,164 +7,500 +Director +Named Executive Officer Group +346,141 +82,613 +Non-Executive Director Group +75,492 +22,500 +Non-Named Executive Officer Employee Group +132,273 +41,500 +Each stock option award disclosed in the 2005 Equity Incentive Plan—Awards Granted in the 2013 Fiscal Year table was issued under our 2005 Equity Incentive Plan and was granted with an exercise price per share equal to the fair market value of our common stock on the date of grant, as determined by the closing price of the stock on the date the option was granted. As of March 31, 2014, the closing price of the stock was $11.49. Subject to the terms of our 2005 Equity Incentive Plan and the option agreements issued in connection with these grants, each option award granted in 2013 vests at a rate of 25% per year over four years. Each stock option award expires ten years after the date of grant. +17 +The level of awards granted was consistent with the level of historical grants over the previous five years. +FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN AWARDS +The following discussion summarizes certain U.S. federal income tax consequences of the issuance and receipt of options under the Plan under the law as in effect on the date of this proxy statement. The summary does not purport to cover all U.S. federal tax consequences that may be associated with the Plan, nor does it cover state, local or non-U.S. taxes. Participants should consult their own tax advisors about potential tax consequences of participating in the Plan. +ISOs. In general, an optionee realizes no taxable income upon the grant or exercise of an ISO. However, the exercise of an ISO may result in an alternative minimum tax liability to the optionee. With certain exceptions, a disposition of shares purchased under an ISO within two years from the date of grant or within one year after exercise (a so-called “disqualifying disposition”) produces ordinary income to the optionee (and a deduction to the Company) equal to the value of the shares at the time of exercise less the exercise price (that is, the “spread” at exercise). Any additional gain recognized in the disposition is treated as a capital gain for which the Company is not entitled to a deduction. If the optionee does not dispose of the shares until after the expiration of these one- and two-year holding periods, any gain or loss recognized upon a subsequent sale is treated as a long-term capital gain or loss for which the Company is not entitled to a deduction. +NSOs. In general the optionee has no taxable income at the time of grant of a NSO but realizes income in connection with exercise of the option in an amount equal to the excess (at the time of exercise) of the fair market value of the shares acquired upon exercise over the exercise price; a corresponding deduction is available to the Company; and upon a subsequent sale or exchange of the shares, any recognized gain or loss after the date of exercise is treated as capital gain or loss for which the Company is not entitled to a deduction. +In general, an ISO that is exercised by the optionee more than three months after termination of employment is treated as a NSO for federal income tax purposes. ISOs are also treated as NSOs to the extent they first become exercisable by an individual in any calendar year for shares having a fair market value (determined as of the date of grant) in excess of $100,000. +Stock Options Exercisable for Restricted Stock. The Administrator may award stock options that are exercisable for restricted stock. Under Section 83 of the Code, an optionee who exercises a NSO for restricted stock will generally have income only when the stock vests. The income will equal the fair market value of the stock at that time less the exercise price. However, the optionee may make a so-called “83(b) election” in connection with the exercise to recognize taxable income at that time. Assuming no other applicable limitations, the amount and timing of the deduction available to the Company will correspond to the income recognized by the optionee. Where an ISO is exercised for restricted stock, the amount of any alternative minimum taxable income associated with the exercise and the amount of ordinary income associated with any disqualifying disposition of the acquired stock will be measured, in general, by reference to the “spread” value at the time the restrictions on the stock lapse and not on the “spread” value at exercise. In the case of such an ISO, an “83(b) election” may affect the amount and timing of inclusion of any alternative minimum taxable income associated with exercise but not the measure of any ordinary income associated with a disqualifying disposition. +Certain Change in Control Payments. Under the so-called “golden parachute” provisions of the Code, the accelerated vesting of awards in connection with a change in control of the Company may be required to be valued and taken into account in determining whether participants have received compensatory payments, contingent on the change in control, in excess of certain limits. If these limits are exceeded, a substantial portion of amounts payable to the participant, including income recognized by reason of the grant, vesting or exercise of awards under the Plan may be subject to an additional 20% federal tax and may be nondeductible to the Company. +Section 409A. Awards under the Plan are intended either to be exempt from the rules of Section 409A of the Code or to satisfy those rules and shall be construed accordingly. However, the Company will not be liable to any participant or other holder of an award with respect to any award-related adverse tax consequences arising under Section 409A or any other provision of the Code. +Potential Limitation on Company Deductions. Under Section 162(m), certain remuneration in excess of $1 million may be nondeductible if paid to any “covered employee” of a publicly held corporation (generally the corporation’s chief executive officer and its next three most highly compensated executive officers, excluding the chief financial officer, in the year that the compensation is paid), unless an exemption applies. The Plan is intended to provide for the grant of awards that can satisfy the requirements for an exemption from this deduction limitation. +18 +VOTE REQUIRED +Approval of the 2014 Equity Incentive Plan requires the affirmative vote of a majority of the votes of the Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. In the absence of instructions to the contrary, the persons named in the accompanying proxy will vote such proxy “FOR” the 2014 Equity Incentive Plan. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote; broker non-votes with respect to voting on this matter will have no effect on the outcome of the vote. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “FOR” APPROVAL OF THE 2014 EQUITY INCENTIVE PLAN. +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Overview +This Compensation Discussion and Analysis describes the philosophy, approach, and elements used by us and the Compensation and Corporate Governance Committee (the “Compensation Committee”) of our Board of Directors, which is composed entirely of independent directors of the Company, to define, manage, and review the compensation paid to our executives. Our philosophy and approach to executive compensation apply to all executive officers of the Company, including those executives designated as Named Executive Officers (“NEO’s”). +Philosophy and Objectives of the Compensation Program +Our Compensation Committee’s philosophy is that our executive compensation program is to be based on our performance and be competitive with other similarly-sized companies in similar industries. The primary objectives of our compensation program are to: +· +Attract, engage, retain, and reward executive officers; +· +Motivate employees and encourage individual initiative and effort; +· +Help to achieve key business objectives and attain Company goals; and +· +Align executives’ interests closely with those of the Company and its stockholders to drive long term sustainable earnings growth. +Our executive compensation program principally includes base salary, an incentive cash performance bonus program and equity incentive awards. The Compensation Committee believes that each element of the total compensation program helps to ensure that the efforts of our executive officers support the creation of stockholder value, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality or linking individual performance to the Company’s overall performance. The Committee retains its discretion to modify the compensation program elements in response to the needs of the Company . Except as otherwise prohibited by law or the Company’s organizational documents, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee. +The elements of our executive compensation program are periodically analyzed using current publicly available market data, contemporary market trends in the industries in which the Company operates and periodic reviews of compensation and benefit surveys. Although we perform periodic reviews of salary surveys and occasionally use compensation consultants to analyze elements of our compensation program, we do not believe that it is appropriate to establish compensation levels based solely on the use of such surveys. +The Compensation Committee reviews Company executive officer compensation and performance data to determine whether the Company’s executive compensation program is competitive and reasonable. The Compensation Committee, on occasion, meets with the Chief Executive Officer and Chief Financial Officer to obtain recommendations with respect to the Company’s compensation programs, practices and packages for the other executive officers, senior managers and other employees. Our Chief Executive Officer and Chief Financial Officer, with the assistance and support of the human resources department, provide recommendations regarding the design of the Company’s compensation program to the Compensation Committee. The Compensation Committee considers, but is not bound to accept, management’s recommendations with respect to executive compensation. +In May 2009, the Compensation Committee retained Towers Watson, an independent compensation consultant, to assist the Compensation Committee in assessing the competitiveness of the Company's total compensation program for the Company’s CEO, CFO and EVP Engineering, with the goal of implementing compensation changes based on Towers Watson’s advice and/or recommendations, if any, in 2010. Tower Watson’s work included a review of total compensation paid to the Company’s CEO, CFO and EVP Engineering assessing their compensation relative to individuals holding similar positions at companies in similar industries and size, and providing market-based compensation data for base salaries, annual cash incentive awards and long-term equity awards for the CEO, CFO and EVP Engineering. Towers Watson developed a peer group of companies consisting of U.S.-based information technology companies with revenue, percentage of foreign sales and product diversity generally comparable to the Company’s executives (the “Peer Group”) mainly from the same Standard Industrial Classification codes. The Peer Group consisted of LTX-Credence Corp.; Spectrum Control, Inc.; Communications Systems, Inc.; Rimage Corp.; Mad Catz Interactive, Inc.; Maxwell Technologies, Inc.; FSI International, Inc.; Perceptron, Inc.; DRI Corporation; Vicon Industries, Inc.; IntriCon Corp.; Optical Cable Corp.; Optelecom-NKF, Inc.; ClearOne Communications, Inc.; and Alliance Fiber Optic Products, Inc. The Peer Group data was based on compensation paid predominantly in 2008. +19 +Based on the review conducted by Towers Watson, the Compensation Committee revised the Company's annual incentive bonus program in an effort to further align the Company’s CEO and CFO's annual incentive compensation with the goal of building longer-term stockholder value. +Towers Watson did not advise management of the Company and neither it nor its affiliates received any compensation from the Company for services other than those performed for the Compensation Committee. The Compensation Committee has not deemed it necessary to engage any further consultants for the purpose of reviewing total executive compensation or individual compensation elements, although the Company continues to use the results of Towers Watson’s review as a guideline for the overall executive compensation program. +Elements of the Company’s Compensation Plan +The principal elements of the Company’s compensation program are base salary, an incentive cash bonus program and equity incentive awards. +Base Salary : In general, base salaries for employees, including executive officers, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance, external market data and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Base salary for each executive is reviewed on an annual basis as part of our companywide merit review process. The amount of any merit increase to an executive’s base salary is determined based on a combination of the current position of the executive’s pay against market data and the executive’s performance and results during the past year. Our Chief Executive Officer is responsible for assessing the performance of each executive reporting to him. Our Compensation Committee assesses the performance of our Chief Executive Officer. +Incentive Cash and Deferred Stock Unit Bonus Program : We have historically maintained an incentive cash compensation plan for all executive officers, except for those who receive sales commissions, which provides our executives with the opportunity to receive performance bonuses in the form of cash upon the attainment of certain annual financial objectives, as well as performance and business objectives. The incentive bonus is designed to be a significant portion of executive compensation in order to create and maintain a significant incentive for our executives to achieve or exceed our strategic and annual financial objectives. +To ensure alignment of compensation with our business objectives, our Chief Executive Officer and other executive officers establish specific quantitative and qualitative performance metrics each fiscal year. Our performance metrics (as used for incentive bonus) are reviewed and approved by our Compensation Committee. The metrics are aligned with our strategic and annual business plans and are reviewed by our Board of Directors and Compensation Committee. For 2013, the quantifiable metric of our annual incentive bonus program consisted of a target level of earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $9,900,000, excluding the effect of external acquisition related expenses, adjustments to the contingent consideration accrual related to the acquisition of Printrex, Inc., legal fees related to the lawsuit with Avery Denison Corporation and expenses related to the hiring of an employee to support the Company’s line of food safety terminals (the “EBITDA Target”). The minimum and maximum EBITDA set forth in the incentive bonus program by our Compensation Committee was $7,500,000 and $12,000,000, respectively, after adjusting for the above items. +Our executive officers, except for those that receive sales commissions, participate in the incentive bonus program. Bonuses are paid under the incentive bonus program only if the Company meets the specified quantifiable performance objectives and/or the executive meets specified performance and business objectives. The incentive cash bonus that any particular executive is eligible to earn is established as a percentage (the “Target Percentage”) of the individual’s base salary (“Target Bonus”). For 2013, 75% of each executive’s Target Bonus was based on achievement of the EBITDA Target (the “EBITDA Bonus Amount”) and 25% was based solely on achievement of performance and business objectives established by the Chief Executive Officer and the Compensation Committee (the “Performance Bonus Amount”). No EBITDA Bonus Amount is payable unless EBITDA exceeds a specified threshold ($7,500,000 for 2013). Above the threshold, the EBITDA Bonus Amount is adjusted upward on a sliding scale ranging from 5% to 114% of the Target Percentage for 2013. +The Compensation Committee is responsible for determining achievement of performance and business objectives for the CEO. The CEO is responsible for determining achievement of performance and business objectives for each of his direct reports. For other participants, achievement of performance and business objectives will be determined by the President or the appropriate Vice President or manager. Performance objectives include personal goals that support the Company’s overall business objectives as well as other financial and non-financial measurements. For 2013, such objectives consisted of achievement of certain financial and strategic objectives such as expanding the sales channel for Ithaca 9700 food safety terminal and two new color Printrex ® printers for the oil and gas market; opening a new sales office in Houston, Texas; signing a target level of deals for the EPICENTRAL TM Print System; and achieving a target level of product cost savings. For 2013, the Performance Bonus Amount ranged from 0% to 25% of the Target Percentage depending on the level of achievement. +20 +In addition, for the fifth consecutive year in 2013, to continue the efforts to further align the incentives of the Company’s CEO and CFO with building longer-term stockholder value, the Compensation Committee again required that for Mr. Shuldman and Mr. DeMartino, 30% of the Target Bonus amount earned for 2013 be paid in the form of fully vested stock units under the Company’s 2005 Equity Incentive Plan based on the closing price of the Company’s common stock on the date the Target Bonus is approved for payment by the Compensation Committee (the “Grant Date”). These stock units are payable three years from the Grant Date in the form of shares of the Company’s common stock on a one-for-one basis. +Equity Incentive Awards : The goal of our equity-based incentive awards is to align the interests of our executives with our stockholders and to provide executives with an incentive to manage the Company from the perspective of an owner with an equity stake in the business. We believe that our long-term performance is improved by encouraging ownership by our executives through the use of stock-based grants. Because vesting of our stock awards is based on continued employment, our equity-based incentives also facilitate the retention of executives through the term of the awards. Generally, we believe that stock options are the most effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of stock options to our future performance – i.e. executives are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price. +Grants of stock options are approved by the Compensation Committee at its regularly scheduled meeting typically on or about March 1. While the majority of stock option awards to our employees have been made under our annual grant program, the Compensation Committee may make stock option awards to employees at other times, including at the time of hire of an employee, promotion of an employee, to reward an employee, for retention purposes or for other circumstances as recommended by the Chief Executive Officer or the Compensation Committee. In determining the size of the long-term equity incentives to be awarded to employees, we take into consideration a number of factors including but not limited to relative job scope, individual performance level, prior contributions to the Company, the need to retain the employee, the size of prior grants and competitive market data. Based upon these factors, the Compensation Committee determines the size of the equity incentives at levels it considers appropriate to create meaningful opportunity for reward predicated on the creation of long-term stockholder value. +The exercise price of options granted is set at the closing price of our common stock on the date of grant. Grants of options generally vest in equal annual installments over a four-year period and have a ten-year term. +2013 Executive Compensation +The specific compensation decisions made for each of our executive officers for 2013 reflect the performance of the Company against key financial and operational measurements, as well as performance against objectives. +Base Salary : The Company’s Vice President, Human Resources and the CEO and CFO review and discuss the NEOs’ (other than the CEO and CFO) base salaries. In connection with establishing the NEOs’ (other than the CEO and CFO) base salary adjustments, the Company’s Vice President, Human Resources provides merit increase percentage guidelines based on market-based compensation data, its knowledge of competitive market practices and the Company’s salary budget. The merit increase percentage guidelines (the “Merit Increase Guideline”) for the 2013 base salary increases for all NEOs serving at the time were from 0% to 3%. After considering the Merit Increase Guideline and evaluating a NEO’s performance and the position of his or her current base salary, the CEO, as direct supervisor, makes a specific base salary adjustment recommendation to the Compensation Committee. Each NEO’s (other than the CEO and CFO) actual base salary adjustment, if any, is determined by the Compensation Committee. +In determining the base salary of the NEOs, the Compensation Committee evaluated the overall performance of the Company and the individual’s contributions to that performance, as well as the performance of the sales unit or function that each leads when relevant. Based on individual considerations with respect to each NEO (other than the CEO and CFO) such as his or her experience and contributions to the Company, and recognizing that the Company must also react to a competitive marketplace on a case-by-case basis when seeking to recruit and retain executives, the Compensation Committee strives to set each NEO’s base salary within the Merit Increase Guideline, if warranted. No additional adjustments were considered necessary to executive compensation in 2013 other than the customary annual base salary increases previously discussed. +Incentive Cash and Equity Bonus Program: During 2013, the Company achieved adjusted EBITDA of $8,557,000, as reviewed and approved by the Compensation Committee. These results were approximately 14% below the EBITDA Target of $9,500,000. Each NEO also achieved all of his/ her performance objectives set for 2013. Therefore, for 2013, the incentive cash and equity bonus payout for all eligible employees based on both financial and performance objectives achievement was approved at 65% of the annual target amount. For 2013, Mr. Shuldman, Mr. DeMartino, Mr. Hoffman and Mr. Wyatt were paid a cash incentive bonus of $163,413, $71,278, $40,341 and $37,238, respectively. In addition, for 2013, 30% of Mr. Shuldman’s and Mr. DeMartino’s individual incentive bonuses were issued in the form of vested deferred stock units. These amounts are shown in the “Summary Compensation Table” below under the columns “Stock Awards” and “Non-Equity Incentive Plan Compensation.” These bonuses were calculated as a percentage of each executive’s base salary in effect as of March 2013. Mrs. Chernay was not eligible to participate in the incentive bonus program as she earned commissions based on annual sales from her sales unit. Mrs. Chernay received a commission, paid monthly, equal to approximately 0.3% of sales achieved by her sales unit during 2013. +21 +Equity Incentive Awards : For 2013, Mr. Shuldman recommended to the Compensation Committee a total equity award dollar value range for each NEO based on factors including the NEO’s performance evaluation, his/her overall compensation package and his/her perceived potential and contributions to the Company. After considering Mr. Shuldman’s recommendations, the Compensation Committee, with Mr. Shuldman’s participation, determined the total equity award dollar value for each NEO other than Mr. Shuldman. The Compensation Committee considered several factors in making its determinations, including Mr. Shuldman’s recommendations, the Company’s performance, each NEO’s position within the Company, his/her perceived potential and contributions to the Company, and the Compensation Committee’s subjective understanding of competitive practices in the marketplace with respect to equity awards. The factors used by Mr. Shuldman to determine recommendations regarding total equity award dollar value ranges for each NEO and by the Compensation Committee to establish each NEO’s total equity award dollar value were assessed by Mr. Shuldman and the Compensation Committee, respectively, on a subjective basis. In March 2013, the Compensation Committee awarded a grant to Mr. Shuldman, Mr. DeMartino, Mrs. Chernay, Mr. Hoffman and Mr. Wyatt of stock options to purchase 22,500, 20,000, 7,500, 7,500 and 7,500 shares, respectively. The vesting terms of the grant of stock options are outlined in the table entitled “Grants of Plan-Based Awards in 2013.” The level of awards granted was consistent with the level of historical grants over the previous five years. +Results of 2013 Annual Meeting +At our 2013 annual meeting, 62.4% of the votes cast by stockholders voted, on an advisory basis, to approve the compensation of the Company’s named executive officers. The Board of Directors considered these voting results and evaluated our executive compensation practices. After considering the principles underlying our executive compensation practices and the support from our stockholders at the 2013 annual meeting, the Board of Directors reaffirmed the basic elements of our executive compensation program and policies. The next advisory vote on executive compensation will occur at our 2015 annual meeting. +At our 2013 annual meeting, 54.0% of the votes cast by stockholders voted, on an advisory basis, to hold an advisory vote to approve executive compensation every year. In line with this recommendation by our stockholders, the Board of Directors has decided that it will include an advisory stockholder vote on executive compensation in its proxy materials every year until the next required advisory vote on the frequency of stockholder votes on executive compensation, which will occur no later than our Annual Meeting of Stockholders in 2016. +Tax Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code, the deduction that a publicly-held corporation may claim for compensation in any year to any of its CEO or other three most highly compensated executive officers (other than the CFO) is limited to $1 million, subject to certain exceptions and special rules. Qualifying performance-based compensation is exempt from this limitation. Our compensation programs are designed to allow certain elements of our executive compensation to be eligible for this performance-based compensation exemption. While we believe that factors other than tax deductibility are relevant in determining appropriate levels and types of compensation and although the levels and types of compensation that we pay to our executive officers are not expected to be nondeductible by reason of the $1 million limit, we reserve the right in appropriate circumstances to pay compensation that may not be deductible . +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement for the 2014 annual meeting. +COMPENSATION AND CORPORATE +GOVERNANCE COMMITTEE +Thomas R. Schwarz, Chair +John M. Dillon +Graham Y. Tanaka +22 +SUMMARY COMPENSATION TABLE +The following table sets forth information concerning the compensation earned by the Company’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers (the “NEOs”) in 2013, 2012 and 2011: +Name and Principal Position +Year +Salary ($) +Bonus (2)($) +Stock +Awards +($) +Option +Awards +(3)($) +Non-Equity +Incentive Plan +Compensation +(7)($) +All Other +Compensation ($) +Total ($) +Bart C. Shuldman (1) +2013 +476,774 +- +- +71,714 +233,447 +43,510 (4) +825,445 +Chairman and Chief +2012 +462,418 +- +- +83,135 +322,537 +43,192 (4) +911,282 +Executive Officer +2011 +449,126 +- +- +104,204 +346,996 +41,438 (4) +941,764 +Steven A. DeMartino +2013 +311,939 +- +- +63,746 +101,826 +22,739 (5) +500,250 +President, Chief +2012 +302,547 +- +- +73,898 +140,685 +22,559 (5) +539,689 +Financial Officer, Treasurer and Secretary +2011 +293,851 +- +- +104,204 +151,353 +22,362 (5) +571,770 +Tracey S. Chernay +2013 +183,000 +81,502 +- +23,905 +- +18,090 (5) +306,497 +Executive Vice +2012 +183,000 +94,581 +- +18,475 +- +17,856 (5) +313,912 +President, Casino & Gaming Sales and Marketing +2011 +183,000 +107,753 +- +59,545 +- +17,498 (5) +367,796 +Andrew J. Hoffman +2013 +205,972 +- +- +23,905 +40,341 +19,542 (5) +289,760 +Senior Vice President +2012 +199,770 +- +- +55,424 +55,736 +19,228 (5) +330,158 +Operations +2011 +170,436 +- +- +22,953 +52,466 +18,036 (5) +263,891 +Benjamin C. Wyatt +2013 +190,128 +- +- +23,905 +37,238 +8,571 (6) +259,842 +Vice President, Software +2012 +184,403 +- +- +36,949 +51,449 +8,204 (6) +281,005 +Products & Business +Development +2011 +180,624 +21,250 +- +59,545 +55,350 +8,159 (6) +324,928 +________ +(1) +Mr. Shuldman is a director of the Company, but does not receive any separate compensation for those services. +(2) +Bonuses paid to Mrs. Chernay represent commissions on sales by the Company. Bonuses paid to Mr. Wyatt represent the achievement of certain objectives related to the Company’s EPICENTRAL TM Print System. +(3) +Amounts in this column reflect the grant date fair value of option awards, calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. All option awards in 2011, 2012 and 2013 were granted under the Company’s 2005 Equity Incentive Plan. For information on the valuation assumptions with respect to these option awards, refer to the notes of the Company's financial statements in the Form 10-K for the years ended December 31, 2011, 2012 and 2013, as filed with the SEC. Please see the “Outstanding Equity Awards at 2013 Fiscal Year-End” table for a description of option awards. There were no forfeitures of option awards by this group during the year. +(4) +For Mr. Shuldman, this amount consists of an automobile allowance, Company contributions under the Company’s 401(k) Plan, life insurance, disability insurance and tax return preparation fees. +(5) +For Mr. DeMartino, Mr. Hoffman and Mrs. Chernay, these amounts consist of automobile allowances, Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(6) +For Mr. Wyatt, these amounts consist of Company contributions under the Company’s 401(k) Plan, life insurance and disability insurance. +(7) +For Mr. Shuldman and Mr. DeMartino, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. For 2012 and 2013, 30% of these incentive bonus amounts were paid in the form of deferred stock units with the remainder paid in cash. For 2011, 30% and 20%, respectively, of these incentive bonus amounts were paid in the form of deferred stock units with the remainder paid in cash. For Mr. Hoffman and Mr. Wyatt, these amounts represent incentive cash bonuses earned under the Company’s Cash Incentive Program. +23 +GRANTS OF PLAN-BASED AWARDS IN 2013 +The following table sets forth information concerning the grant of plan-based awards to NEOs in 2013: +Name +Grant +Date +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +All Other +Option +Awards: +Number of +Securities +Underlying +Options(2)(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value of +Stock and +Option +Awards(3)($) +Threshold ($) +Target ($) +Maximum ($) +Bart C. Shuldman +3/1/2013 +89,787 +359,150 +499,218 +22,500 +7.89 +71,714 +Steven A. DeMartino +3/1/2013 +39,164 +156,654 +217,749 +20,000 +7.89 +63,746 +Tracey S. Chernay +3/1/2013 +- +- +- +7,500 +7.89 +23,905 +Andrew J. Hoffman +3/1/2013 +15,516 +62,063 +86,267 +7,500 +7.89 +23,905 +Benjamin C. Wyatt +3/1/2013 +14,322 +57,289 +79,631 +7,500 +7.89 +23,905 +________ +(1) +Represents target payout under our annual incentive bonus program for 2013. Actual amounts paid in March 2014 are included in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. For Mr. Shuldman and Mr. DeMartino, 30% of these incentive bonus amounts for 2013 were paid in the form of deferred stock units with the remainder paid in cash. The maximum amounts assume a payout of 139% of the NEO's annual incentive bonus. The annual incentive cash and equity bonus program is described in the "Compensation Discussion and Analysis". +(2) +Each stock option award disclosed in the Grants of Plan-Based Awards in 2013 table was issued under our 2005 Equity Incentive Plan and was granted with an exercise price per share equal to the fair market value of our common stock on the date of grant, as determined by the closing price of the stock on the date the option was granted. Subject to the terms of our 2005 Equity Incentive Plan and the option agreements issued in connection with these grants, each option award granted in 2013 to a NEO vests at a rate of 25% per year over four years. +(3) +The amounts shown represent the grant date fair value of stock options granted in 2013 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2013, as filed with the SEC. Please see the “Outstanding Equity Awards at 2013 Fiscal Year-End” table for a description of option awards. There were no forfeitures of stock option awards by this group during the year. +24 +OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR-END +The following table shows outstanding equity awards for the NEOs as of December 31, 2013, +Option Awards +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +(# Exercisable) +Number of +Securities +Underlying +Unexercised +Options +(# Unexercisable) +Option +Exercise +Price ($) +Option +Expiration +Date +Bart C. Shuldman +1/2/2006 +12,500 +- +7.90 +1/2/2016 +3/1/2006 +15,000 +- +9.75 +3/1/2016 +2/28/2007 +25,000 +- +9.51 +2/28/2017 +2/27/2008 +21,000 +- +5.24 +2/27/2018 +3/5/2009 +- +6,000 +2.18 +3/5/2019 +5/27/2010 +18,750 +6,250 +7.45 +5/27/2020 +3/7/2011 +8,750 +8,750 +9.89 +3/7/2021 +3/5/2012 +5,625 +16,875 +6.70 +3/5/2022 +3/1/2013 +- +22,500 +7.89 +3/1/2023 +Steven A. DeMartino +1/2/2006 +10,000 +- +7.90 +1/2/2016 +3/1/2006 +10,000 +- +9.75 +3/1/2016 +2/28/2007 +15,000 +- +9.51 +2/28/2017 +2/27/2008 +25,000 +- +5.24 +2/27/2018 +3/5/2009 +- +5,000 +2.18 +3/5/2019 +5/27/2010 +15,000 +5,000 +7.45 +5/27/2020 +3/7/2011 +8,750 +8,750 +9.89 +3/7/2021 +3/5/2012 +5,000 +15,000 +6.70 +3/5/2022 +3/1/2013 +- +20,000 +7.89 +3/1/2023 +Tracey S. Chernay +3/5/2009 +- +3,000 +2.18 +3/5/2019 +5/27/2010 +- +1,250 +7.45 +5/27/2020 +3/7/2011 +5,000 +5.000 +9.89 +3/7/2021 +3/5/2012 +1,250 +3,750 +6.70 +3/5/2022 +3/1/2013 +- +7,500 +7.89 +3/1/2023 +Andrew J. Hoffman +1/2/2006 +5,000 +- +7.90 +1/2/2016 +3/1/2006 +5,000 +- +9.75 +3/1/2016 +2/28/2007 +7,500 +- +9.51 +2/28/2017 +3/5/2009 +- +2,000 +2.18 +3/5/2019 +5/27/2010 +- +1,250 +7.45 +5/27/2020 +3/7/2011 +2,500 +2,500 +9.89 +3/7/2021 +3/5/2012 +3,750 +11,250 +6.70 +3/5/2022 +3/1/2013 +- +7,500 +7.89 +3/1/2023 +Benjamin C. Wyatt +5/28/2008 +5,500 +- +7.80 +5/28/2018 +3/5/2009 +4,000 +2,000 +2.18 +3/5/2019 +5/27/2010 +11,250 +3,750 +7.45 +5/27/2020 +3/7/2011 +5,000 +5,000 +9.89 +3/7/2021 +3/5/2012 +2,500 +7,500 +6.70 +3/5/2022 +3/1/2013 +- +7,500 +7.89 +3/1/2023 +25 +OPTION AWARDS VESTING SCHEDULE +Grant Dates +Vesting Schedule +1/2/2006, 3/1/2006, 2/28/2007, 2/27/2008, 3/5/2009 +20% per year for five years +5/28/2008 +100% after four years +5/27/2010, 3/7/2011, 3/5/2012, 3/1/2013 +25% per year for four years +OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2013 +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +On Exercise (#) +Value Realized +on Exercise(1)($) +Number of +Shares +Acquired +on Vesting (2)(#) +Value Realized +on Vesting(3)($) +Bart C. Shuldman +18,500 +122,830 +12,264 +96,761 +Steven A. DeMartino +20,000 +213,658 +5,349 +42,205 +Tracey S. Chernay +39,250 +151,149 +- +- +Andrew J. Hoffman +14,236 +120,112 +- +- +Benjamin C. Wyatt +4,500 +23,216 +- +- +________ +(1) +Calculated based on the difference between the market price of the underlying securities at exercise and the exercise price of the options. +(2) +Includes the underlying shares of the fully vested stock units granted on March 1, 2013 to Mr. Shuldman and Mr. DeMartino under the 2005 Equity Incentive Plan, which are payable upon the sale of the Company, the executive leaving the Company or on the third year anniversary from the date of grant in the form of shares of the Company’s common stock on a one-for-one basis. +(3) +Amounts for shares underlying deferred fully vested stock units are calculated based on the market value of the Company’s common stock on the grant date of the deferred stock units. The remaining amounts are calculated based on the market value on the vesting date of the shares underlying each award. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has entered into certain agreements and maintains certain plans that may require payments be made, and/or benefits be provided, to the NEOs: (i) in the event a NEO’s employment is terminated other than for Cause, as defined below, (a “Termination Event”), (ii) if a change in control (as defined by the applicable agreement or plan) occurs (a “Change in Control Event”) or (iii) if a Termination Event occurs or a NEO resigns for certain specified reasons within one year following a change in control (a “Change in Control and Termination Event”). The payments and benefits that each NEO may be entitled to receive upon a Termination Event, Change in Control Event or a Change in Control and Termination Event are described in the applicable employment agreement or severance agreement and the Company’s 2005 Equity Incentive Plan. None of the agreements for our NEOs include a gross up for any taxes as a result of golden parachute payments. Below is a description of the types of events that would trigger payments under these agreements and plans and the potential payments to each such Named Executive Officer assuming that a triggering event occurred on December 31, 2013, the last day of our most recent fiscal year. +Employment and Severance Agreements +Events That Trigger a Termination Event or Change in Control Event. The applicable employment and severance agreements generally define Cause as a termination for the following reasons: (i) action or inaction by the NEO that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the Board or officers of the Company or a commission of a crime of moral turpitude; (ii) material, repetitive, unjustified and unexcused refusal to follow the reasonable and lawful written instruction of the Board—or in the case of the NEOs other than Mr. Shuldman, the Board or the Company’s President; or (iii) death or disability. A Change in Control Event is generally defined in each agreement to include (i) a merger of the Company with another company where the majority of the board of the surviving company is not comprised of directors of the Company in office immediately prior to the transaction, (ii) a change in the board of directors of the Company such that after an election a majority of the directors in office are not directors that were nominated by two-thirds of board members prior to the election or (iii) a complete liquidation of the Company. +Effect of a Termination Event or Change in Control and Termination Event. Under the terms of an Employment Agreement dated July 31, 1996 between Bart C. Shuldman and the Company, if a Termination Event or Change in Control Event were to occur, Mr. Shuldman would continue to receive: (i) his annual base salary and (ii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; an automobile allowance; and certain service fees related to medical exams, income tax planning and estate planning) for two years and three years, respectively, from the date of termination. In connection with a Termination Event, Mr. Shuldman would receive a pro rata portion of his annual target bonus amount for the year of termination. If a Change in Control Event were to occur and within one year thereafter either Mr. Shuldman’s employment is terminated other than for Cause, or Mr. Shuldman resigns following a significant reduction in the nature or scope of his responsibilities or authorities, a decrease in salary other than resulting from a reduction that applies generally to all management personnel or specified relocations of the Company’s facilities, Mr. Shuldman would be entitled to continue to receive, in addition to the amounts listed in the first sentence, his annual target bonus for a period of three years from the date of termination and all stock options and other awards granted to Mr. Shuldman under the Company's stock plans would immediately vest. +26 +Under the terms of a Severance Agreement with Steven A. DeMartino dated June 1, 2004, if a Termination Event were to occur, Mr. DeMartino would be entitled to continue to receive, for one year following the date of termination (i) his annual base salary, (ii) a pro rata portion of his annual target bonus for the year of termination and (iii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; and an automobile allowance.) If a Change in Control Event were to occur and the employment of Mr. DeMartino is terminated other than for Cause, or if he resigns for specified reasons within one year following a Change in Control Event, Mr. DeMartino would be entitled to receive for two years after his termination (i) his annual base salary, (ii) annual target bonus, (iii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; and an automobile allowance) and (iv) all stock options granted to Mr. DeMartino would immediately vest. +Under the terms of Severance Agreements with Andrew J. Hoffman, Tracey S. Chernay and Benjamin C. Wyatt dated November 18, 2005, July 29, 2005 and May 27, 2008, respectively, if a Termination Event were to occur, the applicable NEO would be entitled to continue to receive, for six months following the date of termination (i) a pro rata portion of his or her annual base salary, (ii) a pro rata portion of his or her annual target bonus for the year of termination, and (iii) group medical and dental benefits. If a Change in Control Event were to occur, the applicable NEO would be entitled to continue to receive for a period of one year from the date of termination his/ her (i) base salary, (ii) annual target bonus, (iii) group medical and dental benefits and (iv) all stock options granted to the applicable NEO would immediately vest. +Equity Plans +2005 Equity Incentive Plan. The terms of the Company’s 2005 Equity Incentive Plan provide that all awards issued under the plan would accelerate and either become exercisable or vest, as applicable, immediately prior to any of the following: (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not the Company or a publicly owned corporation (or a subsidiary thereof) in which the stockholders of the Company immediately prior to the transaction continue to beneficially own 50% or more of the voting securities of the Company, (ii) a sale, transfer, exchange or other disposition of all or substantially all of the Company’s assets, (iii) any acquisition of 50% or more of the voting securities of the Company excluding acquisitions by specified parties or (iv) any dissolution or liquidation of the Company. Upon the occurrence of some of the foregoing Change in Control Events, stock or other property to be delivered upon acceleration of any award may be placed in escrow, rather than actually delivered, under terms set by the Compensation and Corporate Governance Committee. +Payments Upon a Change in Control Event. If a Change in Control Event had occurred on December 31, 2013 that triggered acceleration of all of the equity awards outstanding to each NEO under the 2005 Equity Incentive Plan that accelerate either by their terms or the terms of the applicable plan, the following amounts would have been paid to the NEOs: +Name +Stock +Awards (1) +Option +Awards (2) +Total +Bart C. Shuldman +$489,021 +$799,040 +$1,288,061 +Steven A. DeMartino +162,426 +710,600 +873,026 +Tracey S. Chernay +- +127,750 +127,750 +Andrew J. Hoffman +- +222,200 +222,200 +Benjamin C. Wyatt +- +283,815 +283,815 +________ +(1) +Accelerated stock awards were valued using the closing price of $12.53 per share of our common stock on December 31, 2013, which was the last trading date of the year. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $12.53 per share of our common stock on December 31, 2013, which was the last trading day of the year. +27 +PAYMENTS UPON A TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Termination Event occurred on December 31, 2013, the last day of the Company’s fiscal year. +Name +Base +Salary +Pro Rata +Portion of +Annual +Target +Bonus +Benefits(1) +Stock +Options +Stock +Awards +Total +Bart C. Shuldman +$957,732 +$359,150 +$115,406 +- +- +$1,432,288 +Steven A. DeMartino +313,308 +156,654 +36,932 +- +- +506,894 +Tracey S. Chernay +91,500 +- +5,616 +- +- +97,116 +Andrew J. Hoffman +103,438 +31,031 +6,820 +- +- +141,289 +Benjamin C. Wyatt +95,481 +28,644 +7,096 +- +- +131,221 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +PAYMENTS UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The following table summarizes the potential payments to each NEO, over the course of the applicable time period for which such payments would be owed, assuming that a Change in Control and Termination Event occurred on December 31, 2013, the last day of the Company’s fiscal year. +Name +Base +Salary +Annual +Target +Bonus +Benefits(1) +Stock +Options (2) +Stock +Awards (3) +Total +Bart C. Shuldman +$1,436,598 +$1,077,449 +$173,109 +$799,040 +$489,021 +$3,975,217 +Steven A. DeMartino +626,616 +313,308 +73,863 +710,600 +162,426 +1,886,813 +Tracey S. Chernay +183,000 +- +11,232 +127,750 +- +321,982 +Andrew J. Hoffman +206,876 +62,063 +13,640 +222,200 +- +504,779 +Benjamin C. Wyatt +190,962 +57,289 +14,193 +283,815 +- +546,259 +________ +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the Company’s cost of medical premiums is included here. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $12.53 per share of our common stock on December 31, 2013, which was the last trading day of the year. +(3) +Accelerated stock awards were valued using the closing price of $12.53 per share of our common stock on December 31, 2013, which was the last trading day of the year. +Non-Competition Provisions That Apply to a Termination Event or Change in Control Event +Pursuant to Mr. Shuldman’s Employment Agreement, upon the occurrence of a Termination Event while he is receiving severance payments under the agreement, Mr. Shuldman agrees that for two years, or in the case of a Change in Control Event, for three years, that he will not directly or indirectly engage in any business or activity that is competitive with the Company in a geography where the Company is selling its products. Further, Mr. Shuldman agrees not to attempt to recruit any employees of the Company or encourage them to leave the Company and agrees not to encourage any of the Company’s customers to direct their business elsewhere. The other NEOs have the same provisions in their Severance Agreements, except that they apply for six months upon the occurrence of a Termination Event or one year upon the occurrence of a Change in Control Event and they are not contingent upon the payment of the benefits described in each agreement by the Company to the NEO. +28 +DIRECTOR COMPENSATION FOR FISCAL YEAR 2013 +Name +Fees Earned +Or Paid in +Cash ($) +Stock +Options(1)($) +Stock +Awards +(2)($) +Total ($) +John M. Dillon +39,000 +25,164 +- +64,164 +Thomas R. Schwarz +39,000 +25,164 +- +64,164 +Graham Y. Tanaka +39,000 +25,164 +- +64,164 +Bart C. Shuldman (3) +- +- +- +- +________ +(1) +On May 28, 2013, Mr. Dillon, Mr. Schwarz and Mr. Tanaka were each awarded 7,500 stock options granted under the Company’s 2005 Equity Incentive Plan. The amounts shown represent the grant date fair value of stock options granted in 2013 calculated in accordance with Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company's financial statements in the Form 10-K for the year ended December 31, 2013, as filed with the SEC. +(2) +As of December 31, 2013, Mr. Dillon held 6,875 fully vested stock options at exercise prices ranging from $7.82 to $11.65 as well as 18,125 unvested stock options at exercise prices ranging from $7.82 to $11.65, Mr. Schwarz held 48,500 fully vested stock options at exercise prices ranging from $4.84 to $31.82 as well as 20,250 unvested stock options at exercise prices ranging from $4.84 to $11.71, Mr. Tanaka held 48,500 fully vested stock options at exercise prices ranging from $4.84 to $31.82 as well as 20,250 unvested stock options at exercise prices ranging from $4.84 to $11.71, and Mr. Shuldman held no stock option grants other than those shown in the “Outstanding Equity Awards at 2013 Fiscal Year-End” table above. +(3) +Mr. Shuldman did not receive any compensation for director services other than what is reflected in the "Summary Compensation Table" above. +For the first quarter of 2013, each non-employee director of the Company received a retainer of $9,000 for compensation for serving as a director. Effective April 1, 2013, the retainer increased to $10,000 for each quarter served as a director. Directors are also reimbursed for reasonable expenses incurred in attending meetings. +Each non-employee director receives an annual grant of 7,500 stock options, pursuant to the terms of the Company’s 2005 Equity Incentive Plan. The stock options vest at the rate of 25% per year beginning on the first anniversary of the date of grant. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member of the Board’s Compensation and Corporate Governance Committee has served as an officer or employee of the Company at any time. None of the Company’s executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of the Company’s Board. None of the Company’s executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of the Board’s Compensation and Corporate Governance Committee. +STOCKHOLDER PROPOSALS FOR 2015 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year’s proxy materials must be received by the Secretary of the Company on or before December 19, 2014. Proposals should be addressed to TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. Stockholders who wish to make a proposal at the 2015 Annual Meeting without regard to whether it will be included in the Company’s proxy materials should notify the Company no later than March 4, 2015. If a Stockholder who wishes to present a proposal fails to notify the Company by the due date, the proxies that the Company solicits for the meeting will accord them discretionary authority to vote on the Stockholder’s proposal if it is properly brought before the meeting. +29 +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors if the proper nomination procedures specified in the Company’s By-Laws are followed. All nominations by stockholders must be delivered to or mailed and received at the principal executive offices of the Company not less than 30 nor more than 60 days prior to the meeting at which election of directors will take place; however, if less than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, nominations will be timely if received not later than 10 days after notice was given or public disclosure was made. A stockholder’s notice must set forth in writing (i) for each person proposed to be nominated, all information relating to each such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to be named in the proxy and to serving as a director, and (ii) for the stockholder giving notice, the (x) name and address of such stockholder as they appear on the Company’s books, and (y) the class and number of shares of the Company beneficially owned by such stockholder. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder or interested party wishing to communicate directly with members of the Board of Directors should do so in writing. All correspondence addressed to the Board as a whole, to its independent directors, to any of its Committees or Committee Chairs, or to individual Board members should be mailed to the following address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +· +You are welcome to communicate anonymously or confidentially. +· +All correspondence addressed to an individual director or Committee Chair, and marked “Confidential”, will be collected in the office of the Secretary and forwarded unopened to the individual director. +· +Other correspondence will be opened by the Secretary, reviewed, copied and directed as follows: +o Concerns regarding the Company’s accounting, internal accounting controls or auditing matters will be referred to the members of the Audit Committee. +o Nominations or recommendations of candidates for election to the Board of Directors will be referred to members of the Nominating Committee. +o Other correspondence will be copied by the Secretary and forwarded to all of the members of the Board of Directors (or its independent directors, if so addressed) unless the stockholder directs otherwise. +GENERAL +As of the date of this Proxy Statement, the Board of Directors is not aware of any matter which is to be presented for action at the Annual Meeting other than the matters set forth herein. Should any other matter requiring a vote of the stockholders arise at the Annual Meeting, the proxies confer upon the persons named in the accompanying proxy the authority to vote in respect of any such other matter in accordance with the recommendation of the Board of Directors. +A stockholder who has given a proxy may revoke it at any time prior to its exercise at the Annual Meeting by: (i) giving written notice of revocation to the Secretary of the Company, (ii) properly submitting to the Company a duly executed proxy bearing a later date, or (iii) voting in person at the Annual Meeting. All written notices of revocation and other communications with respect to revocation of proxies should be addressed to the Company, as follows: TransAct Technologies Incorporated, One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. A proxy appointment will not be revoked by death or supervening incapacity of the stockholder executing the proxy unless, before the shares are voted, notice of such death or incapacity is filed with the Company’s Secretary or other person responsible for tabulating votes on behalf of the Company. +30 +The cost of preparing, assembling and mailing this proxy material will be borne by the Company. The Company may solicit proxies otherwise than by use of the mail, in that certain officers and regular employees of the Company, without additional compensation, may use the telephone or otherwise to obtain proxies. The Company will also request persons, firms and corporations holding shares in their names, or owned by others, to send this proxy material to and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in doing so. +No director or executive officer of the Company has any direct or indirect substantial interest, whether by security holdings or otherwise, in the ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company’s 2014 fiscal year. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE BY VISITING WWW.PROXYVOTE.COM. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +31 +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Form 10-K, Notice & Proxy Statement is/are available at www.proxyvote.com . +TRANSACT TECHNOLOGIES INCORPORATED +Annual Meeting of Stockholders +May 15, 2014 10:00 AM +This Proxy is solicited by the Board of Directors +The undersigned stockholder of TransAct Technologies Incorporated (the “Company”) does hereby nominate, constitute and appoint Bart C. Shuldman and Steven A. DeMartino, or either of them, with full power to act alone, my true and lawful attorney with full power of substitution, for me and in my name, place and stead to vote all of the shares of Common Stock of the Company standing in my name on its books on March 21, 2014, at the Annual Meeting of its stockholders to be held at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 on May 15, 2014 at 10:00 a.m., or at any adjournment thereof, with all powers the undersigned would possess if personally present as follows: +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. FOR PROPOSAL 1, THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES AS DIRECTORS. FOR PROPOSAL 2, THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. FOR PROPOSAL 3, THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. FOR PROPOSAL 4, THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE COMPANY’S 2014 EQUITY INCENTIVE PLAN. THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. +PLEASE SIGN, DATE AND MAIL YOUR PROXY CARD BACK IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. +Address change/comments: +(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) +Continued and to be signed on reverse side +32 +TRANSACT TECHNOLOGIES INCORPORATED +ONE HAMDEN CENTER +2319 WHITNEY AVENUE, SUITE 3B +HAMDEN, CT 06518 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on May 14, 2014. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +Electronic Delivery of Future PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +For All +Withhold All +For All Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. +The Board of Directors recommends you vote FOR the following: +1. +Election of Directors +o +o +o +Nominees +01 +Thomas R. Schwarz +02 Bart C. Shuldman +The Board of Directors recommends you vote FOR proposals 2, 3 and 4. +For +Against +Abstain +2. +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. +o +o +o +3. +APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. +o +o +o +4. +APPROVAL OF OUR 2014 EQUITY INCENTIVE PLAN. +o +o +o +NOTE: Such other business as may properly come before the meeting or any adjournment thereof. +For address change/comments, mark here. +(see reverse side for instructions) +o +Yes +No +Please indicate if you plan to attend this meeting +o +o +Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +33 +EXHIBIT 1 +TRANSACT TECHNOLOGIES INCORPORATED +2014 EQUITY INCENTIVE PLAN +1. DEFINED TERMS +Exhibit A , which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms. +2. PURPOSE +The Plan has been established to advance the interests of the Company by providing for the grant to Participants of Stock-based and other incentive Awards. +3. ADMINISTRATION +The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures relating to the Plan; and otherwise do all things necessary or appropriate to carry out the purposes of the Plan. Determinations of the Administrator made under the Plan will be conclusive and will bind all parties. +4. LIMITS ON AWARDS UNDER THE PLAN +(a) Number of Shares . The maximum number of shares of Stock that may be delivered in satisfaction of Awards under the Plan is 600,000. Up to the total number of shares available for awards to employee Participants may be issued in satisfaction of ISOs, but nothing in this Section 4(a) will be construed as requiring that any, or any fixed number of, ISOs be awarded under the Plan. The number of shares of Stock delivered in satisfaction of Awards will, for purposes of this Section 4(a), be determined net of shares of Stock withheld by the Company in payment of the exercise price of the Award or in satisfaction of tax withholding requirements with respect to the Award. For the avoidance of doubt, shares of Stock underlying the portion of any Award that is settled in cash or the portion of any Award that expires, terminates or is forfeited prior to the issuance of Stock thereunder shall not be treated as having been delivered. The limit set forth in this Section 4(a) will be construed to comply with Section 422 and regulations thereunder. To the extent consistent with the requirements of Section 422 and regulations thereunder, and with other applicable legal requirements (including applicable stock exchange requirements), Stock issued under awards of an acquired company that are converted, replaced, or adjusted in connection with the acquisition will not reduce the number of shares available for Awards under the Plan. +(b) Type of Shares . Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company. No fractional shares of Stock will be delivered under the Plan. +34 +(c) Section 162(m) Limits . The following additional limits will apply to Awards of the specified type granted, or in the case of Cash Awards payable, to any person in any calendar year: +(1) +Stock Options: 500,000 shares of Stock. +(2) +SARs: 500,000 shares of Stock. +(3) +Awards other than Stock Options, SARs or Cash Awards: 500,000 shares of Stock. +(4) +Cash Awards: $750,000. +In applying the foregoing limits, (i) all Awards of the specified type granted to the same person in the same calendar year will be aggregated and made subject to one limit; (ii) the limits applicable to Stock Options and SARs refer to the number of shares of Stock subject to those Awards; (iii) the share limit under clause (3) refers to the maximum number of shares of Stock that may be delivered, or the value of which could be paid in cash or other property, under an Award or Awards of the type specified in clause (3) assuming a maximum payout; and (iv) the dollar limit under clause (4) refers to the maximum dollar amount payable under an Award or Awards of the type specified in clause (4) assuming a maximum payout. The foregoing provisions will be construed in a manner consistent with Section 162(m), including, without limitation, where applicable, the rules under Section 162(m) pertaining to permissible deferrals of exempt awards. +5. ELIGIBILITY AND PARTICIPATION +The Administrator will select Participants from among key Employees and directors of, and consultants and advisors to, the Company and its Affiliates. Eligibility for ISOs is limited to individuals described in the first sentence of this Section 5 who are employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code. Eligibility for Stock Options other than ISOs is limited to individuals described in the first sentence of this Section 5 who are providing direct services on the date of grant of the Stock Option to the Company or to a subsidiary of the Company that would be described in the first sentence of Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations. +6. RULES APPLICABLE TO AWARDS +(a) All Awards +(1) Award Provisions . The Administrator will determine the terms of all Awards, subject to the limitations provided herein. By accepting (or, under such rules as the Administrator may prescribe, being deemed to have accepted) an Award, the Participant will be deemed to have agreed to the terms of the Award and the Plan. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein as determined by the Administrator. +35 +(2) Term of Plan . No Awards may be made after ten years from the Date of Adoption, but previously granted Awards may continue beyond that date in accordance with their terms. +(3) Transferability . Neither ISOs nor, except as the Administrator otherwise expressly provides in accordance with the last sentence of this Section 6(a)(3), other Awards may be transferred other than by will or by the laws of descent and distribution. During a Participant’s lifetime, ISOs and, except as the Administrator otherwise expressly provides in accordance with the last sentence of this Section 6(a)(3), SARs and NSOs may be exercised only by the Participant. The Administrator may permit the gratuitous transfer ( i.e. , transfer not for value) of Awards other than ISOs to any transferee eligible to be covered by the provisions of Form S-8 (under the Securities Act of 1933), subject to such limitations as the Administrator may impose. +(4) Vesting . The Administrator will determine the time or times at which an Award will vest or become exercisable and the terms on which a Stock Option or SAR will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax or other consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases: +(A) Immediately upon the cessation of the Participant’s Employment and except as provided in (B) and (C) below, each Stock Option and SAR that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and will terminate, and all other Awards that are then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not already vested will be forfeited. +(B) Subject to (C) and (D) below, all Stock Options and SARs held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of three months or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate. +(C) All Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the Participant’s death or voluntary resignation from active employment at or after age 55, to the extent then exercisable, will remain exercisable for the lesser of (i) the one year period ending with the first anniversary of the Participant’s death or voluntary resignation from active employment at or after age 55 or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate. +(D) All Stock Options and SARs (whether or not exercisable) held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation of Employment if the Administrator determines that such cessation of Employment has resulted for reasons or in circumstances that cast such discredit on the Participant as to justify immediate termination of the Award. +36 +(5) Additional Restrictions . The Administrator may cancel, rescind, withhold or otherwise limit or restrict any Award at any time if the Participant is not in compliance with all applicable provisions of the Award agreement and the Plan, or if the Participant breaches any agreement with the Company or its Affiliates with respect to non-competition, non-solicitation or confidentiality. Without limiting the generality of the foregoing, the Administrator may recover Awards made under the Plan and payments under or gain in respect of any Award to the extent required to comply with Section 10D of the Securities Exchange Act of 1934, as amended, or any stock exchange or similar rule adopted under said Section. +(6) Taxes . The delivery, vesting and retention of Stock, cash or other property under an Award are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Award. The Administrator will prescribe such rules for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the minimum withholding required by law). +(7) Dividend Equivalents, etc. The Administrator may provide for the payment of amounts (on terms and subject to conditions established by the Administrator) in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award whether or not the holder of such Award is otherwise entitled to share in the actual dividend or distribution in respect of such Award. Any entitlement to dividend equivalents or similar entitlements will be established and administered either consistent with an exemption from, or in compliance with, the requirements of Section 409A. Dividends or dividend equivalent amounts payable in respect of Awards that are subject to restrictions may be subject to such limits or restrictions as the Administrator may impose. +(8) Rights Limited . Nothing in the Plan will be construed as giving any person the right to continued employment or service with the Company or its Affiliates, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or any Affiliate to the Participant. +(9) Section 162(m) . In the case of any Performance Award (other than a Stock Option or SAR) intended to qualify for the performance-based compensation exception under Section 162(m), the Administrator will establish the applicable Performance Criterion or Criteria in writing no later than ninety (90) days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the Award as performance-based under Section 162(m)) and, prior to the event or occurrence (grant, vesting or payment, as the case may be) that is conditioned on the attainment of such Performance Criterion or Criteria, will certify whether it or they have been attained. +37 +(10) Coordination with Other Plans . Awards under the Plan may be granted in tandem with, or in satisfaction of or substitution for, other Awards under the Plan or awards made under other compensatory plans or programs of the Company or its Affiliates. For example, but without limiting the generality of the foregoing, awards under other compensatory plans or programs of the Company or its Affiliates may be settled in Stock (including, without limitation, Unrestricted Stock) if the Administrator so determines, in which case the shares delivered will be treated as awarded under the Plan (and will reduce the number of shares thereafter available under the Plan in accordance with the rules set forth in Section 4). In any case where an award is made under another plan or program of the Company or its Affiliates and such award is intended to qualify for the performance-based compensation exception under Section 162(m), and such award is settled by the delivery of Stock or another Award under the Plan, the applicable Section 162(m) limitations under both the other plan or program and under the Plan will be applied to the Plan as necessary (as determined by the Administrator) to preserve the availability of the Section 162(m) performance-based compensation exception with respect thereto. +(11) Section 409A . Each Award will contain such terms as the Administrator determines, and will be construed and administered, such that the Award either qualifies for an exemption from the requirements of Section 409A or satisfies such requirements. +(12) Fair Market Value . In determining the fair market value of any share of Stock under the Plan, the Administrator will make the determination in good faith consistent with the rules of Section 422 and Section 409A to the extent applicable. +(b) Stock Options and SARs +(1) Time And Manner Of Exercise . Unless the Administrator expressly provides otherwise, no Stock Option or SAR will be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator), which may be an electronic notice, signed (including electronic signature in form acceptable to the Administrator) by the appropriate person and accompanied by any payment required under the Award. A Stock Option or SAR exercised by any person other than the Participant will not be deemed to have been exercised until the Administrator has received such evidence as it may require that the person exercising the Award has the right to do so. +(2) Exercise Price . The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise will be no less than 100% (or in the case of an ISO granted to a ten-percent shareholder within the meaning of subsection (b)(6) of Section 422, 110%) of the fair market value of the Stock subject to the Award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant. No such Award, once granted, may be repriced other than with stockholder approval. +(3) Payment of Exercise Price . Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment, subject to the following: all payments will be by cash or check acceptable to the Administrator, or, if so permitted by the Administrator and if legally permissible, (i) through the delivery of shares of Stock that have been outstanding for at least six months (unless the Administrator approves a shorter period) and that have a fair market value equal to the exercise price, (ii) by delivery to the Company of a promissory note of the person exercising the Award, payable on such terms as are specified by the Administrator, (iii) through a broker-assisted exercise program acceptable to the Administrator, (iv) by other means acceptable to the Administrator, or (v) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under clause (a)(i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe. +38 +(4) Maximum Term . Stock Options and SARs will have a maximum term not to exceed ten (10) years from the date of grant (five (5) years from the date of grant in the case of an ISO granted to a ten-percent shareholder described in Section 6(b)(2) above). +7. EFFECT OF CERTAIN TRANSACTIONS +(a) Change in Control . In the event of a Change in Control, each Stock Option and SAR will become fully exercisable, any restrictions on each outstanding share of Stock will lapse, and each outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will become vested and the delivery of shares of Stock deliverable under each such Stock Unit will be accelerated and such shares will be delivered, in each case prior to the Change in Control on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the vesting or delivery of the shares, as the case may be, to participate as a stockholder in the Change in Control. Notwithstanding the foregoing, payment of any amount constituting “nonqualified deferred compensation” subject to Section 409A will be accelerated pursuant to this Section 7(a) only if the event or circumstances constituting the Change in Control would also qualify as a “change in control event” under Section 1.409A-3(i)(5) of the Treasury Regulations. +(b) Covered Transactions . After giving effect to Section 7(a) above to the extent applicable, and except as otherwise provided in an Award agreement, the following provisions will apply in the event of a Covered Transaction: +(1) Assumption or Substitution . If the Covered Transaction is one in which there is an acquiring or surviving entity, the Administrator may (but, for the avoidance of doubt, need not) provide (i) for the assumption or continuation of some or all outstanding Awards or any portion thereof or (ii) for the grant of new awards in substitution therefor by the acquirer or survivor or an affiliate of the acquirer or survivor. +(2) Cash-Out of Awards . Subject to Section 7(b)(5) below the Administrator may (but, for the avoidance of doubt, need not) provide for payment (a “cash-out”), with respect to some or all Awards or any portion thereof, equal in the case of each affected Award or portion thereof to the excess, if any, of (A) the fair market value of one share of Stock (as determined by the Administrator in its reasonable discretion) times the number of shares of Stock subject to the Award or such portion, over (B) the aggregate exercise or purchase price, if any, under the Award or such portion (in the case of an SAR, the aggregate base value above which appreciation is measured), in each case on such payment terms (which need not be the same as the terms of payment to holders of Stock) and other terms, and subject to such conditions, as the Administrator determines. +39 +(3) Acceleration of Certain Awards . Subject to Section 7(b)(5) below, the Administrator may (but, for the avoidance of doubt, need not) provide that any Award requiring exercise will become exercisable, in full or in part and/or that the delivery of any shares of Stock remaining deliverable under any outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will be accelerated in full or in part, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the delivery of the shares, as the case may be, to participate as a stockholder in the Covered Transaction. +(4) Termination of Awards Upon Consummation of Covered Transaction . Except as the Administrator may otherwise determine in any case, each Award will automatically terminate (and in the case of outstanding shares of Restricted Stock that have not vested pursuant to Section 7(a) above or otherwise, will automatically be forfeited) upon consummation of the Covered Transaction, other than Awards assumed pursuant to Section 7(b)(1) above. +(5) Additional Limitations . Any share of Stock and any cash or other property delivered pursuant to Section 7(b)(2) or Section 7(b)(3) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject and that did not lapse (and were not satisfied) in connection with the Covered Transaction. For purposes of the immediately preceding sentence, a cash-out under Section 7(b)(2) above or acceleration under Section 7(b)(3) above will not, in and of itself, be treated as the lapsing (or satisfaction) of a performance or other vesting condition. In the case of Restricted Stock that does not vest and is not forfeited in connection with the Covered Transaction, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan. +(c) Changes in and Distributions With Respect to Stock +(1) Basic Adjustment Provisions . In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure that constitutes an equity restructuring within the meaning of FASB ASC Topic 718, the Administrator will make appropriate adjustments to the maximum number of shares specified in Section 4(a) that may be delivered under the Plan and to the maximum share limits described in Section 4(c), and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. +40 +(2) Certain Other Adjustments . The Administrator may also make adjustments of the type described in Section 7(c)(1) above to take into account distributions to stockholders other than those provided for in Section 7(b) and 7(c)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan, having due regard for the qualification of ISOs under Section 422, the requirements of Section 409A, and for the performance-based compensation rules of Section 162(m), where applicable. +(3) Continuing Application of Plan Terms . References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7. +8. LEGAL CONDITIONS ON DELIVERY OF STOCK +The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved; (ii) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied or waived. The Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of the Securities Act of 1933 or any applicable state or non-U.S. securities law. Any Stock required to be issued to Participants under the Plan will be evidenced in such manner as the Administrator may deem appropriate, including book-entry registration or delivery of stock certificates. In the event that the Administrator determines that Stock certificates will be issued to Participants under the Plan, the Administrator may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions. +9. AMENDMENT AND TERMINATION +The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided , that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect materially and adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time the Award was granted. Any amendments to the Plan will be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by the Administrator. +41 +10. OTHER COMPENSATION ARRANGEMENTS +The existence of the Plan or the grant of any Award will not in any way affect the Company’s right to Award a person bonuses or other compensation in addition to Awards under the Plan. +11. WAIVER OF JURY TRIAL +By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim will be tried before a court and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers. Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree to submit disputes arising under the terms of the Plan or any Award made hereunder to binding arbitration or as limiting the ability of the Company to require any eligible individual to agree to submit such disputes to binding arbitration as a condition of receiving an Award hereunder. +12. LIMITATION OF LIABILITY +Notwithstanding anything to the contrary in the Plan, neither the Company, nor any Affiliate, nor the Administrator, nor any person acting on behalf of the Company, any Affiliate, or the Administrator, will be liable to any Participant or to the estate or beneficiary of any Participant or to any other holder of an Award by reason of any acceleration of income, or any additional tax (including any interest and penalties), asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the Code, or otherwise asserted with respect to the Award; provided, that nothing in this Section 12 will limit the ability of the Administrator or the Company, in its discretion, to provide by separate express written agreement with a Participant for any payment in connection with any such acceleration of income or additional tax. +13. ESTABLISHMENT OF SUB-PLANS +The Administrator may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Administrator will establish such sub-plans by adopting supplements to the Plan setting forth (i) such limitations on the Administrator’s discretion under the Plan as it deems necessary or desirable and (ii) such additional terms and conditions not otherwise inconsistent with the Plan as it deems necessary or desirable. All supplements so established will be deemed to be part of the Plan, but each supplement will apply only to Participants within the affected jurisdiction (as determined by the Administrator). +42 +14. GOVERNING LAW +(a) Certain Requirements . Awards will be granted and administered consistent with the requirements of applicable Delaware law relating to the issuance of stock and the consideration to be received therefor, and with the applicable requirements of the stock exchanges or other trading systems on which the Stock is listed or entered for trading, in each case as determined by the Administrator. +(b) Other Matters . Except as otherwise provided by the express terms of an Award agreement, under a sub-plan described in Section 13 or as provided in Section 14(a) above, the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of or based upon the Plan or any Award under the Plan or relating to the subject matter hereof or thereof will be governed by and construed in accordance with the domestic substantive laws of the State of Connecticut without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. +(c) Jurisdiction . By accepting an Award, each Participant will be deemed to (a) have submitted irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the District of Connecticut for the purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Award; (b) agree not to commence any suit, action or other proceeding arising out of or based upon the Plan or an Award, except in the federal and state courts located within the geographic boundaries of the United States District Court for the District of Connecticut; and (c) waive, and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or an Award or the subject matter thereof may not be enforced in or by such court. +43 +EXHIBIT A +Definition of Terms +The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below: +“Administrator”: The Compensation Committee, except that the Compensation Committee may delegate (i) to one or more of its members (or one or more other members of the Board (including the full Board)) such of its duties, powers and responsibilities as it may determine; (ii) to one or more officers of the Company the power to grant Awards to the extent permitted by Section 157(c) of the Delaware General Corporation Law; and (iii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate. In the event of any delegation described in the preceding sentence, the term “Administrator” will include the person or persons so delegated to the extent of such delegation. +“Affiliate” : Any corporation or other entity owning, directly or indirectly, 50% or more of the outstanding Stock of the Company, or in which the Company or any such corporation or other entity owns, directly or indirectly, 50% of the outstanding capital stock (determined by aggregate voting rights) or other voting interests. +“Award”: Any or a combination of the following: +(i) Stock Options. +(ii) SARs. +(iii) Restricted Stock. +(iv) Unrestricted Stock. +(v) Stock Units, including Restricted Stock Units. +(vi) Performance Awards. +(vii) Cash Awards. +(viii) Awards (other than Awards described in (i) through (vii) above) that are convertible into or otherwise based on Stock. +“Board”: The Board of Directors of the Company. +“Cash Award”: An Award denominated in cash. +“Change in Control”: Any of (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not, and is not a subsidiary of, a publicly owned corporation in which the stockholders of the Company immediately prior to the transaction continue to own beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company, (ii) a sale, exchange or other disposition of all or substantially all the Company’s assets, or (iii) any acquisition of voting securities of the Company by any person or group (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), but excluding (a) the Company or any of its subsidiaries, (b) any person who was an officer or director of the Company on the day prior to the Effective Date, or (c) any savings, pension or other benefits plan for the benefit of employees of the Company or any of its subsidiaries, which theretofore did not beneficially own voting securities representing more than 50% of the voting power of all outstanding voting securities of the Company, if such acquisition results in such entity, person or group owning beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company. As used herein, “voting power” means ordinary voting power for the election of directors of the Company. +44 +“Code”: The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect. +“Compensation Committee”: The Compensation and Corporate Governance Committee of the Board. +“Company”: TransAct Technologies Incorporated. +“Covered Transaction”: Any of (i) a reorganization, merger, consolidation or similar transaction or series of related transactions, including a sale or other disposition of stock, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company’s assets, or (iii) a dissolution or liquidation of the Company. Where a Covered Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction will be deemed to have occurred upon consummation of the tender offer. +“Date of Adoption”: The earlier of the date the Plan was approved by the Company’s stockholders or adopted by the Board, as determined by the Committee. The Date of Adoption of the Plan is April 1, 2014. +“Employee”: Any person who is employed by the Company or an Affiliate. +“Employment”: A Participant’s employment or other service relationship with the Company or an Affiliate. Employment will be deemed to continue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 5 to the Company or an Affiliate. If a Participant’s employment or other service relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant’s Employment will be deemed to have terminated when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates. Notwithstanding the foregoing and the definition of “Affiliate” above, in construing the provisions of any Award relating to the payment of “nonqualified deferred compensation” (subject to Section 409A) upon a termination or cessation of Employment, references to termination or cessation of employment, separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred. Any such written election will be deemed a part of the Plan. +45 +“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422. Each Stock Option granted pursuant to the Plan will be treated as providing by its terms that it is to be an NSO unless, as of the date of grant, it is expressly designated as an ISO. +“NSO”: A Stock Option that is not intended to be an “incentive stock option” within the meaning of Section 422. +“Participant”: A person who is granted an Award under the Plan. +“Performance Award”: An Award subject to Performance Criteria. The Committee in its discretion may grant Performance Awards that are intended to qualify for the performance-based compensation exception under Section 162(m) and Performance Awards that are not intended so to qualify. +“Performance Criteria”: Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. For purposes of Awards that are intended to qualify for the performance-based compensation exception under Section 162(m), a Performance Criterion will mean an objectively determinable measure of performance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. A Performance Criterion and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss. To the extent consistent with the requirements for satisfying the performance-based compensation exception under Section 162(m), the Administrator may provide in the case of any Award intended to qualify for such exception that one or more of the Performance Criteria applicable to such Award will be adjusted in an objectively determinable manner to reflect events (for example, but without limitation, acquisitions or dispositions) occurring during the performance period that affect the applicable Performance Criterion or Criteria. +46 +“Plan”: The TransAct Technologies Incorporated 2014 Equity Incentive Plan as from time to time amended and in effect. +“Restricted Stock”: Stock subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied. +“Restricted Stock Unit”: A Stock Unit that is, or as to which the delivery of Stock or cash in lieu of Stock is, subject to the satisfaction of specified performance or other vesting conditions. +“SAR”: A right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Stock of equivalent value) equal to the excess of the fair market value of the shares of Stock subject to the right over the base value from which appreciation under the SAR is to be measured. +“Section 162(m)”: Section 162(m) of the Code. +“Section 409A”: Section 409A of the Code. +“Section 422”: Section 422 of the Code. +“Stock”: Common stock of the Company, par value $0.01 per share. +“Stock Option”: An option entitling the holder to acquire shares of Stock upon payment of the exercise price. +“Stock Unit”: An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by the value of Stock in the future. +“Unrestricted Stock”: Stock not subject to any restrictions under the terms of the Award . +47 \ No newline at end of file diff --git a/raw/proxies/0001017303/0001017303-14-000017/proxy_rpt.txt b/raw/proxies/0001017303/0001017303-14-000017/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e1dbbf986c6bee804dd08d162a4f131b65a96ce7 --- /dev/null +++ b/raw/proxies/0001017303/0001017303-14-000017/proxy_rpt.txt @@ -0,0 +1,4 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under our Standards of Business Conduct, situations that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction . +From January 1, 2013 to the date of this proxy statement, there have not been any transactions subject to the Company’s related party transaction policy or of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001193125-08-096647/proxy.txt b/raw/proxies/0001017303/0001193125-08-096647/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..47c8ff4ac91903377752cd43f6e168b0b2b7b8c0 --- /dev/null +++ b/raw/proxies/0001017303/0001193125-08-096647/proxy.txt @@ -0,0 +1,1551 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO. ) +Filed by the Registrant x Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +TRANSACT TECHNOLOGIES INCORPORATED +(Name of Registrant as Specified In Its Charter) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 28, 2008 +To the Stockholders of TransAct Technologies Incorporated: +Notice is hereby given that the 2008 Annual Meeting of Stockholders (the “Annual Meeting”) of TransAct Technologies Incorporated +(the “Company” or “TransAct”), a Delaware corporation, will be held on May 28, 2008 at 10:00 a.m. Eastern Time, at the Company’s executive offices located at One Hamden Center, 2319 Whitney Avenue, Hamden, CT 06518 for +the following purposes: +(1) +To elect two directors to serve until the 2011 Annual Meeting of Stockholders or until the director’s successor has been duly elected and qualified; +(2) +To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2008; and +(3) +To transact such other business as may legally come before the Annual Meeting. +Stockholders of record at the close of business on April 4, 2008 are entitled to notice of and to vote at the Annual Meeting. +By Order of the Board of Directors, +STEVEN A. DEMARTINO +Secretary +Hamden, Connecticut +April 30, 2008 +YOUR VOTE IS IMPORTANT. +WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE COMPANY REQUESTS THAT YOU FILL IN, DATE, SIGN AND RETURN THE ENCLOSED +PROXY. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION IS +APPRECIATED. +Transact Technologies Incorporated +One Hamden Center +2319 Whitney Avenue +Suite 3B +Hamden, Connecticut 06518 +PROXY STATEMENT FOR ANNUAL MEETING +OF STOCKHOLDERS TO BE HELD ON MAY 28, 2008 +This Proxy Statement is being furnished to the +stockholders of TransAct Technologies Incorporated (the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company for use at the Annual Meeting of Stockholders of the Company to be held on +May 28, 2008, and any adjournments or postponements thereof (the “Annual Meeting”). This Proxy Statement, the foregoing Notice of Annual Meeting, the enclosed form of proxy and the Company’s 2007 Annual Report to Stockholders are +first being mailed or given to stockholders on or about April 30, 2008. +SOLICITATION AND REVOCATION OF PROXY +Any stockholder who executes and returns the enclosed proxy has the power to revoke the same anytime prior to its being voted. The shares represented by +the proxy will be voted unless the proxy is mutilated or otherwise received in such form or at such time as to render it not votable. The proxy is in ballot form so that a specification may be made to grant or withhold authority to vote for the +election of directors and to indicate separate approval or disapproval as to the other matters presented to stockholders. All of the proposals will be presented by the Board of Directors. The shares represented by the proxy will be voted for the +election of the director named thereon, unless authority to do so is withheld. With respect to the other proposals presented to stockholders by the Board of Directors, the shares represented by the proxy will be voted in accordance with the +specification made. Where an executed proxy has been received, but a choice is not so specified, the shares represented by the proxy will be voted to elect the director nominees and for proposal 2. In addition, the proxy confers discretionary +authority to vote on any matter properly presented at the Annual Meeting which is not known to the Company as of the date of this Proxy Statement. +VOTING SECURITIES +Stockholders of record on April 4, 2008 are entitled to vote at the Annual Meeting. Each holder of +Common Stock is entitled to cast one vote for each share of Common Stock held on April 4, 2008. There were 9,370,365 shares of Common Stock issued and outstanding and entitled to vote at the close of business on April 4, 2008. Shares +representing a majority of the shares issued, outstanding and entitled to be voted at the Annual Meeting, present in person or represented by proxy, will constitute a quorum to transact business. +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information known to the Company regarding the beneficial ownership of the Company’s common stock as of April 4, 2008 by: (i) each person known by the Company to own +beneficially more than 5% of the Company’s common stock; (ii) each director or nominee for director of the Company; (iii) each current executive officer of the Company named in the Summary Compensation Table; and (iv) all current +directors and executive officers of the Company as a group. Except as otherwise indicated, each of the persons named in the table has sole voting power and sole dispositive power with respect to the shares set forth opposite such person’s name +and the address of the holder is One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518. +Name of Beneficial Owner +Shares +Beneficially +Owned +Percent +of +Class +COMMON STOCK +Graham Y. Tanaka(1) +365,847 +3.69 +% +Bart C. Shuldman(2) +303,799 +3.07 +% +Charles A. Dill(3) +199,985 +2.02 +% +Thomas R. Schwarz(4) +93,975 +* +Steven A. DeMartino(5) +92,000 +* +Michael S. Kumpf(6) +75,824 +* +James B. Stetson(7) +41,400 +* +Tracey S. Chernay(8) +16,000 +* +All current directors and executive officers as a group (9 persons)(9) +1,215,629 +12.27 +% +* +Less than 1% of the outstanding Common Stock. +(1) +Includes 62,000 shares subject to options exercisable within 60 days of April 4, 2008 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity +Incentive Plan and 7,065 shares deemed beneficially owned by Mr. Tanaka that are directly owned by his children. Also includes 7,000 unvested shares of restricted stock of the Company. +(2) +Includes 1,500 shares owned by his spouse in an individual retirement account, 4,800 shares owned by his minor children and 3,750 shares owned by his mother. Also includes 15,500 +unvested shares of restricted stock of the Company and 249,613 shares subject to options exercisable within 60 days of April 4, 2008 granted under the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. +(3) +Includes 47,000 shares subject to options exercisable within 60 days of April 4, 2008 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity +Incentive Plan. Also includes 7,000 unvested shares of restricted stock of the Company and 1,550 shares directly owned by his spouse. +(4) +Includes 62,000 shares subject to options exercisable within 60 days of April 4, 2008 granted under the Company’s Non-Employee Directors’ Stock Plan and 2005 Equity +Incentive Plan. Also includes 7,000 unvested shares of restricted stock of the Company, 1,500 shares deemed to be beneficially owned by Mr. Schwarz in his capacity as trustee of a trust for the benefit of his granddaughter, 1,500 shares +beneficially owned by his daughter, as to which shares he disclaims beneficial ownership, and 3,975 shares owned by his spouse. +(5) +Includes 8,700 unvested shares of restricted stock of the Company and 52,000 shares subject to options exercisable within 60 days of April 4, 2008 granted under the +Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. +(6) +Includes 7,500 unvested shares of restricted stock of the Company and 25,725 shares subject to options exercisable within 60 days of April 4, 2008 granted under the +Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. +(7) +Includes 5,500 unvested shares of restricted stock of the Company and 20,900 shares subject to options exercisable within 60 days of April 4, 2008 granted under the +Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. +(8) +Includes 10,000 unvested shares of restricted stock of the Company and 6,000 shares subject to options exercisable within 60 days of April 4, 2008 granted under the 2005 Equity +Incentive Plan. +(9) +Includes 73,700 unvested shares of restricted stock of the Company and 534,537 shares subject to options exercisable within 60 days of April 4, 2008 granted under the +Company’s 1996 Stock Plan, 2001 Employee Stock Plan, 2005 Equity Incentive Plan and Non-Employee Directors’ Stock Plan. +2 +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive +officers and persons who beneficially own more than 10% of the Company’s common stock to file with the SEC and the Nasdaq Stock Market reports of ownership and reports of changes in ownership of common stock and other equity securities of the +Company and to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, or written representations that no other reports were +required to be filed by those persons, the Company believes that, during the fiscal year ended December 31, 2007, all such reports were timely filed. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the +identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect +transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers +and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations +that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is +then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related +party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under +the same or similar circumstances and the extent of the related person’s interest in the transaction. +From January 1, 2007 to the +date of this proxy statement, there have not been any transactions of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. +CORPORATE GOVERNANCE +The Company strives to maintain corporate governance +practices that benefit the long-term interests of the Company’s stockholders by clearly outlining the Company’s duties and responsibilities, providing a framework for active and fruitful discussions among the members of the Board of +Directors and between the Board and management, and avoiding conflicts of interest and other legal and ethical problems. Accordingly, the Company’s corporate governance practices are designed not only to satisfy regulatory requirements, but +also to provide for effective management of the Company. +Information on the Company’s corporate governance practices is available to +the public under “Corporate Governance” on the Company’s website at www.transact-tech.com. The information on the website includes the Company’s Corporate Governance Principles, the charters of each of the Company’s +Committees, and the Company’s Standards of Business Conduct, which includes a code of ethics applicable to the officers responsible for financial reporting, the Chief Executive Officer, Chief Financial Officer and Controller. The Company +encourages its directors to attend all Board meetings as well as the Annual Meeting. All of the directors attended the Company’s 2007 Annual Meeting. Each director attended 100% of the Company’s Board meetings held in 2007 and at least 90% +of applicable Committee meetings. +3 +Board Size +The Corporate Governance Principles provide that the Board should generally have between four and ten members. In establishing the appropriate number of directors, the Board and the Compensation and Corporate Governance Committee consider +(i) resignations and retirements from the current Board, (ii) the availability of appropriate, qualified candidates, and (iii) the goal of assuring that the Board is small enough to facilitate active discussions and decision-making +while, at the same time, is large enough to provide an appropriate mix of continuity, experience, skills and diversity so that the Board and its Committees can effectively perform their responsibilities. +Criteria for Membership on the Board +The Board and +its Nominating Committee consider a number of different factors in selecting nominees for director. Some of these factors, such as integrity, are applied uniformly to all prospective candidates. Others, such as specific industry experience, may be +adopted on a case by case basis by the Board and the Nominating Committee based on the Company’s business needs at the time a nomination is under consideration. The Nominating Committee and the Board of Directors apply the same criteria to each +candidate for the Board, regardless of whether the candidate is proposed by a stockholder or some other source. Specific criteria considered by the Nominating Committee and the Board include: +Independence . The Board of Directors, in its Corporate Governance Principles and Committee charters, has established a +policy that a substantial majority of the directors be “independent” members of the Board. The Nominating Committee and the Board consider the independence of each prospective director before election and further consider the independence +of all continuing directors on at least an annual basis. The Board has determined that Messrs. Dill, Schwarz and Tanaka are independent in accordance with the Company’s criteria and Mr. Shuldman, the Company’s Chief Executive Officer, +is not independent. The Board applies the following criteria in determining independence, which criteria are derived from Nasdaq’s listing standards as well as certain additional requirements that are imposed on certain Committee members under +the rules and regulations of the Securities and Exchange Commission and the Internal Revenue Service: +• +Independent Judgment . The director must not have any relationship with the Company that, in the opinion of the Board, would +interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the Board considers all relevant facts and circumstances, including commercial, charitable and familial +relationships that might have an impact on the director’s judgment. +• +Employment . The director must not have been an employee of the Company or any parent or subsidiary of the Company at any time +during the past three years. In addition, a member of the director’s immediate family (including the director’s spouse, parents, stepparents, children, stepchildren, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, +son-in-law, daughter-in-law and anyone who resides in the director’s home other than a tenant or employee) must not have been an executive officer of the Company during the past three years. +• +Other Payments . Neither the director nor a member of his or her immediate family member may have received compensation of more +than $100,000 per year from the Company during any period of twelve consecutive months during the past three years, except for director fees, payments arising solely from investments in the Company’s securities, benefits under certain Company +plans and non-discretionary compensation, certain permitted loans and compensation paid to a family member who is not an executive officer of the Company. +• +Auditor Affiliation . Neither the director nor a member of his or her immediate family may be a current partner of the +Company’s independent auditors or have been a partner or employee of the Company’s independent auditors who worked on the Company’s audit at any time during the past three years. +• +Interlocking Directorships . Neither the director nor any member of his or her immediate family may be employed as an executive +officer by another entity where, at any time during the past three years, any of the Company’s executive officers served on the compensation committee. +4 +• +Transactions . Neither the director nor any member of his or her immediate family may be a partner in, or a controlling +stockholder or executive officer of, any organization that, during the current or any one of the past three years, received payments from the Company, or made payments to the Company, for property or services that exceed the greater of $200,000 or +5% of the recipient’s annual consolidated gross revenues for such year (excluding payments arising solely from investments in the Company’s securities or paid under a non-discretionary charitable matching program). +• +Additional Standards for Audit Committee Members . Any director who serves on the Board’s Audit Committee may not, directly +or indirectly, have received any consulting, advisory or other compensatory fee from the Company (other than certain retirement benefits and deferred compensation) or be an affiliate of the Company (except as a director, but including by way of +stock ownership). In addition, no such director may have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years. +Overall Board Composition. The Board of Directors believes it is important to consider the professional skills and +background, experience in relevant industries, age and diversity of its directors in light of the Company’s current and future business needs. +Personal Qualities. Each director must possess certain personal qualities, including integrity, judgment and business acumen. In addition, each director must be no older than 75 years of age at the time of +nomination or renomination. +Commitments. Each director must have the time and ability to make a constructive +contribution to the Board. While the Board does not believe it is appropriate to establish a single standard regarding the number of other boards on which a director may sit, this is a factor that may be considered in reviewing a candidate’s +suitability. +Additional Criteria for Incumbent Directors. During their terms, all incumbent directors on the +Company’s Board are expected to have regular attendance at Board and Committee meetings; to stay informed about the Company and its business; to participate in discussions of the Board and its Committees; to take an interest in the +Company’s business and provide advice and counsel to the Company’s Chief Executive Officer; and to comply with the Company’s Corporate Governance Principles and other applicable policies. +Regulatory Requirements. The Board must have directors who meet the criteria established from time to time by The Nasdaq +Global Market, the Securities and Exchange Commission, the Internal Revenue Service and other applicable regulatory entities for service on the Board and its Committees. +Director Nomination Process +Under its charter, the Nominating Committee is responsible for +identifying, reviewing and recommending individuals to the Board for nomination or election as directors. This typically involves the following steps: +• +Specific Criteria . The Nominating Committee and the Board review the overall composition of the Board in light of the +Company’s current and expected business needs and, as a result of such assessments, may establish specific qualifications that the Committee will seek in Board candidates. +• +Identifying New Candidates . The Committee may seek to identify new candidates for the Board (i) who possess the desired +qualifications, and (ii) who satisfy the other requirements for Board service. In identifying new director candidates, the Committee may seek advice and names of candidates from Committee members, other members of the Board, members of +management, and other public and private sources. The Committee may also, but need not, retain a search firm in order to assist it in these efforts. +• +Reviewing New Candidates . The Committee reviews the potential new director candidates identified through this process. This +involves reviewing the candidates’ qualifications and conducting an appropriate background investigation. The Committee may also select certain candidates to be interviewed by one or more Committee members. +• +Reviewing Incumbent Candidates . On an annual basis, the Committee also reviews incumbent candidates for renomination to the +Board. This review involves an analysis of the criteria described above that apply to incumbent directors. +5 +• +Recommending Candidates . The Nominating Committee recommends a slate of candidates for the Board of Directors to submit for +approval to the stockholders at the Annual Meeting. This slate of candidates may include both incumbent and new nominees. In addition, apart from this annual process, the Committee may, in accordance with the Corporate Governance Principles, +recommend that the Board elect new members of the Board who will serve until the next annual stockholders meeting. At the time of making any recommendation to the Board, the Committee reports on the criteria that were applied in making the +recommendation and its findings concerning each candidate’s qualifications. +• +Stockholder Nominations Submitted to the Committee . Stockholders may also submit names of director candidates, including their +own, to the Nominating Committee for its consideration. The process for stockholders to use in submitting suggestions to the Nominating Committee is set forth below at “Procedures for Submitting Director Nominations and Recommendations.” +Candidates who are nominated for the Board of Directors by shareholders are evaluated in the same manner as recommendations received from other sources. +Board Meetings and Executive Sessions +The Board of Directors holds regular quarterly meetings, as +well as periodic special meetings. In 2007, the Board of Directors held eleven meetings. +Independent directors meet by themselves in +executive sessions, without management or employee directors present, at most regularly scheduled Board meetings. In addition, independent directors may convene additional executive sessions at any time. +These executive sessions are led by the Chair of the committee that is responsible for the subject matter at issue ( e.g. , the Audit Committee Chair +would lead a discussion of audit-related matters). When it is not clear which committee has specific responsibility for the subject matter, the Chair of the Compensation and Corporate Governance Committee presides. +Committees of the Board +The Board has four standing +committees: the Audit Committee, the Compensation and Corporate Governance Committee, the Nominating Committee and the Executive Committee. +Each Committee is composed entirely of independent directors and operates under a written charter. The Chair of each Committee is selected by the Board. Each Committee, except the Executive Committee, holds regular executive sessions at +which only Committee members are present. Each Committee is authorized to retain its own outside counsel and other advisors as it desires. +Charters for the Audit Committee, the Compensation and Corporate Governance Committee, and the Nominating Committee are available on the Company’s website, www.transact-tech.com , but a brief summary of the committees’ +responsibilities follows: +Audit Committee . The Audit Committee is responsible for assisting the Board in +fulfilling its responsibilities to oversee the quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent auditor’s +qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with +Mr. Dill serving as Chair. The Board has determined that each member of the Audit Committee is an independent director and meets the financial literacy requirements of The Nasdaq Global Market to serve on the Committee. In addition, the Board +has determined that Mr. Dill is an “audit committee financial expert” as defined under the rules of the Securities and Exchange Commission. The Audit Committee operates under a written charter, which was revised in March 2004 and is +posted on the Company’s website. The Audit Committee met four times during 2007. +Nominating +Committee . The Nominating Committee is responsible for assisting the Board in carrying out its responsibilities relating to the composition of the Board, including identifying, reviewing and recommending +6 +candidates to the Board for nomination or election as directors. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with +Mr. Tanaka serving as Chair. The Nominating Committee operates under a written charter, which was adopted in March 2004 and is posted on the Company’s website. The Nominating Committee met one time during 2007. +Compensation and Corporate Governance Committee . The Compensation and Corporate Governance Committee is responsible for +assisting the Board in carrying out its responsibilities relating to executive compensation, the Company’s corporate governance practices, CEO performance review and succession planning, director compensation, Board and Committee performance +evaluation and stockholder communication matters. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka, with Mr. Schwarz serving as Chair. The Compensation and Corporate Governance Committee operates under a +written charter, which was adopted in March 2004 and is posted on the Company’s website. The Compensation and Corporate Governance Committee met four times during 2007. +Executive Committee . The Executive Committee meets between scheduled meetings of the Board of Directors and has the power +and authority of the Board, except as limited by the Company’s By-Laws. It is comprised of Messrs. Charles A. Dill, Thomas R. Schwarz and Graham Y. Tanaka. The Executive Committee did not meet during 2007. +Board and Committee Performance Evaluations +The +Board of Directors conducts annual evaluations of its composition, responsibilities, structure, processes and effectiveness. Each Committee of the Board conducts a similar evaluation with respect to such Committee. These evaluations are conducted +under the auspices of the Compensation and Corporate Governance Committee. +Standards of Business Conduct +In order to help assure the highest levels of business ethics at the Company, the Board of Directors has approved and the Company has adopted Standards of +Business Conduct (the “Standards”), which apply to the Company’s directors, officers and employees. The Standards provide an overview of the Company’s policies related to employee conduct in the workplace, regulatory compliance +and investigations; the Company’s relationships with its customers, vendors, competitors and the public; insider trading; conflicts of interest; lobbying; political activities and contributions; accuracy of books, records and financial +statements; confidentiality; and the protection of all who come forward to report suspected violations of the Standards. In addition, the Standards act as a code of ethics promoting honest and ethical conduct on the part of the Company’s +officers who are responsible for financial reporting, including the Chief Executive Officer, Chief Financial Officer and Controller. The Standards mandate that these officers avoid conflicts of interest and disclose any relationship that could give +rise to a conflict, protect the confidentiality of non-public information about the Company, work to achieve responsible use of the Company’s assets and resources, comply with all applicable governmental rules and regulations, and promptly +report any possible violation of the Standards. The Standards require these individuals to promote full, fair, understandable and accurate disclosure in the Company’s publicly filed reports and other public communications. It sets forth +standards for accounting practices and maintenance of records. Individuals who fail to observe the terms of the Standards may face disciplinary action, including possible employment termination. +PROPOSAL 1: +ELECTION OF DIRECTORS +The Board of Directors currently consists of four directors and is divided into three classes. Each class of directors is elected by +the holders of the Company’s Common Stock to serve a staggered three-year term. +At the Annual Meeting, two persons are to be elected +to hold office as a director until the 2011 Annual Meeting of Stockholders or until a successor is duly elected and qualified. In the absence of instructions to the contrary, the persons named in the accompanying proxy will vote such proxy +“ FOR ” the election of the nominee +7 +named below. Should the nominee become unavailable, which is not anticipated, votes pursuant to the proxy will be cast for a substitute candidate as may be +designated by the Board of Directors, or in the absence of such designation, in such other manner as the Board may in their discretion determine. Alternatively, in such a situation, the Board of Directors may take action to fix the number of +directors for the ensuing year at the number of nominees and incumbent directors who are then able to serve. +Director Independence and Qualifications +The Board of Directors has determined that Messrs. Dill, Schwarz and Tanaka are “independent” within the criteria established +under the Company’s Corporate Governance Principles. Mr. Shuldman, as Chief Executive Officer of the Company, is not independent. See “Corporate Governance — Criteria for Membership on the Board.” In addition, the Board has +determined that each member of the Audit Committee is financially literate and each director or nominee possesses the high level of skill, experience, reputation and commitment that is mandated by the Board. +Information Concerning Nominees for Re-election as Director Whose Terms Will Expire at the 2011 Annual Meeting +Thomas R. Schwarz , 71, has been a director of the Company since its formation in June 1996 and was Chairman of the Board from June 1996 to February +2001. Mr. Schwarz was Chairman and Chief Executive Officer of Grossman’s Inc., a retailer of building materials, from 1990 until his retirement in 1994. From 1980 to 1990, he was President, Chief Operating Officer and a director of +Dunkin’ Donuts Incorporated, a food service company. Mr. Schwarz is a director of Tanaka Growth Fund and another privately held company. +Bart C. Shuldman , 51, has been Chief Executive Officer, President and a director of the Company since its formation in June 1996 and has been Chairman of the Board since February 2001. Previously, Mr. Shuldman was Vice President +of Sales and Marketing of Magnetec Corporation, a former subsidiary of Tridex, from April 1993 to August 1993, and served as President of Magnetec, and later the combined operations of Magnetec and Ithaca Peripherals Incorporated, another former +Tridex subsidiary, from August 1993 to June 1996. +VOTE REQUIRED +The election of Thomas R. Schwarz and Bart C. Shuldman, respectively, as directors of the Company requires affirmative votes of the holders of a +plurality of the votes of the Company’s Common Stock present in person or represented by proxy and entitled to vote. Abstentions by holders of such shares and broker non-votes will have no effect on the election of directors, but will be +included in determining the presence of a quorum at the Annual Meeting. +The Board of Directors of the Company Recommends a Vote +“ FOR ” the Election of Thomas R. Schwarz and Bart C. Shuldman as Directors of The Company. +Information Concerning Director Whose +Term Will Expire at the 2009 Annual Meeting +Charles A. Dill , 68, has been a director of the Company since its formation in June +1996. From 2004 to the present, Mr. Dill has served as a General Partner of Two Rivers Associates, a private equity investment firm. Mr. Dill was a General Partner of Gateway Associates, a venture capital firm, from 1996 to 2004. +Mr. Dill currently serves as a director of Zoltek Companies, Inc. and Stifel Financial Corp., as well as several other privately held companies. +Information Concerning Director Whose Term Will Expire at the 2010 Annual Meeting +Graham Y. Tanaka , 60, has been a +director of the Company since its formation in June 1996. Mr. Tanaka has been President of Tanaka Capital Management, Inc., an investment management firm, since 1986. He is a director of Tanaka Funds, Inc. and Tanaka Capital Management, Inc. +8 +PROPOSAL 2: +RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008 +The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of the +Company for the 2008 fiscal year. This selection is being presented to the stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company’s financial statements since the Company’s formation. +A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will have the opportunity to make a +statement, and is expected to be available to respond to appropriate questions. +VOTE REQUIRED +The ratification of the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2008 requires the affirmative vote +of a majority of the votes of the Common Stock present in person or represented by proxy and entitled to vote. In the absence of instructions to the contrary, the persons named in the accompanying proxy will vote such proxy “ FOR ” +the ratification of PricewaterhouseCoopers LLP. Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote; broker non-votes with respect to voting on this matter will have no effect on the +outcome of the vote. In the event stockholders do not ratify the appointment, the Audit Committee will reconsider the appointment. +THE +BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “ FOR ” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008. +POLICY REGARDING PRE-APPROVAL OF SERVICES PROVIDED +BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee has established a policy +requiring its pre-approval of all audit services and permissible non-audit services provided by the independent registered public accounting firm, along with the associated fees for those services. The Policy provides for the annual pre-approval of +specific types of services pursuant to policies and procedures adopted by the Audit Committee, and gives detailed guidance to management as to the specific services that are eligible for such annual pre-approval. The Policy requires the specific +pre-approval of all other permitted services. For both types of pre-approval, the Audit Committee considers whether the provision of a non-audit service is consistent with the Securities and Exchange Commission’s rules on auditor independence, +including whether provision of the service (i) would create a mutual or conflicting interest between the independent registered public accounting firm and the Company, (ii) would place the independent registered public accounting firm in +the position of auditing its own work, (iii) would result in the independent registered public accounting firm acting in the role of management or as an employee of the Company, or (iv) would place the independent registered public +accounting firm in a position of acting as an advocate for the Company. In addition, the Audit Committee considers whether the independent registered public accounting firm is best positioned and qualified to provide the most effective and efficient +service, based on factors such as the independent registered public accounting firm’s familiarity with the Company’s business, personnel, systems or risk profile and whether provision of the service by the independent registered public +accounting firm would enhance the Company’s ability to manage or control risk or improve audit quality or would otherwise be beneficial to the Company. +The Audit Committee may delegate to one of its members the authority to address certain requests for pre-approval of services between meetings of the Committee, and such Committee member is required to report his or +her pre-approval decisions to the Committee at its next regular meeting. The Policy is designed to ensure that there is no delegation by the Audit Committee of authority or responsibility for pre-approval decisions to +9 +management of the Company. The Audit Committee monitors compliance by management with the pre-approval policy by requiring management, pursuant to the +Policy, to report to the Audit Committee on a regular basis regarding the pre-approved services rendered by the independent registered public accounting firm. +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S SERVICES AND FEES +The Audit Committee is +responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm. Accordingly, the Audit Committee has appointed PricewaterhouseCoopers LLP to perform audit and other services +for the Company. In addition, the Audit Committee has procedures in place for the pre-approval by the Audit Committee of all services provided by PricewaterhouseCoopers LLP. These pre-approval procedures, as amended, are described below under +“Policy Regarding Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm.” +The aggregate fees +billed by PricewaterhouseCoopers LLP to the Company for the years ended December 31, 2007 and 2006 are as follows: +2007 +2006 +Audit Fees(1) +$ +402,580 +$ +435,034 +Audit-Related Fees(2) +40,000 +37,000 +Tax Fees(3) +95,184 +53,068 +All Other Fees(4) +1,515 +1,515 +Total Fees for Services Provided +$ +539,279 +$ +526,617 +(1) +Audit Fees consist of fees related to: (i) the annual audit of the Company’s financial statements and of internal controls, (ii) reviews of the Company’s +quarterly financial statements, (iii) statutorily required audits for the Company’s UK subsidiary and (iv) the review of registration statements, periodic reports and other reports filed with the SEC. +(2) +Audit-Related Fees consist of fees incurred for consultations regarding accounting and financial reporting standards. +(3) +Tax Fees include fees incurred for tax planning and advice, preparation of domestic and foreign tax returns, research and development tax credit study and review of tax accruals. +(4) +All Other Fees include software license fees for the use of a web-based accounting research tool. +The Audit Committee has considered whether the provision of the above services, other than Audit Fees, is compatible with maintaining the auditors’ +independence and has determined that, in its opinion, they are compatible. All of the above services during the year ended December 31, 2007, other than those covered by Audit Fees, were either approved by the Audit Committee or were performed +pursuant to pre-approval policies and procedures. +Audit Committee Report +Under its charter, the Audit Committee is responsible for assisting the Board in fulfilling its responsibilities to oversee the internal control over +financial reporting and quality and integrity of the Company’s financial statements and accounting practices, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s +qualifications and independence, and the performance of the Company’s independent registered public accounting firm and internal audit function. +Management is responsible for preparing complete and accurate consolidated financial statements in accordance with generally accepted accounting principles. The independent registered public accounting firm is +responsible for performing independent audits of the Company’s consolidated financial statements and for issuing reports about those financial statements. The Audit Committee meets with the independent registered public accounting firm, the +Chief Executive Officer, the Chief Financial Officer and the senior management of the Company to review the scope and the results of the annual audit, the amount of audit fees, the Company’s +10 +system of internal accounting controls over financial reporting, the financial statements contained in the Company’s Annual Report to Stockholders and +other related matters. Separate meetings are held with the independent registered public accounting firm and management. +In connection with +its duties, the Audit Committee has taken the following actions: +• +It has reviewed and discussed the audited financial statements, as well as the assessment of internal controls over financial reporting, with management. +• +It has discussed with the independent registered public accounting firm, which is responsible for expressing an opinion on the financial statements in accordance +with generally accepted accounting principles, the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended. +• +It has received from the independent registered public accounting firm the written disclosures describing any relationships between the independent registered +public accounting firm and the Company and the letter confirming their independence required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with the independent +registered public accounting firm matters relating to their independence. +• +Based on its review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company +for the year ended December 31, 2007 be included in the Company’s Annual Report on Form 10-K for filing with the SEC. +Audit Committee +Charles A. Dill, Chairman +Thomas R. Schwarz +Graham Y. Tanaka +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Overview +This Compensation Discussion and Analysis describes the philosophy, approach, and elements used by us and the Compensation and Corporate Governance +Committee (the “Compensation Committee”) of our Board of Directors, which is composed entirely of independent directors of the Company, to define, manage, and review compensation paid to our executives. Our philosophy and approach to +executive compensation apply to all executive officers of the Company, including those executives designated as named executive officers. +Our Compensation Committee provides oversight for the hiring and termination of all executive officers of the Company, the design and management of the executive compensation programs, and our philosophy and programs for all employee +compensation and benefit programs worldwide. The Compensation Committee also approves the issuance of all equity awards to employees, including executive officers, of the Company and its subsidiaries. The Committee maintains a written charter +statement (the “Compensation Committee Charter”) that is formally reviewed by the Compensation Committee periodically. The Compensation Committee Charter is available on our Internet website at www.transact-tech.com under the +Investor Relations tab. +Philosophy and Objectives of the Compensation Program +Our Compensation Committee’s philosophy is that our executive compensation program is to be based on our performance and be competitive with other +similar-sized companies in similar industries. The primary objectives of our compensation program are to: +• +Attract, engage, retain, and reward executive officers; +• +Motivate employees and encourage individual initiative and effort; +11 +• +Help to achieve key business objectives and attain Company goals; and +• +Align executives’ interests closely with those of the Company and its shareholders. +Our executive compensation program principally includes base salary, an incentive cash performance bonus program and equity incentive awards. The +Compensation Committee believes that each element of the total compensation program helps to ensure that the efforts of our executive officers support the creation of stockholder value, whether through focusing on short-term and long-term +performance goals, promoting an ownership mentality or linking individual performance to the Company’s overall performance. The Committee retains its discretion to modify the compensation program elements in response to the needs of the +Company. In fiscal 2007, due to the uncertain business markets in which the Company operates, the Committee did not approve a formal incentive cash compensation plan, but retained discretion to award bonuses to individuals based on the +Committee’s assessment of Company and management performance during fiscal 2007, as described in more detail below. +The elements of +our executive compensation program are periodically analyzed using current publicly available market data, contemporary market trends in the industries in which the Company operates and periodic reviews of compensation and benefit surveys. Although +we perform periodic reviews of salary surveys and occasionally use compensation consultants to analyze elements of our compensation program, we do not believe that it is appropriate to establish compensation levels based solely on the use of such +surveys. We rely upon our judgment in making compensation decisions, after reviewing the financial performance of the Company and carefully evaluating an executive officer’s performance, business achievements, leadership qualities, operational +performance, business responsibilities, number of years of experience in the industry and/or with the Company, current compensation arrangements and long-term potential to enhance shareholder value. While competitive market compensation paid by +other companies is one of the many factors that we consider in assessing the reasonableness of compensation, we do not attempt to maintain a certain target percentile within a peer group or otherwise rely on those data to solely determine executive +officer compensation. Instead, we incorporate flexibility into our compensation program and in the assessment process to respond to and adjust for the evolving business environment. We strive to achieve an appropriate mix between cash payments and +equity incentive awards to meet our objectives. Any apportionment goal is not applied rigidly and does not control our compensation decisions. Our mix of compensation elements is designed to reward recent results and motivate long-term performance +through a combination of cash and equity awards. We believe one of the most important indicators of whether our compensation objectives are being met is our ability to motivate our executive officers to deliver superior performance. +The Compensation Committee, on occasion, meets with the Chief Executive Officer and Chief Financial Officer to obtain recommendations with respect to the +Company’s compensation programs, practices and packages for executive officers, senior managers and other employees. Our Chief Executive Officer and Chief Financial Officer, with the assistance and support of the human resources department, +provide recommendations regarding the design of the Company’s compensation program to the Compensation Committee. The Compensation Committee considers, but is not bound to accept, management’s recommendations with respect to executive +compensation. +Elements of the Company’s Compensation Plan +The principal elements of the Company’s compensation program are base salary, an incentive cash bonus program and equity incentive awards. +Base Salary : In general, base salaries for employees, including executive officers, are established based on the scope of +their responsibilities, individual contribution, prior experience, sustained performance, external market data and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Base salary for each +executive is reviewed on an annual basis as part of our companywide merit review process. The amount of any merit increase to an executive’s base salary is determined based on a combination of the current position of the executive’s pay +against market data and the executive’s performance and results +12 +during the past year. Our Chief Executive Officer is responsible for assessing the performance of each executive reporting to him. Our Compensation Committee +assesses the performance of our Chief Executive Officer. +Incentive Cash Bonus Program : We have historically +maintained an incentive cash compensation plan for all executive officers, except for those who receive sales commissions, which provides our executives with the opportunity to receive performance bonuses upon the attainment of certain annual +financial objectives, as well as individual performance objectives. In fiscal 2007, due to the uncertain business markets in which the Company operates, the Committee did not approve a formal incentive cash compensation plan, but retained discretion +to award bonuses to individuals based on the Committee’s assessment of Company and management performance during fiscal 2007, as described in more detail below. +Equity Incentive Awards : The goal of our equity-based incentive awards is to align the interests of our executives with our shareholders and to provide executives with an incentive to +manage the Company from the perspective of an owner with an equity stake in the business. We believe that our long-term performance is improved by encouraging ownership by our executives through the use of stock-based grants. Because vesting of our +stock awards is based on continued employment, our equity-based incentives also facilitate the retention of executives through the term of the awards. Generally, we believe that stock options are the most effective tool for meeting our compensation +goal of increasing long-term shareholder value by tying the value of stock options to our future performance — i.e. executives are able to profit from stock options only if our stock price increases in value over the stock option’s +exercise price. +Grants of stock options are typically approved by the Compensation Committee at its regularly scheduled meeting on or about +March 1. While the majority of stock option awards to our employees have been made under our annual grant program, the Compensation Committee may make stock option awards to employees at other times, including at the time of hire of an +employee, promotion of an employee, to reward an employee, for retention purposes or for other circumstances as recommended by the Chief Executive Officer or the Compensation Committee. In determining the size of the long-term equity incentives to +be awarded to employees, we take into consideration a number of factors including but not limited to relative job scope, individual performance level, prior contributions to the Company, the need to retain the employee, the size of prior grants and +competitive market data. Based upon these factors, the Compensation Committee determines the size of the equity incentives at levels it considers appropriate to create meaningful opportunity for reward predicated on the creation of long-term +shareholder value. +The exercise price of options granted is set at the closing price of our common stock on the date of grant. Grants of +options generally vest in equal annual installments over a three- to five-year period and have a ten-year term. +2007 Executive Compensation +The specific compensation decisions made for each of our executive officers for 2007 reflect the performance of the Company against key +financial and operational measurements, as well as performance against individual objectives. +Base Salary : In +determining the base salary of the Named Executive Officers, the Compensation Committee evaluated the overall performance of the Company and the individual’s contributions to that performance, as well as the performance of the sales unit or +function that each leads when relevant. In March 2007, the Compensation Committee conducted an annual review and evaluation of the compensation levels of Mr. Shuldman, Mr. DeMartino and Mr. Kumpf, including taking into consideration a +compensation study prepared by Towers Perrin in October 2006. The Compensation Committee concluded that Mr. Shuldman’s base salary level was competitive, and accordingly, no increase in base salary was warranted. Mr. Kumpf’s base +salary was increased by 12% to $200,000 and Mr. DeMartino’s base salary was increased by 3% to $236,900. +Incentive Cash +Bonus: In fiscal 2007, due to the uncertain business markets in which the Company’s operates, the Committee did not approve a formal incentive cash compensation plan, but retained discretion to award bonuses to +individuals based on the Committee’s assessment of Company and management performance during fiscal 2007, as described in more detail below. In February 2008, the Compensation Committee approved +13 +a discretionary cash bonus payout for fiscal 2007 to all salaried employees except for Mr. Shuldman. The Committee determined this payout was +appropriate to help retain the Company’s employees, reward fiscal 2007 individual performance, and to motivate future performance during a difficult business environment. The amount each salaried employee received, including the named executive +officers, except for Mr. Shuldman, was 33% of their target bonus which resulted in an aggregate payout of approximately $200,000. Mr. DeMartino, Mr. Kumpf, Mr. Stetson and Mrs. Chernay were paid a cash bonus of $39,089, +$23,100, 5,000 and $5,000, respectively. No cash bonus was paid to Mr. Shuldman for 2007. These amounts are shown in the “Summary Compensation Table” below under the column “Bonus.” In approving the discretionary bonus +payments, the Committee determined that it would be in the best interests of the Company to pay the same percentage of target bonus to all salaried employees rather than distributing a bonus to just selected employees or named executive officers. +The 2007 discretionary bonuses paid to the named executive officers were substantially below the amounts they received in fiscal 2006 under the cash incentive plan then in effect. This reflects the Committee’s belief that bonus compensation is +desirable to reward performance and retain and motivate the named executive officers, as well as all employees, to continue to work toward creating stockholder value. +Equity Incentive Awards : With regard to equity incentive compensation, during 2007 one equity incentive award was granted to the executives. In February 2007, the Compensation Committee +awarded a grant to Mr. Shuldman, Mr. DeMartino, Mr. Kumpf, Mr. Stetson and Mrs. Chernay of stock options to purchase 25,000, 15,000, 15,000, 7,500 and 15,000 shares, respectively. The vesting terms of the grant of stock +options are outlined in the table entitled “Grants of Plan-Based Awards in 2007.” +Tax Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code, publicly held corporations may be prohibited from deducting as an expense for federal income tax +purposes total compensation in excess of $1 million paid to certain executive officers in a single year. Section 162(m) specifically exempts certain performance-based compensation from the deduction limit. The levels of base salary, annual cash +incentive bonus and equity compensation we generally pay to our executive officers do not exceed this limit, and thus compensation decisions are not driven by the requirements of Section 162(m). +Compensation Committee Report +The Compensation +Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and +Analysis be included in TransAct’s proxy statement for the 2008 annual meeting. +Compensation and Corporate +Governance Committee +Thomas R. Schwarz, Chairman +Charles A. Dill +Graham Y. Tanaka +14 +SUMMARY COMPENSATION TABLE +The following table sets forth information concerning the compensation earned by the Company’s Chief Executive Officer, Chief Financial Officer and +each of the other three most highly compensated executive officers (the “Named Executive Officers”) in 2007 and 2006: +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +(3)($) +Option +Awards +(4)($) +Non-Equity +Incentive +Plan +Compensation ($) +All Other +Compensation ($) +Total ($) +Bart C. Shuldman(1) +2007 +425,880 +— +160,157 +58,629 +— +34,589 +(6) +679,255 +Chairman, President and Chief Executive Officer +2006 +422,517 +— +162,578 +29,236 +191,646 +(5) +34,231 +(6) +840,208 +Steven A. DeMartino +2007 +235,493 +39,089 +(9) +73,128 +39,084 +— +19,195 +(7) +405,989 +Executive Vice President, Chief Financial Officer, Treasurer and Secretary +2006 +203,360 +— +73,466 +21,222 +86,250 +(5) +18,961 +(7) +403,259 +Michael S. Kumpf +2007 +193,538 +23,100 +(9) +53,711 +33,226 +— +20,630 +(7) +324,205 +Executive Vice President, Engineering +2006 +176,983 +— +54,244 +15,923 +46,829 +(5) +20,661 +(7) +314,640 +James B. Stetson +2007 +140,000 +104,500 +(2) +43,850 +19,535 +— +15,623 +(7) +323,508 +Senior Vice President and Business Manager, TransAct Services Group +2006 +140,000 +71,732 +(2) +44,354 +10,617 +— +14,312 +(7) +281,015 +Tracey S. Chernay +2007 +150,985 +76,384 +(2) +27,316 +24,155 +— +12,600 +(8) +291,440 +Senior Vice President, Sales and Marketing +2006 +144,667 +34,000 +(2) +27,316 +7,908 +16,380 +(5) +11,780 +(8) +242,051 +(1) +Mr. Shuldman was a director of the Company in 2006 and 2007, but he did not receive any separate compensation for those services. +(2) +Bonuses paid to Mr. Stetson and Mrs. Chernay represent commissions on sales by the Company in fiscal 2006, and commissions on sales by the Company for 2007 in the amounts +of 99,500 and 71,384, respectively, plus discretionary bonuses of $5,000 and $5,000, respectively. +(3) +All restricted stock awards were under the Company’s 1996 Stock Plan. The amounts shown here represent compensation expense incurred by us in 2006 and 2007 in connection with +restricted stock awards, calculated in accordance with SFAS 123(R). There were no forfeitures of restricted stock awards by this group during the year. For information on the valuation assumptions with respect to these awards, refer to note 12 of +the Company’s financial statements in the Form 10-K for the year ended December 31, 2007 and note 13 of the Company’s financial statements in the Form 10-K for the year ended December 31, 2006, as filed with the SEC. +(4) +All stock option awards in 2006 and 2007 were granted under the company’s 2005 Equity Incentive Plan. The amounts shown here represent compensation expense incurred by us in +2006 and 2007 in connection with those options, calculated in accordance with SFAS 123(R). For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company’s financial statements in the Form 10-K for +the year ended December 31, 2007, as filed with the SEC. Please see the “Outstanding Equity Awards at 2007 Fiscal Year-End” table for a description of option awards. There were no forfeitures of stock option awards by this group +during the year. +(5) +For Mr. Shuldman, Mr. DeMartino, Mr. Kumpf and Mrs. Chernay, these amounts represents incentive cash bonuses earned in 2006 under the Company’s Cash +Incentive Program. +(6) +For Mr. Shuldman, this amount consisted of $19,200 for an automobile allowance, Company contributions under the Company’s 401(k) Plan, disability insurance, tax return +preparation fees and $773 for life insurance. +15 +(7) +For Mr. DeMartino, Kumpf and Stetson, these amounts consist of automobile allowances, Company contributions under the Company’s 401(k) Plan, life insurance and disability +insurance. +(8) +For Mrs. Chernay, this amount consists of an automobile allowance and Company contributions under the Company’s 401(k) Plan. +(9) +For Mr. DeMartino and Mr. Kumpf, these amounts represent cash bonuses earned in 2007 and awarded by the Compensation Committee as a discretionary bonus. +Grant of Plan-based Awards in 2007 +The following table sets forth information concerning the grant of plan - based awards to Named Executive Officers in 2007: +Name +Grant +Date +All Other +Option +Awards: +Number of +Securities +Underlying +Options(1)(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value of +Stock and +Option +Awards(2)($) +Bart C. Shuldman +2/28/07 +25,000 +9.51 +158,048 +Steven A. DeMartino +2/28/07 +15,000 +9.51 +94,829 +Michael S. Kumpf +2/28/07 +15,000 +9.51 +94,829 +James B. Stetson +2/28/07 +7,500 +9.51 +47,414 +Tracey S. Chernay +2/28/07 +15,000 +9.51 +94,829 +(1) +Each stock option award disclosed in the Grants of Plan-Based Awards in 2007 table was issued under our 2005 Equity Incentive Plan and was granted with an exercise price per share +equal to the fair market value of our common stock on the date of grant, as determined by the closing price of the stock on the date the option was granted. Subject to the terms of our 2005 Equity Incentive Plan and the option agreements issued in +connection with these grants, each option award granted in 2007 to a Named Executive Officer vests at a rate of 20% per year over five years. +(2) +All stock option awards in 2007 were granted under the company’s 2005 Equity Incentive Plan. The amounts shown represent the fair value of stock options granted in 2007 +calculated in accordance with SFAS 123(R). For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company’s financial statements in the Form 10-K for the year ended December 31, 2007, as filed +with the SEC. Please see the “Outstanding Equity Awards at 2007 Fiscal Year-End” table for a description of option awards. There were no forfeitures of stock option awards by this group during the year. +16 +Outstanding Equity Awards at 2007 Fiscal Year-End +The following table shows outstanding equity awards for the Named Executive Officers as of December 31, 2007: +Stock Awards +Option Awards +Market +Value of +Shares +or Units +of +Stock +That Have +Not Vested +(1)($) +Name +Grant +Date +Number of +Securities +Underlying +Unexercised +Options +(# Exercisable) +Number of +Securities +Underlying +Unexercised +Options +(# Unexercisable) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested (#) +Bart C. Shuldman +8/24/99 +7,500 +— +4.17 +8/24/09 +— +— +2/26/01 +57,363 +— +3.42 +2/26/11 +— +— +5/17/02 +168,750 +— +3.77 +5/17/12 +— +— +1/2/04 +— +— +— +— +15,000 +71,850 +3/25/05 +— +— +— +— +12,000 +57,480 +1/2/06 +2,500 +10,000 +7.90 +1/2/16 +— +— +3/1/06 +3,000 +12,000 +9.75 +3/1/16 +— +— +2/28/07 +— +25,000 +9.51 +2/28/17 +— +— +Steven A. +DeMartino +2/26/01 +500 +— +3.42 +2/26/11 +— +— +5/17/02 +40,500 +— +3.77 +5/17/12 +— +— +1/2/04 +— +— +— +— +3,000 +14,370 +6/1/04 +— +— +— +— +1,200 +5,748 +3/25/05 +— +— +— +— +9,000 +43,110 +1/2/06 +2,000 +8,000 +7.90 +1/2/16 +— +— +3/1/06 +2,000 +8,000 +9.75 +3/1/16 +— +— +2/28/07 +— +15,000 +9.51 +2/28/17 +— +— +Michael S. Kumpf +2/26/01 +2,100 +— +3.42 +2/26/11 +— +— +5/17/02 +14,625 +— +3.77 +5/17/12 +— +— +11/20/02 +4,999 +— +3.10 +11/20/12 +— +— +1/2/04 +— +— +— +— +3,000 +14,370 +3/25/05 +— +— +— +— +9,000 +43,110 +1/2/06 +1,500 +6,000 +7.90 +1/2/16 +— +— +3/1/06 +1,500 +6,000 +9.75 +3/1/16 +— +— +2/28/07 +— +15,000 +9.51 +2/28/17 +— +— +James B. Stetson +2/26/01 +4,500 +— +3.42 +2/26/11 +— +— +5/17/02 +7,500 +— +3.77 +5/17/12 +— +— +11/20/02 +3,400 +— +3.10 +11/20/12 +— +— +1/2/04 +— +— +— +— +3,000 +14,370 +3/25/05 +— +— +— +— +6,000 +28,740 +1/2/06 +1,000 +4,000 +7.90 +1/2/16 +— +— +3/1/06 +1,000 +4,000 +9.75 +3/1/16 +— +— +2/28/07 +— +7,500 +9.51 +2/28/17 +— +— +Tracey S. Chernay +5/2/05 +— +— +— +— +10,000 +47,900 +1/2/06 +1,000 +4,000 +7.90 +1/2/16 +— +— +3/1/06 +500 +2,000 +9.75 +3/1/16 +— +— +2/28/07 +— +15,000 +9.51 +2/28/17 +— +— +(1) +Calculated based on the closing price of the Company’s stock on December 31, 2007, the last trading day of the fiscal year. +17 +Options Awards Vesting Schedule +Grant Date +Vesting Schedule +8/24/99 +20% per year for five years +2/26/01 +20% per year for five years +5/17/02 +20% per year for five years +11/20/02 +20% per year for five years +1/2/06 +20% per year for five years +3/1/06 +20% per year for five years +2/28/07 +20% per year for five years +Stock Awards Vesting Schedule +Grant Date +Vesting Schedule +1/2/04 +20% per year for five years +6/1/04 +20% per year for five years +3/25/05 +20% per year for five years +5/2/05 +100% after three years +Option Exercises and Stock Vested in Fiscal Year 2007 +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +On Exercise (#) +Value Realized +on Exercise(1)($) +Number of +Shares +Acquired +on Vesting (#) +Value Realized +on Vesting(2)($) +Bart C. Shuldman +3,000 +7,210 +11,500 +89,445 +Steven A. DeMartino +— +— +5,100 +37,293 +Michael S. Kumpf +— +— +4,500 +33,465 +James B. Stetson +— +— +3,500 +26,385 +Tracey S. Chernay +— +— +— +— +(1) +Calculated based on the difference between the market price of the underlying securities at exercise and the exercise price of the options. +(2) +Calculated based on the market value on the vesting date of the shares underlying each award. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has +entered into certain agreements and maintains certain plans that may require payments be made, and/or benefits be provided, to the Named Executive Officers: (i) in the event a Named Executive Officer’s employment is terminated other than +for Cause, as defined below, (a “Termination Event”), (ii) if a change in control (as defined by the applicable agreement or plan) occurs (a “Change in Control Event”) or (iii) if a Termination Event occurs or a Named +Executive Officer resigns for certain specified reasons within one year of a change in control (a “Change in Control and Termination Event”). The payments and benefits that each Named Executive Officer may be entitled to receive upon a +Termination Event, Change in Control Event or a Change in Control and Termination Event are described in the applicable employment agreement or severance +18 +agreement and the Company’s 1996 Stock Plan and 2005 Equity Incentive Plan. Below is a description of the types of events that would trigger payments +under these agreements and plans and the potential payments to each such Named Executive Officer assuming that a triggering event occurred on December 31, 2007, the last day of our most recent fiscal year. +Employment and Severance Agreements +Events That +Trigger a Termination Event or Change in Control Event. The applicable employment and severance agreements generally define Cause as a termination for the following reasons: (i) action or inaction by the Named +Executive Officer that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the Board or officers of the Company or a commission of a crime of moral turpitude; (ii) material, repetitive, unjustified and +unexcused refusal to follow the reasonable and lawful written instruction of the Board — or in the case of the Named Executive Officers other than Mr. Shuldman, the Board or the Company’s President; or (iii) death or disability. +Change in control is generally defined in each agreement to include (i) a merger of the Company with another company where the majority of the board of the surviving company is not comprised of directors of the Company in office immediately +prior to the transaction, (ii) a change in the board of directors of the Company such that after an election a majority of the directors in office are not directors that were nominated by two-thirds of board members prior to the election or +(iii) a complete liquidation of the Company. +Effect of a Termination Event or Change in Control and Termination +Event. Under the terms of an Employment Agreement dated July 31, 1996 between Bart C. Shuldman and the Company, if a Termination Event or Change in Control Event were to occur, Mr. Shuldman would continue +to receive: (i) his annual base salary and (ii) all other benefits (including health, disability and life insurance benefits; participation in any ERISA benefit plans and 401(k) plans; an automobile allowance; and certain service fees +related to medical exams, income tax planning and estate planning) for two years and three years, respectively, from the date of termination. In connection with a Termination Event, Mr. Shuldman would receive a pro rata portion of his annual +target bonus amount for the year of termination. If a Change in Control Event were to occur and within one year thereafter either Mr. Shuldman’s employment is terminated other than for Cause, or Mr. Shuldman resigns following a +significant reduction in the nature or scope of his responsibilities or authorities, a decrease in salary other than resulting from a reduction that applies generally to all management personnel or specified relocations of the Company’s +facilities, Mr. Shuldman would be entitled to continue to receive, in addition to the amounts listed in the first sentence, his annual target bonus for a period of three years from the date of termination and all stock options and other awards +granted to Mr. Shuldman under the Company’s stock plans would immediately vest. +Under the terms of a Severance Agreement with +Steven A. DeMartino dated June 1, 2004, if a Termination Event were to occur, Mr. DeMartino would be entitled to continue to receive, for one year following the date of termination (i) his annual base salary, (ii) a pro rata +portion of his annual target bonus for the year of termination and (iii) medical, dental, vision, life and long term disability insurance benefits. If a Change in Control Event were to occur and the employment of Mr. DeMartino is +terminated other than for Cause, or if he resigns for specified reasons, within one year of a change in control, Mr. DeMartino would be entitled to receive for two years after his termination (i) his annual base salary, (ii) annual +target bonus, (iii) medical, dental, vision, life and long term disability insurance benefits and (iv) all stock options granted to Mr. DeMartino would immediately vest. +Under the terms of Severance Agreements with Michael S. Kumpf, James B. Stetson, and Tracey S. Chernay dated September 4, 1996, January 24, +2001 and July 29, 2005, respectively, if a Termination Event were to occur, the applicable Named Executive Officer would be entitled to continue to receive, for six months following the date of termination (i) a pro rata portion of his or +her annual base salary, (ii) a pro rata portion of his or her annual target bonus for the year of termination or, in the case of Messrs. Stetson, the full amount of the applicable annual target bonus for the year of termination, and +(iii) only in the case of Mr. Kumpf and Mrs. Chernay, all benefits which would otherwise have been payable. If a Change in Control Event were to occur, the applicable Named Executive Officer would be entitled to continue to receive +for a period of one year +19 +from the date of termination (i) base salary, (ii) annual target bonus, (iii) in the case of Mr. Kumpf and Mrs. Chernay, all +benefits and (iv) all stock options granted to the applicable Named Executive Officer would immediately vest. +Equity Plans +2005 Equity Incentive Plan. The terms of the Company’s 2005 Equity Incentive Plan provide that all awards issued +under the plan would accelerate and either become exercisable or vest, as applicable, immediately prior to any of the following: (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not the +Company or a publicly owned corporation (or a subsidiary thereof) in which the stockholders of the Company immediately prior to the transaction continue to beneficially own 50% or more of the voting securities of the Company, (ii) a sale, +transfer, exchange or other disposition of all or substantially all of the Company’s assets, (iii) any acquisition of 50% or more of the voting securities of the Company excluding acquisitions by specified parties or (iv) any +dissolution or liquidation of the Company. Upon the occurrence of some of the foregoing Change in Control Events, stock or other property to be delivered upon acceleration of any award may be placed in escrow, rather than actually delivered, under +terms set by the Compensation and Corporate Governance Committee. +1996 Stock Plan. The terms of the +Company’s 1996 Stock Plan do not provide for the acceleration of all awards issued under the plan in the event of a change in control of the Company. Instead, the plan provides that acceleration upon a change in control is permitted and that +the terms of the individual awards issued under the plan control whether the awards accelerate upon occurrence of a Change in Control Event. +Payments Upon a Change in Control Event. If a Change in Control Event had occurred on December 31, 2007 that triggered acceleration of all of the equity awards outstanding to each Named Executive Officer +under each of the 1996 Stock Plan and the 2005 Equity Incentive Plan that accelerate either by their terms or the terms of the applicable plan, the following amounts would have been paid to the Named Executive Officers: +Name +Stock +Options(1) +Stock +Awards(2) +Total +Bart C. Shuldman +$ +256,140 +$ +129,330 +$ +385,470 +Steven A. DeMartino +42,132 +63,228 +105,360 +Michael S. Kumpf +26,299 +57,480 +83,779 +James B. Stetson +19,601 +43,110 +62,711 +Tracey S. Chernay +— +47,900 +47,900 +(1) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $4.79 per share of our common stock on +December 31, 2007, which was the last trading day of the year. +(2) +Accelerated stock awards were valued using the closing price of $4.79 per share of our common stock on December 31, 2007, which was the last trading day of the year. +PAYMENTS UPON A TERMINATION EVENT +The following table summarizes the potential payments to each Named Executive Officer, over the course of the applicable time period for which such payments would be owed, assuming that a Termination Event occurred on +December 31, 2007, the last day of the Company’s fiscal year. +20 +Name +Base +Salary +Pro Rata +Portion of +Annual +Target +Bonus +Benefits(1) +Stock +Options +Stock +Awards +Total +Bart C. Shuldman +$ +851,760 +$ +319,410 +$ +87,284 +— +— +$ +1,258,454 +Steven A. DeMartino +236,900 +118,450 +9,648 +— +— +364,998 +Michael S. Kumpf +100,000 +35,000 +3,819 +— +— +138,819 +James B. Stetson +70,000 +— +— +— +— +70,000 +Tracey S. Chernay +77,800 +— +2,805 +— +— +80,605 +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the +Company’s cost of medical premiums is included here. +PAYMENTS UPON A CHANGE IN CONTROL AND TERMINATION EVENT +The following table summarizes the potential payments to each Named Executive Officer, over the course of the applicable time period for +which such payments would be owed, assuming that a Change in Control and Termination Event occurred on December 31, 2007, the last day of the Company’s fiscal year. +Name +Base +Salary +Annual +Target +Bonus +Benefits(1) +Stock +Options(2) +Stock +Awards(3) +Total +Bart C. Shuldman +$ +1,277,640 +$ +958,230 +$ +130,926 +$ +256,140 +$ +129,330 +$ +2,752,266 +Steven A. DeMartino +473,800 +236,900 +19,295 +42,132 +63,228 +835,335 +Michael S. Kumpf +200,000 +70,000 +7,639 +26,299 +57,480 +361,418 +James B. Stetson +140,000 +— +— +19,601 +43,110 +202,711 +Tracey S. Chernay +155,600 +— +5,609 +— +47,900 +209,109 +The following assumptions were used to calculate these payments: +(1) +Benefits were valued using the same assumptions that the Company uses for our financial reporting under generally accepted accounting principles, with the exception that the +Company’s cost of medical premiums is included here. +(2) +Accelerated stock options were valued using the spread between the exercise price of the applicable award and the closing price of $4.79 per share of our common stock on +December 31, 2007, which was the last trading day of the year. +(3) +Accelerated stock awards were valued using the closing price of $4.79 per share of our common stock on December 31, 2007, which was the last trading day of the year. +Non-Competition Provisions That Apply to a Termination Event or Change in Control Event +Pursuant to Mr. Shuldman’s Employment Agreement, upon the occurrence of a Termination Event while he is receiving severance payments under the +agreement, Mr. Shuldman agrees that for two years, or in the case of a Change in Control Event, for three years, that he will not directly or indirectly engage in any business or activity that is competitive with the Company in a geography +where the Company is selling its products. Further, Mr. Shuldman agrees not to attempt to recruit any employees of the Company or encourage them to leave the Company and agrees not to encourage any of the Company’s customers to direct +their business elsewhere. The +21 +other Named Executive Officers have the same provisions in their Severance Agreements, except that they apply for six months upon the occurrence of a +Termination Event or one year upon the occurrence of a Change in Control Event and they are not contingent upon the payment of the benefits described in each agreement by the Company to the Named Executive Officer. +DIRECTOR COMPENSATION FOR FISCAL YEAR 2007 +Name +Fees Earned +Or Paid in +Cash +($) +Stock +Options(2)($) +Stock +Awards +(3), (4)($) +Total ($) +Thomas R. Schwarz +$ +22,000 +$ +5,805 +$ +23,383 +$ +51,188 +Charles A. Dill +22,000 +5,805 +23,383 +51,188 +Graham Y. Tanaka +21,500 +5,805 +23,383 +50,688 +Bart C. Shuldman(1) +— +— +— +— +(1) +Mr. Shuldman did not receive any compensation for director services other than what is contained in the “Summary Compensation Table” above. +(2) +On May 15, 2007, Mr. Schwarz, Dill and Tanaka were each awarded 10,000 stock options granted under the Company’s 2005 Equity Incentive Plan. The amounts shown here +represent compensation expense incurred by us in 2007 in connection with those options, calculated in accordance with SFAS 123(R). Each of these option grants have an aggregate grant date fair value of $47,774, or $4.77 per share, computed in +accordance with SFAS 123R. For information on the valuation assumptions with respect to these awards, refer to note 12 of the Company’s financial statements in the Form 10-K for the year ended December 31, 2007, as filed with the SEC. +(3) +The amounts shown represent compensation expense incurred in 2007 in connection with previously granted stock awards, calculated in accordance with SFAS 123(R), as discussed in +footnote 12 to the Financial Statements in the Company’s filing on Form 10-K for the year ended December 31, 2007, as filed with the SEC. +(4) +As of December 31, 2007, Mr. Schwarz held 60,000 fully vested stock options at exercise prices ranging from $2.33 to $31.82 and 7,000 shares of unvested restricted stock +grants as well as 10,000 unvested stock options at an exercise price of $6.38, Mr. Dill held 45,000 fully vested stock options at exercise prices ranging from $5.93 to $31.82 and 7,000 shares of unvested restricted stock grants as well as +10,000 unvested stock options at an exercise price of $6.38, Mr. Tanaka held 60,000 fully vested stock options at exercise prices ranging from $2.33 to $31.82 and 7,000 shares of unvested restricted stock grants as well as 10,000 unvested stock +options at an exercise price of $6.38, and Mr. Shuldman held no stock option or restricted stock grants other than those shown in the “Outstanding Equity Awards at 2007 Fiscal Year-End” table above. +During the year ended December 31, 2007, each outside director of the Company received as compensation for services rendered: (i) a retainer of +$2,500 for each fiscal quarter served as director, (ii) $1,000 for each Board of Directors meeting attended, (iii) $500 for each Board of Directors committee meeting attended, (iv) $500 for each telephonic Board of Directors meeting, +and (v) $250 for each telephonic committee meeting. Chairs of committees received $750 for each committee meeting attended and $500 for each telephonic meeting. Directors are also reimbursed for reasonable expenses incurred in attending +meetings. +Each non-employee director receives an annual grant of 10,000 stock options, pursuant to the terms of the Company’s 2005 +Equity Incentive Plan. The stock options will vest at the rate of 20% per year beginning on the first anniversary of the date of grant. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +No member of the Board’s Compensation and Corporate +Governance Committee has served as an officer or employee of the Company at any time. None of the Company’s executive officers serve as a member of the +22 +compensation committee of any other company that has an executive officer serving as a member of the Company’s Board. None of the Company’s +executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of the Board’s Compensation and Corporate Governance Committee. +STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING +Stockholder proposals submitted for inclusion in next year’s proxy materials must be received by the Secretary of the Company on or before January 2, 2009. Proposals should be addressed to TransAct Technologies Incorporated, One +Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. Stockholders who wish to make a proposal at the 2009 Annual Meeting without regard to whether it will be included in the Company’s proxy materials should +notify the Company no later than February 27, 2009. If a Stockholder who wishes to present a proposal fails to notify the Company by the due date, the proxies that the Company solicits for the meeting will accord them discretionary authority to +vote on the Stockholder’s proposal if it is properly brought before the meeting. +PROCEDURES FOR SUBMITTING DIRECTOR NOMINATIONS AND +RECOMMENDATIONS +Stockholders may nominate candidates for election to the Board of Directors if the proper nomination procedures +specified in the Company’s By-Laws are followed. All nominations by stockholders must be delivered to or mailed and received at the principal executive offices of the Company not less than 30 nor more than 60 days prior to the meeting at which +election of directors will take place; however, if less than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, nominations will be timely if received not later than 10 days after notice was +given or public disclosure was made. A stockholder’s notice must set forth in writing (i) for each person proposed to be nominated, all information relating to each such person that is required to be disclosed in solicitations of proxies +for election of directors pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to be named in the proxy and to serving as a director, and (ii) for the stockholder giving notice, the (x) name and +address of such stockholder as they appear on the Company’s books, and (y) the class and number of shares of the Company beneficially owned by such stockholder. +STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS POLICY +Any stockholder wishing to +communicate directly with members of the Board of Directors should do so in writing. All correspondence addressed to the Board as a whole, to its independent directors, to any of its Committees or Committee Chairs, or to individual Board members +should be mailed to the following address: +Board of Directors/Independent Directors/Committee/Director +c/o Secretary +TransAct Technologies +Incorporated +One Hamden Center +2319 Whitney Avenue, Suite 3B +Hamden, CT 06518 +• +You are welcome to communicate anonymously or confidentially. +• +All correspondence addressed to an individual director or Committee Chair, and marked “Confidential”, will be collected in the office of the Secretary and +forwarded unopened to the individual director. +• +Other correspondence will be opened by the Secretary, reviewed, copied and directed as follows: +¡ +Concerns regarding the Company’s accounting, internal accounting controls or auditing matters will be referred to the members of the Audit Committee. +¡ +Nominations or recommendations of candidates for election to the Board of Directors will be referred to members of the Nominating Committee. +23 +• +Other correspondence will be copied by the Secretary and forwarded to all of the members of the Board of Directors (or its independent directors, if so addressed) +unless the stockholder directs otherwise. +• +A Stockholder may request written acknowledgement of the receipt of his or her correspondence, which will be provided by the Secretary or, in the case of +correspondence marked “Confidential”, by the individual director or Committee Chair to whom it is addressed. +ANNUAL REPORT +A COPY OF THE COMPANY’S SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON FORM 10-K, INCLUDING THE +FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, WILL BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS SHOULD BE ADDRESSED TO: TRANSACT TECHNOLOGIES INCORPORATED, STOCKHOLDER RELATIONS DEPARTMENT, ONE HAMDEN CENTER, 2319 +WHITNEY AVENUE, SUITE 3B, HAMDEN, CT 06518. +GENERAL +The accompanying proxy will be voted as specified thereon. Unless otherwise specified, proxies will be voted for the directors nominated by the Board of +Directors, and for ratification of the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2008. As of the date of this Proxy Statement, the Board of Directors is not aware of any matter which is to be +presented for action at the Annual Meeting other than the matters set forth herein. Should any other matter requiring a vote of the stockholders arise at the Annual Meeting, the proxies confer upon the persons named in the accompanying proxy the +authority to vote in respect of any such other matter in accordance with the recommendation of the Board of Directors. +A stockholder who +has given a proxy may revoke it at any time prior to its exercise at the Annual Meeting by: (i) giving written notice of revocation to the Secretary of the Company, (ii) properly submitting to the Company a duly executed proxy bearing a +later date, or (iii) voting in person at the Annual Meeting. All written notices of revocation and other communications with respect to revocation of proxies should be addressed to the Company, as follows: TransAct Technologies Incorporated, +One Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518, Attention: Secretary. A proxy appointment will not be revoked by death or supervening incapacity of the stockholder executing the proxy unless, before the shares are voted, notice +of such death or incapacity is filed with the Company’s Secretary or other person responsible for tabulating votes on behalf of the Company. +The cost of preparing, assembling and mailing this proxy material will be borne by the Company. The Company may solicit proxies otherwise than by use of the mail, in that certain officers and regular employees of the Company, without +additional compensation, may use the telephone or otherwise to obtain proxies. The Company will also request persons, firms and corporations holding shares in their names, or owned by others, to send this proxy material to and obtain proxies from, +such beneficial owners and will reimburse such holders for their reasonable expenses in doing so. +No director or executive officer of the +Company has any direct or indirect substantial interest, whether by security holdings or otherwise, in the ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company’s 2008 fiscal year. +STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PROMPT +RESPONSE IS HELPFUL, AND YOUR COOPERATION IS APPRECIATED. +April 30, 2008 +24 +TRANSACT TECHNOLOGIES INCORPORATED +PROXY FOR ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD WEDNESDAY, MAY 28, 2008 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +TRANSACT TECHNOLOGIES INCORPORATED +The undersigned stockholder of TransAct Technologies +Incorporated (the “Company”) does hereby nominate, constitute and appoint Bart C. Shuldman and Steven A. DeMartino, or either of them, with full power to act alone, my true and lawful attorney with full power of substitution, for me and in +my name, place and stead to vote all of the shares of Common Stock of the Company standing in my name on its books on April 4, 2008, at the Annual Meeting of its stockholders to be held at the Company’s executive offices located at One +Hamden Center, 2319 Whitney Avenue, Suite 3B, Hamden, CT 06518 on May 28, 2008 at 10:00 a.m., or at any adjournment thereof, with all powers the undersigned would possess if personally present as follows: +(TO BE SIGNED ON REVERSE SIDE) +PLEASE SIGN, DATE AND MAIL YOUR +PROXY CARD BACK AS SOON AS POSSIBLE! +ANNUAL MEETING OF STOCKHOLDERS +TRANSACT TECHNOLOGIES INCORPORATED +MAY 28, 2008 +x Please mark your +votes as in this +example. +FOR +ABSTAIN +1. ELECTION OF +DIRECTOR +¨ +¨ +Nominee: +Thomas R. Schwarz +FOR +ABSTAIN +¨ +¨ +Nominee: +Bart C. Shuldman +FOR +ABSTAIN +AGAINST +2. RATIFICATION OF INDEPENDENT +REGISTERED PUBLIC +ACCOUNTING FIRM +¨ +¨ +¨ +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. THE BOARD OF DIRECTORS +RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR PROPOSAL 2. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEE FOR DIRECTOR AND FOR PROPOSAL 2. THE PROXY IS AUTHORIZED TO VOTE UPON +SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. +PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED +POSTAGE-PAID ENVELOPE. +SIGNATURE +DATE +, 2008 +SIGNATURE +DATE +, 2008 +(SIGNATURE IF HELD JOINTLY) +NOTE: Please sign exactly as name appears on this proxy. When shares are +held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full +title as such. If signer is a partnership, please sign in partnership name by authorized person. \ No newline at end of file diff --git a/raw/proxies/0001017303/0001193125-08-096647/proxy_rpt.txt b/raw/proxies/0001017303/0001193125-08-096647/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..9935473d992b297b82a006b6c2d2f73fdb760f56 --- /dev/null +++ b/raw/proxies/0001017303/0001193125-08-096647/proxy_rpt.txt @@ -0,0 +1,12 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +The Company maintains policies that relate to the +identification, review and approval of related party transactions. As part of a review of possible related person transactions, the Company annually distributes and collects questionnaires that solicit information about any direct or indirect +transactions with the Company from each of our directors and officers. +Our Standards of Business Conduct require all directors, officers +and employees to avoid any situation that involves an actual or apparent conflict of interest in personal and professional relationships or with their duty to, or with any interest of, the Company. Under the Standards of Business Conduct, situations +that involve, or may reasonably be inferred to involve, a conflict between a director, officer or employee’s personal interests and the interests of the Company should be disclosed to the Chair of the Audit Committee. The Audit Committee is +then responsible for reviewing the related party transaction. No related party transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company. In determining whether to approve or ratify a related +party transaction, the Audit Committee takes into account such factors as it deems appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under +the same or similar circumstances and the extent of the related person’s interest in the transaction. +From January 1, 2007 to the +date of this proxy statement, there have not been any transactions of the type described in Item 404 of Regulation S-K, and currently no such transactions are proposed. \ No newline at end of file diff --git a/raw/proxies/0001520006/0001193125-12-196480/proxy.txt b/raw/proxies/0001520006/0001193125-12-196480/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c9c6d67510599544bc820f62c1944e32eb55f8c2 --- /dev/null +++ b/raw/proxies/0001520006/0001193125-12-196480/proxy.txt @@ -0,0 +1,3951 @@ +DEF 14A +1 +d336952ddef14a.htm +DEFINITIVE NOTICE & PROXY + +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the Registrant þ Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +Matador Resources Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +Table of Contents +One Lincoln Centre +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +www.matadorresources.com +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held on June 7, 2012 +To the Matador Resources Company Shareholders: +Please join us for the 2012 Annual Meeting of Shareholders of Matador Resources Company. The meeting will be held at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, on Thursday, +June 7, 2012, at 10:00 a.m. , Central Daylight Time. +At the meeting, you will hear a report on our business and act +on the following matters: +(1) +Election of the two nominees named in the attached Proxy Statement as directors; +(2) +Advisory vote on executive compensation; +(3) +Advisory vote on the frequency of advisory votes on executive compensation; +(4) +Approval of our 2012 Long-Term Incentive Plan; +(5) +Ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, +2012; and +(6) +Any other matters that may properly come before the meeting. +All shareholders of record at the close of business on April 26, 2012 are entitled to vote at the meeting or any postponement or adjournment of the meeting. A list of the shareholders is available at +the Company’s offices in Dallas, Texas. +By Order of the Board of Directors, +Joseph Wm. Foran +Chairman, President and Chief Executive Officer +April 30, 2012 +YOUR VOTE IS IMPORTANT! +Please vote as promptly as possible by using the Internet or +telephone or by signing, dating, and returning the enclosed proxy card to the address listed on the card. +Important +Notice Regarding the Availability of Proxy Materials for the +Annual Meeting of Shareholders to be Held on June 7, +2012: +This Proxy Statement and the Annual Report to Shareholders for the fiscal year ended December 31, 2011 are +available for viewing, printing, and downloading at https://materials.proxyvote.com/576485. +Table of Contents +TABLE OF CONTENTS +Page +Proxy Statement +1 +Corporate Governance +3 +Independence of Directors +3 +Board Leadership Structure +3 +Board Committees +5 +Board’s Role in Risk Oversight +9 +Risk Assessment of Compensation Policies and Practices +9 +Compensation Committee Interlocks and Insider Participation +9 +Communications with Directors +9 +Executive Officers +10 +Election of Directors +14 +Nominees +14 +Non-Employee Directors Continuing in Office +15 +Special Board Advisors +17 +Advisory Vote on Named Executive Officer Compensation +19 +Advisory Vote on the Frequency of Advisory Votes on Named Executive Officer +Compensation +20 +Approval of our 2012 Long-Term Incentive Plan +21 +Description of the 2012 Plan +21 +Federal Income Tax Consequences +26 +New Plan Benefits +29 +Ratification of the Appointment of Grant Thornton LLP +30 +Fees of Independent Registered Public Accounting Firm for Fiscal Years 2011 and 2010 +30 +Report of the Audit Committee +31 +Executive Compensation +33 +Compensation Discussion and Analysis +33 +Nominating, Compensation and Planning Committee Report +49 +Summary Compensation Table +50 +Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table +50 +Outstanding Equity Awards at December 31, 2011 +53 +Option Exercises and Stock Vested During 2011 +54 +Potential Payments Upon Termination or Change in Control +54 +Director Compensation +59 +Special Board Advisor Compensation +60 +Securities Authorized for Issuance Under Equity Compensation Plans +60 +Transactions with Related Persons +61 +Participation in Our Initial Public Offering +61 +Loan Program +61 +Issuance of our Securities +62 +Procedures for Approval of Related Party Transactions +62 +Security Ownership +64 +Security Ownership of Certain Beneficial Owners and Management +64 +Additional Information +66 +Section 16(a) Beneficial Ownership Reporting Compliance +66 +Shareholder Proposals for the 2013 Proxy Statement +66 +Director Nominations or Other Business for Presentation at the 2013 Annual Meeting +66 +Report on Form 10-K +67 +Other Business +68 +Appendix A: 2012 Long-Term Incentive Plan +A-1 +Table of Contents +Matador Resources Company +One Lincoln Centre +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +www.matadorresources.com +PROXY STATEMENT +For +ANNUAL MEETING OF SHAREHOLDERS +To Be Held on June 7, 2012 +This Proxy Statement is being mailed on +or about May 3, 2012 to the shareholders of Matador Resources Company (“Matador” or the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company to be voted at the Annual Meeting of +Shareholders of the Company to be held at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, on June 7, 2012, at 10:00 a.m., Central Daylight Time (the “Annual Meeting”), or at any postponement or adjournment +thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. The address of the Company’s principal executive office is One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. +You may vote in person by attending the meeting, by completing and returning a proxy by mail, or by using the Internet or telephone. To +vote your proxy by mail, mark your vote on the enclosed proxy card, then follow the instructions on the card. To vote your proxy using the Internet or telephone, see the instructions on the proxy form and have the proxy form available when you +access the Internet website or place your telephone call. +The named proxies will vote your shares according to your +directions. If you sign and return your proxy but do not make any of the selections, the named proxies will vote your shares: (i) FOR the election of the two nominees for directors as set forth in this Proxy Statement, (ii) FOR the +approval, on an advisory basis, of the compensation of the Company’s named executive officers as disclosed in these materials, (iii) FOR a frequency of 1 year for future advisory votes on executive compensation, (iv) FOR the approval +of our 2012 Long-Term Incentive Plan and (v) FOR the ratification of Grant Thornton LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2012. The proxy may be revoked at any time +before it is exercised by filing with the Company a written revocation addressed to the Corporate Secretary, by executing a proxy bearing a later date or by attending the Annual Meeting and voting in person. +The cost of soliciting proxies will be borne by the Company. In addition to the use of postal services or the Internet, proxies may be +solicited by directors, officers, and regular employees of the Company (none of whom will receive any additional compensation for any assistance they may provide in the solicitation of proxies) in person or by telephone. +The outstanding voting securities of the Company consist of shares of Common Stock, $0.01 par value per share (“Common +Stock”). The record date for the determination of the shareholders entitled to notice of and to vote at the Annual Meeting, or any postponement or adjournment thereof, has been established by the Board of Directors as the close of business on +April 26, 2012. At that date, there were outstanding and entitled to vote 55,507,543 shares of Common Stock. +The +presence, in person or by proxy, of the holders of record of a majority of the outstanding shares entitled to vote is necessary to constitute a quorum for the transaction of business at the Annual Meeting, but if a quorum should not be present, the +meeting may be adjourned from time to time until a quorum is obtained. A holder of Common Stock will be entitled to one vote per share on each matter properly brought before the meeting. Cumulative voting is not permitted in the election of +directors. +The proxy card provides space for a shareholder to withhold voting for any or all nominees for the Board of +Directors. The election of directors requires a plurality of the votes cast at the meeting. All other proposals +1 +Table of Contents +require the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting. Shares of a shareholder who abstains from voting on any or +all proposals will be included for the purpose of determining the presence of a quorum. Votes withheld with respect to the election of the Company’s directors will not be counted either in favor of or against the election of the nominees. In +the case of the other proposals being submitted for shareholder approval, an abstention will effectively count as a vote cast against such proposal. Broker non-votes on any matter, as to which the broker has indicated on the proxy that it does not +have discretionary authority to vote, will be treated as shares not entitled to vote with respect to that matter. However, such shares will be considered present and entitled to vote for quorum purposes so long as they are entitled to vote on other +matters. +2 +Table of Contents +CORPORATE GOVERNANCE +The business affairs of Matador are managed under the direction of the Board of Directors (also referred to in this Proxy Statement as the +“Board”) in accordance with the Texas Business Organizations Code, the Company’s Amended and Restated Certificate of Formation and Amended and Restated Bylaws. The Board of Directors has adopted Corporate Governance Guidelines, which +are to be reviewed annually by the Corporate Governance Committee. The Company has a Code of Ethics and Business Conduct, which is applicable to all officers, directors and employees of the Company. The Company intends to post any amendments to or +waivers from its Code of Ethics and Business Conduct on the Company’s website to the extent applicable to an executive officer or a director of the Company. The Corporate Governance Guidelines and the Code of Ethics and Business Conduct are +available on the Company’s website at www.matadorresources.com under the heading “Investors—Corporate Governance.” +The Board holds regular and special meetings and spends such time on the affairs of the Company as their duties require. During 2011, the Board of Directors held seven meetings. The Board also intends to +meet regularly in non-management executive sessions in accordance with the New York Stock Exchange (“NYSE”) regulations. The Corporate Governance Guidelines provide that one of the Company’s independent directors should serve as a +lead independent director at any time when the chief executive officer serves as the chairman of the board. The lead independent director presides over the non-management executive sessions, serves as a liaison between the chairman and the +independent directors and performs such additional duties as the Board of Directors may otherwise determine and delegate. Because Mr. Joseph Wm. Foran serves as Chairman of the Board and Chief Executive Officer, our independent directors have +appointed Mr. David M. Laney to serve as lead independent director. In 2011, all directors of the Company attended at least 75% of the meetings of the Board and the committees on which they served. It is Company policy that each of our +directors is expected to attend the Annual Meeting. All of our directors were in attendance at the 2011 Annual Meeting. +Independence of Directors +The Board of Directors makes all determinations with respect to director independence in +accordance with the NYSE listing standards and the rules and regulations promulgated by the Securities and Exchange Commission (“SEC”). The actual determination of whether a director is independent is made by the Board on a case-by-case +basis. +In connection with its preparation for the Annual Meeting, the Board undertook its annual review of director +independence and considered transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates. In making its determination, the Board applied the NYSE listing +standards and SEC rules and regulations. +The Board reviewed the independence of our directors and considered whether any +director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. After this review, our Board determined that the following directors are +“independent directors” as defined under the rules of the SEC and the NYSE: Mrs. Margaret B. Shannon and Messrs. Charles L. Gummer, David M. Laney, Gregory E. Mitchell and Michael C. Ryan, and Drs. Stephen A. Holditch and Steven +W. Ohnimus. +Board Leadership Structure +Mr. Foran serves as the Chairman, President and Chief Executive Officer of the Company. As stated in the Corporate Governance +Guidelines, the Board does not believe that the offices of Chairman of the Board and Chief Executive Officer must be separate. The members of the Board possess experience and unique knowledge of the challenges and opportunities the Company faces. +They are, therefore, in the best position to evaluate the current and future needs of the Company and to judge how the capabilities of the directors and senior managers +3 +Table of Contents +can be most effectively organized to meet those needs. Given his deep knowledge of the Company and experience in leading it, the Board believes that the most effective leadership structure for +the Company is to have Mr. Foran serve as the Chairman, President and Chief Executive Officer. +While Mr. Foran +serves as Chairman, President and Chief Executive Officer, all other directors are independent. After considering the recommendations of our Nominating, Compensation and Planning Committee, the independent directors determine Mr. Foran’s +compensation. Further, the Company has eight standing committees and an independent lead director. The Board believes that each of those measures counter-balances any risk that may exist in having Mr. Foran serve as the Chairman, President and +Chief Executive Officer. For these reasons, the Board believes that this leadership structure is effective for the Company. +As the Lead Director, Mr. Laney has the following roles and responsibilities: +• +He chairs the executive sessions of the non-management and independent directors; +• +He leads the independent directors in the evaluation of the Chief Executive Officer; +• +He facilitates communication among the non-management and independent directors; and +• +He acts as a liaison between the non-management and independent directors and the Chief Executive Officer. +Mr. Laney, as Lead Director, may also perform such other duties as the Board or the Corporate Governance Committee from time to time +may assign, which may include, but are not limited to, the following: +• +Help develop Board agendas and ensure critical issues are included; +• +Determine quality, quantity and timeliness of information from management; +• +Make recommendations about retaining consultants or special advisors for the Board; +• +Interview Board candidates; +• +Oversee Board and director evaluations; and +• +Help improve communications and processes by and between management and the Board and the Chief Executive Officer. +4 +Table of Contents +Board Committees +The standing committees of the Board of Directors are: Audit Committee; Nominating, Compensation and Planning Committee; Corporate +Governance Committee; Executive Committee; Operations Committee; Engineering Committee; Financial Committee; and Prospect Committee. Each of the Audit Committee, Nominating, Compensation and Planning Committee, Corporate Governance Committee and +Executive Committee is governed by a charter, and a copy of the charters of each of these committees is available on the Company’s website at www.matadorresources.com under the heading “Investors—Corporate Governance.” +Director membership of all of our committees is identified below. +Director +Audit +Committee +Nominating, +Compensation +and Planning +Committee +Corporate +Governance +Committee +Executive +Committee +Operations +Committee +Engineering +Committee +Financial +Committee +Prospect +Committee +Joseph Wm. Foran +** +* +* +** +* +Charles L. Gummer +** +* +* +* +Stephen A. Holditch +* +* +** +* +David M. Laney +* +** +* +* +* +Gregory E. Mitchell +* +* +* +Steven W. Ohnimus +* +* +* +** +* +* +Michael C. Ryan +* +* +* +Margaret B. Shannon +* +** +* +Member +** +Chair +Audit Committee +The Audit Committee assists the Board in monitoring: +• +the integrity of our financial statements and disclosures; +• +our compliance with legal and regulatory requirements; +• +the qualifications and independence of our independent auditor; +• +the performance of our internal audit function and our independent auditor; and +• +our internal control systems. +In addition, the Audit Committee is charged with the compliance of our Code of Ethics and Business Conduct for Officers, Directors and Employees. +Our Audit Committee currently consists of Messrs. Gummer, Laney and Ryan and Dr. Ohnimus, each of whom is independent under the +rules of the NYSE and the SEC. Mr. Gummer is the chair of the Audit Committee. SEC rules require a public company to disclose whether or not its audit committee has an “audit committee financial expert” as a member. An “audit +committee financial expert” is defined as a person who, based on his or her experience, possesses the attributes outlined in such rules. Our Board of Directors has determined that Messrs. Gummer and Ryan are each “audit committee financial +experts.” During 2011, the Audit Committee met two times. +Nominating, Compensation and Planning Committee +The Nominating, Compensation and Planning Committee has the following responsibilities: +• +It identifies and recommends to the Board individuals qualified to be nominated for election to the Board of Directors; +5 +Table of Contents +• +It recommends to the Board the members and chair of each committee of the Board of Directors; +• +It assists the Board and the independent members of the Board in the discharge of their fiduciary responsibilities relating to the fair and competitive +compensation of our executive officers; +• +It provides overall guidance with respect to the establishment, maintenance and administration of our compensation programs, including stock and +benefit plans; +• +It oversees and advises the Board and the independent members of the Board on the adoption of policies that govern our compensation programs; and +• +It recommends to the Board the strategy, tactical and performance goals of the Company, including those performance and tactical goals that relate to +performance based compensation, including but not limited to goals for production, reserves, cash flows and shareholder value. +Our Nominating, Compensation and Planning Committee has the authority to delegate authority and responsibilities to subcommittees of its members, so long as the subcommittee consists of at least two +members. +Our Nominating, Compensation and Planning Committee currently consists of Mrs. Shannon and Messrs. Gummer, +Laney, Mitchell and Ryan and Drs. Holditch and Ohnimus, each of whom is independent under the rules of the NYSE, a “non-employee director” pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or the +“Exchange Act,” and an “outside director” pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Mr. Laney is the chair of the Nominating, Compensation and Planning +Committee. During 2011, the Nominating, Compensation and Planning Committee (and its predecessor committee, the Planning and Compensation Committee) met four times. +The Board has also established a Director Nominating Advisory Committee that is charged with receiving and considering possible nominees for election by shareholders to the Board of Directors. Pursuant to +the Director Nominating Advisory Committee charter, this committee is comprised of 8 to 12 persons selected by the Nominating, Compensation and Planning Committee, and consists of at least: +• +two members of the Nominating, Compensation and Planning Committee; +• +two former members of or special advisors to the Board; +• +two shareholders who beneficially own Common Stock having a market value of at least $1.0 million (such value to be based on the market value of the +Common Stock immediately prior to designation of such shareholders to the Director Nominating Advisory Committee); and +• +two shareholders who have beneficially owned Common Stock continuously for at least the five years prior to such shareholders’ designation to the +Director Nominating Advisory Committee. +The current members of the Director Nominating Advisory Committee +are Messrs. Laney, Ryan, Edward R. Scott, Jr., Kevin M. Grevey, Joe E. Coleman, J. Barry Banker, James M. Funk, James S. Kone, Jr. and James H. “Jake” Trewin. +The Director Nominating Advisory Committee makes recommendations based on its conclusions to the Nominating, Compensation and Planning Committee for its consideration and review. +The Nominating, Compensation and Planning Committee and the Director Nominating Advisory Committee consider individuals recommended by +the Company’s shareholders to serve on the Board. In considering candidates submitted by shareholders, the Nominating, Compensation and Planning Committee and the Director Nominating Advisory Committee take into consideration the needs of the +Board and the qualifications of the candidate. To have a candidate considered by the Nominating, Compensation and Planning Committee and the Director Nominating Advisory Committee, a shareholder must submit the recommendation in writing and must +include the following information: +• +The name and address of the shareholder, evidence of the person’s ownership of Company stock or derivatives, including the number of shares owned, +a description of all arrangements or understandings +6 +Table of Contents +regarding the right to vote shares of the Company, any short interest in any security of the Company, any rights to dividends that are separated or separable from the underlying shares, any +proportionate interest in shares or derivatives held by a general or limited partnership whereby the shareholder is a general partner or beneficially owns an interest in the general partner, any performance-related fees (other than an asset-based +fee) that the shareholder is entitled to based on any change in the value of the shares or derivatives, any other information relating to the shareholder that would be required to be disclosed in connection with solicitations of proxies for the +election of directors in a contested election and a statement whether or not the shareholder will deliver a proxy to shareholders; and +• +The name, age, business, and residence addresses of the candidate, the candidate’s résumé or a listing of his or her qualifications +to be a director of the Company, the person’s consent to be a director if selected by the Nominating, Compensation and Planning Committee, nominated by the Board, and elected by the shareholders and any other information that would be required +to be disclosed in solicitations of proxies for the election of directors. +The shareholder recommendation +and information described above and in more detail in our Amended and Restated Bylaws must be sent to the Corporate Secretary at One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240 and must be received by the Corporate Secretary +not less than 45 or more than 75 days prior to the one-year anniversary date of the date the Company’s proxy statement was mailed in connection with the previous year’s Annual Meeting of Shareholders. +The Nominating, Compensation and Planning Committee believes that the potential directors of the Company must demonstrate that such +candidate has: +• +a depth of experience at the policy-making level in business, government or education; +• +a balance of the business knowledge and experience of the incumbent or nominated directors; +• +availability and willingness to devote adequate time to Board duties; +• +any unfilled expertise needed on the Board or one of its committees; +• +character and judgment and ability to make independent analytical, probing and other inquiries; +• +willingness to exercise independent judgment yet willingness to listen and learn from the other directors and the Company’s staff; and +• +financial independence to ensure such candidate will not be financially dependent on director compensation. +In the case of an incumbent director, the Nominating, Compensation and Planning Committee will also consider such director’s past +performance on the Board. +The Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee +may identify potential nominees by asking, from time to time, current directors and executive officers for their recommendation of persons meeting the criteria described above who might be available to serve on the Board. The Nominating, +Compensation and Planning Committee or the Director Nominating Advisory Committee also may engage firms that specialize in identifying director candidates. As described above, the Nominating, Compensation and Planning Committee will also consider +candidates recommended by shareholders. +Once a person has been identified by the Nominating, Compensation and Planning +Committee or the Director Nominating Advisory Committee as a potential candidate, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will make an initial determination regarding the need for additional +Board members to fill vacancies or expand the size of the Board. If the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee determines that additional consideration is warranted, the Nominating, Compensation +and Planning Committee or the Director +7 +Table of Contents +Nominating Advisory Committee will review such information and conduct interviews as it deems necessary to fully evaluate each director candidate. In addition to the qualifications of a +candidate, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will consider such relevant factors as it deems appropriate, including the current composition of the Board, the evaluations of other +prospective nominees and the need for any required expertise on the Board or one of its committees. The Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee also contemplate multiple dynamics that promote and +advance diversity amongst its members. Although the Nominating, Compensation and Planning Committee does not have a formal diversity policy, the Nominating, Compensation and Planning Committee considers a number of factors regarding diversity of +personal and professional backgrounds, specialized skills and acumen and breadth of experience in energy production, consumption, distribution or transportation, government policy, finance or law. The Nominating, Compensation and Planning +Committee’s evaluation process will not vary based on whether or not a candidate is recommended by a shareholder. +Corporate +Governance Committee +The Corporate Governance Committee is responsible for periodically reviewing and assessing our +Corporate Governance Guidelines and making recommendations for changes thereto to the Board, reviewing any other matters related to our corporate governance, unless the authority to conduct such review has been retained by the Board of Directors or +delegated to another committee and overseeing the evaluation of the Board of Directors and management. +Our Corporate +Governance Committee currently consists of Mrs. Shannon and Messrs. Gummer, Laney and Mitchell, each of whom is independent under the rules of the NYSE. Mrs. Shannon is chair of the Corporate Governance Committee. +Executive Committee +The Executive Committee has authority to discharge all the responsibilities of the Board of Directors in the management of the business and affairs of the Company, except where action of the full Board of +Directors is required by statute or by our Amended and Restated Certificate of Formation. +Our Executive Committee consists of +Messrs. Foran and Laney and Dr. Ohnimus. Mr. Foran is chair of the Executive Committee. +Operations Committee +The Operations Committee provides oversight over the development of our prospects, our drilling and completion +operations and our production operations and associated costs. The current members of the Operations Committee are Messrs. Foran and W.J. “Jack” Sleeper, Jr. (ex-officio), who is a special advisor to our Board of Directors, and Drs. +Holditch and Ohnimus. Dr. Ohnimus is chair of the Operations Committee. +Engineering Committee +The Engineering Committee provides oversight of the amount and classifications of our reserves and the design of our completion techniques +and hydraulic fracturing operations and various other reservoir engineering matters. The current members of the Engineering Committee are Messrs. Foran, Marlan W. Downey (ex-officio), who is also a special advisor to our Board of Directors, and +Sleeper (ex-officio) and Drs. Holditch and Ohnimus. Dr. Holditch is chair of the Engineering Committee. +Financial Committee +The Financial Committee provides oversight over our financial position, liquidity and capital needs and the various +methods for financing our business. The current members of the Financial Committee are Messrs. Foran, Gummer, Laney, Mitchell and Ryan. Mr. Foran is chair of the Financial Committee. +8 +Table of Contents +Prospect Committee +The Prospect Committee provides oversight over the technical analysis, evaluation and selection of our oil and natural gas prospects. The current members of the Prospect Committee are Messrs. Foran, +Downey and Sleeper (ex-officio) and Drs. Holditch and Ohnimus. Mr. Downey is chair of the Prospect Committee. +Board’s Role in Risk Oversight +The Audit Committee has the responsibility to oversee the Company’s guidelines and policies to govern the process by which risk assessment and risk management is undertaken by management. The +Nominating, Compensation and Planning Committee has the responsibility to oversee that our incentive pay does not encourage unnecessary risk taking and to review and discuss the relationship between risk management policies and practices, corporate +strategy and senior executive compensation. +Risk Assessment of Compensation Policies and Practices +The Nominating, Compensation and Planning Committee considers, in establishing and reviewing our executive compensation +program, whether the program encourages unnecessary or excessive risk taking and has concluded that it does not. Several features of our program reflect sound risk management practices. Base salaries are fixed in amount and thus do not encourage +risk taking. While our bonuses are tied to management’s achievement during the previous fiscal year, and may encourage the taking of short-term risks at the expense of long-term results, executives’ annual bonuses are considered taking +into account multiple performance criteria based on the executive’s individual performance and are totally within the discretion of the Independent Directors. The Nominating, Compensation and Planning Committee believes that our bonus awards +appropriately balance risk and the desire to focus executives on specific short-term goals important to the Company’s success, and that they do not encourage unnecessary or excessive risk taking. In addition, the Nominating, Compensation and +Planning Committee believes that our current equity compensation program provides an appropriate balance between the goals of increasing the price of our Common Stock and avoiding potential risks that could threaten our growth and stability due to +the fact that the stock options and time-based restricted stock vest on the second and fourth anniversaries of the grant and the performance-based restricted stock and restricted stock units vest based on the stock performance as compared to our +peers over a three year period. +Compensation Committee Interlocks and Insider Participation +Mrs. Shannon and Messrs. Gummer, Laney, Mitchell and Ryan and Drs. Holditch and Ohnimus served on our Nominating, Compensation and +Planning Committee during the last completed fiscal year. None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer that serves on our Board of Directors or Nominating, +Compensation and Planning Committee. No member of our Board of Directors serves as an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company. There +were no compensation committee interlocks during 2011. +Communications with Directors +The Board has established a process to receive communications from shareholders and other interested parties by mail. Shareholders and +other interested parties may contact any member of the Board, any Board committee or the entire Board. To communicate with the Board of Directors, any individual director or any committee of directors, correspondence should be addressed to the Board +of Directors. All such correspondence should be sent “c/o Corporate Secretary” at One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. +Any communications to the Company from one of the Company’s officers or directors will not be considered “shareholder communications.” Communications to the Company from one of the +Company’s +9 +Table of Contents +employees or agents will only be considered “shareholder communications” if they are made solely in such employee’s or agent’s capacity as a shareholder. Any shareholder +proposal submitted pursuant to Rule 14a-8 promulgated under the Exchange Act will not be viewed as “shareholder communications.” +Executive Officers +The following table sets forth the names, ages and positions of our executive officers at April 26, 2012: +Name +Age +Positions Held With Us +Joseph Wm. Foran +59 +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +55 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +51 +Executive Vice President—Operations +David F. Nicklin +63 +Executive Director—Exploration +Wade I. Massad +44 +Executive Vice President—Capital Markets +Scott E. King +53 +Co-Founder, Vice President—Geophysics and New Ventures +Bradley M. Robinson +57 +Vice President—Reservoir Engineering +The following biographies describe the business experience of our executive officers. Each officer serves +at the discretion of our Board of Directors. There are no family relationships among any of our officers. +Mr. Joseph +Wm. Foran . Mr. Foran founded Matador Resources Company in July 2003 and has served as Chairman of the Board, Chief Executive Officer, President and Secretary since July 2003. He is also chair of the board’s Executive Committee. +Mr. Foran began his career as an oil and natural gas independent in 1983 when he and his wife, Nancy, founded Foran Oil Company with $270,000 in contributed capital from 17 of his closest friends and neighbors. Foran Oil Company was later +contributed into Matador Petroleum Corporation upon its formation by Mr. Foran in 1988, and Mr. Foran served as Chairman and Chief Executive Officer of that company from inception until the time of its sale to Tom Brown, Inc. in June 2003 +for an enterprise value of $388 million in an all-cash transaction. Under Mr. Foran’s guidance, Matador Petroleum realized a 21% average annual rate of return for its shareholders for 15 years. Mr. Foran is originally from +Amarillo, Texas, where his family owned a pipeline construction business. From 1980 to 1983, he was Vice President and General Counsel of J. Cleo Thompson and James Cleo Thompson, Jr., Oil Producers. Prior to that time, he was a briefing attorney to +Chief Justice Joe R. Greenhill of the Supreme Court of Texas. Mr. Foran graduated with a Bachelor of Science degree in Accounting from the University of Kentucky with highest honors and a law degree from the Southern Methodist University School +of Law, where he was a Hatton W. Sumners scholar and the Leading Articles Editor of the Southwestern Law Review. He is currently active as a member of various industry and civic organizations, including his church and various youth activities. In +2002, Mr. Foran was honored as the Ernst & Young “Entrepreneur of the Year” for the Southwest Region. As the founder and Chairman of the Board, Chief Executive Officer and President of Matador Resources Company, +Mr. Foran has provided leadership, experience and long relationships with many of our shareholders. +Mr. David E. Lancaster . Mr. Lancaster joined Matador Resources Company in December 2003 and serves as Executive +Vice President, Chief Operating Officer and Chief Financial Officer. Mr. Lancaster has served in several capacities since joining Matador, including Vice President—Business Development, Acquisitions and Finance from December 2003 to May +2005; Vice President and Chief Financial Officer from May 2005 to May 2007; and Executive Vice President and Chief Financial Officer from May 2007 to May 2009. He assumed his current role in May 2009. From August 2000 to December 2003, he was +Marketing Manager for Schlumberger Limited’s Data & Consulting Services which provided full-field reservoir characterization, production enhancement, multidisciplinary reservoir and production solutions and field development planning. +In this position, he was responsible for global marketing strategies, business models, input to research and development, commercialization of new products and services and marketing communications. From 1999 to 2000, Mr. Lancaster was Business +Manager, North and South America, for Schlumberger Holditch-Reservoir Technologies, the petroleum engineering consulting organization formed following Schlumberger’s acquisitions +10 +Table of Contents +of S. A. Holditch & Associates, Inc. and Intera Petroleum Services. In this role, he was responsible for the business operations of 12 consulting offices throughout North and South +America. Mr. Lancaster worked with Schlumberger for six years following its acquisition of S. A. Holditch & Associates, Inc. in October 1997. He joined S. A. Holditch & Associates in 1980, and was one of the +principals in that well-known petroleum engineering consulting firm. Between 1980 and 1997, Mr. Lancaster held positions ranging from Senior Petroleum Engineer to Senior Vice President—Business Development. In this latter role, he was +responsible for marketing and sales, as well as the company’s commercial training business. During most of his tenure at S. A. Holditch & Associates, Inc., Mr. Lancaster was a consulting reservoir engineer with particular +emphasis on characterizing and improving production from unconventional natural gas reservoirs. For more than seven years during this time, he was the Project Manager for the Gas Research Institute’s Devonian Shales applied research projects +investigating ways to improve reservoir characterization, completion practices and natural gas recovery in low permeability, natural gas shale reservoirs. He was also the lead reservoir engineer for the Secondary Gas Recovery project sponsored by +the Gas Research Institute and the U.S. Department of Energy looking at ways to improve recovery from compartmentalized natural gas reservoirs in north and south Texas. Mr. Lancaster began his career as a reservoir engineer for Diamond Shamrock +Corporation in 1979. Mr. Lancaster received Bachelor and Master of Science degrees in Petroleum Engineering from Texas A&M University in 1979 and 1988, respectively, graduating summa cum laude. He has authored or co-authored more than 50 +technical papers and articles, as well as numerous other published reports and industry presentations. He is a member of the Society of Petroleum Engineers, and he served as a charter member and former Vice Chairman of the Texas A&M University +Petroleum Engineering Advisory Board. Mr. Lancaster is a Licensed Professional Engineer in the State of Texas. +Mr. Matthew V. Hairford . Mr. Hairford joined Matador Resources Company in July 2004 as its Drilling Manager. He was +named Vice President—Drilling in May 2005; Vice President—Operations in May 2006; and in May 2009 assumed the title of Executive Vice President—Operations. He is in charge of our drilling and production operations. He was previously +with Samson Resources, an exploration and production company, as Senior Drilling Engineer, having joined Samson in 1999. His responsibilities there included difficult Texas and Louisiana Gulf Coast projects, horizontal drilling projects and a +start-up drilling program in Wyoming. The scope of this work ranged from multi-lateral James Lime wells in east Texas to deep wells in south Texas and south Louisiana. Mr. Hairford has drilled many geo-pressured wells in Texas and Louisiana, +along with normally pressured wells in southwestern Wyoming and east Texas. Additional responsibilities included a horizontal well program in Roger Mills County, Oklahoma at 15,000 feet vertical depth. Mr. Hairford has experience in air +drilling, underbalanced drilling, drilling under mud caps and high temperature and pressure environments. From 1998 until 1999, Mr. Hairford served as Senior Drilling Engineer with Sonat, Inc. in Tyler, Texas, a global company involved with +natural gas transmission and marketing, oil and natural gas exploration and production and oil services. There his responsibilities included Pinnacle Reef wells in east Texas and deep horizontal drilling in the Austin Chalk field in central +Louisiana. From 1984 to 1998, Mr. Hairford served in various drilling engineering capacities with Conoco, Inc., an integrated energy company. His operational areas included the Appalachian Basin, Illinois Basin, Permian Basin, Texas Panhandle +and Val Verde Basin. Mr. Hairford was selected as a member of a three-person team to explore the use of unconventional technologies to identify a potential step change in the drilling sector. Multiple techniques were evaluated and tested, +including declassified defense department technologies. Additional Conoco assignments included both field and office drilling positions in Midland and Oklahoma City. Earlier in his career with Conoco, Mr. Hairford was selected to participate in +the Conoco Rig Drilling Supervisor Training Program in Houston. This program consisted of two years working a regular rotation as a drilling representative on rigs and as a drilling engineer in various domestic offices. Mr. Hairford began his +career in 1984 with Conoco in a field production assignment in Hobbs, New Mexico. Mr. Hairford received his Bachelor of Science degree in Petroleum Engineering Technology from Oklahoma State University in 1984. He is an active member of the +American Association of Drilling Engineers, the American Petroleum Institute and the Society of Petroleum Engineers. Mr. Hairford has also undertaken additional training through Stanford University’s Executive Education programs including, +most recently in the summer of 2011, the Stanford Graduate School of Business flagship six week Stanford Executive Program (SEP). +11 +Table of Contents +Mr. David F. Nicklin. Mr. Nicklin joined Matador Resources Company in +February 2009 as Executive Director —Exploration, after working with us as an independent contractor since November 2007. Prior to joining Matador, Mr. Nicklin provided executive level consulting services to a variety of clients from +January 2000 onwards through his wholly owned corporation, David F. Nicklin International Consulting Inc. In 2006, Mr. Nicklin co-founded and currently leads a small, private oil and natural gas company, Salt Creek Petroleum LLC. Salt Creek +Petroleum owns small, non-operated interests in a variety of onshore oil and natural gas fields in the United States. Since 2009, Mr. Nicklin has consulted almost exclusively for us, with the primary exception of the minimal time he has devoted +to Salt Creek Petroleum. Mr. Nicklin worked approximately 210 days for us in each of 2009, 2010 and 2011. We have determined that Mr. Nicklin’s involvement with Salt Creek Petroleum does not detract from his performance for our +Company and does not result in any conflict of interest between Mr. Nicklin and our Company due to the fact that Salt Creek Petroleum is not involved in plays and prospects that compete with our interests. In 2000, he founded and led for three +years a private oil and natural gas exploration company, Serica Energy, which is now a public company with assets in Indonesia, the United Kingdom, Spain, Ireland and Morocco. Between 1981 and 2000, Mr. Nicklin was an employee of ARCO, an +integrated energy company, where he participated in and led several international exploration teams, particularly in the Middle East, southeast Asia and Australasia. In 1991, he became the Chief Geologist for ARCO, a position he held until his +retirement in 2000. In this position, Mr. Nicklin was responsible for the quality of the geological effort at ARCO, in particular, ensuring the application of state-of-the-art geological technology, the company’s risk management process, +the selection of new ventures and the high-grading of a large geoscience staff. Throughout his career at ARCO, Mr. Nicklin was closely involved with the successful exploration for and development of a number of large oil and natural gas +discoveries. Prior to joining ARCO, Mr. Nicklin was a senior development and operations geologist in a variety of positions in the United Kingdom, Angola, Norway and the Middle East. He was a specialist in well-site operations and provided +training in operations to entry-level personnel. Mr. Nicklin was born in the United Kingdom and received a Bachelor of Science degree in Geology from the University of Wales in 1971. He is an active member of the American Association of +Petroleum Geologists and various other professional groups. +Mr. Wade I. Massad. Mr. Massad joined +Matador Resources Company in December 2011 as Executive Vice President—Capital Markets, after working as an independent contractor to the Matador Board of Directors since September 2010. Mr. Massad is the Co-Founder and Co-Managing Member +of Cleveland Capital Management L.L.C., a registered investment advisor and General Partner of Cleveland Capital L.P., a private investment fund focused on micro-cap public and private equity securities, since October 1996. Previously, +Mr. Massad was an investment banker with Keybanc Capital Markets and RBC Capital Markets where he was the head of U.S. equity institutional sales from 1997 to 1998 and the head of U.S. Capital Markets business from 1999 to 2003. He also served +on the firm’s executive committee at RBC. Mr. Massad has served on multiple public and private company boards and currently is a board member of 4Kids Entertainment. Mr. Massad received a Bachelor of Arts in business management from +Baldwin-Wallace College in 1989 and currently serves on its Board of Trustees. +Mr. Scott E. King. +Mr. King co-founded Matador Resources Company with Mr. Foran and serves as our Vice President—Geophysics and New Ventures. From July 2003 to February 2009, Mr. King held the position of Vice President—Exploration, and in +February 2009, he assumed his current position. He was previously with Matador Petroleum Corporation, joining that company in December 1996 as Chief Geophysicist. Immediately prior to Matador Petroleum’s sale, Mr. King served as its +Portfolio Manager and was responsible for recommending which drilling opportunities Matador Petroleum should pursue. Prior to joining Matador Petroleum, Mr. King worked for Enserch Corporation, a diversified energy company with interests in +petroleum exploration and production, oilfield services, engineering design and construction, and natural gas transmission and distribution, as Team Leader for the Oklahoma Asset Group. Mr. King began his career in 1983 with Sohio Petroleum, an +integrated energy company. The Sohio assets were sold and resold to a number of companies, including BP p.l.c., Tex-Con Oil Co., Pacific Gas and Electric Company, Dalen Resources Oil & Gas Co., and finally Enserch Corporation. During this +time, Mr. King worked for and was retained by each of these companies and had success in generating and managing drilling opportunities in the continental United States. Mr. King received a Bachelor of Science degree in Geology with a +Minor in Mathematics from Alfred University, Alfred, +12 +Table of Contents +New York in 1981 and a Master of Science degree in Geophysics from Wright State University, Dayton, Ohio in 1983. Mr. King is active in various professional and civic groups including the +American Association of Petroleum Geologists and the Society of Exploration Geophysicists. +Mr. Bradley M. +Robinson. Mr. Robinson joined Matador Resources Company in August 2003 as one of its founders and has served as our Vice President—Reservoir Engineering since that time. Prior to joining Matador, from 1997 to August 2003, +Mr. Robinson held the position of Advisor with Schlumberger Limited’s Data & Consulting Services business unit which provided full-field reservoir characterization, production enhancement, multidisciplinary reservoir and +production solutions and field development planning where he was responsible for the development and application of new technologies for well completions and stimulation, provided technical expertise for reservoir management and field development +projects, taught basic and advanced industry courses in well completions and stimulation and provided internal training in production engineering and stimulation methods. Mr. Robinson worked with Schlumberger for six years following its +acquisition of S. A. Holditch & Associates, Inc. in 1997. Mr. Robinson joined Holditch in 1979, and was one of the principals in that well-known petroleum engineering consulting firm. From 1979 to 1982, Mr. Robinson served as +Senior Petroleum Engineer and was involved in all aspects of reservoir and production engineering for both conventional and low permeability oil and natural gas fields. From 1982 to 1997, he was Holditch’s Vice President—Production +Engineering, where he was responsible for coordination and management of production and completion engineering projects, including development drilling and openhole data acquisition programs, design and supervision of initial well completions and +workovers, transient well test design and analysis and hydraulic fracture stimulation design and supervision. His duties also included reserves evaluation and economic analysis of new and existing wells, and his areas of specialization included low +permeability natural gas sands, coalbed methane reservoirs and horizontal wells. For approximately 10 years during this time, he served as assistant project manager for the Gas Research Institute’s Tight Gas Sands and Horizontal Gas Wells +applied research projects investigating ways to improve reservoir characterization, completion practices and natural gas recovery in low permeability natural gas reservoirs and horizontal natural gas wells. During his career, he has worked all over +the world including the United States, Canada, Venezuela, Colombia, Mexico, Egypt, the North Sea, Russia and Indonesia, among others. Mr. Robinson began his career in 1977 with Marathon Oil Company, serving as an Associate Production Engineer +and later as a Reservoir Engineer in Midland. Mr. Robinson received Bachelor and Master of Science degrees in Petroleum Engineering from Texas A&M University in 1977 and 1986, respectively. He has authored or co-authored 18 technical +articles appearing in industry and/or technical publications and has made numerous engineering technical presentations. Mr. Robinson is a member of the Society of Petroleum Engineers and is a Licensed Professional Engineer in the State of +Texas. He currently serves as Chairman of the Dallas Section of the Society of Petroleum Engineers. +13 +Table of Contents +PROPOSAL 1 — ELECTION OF DIRECTORS +The Board of Directors currently consists of eight members. Our Board is divided into three classes of directors, +designated Class I, Class II and Class III, with the term of office of each director ending on the date of the third Annual Meeting following the Annual Meeting at which such director was elected. The numbers of directors in each class will be as +nearly equal as possible at all times. The current Class I directors are Mrs. Shannon and Messrs. Gummer and Ryan. Mrs. Shannon and Mr. Ryan are the Class I director nominees at this Annual Meeting of Shareholders. The current Class +II directors are Mr. Mitchell and Dr. Ohnimus, who will hold office until the 2013 Annual Meeting of Shareholders and until the election and qualification of their respective successors or until their earlier death, retirement, resignation +or removal. The current Class III directors are Messrs. Foran and Laney and Dr. Holditch, who will hold office until the 2014 Annual Meeting of Shareholders and until the election and qualification of their respective successors or until their +earlier death, retirement, resignation or removal. +Mrs. Shannon and Mr. Ryan have been nominated by the Board for +election at the Annual Meeting to hold office until the 2015 Annual Meeting and until the election and qualification of their respective successors or until their earlier death, retirement, resignation or removal. The Board of Directors has +determined that both of the director nominees are “independent directors.” After the Annual Meeting of Shareholders, the Board will have seven members. +The Board of Directors believes that each of the director nominees possesses the qualifications described above in “Corporate Governance — Board Committees — Nominating, +Compensation and Planning Committee.” That is, the Board believes that each nominee possesses: (i) deep experience at the policy making level in business, government or education; (ii) availability and willingness to devote adequate +time to Board duties; (iii) the character and judgment and ability to make independent analytical, probing and other inquiries; (iv) a willingness to exercise independent judgment along with a willingness to listen and learn from others; +(v) financial independence; and (vi) excellent past performance on the Board. +The information provided below is +biographical information about each of the nominees, as well as a description of the experience, qualifications, attributes or skills that led the Board to conclude that the individual should be nominated for election as a director of the Company. +Nominees +Mr. Michael C. Ryan. Mr. Ryan, age 51, joined our Board of Directors in February 2009. Prior to joining the Board, he served as a Board Advisor to the Financial Committee and +frequently participated in Board planning and strategy sessions. Since October 2004, Mr. Ryan has been a Partner and member of the Investment Committee at Berens Capital Management LLC, an investment firm based in New York. From February 1998 +to June 2004, he worked with Goldman, Sachs & Co., a global investment banking and securities services firm, leading its West Coast international institutional equities business. In this role, he developed and built a team of professionals +to advise large institutional clients on their global investment decisions. From 1995 to 1998, Mr. Ryan lived in Oslo, Norway, where he was a Partner at Pareto Securities, a Scandinavian-based securities firm where he led and built the +institutional equities business into the United States and United Kingdom. From 1991 to 1994, Mr. Ryan represented multiple eastern European governments in the preparation, negotiation and sale of many of their largest state-owned companies. He +began his career with Honeywell, Inc. which invents and manufactures technologies, including in the safety, security and energy areas, in 1983, working in the Systems and Research Center, which focused on advanced weapons development programs. +Mr. Ryan received a Master of Business Administration degree from The Wharton School at the University of Pennsylvania and a Bachelor of Science degree from the University of Minnesota. Mr. Ryan’s background and experience in the +domestic and international financial world provide our Board of Directors with additional perspective on accounting and auditing functions, economic trends and our capital sourcing and financing opportunities. +14 +Table of Contents +Mrs. Margaret B. Shannon . Mrs. Shannon, age 62, joined our Board of +Directors in June 2011 and currently serves as chair of the Board’s Corporate Governance Committee. She served as Vice President and General Counsel of BJ Services Company, an international oilfield services company, from 1994 to 2010, when +Baker Hughes Incorporated acquired BJ Services. Prior to 1994, she was a partner with the law firm of Andrews Kurth LLP. Mrs. Shannon is active in community activities serving as the Chair of the Finance Committee and the Governance Committee +of the board of directors of the Harris County Health Alliance and a member of the board of directors of the Harris County Health and Human Services Foundation. She previously served as the Chair of the Executive Women’s Partnership sponsored +by the Greater Houston Partnership, Chair of the Audit Committee of the board of directors of the South Texas College of Law and the chair of the Endowment Board of Palmer Memorial Episcopal Church and was a participant in the American Leadership +Forum. Mrs. Shannon received her J.D. cum laude from Southern Methodist University Dedman School of Law in 1976 and her Bachelor of Arts degree from Baylor University in 1971. Mrs. Shannon’s experience as an attorney, as a partner +with Andrews Kurth LLP, as general counsel for a public company for more than 15 years and as a director for numerous other organizations provides our Board of Directors with important insights into public company obligations, corporate governance +and board functions. +Non-Employee Directors Continuing in Office +Dr. Stephen A. Holditch. Dr. Holditch, age 65, was a shareholder in and advisor to Matador Petroleum Corporation and +is an original shareholder in Matador Resources Company. He was first elected to our Board of Directors in January 2004 and currently serves as chair of the Board’s Engineering Committee. He is a professor in the Harold Vance Department of +Petroleum Engineering at Texas A&M University and is Director of the Texas A&M University Energy Institute. From January 2004 to January 2012, he was Head of the Harold Vance Department of Petroleum Engineering at Texas A&M University. +Prior to that, he was with Schlumberger Limited, a leading oilfield services provider, as a Fellow, one of only a handful of technical experts so recognized with this title in that company. In this position, Dr. Holditch advised top management +within Schlumberger Limited on production and reservoir engineering matters. Dr. Holditch joined Schlumberger in 1997, following Schlumberger Limited’s acquisition of S. A. Holditch & Associates, Inc., the consulting company he +founded and grew over 20 years into a preeminent engineering firm worldwide in the analysis of low permeability natural gas reservoirs and the design of hydraulic fracture treatments. During the latter half of the 1980s and into the 1990s, +Dr. Holditch expanded the services offered by S. A. Holditch & Associates, building the company from three employees in 1977 to more than 80 employees in 1998. At the time of its sale to Schlumberger in 1997, S. A. Holditch & +Associates had become a full-service petroleum engineering consulting company. From 1974 to 1976, Dr. Holditch worked as an independent consulting engineer on reservoir studies, well completions and fracture treatment design for numerous +clients in east and south Texas. During that period, he also attended Texas A&M University to earn a PhD degree in Petroleum Engineering and conducted research in reservoir flow behavior in fractured, low permeability natural gas reservoirs. +From 1970 to 1974, he was a Production Engineer with Shell Oil Company, an integrated energy company, where his responsibilities included production engineering for numerous oil and natural gas fields, well completions and massive hydraulic fracture +treatment designs in several deep, geopressured fields in south Texas. From 1968 to 1969, he worked for Pan American Petroleum Corporation as a field engineer on various projects in east Texas. Dr. Holditch received Bachelor and Master of +Science degrees in Petroleum Engineering from Texas A&M University in 1969 and 1970, respectively, and a PhD degree in Petroleum Engineering from Texas A&M University in 1976. Dr. Holditch was President of the Society of Petroleum +Engineers, International (SPE) in 2002 and served on the Society’s board of directors from 1998 to 2003. In addition, he served as a Trustee for the American Institute of Mining, Metallurgical, and Petroleum Engineers from 1997 to 1998. He was +also on the board of directors of Triangle Petroleum Corporation, an oil and natural gas exploration corporation, from February 2006 to December 2011. He has received numerous awards in recognition of his technical achievements and leadership. In +1995, Dr. Holditch was elected to the National Academy of Engineering, the highest professional honor awarded to an engineer. In 1997, he was elected to the Russian Academy of Natural Sciences, and in 1998, Dr. Holditch was elected to the +Petroleum Engineering Academy of Distinguished Graduates at Texas A&M University. In 2010, he was named a Distinguished Alumnus of the Dwight Look College of Engineering at Texas A&M University. +15 +Table of Contents +Dr. Holditch received the SPE Distinguished Service Award for Petroleum Engineering Faculty in 1981 and held the Shell Distinguished Chair in Petroleum Engineering at Texas A&M +University from 1983 to 1987. He was awarded the R. L. Adams Professorship in 1995. He teaches graduate level courses in formation evaluation, well stimulation and production engineering, and has actively performed and supervised research at Texas +A&M University since 1974 in a wide range of engineering areas. Dr. Holditch is a member of numerous professional societies and serves as a board member and/or trustee for several business affiliations. He has been an SPE Distinguished +Lecturer and has co-authored or edited three books and more than 100 technical papers; he has made more than 80 invited technical presentations to petroleum industry audiences. His position as Professor and former Head of the Harold Vance Department +of Petroleum Engineering at Texas A&M University, his prior positions with Schlumberger and S. A. Holditch & Associates, Inc. and his prior service on the board of directors of Triangle Petroleum Corporation provide our Board of +Directors with additional perspective on our completion and stimulation operations and other business and engineering matters. +Mr. David M. Laney. Mr. Laney, age 63, is an original shareholder in Matador Resources Company and was an original +shareholder in Matador Petroleum Corporation. He was one of the original directors on our Board of Directors in July 2003 and currently serves as lead independent director and chair of the Board’s Nominating, Compensation and Planning +Committee. He is an attorney who since March 2007 has practiced law as a solo practitioner. Between 2003 and 2007, he was a partner with the law firm of Jackson Walker LLP in Dallas where he practiced in the area of corporate and financial law. +Prior to joining Jackson Walker, Mr. Laney practiced at the law firm of Jenkens & Gilchrist, a Professional Corporation, from 1977 to 2003 and was managing partner of the Jenkens & Gilchrist law firm from 1990 to 2002. During +his tenure as Managing Partner, Jenkens & Gilchrist was recognized as one of the fastest growing firms in the country and was named by industry press as among the top 50 firms in the country (from the standpoint of size and financial +performance). From a regional law firm of roughly 160 lawyers in two Texas cities in 1990, the firm expanded under Mr. Laney’s leadership to over 625 attorneys in nine cities by the end of his tenure in 2002. Mr. Laney has also served +in several capacities as an appointee of Texas Governors William Clements and George W. Bush on various state boards continuously from 1989 through 2001. He was Governor Clements’ appointee to the Texas Finance Commission, responsible for +regulatory oversight of the state banking and thrift industries as the Texas banking system emerged from the recession and collapse of the 1980s. He then served as Governor Bush’s Texas Commissioner of Transportation (Chairman of the Texas +Department of Transportation) during the period 1995 to 2000. Mr. Laney completed his term with the Texas Department of Transportation (TxDOT) in 2001. As Commissioner of Transportation, his responsibilities were largely those of the chief +executive of TxDOT, a 14,000 employee state agency with a $5 billion annual budget. In that position, he initiated and oversaw the planning and successful execution of an extensive number of organizational and operational innovations throughout the +organization, and developed and managed TxDOT’s legislative agenda during three regular sessions of the Texas Legislature. In 2002, Mr. Laney was nominated by President George W. Bush to the board of directors of Amtrak and confirmed by +the U. S. Senate for a five-year term. In November 2007, he completed his term as Chairman of Amtrak’s board of directors. From 1998 to 2003, Mr. Laney served as a member of the Stanford University Board of Trustees, and for two years as +Chairman of its Audit Committee. Mr. Laney has also served in various capacities in connection with numerous civic and educational organizations and projects in the Dallas area. Mr. Laney’s legal experience and leadership positions in +governmental departments provide our Board of Directors with additional perspective on our corporate governance, legal and governmental relations matters and general business matters. +Mr. Gregory E. Mitchell . Mr. Mitchell, age 60, joined our Board of Directors in June 2011. With 45 years of grocery +and petroleum retailing experience, he is currently President and CEO of Toot’n Totum Food Stores, LLC, his family company, which is located in Amarillo, Texas. The company, founded in 1950, consists of 62 convenience store/fueling locations, +as well as car wash and car care centers, with an employee base of over 700 team members. His experience within the petroleum industry includes extensive negotiations with various major refiners in the United States. A 1973 graduate of the +University of Oklahoma, with a Bachelor of Business Administration degree, Mr. Mitchell was appointed by former Governor William Clements to the Texas Higher Education Coordinating Board, where he served for six years. Additionally, he has +served as Chairman of the Amarillo Chamber of Commerce, Chairman of the United Way of Amarillo and Canyon, Chairman of the Don +16 +Table of Contents +and Sybil Harrington Foundation and President of the Amarillo Area Foundation. Currently, Mr. Mitchell is a director of Cal Farley’s Boys Ranch. Mr. Mitchell’s experience as +President and CEO of his large family business and as a director of several companies in the past provides our Board of Directors with extensive business, strategic and executive leadership experience. +Dr. Steven W. Ohnimus. Dr. Ohnimus, age 65, was first elected to our Board of Directors in January 2004 and +currently serves as chair of the Board’s Operations Committee. He spent his entire professional career from 1971 to 2000 with Unocal Corporation, an integrated energy company. From 1995 to 2000, he was General Manager—Partner Operated +Ventures, where he represented Unocal’s non-operated international interests at board meetings, management committees and other high level meetings involving projects in the $200 million range in countries such as Azerbaijan, Bangladesh, China, +Congo, Myanmar and Yemen. From 1994 to 1995, Dr. Ohnimus was General Manager of Asset Analysis, where he managed and directed planning, business plan budgeting and scenario plans for the domestic and international business unit with an asset +portfolio totaling $5.5 billion. From 1990 to 1994, Dr. Ohnimus was Vice President and General Manager, Unocal Indonesia, located in Balikpapan, operating five offshore fields and one onshore liquid extraction plant and employing 1,200 +nationals and 50 expatriates. From 1989 to 1990, he served as Regional Operations Manager in Anchorage, Alaska, and from 1988 to 1989, he was District Operations Manager in Houma, Louisiana. From 1981 to 1988, Dr. Ohnimus was in various +management assignments in Houston and Houma, Louisiana, and from 1971 to 1981 he handled various technical assignments in reservoir, production and drilling in the Gulf Coast area (Houston, Van, Lafayette and Houma). From 1975 to 1979, +Dr. Ohnimus was Assistant Professor of Petroleum Engineering at the University of Southwest Louisiana (now University of Southern Louisiana) where he taught a total of eleven undergraduate and graduate night classes. In 1980, he taught drilling +seminars at the University of Texas Petroleum Extension Service of the International Association of Drilling Contractors (IADC). Dr. Ohnimus has authored several published papers concerning reservoir recompletion and increased recovery. +Dr. Ohnimus received his Bachelor of Science degree in Chemical Engineering from the University of Missouri at Rolla in 1968, a Master of Science degree in Petroleum Engineering from the University of Missouri at Rolla in 1969 and a PhD degree +in Petroleum Engineering from the University of Missouri at Rolla in 1971. Dr. Ohnimus served as a director of the American Petroleum Institute in 1978 and 1979, served as Session Chairman for the Society of Petroleum Engineers’ Annual +Convention in 1982, was the Evangeline Section Chairman of the Society of Petroleum Engineers in 1978 and 1979 and served as President of the Unocal Credit Union from 1986 to 1988. In 2007, he was elected President of the Unocal Gulf Coast Alumni +Club, which reports through the Chevron Retirees Association. He still holds that position. In June 2008, Dr. Ohnimus was elected as the vice chairman of the advisory board of Western Standard Energy Corp. (OTCBB:WSEG), an oil and natural gas +exploration company. Due to his long oil and natural gas industry career and significant operational and international experience, Dr. Ohnimus provides valuable insight to our Board of Directors on our drilling and completion operations and +management, as well as providing a global technology and operations perspective. +Special Board Advisors +In addition to our Board of Directors, we have three individuals who have significant oil and natural gas experience or +legal, accounting and other business experience who advise our Board of Directors on various matters. Other than indemnification agreements in form similar to those entered into with our directors and officers, we have not entered into written +agreements with these individuals with respect to their service as special advisors to our Board of Directors. Their business histories are described below: +Mr. Marlan W. Downey. Mr. Downey worked for Shell Oil Company, an integrated energy company, from 1957 to 1987. In 1977, he moved to Shell Oil’s International +Exploration & Production business and became Vice President of Shell, and then President of Shell Oil’s newly-formed international subsidiary, Pecten International. Mr. Downey joined ARCO International in 1990 as Senior Vice +President of Exploration, becoming President of ARCO International and then Senior Vice President and Executive Exploration Advisor to ARCO International. Mr. Downey retired from ARCO in 1996. He is a fellow of the American Association for the +Advancement of Science. Mr. Downey is a past President of the American Association of Petroleum +17 +Table of Contents +Geologists (“AAPG”) and is Chief Scientist—Sarkeys Energy Center at Oklahoma University. Mr. Downey is the 2009 recipient of the AAPG’s Sidney Powers Medal, which is the +highest honor awarded by the AAPG. He is also active in several international scientific organizations and serves on boards of the Institute for the Study of Earth and Man, and the Reves Institute for International Studies at William and Mary. +Mr. Downey received a Bachelor of Arts degree in Chemistry in 1952 at Peru State College in Nebraska. He served in the Army in Korea and the Philippines, then entered graduate school at the University of Nebraska, and received a Bachelor of +Science degree in 1956 and a Master of Science degree in Geology in 1957. Mr. Downey previously served on Matador Petroleum Corporation’s board of directors with Mr. Foran. He has served as a special advisor since our inception in +July 2003 and currently serves as chair of the Board’s Prospect Committee and on the Engineering Committee. +Mr. Edward R. Scott, Jr. Mr. Scott is a successful Amarillo, Texas lawyer, civic leader and businessman, managing a +varied portfolio of real estate and development-related concerns. Currently, he is the primary developer for two residential developments in Amarillo: Pheasant Run and The Greenways. He serves as primary owner of Document Shredding & +Storage which services the entire Panhandle area, Sparky’s Storage Solutions in Amarillo, Texas and is part owner in several car washes in the Lubbock, Abilene and Dallas/Fort Worth areas. From 1968 to 1996, Mr. Scott was an attorney with +the Amarillo law firm of Gibson, Ochsner & Adkins. From 1965 to 1968, he served as an accountant with Price Waterhouse & Co. Mr. Scott received his Bachelor of Business Administration degree in Accounting from West Texas State +University in 1962 and an LLB from The University of Texas School of Law in 1965. Mr. Scott has previously served as a director and chairman of the Amarillo Economic Development Corporation and is currently serving as a board member of the +Salvation Army, Amarillo Area Foundation, as well as the Amarillo Club. He is a past President of the Rotary Club of Amarillo, the Amarillo Businessmen’s Club, the Amarillo Club, Big Brothers and Big Sisters and the Amarillo Business +Foundation. He is a former chairman of the Amarillo Board of City Development and a former member of the Board of Regents for West Texas State University. Mr. Scott has previously served as an officer and/or board member to many other local +civic and/or charitable organizations. He is a member of the Texas Bar Association, the Amarillo Bar Association, the Texas Society of Certified Public Accountants and the Panhandle Chapter of the Texas Society of Certified Public Accountants. +Mr. Scott is an original shareholder in both Matador Resources Company and the former Matador Petroleum Corporation. He was an original director on the Matador Resources Company Board of Directors and served as chair of the Audit Committee for +eight years until his retirement from the Board in June 2011. +Mr. W.J. “Jack” Sleeper, Jr. +Mr. Sleeper has over 55 years of experience evaluating oil and gas properties. Mr. Sleeper joined DeGolyer and MacNaughton, a petroleum consulting firm, as a Petroleum Engineer in 1965. He performed numerous field studies in +North and South America, the North Sea and the Middle East. Mr. Sleeper retired as President and Chief Operating Officer of DeGolyer and MacNaughton on January 1, 1995. He served on DeGolyer and MacNaughton’s board of +directors from 1978 until his retirement. Upon his graduation from the University of Oklahoma with a Bachelor of Science degree in Petroleum Engineering (with Distinction) in 1955, he was employed by Shell Oil Company, an integrated energy +company, as an Exploitation Engineer. During his 10 years with Shell he spent three years performing research at Shell Development Company in the fields of Reservoir Engineering, Geology and Petrophysics. He held the titles of Project +Engineer, Senior Exploitation Engineer and Senior Production Geologist during his tenure with Shell. Mr. Sleeper has served on the Mewborne Petroleum and Geological Board of Advisors at the University of Oklahoma since 1995. He +is a Licensed Professional Engineer (retired) in the states of Oklahoma and Texas. Mr. Sleeper previously served on Matador Petroleum Corporation’s board of directors with Mr. Foran. He has served as a special advisor since +our inception in July 2003. He currently serves on our Operations Committee, Engineering Committee and Prospect Committee. +The Board of Directors recommends that you vote FOR both of the Nominees. +18 +Table of Contents +PROPOSAL 2—ADVISORY VOTE ON NAMED EXECUTIVE OFFICER +COMPENSATION +The Company seeks a non-binding advisory vote from its shareholders regarding the compensation of its Named +Executive Officers as described in this Proxy Statement. +As discussed in the Compensation Discussion and Analysis section of +this Proxy Statement, we believe the Company’s future success and the ability to create long-term value for our shareholders depends on our ability to attract, retain and motivate highly qualified individuals in the oil and natural gas +industry. Additionally, we believe that our success also depends on the continued contributions of our Named Executive Officers. The Company’s compensation system plays a significant role in its ability to attract, motivate, and retain a high +quality workforce. As described in the Compensation Discussion and Analysis, the Company’s Named Executive Officer compensation program is designed to reward, in both the short-term and the long-term, performance that contributes to the +implementation of our business strategies, maintenance of our culture and values and the achievement of our objectives. In addition, we reward qualities that we believe help achieve our business strategies such as teamwork; individual performance in +light of general economic and industry-specific conditions; relationships with shareholders and vendors; the ability to manage and enhance production from our existing assets; the ability to explore new opportunities to increase oil and natural gas +production; the ability to identify and acquire additional acreage; the ability to increase year-over-year proved reserves; the ability to control unit production costs; level of job responsibility; industry experience; and general professional +growth. +This proposal provides shareholders the opportunity to endorse or not endorse the Company’s executive +compensation program through the following resolution: +“Resolved, that the compensation paid to the Company’s Named +Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.” +Because this is an advisory vote, it will not be binding upon the Board of Directors. However, the Nominating, Compensation and Planning +Committee will take into account the outcome of the vote when considering future executive compensation arrangements. +The Board of Directors recommends that you vote FOR approval of this resolution. +19 +Table of Contents +PROPOSAL 3—ADVISORY VOTE ON THE FREQUENCY OF ADVISORY +VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION +The Company seeks a non-binding advisory vote from its shareholders +regarding the desired frequency for holding an advisory vote to approve the compensation of our Named Executive Officers as described in our annual proxy statements. +This proposal gives shareholders the opportunity to express their views as to whether the advisory vote on the Company’s Named Executive Officer compensation program should occur every one, two or +three years. Because this vote is advisory, it will not be binding upon the Board of Directors. However, the Board of Directors will take into account the outcome of the vote when deciding the frequency of the non-binding advisory vote on the +Company’s executive compensation program. +The Board of Directors recommends that a non-binding advisory vote to approve +the compensation of our executive officers as disclosed in the Company’s proxy statements occur annually. +While the +Board believes this recommendation is appropriate at this time, shareholders are not voting to approve or disapprove this recommendation, but are instead asked to provide an advisory vote on whether the non-binding advisory vote on the approval of +the Company’s Named Executive Officer compensation should be held every one, two or three years. +The Board of +Directors recommends that you vote FOR “1 year” on this proposal. +20 +Table of Contents +PROPOSAL 4—APPROVAL OF OUR 2012 LONG-TERM INCENTIVE +PLAN +Effective January 1, 2012, the Board of Directors of the Company adopted the Matador Resources Company 2012 +Long-Term Incentive Plan (the “2012 Plan”). The 2012 Plan enables the Company to remain competitive and innovative in its ability to attract, motivate, reward, and retain the services of key employees, certain key contractors, and +non-employee directors. Currently, the 2012 Plan provides for the granting of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards which may +be granted singly, in combination, or in tandem, and which may be paid in cash or shares of Common Stock. If the shareholders approve the 2012 Plan, the Company will also be able to grant incentive stock options (“ISOs”). The 2012 Plan +provides flexibility to the Company’s compensation methods in order to adapt the compensation of employees, contractors, and non-employee directors to a changing business environment, after giving due consideration to competitive conditions and +the impact of federal tax laws. If the shareholders do not approve the 2012 Plan, the Company will not be permitted to grant ISOs; however, the 2012 Plan will remain in effect for all other types of awards permitted thereunder. +Description of the 2012 Plan +The following is a brief description of the 2012 Plan. A copy of the 2012 Plan is attached as Appendix A to this Proxy Statement, and the following description is qualified in its entirety by reference to +the 2012 Plan. +Effective Date and Expiration . The 2012 Plan became effective on January 1, 2012 and will +terminate on January 1, 2022. No awards may be made under the 2012 Plan after its expiration date, but awards made prior thereto may extend beyond that date. +Share Authorization . Subject to certain adjustments, the number of shares that may be issued pursuant to awards under the 2012 Plan is 4,000,000 shares of Common Stock. If the shareholders approve +the 2012 Plan, 100% of the authorized shares may be delivered pursuant to ISOs. Subject to certain adjustments, with respect to any participant who is an officer of the Company subject to Section 16 of the Exchange Act, or a “covered +employee” as defined in Section 162(m)(3) of the Code, a maximum of 500,000 shares may be granted in any one year in the form of any award to such participant. +Shares to be issued may be made available from authorized but unissued shares of Common Stock, shares held by the Company in its treasury, or shares purchased by the Company on the open market or +otherwise. During the term of the 2012 Plan, the Company will at all times reserve and keep enough shares available to satisfy the requirements of the 2012 Plan. If any shares of Common Stock subject to an award shall not be issued or transferred to +a participant and shall cease to be issuable or transferable to a participant because of the forfeiture, termination, expiration or cancellation, in whole or in part, of such award or for any other reason, the shares not so issued or transferred, or +the shares so reacquired by the Company, as the case may be, shall no longer be charged against the maximum number of shares reserved under the 2012 Plan and may be used thereafter for additional awards. The following additional parameters shall +apply: +(a) To the extent an award under the 2012 Plan is settled or paid in cash, shares subject to such award will not be +considered to have been issued and will not be applied against the maximum number of shares of Common Stock reserved under the 2012 Plan. +(b) If an award may be settled in shares of Common Stock or cash, such shares shall be deemed issued only when and to the extent that settlement or payment is actually made in shares of Common Stock. To +the extent an award is settled or paid in cash, and not shares of Common Stock, any shares previously reserved for issuance or transfer pursuant to such award will again be deemed available for issuance or transfer under the 2012 Plan, and the +maximum number of shares of Common Stock that may be issued or transferred under the 2012 Plan shall be reduced only by the number of shares actually issued and transferred to the participant. +21 +Table of Contents +(c) Notwithstanding the foregoing, (i) shares withheld or tendered to pay withholding +taxes or the exercise price of an award shall not again be available for the grant of awards under the 2012 Plan, and (ii) the full number of shares subject to a stock option or stock appreciation right granted that are settled by the issuance +of shares shall be counted against the shares authorized for issuance under this 2012 Plan, regardless of the number of shares actually issued upon the settlement of such stock option or stock appreciation right. +(d) Any shares repurchased by the Company on the open market using the proceeds from the exercise of an award shall not increase the +number of shares available for the future grant of awards. +Administration . The 2012 Plan is administered by the Board +of Directors or a committee of the Board of Directors (the “Plan Committee”) consisting of two or more members. At any time there is no Plan Committee to administer the 2012 Plan, any reference to the Plan Committee is a reference to the +Board of Directors. The Plan Committee will determine the persons to whom awards are to be made, determine the type, size, and terms of awards, interpret the 2012 Plan, establish and revise rules and regulations relating to the 2012 Plan and make +any other determinations that it believes necessary for the administration of the 2012 Plan. The Plan Committee may delegate certain duties to one or more officers of the Company as provided in the 2012 Plan. +Eligibility . Employees (including any employee who is also a director or an officer), contractors, and non-employee directors of +the Company or its subsidiaries whose judgment, initiative and efforts contributed to or may be expected to contribute to the successful performance of the Company are eligible to participate in the 2012 Plan. As of April 26, 2012, the Company +had 44 employees, seven non-employee directors, and six contractors eligible for awards under the 2012 Plan. +Stock +Options . The Plan Committee may grant nonqualified stock options. If the shareholders approve the 2012 Plan, the Company also may grant ISOs qualifying under Section 422 of the Code, provided that only employees of the Company and its +subsidiaries (excluding subsidiaries that are not corporations) are eligible to receive ISOs. Stock options may not be granted with an option price less than 100% of the fair market value of a share of Common Stock on the date the stock option is +granted. If an ISO is granted to an employee who owns or is deemed to own more than 10% of the combined voting power of all classes of stock of the Company (or any parent or subsidiary), the option price shall be at least 110% of the fair market +value of a share of Common Stock on the date of grant. The Plan Committee will determine the terms of each stock option at the time of grant, including without limitation, the methods by or forms in which shares will be delivered to participants. +The maximum term of each option, the times at which each option will be exercisable, and provisions requiring forfeiture of unexercised options at or following termination of employment or service generally are fixed by the Plan Committee, except +that the Plan Committee may not grant stock options with a term exceeding 10 years. +Recipients of stock options may pay the +option price: (i) in cash, check, bank draft or money order payable to the order of the Company; (ii) by delivering to the Company shares of Common Stock already owned by the participant having a fair market value equal to the aggregate +option price and that the participant has not acquired from the Company within six months prior to the exercise date; (iii) by delivering to the Company or its designated agent an executed irrevocable option exercise form together with +irrevocable instructions from the participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares purchased upon the exercise of the option or to pledge such shares to the broker as collateral for a loan from +the broker and to deliver to the Company the amount of sale or loan proceeds necessary to pay the purchase price; and (iv) by any other form of valid consideration that is acceptable to the Plan Committee in its sole discretion. +Stock Appreciation Rights . The Plan Committee is authorized to grant stock appreciation rights (“SARs”) as a stand alone +award, or freestanding SARs, or in conjunction with options granted under the 2012 Plan, or tandem SARs. SARs entitle a participant to receive an amount equal to the excess of the fair market value of a share of Common Stock on the date of exercise +over the fair market value of a share of Common Stock on the date of grant. The grant price of a SAR cannot be less than 100% of the fair market value of a share on the date of grant. The Plan Committee will determine the terms of each SAR at the +time of the grant, including without +22 +Table of Contents +limitation, the methods by or forms in which shares will be delivered to participants. The maximum term of each SAR, the times at which each SAR will be exercisable, and provisions requiring +forfeiture of unexercised SARs at or following termination of employment or service generally are fixed by the Plan Committee, except that no freestanding SAR may have a term exceeding 10 years and no tandem SAR may have a term exceeding the term of +the option granted in conjunction with the tandem SAR. +Restricted Stock and Restricted Stock Units . The Plan Committee +is authorized to grant restricted stock and restricted stock units. Restricted stock consists of shares of Common Stock that may not be sold, transferred, pledged, hypothecated, encumbered, or otherwise disposed of, and that may be forfeited in the +event of certain terminations of employment or service, prior to the end of a restricted period as specified by the Plan Committee. Restricted stock units are the right to receive shares of Common Stock at a future date in accordance with the terms +of such grant upon the attainment of certain conditions specified by the Plan Committee, which include a substantial risk of forfeiture and restrictions on their sale or other transfer by the participant. The Plan Committee determines the eligible +participants to whom, and the time or times at which, grants of restricted stock or restricted stock units will be made, the number of shares or units to be granted, the price to be paid, if any, the time or times within which the shares covered by +such grants will be subject to forfeiture, the time or times at which the restrictions will terminate, and all other terms and conditions of the grants. Restrictions or conditions could include, but are not limited to, the attainment of performance +goals (as described below), continuous service with the Company, the passage of time, or other restrictions or conditions. The value of the restricted stock units may be paid in shares, cash, or a combination of both, as determined by the Plan +Committee. +Dividend Equivalent Rights . The Plan Committee is authorized to grant a dividend equivalent right to any +participant either as a component of another award or as a separate award, conferring on participants the right to receive cash or shares of Common Stock equal in value to dividends paid on a specific number of shares or other periodic payments. The +terms and conditions of the dividend equivalent right shall be specified by the grant. If a dividend equivalent right is granted as a component of another award, the dividend equivalent right may contain terms and conditions that are different from +such other award. Dividend equivalents credited to the holder of a dividend equivalent right may be paid currently or may be deemed to be reinvested in additional shares. Any such reinvestment shall be at the fair market value at the time thereof. A +dividend equivalent right may be settled in cash, shares, or a combination thereof. +Performance Awards . The Plan +Committee may grant performance awards payable in cash, shares of Common Stock, a combination thereof, or other consideration at the end of a specified performance period. Payment will be contingent upon achieving pre-established performance goals +(as discussed below) by the end of the performance period. The Plan Committee will determine the length of the performance period, the maximum payment value of an award, and the minimum performance goals required before payment will be made, so long +as such provisions are not inconsistent with the terms of the 2012 Plan, and to the extent an award is subject to Section 409A of the Code, are in compliance with the applicable requirements of Section 409A of the Code and any applicable +regulations or guidance. To the extent the Company determines that Section 162(m) of the Code shall apply to a performance award granted under the 2012 Plan, it is the intent of the Company that performance awards constitute +“performance-based compensation” within the meaning of Section 162(m) of the Code and the regulations thereunder. Further, if complying with Section 162(m) of the Code, no participant may receive performance awards in any +calendar year which have an aggregate value of more than $10,000,000, and if such awards involve the issuance of Common Stock, the aggregate value shall be based on the fair market value of such shares at the time of grant of such awards. In certain +circumstances, the Plan Committee may, in its discretion, determine that the amount payable with respect to certain performance awards will be reduced from the amount of any potential awards. However, the Plan Committee may not, in any event, +increase the amount of compensation payable to an individual upon the attainment of a performance goal intended to satisfy the requirements of Section 162(m) of the Code. With respect to a performance award that is not intended to satisfy the +requirements of Section 162(m) of the Code, if the Plan Committee determines in its sole discretion that the established performance measures or objectives are no longer suitable because of a change in the Company’s business, operations, +corporate structure, or for other reasons that the Plan Committee deems satisfactory, the Plan Committee may modify the performance measures or objectives and/or the performance period. +23 +Table of Contents +Performance Goals . Awards of restricted stock, restricted stock units, performance +awards and other awards (whether relating to cash or shares of Common Stock) under the 2012 Plan may be made subject to the attainment of performance goals relating to one or more business criteria, which, where applicable, shall be within the +meaning of Section 162(m) of the Code and consist of one or more or any combination of the following criteria (the “Performance Criteria”): earnings (either in the aggregate or on a per-share basis); net income; operating income; +operating profit; cash flow; shareholder returns, including returns on assets, investment, invested capital and equity (and including income applicable to common shareholders or other class of shareholders); return measures (including return on +assets, equity, or invested capital); total shareholder return (change in share price plus reinvestment of dividends into shares when declared, if any, from period to period); earnings before or after either, or any combination of, interest, taxes, +depletion, depreciation, amortization or other non-cash items (EBITDA); gross revenues; reduction in expense levels in each case, where applicable, determined either on a Company-wide basis or in respect to any one or more subsidiaries or business +units thereof; economic value or economic value added; market share or market share added; annual net income to Common Stock; earnings per share or growth in earnings per share; annual cash flow provided by operations; changes in annual revenues; +strategic and operational business criteria, consisting of one or more objectives based on specified revenue, market penetration, geographic business expansion goals, objectively identified project milestones, production volume levels, cost targets, +lease operating expenses, G&A expenses, finding and development costs, reserves or reserves added, reserve replacement ratio and goals relating to acquisitions or divestures; or goals relating to specific environmental compliance measures and +safety and accident rates. +For the Performance Criteria listed above, the Plan Committee may designate whether a particular +Performance Criterion is to be measured on a pre-tax basis or post-tax basis. In addition, certain Performance Criteria may be stated in reference to a production volume of measurement such as in per cubic feet equivalents (e.g., per Mcfe, MMcfe or +Bcfe). Any Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company and may be measured relative to a peer group or index. Any Performance Criteria may include or exclude: +(i) extraordinary, unusual, and/or non-recurring items of gain or loss; (ii) gains or losses on the disposition of a business; (iii) changes in tax or accounting regulations or laws; (iv) the effect of a merger or acquisition, as +identified in the Company’s quarterly, periodic and annual earnings releases; or (v) other similar occurrences. In all other respects, Performance Criteria shall be calculated in accordance with the Company’s financial statements, +under generally accepted accounting principles, or under a methodology established by the Plan Committee prior to the issuance of an award. However, to the extent Section 162(m) of the Code is applicable, the Plan Committee may not in any event +increase the amount of compensation payable to an individual upon the attainment of a Performance Goal. +Other Awards . +The Plan Committee may grant other forms of awards payable in cash or shares if the Plan Committee determines that such other form of award is consistent with the purpose and restrictions of the 2012 Plan. The terms and conditions of such other form +of award shall be specified by the grant. Such other awards may be granted for no cash consideration, for such minimum consideration as may be required by applicable law, or for such other consideration as may be specified by the grant. +Vesting, Forfeiture, Assignment . The Plan Committee, in its sole discretion, may determine that an award will be immediately +vested in whole or in part, or that all or any portion may not be vested until a date, or dates, subsequent to its date of grant, or until the occurrence of one or more specified events, subject in any case to the terms of the 2012 Plan. If the Plan +Committee imposes conditions upon vesting, then, except as otherwise provided below, subsequent to the date of grant the Plan Committee may, in its sole discretion, accelerate the date on which all or any portion of the award may be vested. +“Full Value Awards” (i.e., restricted stock or restricted stock units) that constitute performance awards must vest no earlier than one year after the date of grant, and Full Value Awards that are payable upon the completion of future +services must vest no earlier than over the three year period commencing on the date of grant. Notwithstanding the foregoing, the Plan Committee may, in its sole discretion, accelerate the vesting or waive any applicable restriction period for such +Full Value Awards, provided that the shares of Common Stock subject to such awards shall be Exempt Shares (as defined in +24 +Table of Contents +the 2012 Plan), unless such acceleration or waiver occurs by reason of the participant’s death, disability, retirement, or occurrence of a change in control. The number of Exempt Shares is +limited to 10% of the number of shares available for issuance under the 2012 Plan. +The Plan Committee may impose on any +award, at the time of grant or thereafter, such additional terms and conditions as the Plan Committee determines, including terms requiring forfeiture of awards in the event of a participant’s termination of service. The Plan Committee will +specify the circumstances under which performance awards may be forfeited in the event of a termination of service by a participant prior to the end of a performance period or settlement of awards. Except as otherwise determined by the Plan +Committee, restricted stock will be forfeited upon a participant’s termination of service during the applicable restriction period. +Awards granted under the 2012 Plan generally are not assignable or transferable except by will or by the laws of descent and distribution, except that the Plan Committee may, in its discretion and +pursuant to the terms of an award agreement, permit certain transfers of nonqualified stock options or SARs to: (i) the spouse (or former spouse), children or grandchildren of the participant (“Immediate Family Members”); (ii) a +trust or trusts for the exclusive benefit of such Immediate Family Members; (iii) a partnership in which the only partners are (1) such Immediate Family Members and/or (2) entities which are controlled by Immediate Family Members; +(iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision; or (v) a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor +provision, provided that (x) there shall be no consideration for any such transfer, (y) the applicable award agreement pursuant to which such award is granted must be approved by the Plan Committee and must expressly provide for such +transferability and (z) subsequent transfers of transferred awards shall be prohibited except those by will or the laws of descent and distribution. +Adjustments Upon Changes in Capitalization . In the event that any dividend or other distribution, recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, +consolidation, split-up, spin-off, split-off, combination, subdivision, repurchase, or exchange of shares of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase shares of Common Stock or other securities +of the Company, or other similar corporate transaction or event affects the fair value of an award, then the Plan Committee shall adjust any or all of the following so that the fair value of the award immediately after the transaction or event is +equal to the fair value of the award immediately prior to the transaction or event: (i) the number of shares and type of Common Stock (or the securities or property) which thereafter may be made the subject of awards, (ii) the number of +shares and type of Common Stock (or other securities or property) subject to outstanding awards, (iii) the number of shares and type of Common Stock (or other securities or property) specified as the annual per-participant limitation under the +2012 Plan, (iv) the option price of each outstanding award, (v) the amount, if any, the Company pays for forfeited shares in accordance with the terms of the 2012 Plan, and (vi) the number of shares subject to or the exercise price of +then outstanding SARs, to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall remain subject to exercise (if applicable) at the same aggregate exercise price; provided however, +that the number of shares of Common Stock (or other securities or property) subject to any award shall always be a whole number. Notwithstanding the foregoing, no adjustment shall be made or authorized to the extent that such adjustment would cause +the 2012 Plan or any stock option to violate Section 422 of the Code or Section 409A of the Code. All such adjustments must be made in accordance with the rules of any securities exchange, stock market, or stock quotation system to which +the Company is subject. +Amendment or Discontinuance of the 2012 Plan . The Board of Directors may, at any time and from +time to time, without the consent of the participants, alter, amend, revise, suspend or discontinue the 2012 Plan in whole or in part; provided, however, that: (i) no amendment that requires shareholder approval in order for the 2012 Plan and +any awards under the 2012 Plan to continue to comply with Sections 162(m), 421, and 422 of the Code (including any successors to such sections, or other applicable law) or any applicable requirements of any securities exchange or inter-dealer +quotation system on which the Company’s stock is listed or traded, shall be effective unless such amendment is approved by the requisite vote of the Company’s shareholders entitled to vote +25 +Table of Contents +on the amendment; and (ii) unless required by law, no action by the Board of Directors regarding amendment or discontinuance of the 2012 Plan may adversely affect any rights of any +participants or obligations of the Company to any participants with respect to any outstanding award under the 2012 Plan without the consent of the affected participant. +Notwithstanding the foregoing, repricing of stock options and SARs or other downward adjustments in the exercise price of previously granted stock options or SARs, respectively, are prohibited, except in +connection with a corporate transaction involving the Company such as any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares, +provided that the terms of outstanding awards may not be amended without shareholder approval to reduce the exercise price of outstanding stock options or SARs or cancel outstanding stock options or SARs in exchange for cash, other awards or stock +options or SARs having an exercise price that is less than the exercise price of the original stock option or SAR. +Federal Income Tax Consequences +The following is a brief summary of certain federal income tax consequences relating to the transactions described under the 2012 Plan as set forth below. This summary does not purport to address all +aspects of federal income taxation and does not describe state, local or foreign tax consequences. This discussion is based upon provisions of the Code and the treasury regulations issued thereunder, and judicial and administrative interpretations +under the Code and treasury regulations, all as in effect as of the date hereof and all of which are subject to change (possibly on a retroactive basis) or different interpretation. +Law Affecting Deferred Compensation . In 2004, Section 409A was added to the Code to regulate all types of deferred +compensation. If the requirements of Section 409A of the Code are not satisfied, deferred compensation and earnings thereon will be subject to tax as it vests, plus an interest charge at the underpayment rate plus 1% and a 20% penalty tax. +Certain performance awards, stock options, stock appreciation rights, restricted stock units, and certain types of restricted stock are subject to Section 409A of the Code. +Incentive Stock Options . If the shareholders approve the 2012 Plan, a participant will not recognize income at the time an ISO is +granted. When a participant exercises an ISO, a participant also generally will not be required to recognize income (either as ordinary income or capital gain). However, to the extent that the fair market value (determined as of the date of grant) +of the shares with respect to which the participant’s ISOs are exercisable for the first time during any year exceeds $100,000, the ISOs for the shares over $100,000 will be treated as nonqualified stock options, and not ISOs, for federal tax +purposes, and the participant will recognize income as if the ISOs were nonqualified stock options. In addition to the foregoing, if the fair market value of the shares received upon exercise of an ISO exceeds the exercise price, then the excess may +be deemed a tax preference adjustment for purposes of the federal alternative minimum tax calculation. The federal alternative minimum tax may produce significant tax repercussions depending upon the participant’s particular tax status. +The tax treatment of any shares acquired by exercise of an ISO will depend upon whether the participant disposes of his or +her shares prior to two years after the date the ISO was granted or one year after the shares were transferred to the participant (referred to as the “Holding Period”). If a participant disposes of shares acquired by exercise of an ISO +after the expiration of the Holding Period, any amount received in excess of the participant’s tax basis for such shares will be treated as short-term or long-term capital gain, depending upon how long the participant has held the shares. If +the amount received is less than the participant’s tax basis for such shares, the loss will be treated as short-term or long-term capital loss, depending upon how long the participant has held the shares. +If the participant disposes of shares acquired by exercise of an ISO prior to the expiration of the Holding Period, the disposition will +be considered a “disqualifying disposition.” If the amount received for the shares is greater than the fair market value of the shares on the exercise date, then the difference between the ISO’s +26 +Table of Contents +exercise price and the fair market value of the shares at the time of exercise will be treated as ordinary income for the tax year in which the “disqualifying disposition” occurs. The +participant’s basis in the shares will be increased by an amount equal to the amount treated as ordinary income due to such “disqualifying disposition.” In addition, the amount received in such “disqualifying disposition” +over the participant’s increased basis in the shares will be treated as capital gain. However, if the price received for shares acquired by exercise of an ISO is less than the fair market value of the shares on the exercise date and the +disposition is a transaction in which the participant sustains a loss which otherwise would be recognizable under the Code, then the amount of ordinary income that the participant will recognize is the excess, if any, of the amount realized on the +“disqualifying disposition” over the basis of the shares. +Nonqualified Stock Options . A participant +generally will not recognize income at the time a nonqualified stock option is granted. When a participant exercises a nonqualified stock option, the difference between the option price and any higher market value of the shares of Common Stock on +the date of exercise will be treated as compensation taxable as ordinary income to the participant. The participant’s tax basis for the shares acquired under a nonqualified stock option will be equal to the option price paid for such shares, +plus any amounts included in the participant’s income as compensation. When a participant disposes of shares acquired by exercise of a nonqualified stock option, any amount received in excess of the participant’s tax basis for such shares +will be treated as short-term or long-term capital gain, depending upon how long the participant has held the shares. If the amount received is less than the participant’s tax basis for such shares, the loss will be treated as short-term or +long-term capital loss, depending upon how long the participant has held the shares. +Special Rule if Option Price is Paid +for in Shares . If a participant pays the option price of a nonqualified stock option with previously-owned shares of Common Stock and the transaction is not a disqualifying disposition of shares previously acquired under an ISO, the shares +received equal to the number of shares surrendered are treated as having been received in a tax-free exchange. The participant’s tax basis and holding period for these shares received will be equal to the participant’s tax basis and +holding period for the shares surrendered. The shares received in excess of the number of shares surrendered will be treated as compensation taxable as ordinary income to the participant to the extent of their fair market value. The +participant’s tax basis in these shares will be equal to their fair market value on the date of exercise, and the participant’s holding period for such shares will begin on the date of exercise. +If the use of previously acquired shares to pay the exercise price of a nonqualified stock option constitutes a disqualifying disposition +of shares previously acquired under an ISO, the participant will have ordinary income as a result of the disqualifying disposition in an amount equal to the excess of the fair market value of the shares surrendered, determined at the time such +shares were originally acquired on exercise of the ISO, over the aggregate option price paid for such shares. As discussed above, a disqualifying disposition of shares previously acquired under an ISO occurs when the participant disposes of such +shares before the end of the Holding Period. The other tax results from paying the exercise price with previously-owned shares are as described above, except that the participant’s tax basis in the shares that are treated as having been +received in a tax-free exchange will be increased by the amount of ordinary income recognized by the participant as a result of the disqualifying disposition. +Restricted Stock . A participant who receives restricted stock generally will recognize as ordinary income the excess, if any, of the fair market value of the shares granted as restricted stock at +such time as the shares are no longer subject to forfeiture or restrictions, over the amount paid, if any, by the participant for such shares. However, a participant who receives restricted stock may make an election under Section 83(b) of the +Code within 30 days of the date of transfer of the shares to recognize ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the restrictions on such shares) +over the purchase price, if any, of such shares. If a participant does not make an election under Section 83(b) of the Code, then the participant will recognize as ordinary income any dividends received with respect to such shares. At the time +of sale of such shares, any gain or loss realized by the participant will be +27 +Table of Contents +treated as either short-term or long-term capital gain (or loss) depending on the holding period. For purposes of determining any gain or loss realized, the participant’s tax basis will be +the amount previously taxable as ordinary income, plus the purchase price paid by the participant, if any, for such shares. +Stock Appreciation Rights . Generally, a participant who receives a stand-alone SAR will not recognize taxable income at the time +the stand-alone SAR is granted, provided that the SAR is exempt from or complies with Section 409A of the Code. If a participant receives the appreciation inherent in the SARs in cash, the cash will be taxed as ordinary income to the recipient +at the time it is received. If a participant receives the appreciation inherent in the SARs in stock, the spread between the then current market value and the grant price, if any, will be taxed as ordinary income to the employee at the time it is +received. In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of SARs. However, upon the exercise of a SAR, the Company will be entitled to a deduction equal to the amount of ordinary income +the recipient is required to recognize as a result of the exercise. +Other Awards . In the case of an award of +restricted stock units, performance awards, dividend equivalent rights, or other stock or cash awards, the recipient will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on +the date of payment or delivery, provided that the award is exempt from or complies with Section 409A of the Code. In that taxable year, the Company will receive a federal income tax deduction in an amount equal to the ordinary income which the +participant has recognized. +Federal Tax Withholding . Any ordinary income realized by a participant upon the exercise +of an award under the 2012 Plan is subject to withholding of federal, state, and local income tax and to withholding of the participant’s share of tax under the Federal Insurance Contribution Act and the Federal Unemployment Tax Act. To satisfy +federal income tax withholding requirements, the Company will have the right to require that, as a condition to delivery of any shares of Common Stock, the participant remit to the Company an amount sufficient to satisfy the withholding +requirements. Alternatively, the Company may withhold a portion of the shares (valued at fair market value) that otherwise would be issued to the participant to satisfy all or part of the withholding tax obligations or may, if the Company consents, +accept delivery of shares with an aggregate fair market value that equals or exceeds the required tax withholding payment. Withholding does not represent an increase in the participant’s total income tax obligation, since it is fully credited +toward his or her tax liability for the year. Additionally, withholding does not affect the participant’s tax basis in the shares. Compensation income realized and tax withheld will be reflected on Forms W-2 supplied by the Company to employees +by January 31 of the succeeding year. Deferred compensation that is subject to Section 409A of the Code will be subject to certain federal income tax withholding and reporting requirements. +Tax Consequences to the Company . To the extent that a participant recognizes ordinary income in the circumstances described above, +the Company will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the +meaning of Section 280G of the Code, and is not disallowed by the $1,000,000 limitation on certain executive compensation under Section 162(m) of the Code. +Million Dollar Deduction Limit and Other Tax Matters . At some point in the future, the Company will be subject to Section 162(m) which will not permit the Company to deduct compensation of +more than $1,000,000 that is paid to an individual who, on the last day of the taxable year, is either the Company’s principal executive officer or an individual who is among the three highest compensated officers for the taxable year (other +than the principal executive officer or the principal financial officer). This limitation on deductions does not apply to certain types of compensation, including qualified performance-based compensation. To the extent that the Company determines +that Section 162(m) of the Code will apply to any awards granted pursuant to the 2012 Plan, the Company intends that such awards will be constructed so as to constitute qualified performance-based compensation and, as such, will be exempt from +the $1,000,000 limitation on deductible compensation. +28 +Table of Contents +If an individual’s rights under the 2012 Plan are accelerated as a result of a change +in control and the individual is a “disqualified individual” under Section 280G of the Code, the value of any such accelerated rights received by such individual may be included in determining whether or not such individual has +received an “excess parachute payment” under Section 280G of the Code, which could result in (i) the imposition of a 20% federal excise tax (in addition to federal income tax) payable by the individual on the value of such +accelerated rights, and (ii) the loss by the Company of a compensation deduction. +New Plan Benefits +The Company cannot currently determine all the benefits or number of shares subject to awards that may be granted in the +future to eligible participants under the 2012 Plan because the grant of awards and terms of such awards are to be determined in the sole discretion of the Plan Committee. No equity grants were made under the Company’s 2003 Stock and Incentive +Plan (the “2003 Plan”) during 2011. Since January 1, 2012, certain grants have been made under the 2012 Plan which are reflected in the table below: +Name and Position +Dollar Value +(1) +Number of +Shares +Joseph Wm. Foran, Chairman of the Board, Chief Executive Officer and President (2) +$ +931,415 +140,364 +David E. Lancaster, Executive Vice President, Chief Operating Officer and Chief Financial Officer (2) +$ +493,531 +74,375 +Matthew V. Hairford, Executive Vice President—Operations (2) +$ +377,406 +56,875 +Wade I. Massad, Executive Vice President—Capital Markets (3) +$ +1,042,822 +150,000 +David F. Nicklin, Executive Director — +Exploration (2) +$ +355,637 +53,594 +Bradley M. Robinson, Vice President—Reservoir Engineering (2) +$ +232,250 +35,000 +Executive Group (2),(4) +$ +3,631,445 +540,104 +Non-Executive Director Group (5) +$ +131,215 +11,907 +Non-Executive Officer Employee and Contractor +Group (2) +$ +2,896,556 +435,439 +(1) +The dollar value is based on the grant date fair value of shares awarded under the 2012 Plan computed in accordance with FASB ASC Topic 718, without regard to any +anticipated forfeitures. +(2) +Includes shares underlying stock options, time-based restricted stock and performance-based restricted stock and restricted stock units. +(3) +Stock options. +(4) +Includes grants made to Scott E. King. +(5) +Time-based restricted stock units. +The fair market value of the Common Stock is $11.43 per share based on the closing price of the Common Stock on April 26, 2012. +The affirmative vote of the holders of a majority of the shares of the Company’s voting securities represented in person or by proxy +at the Annual Meeting entitled to vote on such proposal that vote for or against such proposal is required for approval of the 2012 Plan. If the shareholders do not vote for the approval of the 2012 Plan, the 2012 Plan will remain in effect; +however, ISOs will not be granted pursuant to the 2012 Plan. +The Board of Directors recommends that you vote FOR +approval of the 2012 Long-Term Incentive Plan. +29 +Table of Contents +PROPOSAL 5 — RATIFICATION OF THE APPOINTMENT OF +GRANT THORNTON LLP +The Audit Committee has appointed Grant Thornton LLP (“Grant Thornton”) as the independent +registered public accounting firm of the Company for the fiscal year ending December 31, 2012, and the Board of Directors has directed that such appointment be submitted to our shareholders for ratification at the Annual Meeting. If the +shareholders do not ratify the appointment of Grant Thornton, the Audit Committee will reconsider the appointment. +The +Company has been advised by Grant Thornton that the firm has no relationship with the Company or its subsidiaries other than that arising from the firm’s engagement as auditors. +The Company has been advised that representatives of Grant Thornton will be present at the Annual Meeting where they will have an +opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. +Fees of Independent Registered Public Accounting Firm for Fiscal Years 2011 and 2010 +The following table presents fees for professional audit services rendered by Grant Thornton for the audits of the Company’s annual +financial statements for the years ended December 31, 2011 and 2010, and fees for other services rendered by Grant Thornton during those periods: +2011 +2010 +Audit fees +$ +811,549 +$ +187,620 +Audit-related fees +— +— +Tax fees +— +— +All other fees +4,650 +— +Total +$ +816,199 +$ +187,620 +Services rendered by Grant Thornton in connection with fees presented above were as follows: +Audit Fees +For fiscal years 2011 and 2010, audit fees include fees associated with the audits of our annual financial statements and reviews of our quarterly financial statements for inclusion in our registration +statements, final prospectus and Form 10-K, and providing the underwriters with comfort letters on certain information contained in our registration statements and final prospectus. +Audit-Related Fees +We did not incur any audit-related fees in 2010 or 2011. +Tax Fees +We did not incur any fees for tax advice, planning and other services in 2010 or 2011. +All Other Fees +For fiscal year 2011, all other fees included use of online research tools. We did not incur other fees in this category in 2010. +The Audit Committee pre-approves all audit and permissible non-audit services provided by Grant Thornton. These services may include audit services, audit-related services, tax services and other +services. The +30 +Table of Contents +Audit Committee has authorized the chair of the Audit Committee to pre-approve audit and permissible non-audit services provided by Grant Thornton up to $750,000. Pursuant to this delegation, the +decisions of the chair must be presented to the Audit Committee at its next meeting. +Report of the Audit +Committee +We are a standing committee comprised of independent directors as currently defined by SEC regulations and the +applicable listing standards of the NYSE. The Board of Directors has determined that two of the members of the Audit Committee are “audit committee financial experts” as defined by applicable SEC rules and regulations. We operate under a +written charter adopted by the Board of Directors. A copy of the charter is available free of charge on the Company’s website at www.matadorresources.com under “Investors—Corporate Governance.” +We annually select the Company’s independent auditors. If the shareholders do not ratify the appointment of Grant Thornton at the +Annual Meeting, the Audit Committee will reconsider the appointment of the independent auditors. +Management is responsible +for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards +generally accepted in the United States of America and issuing a report thereon. As provided in our charter, our responsibilities include the monitoring and oversight of these processes. +Consistent with our charter responsibilities, we have met and held discussions with management and the independent auditors. In this +context, management and the independent auditors represented to us that the Company’s consolidated financial statements for the fiscal year ended December 31, 2011 were prepared in accordance with U.S. generally accepted accounting +principles. We reviewed and discussed the consolidated financial statements with management and the independent auditors and discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61, as +amended. +The Company’s independent auditors have also provided to us the written disclosures and the letter required by +applicable requirements of The Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee, and we discussed with the independent auditors that firm’s independence. We also +considered whether the provision of non-audit services is compatible with maintaining the independent auditors’ independence and concluded that such services have not impaired the auditors’ independence. +Based upon our reviews and discussions with management and the independent auditors and our review of the representation of management +and the report of the independent auditors to the Audit Committee, we recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended +December 31, 2011 filed with the SEC. +Audit Committee, +Charles L. Gummer, Chair +David M. Laney +Steven W. Ohnimus +Michael C. Ryan +Vote Required +The affirmative vote of the holders of a majority of the +shares of the Company’s voting securities represented in person or by proxy at the Annual Meeting entitled to vote on such proposal that vote for or against +31 +Table of Contents +such proposal is required for the ratification of the appointment of Grant Thornton as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2012. If the shareholders do not ratify the appointment of Grant Thornton, the Audit Committee will reconsider the appointment. +The Board of Directors recommends that you vote FOR the ratification of the appointment of Grant Thornton as the Company’s independent registered public accounting firm for the fiscal year +ending December 31, 2012. +32 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +In this compensation discussion and analysis, we discuss our compensation objectives, our decisions and the rationale behind those decisions relating to compensation for 2011 for our principal executive +officer, our principal financial officer, our other three most highly compensated executive officers and Wade I. Massad, our Executive Vice President—Capital Markets. Furthermore, this compensation discussion and analysis discusses our +decisions to date regarding compensation for 2012 and the rationale behind those decisions. This compensation discussion and analysis provides a general description of our compensation program and specific information about its various components. +Named Executive Officers +Throughout this discussion, the following individuals are referred to as the “Named Executive Officers” and are included in the Summary Compensation Table: +• +Joseph Wm. Foran, Chairman of the Board, Chief Executive Officer and President; +• +David E. Lancaster, Executive Vice President, Chief Operating Officer and Chief Financial Officer; +• +Matthew V. Hairford, Executive Vice President—Operations; +• +Wade I. Massad, Executive Vice President—Capital Markets; +• +David F. Nicklin, Executive Director—Exploration; and +• +Bradley M. Robinson, Vice President—Reservoir Engineering. +Objectives of Our Compensation Program +Our future success and the ability to create long-term value for our shareholders depends on our ability to attract, retain and motivate highly qualified individuals in the oil and natural gas industry. +Additionally, we believe that our success also depends on the continued contributions of our Named Executive Officers. Our executive compensation program is designed to provide a comprehensive compensation program to meet the following objectives: +• +to be fair to both the executive and the Company; +• +to attract and retain talented and experienced executives with the skills necessary for us to execute our business plan; +• +to provide opportunities to achieve a total compensation level that is competitive with comparable positions at companies with which we compete for +executives; +• +to align the interests of our executive officers with the interests of our shareholders and with the performance of our Company for long-term value +creation; +• +to provide financial incentives to our executives to achieve our key corporate and individual objectives; +• +to provide an appropriate mix of fixed and variable pay components to establish a “pay-for-performance” oriented compensation program; +• +to foster a shared commitment among executives by coordinating their corporate and individual goals; +• +to provide compensation that takes into consideration the education, professional experience and knowledge that is specific to each job and the unique +qualities the executive provides; and +• +to recognize an executive’s commitment and dedication in his job performance and in support of our culture. +33 +Table of Contents +What Our Compensation Program Is Designed to Reward +Our compensation program is designed to reward, in both the short-term and the long-term, performance that contributes to the +implementation of our business strategies, maintenance of our culture and values and the achievement of our objectives. In addition, we reward qualities that we believe help achieve our business strategies such as teamwork; individual performance in +light of general economic and industry-specific conditions; relationships with shareholders and vendors; the ability to manage and enhance production from our existing assets; the ability to explore new opportunities to increase oil and natural gas +production; the ability to identify and acquire additional acreage; the ability to increase year-over-year proved reserves; the ability to control unit production costs; level of job responsibility; industry experience; and general professional +growth. +2011 +Elements of Our 2011 Compensation Program and Why We Paid Each Element +For +2011, our management compensation program was comprised of the following three elements: +• +Base Salary . We paid base salary to reward an executive for his assigned responsibilities, experience, leadership and expected future +contribution. +• +Discretionary Cash Bonus . We included a discretionary cash bonus as part of our management compensation program because we believed this element +of compensation (i) helped focus and motivate management to achieve key corporate and individual objectives by rewarding the achievement of these objectives; (ii) helped retain management; (iii) rewarded our successes over the prior +year; and (iv) was necessary to be competitive from a total remuneration standpoint. +• +Benefits . We offered a variety of health and welfare programs to all eligible employees, including the executive officers other than +Mr. Nicklin. The health and welfare programs were intended to protect employees against catastrophic loss and encourage a healthy lifestyle. +In addition, in prior years, we used stock options as the primary vehicle for (i) linking our long-term performance and increases in shareholder value to the total compensation for our executive +officers and (ii) providing competitive compensation to attract and retain our executive officers. Due to the timing of our initial public offering in February 2012, we did not issue any stock options in 2011. +How We Determined Each Element of 2011 Compensation +In the first part of 2011, we had a Planning and Compensation Committee (a predecessor committee to the Nominating, Compensation and Planning Committee), and in consideration of becoming a public company +and in connection with our initial public offering, the Planning and Compensation Committee engaged Pay Governance LLC as its independent executive compensation advisory firm to assist with the development and implementation of a new executive +compensation program which we originally anticipated would become effective upon the completion of our initial public offering. +For purposes of benchmarking executive compensation, Pay Governance LLC developed a list of recommended peer companies in the oil and gas +exploration and production sector. These companies were recommended to and approved by the Planning and Compensation Committee based on their annual revenues, market capitalization, enterprise value, total assets and EBITDA (earnings before +interest, taxes, depletion, depreciation and amortization and certain other non-cash items). The compensation peer companies are as follows: +Bill Barrett Corp. +Breitburn +Energy Partners, L.P. +Clayton Williams Energy Inc. +Comstock Resources Inc. +Contango Oil & Gas Co. +Gulfport Energy Company +Penn Virginia +Corp. +Petroleum Development Corp. +Rosetta Resources, Inc. +Stone Energy +Corp. +Swift Energy Co. +Unit +Corporation +Venoco, Inc. +W&T +Offshore, Inc. +34 +Table of Contents +Mr. Foran was compared against the chief executive officer position of all 14 peer +companies. Mr. Lancaster was compared against the average of the chief financial officer position and the second highest paid position based on annual cash compensation of the 14 peer companies. Messrs. Hairford, Nicklin and Robinson were +compared against the third, fourth and fifth highest paid positions based on annual cash compensation of the peer companies, respectively. However, Gulfport Energy Company did not have a fourth and fifth highest paid position and Contango Oil and +Gas Co. and Venoco Inc. did not have a fifth highest paid position. The data regarding the peer comparison is based on information presented in their 2010 filings regarding compensation for the year ended December 31, 2009 except for Contango +Oil and Gas Co., which had a June 30, 2010 year end. +As an overall compensation philosophy for 2011, we decided to adopt +conservative pay levels as an initial strategy of becoming a public company. As we grow and build value for our shareholders through sustained high performance and shareholder returns, we plan to increase our overall compensation pay levels +gradually toward the 50th percentile of our peer group. In developing our public company compensation program for 2011, we adopted a strategy of focusing for 2011 on the 25th percentile (lowest quartile) as a general target range for benchmarking +most of our Named Executive Officer compensation. Initially for 2011, all elements of direct compensation, including base salary, annual incentive compensation and long-term incentive compensation were targeted for most of our Named Executive +Officers to provide pay opportunities in the range of the 25th percentile of our peer companies; however, as described below, based on the timing of our initial public offering, the Nominating, Compensation and Planning Committee and the Independent +Directors (as defined below, both of which are currently comprised of the same members) modified the timing of the increases in certain base salaries, determined not to use a formulaic cash incentive program for 2011 and determined not to make any +equity grants to Named Executive Officers for 2011. +2011 +Nominating, Compensation and Planning Committee +Prior to becoming a public company, in August 2011, we formed the Nominating, Compensation and Planning Committee of our Board of Directors and adopted a charter for such committee which provides a new +process for approving compensation of the Named Executive Officers. The Nominating, Compensation and Planning Committee has the authority at our expense to retain and terminate independent third-party compensation consultants and other expert +advisors. In addition, the Nominating, Compensation and Planning Committee will confirm at least annually that our incentive pay does not encourage unnecessary risk taking and review and discuss the relationship between risk management policies and +practices, corporate strategy and senior executive compensation. +With regard to all of the Named Executive Officers, the +Nominating, Compensation and Planning Committee will recommend to the independent members of our Board of Directors (the “Independent Directors”): +• +option guidelines and size of overall grants; +• +option grants and other equity and non-equity related awards; and +• +modifications or cancellations of existing grants and substitutions of new grants. +The Independent Directors are required to be independent pursuant to the listing standards of the NYSE and the rules and regulations +promulgated under the Exchange Act and Section 162(m) of the Code. +The Nominating, Compensation and Planning Committee +will annually review and make recommendations to the Independent Directors regarding the matters related to Mr. Foran’s compensation including corporate goals and objectives applicable to Mr. Foran’s compensation. The Nominating, +Compensation and Planning Committee will also evaluate Mr. Foran’s performance in light of these established goals and objectives at least annually. Based upon these evaluations, the Nominating, Compensation and Planning Committee will +make +35 +Table of Contents +recommendations to the Independent Directors regarding Mr. Foran’s annual compensation, including salary, bonus and equity and non-equity incentive compensation. The Nominating, +Compensation and Planning Committee will review and recommend to the Independent Directors with regard to Mr. Foran: +• +any employment agreement, severance agreement, change in control agreement or provision or separation agreement or amendment thereof; +• +any deferred compensation arrangement or retirement plan or benefits; and +• +any benefits and perquisites. +On an annual basis, after consultation with Mr. Foran, the Nominating, Compensation and Planning Committee will review and make recommendations to the Independent Directors on the evaluation process +and compensation structure for the other Named Executive Officers. After considering the evaluation and recommendations of Mr. Foran, the Nominating, Compensation and Planning Committee will evaluate the performance of the other Named Executive +Officers and make recommendations to the Independent Directors regarding the annual compensation of such Named Executive Officers, including salary, bonus and equity and non-equity incentive compensation. +After considering the recommendations of Mr. Foran with regard to the other Named Executive Officers, the Nominating, Compensation +and Planning Committee will review and recommend to the Independent Directors regarding the other executive officers: +• +any employment agreement, severance agreement, change in control agreement or provision or separation agreement or amendment thereof; +• +any deferred compensation arrangement or retirement plan or benefits; and +• +any benefits and perquisites. +In addition, pursuant to its charter, the Nominating, Compensation and Planning Committee will review and recommend to the Independent Directors any proposals for the adoption, amendment, modification or +termination of our incentive compensation, equity based plans and non-equity based plans. +2011 Base Salary +Based on the recommendations of Mr. Foran and Mr. Laney, the chair of the Planning and Compensation Committee, the Planning and +Compensation Committee (which consisted of Messrs. Foran, Laney, Ryan and Scott and Dr. Holditch) and the Board of Directors (other than Mr. Foran) decided that for most of 2011, except for Mr. Robinson, the base salaries for our +Named Executive Officers would remain at their 2010 levels which were as follows: +Executive Officer +2010 Base +Salary +Joseph Wm. Foran +$ +240,000 +Chairman of the Board, +Chief Executive Officer and President +David E. Lancaster +$ +240,000 +Executive Vice President, +Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +$ +240,000 +Executive Vice President—Operations +Bradley M. Robinson +$ +200,000 +Vice President—Reservoir Engineering +36 +Table of Contents +Although Mr. Nicklin is retained officially as an independent contractor, he serves as +our Executive Director—Exploration and is included and treated as a Named Executive Officer. Mr. Nicklin retired in 2000 as the Chief Geologist for ARCO and desires to maintain a measure of independence and flexibility in his schedule. +Under this independent contractor arrangement, we are able to obtain the benefit of his experience and expertise that we would otherwise not have. Based on the recommendations of Mr. Foran and Mr. Laney, the Board of Directors (other than +Mr. Foran) and the Planning and Compensation Committee decided that for most of 2011, Mr. Nicklin’s base rate would remain at $1,500 per day. +Mr. Robinson’s base salary was increased effective January 1, 2011 to $225,000. Originally, based upon the review of the base salaries paid by the compensation peer companies and +consultation with Mr. Foran (other than with regard to his base salary), the Planning and Compensation Committee and the Board of Directors (other than Mr. Foran) determined that the base salaries for the Named Executive Officers other +than Mr. Robinson and Mr. Massad (who was not an executive officer at such time) were to be increased to the following amounts upon the completion of our initial public offering: +• +Mr. Foran—$550,000 +• +Mr. Lancaster—$340,000 +• +Mr. Hairford—$275,000 +• +Mr. Nicklin—$2,000 per day of which $250 per day will be deferred until the end of the three year independent contractor agreement, provided +Mr. Nicklin’s engagement continues until that point. Payments will actually be made to his consulting company. +However, due to various delays in the timing of our initial public offering, the Nominating, Compensation and Planning Committee and the Independent Directors determined to make the increases set forth +above effective for Messrs. Lancaster, Hairford and Nicklin on December 1, 2011, and for Mr. Foran effective January 1, 2012. Mr. Foran’s increased base salary was set between the 25th-50th percentiles of base compensation +levels of the peer companies based on compensation set forth in the peer companies’ 2011 proxy statements. The increased base salaries for all other Named Executive Officers were set in the range of the 25th percentile of the compensation peer +companies for positions indicated above based on compensation set forth in the compensation peer companies’ 2011 proxy statements. +Mr. Massad was an independent contractor to us from September 2010 until November 30, 2011 and was paid $7,500 per month for such services, generally consisting of one to two days of service per +week. On December 1, 2011, we hired him as our Executive Vice President—Capital Markets with a base salary of $225,000 which was recommended by Mr. Foran and approved by the Nomination, Compensation and Planning Committee and the +Independent Directors. +2011 Cash Bonuses +Although we had originally planned to adopt an Annual Incentive Plan for 2011 and to make the 2011 incentive payments based on the Annual Incentive Plan, due to delays in the timing of our initial public +offering, the Board of Directors decided to adopt the Annual Incentive Plan effective January 1, 2012 and to make our incentive payments for 2012 performance under the Annual Incentive Plan as described below under “2012 Annual Incentive +Compensation.” +For the 2011 cash bonuses, a sub-committee of the Nominating, Compensation and Planning Committee and the +Independent Directors made recommendations regarding such bonuses for the Named Executive Officers to the Nominating, Compensation and Planning Committee and the Independent Directors in February 2012, and then the Nominating, Compensation and +Planning Committee and the Independent Directors determined the amounts of the cash bonuses to be paid to the Named Executive Officers which were as follows: Mr. Foran—$600,000, Mr. Lancaster—$350,000, +Mr. Hairford—$250,000, Mr. Nicklin—$125,000 and Mr. Robinson—$75,000. +37 +Table of Contents +The amounts of the 2011 cash bonuses for each Named Executive Officer were based upon an +evaluation of each Named Executive Officer’s performance and contributions to our growth and to meeting our 2011 company-wide performance objectives which included the following: +• +increasing proved oil and natural gas reserves at December 31, 2011 by 50% from 128.3 Bcfe at December 31, 2010, a target we achieved by +increasing our proved oil and natural gas reserves at December 31, 2011 to 193.2 Bcfe, an increase of 51% year-over-year and an increase of 62% when accounting for the 14.5 Bcfe of oil and natural gas we produced during 2011; +• +increasing the oil component of our total proved reserves at December 31, 2011 to greater than 5% oil on a gas equivalent basis and greater than +2 million barrels of proved oil reserves, a target we achieved by increasing our proved oil reserves at December 31, 2011 to approximately 3.8 million barrels, representing approximately 12% of our total proved reserves on a gas +equivalent basis; +• +doubling our Adjusted EBITDA (as defined below) for the year ended December 31, 2011 from $23.6 million for the year ended December 31, 2010, +a target we achieved by increasing our Adjusted EBITDA to $49.9 million for the year ended December 31, 2011, an increase of 111%; +• +effecting a significant shift in the percentage of our total oil and natural gas revenues attributable to oil production, a target we achieved by +increasing the percentage of our oil revenue to 21.6% of our total oil and natural gas revenues for the year ended December 31, 2011 from 7.4% from the year ended December 31, 2010; +• +maintaining operating cash costs (excluding depletion, depreciation and amortization and accretion and impairment costs) below $2.00 per Mcfe in 2011 +and improving upon the $1.97 per Mcfe achieved in 2010, a target we met by achieving operating cash costs of $1.75 per Mcfe in 2011; and +• +completing our initial public offering prior to the end of 2011, a goal we did not reach before December 31, 2011, but which we did achieve soon +thereafter when our common stock began trading on the New York Stock Exchange on February 2, 2012 and which the Nominating, Compensation and Planning Committee took into consideration when awarding 2011 cash bonuses. +Also, the Named Executive Officers’ cash bonuses reflected each officers’ contributions to the +successful acquisition of additional leasehold acreage in both the Haynesville and particularly the Eagle Ford shale plays during 2011. In addition, the Named Executive Officers’ cash bonuses in 2011 reflected the following individual +contributions. +• +Mr. Foran’s leadership in the attainment of our 2011 performance objectives as identified above, his overall direction of the initial public +offering process and his negotiation of the acquisition of approximately 6,300 gross and 4,800 net acres in DeWitt, Karnes, Wilson and Gonzales Counties, Texas in the Eagle Ford shale play from Orca ICI Development, JV; +• +Mr. Lancaster’s leadership in the attainment of our 2011 operational and financial objectives as identified above, his significant +contributions to the preparation of our initial registration statement on Form S-1 and subsequent amendments thereto during the year and his efforts leading to the amending and restating of our senior secured credit agreement, including an increase +in the borrowing base to $125 million at year-end 2011; +• +Mr. Hairford’s efforts in organizing and initiating our two-rig drilling program in the Eagle Ford shale, his contributions to the +negotiation and acquisition of the acreage in DeWitt, Karnes, Wilson and Gonzales Counties as described above, his contributions to the initial public offering process and his successful completion of Stanford University’s Graduate School of +Business flagship six week Stanford Executive Program during the summer of 2011; +• +Mr. Nicklin’s leadership of the exploration staff in the improvement of in-house processes for the geosteering of long-horizontal wells in +the Haynesville and in particularly the Eagle Ford shale plays, +38 +Table of Contents +his efforts and those of the staff in developing new exploration plays and prospects, his contributions to the initial public offering process and his specific direction of the exploration of our +Meade Peak shale prospect in southwest Wyoming; and +• +Mr. Robinson’s leadership role in coordinating our non-operated participation interests, primarily in the Haynesville shale in north +Louisiana, but also in other areas where we have non-operated participation interests, his evaluation of the business opportunity leading to the acquisition of the acreage in DeWitt, Karnes, Wilson and Gonzales Counties, his contributions to the +initial public offering process and his specific technical support of our exploration of the Meade Peak shale prospect in southwest Wyoming as well as his ongoing technical support of the exploration staff in developing new plays and prospects. +In addition, to reward Messrs. Foran, Lancaster and Hairford for their valuable contributions in connection +with the preparation of our initial public offering, the Planning and Compensation Committee (a predecessor committee to the Nominating, Compensation and Planning Committee) authorized bonus payments of $50,000, $40,000 and $20,000, respectively, in +August 2011 upon the filing of our initial registration statement on Form S-1. The Nominating, Compensation and Planning Committee and the Independent Directors ratified these bonus payments in 2011. +Pursuant to the terms of Mr. Nicklin’s independent contractor agreement, if the Board of Directors determined that he fulfilled +his duties in a reasonably satisfactory manner, his consulting company was to be paid a bonus of at least $50,000 for 2011. The $125,000 bonus amount set forth above includes the $50,000 payment under the independent contractor agreement. +Mr. Massad received a $100,000 sign-on bonus pursuant to the terms of his employment agreement since the Company had +used his services more than was originally contemplated under his arrangement. +2011 Long-Term Incentive Compensation +Although the Nominating, Compensation and Planning Committee and the Independent Directors had originally planned to make +equity grants to the Named Executive Officers in 2011 consisting of non-qualified stock options, performance shares and time-lapsed restricted shares, the Nominating, Compensation and Planning Committee and the Independent Directors decided not to +make any equity grants to Named Executive Officers in 2011 due to the timing of our initial public offering. +Benefits +We offer a variety of health and welfare programs to all eligible employees, including the executive officers other than +Mr. Nicklin. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical, pharmacy, dental, disability and life insurance. We +also have a 401(k) plan for all full time employees, including the executive officers, other than Mr. Nicklin, in which we contribute 3% of the employee’s base salary and have the discretion to match dollar-for-dollar up to an additional +4% of the employee’s elective deferral contributions. We generally do not offer perquisites to our executives, including our Named Executive Officers. However, we did guarantee the repayment of loans made to certain of our Named Executive +Officers by Comerica Bank during 2011. These loan guaranties were terminated in January 2012, and we made no payments to Comerica Bank pursuant to these loan guaranties (See “Certain Relationships and Related Party Transactions—Loan +Program”). +How We Determine Each Element of 2012 Compensation +2012 Base Salary +For 2012, after receiving input from Mr. Foran, the Nominating, Compensation and Planning Committee and the Independent Directors decided to leave the salaries for Messrs. Foran, Lancaster, Massad +and Nicklin at +39 +Table of Contents +the amounts set forth above after giving effect to the increase in Mr. Foran’s base salary to $550,000 beginning on January 1, 2012. With regard to Messrs. Hairford and Robinson, +after receiving input from Mr. Foran, the Nominating, Compensation and Planning Committee and the Independent Directors decided to increase the base salaries effective January 1, 2012 for Mr. Hairford to $300,000 and for +Mr. Robinson to $240,000. Mr. Hairford’s raise was based upon his role in completing our Eagle Ford acreage acquisition in DeWitt, Karnes, Wilson and Gonzales counties and for his leadership in initiating our ongoing drilling and +completion operations in the Eagle Ford shale. Mr. Robinson’s raise was based upon his ongoing leadership in coordinating our non-operating participation interests in the Haynesville shale and elsewhere and for his specific technical +contributions to our completion operations in the Eagle Ford shale and our exploration efforts in the Meade Peak shale. The 2012 base salaries reflect the general philosophy for 2012 of having total target compensation for the Named Executive +Officers in approximately the 25 th -50 th percentile of the compensation peer companies. +2012 Annual Incentive Compensation +Effective January 1, 2012, we adopted an Annual Incentive Plan which the Independent Directors use as guidelines to make awards. All awards made pursuant to the Annual Incentive Plan are cash awards. +Such awards are to be paid to the Named Executive Officers as soon as practicable following completion of the plan year and, in any case, within the first 135 days following the end of the plan year. +The Nominating, Compensation and Planning Committee recommends to the Independent Directors and the Independent Directors set annual +performance criteria for the Named Executive Officers based on the possible performance criteria that are set forth in the Annual Incentive Plan. Such criteria may include financial, operational and strategic performance goals for the Company, +Company performance measures and Company performance relative to peers. The Nominating, Compensation and Planning Committee also recommends to the Independent Directors and the Independent Directors set corresponding performance payment amounts that +are guidelines for actual amounts to be paid based on the achievement of such performance criteria by each Named Executive Officer. +In addition to the annual performance criteria, in order to give the Nominating, Compensation and Planning Committee and the Independent Directors flexibility, the Nominating, Compensation and Planning +Committee may make recommendations to the Independent Directors and the Independent Directors may decide after completion of our fiscal year to decrease the amount of the payments relating to the corresponding performance criteria or to increase the +amount of the payments to the Named Executive Officers. Any increase may be in response to unforeseen circumstances when the performance criteria were set. Any such increase may or may not be based on the list of performance criteria set forth in +the Annual Incentive Plan and may be made irrespective of whether any payments are made regarding the performance criteria. +For 2012, a sub-committee of the Nominating, Compensation and Planning Committee met with Pay Governance LLC and management to determine +potential criteria for the Annual Incentive Plan. As a result of these meetings, the sub-committee recommended and the Nominating, Compensation and Planning Committee and the Independent Directors determined to use the following performance criteria +as guidelines: +• +Adjusted +EBITDA (1) growth for 2012 as compared to 2011 +• +Reserves (2) growth for 2012 as compared to 2011 +(1) +We define Adjusted EBITDA as earnings before interest expense, income taxes, depletion, depreciation and amortization, accretion of asset retirement obligations, +property impairments, unrealized derivative gains and losses, non-recurring income and expenses and non-cash stock-based compensation expense, including stock option and grant expense and restricted stock grants. Adjusted EBITDA is a non-GAAP +number. +(2) +Reserves growth will be based on PV-10 at December 31, 2012, calculated using an assumed natural gas price of $4.12 per MMBtu and an assumed oil price of $100 per +Bbl. PV-10 is calculated by adding estimated future income taxes to the standardized measure of discounted future net cash flows of our reserves. PV-10 is a non-GAAP number. +40 +Table of Contents +• +Increase in stock price for 2012 as compared to our $12.00 per share initial public offering price +• +Increase in oil production for 2012 as compared to 2011 +• +Increase in “Tier One” quality net oil acreage +• +Increase in oil produced and sold on a gas equivalent basis (using 1 Bbl of oil = 6 Mcf of natural gas) +It is important to note that performance goals are part of our incentive program and do not correspond to any financial guidance that the +Company has provided to the investment community or that the Company will provide and should, therefore, not be considered as statements of our expectations or estimates. +The Nominating, Compensation and Planning Committee and the Independent Directors determined that these six criteria are general measures of our performance and are the key criteria on which management +should focus during 2012. The Independent Directors established the threshold levels of the performance criteria as representing an achievable increase over 2011, the target levels as representing a considerable but reasonable increase over 2011 and +the maximum levels as representing an exceptional increase over 2011. Since the actual payments to be made under the Annual Incentive Plan for 2012 are discretionary with the Independent Board, there is no weighting among the performance criteria. +Below are the threshold, target and maximum performance criteria. +2012 Annual Incentive Plan Metrics +Performance Metric +2011 Baseline +Threshold +Target +Maximum +Adjusted EBITDA +$49.9 million +$75.0 million +$100.0 million +$125.0 million +Reserves Growth +$248.7 million +$350.0 million +$375.0 million +$400.0 million +Stock Price/Share +$12.00 +$14.00 +$16.00 +$18.00 +Oil Production +154,000 Bbl +1.3 million Bbl +1.4 million Bbl +1.5 million Bbl +Oil Acreage (Total) +27,000 net acres +29,500 net acres +32,000 net acres +37,000 net acres +Oil as Percentage of Total Production +6% +30% +35% +40% +In making recommendations regarding the 2012 potential payment guidelines under the Annual Incentive +Plan, Pay Governance LLC made recommendations regarding the target payment guidelines. A sub-committee of the Nominating, Compensation and Planning Committee reviewed the Pay Governance LLC recommendations regarding target payment guidelines as well +as the recommendations of management regarding the threshold, target and maximum payment guidelines. Based on the review of the Pay Governance recommendations and the management recommendations which took into account the differing responsibilities +of each Named Executive Officer, the sub-committee recommended and the Nominating, Compensation and Planning Committee and the Independent Directors adopted the threshold, target and maximum payment guidelines set forth below other than with respect +to Mr. Robinson for whom management made the determination as Mr. Robinson is not expected to be a Named Executive Officer for 2012 due to the anticipation that Mr. Massad will be a Named Executive Officer for 2012 and will replace +Mr. Robinson as a Named Executive Officer. +41 +Table of Contents +The table which follows sets forth the threshold, target and maximum incentive guidelines +for the Named Executive Officers for 2012 based on the performance criteria guidelines set forth above. +Participant +Threshold +Annual +Incentive +Opportunity +as % of 2012 +Base Salary +Target +Annual +Incentive +Opportunity +as +% of 2012 +Base Salary +Maximum Annual +Incentive +Opportunity +as % of 2012 +Base Salary +Joseph Wm. Foran +38% +75% +150% +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +44% +74% +147% +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +33% +67% +133% +Executive Vice President—Operations +Wade I. Massad +25% +40% +50% +Executive Vice President—Capital Markets +David F. Nicklin (1) +29% +43% +86% +Executive Director—Exploration +Bradley M. Robinson +25% +40% +50% +Vice President—Reservoir Engineering +(1) +The target annual incentive opportunity, expressed in dollars, assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. Payments will +actually be made to his consulting company. +In early 2013, with regard to each Named Executive Officer, after +taking into account the performance criteria guidelines and all other information with regard to such Named Executive Officer, the Nominating, Compensation and Planning Committee (or sub-committee thereof) may recommend to the Independent Directors +that any Named Executive Officer be paid an annual award and the Independent Directors will determine the annual award to be paid to such Named Executive Officer, if any. The amount of such annual award may be greater than or less than the payment +opportunity based on the performance criteria guidelines so long as the annual award does not exceed 200% of the applicable Named Executive Officer’s annual base salary. +Pursuant to the terms of his employment agreement, Mr. Massad received a $150,000 bonus in early 2012 upon completion of our initial public offering due to his services to the Company and expertise +in connection with our initial public offering and his expertise and guidance regarding financing matters and capital markets. +Long-Term Incentive Plan +Effective January 1, 2012, the Board of Directors adopted the 2012 Long-Term Incentive Plan (the “2012 Plan”). This plan permits the granting of long-term equity and cash incentive awards, +including the following: +• +stock options; +• +stock appreciation rights; +• +restricted stock (time-lapse and performance-based); +• +restricted stock units (both time-lapse and performance-based); +• +performance shares; +• +performance units; +42 +Table of Contents +• +stock grants; and +• +performance cash awards. +The Board of Directors has determined not to make any additional grants of awards under the 2003 Plan, and the 2012 Plan will replace the 2003 Plan going forward. The 2012 Plan initially had 4,000,000 +shares of Common Stock or share equivalents reserved for issuance. The plan covers grants to the Named Executive Officers, key employees, consultants and non-employee directors. +After receiving recommendations from the Nominating, Compensation and Planning Committee (or a sub-committee thereof), the plan is +administered by the Independent Directors, who authorize and approve grants, including the size and terms of such grants such as vesting and the lapsing of restrictions for Named Executive Officers. For 2012, the sub-committee of the Nominating, +Compensation and Planning Committee met with Pay Governance LLC and management regarding the appropriate types and amounts of equity grants. Based upon these meetings, the sub-committee recommended and the Nominating, Compensation and Planning +Committee and the Independent Directors granted the Named Executive Officers (other than Messrs. Massad and Robinson) non-qualified stock options, time-based restricted shares and performance-based restricted stock and restricted stock units +approximately equal in value to a specified percentage of the Named Executive Officer’s salary. Since pursuant to the terms of his employment agreement, on February 1, 2012, Mr. Massad received a grant of stock options exercisable +into 150,000 shares of our Common Stock at an exercise price equal to $12.00 per share, the offering price of our initial public offering, Mr. Massad did not receive any additional equity grants. As described above, management made the grant of +non-qualified stock options, time-based restricted shares and performance-based restricted stock and restricted stock units to Mr. Robinson since he is not expected to be a Named Executive Officer for 2012. +The percentage of the Named Executive Officer’s salary for which the equity grant is approximately equivalent was recommended by the +sub-committee and adopted by the Nominating, Compensation and Planning Committee and the Independent Directors based upon the recommendations of Pay Governance LLC and the recommendations of management based upon differing levels of responsibility +of the Named Executive Officers. The stock options are equal to approximately 50% of the total value of the awards, vest 50% on the second and 50% on the fourth anniversaries of the grant date if the Named Executive Officer is still employed by us +on the vesting dates, have an exercise price of $10.49 per share and have a five year term. The time-based restricted stock comprises approximately 25% of the total value of the awards and vests 50% on the second and 50% on the fourth anniversaries +of the grant date if the Named Executive Officer is still employed by us on the vesting dates. The performance-based restricted stock and restricted stock units are equal to approximately 25% of the total value of the awards and vest after +April 15, 2015 if the Named Executive Officer is still employed by us on the vesting date with the actual amount of shares being retained, if any, and the actual number of units being converted into shares, if any, based on our percentile rank +within the peer group set forth below with regard to the annualized equivalent total shareholder return from April 16, 2012 to April 15, 2015. During the restricted period prior to vesting of the time-based restricted stock and the +performance-base restricted stock, the Named Executive Officer will be eligible to receive dividends on and vote the restricted shares. The stock options and time-based restricted stock are granted in order to facilitate retention of our Named +Executive Officers, encourage improved future results and provide a reward for future results. The performance-based restricted stock and restricted stock units align with creating value for the shareholders while further encouraging the performance +and retention of the Named Executive Officers. +In determining the value of the equity awards to be granted to the Named +Executive Officers, the sub-committee, the Nominating, Compensation and Planning Committee and the Independent Directors chose to make larger grants than are anticipated for future years due to the fact that the Named Executive Officers were +instrumental in closing our initial public offering in February 2012 and were loyal to us for a long period during which we were a private company. We expect future equity grants to be made at a lower percentage of base salary. +43 +Table of Contents +The approximate value of the 2012 equity grants as a percentage of 2012 base salary and the +number of shares underlying each grant are set forth in the table below: +Participant +% of 2012 +Base +Salary +Stock +Options +Time-Based +Restricted +Stock +Performance-Based +Restricted +Stock +Performance-Based +Restricted +Stock +Units +Joseph Wm. Foran +169 +% +80,208 +20,052 +20,052 +20,052 +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +145 +% +42,500 +10,625 +10,625 +10,625 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +126 +% +32,500 +8,125 +8,125 +8,125 +Executive Vice President— Operations +David F. Nicklin +102 +% (1) +30,625 +7,657 +7,656 +7,656 +Executive Director—Exploration +Bradley M. Robinson +97 +% +20,000 +5,000 +5,000 +5,000 +Vice President—Reservoir Engineering +(1) +The value assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. +The performance-based restricted stock and performance-based restricted stock units vest depending upon the percentile rank of our Common +Stock within the peer group described below based upon the annualized total equivalent shareholder return from April 16, 2012 to April 15, 2015 as set forth below: +Company’s Percentile Rank +within the Peer Group +Percentage of Vested +Shares +91% and Above +200% +81% – 90% +175% +71% – 80% +150% +61% – 70% +125% +51% – 60% +100% +41% – 50% +50% +40% and Below +0% +In making recommendations regarding the peer group for comparison of annualized equivalent return, Pay +Governance LLC analyzed additional oil and gas exploration and production companies with comparable revenue size (approximately $50 million to approximately $700 million), market capitalization (less than $1 billion to approximately $3.3 billion) +and competitors, especially competitors in the Eagle Ford shale due to our current emphasis on the Eagle Ford. The sub-committee consulted with Pay Governance LLC and management to determine the appropriate peer group. The final peer group +recommended by the sub-committee and selected by the Nominating, Compensation and Planning Committee and the Independent Directors for the comparison of annualized equivalent return is set forth below: +Approach Resources, Inc. +Gulfport Energy Company +Carrizo Oil & Gas, Inc. +Laredo Petroleum +Clayton Williams Energy Inc. +Penn Virginia Corporation +Comstock Resources Inc. +Petroleum Development Corporation +Crimson Exploration Inc. +Resolute Energy Corporation +Forest Oil Corporation +Rex Energy Corporation +Goodrich Petroleum Corporation +Rosetta Resources, Inc. +44 +Table of Contents +The performance-based restricted stock vests up to 100% of the shares granted. Any amounts +above 100% of the shares granted up to 200% of the shares granted will consist of the performance-based restricted stock units which will vest and be converted into a corresponding number of shares of common stock. +As described above, Mr. Massad received a grant of stock options exercisable into 150,000 shares of our Common Stock at an exercise +price equal to $12.00 per share, the offering price of our initial public offering. The stock options vest in three equal installments on each of December 1, 2012, 2013 and 2014 if Mr. Massad is still employed by us on such dates and are +10 year options. +How Elements of Our Compensation Program Are Related to Each Other +We view the various components of compensation as related but distinct with generally a significant portion of total compensation +reflecting “pay for performance.” We do not have any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation or between cash or non-cash compensation. +Accounting and Tax Considerations +Under Section 162(m) of the Code, a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1.0 +million in any taxable year, unless the compensation is performance based. Since we were not a publicly-held company until February 2012, Section 162(m) has not applied to us, and there is an exception to this deductibility limitation for a +specified period of time in the case of companies such as us that become publicly-held. +Termination of Employment +Arrangements and Independent Contractor Agreement +Employment Agreements and Independent Contractor Agreement +For 2010 and until August 8, 2011, all of the Named Executive Officers other than Messrs. Foran, Massad and Nicklin +were parties to employment agreements which provided for “at will” employment with either party being required to provide two weeks advanced notice of termination of employment. These employment agreements did not provide for any +additional payments upon termination by either party, even after a change in control, other than accrued and unused vacation. For 2010 and until August 8, 2011, Mr. Nicklin was party to an independent contractor agreement which provided +for either party being required to provide 15 days advance notice of termination. This independent contractor agreement did not provide for any additional payments upon termination by either party, even after a change in control, other than for +services performed prior to the date of termination. +As described under “Discussion Regarding Summary Compensation Table +and Grants of Plan-Based Awards Table,” in contemplation of our initial public offering, on August 9, 2011, we entered into employment agreements with Messrs. Foran, Lancaster, Hairford and Robinson and an independent contractor agreement +with Mr. Nicklin and his consulting company, and on December 1, 2011 we entered into an employment agreement with Mr. Massad. +Under the employment agreements, if one of the following occurs: +• +the Named Executive Officer dies; +• +the Named Executive Officer is totally disabled; +• +we mutually agree to end the employment agreement; +• +we dissolve and liquidate; or +• +the term of the employment agreement ends, +45 +Table of Contents +we will pay the Named Executive Officer the average of his annual bonus for the prior two years pro-rated +based on the number of complete or partial months completed during the year of termination. +Also, under the employment +agreements, if one of the following occurs: +• +the Named Executive Officer is terminated other than (i) as set forth above, (ii) by us for just cause, or (iii) in connection with a +“change in control” as described below; or +• +the Named Executive Officer terminates his employment for “good reason,” +if the Named Executive Officer is Mr. Foran, we will pay him twice his base salary and twice the average of his annual bonus for the prior two +years; if the Named Executive Officer is Messrs. Lancaster, Hairford or Massad we will pay him 1.5 times his base salary and 1.5 times the average of his annual bonus for the prior two years; and if the Named Executive Officer is Mr. Robinson, +we will pay him one year of base salary and the average of his annual bonus for the prior two years. +Finally, under the +employment agreements, upon a “change in control” and within 30 days prior to the “change in control” or within 12 months after the “change in control,” if we terminate a Named Executive Officer without just cause or +the Named Executive Officer terminates his employment with or without “good reason,” if the Named Executive Officer is Messrs. Foran, Lancaster, Hairford or Massad, we will pay him three times his base salary and three times the average of +his annual bonus for the prior two years; and if the Named Executive Officer is Mr. Robinson, we will pay him twice his base salary and twice the average of his annual bonus for the prior two years. Until Mr. Massad has been employed for +two complete calendar years, Mr. Massad’s bonus for any calendar year for which he does not have a bonus history, other than bonuses specifically contemplated by his employment agreement, will be deemed to be the same as the bonuses paid +to our Executive Vice President—Operations for such year. In addition, if Messrs. Foran, Lancaster, Hairford, Massad or Robinson are terminated or terminate their employment as set forth above in connection with a “change in control,” +all equity awards of such Named Executive Officer vest immediately prior to such termination. +“Change in control” +is defined under Section 409A of the Code as follows: +• +A change in ownership of the Company occurs on the date that, except in certain situations, results in someone acquiring more than 50% of the total +fair market value or voting power of the Company’s stock; +• +A change in effective control of the Company occurs on one of the following dates: +• +The date that a person acquires (or has acquired in a 12 month period) ownership of 30% or more of the Company’s total voting power; however, if a +person already owns at least 30% of the Company’s total voting power, the acquisition of additional control does not constitute a change in control; or +• +The date during a 12 month period where a majority of the Company’s Board of Directors is replaced by directors whose appointment or election was +not endorsed by a majority of the Board of Directors; or +• +A change in the ownership of a substantial portion of the Company’s assets occurs on the date a person acquires (or has acquired in a 12 month +period) assets of the Company having a total gross market value of at least 40% of the total gross fair market value of all of the Company’s assets immediately before such acquisition. +For purposes of the employment agreements, “good reason” means: +• +The assignment of duties inconsistent with the title of the Named Executive Officer or his current office or a material diminution of the Named +Executive Officer’s current authority, duties or responsibilities; +46 +Table of Contents +• +A diminution of the Named Executive Officer’s base salary or a material breach of the employment agreement; or +• +Other than with respect to Mr. Massad, the relocation of the Company’s principal executive offices more than 30 miles from the Company’s +present principal executive offices or the transfer of the Named Executive Officer to a place other than the Company’s principal executive offices; and +• +The action causing the “good reason” is not cured within the applicable cure period. +For purposes of the employment agreements, “just cause” means: +• +The Named Executive Officer’s continued and material failure to perform the duties of his employment consistent with his position other than due +to disability; +• +The Named Executive Officer’s failure to perform his material obligations under the employment agreement other than due to disability; +• +The Named Executive Officer’s material breach of the Company’s written policies concerning discrimination, harassment or securities trading; +• +The Named Executive Officer’s refusal or failure to follow lawful directives of the Board of Directors and any supervisors other than due to +disability; +• +The Named Executive Officer’s commission of fraud, theft or embezzlement; +• +The Named Executive Officer’s conviction or indictment of a felony or other crime involving moral turpitude; or +• +The Named Executive Officer’s intentional breach of fiduciary duty; and +• +The action causing the “just cause” is not cured within the applicable cure period. +Under Mr. Nicklin’s independent contractor agreement, if one of the following occurs: +• +he dies; +• +he is totally disabled; +• +we mutually agree to end the independent contractor agreement; +• +we dissolve and liquidate; or +• +the term of the independent contractor agreement ends, +we must pay his consulting company (i) the average of the annual bonus paid to the consulting company for the prior two years pro-rated based on the number of complete or partial months completed +during the year of termination and (ii) all accrued and vested compensation under our incentive plans. In addition, if Mr. Nicklin dies or is totally disabled during the three year term of the independent contractor agreement, his +consulting company will be paid $250 per day that Mr. Nicklin consulted for us during the term of the independent contractor agreement. +Also, under the independent contractor agreement, if one of the following occurs: +• +the independent contractor agreement is terminated by us for a reason other than as set forth above or in connection with a “change in +control” as described below; or +• +he terminates the independent contractor agreement for “good reason” (as described in connection with the employment agreements set forth +above), +we must pay an amount equal to $1,000 per full business day for the lesser of (i) the time Mr. Nicklin +consulted for us during the prior twelve months of the term of the independent contractor agreement or (ii) the time between August 9, 2011 and the date the independent contractor agreement was terminated plus accrued and vested +compensation under our equity plans. +47 +Table of Contents +Finally, under the independent contractor agreement, upon a “change in control” +(as described in connection with the employment agreements set forth above) and within 30 days prior to the “change in control” or within 12 months after the “change in control,” if we terminate Mr. Nicklin without +“just cause” (as described in connection with the employment agreements set forth above) or Mr. Nicklin terminates his independent contractor agreement with or without “good reason,” we will pay an amount equal to two times +the aggregate amount paid based on the daily rate during the prior twelve months plus accrued and vested compensation under our equity plans. +Equity Plans +The 2003 Plan provides that all awards automatically vest +upon a “change in control.” For equity grants under the 2012 Plan, vesting upon a “change in control” for Messrs. Foran, Lancaster, Hairford, Massad and Robinson mirrors the terms of their employment agreements. For +Mr. Nicklin, for equity grants under the 2012 Plan, vesting occurs if after a “change in control” Mr. Nicklin is terminated without “just cause” (as defined above) or terminates his employment with “good +reason” (as defined for Mr. Massad above) within twelve months after the “change in control.” +See the +definition of “change in control” below in the section “—Potential Payments upon Termination or Change in Control.” +The “change in control” provisions in the employment agreements and the 2003 Plan help prevent management from being distracted by rumored or actual changes in control. The “change in +control” provisions provide: +• +incentives for those Named Executive Officers to remain with us despite the uncertainties of a potential or actual change in control; +• +assurance of severance payments for terminated Named Executive Officers; and +• +access to equity compensation after a change in control. +We believe a single trigger or modified single trigger is appropriate for the following reasons: +• +to be competitive with what we believe to be the standards for payments upon a “change in control”; +• +with regard to equity, employees or independent contractors who remain after a “change in control” are treated the same as the general +shareholders who could sell or otherwise transfer their equity upon a “change in control”; and +• +since we would not exist in our present form after a “change in control,” Named Executive Officers should not have to have their compensation +dependent on the new company. +Stock Ownership Guidelines +We have adopted stock ownership guidelines for our executive officers that cover the following executive officers and designated amounts: +• +Chairman, President and Chief Executive Officer—shares equal to five times base salary; +• +Executive Vice Presidents—shares equal to two and +1 / 2 times base salary; and +• +Vice Presidents and Executive Directors—shares equal to one and +1 / 2 times base salary. +Each of the foregoing executive officers has five years from the date of the closing of our initial +public offering in which to achieve the stock ownership position. Shares which will count toward the stock ownership guidelines include time-lapse restricted shares that are still restricted and any shares held in trust by the executive +48 +Table of Contents +officer or his immediate family over which he has direct beneficial ownership interest. Shares which will not count toward the stock ownership guidelines include shares underlying unexercised +stock options, unexercised stock appreciation rights and performance-based awards for which the performance requirements have not been satisfied. +Nominating, Compensation and Planning Committee Report +We have reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and based on such review and discussions, we recommended to the +Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +Nominating, Compensation and Planning Committee +David M. Laney, Chair +Charles L. Gummer +Stephen A. Holditch +Gregory E. Mitchell +Steven W. Ohnimus +Michael C. Ryan +Margaret B. Shannon +49 +Table of Contents +Summary Compensation Table +The following table summarizes the total compensation awarded to, earned by or paid to Messrs. Foran, Lancaster, Hairford, Nicklin and +Robinson for 2010 and 2011, and for Mr. Massad for 2011 since he was not an executive officer in 2010. This table and the accompanying narrative should be read in conjunction with the Compensation Discussion and Analysis, which sets forth the +objectives and other information regarding our executive compensation program. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Option +Awards +(1) +($) +All Other +Compensation +($) +Total +($) +Joseph Wm. Foran +2011 +$ +240,000 +$ +650,000 +(2) +— +$ +18,019 +(3) +$ +908,019 +Chairman of the Board, Chief Executive Officer and President +2010 +$ +240,000 +$ +400,000 +— +$ +17,994 +(4) +$ +657,994 +David E. Lancaster +2011 +$ +248,333 +$ +390,000 +(2) +— +$ +17,150 +(5) +$ +655,483 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +2010 +$ +240,000 +$ +100,000 +$ +46,781 +$ +17,150 +(5) +$ +403,931 +Matthew V. Hairford +2011 +$ +242,917 +$ +270,000 +(2) +— +$ +17,150 +(5) +$ +530,067 +Executive Vice President—Operations +2010 +$ +240,000 +$ +150,000 +$ +31,187 +$ +17,150 +(5) +$ +438,337 +Wade I. Massad +2011 +$ +101,250 +(6) +100,000 +(2) +— +$ +8,313 +(7) +$ +209,563 +Executive Vice President—Capital Markets +David F. Nicklin +2011 +$ +320,750 +(8) +$ +125,000 +– +— +$ +445,750 +Executive Director—Exploration +2010 +$ +315,000 +(9) +$ +35,000 +$ +32,556 +— +$ +382,556 +Bradley M. Robinson +2011 +$ +225,000 +$ +75,000 +(2) +— +$ +15,831 +(10) +$ +315,831 +Vice President—Reservoir Engineering +2010 +$ +200,000 +$ +50,000 +$ +15,594 +$ +17,150 +(5) +$ +282,744 +(1) +Option awards are the grant date fair values computed in accordance with FASB ASC Topic 718. Our policy and assumptions made in the valuation of the stock options are +contained in Note 2 and Note 8 of the audited financial statements for the year ended December 31, 2011. +(2) +Reflects bonuses paid in 2011 or relating to 2011 performance. +(3) +Consists of $17,150 in 401(k) matching contributions as described in “—Benefits” and $869 in premiums reimbursed to Mr. Foran for a disability +policy covering Mr. Foran. +(4) +Consists of $17,150 in 401(k) matching contributions as described in “—Benefits” and $844 in premiums reimbursed to Mr. Foran for a disability +policy covering Mr. Foran. +(5) +Consists of $17,150 in 401(k) matching contributions as described in “—Benefits.” +(6) +Consists of independent contractor payments from January 1, 2011 through November 30, 2011 and salary for December 2011. +(7) +Consists of $8,313 in 401(k) matching contributions as described in “—Benefits.” +(8) +Based on the aggregate amount of payments made to Mr. Nicklin under his independent contractor agreement as determined by his base rate of $1,500 per day from +January 1, 2011 through November 30, 2011 and $1,750 per day for December 2011. +(9) +Based on the aggregate amount of payments made to Mr. Nicklin as determined by his base rate of $1,500 per day under his independent contractor agreement. +(10) +Consists of $15,831 in 401(k) matching contributions as described in “—Benefits.” +Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table +For 2010 and until August 8, 2011, all of our Named Executive Officers, other than Messrs. Foran, Massad and Nicklin, were parties to employment agreements with the Company that were similar in terms +with the exception of certain benefits such as salaries. Under these agreements, the employment was “at will.” Either party could terminate the employee’s employment with or without cause at any time upon the giving of two weeks +notice. There were no guaranteed payments of any kind for any of our Named Executive Officers, including Mr. Foran, in the event of a change of control. These agreements required the employee to maintain the +50 +Table of Contents +confidentiality of our trade secrets, technical data, customer lists, training manuals, financial reports and other confidential information and knowledge regarding our business. The employee was +required to deliver any property in his possession or control that is our property upon termination of employment. +For 2010 +and until August 8, 2011, Mr. Nicklin was party to an independent contractor agreement with the Company. Under this independent contractor agreement, Mr. Nicklin’s services were subject to termination upon the giving of 15 days +notice by either party. There were no guaranteed payments of any kind to Mr. Nicklin, other than reimbursement for services rendered and associated expenses through the date of termination. This agreement required Mr. Nicklin to maintain +the confidentiality of our trade secrets, technical data, customer lists, training manuals, financial reports and other confidential information and knowledge regarding our business. Mr. Nicklin was required to deliver any property in his +possession or control that is our property upon termination of his independent contractor agreement. +On August 9, 2011, +we entered into employment agreements with Messrs. Foran, Lancaster, Hairford and Robinson and an independent contractor agreement with Mr. Nicklin. +Mr. Foran . His employment agreement extends for a twenty-four month term which automatically renews each month for an additional month unless either the Company or Mr. Foran gives written +notice that the term will no longer be extended. For 2011, his base salary was $240,000. Effective January 1, 2012, his base salary is $550,000, and he is eligible to participate in our annual incentive plan and our long-term incentive plan. +See “Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Foran +upon termination of his employment and/or a “change in control.” +Mr. Lancaster . His employment +agreement extends for an eighteen month term which automatically renews each month for an additional month unless either the Company or Mr. Lancaster gives written notice that the term will no longer be extended. From January 1, 2011 +through November 30, 2011, his base salary was $240,000. Effective December 1, 2011, his base salary is $340,000, and he is eligible to participate in our annual incentive plan and our long-term incentive plan. See “Compensation +Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Lancaster upon termination +of his employment and/or a “change in control.” +Mr. Hairford . His employment agreement extends for an +eighteen month term which automatically renews each month for an additional month unless either the Company or Mr. Hairford gives written notice that the term will no longer be extended. From January 1, 2011 through November 30, 2011, +his base salary was $240,000. From December 1, 2011 through December 31, 2011, the base salary was $275,000. Effective January 1, 2012, his base salary is $300,000 and he is eligible to participate in our annual incentive plan and our +long-term incentive plan. See “Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement” regarding the payments to +be made to Mr. Hairford upon termination of his employment and/or a “change in control.” +Mr. Robinson . His employment agreement extends for a twelve month term which automatically renews each month for an +additional month unless either the Company or Mr. Robinson gives written notice that the term will no longer be extended. For 2011, his base salary was $225,000. Effective January 1, 2012, his base salary is $240,000, and he is eligible to +participate in our annual incentive plan and our long-term incentive plan. See “Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent +Contractor Agreement” regarding the payments to be made to Mr. Robinson upon termination of his employment and/or a “change in control.” +Mr. Nicklin . His independent contractor agreement extends for a thirty-six month term. From January 1, 2011 through November 30, 2011, the daily rate was $1,500 per day. Effective +December 1, 2011, the daily rate +51 +Table of Contents +is $1,750 per day that Mr. Nicklin consults for us, and if the independent contractor agreement remains in effect until the end of the thirty-six month term, we will pay an additional $250 +per day that Mr. Nicklin consulted for us during the thirty-six months. Mr. Nicklin, through his consulting company, is eligible to participate in our annual incentive plan and our long-term incentive plan. Also, for 2011, if the Board of +Directors determined that Mr. Nicklin fulfilled his duties in a reasonably satisfactory manner, his consulting company was to be paid a bonus of at least $50,000. Mr. Nicklin’s $125,000 bonus for 2011 includes this $50,000. See +“Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement— Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to +Mr. Nicklin’s consulting company upon termination of the independent contractor agreement and/or a “change in control.” +Mr. Massad. His employment agreement extends for a twelve month term which will automatically be renewed for six additional months unless either the Company or Mr. Massad gives 60 prior +days written notice that the term will not be extended beyond the initial term. His base salary is $225,000, and he is eligible to participate in our annual incentive plan and our long-term incentive plan. He received a sign-on bonus of $100,000. +See “Compensation Discussion and Analysis—How We Determine Each Element of 2012 Compensation—2012 Annual Incentive Compensation” regarding the bonus paid to Mr. Massad upon completion of our initial public offering, and see +“Compensation Discussion and Analysis—How We Determine Each Element of 2012 Compensation—Long-Term Incentive Plan” regarding the stock options granted to Mr. Massad in February 2012. See “Compensation Discussion and +Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Massad upon termination of his employment +and/or a “change in control.” +Bonuses . See “Compensation Discussion and Analysis—How We Determined +Each Element of 2011 Compensation—2011 Cash Bonuses” regarding the cash bonuses that we paid to the Named Executive Officers for 2011 and the rationale for such payments. +General. Base salary paid and the amount of cash bonuses paid for 2011 represented from 95.0% to 100% of the Named Executive +Officers’ total compensation as represented in the Summary Compensation Table with the percentages being as follows: Mr. Foran—98.0%; Mr. Lancaster—97.4%; Mr. Hairford—96.8%; Mr. Massad—96.0%; +Mr. Nicklin—100%; and Mr. Robinson—95.0%. +52 +Table of Contents +Outstanding Equity Awards at December 31, 2011 +The following table summarizes the total outstanding equity awards at December 31, 2011 for each Named Executive Officer: +Option Awards +Name +Number of +Securities +Underlying +Unexercised +Stock +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Stock +Options (#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Joseph Wm. Foran +— +— +— +— +David E. Lancaster +60,000 +— +$ +9.00 +2/7/12 +(1) +56,250 +18,750 +$ +10.00 +2/12/13 +3,750 +11,250 +$ +9.00 +2/21/20 +Matthew V. Hairford +30,000 +— +$ +9.00 +2/7/12 +(1) +67,500 +22,500 +$ +10.00 +2/12/13 +2,500 +7,500 +$ +9.00 +2/21/20 +Wade I. Massad +— +— +— +— +David F. Nicklin +15,000 +— +$ +10.00 +2/12/13 +2,500 +7,500 +$ +9.00 +2/21/20 +Bradley M. Robinson +15,000 +— +$ +9.00 +2/7/12 +(1) +22,500 +7,500 +$ +10.00 +2/12/13 +1,250 +3,750 +$ +9.00 +2/21/20 +(1) +The options expiring on February 7, 2012 were exercised on February 7, 2012. +The following table provides the vesting dates at December 31, 2011 for unvested stock options: +Vesting Date +Joseph Wm. +Foran +David E. +Lancaster +Matthew V. +Hairford +Wade I. +Massad +David F. +Nicklin +Bradley M. +Robinson +2/13/12 +— +18,750 +22,500 +— +— +7,500 +2/22/12 +— +3,750 +2,500 +— +2,500 +1,250 +2/22/13 +— +3,750 +2,500 +— +2,500 +1,250 +2/22/14 +— +3,750 +2,500 +— +2,500 +1,250 +Total Unvested Stock Options +— +30,000 +30,000 +— +7,500 +11,250 +53 +Table of Contents +Option Exercises and Stock Vested During 2011 +The following table summarizes, for the Named Executive Officers in 2011, the number of shares acquired upon exercise of stock options and +the value realized, each before payout of any applicable withholding tax: +Option Awards +Name +Number of +Shares +Acquired on +Exercise +(#) +Value +Realized on +Exercise +($) (1) +Date of +Exercise +Joseph Wm. Foran +— +— +— +David E. Lancaster +— +— +— +Matthew V. Hairford +30,000 +60,000 +6/29/11 +Wade I. Massad +— +— +— +David F. Nicklin +— +— +— +Bradley M. Robinson +— +— +— +(1) +Determined based on the difference between the $9.00 exercise price of the stock options and the fair market value of our Class A Common Stock on the date of +exercise which was $11.00 per share on June 29, 2011. +Potential Payments Upon Termination or +Change in Control +Under the 2003 Plan, all awards vest upon a change in control. Assuming there was a change in control on +December 31, 2011, the Named Executive Officers would have received the following amounts in automatic vesting of stock options based on an assumed fair market value of $12.00 per share on December 31, 2011: Mr. Foran—$0; +Mr. Lancaster—$71,250; Mr. Hairford—$67,500; Mr. Massad—$0; Mr. Nicklin —$22,500; and Mr. Robinson—$26,250. A “change in control” occurs upon any of the following events: +• +any person (or group of persons acting in concert), other than the Company or an affiliate, becomes the beneficial owner, directly or indirectly, of +voting securities representing 30% or more of the voting power of our then outstanding voting securities (with the threshold percentage being increased, not to exceed 50% for the beneficial owners of our voting securities for whom Wellington +Management Company, LLP serves as an investment advisor if those owners are deemed to be a “group” for this purpose); +• +our Board of Directors ceases to consist of a majority of continuing directors; where “continuing director” means a member of the Board who +was either (i) a member of the Board at October 31, 2008 or (ii) nominated, appointed or approved, following nomination by our shareholders, to serve as a director by a majority of the then continuing directors; +• +our shareholders approve (i) any consolidation or merger with us or any subsidiary that results in the shareholders immediately prior to the +consolidation or merger holding less than a majority ownership interest in the outstanding voting securities of the surviving entity, (ii) any sale, lease, exchange or other transfer of all or substantially all of our assets or (iii) any +plan or proposal for our liquidation or dissolution; or +• +our shareholders accept a share exchange in which our shareholders immediately before such share exchange do not hold, immediately following such share +exchange, the total voting securities of the surviving entity in substantially the same proportion as held before the share exchange. +Employment Agreements and Independent Contractor Agreement +As described +under “Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table,” in contemplation of our initial public offering, on August 9, 2011, we entered into employment agreements with Messrs. Foran, Lancaster, +Hairford and Robinson and an independent contractor agreement with +54 +Table of Contents +Mr. Nicklin and his consulting company, and on December 1, 2011, we entered into an employment agreement with Mr. Massad. Pursuant to the terms of the employment agreements and +independent contractor agreement, we may be required to make certain payments to one or more of our Named Executive Officers upon the occurrence of certain events resulting in such Named Executive Officer’s termination. For a detailed +description of the events that may trigger such payments, see “Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor +Agreement.” +The employment agreements and the independent contractor agreement each contain a non-disclosure of +confidential information provision that requires each Named Executive Officer to maintain, both during and after employment, the confidentiality of information used by such Named Executive Officer in the performance of his job duties. +Additionally, each of the employment agreements contains a non-competition provision, pursuant to which Messrs. Foran, Lancaster, +Hairford, Massad and Robinson have agreed that: (i) for six months following termination by us for total disability, or by such Named Executive Officer for good reason, or (ii) for 12 months following termination (a) by us for just +cause, (b) by such Named Executive Officer other than for good reason, or (c) in connection with a change in control, such Named Executive Officer shall not, without our prior written consent (not to be unreasonably withheld if the Named +Executive Officer’s employment is terminated other than for good reason), directly or indirectly: (x) invest in (other than investments in publicly-owned companies which constitute not more than 1% of the voting securities of any such +company) a competing business with significant assets in the restricted area (each as defined below), or (y) participate in a competing business as a manager, employee, director, officer, consultant, independent contractor, or other capacity or +otherwise provide, directly or indirectly, services or assistance to a competing business in a position that involves input into or direction of such competing business’s decisions within the restricted area. +Similarly, Mr. Nicklin’s independent contractor agreement contains a non-competition provision pursuant to which +Mr. Nicklin has agreed that following termination: (i) by us for total disability or just cause, (ii) by Mr. Nicklin for good reason or other than for good reason, or (iii) in connection with a change in control, then for a +period of 12 months thereafter, Mr. Nicklin may not, without our prior written consent, directly or indirectly (x) invest in (other than investments in publicly-owned companies which constitute not more than 5% of the voting securities of +any such company) a competing business with significant assets in the restricted area, or (y) participate in a competing business as a manager, employee, director, officer, consultant, independent contractor, or other capacity or otherwise +provide, directly or indirectly, services or assistance to a competing business in a position that involves input into or direction of the competing business’s decisions within the restricted area. +For purposes of the employment agreements and independent contractor agreement: +“competing business” means any person or entity engaged in oil and natural gas exploration, development, production and +acquisition activities; +“significant assets” means oil and natural gas reserves with an aggregate fair market value +of $25 million or more; and +“restricted area” means a one-mile radius of any oil and natural gas reserves held by +us as of the end of employee’s employment, plus any county or parish where we have significant assets as of the end of employee’s employment. However, for purposes of Mr. Nicklin’s independent contractor agreement, restricted +area means a one-mile radius of any oil and natural gas reserves held by us as of the end of the performance of his independent contractor services, plus any county or parish where we have significant assets as of the end of the performance of his +independent contractor services other than a one-mile radius of any oil and natural gas reserves held by Salt Creek Petroleum as of August 9, 2011 to the extent previously disclosed to us and any new oil and natural gas reserves that may be +approved by us after August 9, 2011. +55 +Table of Contents +See the definitions of “change in control,” “good reason” and “just +cause” set forth in “—Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement— Employment Agreements and Independent Contractor Agreement.” +Furthermore, other than Mr. Foran’s employment agreement, each employment agreement and the independent contractor agreement +contains an anti-solicitation provision, pursuant to which, during the restricted periods described above, subject to certain exceptions, Messrs. Lancaster, Hairford, Massad, Nicklin and Robinson shall not, without our prior written consent, solicit +for employment or a contracting relationship, or employ or retain any person who is or has been, within six months prior to such time, employed by or engaged as an individual independent contractor by us or our affiliates or induce or attempt to +induce any such person to leave his or her employment or independent contractor relationship with us or our affiliates. +For +the Named Executive Officer to receive any severance payments described below for termination by us without just cause, by the Named Executive Officer for good reason or, following a change in control, by us without cause or by the Named Executive +Officer with or without good reason, the Named Executive Officer must comply with the non-disclosure, non-competition and non-solicitation provisions described above. +Finally, as a condition to receiving any severance payments and other payments under their respective employment agreements or independent contractor agreement, as applicable, each Named Executive Officer +is required to execute a separation agreement and release in favor of us. +56 +Table of Contents +To describe the payments and benefits that are triggered for each event of termination, we +have created the following table estimating the payments and benefits that would be paid to each Named Executive Officer under each element of our compensation program assuming that such Named Executive Officer’s employment agreement or +independent contractor agreement, as applicable, terminated on December 31, 2011, the last day of our 2011 fiscal year. In all cases, the amounts were valued as of December 31, 2011, based upon, where applicable, an estimated fair value of +our Common Stock of $12.00 per share. The amounts in the following table are calculated as of December 31, 2011 pursuant to SEC rules and are not intended to reflect actual payments that may be made. Actual payments that may be made will be +based on the dates and circumstances of the applicable event. +Payment Upon Termination +Named Executive Officer +Category of +Payment +Upon Death +or +Total +Disability +(1) +Upon +Mutual +Agreement or +Dissolution/ +Liquidation (1) +Termination by +Us +Without Just +Cause or +by +Named Executive +Officer for +Good +Reason (1) +Termination +Following a +Change +in Control Without +Cause or by +Named +Executive Officer +With or Without +Good +Reason (11) +Joseph Wm. Foran +Salary +$ +— +$ +— +$ +480,000 +(5) +$ +720,000 +(12) +Bonus +$ +525,000 +(2) +$ +525,000 +(2) +$ +1,050,000 +(6) +$ +1,575,000 +(13) +Vesting options +$ +— +$ +— +$ +— +$ +— +Total: +$ +525,000 +$ +525,000 +$ +1,530,000 +$ +2,295,000 +David E. Lancaster +Salary +$ +— +$ +— +$ +510,000 +(7) +$ +1,020,000 +(12) +Bonus +$ +245,000 +(2) +$ +245,000 +(2) +$ +367,500 +(8) +$ +735,000 +(13) +Vesting options +$ +— +$ +— +$ +— +$ +71,250 +(14) +Total: +$ +245,000 +$ +245,000 +$ +877,500 +$ +1,826,250 +Matthew V. Hairford +Salary +$ +— +$ +— +$ +412,500 +(7) +$ +825,000 +(12) +Bonus +$ +210,000 +(2) +$ +210,000 +(2) +$ +315,000 +(8) +$ +630,000 +(13) +Vesting options +$ +— +$ +— +$ +— +$ +67,500 +(14) +Total: +$ +210,000 +$ +210,000 +$ +727,500 +$ +1,522,500 +Wade I. Massad +Salary +$ +— +$ +— +$ +337,500 +(7) +$ +675,000 +(12) +Bonus +$ +125,000 +(2),(3) +$ +125,000 +(2),(3) +$ +187,500 +(8) +$ +375,000 +(3),(13) +Vesting options +$ +— +$ +— +$ +— +$ +— +Total: +$ +125,000 +$ +125,000 +$ +525,000 +$ +1,050,0000 +David F. Nicklin +Salary +$ +21,625 +(4) +$ +— +$ +86,500 +(9) +$ +641,500 +(15) +Bonus +$ +80,000 +(2) +$ +80,000 +(2) +$ +— +$ +— +Vesting options +$ +— +$ +— +$ +— +$ +22,500 +(14) +Total: +$ +101,625 +$ +80,000 +$ +86,500 +$ +664,000 +Bradley M. Robinson +Salary +$ +— +$ +— +$ +225,000 +(10) +$ +450,000 +(5) +Bonus +$ +62,500 +(2) +$ +62,500 +(2) +$ +62,500 +(2) +$ +125,000 +(6) +Vesting options +$ +— +$ +— +$ +— +$ +26,250 +(14) +Total: +$ +62,500 +$ +62,500 +$ +287,500 +$ +601,250 +(1) +Amounts due upon death, total disability, mutual agreement, dissolution or liquidation, termination by us without cause or termination by Named Executive Officer for +good reason are payable in lump sum on the sixtieth day following the date of termination unless otherwise required by Section 409A of the Code. +(2) +Represents the average annual amount of bonuses paid to such Named Executive Officer with respect to prior two calendar years (2010-2011). +(3) +Since Mr. Massad has not been employed for two complete calendar years, Mr. Massad’s bonus for 2010 is deemed to be the same as the bonuses paid to +Mr. Hairford for 2010. +(4) +Consists of cash payment of $250 for each full business day worked by Mr. Nicklin during the term of the independent contractor agreement. +(5) +Represents two times such Named Executive Officer’s base salary as of the termination date. +57 +Table of Contents +(6) +Represents two times an amount equal to the average annual amount of bonuses paid to such Named Executive Officer with respect to prior two calendar years. +(7) +Represents 1.5 times such Named Executive Officer’s base salary as of the termination date. +(8) +Represents 1.5 times an amount equal to the average annual amount of bonuses paid to such Named Executive Officer with respect to prior two calendar years. +(9) +Consists of a cash payment of $1,000 for each full business day worked by Mr. Nicklin during the term of his independent contractor agreement. +(10) +Represents such Named Executive Officer’s base salary as of the termination date. +(11) +Amounts due following a change in control are payable in lump sum on the date which immediately follows six months from the date of termination or, if earlier, within +30 days of such Named Executive Officer’s death. +(12) +Represents three times such Named Executive Officer’s base salary as of the termination date. +(13) +Represents three times an amount equal to the average annual amount of bonuses paid to such Named Executive Officer with respect to prior two calendar years. +(14) +The employment agreements provide for accelerated and full vesting of unvested incentive awards held by a Named Executive Officer in the event that such Named Executive +Officer is terminated within 30 days prior to, or 12 months following, a “change in control.” The amount disclosed reflects the difference between an assumed fair value of our Common Stock at December 31, 2011 of $12.00 per share and +the exercise price of the unvested options that would vest upon a change in control. The 2003 Plan provides that all awards automatically vest upon a “change in control.” +(15) +Consists of a cash payment consisting of two times the aggregate of: (i) $1,500 for each full-business day worked on and between January and November 2011, +inclusive, and (ii) $1,750 for each full business day worked during December 2011. +58 +Table of Contents +DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in +Cash +($) +Stock +Awards (1)(2) +($) +All +Other +Compensation +($) +Total +($) +Charles L. Gummer +7,917 +6,000 +— +13,917 +Stephen A. Holditch +20,000 +21,250 +— +41,250 +David M. Laney +19,167 +27,250 +— +46,417 +Gregory E. Mitchell +12,917 +24,250 +— +37,167 +Steven W. Ohnimus +19,167 +27,000 +— +46,167 +Michael C. Ryan +20,000 +21,500 +— +41,500 +Edward R. Scott, Jr. (3) +15,000 +11,250 +— +26,250 +Margaret B. Shannon +12,917 +21,500 +— +34,417 +(1) +Based on the fair market value of the stock awards on the date of grant. +(2) +The following directors owned the following number of fully vested options to purchase Common Stock at December 31, 2011: Stephen A. Holditch (10,500), David M. +Laney (6,750), Steven W. Ohnimus (14,250) and Michael C. Ryan (1,500). The options are not reflected in the 2011 stock awards. On February 6, 2012, Dr. Holditch, Mr. Laney and Dr. Ohnimus exercised 2,250, 2,250 and 6,000 +option shares, respectively. +(3) +Retired from Board of Directors on June 6, 2011. +Prior to November 1, 2011, each non-employee director was paid $1,250 each month in cash for a total annual stipend of $15,000. Effective November 1, 2011 until our initial public offering, each +non-employee director became entitled to an annual cash retainer of $40,000. Each non-employee director received 250 shares of Class A Common Stock for each day of attendance at each Board meeting or committee meeting, other than telephonic +meetings. In addition, we reimburse our directors for travel, lodging and related expenses incurred in attending Board and committee meetings. Non-employee directors do not receive any other remuneration for their service as directors. +We target our non-employee directors’ compensation at the 25th percentile of the peer companies used for benchmarking the +non-employee directors’ compensation. Upon consummation of our initial public offering, our director compensation program became the following: +• +Annual cash retainer of $40,000; +• +Cash meeting fee of $1,000 per day for each day of Board and committee service; +• +The chairs of the Audit Committee and Engineering Committee each receive an additional cash retainer of $5,000 annually; and +• +Each non-employee director receives restricted stock units (“RSUs”) equal to up to $75,000 in value with the restrictions lapsing in +one-third increments on each of the first, second and third anniversaries of the date of grant. Each grant may be adjusted downward (but not upward) in value based upon the non-employee director’s attendance and contributions at Board or +committee meetings called during the period for which RSUs are due. +Each non-employee director may elect to +defer his or her RSUs until the director is no longer on the Board due to normal retirement, resignation, death, disability, failure to be re-nominated to the Board or failure to be re-elected by shareholders to the Board. When the restrictions +lapse, each RSU will give the director a share of Common Stock. +The non-employee directors follow our voluntary stock +ownership guidelines for non-employee directors. Within three years of becoming a director, each non-employee director will be expected to own $250,000 of the Company’s Common Stock and continue to hold such shares while serving as a director. +All directors presently meet this standard. Shares which will count toward the stock ownership guidelines include time-lapse restricted shares or RSUs that are still restricted and any shares held in trust by the director or his immediate family +over +59 +Table of Contents +which he has direct beneficial ownership interest. Shares which will not count toward the stock ownership guidelines include shares underlying unexercised stock options and unexercised stock +appreciation rights. +Special Board Advisor Compensation +Other than Mr. Downey, each special Board advisor is paid $1,250 each month in cash for a total annual stipend of $15,000. In +addition, other than Mr. Downey, each special Board advisor is granted 250 shares of Common Stock for each day of attendance at each Board meeting or committee meeting, other than telephonic meetings. In addition, we reimburse our special Board +advisors for travel, lodging and related expenses incurred in attending Board and committee meetings. Other than Mr. Downey, special Board advisors do not receive any other remuneration for their service as special Board advisors. From +November 1, 2011 until the completion of our initial public offering, Mr. Downey received the same compensation as our non-employee directors, and upon consummation of our initial public offering, his compensation was modified to be the +same as for the non-employee directors as described above. +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY +COMPENSATION PLANS +The following table presents the securities authorized for issuance under our equity compensation plans +as of December 31, 2011. +Plan Category +Number of +Shares to be +Issued Upon +Exercise of +Outstanding +Options, +Warrants +and +Rights +Weighted- +Average +Exercise +Price of +Outstanding +Options, +Warrants +and Rights +($) +Number of +Shares +Remaining +Available for +Future +Issuance +Under Equity +Compensation +Plans +Equity compensation plans approved by security +holders (1) +1,024,500 +$ +9.75 +— +Equity compensation plans not approved by security +holders (2) +— +— +4,000,000 +Total +1,024,500 +$ +9.75 +4,000,000 +(1) +Our Board of Directors has determined not to make any additional awards under the 2003 Plan. +(2) +Our 2012 Long-Term Incentive Plan was approved by our Board of Directors in December 2011 and took effect on January 1, 2012. +60 +Table of Contents +TRANSACTIONS WITH RELATED PERSONS +Since January 1, 2011, there has not been, nor is there currently proposed, any transaction or series of similar transactions to +which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any +of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described in “Compensation of Named Executive Officers,” and the +transactions described or referred to below. +Participation in Our Initial Public Offering +On February 7, 2012, upon the closing of our initial public offering, the following directors and executive officers purchased at +least $120,000 of Common Stock in the directed share program and from the underwriters in the offering at the initial price to the public: +Director or Executive Officer +Amount +Joseph Wm. Foran (1) +$ +1,660,800 +Charles L. Gummer +264,000 +David M. Laney (2) +684,000 +Wade I. Massad (3) +252,000 +Gregory E. Mitchell (4) +200,004 +Margaret B. Shannon +200,004 +(1) +$1,200,000 of shares were purchased by Mr. Foran and $460,800 of shares were purchased by Sage Resources, Ltd., a limited partnership owned by the Foran family, +including Mr. Foran. +(2) +$180,000 of shares were purchased by Mr. Laney, $144,000 of shares were purchased by Mr. Laney’s adult children, who gave Mr. Laney voting power of +such shares through a revocable power of attorney and $360,000 of shares were purchased by Laney Investments Ltd., for which Mr. Laney has sole voting and investment power. +(3) +$216,000 of shares were purchased by Cleveland Capital L.P. for which Mr. Massad is the co-managing member and $36,000 of shares were purchased using funds from +Mr. Massad’s Individual Retirement Account. +(4) +All of the shares were purchased by JAMAL Enterprises, LP, for which Mr. Mitchell has sole voting and investment authority. +Loan Program +During 2011, we guaranteed the repayment of loans to certain of our executive officers by Comerica Bank. The purpose of these loans was to assist our executive officers in buying shares of our Common +Stock pursuant to the exercise of stock options. We guaranteed the repayment of loans and made deposits of funds in certificates of deposit to secure our guaranties for the following executive officers at December 31, 2011: +Executive Officer and Date of Loan or Renewal +Loan +Amount +Interest +Rate +Interest Paid or +Payable +in 2011 +Maturity Date +Matthew V. Hairford; December 29, 2009; renewed October 8, 2011 +$ +310,000 +5.25 +% +$ +16,231 +April 5, 2012 +David E. Lancaster; April 30, 2009; +renewed May 30, 2011 +$ +470,000 +5.25 +% +$ +24,608 +May 29, 2012 +Bradley M. Robinson; December 29, 2008; renewed January 29, 2011 +$ +280,000 +5.25 +% +$ +14,660 +January 28, 2012 +Our Board of Directors approved the termination of the loan program on April 7, 2011 and we +terminated our guaranties and the associated pledge of our certificates of deposit with Comerica Bank relating to these loans in January 2012. We made no payments to Comerica Bank pursuant to these loan guaranties. +61 +Table of Contents +Issuance of Our Securities +In January 2011, we completed a private placement offering of shares of our Class A Common Stock. See “Business—Recent +Developments.” As detailed in the table below, several of our directors and executive officers participated in such offering on the same terms and conditions as the other investors in the offering. +Director or Executive Officer +Aggregate +Consideration +Joseph Wm. Foran +$ +1,171,500 +(1) +David M. Laney +$ +473,000 +(2) +Michael C. Ryan +$ +1,100,000 +Margaret B. Shannon (3) +$ +249,700 +(1) +Sage Resources, Ltd., which is a limited partnership owned by the Foran family, including Mr. Foran, purchased a portion of the shares for an aggregate +consideration of $346,500. +(2) +Mr. Laney’s adult children purchased a portion of the shares for an aggregate consideration of $198,000. At that time, Mr. Laney had the power to vote +his children’s shares pursuant to a revocable power of attorney. In addition, Laney Investments Ltd., for which Mr. Laney has sole voting and investment power, purchased a portion of the shares for an aggregate consideration of $275,000. +(3) +Mrs. Shannon was not a member of our Board of Directors at the time of purchase. +Procedures for Approval of Related Party Transactions +Our Board of Directors has adopted a written related party transaction policy. Pursuant to this policy, a “Related Party Transaction” is defined as a transaction (including any financial +transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness)), or series of related transactions, or any material amendment to any such transaction, involving a Related Party (as defined below) and in which we +are a participant, other than: +• +a transaction involving compensation of directors; +• +a transaction involving compensation of an executive officer or involving an employment agreement, severance agreement, change in control provision or +agreement or a special supplemental benefit for an executive officer; +• +a transaction available to all employees generally or to all salaried employees generally; +• +a transaction with a Related Party involving less than $120,000; +• +a transaction in which the interest of the Related Party arises solely from the ownership of a class of our equity securities and all holders of that +class receive the same benefit on a pro rata basis; or +• +a transaction in which the rates or charges involved therein are determined on competitive bids, or a transaction that involves the rendering of +services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. +“Related Party” means: +• +any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors or nominees for directors; +• +any person who is known by us to be the beneficial owner of more than 5.0% of our Common Stock; +• +any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, +father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, nominee for director, executive officer or a beneficial owner of more than 5.0% of our Common Stock; and +62 +Table of Contents +• +any firm, corporation or other entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons is a general +partner or executive officer or in which such person, together with all other of the foregoing persons, has a 10.0% or greater beneficial ownership interest. +Pursuant to our related party transaction policy, the Audit Committee must review all material facts of each Related Party Transaction and recommend either approval or disapproval of the Related Party +Transaction to the full Board of Directors, subject to certain limited exceptions. In determining whether to recommend approval or disapproval of the Related Party Transaction, the Audit Committee must, after reviewing all material facts of the +Related Party Transaction and the Related Party’s relationship and interest, determine whether the Related Party Transaction is fair to the Company. Further, the policy requires that all Related Party Transactions be disclosed in our filings +with the SEC and/or our website in accordance with applicable laws, rules and regulations. All of the Related Party Transactions discussed above occurred prior to the adoption of the policy except for participation in our initial public offering. +Those executive officers and directors who participated in our initial public offering negotiated with RBC Capital Markets, LLC; therefore, the related party transaction policy was not triggered. +63 +Table of Contents +SECURITY OWNERSHIP +Security Ownership of Certain Beneficial Owners and Management +The following table presents the beneficial ownership of our Common Stock as of April 26, 2012 for (i) each person beneficially +owning more than 5% of the outstanding shares of our Common Stock, (ii) each director and nominee for director of the Company, (iii) each executive officer of the Company listed in the Summary Compensation Table, and (iv) all of our +directors and executive officers as a group. Except pursuant to applicable community property laws and except as otherwise indicated, each shareholder possesses sole voting and investment power with respect to its, his or her shares. The business +address of each of our directors and executive officers is c/o Matador Resources Company, One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. The applicable percentage ownership is based on 55,507,543 shares of our Common +Stock issued as of April 26, 2012, plus, on an individual basis, the right of that individual to obtain Common Stock upon exercise of stock options within 60 days of April 26, 2012. The information is based on Form 3s, Form 4s, Schedule +13Ds and Schedule 13Gs filed through April 26, 2012. +Name +Amount and +Nature of +Ownership of +Common Stock +Percent +of Class +Directors: +Charles L. Gummer +22,500 +* +Stephen A. Holditch (1) +126,253 +* +David M. Laney (2) +711,977 +1.3 +% +Gregory E. Mitchell (3) +191,292 +* +Steven W. Ohnimus (4) +97,777 +* +Michael C. Ryan (5) +250,320 +* +Margaret B. Shannon +41,242 +* +Named Executive Officers: +Joseph Wm. Foran (6) +3,835,817 +6.9 +% +David E. Lancaster (7) +338,500 +* +Matthew V. Hairford (8) +249,050 +* +Wade I. Massad (9) +95,675 +* +David F. Nicklin (10) +69,313 +* +Bradley M. Robinson (11) +243,500 +* +All Directors and Executive Officers as a Group +(14 persons) (12) : +7,252,258 +13.0 +% +Other 5% Owners: +Wellington Management Company, LLP (13) +6,160,113 +11.1 +% +Spindrift Investors (Bermuda) L.P. (14) +2,764,802 +5.00 +% +Wellington Global Holdings, Ltd. (14) +2,764,802 +5.00 +% +* +Less than one percent (1%) +(1) +Includes 8,250 shares of Common Stock issuable to Dr. Holditch upon the exercise of stock options. +(2) +Includes 4,500 shares of Common Stock issuable to Mr. Laney upon the exercise of stock options. Also includes an aggregate of 254,250 shares held of record by +Mr. Laney’s adult children, who gave Mr. Laney voting power of such shares through a revocable power of attorney and 55,000 shares held of record by Laney Investments Ltd., for which Mr. Laney has sole voting and investment +power. +(3) +Represents shares held of record by JAMAL Enterprises, LP, for which Mr. Mitchell has sole voting and investment power. +(4) +Includes 8,250 shares of Common Stock issuable to Dr. Ohnimus upon the exercise of stock options. +(5) +Includes 1,500 shares of Common Stock issuable to Mr. Ryan upon the exercise of stock options. +(6) +Includes 1,044,933 shares of Common Stock held of record by Sage Resources, Ltd., a limited partnership owned by the Foran family, including +Mr. Foran; (ii) 4,000 shares of Common Stock held of record by the reporting person’s spouse through her Individual Retirement Account, (iii) 20,000 shares of Common Stock held of record by two of Mr. Foran’s college +age children; (iv) 135,500 shares and 50,000 shares of Common Stock held of record by The Don Foran Family Trust 2008 and The Foran Family Special Needs Trust, respectively, for which Mr. Foran is the co-trustee and over which +Mr. Foran has shared voting and investment power with other +64 +Table of Contents +members of his family; and (v) 1,208,640 shares and 1,208,640 shares of Common Stock held of record by the JWF 2011-1 GRAT and the NNF 2011-1 GRAT, respectively, for which Mr. Foran is +the trustee and over which Mr. Foran has sole voting and investment power. +(7) +Includes 82,500 shares of Common Stock issuable to Mr. Lancaster upon the exercise of stock options and 73,500 shares held of record by his Individual Retirement +Account. +(8) +Includes 95,000 shares of Common Stock issuable to Mr. Hairford upon the exercise of stock options and 3,000 shares held of record by his Individual Retirement +Account. +(9) +Includes 53,000 shares of Common Stock held by Cleveland Capital L.P. for which Mr. Massad is the co-managing member and has shared voting and investment power and +42,675 shares held of record by his Individual Retirement Account. +(10) +Includes 20,000 shares of Common Stock issuable to Mr. Nicklin upon the exercise of stock options and 34,000 shares held of record by his Individual Retirement +Account. +(11) +Includes 32,500 shares of Common Stock issuable to Mr. Robinson has the right to acquire upon the exercise of stock options and 42,000 shares held of record by his +Individual Retirement Account. +(12) +Includes an aggregate of 267,500 shares which our executive officers and directors as a group have the right to acquire within 60 days of April 26, 2012. Also +includes 979,042 shares beneficially owned by Scott E. King. +(13) +Wellington Management Company, LLP (“Wellington Management”) is an investment adviser registered under the Investment Advisers Act of 1940, as amended. +Wellington Management, in such capacity, may be deemed to share beneficial ownership over the shares held by its client accounts. Wellington Management’s address is 280 Congress Street, Boston, MA 02210. +(14) +Spindrift Investors (Bermuda) L.P. and its investment general partner may be deemed to share beneficial ownership over these shares. Their address is c/o Wellington +Management Company, LLP, 280 Congress Street, Boston, MA 02210. +65 +Table of Contents +ADDITIONAL INFORMATION +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires the Company’s executive officers, directors, and persons who own more than ten +percent of the Company’s Common Stock to file initial reports of ownership and changes in ownership with the SEC. +Additionally, SEC regulations require that the Company identify any individuals for whom one of the referenced reports was not filed on a +timely basis during the most recent fiscal year. The requirement to file such reports commenced with the Company becoming a reporting company under the Exchange Act on February 1, 2012, therefore the Company’s executive officers, +directors, and persons who own more than ten percent of the Company’s Common Stock were not subject to these filing requirements during fiscal year 2011. +Shareholder Proposals for the 2013 Proxy Statement +Shareholders’ proposals to be presented at the 2013 Annual Meeting of Shareholders, for inclusion in the Company’s Proxy +Statement and form of proxy relating to the meeting, must be received by the Company at its offices in Dallas, Texas, addressed to the Corporate Secretary of the Company, no later than January 3, 2013. Upon timely receipt of any such proposal, +the Company will determine whether or not to include such proposal in the proxy statement and proxy in accordance with applicable regulations and provisions governing the solicitation of proxies. +Director Nominations or Other Business for Presentation at the 2013 Annual Meeting +Under the Amended and Restated Bylaws of the Company, certain procedures are provided which a shareholder must follow in order to place in +nomination persons for election as directors at an Annual Meeting of Shareholders or to introduce an item of business at an Annual Meeting of Shareholders. These procedures provide, generally, that shareholders desiring to place in nomination +persons for directors, and/or bring a proper subject of business before an Annual Meeting, must do so by a written notice timely received (on or before March 19, 2013, but no earlier than February 17, 2013, for the 2013 Annual Meeting) to +the Secretary of the Company containing the name and address of the shareholder, the number of shares of the Company’s Common Stock beneficially owned by the shareholder, and a representation that the shareholder intends to appear in person or +by proxy at the meeting. If the notice relates to a nomination for director, it must also set forth the name, age, business, and residence addresses of the candidate, the candidate’s résumé or a listing of his or her +qualifications to be a director of the Company, the person’s consent to be a director if selected by the Nominating, Compensation and Planning Committee, nominated by the Board, and elected by the shareholders and any other information that +would be required to be disclosed in solicitations of proxies for the election of directors. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of +such proposed nominee to serve as director. Notice of an item of business shall include a brief description of the proposed business and any material interest of the shareholder in such business. +The Chairman of the meeting may refuse to allow the transaction of any business not presented, or to acknowledge the nomination of any +person not made, in compliance with the foregoing procedures. Copies of the Company’s Amended and Restated Bylaws are available from the Secretary of the Company. +See “Corporate Governance—Nominating, Compensation and Planning Committee” for the process for shareholders to follow to suggest a director candidate to the Nominating, Compensation and +Planning Committee for nomination by the Board. +66 +Table of Contents +Report on Form 10-K +The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the SEC, including +financial statements, was included with the Annual Report mailed to each shareholder. Shareholders may obtain without charge another copy of the Form 10-K, excluding certain exhibits, by writing to Wade I. Massad, Executive Vice +President—Capital Markets, Matador Resources Company, One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. +67 +Table of Contents +OTHER BUSINESS +Management of the Company is not aware of other business to be presented for action at the Annual Meeting; however, if other matters are +presented for action, it is the intention of the persons named in the accompanying form of proxy to vote in accordance with their judgment on such matters. +By Order of the Board of Directors, +Joseph Wm. Foran +Chairman, President and Chief Executive Officer +April 30, 2012 +68 +Table of Contents +APPENDIX A +MATADOR RESOURCES COMPANY +2012 LONG-TERM INCENTIVE PLAN +The Matador Resources Company 2012 +Long-Term Incentive Plan (the “ Plan ”) was adopted by the Board of Directors of Matador Resources Company, a Texas corporation (the “ Company ”), effective as of January 1, 2012 (the +“ Effective Date ”). +ARTICLE 1 +PURPOSE +The purpose of the Plan is to attract and retain the services of key employees, key contractors and Outside Directors of the Company and +its Subsidiaries and to provide such persons with a proprietary interest in the Company through the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance +awards, dividend equivalent rights and other awards, whether granted singly, or in combination, or in tandem, that will +(a) increase the interest of such persons in the Company’s welfare; +(b) furnish an incentive to such persons to continue their services for the Company or its Subsidiaries; and +(c) provide a means through which the Company may attract able persons as Employees, Contractors and Outside Directors. +With respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Securities Exchange Act of +1934 (the “ 1934 Act ”). To the extent any provision of the Plan or action by the Committee fails to so comply, such provision or action shall be deemed null and void ab initio , to the extent permitted by law and deemed +advisable by the Committee. +ARTICLE 2 +DEFINITIONS +For the purpose of the Plan, unless the context requires +otherwise, the following terms shall have the meanings indicated: +2.1 “ Award ” means the grant of any +Incentive Stock Option, Nonqualified Stock Option, Restricted Stock, SAR, Restricted Stock Units, Performance Award, Dividend Equivalent Right or Other Award, whether granted singly or in combination or in tandem (each individually referred to +herein as an “ Incentive ”). +2.2 “ Award Agreement ” means a written agreement +between a Participant and the Company which sets out the terms of the grant of an Award. +2.3 “ Award +Period ” means the period set forth in the Award Agreement during which one or more Incentives granted under an Award may be exercised. +2.4 “ Board ” means the Board of Directors of the Company. +2.5 “ Change in Control ” occurs upon a change in the Company’s ownership, its effective control or the +ownership of a substantial portion of its assets, as follows: +(a) Change in Ownership . A change in +ownership of the Company occurs on the date that any “Person” (as defined in Section 2.5(d) below), other than (i) the Company or any of its Subsidiaries, (ii) a trustee or other fiduciary holding securities under an +employee benefit plan of the Company or any of its Affiliates, +A-1 +Table of Contents +(iii) an underwriter temporarily holding stock pursuant to an offering of such stock or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in +substantially the same proportions as their ownership of the Company’s stock, acquires ownership of the Company’s stock that, together with stock held by such Person, constitutes more than 50% of the total fair market value or total voting +power of the Company’s stock. However, if any Person is considered to own already more than 50% of the total fair market value or total voting power of the Company’s stock, the acquisition of additional stock by the same Person is not +considered to be a Change of Control. In addition, if any Person has effective control of the Company through ownership of 30% or more of the total voting power of the Company’s stock, as discussed in paragraph (b) below, the acquisition +of additional control of the Company by the same Person is not considered to cause a Change in Control pursuant to this paragraph (a); or +(b) Change in Effective Control . Even though the Company may not have undergone a change in ownership under paragraph (a) above, a change in the effective control of the Company occurs on +either of the following dates: +(i) the date that any Person acquires (or has acquired during the 12-month +period ending on the date of the most recent acquisition by such Person) ownership of the Company’s stock possessing 30% or more of the total voting power of the Company’s stock. However, if any Person owns 30% or more of the total voting +power of the Company’s stock, the acquisition of additional control of the Company by the same Person is not considered to cause a Change in Control pursuant to this subparagraph (b)(i); or +(ii) the date during any 12-month period when a majority of members of the Board is replaced by directors whose +appointment or election is not endorsed by a majority of the Board before the date of the appointment or election; provided, however, that any such director shall not be considered to be endorsed by the Board if his or her initial assumption of +office occurs as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or +(c) Change in Ownership of Substantial Portion of Assets . A change in the ownership of a substantial portion of the Company’s assets occurs on the date that a Person acquires (or has acquired +during the 12-month period ending on the date of the most recent acquisition by such Person) assets of the Company, that have a total gross fair market value equal to at least 40% of the total gross fair market value of all of the Company’s +assets immediately before such acquisition or acquisitions. However, there is no Change in Control when there is such a transfer to (i) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to the +Company’s stock; (ii) an entity, at least 50% of the total value or voting power of the stock of which is owned, directly or indirectly, by the Company; (iii) a Person that owns directly or indirectly, at least 50% of the total value +or voting power of the Company’s outstanding stock; or (iv) an entity, at least 50% of the total value or voting power of the stock of which is owned by a Person that owns, directly or indirectly, at least 50% of the total value or voting +power of the Company’s outstanding stock. +(d) Definitions . For purposes of subparagraphs (a), +(b) and (c) above: +(i) “Person” shall have the meaning given in Section 7701(a)(1) of +the Code. Person shall include more than one Person acting as a group as defined by the Final Treasury Regulations issued under Section 409A of the Code. +(ii) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act. +(e) Interpretation . The provisions of this Section 2.5 shall be interpreted in accordance with the +requirements of the Final Treasury Regulations under Section 409A of the Code, it being the intent of the parties that this Section 2.5 shall be in compliance with the requirements of said Code Section and said Regulations. +A-2 +Table of Contents +2.6 “ Code ” means the Internal Revenue Code of 1986, as amended, +together with the published rulings, regulations and interpretations duly promulgated thereunder. +2.7 +“ Committee ” means the Committee appointed by the Board to administer the Plan in accordance with Article 3 of this Plan. +2.8 “ Common Stock ” means the common stock, par value $0.01 per share, which the Company is currently authorized to issue or may in the future be authorized to issue, or any +securities into which or for which the common stock of the Company may be converted or exchanged, as the case may be, pursuant to the terms of this Plan. +2.9 “ Company ” means Matador Resources Company, a Texas corporation, and any successor entity. +2.10 “ Contractor” means any person (including an individual, corporation or other entity), who is not an Employee, rendering bona fide services to the Company or a +Subsidiary, with compensation, provided that such services are not rendered in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company’s +securities. +2.11 “ Date of Grant ” means the effective date on which an Award is made to a Participant +as set forth in the applicable Award Agreement. +2.12 “ Dividend Equivalent Right ” means the right of +the holder thereof to receive credits based on the cash dividends that would have been paid on the shares of Common Stock specified in the Award if such shares were held by the Participant to whom the Award is made. +2.13 “ Employee ” means common law employee (as defined in accordance with the Regulations and Revenue Rulings then +applicable under Section 3401(c) of the Code) of the Company or any Subsidiary of the Company. +2.14 +“ Executive Officer ” means an officer of the Company or a Subsidiary subject to Section 16 of the 1934 Act or a “covered employee” as defined in Section 162(m)(3) of the Code. +2.15 “ Fair Market Value ” means, as of a particular date, (a) if the shares of Common Stock are listed on any +established national securities exchange, the closing sales price per share of Common Stock on the consolidated transaction reporting system for the principal securities exchange for the Common Stock on that date, or, if there shall have been no +such sale so reported on that date, on the last preceding date on which such a sale was so reported, (b) if the shares of Common Stock are not so listed but are quoted on the Nasdaq National Market System, the closing sales price per share of +Common Stock on the Nasdaq National Market System on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (c) if the Common Stock is not so listed or +quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by Nasdaq, or, if not reported by +Nasdaq, by the National Quotation Bureau, Inc., or (d) if none of the above is applicable, such amount as may be determined by the Committee (acting on the advice of an Independent Third Party, should the Committee elect in its sole discretion +to utilize an Independent Third Party for this purpose), in good faith, to be the fair market value per share of Common Stock. The determination of Fair Market Value shall, where applicable, be in compliance with Section 409A of the Code. +2.16 “ Independent Third Party ” means an individual or entity independent of the Company having +experience in providing investment banking or similar appraisal or valuation services and with expertise generally in the valuation of securities or other property for purposes of this Plan. The Committee may utilize one or more Independent Third +Parties. +A-3 +Table of Contents +2.17 “ Incentive ” is defined in Section 2.1 hereof. +2.18 “ Incentive Stock Option ” means an incentive stock option within the meaning of Section 422 +of the Code, granted pursuant to this Plan. +2.19 “ Nonqualified Stock Option ” means a nonqualified +stock option, granted pursuant to this Plan, which is not an Incentive Stock Option. +2.20 “ Option +Price ” means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock. +2.21 “ Other Award ” means an Award issued pursuant to Section 6.10 hereof. +2.22 “ Outside Director ” means a director of the Company who is not an Employee or a Contractor. +2.23 “ Participant ” means an Employee, Contractor or Outside Director of the Company or a Subsidiary to whom an Award is granted under this Plan. +2.24 “ Performance Award ” means an Award hereunder of cash, shares of Common Stock, units or rights based upon, +payable in, or otherwise related to, Common Stock pursuant to Section 6.8 hereof. +2.25 “ Performance +Goal ” means any of the goals set forth in Section 6.11 hereof. +2.26 “ Plan ” +means this Matador Resources Company 2012 Long-Term Incentive Plan, as amended from time to time. +2.27 “ Reporting +Participant ” means a Participant who is subject to the reporting requirements of Section 16 of the 1934 Act. +2.28 “ Restricted Stock ” means shares of Common Stock issued or transferred to a Participant pursuant to +Section 6.5 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement. +2.29 “ Restricted Stock Units ” means units awarded to Participants pursuant to Section 6.7 hereof, which are convertible into Common Stock at such time as such units are +no longer subject to restrictions as established by the Committee. +2.30 “ Retirement ” means any +Termination of Service solely due to retirement upon or after attainment of age sixty-five (65), or permitted early retirement as determined by the Committee. +2.31 “ SAR ” or “ stock appreciation right ” means the right to receive an amount, in cash and/or Common Stock, equal to the excess of the Fair Market Value of +a specified number of shares of Common Stock as of the date the SAR is exercised (or, as provided in the Award Agreement, converted) over the SAR Price for such shares. +2.32 “ SAR Price ” means the exercise price or conversion price of each share of Common Stock covered by a SAR, determined on the Date of Grant of the SAR. +2.33 “ Stock Option ” means a Nonqualified Stock Option or an Incentive Stock Option. +2.34 “ Subsidiary ” means (i) any corporation in an unbroken chain of corporations beginning with the Company, +if each of the corporations other than the last corporation in the unbroken chain owns stock possessing +A-4 +Table of Contents +a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described +in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner and (iii) any partnership or limited liability +company, if the partners or members thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. “Subsidiaries” means more than one of any such +corporations, limited partnerships, partnerships or limited liability companies. +2.35 “ Termination of +Service ” occurs when a Participant who is (i) an Employee of the Company or any Subsidiary ceases to serve as an Employee of the Company and its Subsidiaries, for any reason; (ii) an Outside Director of the Company or a +Subsidiary ceases to serve as a director of the Company and its Subsidiaries for any reason; or (iii) a Contractor of the Company or a Subsidiary ceases to serve as a Contractor of the Company and its Subsidiaries for any reason. Except as may +be necessary or desirable to comply with applicable federal or state law, a “Termination of Service” shall not be deemed to have occurred when a Participant who is an Employee becomes an Outside Director or Contractor or vice versa. If, +however, a Participant who is an Employee and who has an Incentive Stock Option ceases to be an Employee but does not suffer a Termination of Service, and if that Participant does not exercise the Incentive Stock Option within the time required +under Section 422 of the Code upon ceasing to be an Employee, the Incentive Stock Option shall thereafter become a Nonqualified Stock Option. Notwithstanding the foregoing provisions of this Section 2.35 , in the event an Award +issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the definition of “Termination of +Service” for purposes of such Award shall be the definition of “separation from service” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder. +2.36 “ Total and Permanent Disability ” means a Participant is qualified for long-term disability benefits under +the Company’s or Subsidiary’s disability plan or insurance policy; or, if no such plan or policy is then in existence or if the Participant is not eligible to participate in such plan or policy, that the Participant, because of a physical +or mental condition resulting from bodily injury, disease or mental disorder, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee, based upon medical +reports or other evidence satisfactory to the Committee; provided that , with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the +Code. Notwithstanding the foregoing provisions of this Section 2.36 , in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply +with the requirements of Section 409A of the Code, the definition of “Total and Permanent Disability” for purposes of such Award shall be the definition of “disability” provided for under Section 409A of the Code and +the regulations or other guidance issued thereunder. +ARTICLE 3 +ADMINISTRATION +3.1 General Administration; Establishment of Committee . Subject to the terms of this Article 3 , the Plan shall be administered by the Board or such committee of the Board as is +designated by the Board to administer the Plan (the “ Committee ”). The Committee shall consist of not fewer than two persons. Any member of the Committee may be removed at any time, with or without cause, by resolution of the +Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. At any time there is no Committee to administer the Plan, any references in this Plan to the Committee shall be deemed to refer to the Board. +Membership on the Committee shall be limited to those members of the Board who are “outside directors” under +Section 162(m) of the Code and “non-employee directors” as defined in Rule 16b-3 promulgated under the +A-5 +Table of Contents +1934 Act. The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee +present at a meeting at which a quorum is present shall be the act of the Committee. +3.2 Designation of Participants and +Awards . +(a) The Committee or the Board shall determine and designate from time to time the eligible +persons to whom Awards will be granted and shall set forth in each related Award Agreement, where applicable, the Award Period, the Date of Grant, and such other terms, provisions, limitations and performance requirements, as are approved by the +Committee, but not inconsistent with the Plan. The Committee shall determine whether an Award shall include one type of Incentive or two or more Incentives granted in combination or two or more Incentives granted in tandem (that is, a joint grant +where exercise of one Incentive results in cancellation of all or a portion of the other Incentive). Although the members of the Committee shall be eligible to receive Awards, all decisions with respect to any Award, and the terms and conditions +thereof, to be granted under the Plan to any member of the Committee shall be made solely and exclusively by the other members of the Committee, or if such member is the only member of the Committee, by the Board. +(b) Notwithstanding Section 3.2(a) , to the extent permitted by applicable law, the Board may, in its +discretion and by a resolution adopted by the Board, authorize one or more officers of the Company to (i) designate one or more Employees as eligible persons to whom Awards will be granted under the Plan and (ii) determine the number of +shares of Common Stock that will be subject to such Awards; provided, however, that the resolution of the Board granting such authority shall (x) specify the total number of shares of Common Stock that may be made subject to the Awards, +(y) set forth the price or prices (or a formula by which such price or prices may be determined) to be paid for the purchase of the Common Stock subject to such Awards, and (z) not authorize an officer to designate himself as a recipient +of any Award. +3.3 Authority of the Committee. The Committee, in its discretion, shall (i) interpret the Plan, +(ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, (iii) establish performance goals for an Award and certify the extent of their achievement and (iv) make such +other determinations or certifications and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding and +conclusive on all interested parties. The Committee’s discretion set forth herein shall not be limited by any provision of the Plan, including any provision which by its terms is applicable notwithstanding any other provision of the Plan to the +contrary. +The Committee may delegate to officers of the Company, pursuant to a written delegation, the authority to perform +specified functions under the Plan. Any actions taken by any officers of the Company pursuant to such written delegation of authority shall be deemed to have been taken by the Committee. +With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 promulgated under the 1934 Act, +Section 422 of the Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer quotation system upon which the Company’s securities are listed or quoted or any other applicable law, rule or restriction (collectively, +“ applicable law ”), to the extent that any such restrictions are no longer required by applicable law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated +restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards. +ARTICLE 4 +ELIGIBILITY +Any Employee (including an Employee who is also a director or an officer), Contractor or Outside Director of the Company whose judgment, initiative and efforts contributed or may be expected to contribute +to the successful performance of the Company is eligible to participate in the Plan; provided that only Employees of a +A-6 +Table of Contents +corporation shall be eligible to receive Incentive Stock Options. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee, Contractor or +Outside Director of the Company or any Subsidiary. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude +previous Participants, as the Committee shall determine. Except as required by this Plan, Awards granted at different times need not contain similar provisions. The Committee’s determinations under the Plan (including without limitation +determinations of which Employees, Contractors or Outside Directors, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may +be made by it selectively among Participants who receive, or are eligible to receive, Awards under the Plan. +ARTICLE 5 +SHARES SUBJECT TO PLAN +5.1 Number Available for Awards . Subject to adjustment as provided in Articles 11 and 12 , the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under +the Plan is 4,000,000 shares, of which 100% may be delivered pursuant to Incentive Stock Options. Subject to adjustment pursuant to Articles 11 and 12 , the maximum number of shares of Common Stock with respect to which Stock Options or SARs +may be granted to an Executive Officer during any calendar year is 500,000 shares of Common Stock. Shares to be issued may be made available from authorized but unissued Common Stock, Common Stock held by the Company in its treasury or Common Stock +purchased by the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserve and keep available the number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan. +5.2 Restoration and Retention of Shares (“Share Counting”) . If any shares of Common Stock subject to an +Award shall not be issued or transferred to a Participant and shall cease to be issuable or transferable to a Participant because of the forfeiture, termination, expiration or cancellation, in whole or in part, of such Award or for any other reason, +the shares not so issued or transferred, or the shares so reacquired by the Company, as the case may be, shall no longer be charged against the limitation provided for in Section 5.1 and may be used thereafter for additional Awards under +the Plan. The following additional parameters shall apply: +(a) To the extent an Award under the Plan is +settled or paid in cash, shares subject to such Award will not be considered to have been issued and will not be applied against the maximum number of shares of Common Stock provided for in Section 5.1 . +(b) If an Award may be settled in shares of Common Stock or cash, such shares shall be deemed issued only when and to the +extent that settlement or payment is actually made in shares of Common Stock. To the extent an Award is settled or paid in cash, and not shares of Common Stock, any shares previously reserved for issuance or transfer pursuant to such Award will +again be deemed available for issuance or transfer under the Plan, and the maximum number of shares of Common Stock that may be issued or transferred under the Plan shall be reduced only by the number of shares actually issued and transferred to the +Participant. +(c) Notwithstanding the foregoing, (i) shares withheld or tendered to pay withholding taxes +or the exercise price of an Award shall not again be available for the grant of Awards under the Plan, and (ii) the full number of shares subject to a Stock Option or SAR granted that are settled by the issuance of shares shall be counted +against the shares authorized for issuance under this Plan, regardless of the number of shares actually issued upon the settlement of such Stock Option or SAR. +(d) Any shares repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the number of shares available for the future grant of Awards. +A-7 +Table of Contents +ARTICLE 6 +GRANT OF AWARDS +6.1 In General. +(a) The grant of an Award shall be authorized by the Committee and shall be evidenced by an Award Agreement setting forth +the Incentive or Incentives being granted, the total number of shares of Common Stock subject to the Incentive(s), the Option Price (if applicable), the Award Period, the Date of Grant and such other terms, provisions, limitations, and performance +objectives, as are approved by the Committee, but (i) not inconsistent with the Plan, (ii) to the extent an Award issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of +Section 409A of the Code and the regulations or other guidance issued thereunder and (iii) to the extent the Committee determines that an Award shall comply with the requirements of Section 162(m) of the Code, in compliance with the +applicable requirements of Section 162(m) of the Code and the regulations and other guidance issued thereunder. The Company shall execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. Any Award +granted pursuant to this Plan must be granted within ten (10) years of the date of adoption of this Plan. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, +receipt of any other Award under the Plan. +(b) If the Committee establishes a purchase price for an Award, the +Participant must accept such Award within a period of thirty (30) days (or such shorter period as the Committee may specify) after the Date of Grant by executing the applicable Award Agreement and paying such purchase price. +(c) Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide for interest +equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant. +6.2 Incentive Stock Options. For any option granted under this Plan to be treated as an Incentive +Stock Option, this Plan must be approved by the Company’s shareholders within twelve months after the Effective Date. +6.3 Option Price. The Option Price for any share of Common Stock which may be purchased under a Nonqualified Stock Option for any share of Common Stock may be equal to or greater than the Fair +Market Value of the share on the Date of Grant. The Option Price for any share of Common Stock which may be purchased under an Incentive Stock Option must be at least equal to the Fair Market Value of the share on the Date of Grant; if an Incentive +Stock Option is granted to an Employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or +Subsidiary), the Option Price shall be at least 110% of the Fair Market Value of the Common Stock on the Date of Grant. +6.4 Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the +aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries) are exercisable for the first time by such Employee +during any calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan which is designated as an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an Incentive Stock Option, such Stock Option (or +any such portion thereof) shall be a Nonqualified Stock Option. In such case, the Committee shall designate which stock will be treated as Incentive Stock Option stock by causing the issuance of a separate stock certificate and identifying such +stock as Incentive Stock Option stock on the Company’s stock transfer records. +6.5 Restricted Stock. If +Restricted Stock is granted to or received by a Participant under an Award (including a Stock Option), the Committee shall set forth in the related Award Agreement: (i) the number of shares of Common Stock awarded, (ii) the price, if any, +to be paid by the Participant for such Restricted Stock and the method of payment of the price, (iii) the time or times within which such Award may be subject to +A-8 +Table of Contents +forfeiture, (iv) specified Performance Goals of the Company, a Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, which the Committee determines +must be met in order to remove any restrictions (including vesting) on such Award and (v) all other terms, limitations, restrictions and conditions of the Restricted Stock, which shall be consistent with this Plan, to the extent applicable and +in the event the Committee determines that an Award shall comply with the requirements of Section 162(m) of the Code, in compliance with the requirements of Section 162(m) of the Code and the regulations and other guidance issued +thereunder and, to the extent Restricted Stock granted under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued +thereunder. The provisions of Restricted Stock need not be the same with respect to each Participant. +(a) +Legend on Shares. The Company shall electronically register the Restricted Stock awarded to a Participant in the name of such Participant, which shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to +such Restricted Stock, substantially as provided in Section 15.9 of the Plan. No stock certificate or certificates shall be issued with respect to such shares of Common Stock, unless, following the expiration of the Restriction Period +(as defined in Section 6.5(b)(i) ) without forfeiture in respect of such shares of Common Stock, the Participant requests delivery of the certificate or certificates by submitting a written request to the Committee (or such party +designated by the Company). The Company shall deliver the certificates requested by the Participant to the Participant as soon as administratively practicable following the Company’s receipt of such request. +(b) Restrictions and Conditions. Shares of Restricted Stock shall be subject to the following restrictions and +conditions: +(i) Subject to the other provisions of this Plan and the terms of the particular Award Agreements, +during such period as may be determined by the Committee commencing on the Date of Grant or the date of exercise of an Award (the “ Restriction Period ”), the Participant shall not be permitted to sell, transfer, pledge or +assign shares of Restricted Stock. Except for these limitations, the Committee may in its sole discretion, remove any or all of the restrictions on such Restricted Stock whenever it may determine that, by reason of changes in applicable laws or +other changes in circumstances arising after the date of the Award, such action is appropriate. +(ii) Except as +provided in sub-paragraph (i) above or in the applicable Award Agreement, the Participant shall have, with respect to the Participant’s Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the +shares, and the right to receive any dividends thereon; provided, however, that the Participant shall not have the right to receive dividends on any Restricted Stock Award based on Performance Goals until the restriction lapses. Certificates for +shares of Common Stock free of restriction under this Plan shall be delivered to the Participant promptly after, and only after, the Restriction Period shall expire without forfeiture in respect of such shares of Common Stock or after any other +restrictions imposed on such shares of Common Stock by the applicable Award Agreement or other agreement have expired. Certificates for the shares of Common Stock forfeited under the provisions of the Plan and the applicable Award Agreement shall be +promptly returned to the Company by the forfeiting Participant. Each Award Agreement shall require that each Participant, in connection with the issuance of a certificate for Restricted Stock, shall endorse such certificate in blank or execute a +stock power in form satisfactory to the Company in blank and deliver such certificate and executed stock power to the Company. +(iii) The Restriction Period of Restricted Stock shall commence on the Date of Grant or the date of exercise of an Award, as specified in the Award Agreement, and, subject to Article 12 of the +Plan, unless otherwise established by the Committee in the Award Agreement setting forth the terms of the Restricted Stock, shall expire upon satisfaction of the conditions set forth in the Award Agreement; such conditions may provide for vesting +based on such Performance Goals as may be determined by the Committee in its sole discretion. +(iv) Except as +otherwise provided in the particular Award Agreement, upon Termination of Service for any reason during the Restriction Period, the nonvested shares of Restricted Stock shall be forfeited by the Participant. In the event a Participant has paid any +consideration to the Company for such forfeited Restricted Stock, the Committee shall specify in the Award Agreement that either (i) the +A-9 +Table of Contents +Company shall be obligated to, or (ii) the Company may, in its sole discretion, elect to, pay to the Participant, as soon as practicable after the event causing forfeiture, in cash, an +amount equal to the lesser of the total consideration paid by the Participant for such forfeited shares or the Fair Market Value of such forfeited shares as of the date of Termination of Service, as the Committee, in its sole discretion shall +select. Upon any forfeiture, all rights of a Participant with respect to the forfeited shares of the Restricted Stock shall cease and terminate, without any further obligation on the part of the Company. +6.6 SARs. The Committee may grant SARs to any Participant, either as a separate Award or in connection with a Stock Option. SARs +shall be subject to such terms and conditions as the Committee shall impose, provided that such terms and conditions are (i) not inconsistent with the Plan, (ii) to the extent a SAR issued under the Plan is subject to Section 409A of +the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder and (iii) to the extent the Committee determines that a SAR shall comply with the requirements of +Section 162(m) of the Code, in compliance with the applicable requirements of Section 162(m) of the Code and the regulations and other guidance issued thereunder. The grant of the SAR may provide that the holder may be paid for the value +of the SAR either in cash or in shares of Common Stock, or a combination thereof. In the event of the exercise of a SAR payable in shares of Common Stock, the holder of the SAR shall receive that number of whole shares of Common Stock having an +aggregate Fair Market Value on the date of exercise equal to the value obtained by multiplying (i) the difference between the Fair Market Value of a share of Common Stock on the date of exercise over the SAR Price as set forth in such SAR (or +other value specified in the agreement granting the SAR), by (ii) the number of shares of Common Stock as to which the SAR is exercised, with a cash settlement to be made for any fractional shares of Common Stock. The SAR Price for any share of +Common Stock subject to a SAR may be equal to or greater than the Fair Market Value of the share on the Date of Grant. The Committee, in its sole discretion, may place a ceiling on the amount payable upon exercise of a SAR, but any such limitation +shall be specified at the time that the SAR is granted. +6.7 Restricted Stock Units. Restricted Stock Units may be +awarded or sold to any Participant under such terms and conditions as shall be established by the Committee, provided, however, that such terms and conditions are (i) not inconsistent with the Plan, (ii) to the extent a Restricted Stock +Unit issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder and (iii) to the extent the +Committee determines that a Restricted Stock Unit award shall comply with the requirements of Section 162(m) of the Code, in compliance with the applicable requirements of Section 162(m) of the Code and the regulations and other guidance +issued thereunder. Restricted Stock Units shall be subject to such restrictions as the Committee determines, including, without limitation, (a) a prohibition against sale, assignment, transfer, pledge, hypothecation or other encumbrance for a +specified period; or (b) a requirement that the holder forfeit (or in the case of shares of Common Stock or units sold to the Participant, resell to the Company at cost) such shares or units in the event of Termination of Service during the +period of restriction. +6.8 Performance Awards. +(a) The Committee may grant Performance Awards to one or more Participants. The terms and conditions of Performance Awards +shall be specified at the time of the grant and may include provisions establishing the performance period, the Performance Goals to be achieved during a performance period and the maximum or minimum settlement values, provided that such terms and +conditions are (i) not inconsistent with the Plan and (ii) to the extent a Performance Award issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code +and the regulations or other guidance issued thereunder. If the Performance Award is to be in shares of Common Stock, the Performance Awards may provide for the issuance of the shares of Common Stock at the time of the grant of the Performance Award +or at the time of the certification by the Committee that the Performance Goals for the performance period have been met; provided, however, if shares of Common Stock are issued at the time of the grant of the Performance Award and if, at the end of +the performance +A-10 +Table of Contents +period, the Performance Goals are not certified by the Committee to have been fully satisfied, then, notwithstanding any other provisions of this Plan to the contrary, the Common Stock shall be +forfeited in accordance with the terms of the grant to the extent the Committee determines that the Performance Goals were not met. The forfeiture of shares of Common Stock issued at the time of the grant of the Performance Award due to failure to +achieve the established Performance Goals shall be separate from and in addition to any other restrictions provided for in this Plan that may be applicable to such shares of Common Stock. Each Performance Award granted to one or more Participants +shall have its own terms and conditions. +To the extent the Committee determines that a Performance Award shall +comply with the requirements of Section 162(m) of the Code and the regulations and other guidance issued thereunder, and if it is determined to be necessary in order to satisfy Section 162(m) of the Code, at the time of the grant of a +Performance Award (other than a Stock Option) and to the extent permitted under Section 162(m) of the Code and the regulations issued thereunder, the Committee shall provide for the manner in which the Performance Goals shall be reduced to take +into account the negative effect on the achievement of specified levels of the Performance Goals which may result from enumerated corporate transactions, extraordinary events, accounting changes and other similar occurrences which were unanticipated +at the time the Performance Goal was initially established. In no event, however, may the Committee increase the amount earned under such a Performance Award, unless the reduction in the Performance Goals would reduce or eliminate the amount to be +earned under the Performance Award and the Committee determines not to make such reduction or elimination. +With respect to a Performance Award that is not intended to satisfy the requirements of Code Section 162(m) of the +Code, if the Committee determines, in its sole discretion, that the established performance measures or objectives are no longer suitable because of a change in the Company’s business, operations, corporate structure or for other reasons that +the Committee deemed satisfactory, the Committee may modify the performance measures or objectives and/or the performance period. +(b) Performance Awards may be valued by reference to the Fair Market Value of a share of Common Stock or according to any formula or method deemed appropriate by the Committee, in its sole discretion, +including, but not limited to, achievement of Performance Goals or other specific financial, production, sales or cost performance objectives that the Committee believes to be relevant to the Company’s business and/or remaining in the employ of +the Company for a specified period of time. Performance Awards may be paid in cash, shares of Common Stock or other consideration, or any combination thereof. If payable in shares of Common Stock, the consideration for the issuance of such shares +may be the achievement of the performance objective established at the time of the grant of the Performance Award. Performance Awards may be payable in a single payment or in installments and may be payable at a specified date or dates or upon +attaining the performance objective. The extent to which any applicable performance objective has been achieved shall be conclusively determined by the Committee. +(c) Notwithstanding the foregoing, in order to comply with the requirements of Section 162(m) of the Code, if +applicable, no Participant may receive in any calendar year Performance Awards intended to comply with the requirements of Section 162(m) of the Code which have an aggregate value of more than $10,000,000, and if such Performance Awards involve +the issuance of shares of Common Stock, said aggregate value shall be based on the Fair Market Value of such shares on the time of the grant of the Performance Award. In no event, however, shall any Performance Awards not intended to comply with the +requirements of Section 162(m) of the Code be issued contingent upon the failure to attain the Performance Goals applicable to any Performance Awards granted hereunder that the Committee intends to comply with the requirements of +Section 162(m) of the Code. +6.9 Dividend Equivalent Rights. The Committee may grant a Dividend Equivalent Right +to any Participant, either as a component of another Award or as a separate Award. The terms and conditions of the Dividend Equivalent Right shall be specified by the grant. Dividend equivalents credited to the holder of a Dividend Equivalent Right +may be paid currently or may be deemed to be reinvested in additional shares of Common Stock (which may thereafter accrue additional dividend equivalents). Any such reinvestment shall be at +A-11 +Table of Contents +the Fair Market Value at the time thereof. Dividend Equivalent Rights may be settled in cash or shares of Common Stock, or a combination thereof, in a single payment or in installments. A +Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend +Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other Award. +6.10 Other Awards. The Committee may grant to any Participant other forms of Awards, based upon, payable in, or otherwise related +to, in whole or in part, shares of Common Stock, if the Committee determines that such other form of Award is consistent with the purpose and restrictions of this Plan. The terms and conditions of such other form of Award shall be specified by the +grant. Such Other Awards may be granted for no cash consideration, for such minimum consideration as may be required by applicable law or for such other consideration as may be specified by the grant. +6.11 Performance Goals. Awards of Restricted Stock, Restricted Stock Units, Performance Awards and Other Awards (whether relating +to cash or shares of Common Stock) under the Plan may be made subject to the attainment of Performance Goals relating to one or more business criteria, which, where applicable, shall be within the meaning of Section 162(m) of the Code and +consist of one or more or any combination of the following criteria: earnings (either in the aggregate or on a per-share basis); net income; operating income; operating profit; cash flow; shareholder returns, including returns on assets, investment, +invested capital and equity (and including income applicable to common shareholders or other class of shareholders); return measures (including return on assets, equity, or invested capital); total shareholder return (change in share price plus +reinvestment of dividends into shares when declared, if any, from period to period); earnings before or after either, or any combination of, interest, taxes, depletion, depreciation, amortization or other non-cash items (EBITDA); gross revenues; +reduction in expense levels in each case, where applicable, determined either on a Company-wide basis or in respect to any one or more Subsidiaries or business units thereof; economic value or economic value added™; market share or market share +added; annual net income to Common Stock; earnings per share or growth in earnings per share; annual cash flow provided by operations; changes in annual revenues; strategic and operational business criteria, consisting of one or more objectives +based on specified revenue, market penetration, geographic business expansion goals, objectively identified project milestones, production volume levels, cost targets, lease operating expenses, G&A expenses, finding and development costs, +reserves or reserves added, reserve replacement ratio and goals relating to acquisitions or divestures; or goals relating to specific environmental compliance measures and safety and accident rates (“ Performance Criteria ”). +For the Performance Criteria listed above, the Committee may designate whether a particular Performance Criteria is to be +measured on a pre-tax basis or post-tax basis. In addition, certain Performance Criteria may be stated in reference to a production volume of measurement such as in per cubic feet equivalents (e.g., per Mcfe, MMcfe or Bcfe). Any Performance Criteria +may be used to measure the performance of the Company as a whole or any business unit of the Company and may be measured relative to a peer group or index. Any Performance Criteria may include or exclude (i) extraordinary, unusual and/or +non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii) changes in tax or accounting regulations or laws, (iv) the effect of a merger or acquisition, as identified in the Company’s +quarterly and annual earnings releases or (v) other similar occurrences. In all other respects, Performance Criteria shall be calculated in accordance with the Company’s financial statements, under generally accepted accounting principles +or under a methodology established by the Committee prior to the issuance of an Award which is consistently applied and identified in the audited financial statements, including footnotes, or the Compensation Discussion and Analysis section of the +Company’s annual report. However, to the extent Section 162(m) of the Code is applicable, the Committee may not in any event increase the amount of compensation payable to an individual upon the attainment of a Performance Goal. +6.12 Tandem Awards. The Committee may grant two or more Incentives in one Award in the form of a “tandem +Award,” so that the right of the Participant to exercise one Incentive shall be canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option and a SAR are issued in a tandem Award, and the Participant +exercises the SAR with respect to 100 shares of Common Stock, the right of the Participant to exercise the related Stock Option shall be canceled to the extent of 100 shares of Common Stock. +A-12 +Table of Contents +ARTICLE 7 +AWARD PERIOD; VESTING +7.1 Award Period. Subject to the other +provisions of this Plan, the Committee may, in its discretion, provide that an Incentive may not be exercised in whole or in part for any period or periods of time or beyond any date specified in the Award Agreement. Except as provided in the Award +Agreement, an Incentive may be exercised in whole or in part at any time during its term. The Award Period for an Incentive shall be reduced or terminated upon Termination of Service. No Incentive granted under the Plan may be exercised at any time +after the end of its Award Period. No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date of Grant. However, if an Employee owns or is deemed to own (by reason of the attribution rules of +Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option is granted to such Employee, the term of such Incentive Stock Option (to +the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant. +7.2 Vesting. The Committee, in its sole discretion, may determine that an Incentive will be immediately vested in whole or in +part, or that all or any portion may not be vested until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events, subject in any case to the terms of the Plan. If the Committee imposes conditions +upon vesting, then, subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Incentive may be vested. +ARTICLE 8 +EXERCISE OR CONVERSION OF INCENTIVE +8.1 In General . A vested Incentive may be exercised or converted, during its Award Period, subject to limitations and restrictions +set forth in the Award Agreement +8.2 Securities Law and Exchange Restrictions. In no event may an Incentive be +exercised or shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of the shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration under state or federal securities laws +required under the circumstances has not been accomplished. +8.3 Exercise of Stock Option. +(a) In General. If a Stock Option is exercisable prior to the time it is vested, the Common Stock obtained on the +exercise of the Stock Option shall be Restricted Stock which is subject to the applicable provisions of the Plan and the Award Agreement. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may, in +its sole discretion, accelerate the date on which all or any portion of the Stock Option may be exercised. No Stock Option may be exercised for a fractional share of Common Stock. The granting of a Stock Option shall impose no obligation upon the +Participant to exercise that Stock Option. +(b) Notice and Payment. Subject to such administrative +regulations as the Committee may from time to time adopt, a Stock Option may be exercised by the delivery of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised +and the date of exercise thereof (the “ Exercise Date ”) which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the Exercise Date, the Participant +shall deliver to the Company consideration with a value equal to the total Option Price of the shares to be purchased, payable as provided in the Award Agreement, which may provide for payment in any one or more of the following ways: (a) cash +or check, bank draft or money order payable to the order of the Company, (b) Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, and which the +Participant has not acquired from the +A-13 +Table of Contents +Company within six (6) months prior to the Exercise Date, (c) by delivery (including by FAX) to the Company or its designated agent of an executed irrevocable option exercise form +together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral +for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price and/or (d) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event +that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of Restricted Stock used as consideration +therefor shall be subject to the same restrictions and provisions as the Restricted Stock so tendered. +(c) Issuance of Certificate. Except as otherwise provided in Section 6.5 hereof (with respect to shares +of Restricted Stock) or in the applicable Award Agreement, upon payment of all amounts due from the Participant, the Company shall cause the Common Stock then being purchased to be registered in the Participant’s name (or the person exercising +the Participant’s Stock Option in the event of his or her death), but shall not issue certificates for the Common Stock unless the Participant or such other person requests delivery of the certificates for the Common Stock, in writing in +accordance with the procedures established by the Committee. The Company shall deliver certificates to the Participant (or the person exercising the Participant’s Stock Option in the event of his or her death) as soon as administratively +practicable following the Company’s receipt of a written request from the Participant or such other person. Notwithstanding the forgoing, if the Participant has exercised an Incentive Stock Option, the Company may at its option retain physical +possession of the certificate evidencing the shares acquired upon exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. Any obligation of the Company to deliver shares of Common Stock shall, however, +be subject to the condition that, if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or +under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, the Stock +Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Committee. +(d) Failure to Pay. Except as may otherwise be provided in an Award Agreement, if the Participant fails to pay for +any of the Common Stock specified in such notice or fails to accept delivery thereof, that portion of the Participant’s Stock Option and right to purchase such Common Stock may be forfeited by the Participant. +8.4 SARs. Subject to the conditions of this Section 8.4 and such administrative regulations as the Committee may from +time to time adopt, a SAR may be exercised by the delivery (including by FAX) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the date of exercise thereof +(the “ Exercise Date ”) which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. Subject to the terms of the Award Agreement and only if permissible under +Section 409A of the Code and the regulations or other guidance issued thereunder (or, if not so permissible, at such time as permitted by Section 409A of the Code and the regulations or other guidance issued thereunder), the Participant +shall receive from the Company in exchange therefor in the discretion of the Committee, and subject to the terms of the Award Agreement: +(i) cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise, or if provided in the Award Agreement, conversion, of the SAR) per share of Common Stock over +the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered; +(ii) that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise, or if provided in the Award Agreement, conversion, of the SAR) equal to the amount of cash +otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests; or +A-14 +Table of Contents +(iii) the Company may settle such obligation in part with shares of Common +Stock and in part with cash. +The distribution of any cash or Common Stock pursuant to the foregoing sentence shall be made at +such time as set forth in the Award Agreement. +8.5 Disqualifying Disposition of Incentive Stock Option. If shares of +Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of +Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms +of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code. +ARTICLE 9 +AMENDMENT OR DISCONTINUANCE +Subject to the limitations set forth in this Article 9 , the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the +Plan in whole or in part; provided, however, that no amendment for which shareholder approval is required either (i) by any securities exchange or inter-dealer quotation system on which the Common Stock is listed or traded or (ii) in order +for the Plan and Incentives awarded under the Plan to continue to comply with Sections 162(m), 421 and 422 of the Code, including any successors to such Sections, or other applicable law, shall be effective unless such amendment shall be approved by +the requisite vote of the shareholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding Incentives theretofore granted under the Plan, +notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a condition to the +exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless required by law, no action contemplated +or permitted by this Article 9 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without the consent of the affected Participant. +Notwithstanding the foregoing, repricing of Stock Options and SARs or other downward adjustments in the Option Price or SAR +Price of previously granted Stock Options or SARs, respectively, are prohibited, except in connection with a corporate transaction involving the Company such as any stock dividend, stock split, extraordinary cash dividend, recapitalization, +reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares, provided that the terms of outstanding Awards may not be amended without shareholder approval to reduce the exercise price of outstanding Stock Options or +SARs or cancel outstanding Stock Options or SARs in exchange for cash, Other Awards or Stock Options or SARs having an exercise price that is less than the exercise price of the original Stock Option or SAR. +ARTICLE 10 +TERM +The +Plan shall be effective from the date that this Plan is approved by the Board. Unless sooner terminated by action of the Board, the Plan will terminate on January 1, 2022, but Incentives granted before that date will continue to be effective in +accordance with their terms and conditions. +A-15 +Table of Contents +ARTICLE 11 +CAPITAL ADJUSTMENTS +In the event that any dividend or other distribution +(whether in the form of cash, Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off, combination, subdivision, +repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the fair value of +an Award, then the Committee shall adjust any or all of the following so that the fair value of the Award immediately after the transaction or event is equal to the fair value of the Award immediately prior to the transaction or event: (i) the +number of shares and type of Common Stock (or the securities or property) which thereafter may be made the subject of Awards, (ii) the number of shares and type of Common Stock (or other securities or property) subject to outstanding Awards, +(iii) the number of shares and type of Common Stock (or other securities or property) specified as the annual per-Participant limitation under Section 5.1 of the Plan, (iv) the Option Price of each outstanding Award, +(v) the amount, if any, the Company pays for forfeited shares of Common Stock in accordance with Section 6.5 , and (vi) the number of or SAR Price of shares of Common Stock then subject to outstanding SARs previously granted and +unexercised under the Plan to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; provided however, that the number +of shares of Common Stock (or other securities or property) subject to any Award shall always be a whole number. Notwithstanding the foregoing, no such adjustment shall be made or authorized to the extent that such adjustment would cause the Plan or +any Stock Option to violate Section 422 of the Code or Section 409A of the Code. Such adjustments shall be made in accordance with the rules of any securities exchange, stock market or stock quotation system to which the Company is +subject. +Upon the occurrence of any such adjustment, the Company shall provide notice to each affected Participant of its +computation of such adjustment which shall be conclusive and shall be binding upon each such Participant. +ARTICLE 12 +RECAPITALIZATION, MERGER AND CONSOLIDATION +12.1 No Effect on Company’s Authority. The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its shareholders to make or +authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure and its business, or any Change in Control, or any merger or consolidation of the Company, or any issuance of bonds, +debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or +transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise. +12.2 Conversion of Incentives Where Company Survives. Subject to any required action by the shareholders and except as otherwise provided by Section 12.4 hereof or as may be required to +comply with Section 409A of the Code and the regulations or other guidance issued thereunder, if the Company shall be the surviving or resulting corporation in any merger, consolidation or share exchange, any Incentive granted hereunder shall +pertain to and apply to the securities or rights (including cash, property or assets) to which a holder of the number of shares of Common Stock subject to the Incentive would have been entitled. +12.3 Exchange or Cancellation of Incentives Where Company Does Not Survive. Except as otherwise provided by +Section 12.4 hereof or as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, in the event of any merger, consolidation or share exchange pursuant to which the Company is +not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of outstanding Incentives, that number of shares of each class of stock or other securities or that amount of +cash, property or assets of the surviving, resulting or +A-16 +Table of Contents +consolidated company which were distributed or distributable to the shareholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to be thereafter +exercisable for such stock, securities, cash or property in accordance with their terms. +12.4 Cancellation of Incentives. +Notwithstanding the provisions of Sections 12.2 and 12.3 hereof, and except as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, all Incentives granted hereunder may be +canceled by the Company, in its sole discretion, as of the effective date of any Change in Control, merger, consolidation or share exchange, or any issuance of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting +the Common Stock or the rights thereof (or any rights, options or warrants to purchase same), or of any proposed sale of all or substantially all of the assets of the Company, or of any dissolution or liquidation of the Company, by either: +(a) giving notice to each holder thereof or the holder’s representative of its intention to cancel those +Incentives for which the issuance of shares of Common Stock involved payment by the Participant for such shares, and permitting the purchase during the thirty (30) day period next preceding such effective date of any or all of the shares of +Common Stock subject to such outstanding Incentives, including in the Board’s discretion some or all of the shares as to which such Incentives would not otherwise be vested and exercisable; or +(b) in the case of Incentives that are either (i) settled only in shares of Common Stock, or (ii) at the +election of the Participant, settled in shares of Common Stock, paying the holder thereof an amount equal to a reasonable estimate of the difference between the net amount per share payable in such transaction or as a result of such transaction, and +the price per share of such Incentive to be paid by the Participant (hereinafter the “ Spread ”), multiplied by the number of shares subject to the Incentive. In cases where the shares constitute, or would after exercise, +constitute Restricted Stock, the Company, in its discretion, may include some or all of those shares in the calculation of the amount payable hereunder. In estimating the Spread, appropriate adjustments to give effect to the existence of the +Incentives shall be made, such as deeming the Incentives to have been exercised, with the Company receiving the exercise price payable thereunder, and treating the shares receivable upon exercise of the Incentives as being outstanding in determining +the net amount per share. In cases where the proposed transaction consists of the acquisition of assets of the Company, the net amount per share shall be calculated on the basis of the net amount receivable with respect to shares of Common Stock +upon a distribution and liquidation by the Company after giving effect to expenses and charges, including but not limited to taxes, payable by the Company before such liquidation could be completed. +(c) An Award that by its terms would be fully vested or exercisable upon a Change in Control will be considered vested or +exercisable for purposes of Section 12.4(a) hereof. +ARTICLE 13 +LIQUIDATION OR DISSOLUTION +Subject to Section 12.4 hereof, in case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its +property, or (ii) dissolve, liquidate or wind up its affairs, then each Participant shall be entitled to receive, in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive under the +Incentive, the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation or winding up with respect to each share of Common Stock of the Company. If the Company shall, +at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned +surplus and designated as such) and an adjustment is determined by the Committee to be appropriate to prevent the dilution of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner +as it may deem equitable, make such adjustment in accordance with the provisions of Article 11 hereof. +A-17 +Table of Contents +ARTICLE 14 +INCENTIVES IN SUBSTITUTION FOR +INCENTIVES GRANTED BY OTHER ENTITIES +Incentives may be granted under the Plan from time to time in substitution for similar instruments held by employees, +independent contractors or directors of a corporation, partnership or limited liability company who become or are about to become Employees, Contractors or Outside Directors of the Company or any Subsidiary as a result of a merger or consolidation +of the employing corporation with the Company, the acquisition by the Company of equity of the employing entity or any other similar transaction pursuant to which the Company becomes the successor employer. The terms and conditions of the substitute +Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the Incentives in substitution for +which they are granted. +ARTICLE 15 +MISCELLANEOUS PROVISIONS +15.1 Investment Intent. The Company may +require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired +for investment and not with a view to their distribution. +15.2 No Right to Continued Employment. Neither the Plan nor +any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary. +15.3 Indemnification of Board and Committee. No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally +liable for any action, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Board and the Committee, each officer of the Company and each Employee of the Company acting on behalf of the Board +or the Committee shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. +15.4 Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights +except as may be evidenced by an Award Agreement or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein. +15.5 Compliance With Other Laws and Regulations. Notwithstanding anything contained herein to the contrary, the Company shall not +be required to sell or issue shares of Common Stock under any Incentive if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority or any national +securities exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted or traded (including without limitation Section 16 of the 1934 Act and Section 162(m) of the Code); and, as a condition of any +sale or issuance of shares of Common Stock under an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. The Plan, the +grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or +regulatory agency as may be required. +A-18 +Table of Contents +15.6 Tax Requirements. The Company or, if applicable, any Subsidiary (for purposes of +this Section 15.6 , the term “ Company ” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any Federal, +state, local or other taxes required by law to be withheld in connection with an Award granted under this Plan. The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the +Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to the Award. Such payments shall be required to be made when requested by the Company and may be required +to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under +(iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery by the exercising Participant to the Company of shares of Common Stock that the +Participant has not acquired from the Company within six (6) months prior to the date of exercise, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under +(iii) below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered upon the exercise of the Stock Option, which +shares so withheld have an aggregate fair market value that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii) or (iii). The Company may, in its sole discretion, withhold any such taxes +from any other cash remuneration otherwise paid by the Company to the Participant. The Committee may in the Award Agreement impose any additional tax requirements or provisions that the Committee deems necessary or desirable. +15.7 Assignability . Incentive Stock Options may not be transferred, assigned, pledged, hypothecated or otherwise conveyed or +encumbered other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant’s legally authorized representative, and each Award Agreement in +respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in the preceding sentences of +this Section 15.7 that is not required for compliance with Section 422 of the Code. +Except as otherwise +provided herein, Nonqualified Stock Options and SARs may not be transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and distribution. The Committee may, in its discretion, +authorize all or a portion of a Nonqualified Stock Option or SAR to be granted to a Participant on terms which permit transfer by such Participant to (i) the spouse (or former spouse), children or grandchildren of the Participant +(“ Immediate Family Members ”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a partnership in which the only partners are (1) such Immediate Family Members and/or +(2) entities which are controlled by Immediate Family Members, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision or (v) a split interest trust or pooled income fund +described in Section 2522(c)(2) of the Code or any successor provision, provided that (x) there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to which such Nonqualified Stock Option or SAR is +granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section and (z) subsequent transfers of transferred Nonqualified Stock Options or SARs shall be prohibited except those by +will or the laws of descent and distribution. +Following any transfer, any such Nonqualified Stock Option and SAR shall +continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 8, 9, 11, 13 and 15 hereof the term “ Participant ” shall be deemed to +include the transferee. The events of Termination of Service shall continue to be applied with respect to the original Participant, following which the Nonqualified Stock Options and SARs shall be exercisable or convertible by the transferee only to +the extent and for the periods specified in the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of a Nonqualified Stock Option or SAR of any expiration, termination, lapse or +A-19 +Table of Contents +acceleration of such Stock Option or SAR. The Company shall have no obligation to register with any federal or state securities commission or agency any Common Stock issuable or issued under a +Nonqualified Stock Option or SAR that has been transferred by a Participant under this Section 15.7 . +15.8 Use +of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company. +15.9 Legend. Each certificate representing shares of Restricted Stock issued to a Participant shall bear the following legend or a similar legend deemed by the Company to constitute an appropriate +notice of the provisions hereof (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed): +On the face of the certificate: +“Transfer of this stock is restricted in +accordance with conditions printed on the reverse of this certificate.” +On the reverse: +“The shares of stock evidenced by this certificate are subject to and transferable only in accordance with that certain Matador +Resources Company 2012 Long-Term Incentive Plan, a copy of which is on file at the principal office of the Company in Dallas, Texas. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the +provisions of said Plan. By acceptance of this certificate, any holder, transferee or pledgee hereof agrees to be bound by all of the provisions of said Plan.” +The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state +securities laws: +“Shares of stock represented by this certificate have been acquired by the holder for investment and not +for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective +registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the +Company.” +A copy of this Plan shall be kept on file in the principal office of the Company in Dallas, Texas. +ARTICLE 16 +ACCELERATION OF AWARD VESTING +16.1 Application. The provisions of this Article 16 shall apply notwithstanding any provisions of this Plan to the contrary. +16.2 Definitions. +(a) “ Exempt Shares ” means shares of Common Stock designated as “Exempt Shares” pursuant to Section 16.3 . +(b) “ Full Value Award ” means any Award with a net benefit to the Participant, without regard to +any restrictions such as those described in Section 6.5(b) , equal to the aggregate Fair Market Value of the total shares of Common Stock subject to the Award. Full Value Awards include Restricted Stock and Restricted Stock Units, but do +not include Stock Options and SARs. +A-20 +Table of Contents +(c) “ Tenure Award” means an Award hereunder of cash, +shares of Common Stock, units or rights based upon, payable in, or otherwise related to, Common Stock that vests over time based upon the Participant’s continued employment with or service to the Company or its Subsidiaries. +16.3 Number of Shares Available for Awards. No more than 10% of the shares of Common Stock that may be delivered pursuant to +Awards under Section 5.1 may be shares designated as “Exempt Shares.” +16.4 Full Value Award Vesting. +Except as otherwise provided herein, the Committee must grant all Full Value Awards in accordance with the following provisions: +(i) All Full Value Awards granted by the Committee that constitute Performance Awards must vest no earlier than one (1) year after the Date of Grant. +(ii) All Full Value Awards granted by the Committee that constitute Tenure Awards must vest no earlier than over the three +(3) year period commencing on the Date of Grant on a pro rata basis. +(iii) The Committee may not +accelerate the date on which all or any portion of a Full Value Award may be vested or waive the Restriction Period on a Full Value Award except upon the Participant’s death, Total and Permanent Disability or Retirement or the occurrence of a +Change in Control. +Notwithstanding the foregoing, the Committee may, in its sole discretion, grant Full Value Awards +with more favorable vesting provisions than set forth in this Section 16.4 or accelerate the vesting or waive the Restriction Period for Full Value Awards at any time, provided that the shares of Common Stock subject to such Awards shall +be Exempt Shares. +*************** +A-21 +Table of Contents +IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of +January 1, 2012, by its Chief Executive Officer and Secretary pursuant to prior action taken by the Board. +MATADOR RESOURCES COMPANY +By: +/s/ Joseph Wm. Foran +Name: +Joseph Wm. Foran +Title: +Chairman of the Board and +Chief Executive Officer +Attest: +/s/ Joseph Wm. Foran +Secretary +A-22 +Table of Contents +FIRST AMENDMENT +TO THE +MATADOR RESOURCES COMPANY +2012 LONG-TERM INCENTIVE PLAN +April 16, 2012 +This FIRST AMENDMENT TO THE MATADOR RESOURCES COMPANY 2012 LONG-TERM INCENTIVE PLAN (this “ Amendment ”), is made +and entered into by Matador Resources Company, a Texas corporation (the “ Company ”). Terms used in this Amendment with initial capital letters that are not otherwise defined herein shall have the meanings ascribed to such +terms in the Matador Resources Company 2012 Long-Term Incentive Plan (the “ Plan ”). +RECITALS +WHEREAS , Article 9 of the Plan provides that the Board of Directors of the Company (the +“ Board ”) may amend the Plan at any time; +WHEREAS , the Board desires to amend the Plan to +clarify the permitted methods of tax withholding on awards granted pursuant to the Plan; and +NOW, THEREFORE , in +accordance with Article 9 of the Plan, effective as of the date hereof, the Board hereby amends the Plan as follows: +1. +Section 15.6 of the Plan is hereby amended by deleting said section in its entirety and substituting in lieu thereof the following new Section 15.6 : +15.6 Tax Requirements. The Company or, if applicable, any Subsidiary (for purposes of this +Section 15.6 , the term “ Company ” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any Federal, state, +local or other taxes required by law to be withheld in connection with an Award granted under this Plan. The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the Company +the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to the Award. Such payments shall be required to be made when requested by the Company and may be required to be +made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under +(iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery by the exercising Participant to the Company of shares of Common Stock that the +Participant has not acquired from the Company within six (6) months prior to the date of exercise, vesting or conversion of the Award, as applicable, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid +the issuance of fractional shares under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered upon the +exercise, vesting, or conversion of the Award, as applicable, which shares so withheld have an aggregate fair market value that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii) or +(iii) or any other method consented to by the Company in writing. The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant. The Committee may in the Award +Agreement impose any additional tax requirements or provisions that the Committee deems necessary or desirable. +A-23 +Table of Contents +2. Except as expressly amended by this Amendment, the Plan shall continue in full force +and effect in accordance with the provisions thereof . +[ Signature page to follow ] +A-24 +Table of Contents +IN WITNESS WHEREOF , the Company has caused this Amendment to be duly executed as of +the date first written above. +MATADOR RESOURCES COMPANY +By: +/s/ Joseph Wm. Foran +Name: +Joseph Wm. Foran +Title: +Chairman of the Board and +Chief Executive Officer +A-25 +Table of Contents +VOTE BY +INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site +and follow the instructions to obtain your records and to create an electronic voting instruction form. MATADOR RESOURCES COMPANY 5400 LBJ FREEWAY, SUITE 1500 ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS DALAS, TX 75240 If you would like to reduce +the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the +instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting +instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope +we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND +DATED. DETACH AND RETURN THIS PORTION ONLY For Withhold For All To withhold authority to vote for any All All Except individual nominee(s), mark “For All Except” and write the number(s) of the The Board of Directors recommends you vote +nominee(s) on the line below. FOR the following: 0 0 0 1. Election of Directors Nominees 01 Michael C. Ryan 02 Margaret B. Shannon The Board of Directors recommends you vote FOR the following proposal: For Against Abstain For Against Abstain 2. +Advisory vote to approve named executive 0 0 0 5. Ratification of the appointment of Grant 0 0 0 officer compensation. Thornton LLP as the Company’s independent registered public accounting firm for the year The Board of Directors recommends +you ending December 31, 2012. vote 1 YEAR on the following proposal: 1 year 2 years 3 years Abstain 3. Advisory vote on the frequency of 0 0 0 0 NOTE: Such other business as may properly come advisory votes on executive before the meeting or any +adjournment thereof. compensation. The Board of Directors recommends you vote FOR proposals 4 and 5. For Against Abstain 4. Approval of the 2012 Long-Term Incentive Plan. 0 0 0 Yes No Please indicate if you plan to attend this meeting 0 0 _1 Please +sign exactly as your name(s) appear(s) hereon. When signing as 0000143804 attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or +partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +Table of Contents +Important +Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/ are available at www.proxyvote.com . MATADOR RESOURCES COMPANY Annual Meeting of Shareholders June 7, 2012 10:00 AM This +proxy is solicited by the Board of Directors As an alternative to completing this form, you may enter your vote instruction by telephone at 1-800-690-6903, or via the internet at www.proxyvote.com. Have your proxy card in hand and follow the +instructions. The shareholder hereby appoints Joseph Wm. Foran and David M. Laney, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side +of this ballot, all of the shares of common stock of MATADOR RESOURCES COMPANY that the shareholder is entitled to vote at the Annual Meeting of Shareholders to be held at 10:00 AM, CDT on June 7, 2012, at the Hilton Anatole, 2201 North Stemmons +Freeway, Dallas, Texas 75207, and any adjournment or postponement thereof. The shareholder hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such shares of stock. This proxy, when properly executed, will be +voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. R1.0.0.11699 0000143804 _2 Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0001520006/0001193125-12-196480/proxy_rpt.txt b/raw/proxies/0001520006/0001193125-12-196480/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e81438e215415930a78179289d6b5d99355fb1f2 --- /dev/null +++ b/raw/proxies/0001520006/0001193125-12-196480/proxy_rpt.txt @@ -0,0 +1,142 @@ +TRANSACTIONS WITH RELATED PERSONS +Since January 1, 2011, there has not been, nor is there currently proposed, any transaction or series of similar transactions to +which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any +of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described in “Compensation of Named Executive Officers,” and the +transactions described or referred to below. +Participation in Our Initial Public Offering +On February 7, 2012, upon the closing of our initial public offering, the following directors and executive officers purchased at +least $120,000 of Common Stock in the directed share program and from the underwriters in the offering at the initial price to the public: +Director or Executive Officer +Amount +Joseph Wm. Foran (1) +$ +1,660,800 +Charles L. Gummer +264,000 +David M. Laney (2) +684,000 +Wade I. Massad (3) +252,000 +Gregory E. Mitchell (4) +200,004 +Margaret B. Shannon +200,004 +(1) +$1,200,000 of shares were purchased by Mr. Foran and $460,800 of shares were purchased by Sage Resources, Ltd., a limited partnership owned by the Foran family, +including Mr. Foran. +(2) +$180,000 of shares were purchased by Mr. Laney, $144,000 of shares were purchased by Mr. Laney’s adult children, who gave Mr. Laney voting power of +such shares through a revocable power of attorney and $360,000 of shares were purchased by Laney Investments Ltd., for which Mr. Laney has sole voting and investment power. +(3) +$216,000 of shares were purchased by Cleveland Capital L.P. for which Mr. Massad is the co-managing member and $36,000 of shares were purchased using funds from +Mr. Massad’s Individual Retirement Account. +(4) +All of the shares were purchased by JAMAL Enterprises, LP, for which Mr. Mitchell has sole voting and investment authority. +Loan Program +During 2011, we guaranteed the repayment of loans to certain of our executive officers by Comerica Bank. The purpose of these loans was to assist our executive officers in buying shares of our Common +Stock pursuant to the exercise of stock options. We guaranteed the repayment of loans and made deposits of funds in certificates of deposit to secure our guaranties for the following executive officers at December 31, 2011: +Executive Officer and Date of Loan or Renewal +Loan +Amount +Interest +Rate +Interest Paid or +Payable +in 2011 +Maturity Date +Matthew V. Hairford; December 29, 2009; renewed October 8, 2011 +$ +310,000 +5.25 +% +$ +16,231 +April 5, 2012 +David E. Lancaster; April 30, 2009; +renewed May 30, 2011 +$ +470,000 +5.25 +% +$ +24,608 +May 29, 2012 +Bradley M. Robinson; December 29, 2008; renewed January 29, 2011 +$ +280,000 +5.25 +% +$ +14,660 +January 28, 2012 +Our Board of Directors approved the termination of the loan program on April 7, 2011 and we +terminated our guaranties and the associated pledge of our certificates of deposit with Comerica Bank relating to these loans in January 2012. We made no payments to Comerica Bank pursuant to these loan guaranties. +61 +Table of Contents +Issuance of Our Securities +In January 2011, we completed a private placement offering of shares of our Class A Common Stock. See “Business—Recent +Developments.” As detailed in the table below, several of our directors and executive officers participated in such offering on the same terms and conditions as the other investors in the offering. +Director or Executive Officer +Aggregate +Consideration +Joseph Wm. Foran +$ +1,171,500 +(1) +David M. Laney +$ +473,000 +(2) +Michael C. Ryan +$ +1,100,000 +Margaret B. Shannon (3) +$ +249,700 +(1) +Sage Resources, Ltd., which is a limited partnership owned by the Foran family, including Mr. Foran, purchased a portion of the shares for an aggregate +consideration of $346,500. +(2) +Mr. Laney’s adult children purchased a portion of the shares for an aggregate consideration of $198,000. At that time, Mr. Laney had the power to vote +his children’s shares pursuant to a revocable power of attorney. In addition, Laney Investments Ltd., for which Mr. Laney has sole voting and investment power, purchased a portion of the shares for an aggregate consideration of $275,000. +(3) +Mrs. Shannon was not a member of our Board of Directors at the time of purchase. +Procedures for Approval of Related Party Transactions +Our Board of Directors has adopted a written related party transaction policy. Pursuant to this policy, a “Related Party Transaction” is defined as a transaction (including any financial +transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness)), or series of related transactions, or any material amendment to any such transaction, involving a Related Party (as defined below) and in which we +are a participant, other than: +• +a transaction involving compensation of directors; +• +a transaction involving compensation of an executive officer or involving an employment agreement, severance agreement, change in control provision or +agreement or a special supplemental benefit for an executive officer; +• +a transaction available to all employees generally or to all salaried employees generally; +• +a transaction with a Related Party involving less than $120,000; +• +a transaction in which the interest of the Related Party arises solely from the ownership of a class of our equity securities and all holders of that +class receive the same benefit on a pro rata basis; or +• +a transaction in which the rates or charges involved therein are determined on competitive bids, or a transaction that involves the rendering of +services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. +“Related Party” means: +• +any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors or nominees for directors; +• +any person who is known by us to be the beneficial owner of more than 5.0% of our Common Stock; +• +any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, +father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, nominee for director, executive officer or a beneficial owner of more than 5.0% of our Common Stock; and +62 +Table of Contents +• +any firm, corporation or other entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons is a general +partner or executive officer or in which such person, together with all other of the foregoing persons, has a 10.0% or greater beneficial ownership interest. +Pursuant to our related party transaction policy, the Audit Committee must review all material facts of each Related Party Transaction and recommend either approval or disapproval of the Related Party +Transaction to the full Board of Directors, subject to certain limited exceptions. In determining whether to recommend approval or disapproval of the Related Party Transaction, the Audit Committee must, after reviewing all material facts of the +Related Party Transaction and the Related Party’s relationship and interest, determine whether the Related Party Transaction is fair to the Company. Further, the policy requires that all Related Party Transactions be disclosed in our filings +with the SEC and/or our website in accordance with applicable laws, rules and regulations. All of the Related Party Transactions discussed above occurred prior to the adoption of the policy except for participation in our initial public offering. +Those executive officers and directors who participated in our initial public offering negotiated with RBC Capital Markets, LLC; therefore, the related party transaction policy was not triggered. +63 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0001520006/0001193125-13-170584/proxy.txt b/raw/proxies/0001520006/0001193125-13-170584/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..e21455b3544ddb07c152bf5b22b6b8d52c00d7a4 --- /dev/null +++ b/raw/proxies/0001520006/0001193125-13-170584/proxy.txt @@ -0,0 +1,3524 @@ +DEF 14A +1 +d501859ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 (Amendment No.) +Filed by the Registrant þ Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +Matador Resources Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +Table of Contents +One Lincoln Centre +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +www.matadorresources.com +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held on June 6, 2013 +To the Matador Resources Company Shareholders: +Please join us for the 2013 Annual Meeting of Shareholders of Matador Resources Company. The meeting will be held at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, on Thursday, +June 6, 2013, at 9:30 a.m. , Central Daylight Time. +At the meeting, you will hear a report on our business and act on +the following matters: +(1) +Election of the three nominees for director named in the attached Proxy Statement; +(2) +Advisory vote to approve named executive officer compensation; +(3) +Ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2013; +and +(4) +Any other matters that may properly come before the meeting. +All shareholders of record at the close of business on April 10, 2013 are entitled to vote at the meeting or any postponement or adjournment of the meeting. A list of the shareholders is available at +the Company’s offices in Dallas, Texas. +By Order of the Board of Directors, +Joseph Wm. Foran +Chairman, President and Chief Executive Officer +April 24, 2013 +YOUR VOTE IS IMPORTANT! +Please vote as promptly as possible by using the Internet or +telephone or by signing, dating and returning your proxy card to the address listed on the card. +Important Notice +Regarding the Availability of Proxy Materials for the +Annual Meeting of Shareholders to Be Held on June 6, 2013: +Our Proxy Statement and the Annual Report to Shareholders for the fiscal year ended December 31, 2012 are +available for viewing, printing and downloading at https://materials.proxyvote.com/576485 . +Table of Contents +TABLE OF CONTENTS +Page +Proxy Statement +1 +Information About the Annual Meeting +3 +Proposal 1 — Election of Directors +7 +Nominees +7 +Vote Required +9 +Directors Continuing in Office +9 +Special Board Advisors +11 +Corporate Governance +14 +Independence of Directors +14 +Board Leadership Structure +14 +Board Committees +15 +Board’s Role in Risk Oversight +19 +Compensation Committee Interlocks and Insider Participation +19 +Communications with Directors +20 +Executive Officers +20 +Proposal 2 — Advisory Vote to Approve Named Executive Officer Compensation +24 +Vote Required +24 +Proposal 3 — Ratification of the Appointment of Grant Thornton LLP +25 +Fees of Independent Registered Public Accounting Firm for Fiscal Years 2012 and 2011 +25 +Report of the Audit Committee +26 +Vote Required +26 +Executive Compensation +28 +Compensation Discussion and Analysis +28 +Nominating, Compensation and Planning Committee Report +44 +Summary Compensation Table +45 +Grants of Plan-Based Awards Table +46 +Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table +46 +Outstanding Equity Awards at December 31, 2012 +48 +Option Exercises During 2012 +49 +Potential Payments Upon Termination or Change in Control +49 +Director Compensation +54 +Special Board Advisor Compensation +54 +Securities Authorized for Issuance Under Equity Compensation Plans +55 +Transactions with Related Persons +56 +Participation in Our Initial Public Offering +56 +Loan Program +56 +Procedures for Approval of Related Party Transactions +57 +Security Ownership +58 +Security Ownership of Certain Beneficial Owners and Management +58 +Additional Information +60 +Section 16(a) Beneficial Ownership Reporting Compliance +60 +Shareholder Proposals for the 2014 Proxy Statement +60 +Director Nominations or Other Business for Presentation at the 2014 Annual Meeting +60 +Annual Report on Form 10-K +61 +Other Business +62 +Table of Contents +Matador Resources Company +One Lincoln Centre +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +www.matadorresources.com +PROXY STATEMENT +For +ANNUAL MEETING OF SHAREHOLDERS +To Be Held on June 6, 2013 +This Proxy Statement is being mailed on +or about April 24, 2013 to the shareholders of Matador Resources Company (“Matador” or the “Company”) in connection with the solicitation of proxies by the Board of Directors (the “Board”) of the Company to be +voted at the Annual Meeting of Shareholders of the Company to be held at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, on June 6, 2013, at 9:30 a.m., Central Daylight Time (the “Annual Meeting”), or at any +postponement or adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. The address of the Company’s principal executive office is One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, +Texas 75240. +If you are a shareholder of record, you may vote in person by attending the meeting, by completing and returning +a proxy by mail or by using the Internet or telephone. You may vote your proxy by mail by marking your vote on the enclosed proxy card and following the instructions on the card. To vote your proxy using the Internet or telephone, see the +instructions on the proxy form and have the proxy form available when you access the Internet website or place your telephone call. +The named proxies will vote your shares according to your directions. If you sign and return your proxy but do not make any of the selections, the named proxies will vote your shares: (i) FOR the +election of the three nominees for director as set forth in this Proxy Statement, (ii) FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers as disclosed in these materials and (iii) FOR +the ratification of Grant Thornton LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2013. The proxy may be revoked at any time before it is exercised by filing with the Company a written +revocation addressed to the Corporate Secretary, by executing a proxy bearing a later date or by attending the Annual Meeting and voting in person. +The cost of soliciting proxies will be borne by the Company. In addition to the use of postal services or the Internet, proxies may be solicited by directors, officers and employees of the Company (none +of whom will receive any additional compensation for any assistance they may provide in the solicitation of proxies) in person or by telephone. +The outstanding voting securities of the Company consist of shares of Common Stock, $0.01 par value per share (“Common Stock”). The record date for the determination of the shareholders entitled +to notice of and to vote at the Annual Meeting, or any postponement or adjournment thereof, has been established by the Board as the close of business on April 10, 2013 (the “Record Date”). At that date, there were outstanding and +entitled to vote 55,842,938 shares of Common Stock. +The presence, in person or by proxy, of the holders of record of a +majority of the outstanding shares entitled to vote is necessary to constitute a quorum for the transaction of business at the Annual Meeting, but if a quorum should not be present, the meeting may be adjourned from time to time until a quorum is +obtained. A holder of Common Stock will be entitled to one vote per share on each matter properly brought before the meeting. Cumulative voting is not permitted in the election of directors. +The proxy card provides space for a shareholder to withhold voting for any or all nominees for the Board. The election of directors +requires a plurality of the votes cast at the meeting. All other proposals require the +1 +Table of Contents +affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting. Shares of a shareholder who abstains from voting on any or all +proposals will be included for the purpose of determining the presence of a quorum. Votes withheld with respect to the election of the Company’s directors will have no effect on the election of the nominees. In the case of the other proposals +being submitted for shareholder approval, an abstention will effectively count as a vote cast against such proposal. Broker non-votes on any matter, as to which the broker has indicated on the proxy that it does not have discretionary authority to +vote, will be treated as shares not entitled to vote with respect to that matter and therefore will have no effect upon the approval of such matter. However, such shares will be considered present and entitled to vote for quorum purposes so long as +they are entitled to vote on at least one other matter. +2 +Table of Contents +INFORMATION ABOUT THE ANNUAL MEETING +We are furnishing you this Proxy Statement in connection with the solicitation of proxies by the Board to be used at the Annual Meeting +and any adjournment thereof. The Annual Meeting will be held on Thursday, June 6, 2013 at 9:30 a.m., Central Daylight Time. We are sending this Proxy Statement to our shareholders on or about April 24, 2013. +All references in this Proxy Statement to “we,” “our,” “us” or the “Company” refer to Matador +Resources Company, including our subsidiaries and affiliates. +What is the purpose of the Annual Meeting? +At the Annual Meeting, shareholders will act upon the matters outlined in the Annual Meeting notice, including the following: +• +the election of the two nominees for director named in this Proxy Statement for a term expiring at the 2016 Annual Meeting of Shareholders and the one +nominee for director named in this Proxy Statement for a term expiring at the 2015 Annual Meeting of Shareholders; +• +an advisory vote to approve named executive officer compensation; +• +the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending +December 31, 2013; and +• +any other matters that may properly come before the meeting. +What are the Board’s voting recommendations? +• +For the election of the two nominees for director named in this Proxy Statement for a term expiring at the 2016 Annual Meeting of Shareholders +and the one nominee for director named in the Proxy Statement for a term expiring at the 2015 Annual Meeting of Shareholders; +• +For the approval, on an advisory basis, of the compensation of the Company’s named executive officers; and +• +For the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year +ending December 31, 2013. +Who is entitled to vote? +Shareholders as of the close of business on April 10, 2013 are eligible to vote their shares at the Annual Meeting. As of the Record +Date, there were 55,842,938 shares of our Common Stock outstanding. Each share of Common Stock is entitled to one vote at the Annual Meeting. +Why did I receive a Notice Regarding the Internet Availability of Proxy Materials in the mail instead of a full set of proxy materials? +Securities and Exchange Commission (“SEC”) rules allow companies to furnish proxy materials over the Internet. +We have elected to send a separate Notice of Internet Availability of Proxy Materials (the “Notice”) to most of our shareholders instead of a paper copy of the proxy materials. This approach conserves natural resources and reduces the +costs of printing and distributing our proxy materials while providing shareholders with a convenient way to access our proxy materials. Instructions on how to access the proxy materials over the Internet or to request a paper copy of proxy +materials, including a proxy card or voting instruction form, may be found in the Notice. In addition, shareholders may request to receive future proxy materials in printed form by mail or electronically by email. A shareholder’s election to +receive proxy materials by mail or email will remain in effect until the shareholder terminates it. +3 +Table of Contents +How do I vote? +You may: +• +attend the Annual Meeting and vote in person; or +• +dial the toll-free number listed on the Notice, proxy card or voting instruction form provided by your broker. Easy-to-follow voice prompts allow you +to vote your shares and confirm that your voting instructions have been properly recorded. Telephone voting will be available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time on June 5, 2013; or +• +go to the website www.proxyvote.com and follow the instructions, then confirm that your voting instructions have been properly recorded. If you +vote using the website, you can request electronic delivery of future proxy materials. Internet voting will be available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time on June 5, 2013; or +• +if you received a paper copy of your proxy materials and elect to vote by written submission, mark your selections on the proxy card, date and sign it, +and return the card in the pre-addressed, postage-paid envelope provided. +Why did I receive paper copies of proxy +materials? +We are providing certain shareholders with paper copies of the proxy materials instead of a separate Notice. If +you received a paper copy and would no longer like to receive printed proxy materials, you may consent to receive all future proxy materials electronically via email or the Internet. To sign up for electronic delivery, please follow the instructions +provided in your proxy materials. When prompted, indicate that you agree to receive or access shareholder communications electronically in the future. +Will each shareholder in our household receive proxy materials? +Generally, +no. To the extent you are receiving printed proxy materials, we try to provide only one set of proxy materials to be delivered to multiple shareholders sharing an address, unless you have given us other instructions. Any shareholder at a shared +address may request delivery of single or multiple copies of printed proxy materials for future meetings by contacting us at: +Matador Resources Company +Attention: Corporate Secretary +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +Email: investors@matadorresources.com +Telephone: (972) 371-5200 +We hereby undertake to deliver promptly, upon written or oral request, a copy of proxy materials to a shareholder at a shared address to +which a single copy of the proxy materials was delivered. Requests should be directed to the Corporate Secretary at the address or phone number set forth above. +Who will be admitted to the Annual Meeting? +Admission to the Annual +Meeting will be limited to our shareholders of record, persons holding proxies from our shareholders, beneficial owners of our Common Stock and our employees. If your shares are registered in your name, we will verify your ownership at the meeting +in our list of shareholders as of the Record Date. If your shares are held through a broker, bank or other nominee, you must bring proof of your ownership of the shares. This proof could consist of, for example, a bank or brokerage firm account +statement or a letter from your bank or broker confirming your ownership as of the Record Date. You may also send proof of ownership to us at Matador Resources Company, Attention: Corporate Secretary, 5400 LBJ Freeway, Suite 1500, Dallas, Texas +75240, or email: investors@matadorresources.com before the Annual Meeting, and we will send you an admission card. +4 +Table of Contents +If I vote via telephone or the Internet or by mailing my Proxy Card, may I still attend the Annual +Meeting? +Yes. +What if I want to change my vote? +You may revoke your proxy before it is voted by submitting a new proxy with a later date (by mail, telephone or Internet), by voting at the Annual Meeting or by filing a written revocation with our +Corporate Secretary. Your attendance at the Annual Meeting will not automatically revoke your proxy. +What constitutes a quorum? +A majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum. If you vote by +telephone or Internet or by returning your Proxy Card, you will be considered part of the quorum. The Inspector of Election will treat shares represented by a properly executed proxy as present at the meeting. Abstentions and broker non-votes will +be counted for purposes of determining a quorum. A broker non-vote occurs when a nominee holding shares for a beneficial owner submits a proxy but does not vote on a particular proposal because the nominee does not have discretionary voting power +for that item and has not received instructions from the beneficial owner. +How many votes will be required to approve a proposal? +Election of directors at the Annual Meeting will be by a plurality of votes cast at the Annual Meeting. Votes may be cast +in favor of the election of each director nominee or withheld. With respect to other matters, the affirmative vote of the holders of a majority of the shares, present in person or by proxy, and entitled to vote at the Annual Meeting, is required to +take any other action. +Shares cannot be voted at the Annual Meeting unless the holder of record is present in person or by +proxy. +Can brokers who hold shares in street name vote those shares if they have received no instructions? +Under the rules of the New York Stock Exchange (“NYSE”), brokers may not vote the shares held by them in street name for their +customers and for which they have not received instructions, except with respect to a routine matter. The only matter to be voted on at the Annual Meeting that is considered routine for these purposes is the ratification of the appointment of our +independent registered public accounting firm. Accordingly, brokers may not vote your shares on any other matter if you have not given specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so +that your vote will be counted. +How will you treat abstentions and broker non-votes? +A plurality of the votes cast at the Annual Meeting is required to elect each nominee for director. Accordingly, abstentions and broker +non-votes will have no effect on the election of directors. Shares of a shareholder who abstains from voting on any or all proposals will be included for the purpose of determining the presence of a quorum. Votes withheld with respect to the +election of the Company’s directors will have no effect on the election of the nominees. In the case of the other proposals being submitted for shareholder approval, an abstention will effectively count as a vote cast against such proposal. +Broker non-votes on any matter, as to which the broker has indicated on the proxy that it does not have discretionary authority to vote, will be treated as shares not entitled to vote with respect to that matter and therefore will have no effect +upon the approval of such matter. However, such shares will be considered present and entitled to vote for quorum purposes so long as they are entitled to vote on at least one other matter. +Who pays the solicitation expenses? +We will bear the cost of solicitation +of proxies. Proxies may be solicited by mail or personally by our directors, officers or employees, none of whom will receive additional compensation for such solicitation. Those holding shares of Common Stock of record for the benefit of others, or +nominee holders, are being asked to +5 +Table of Contents +distribute proxy soliciting materials to, and request voting instructions from, the beneficial owners of such shares. We will reimburse nominee holders for their reasonable out-of-pocket +expenses. +Where can I find the voting results of the Annual Meeting? +We will announce preliminary voting results at the Annual Meeting, and we will publish final results in a Current Report on Form 8-K that +will be filed with the SEC within four business days of the Annual Meeting. You may obtain a copy of this and other reports free of charge at www.matadorresources.com , or by contacting our Investor Relations Department at (972) 371-5200 +or investors@matadorresources.com or by accessing the SEC’s website at www.sec.gov . +Will the Company’s independent +registered public accounting firm be available at the Annual Meeting to respond to questions? +Yes. The Audit Committee of +the Board has approved Grant Thornton LLP to serve as our independent registered public accounting firm for the year ending December 31, 2013. Representatives of Grant Thornton LLP will be present at the Annual Meeting. They will have an +opportunity to make a statement, if they desire to do so, and will be available to respond to shareholder questions. +Where can I contact +the Company? +Our mailing address is: +Matador Resources Company +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +Our telephone number is (972) 371-5200. +6 +Table of Contents +PROPOSAL 1 — ELECTION OF DIRECTORS +The Board currently consists of eight members. Our Board is divided into three classes of directors, designated Class I, Class II and +Class III, with the term of office of each director ending on the date of the third Annual Meeting following the Annual Meeting at which such director’s class was elected. The numbers of directors in each class will be as nearly equal as +possible at all times. The current Class II directors are Mr. Gregory E. Mitchell and Dr. Steven W. Ohnimus. Mr. Mitchell and Dr. Ohnimus are the Class II director nominees at this Annual Meeting. Messrs. Joseph Wm. +Foran and David M. Laney and Dr. Stephen A. Holditch are the Class III directors, who will hold office until the 2014 Annual Meeting of Shareholders and until the election and qualification of their respective successors or until their +earlier death, retirement, resignation or removal. The current Class I directors are Ms. Margaret B. Shannon and Messrs. Michael C. Ryan and Carlos M. Sepulveda, Jr. Ms. Shannon and Mr. Ryan will hold office until the 2015 Annual +Meeting of Shareholders and until the election and qualification of their respective successors or until their earlier death, retirement, resignation or removal. Mr. Sepulveda, who was appointed to the Board in April 2013, is the Class I +director nominee at this Annual Meeting. +Mr. Mitchell and Dr. Ohnimus have been nominated by the Board for election +as Class II directors at the Annual Meeting to hold office until the 2016 Annual Meeting and until the election and qualification of their respective successors or until their earlier death, retirement, resignation or removal. Mr. Sepulveda, +who was appointed to the Board in April 2013 to fill a vacancy as a Class I director, has been nominated by the Board for election at the Annual Meeting to hold office until the 2015 Annual Meeting and until the election and qualification of his +successor or until his earlier death, retirement, resignation or removal. The nomination of Mr. Sepulveda, a long-time shareholder of the Company who is nominated for his first election to the Board, was recommended to the Director Nominating +Advisory Committee and the Nominating, Compensation and Planning Committee by the Company’s Chief Executive Officer. The Board has determined that each of the director nominees is an “independent director.” +The Board believes that each of the director nominees possesses the qualifications described below in “Corporate Governance — +Board Committees — Nominating, Compensation and Planning Committee.” That is, the Board believes that each nominee possesses: (i) deep experience at the policy making level in business, government or education; (ii) the +availability and willingness to devote adequate time to Board duties; (iii) the character and judgment and ability to make independent analytical, probing and other inquiries; (iv) a willingness to exercise independent judgment along with +a willingness to listen and learn from others; (v) business knowledge and experience that provides a balance with the other directors; (vi) financial independence; and (vii) with respect to incumbent directors, excellent past +performance on the Board. +The information provided below is biographical information about each of the nominees, as well as a +description of the experience, qualifications, attributes or skills that led the Board to conclude that the individual should be nominated for election as a director of the Company. +Nominees +Mr. Gregory E. +Mitchell . Mr. Mitchell, age 61, joined our Board in June 2011. With 45 years of grocery and petroleum retailing experience, he is currently President and CEO of Toot’n Totum Food Stores, LLC, his family company located in Amarillo, +Texas. The company, founded in 1950, consists of over 70 convenience store/fueling locations, as well as car wash and car care centers, with an employee base of over 800 team members. His experience within the petroleum industry includes extensive +negotiations with various major refiners in the United States. A 1973 graduate of the University of Oklahoma, with a Bachelor of Business Administration degree, Mr. Mitchell was appointed by former Governor William Clements to the Texas Higher +Education Coordinating Board, where he served for six years. Additionally, he has served as Chairman of the Amarillo Chamber of Commerce, Chairman of the United Way of Amarillo and Canyon, Chairman of the Don and Sybil Harrington Foundation and +President of the Amarillo Area Foundation. Currently, Mr. Mitchell is a director of +7 +Table of Contents +Cal Farley’s Boys Ranch. Mr. Mitchell’s experience as President and CEO of his large family business and as a past director of several companies provides our Board with extensive +business, strategic and executive leadership experience. +Dr. Steven W. Ohnimus. Dr. Ohnimus, age 66, +was first elected to our Board in January 2004. He spent his entire professional career from 1971 to 2000 with Unocal Corporation, an integrated energy company. From 1995 to 2000, he was General Manager—Partner Operated Ventures, where he +represented Unocal’s non-operated international interests at board meetings, management committees and other high level meetings involving projects in the $200 million range in countries such as Azerbaijan, Bangladesh, China, Congo, Myanmar and +Yemen. From 1994 to 1995, Dr. Ohnimus was General Manager of Asset Analysis, where he managed and directed planning, business plan budgeting and scenario plans for the domestic and international business unit with an asset portfolio totaling +$5.5 billion. From 1990 to 1994, Dr. Ohnimus was Vice President and General Manager, Unocal Indonesia, located in Balikpapan, operating five offshore fields and one onshore liquid extraction plant and employing 1,200 nationals and 50 +expatriates. From 1989 to 1990, he served as Regional Operations Manager in Anchorage, Alaska, and from 1988 to 1989, he was District Operations Manager in Houma, Louisiana. From 1981 to 1988, Dr. Ohnimus was in various management assignments +in Houston and Houma, Louisiana, and from 1971 to 1981 he handled various technical assignments in reservoir, production and drilling in the Gulf Coast area (Houston, Van, Lafayette and Houma). From 1975 to 1979, Dr. Ohnimus was Assistant +Professor of Petroleum Engineering at the University of Southwest Louisiana (now University of Southern Louisiana) where he taught a total of eleven undergraduate and graduate night classes. In 1980, he taught drilling seminars at the University of +Texas Petroleum Extension Service of the International Association of Drilling Contractors (IADC). Dr. Ohnimus has authored several published papers concerning reservoir recompletion and increased recovery. He received his Bachelor of Science +degree in Chemical Engineering from the University of Missouri at Rolla in 1968, a Master of Science degree in Petroleum Engineering from the University of Missouri at Rolla in 1969 and a PhD degree in Petroleum Engineering from the University of +Missouri at Rolla in 1971. Dr. Ohnimus served as a director of the American Petroleum Institute in 1978 and 1979, served as Session Chairman for the Society of Petroleum Engineers’ Annual Convention in 1982, was the Evangeline Section +Chairman of the Society of Petroleum Engineers in 1978 and 1979 and served as President of the Unocal Credit Union from 1986 to 1988. In 2007, he was elected President of the Unocal Gulf Coast Alumni Club, which reports through the Chevron Retirees +Association. From 2008 to 2009, Dr. Ohnimus served as the vice chairman of the advisory board of Western Standard Energy Corp. (OTCBB:WSEG), an oil and natural gas exploration company. Due to his long oil and natural gas industry career and +significant operational and international experience, Dr. Ohnimus provides valuable insight to our Board on our drilling and completion operations and management, as well as providing a global technology and operations perspective. +Mr. Carlos M. Sepulveda, Jr. Mr. Sepulveda, age 55, joined our Board in April 2013. Mr. Sepulveda has served +since March 2004 as President and Chief Executive Officer of Interstate Battery System International, Inc. and has been a member of its board of directors since 1995. Mr. Sepulveda joined Interstate Batteries in 1990. Mr. Sepulveda has +announced his plans to retire from his position as President and Chief Executive Officer in May 2013 but will remain on Interstate Batteries’ board of directors. He is also currently Chairman of the Board of Triumph Bancorp, Inc., a bank +holding company with interests in wholesale banking, commercial finance and real estate investments. He has served on Triumph’s board of directors since 2010 and will serve as Executive Chairman of the board of directors following his +retirement from Interstate Batteries. He has also served since 2007 on the board of directors of Cinemark Holdings, Inc. (NYSE: CNK), a company that owns and manages movie theaters, and is chair of its audit committee. From 1979 to 1990, +Mr. Sepulveda was with KPMG Peat Marwick and was a partner in its audit department from July 1989 to October 1990. Mr. Sepulveda received his Bachelor of Business Administration degree in accounting from the University of Texas in 1979 and +is a licensed Certified Public Accountant. Mr. Sepulveda’s experience as President and Chief Executive Officer of Interstate Batteries along with his extensive public accounting background provide the Board invaluable executive leadership +and financial and accounting expertise. As a certified public accountant with proven management skills, Mr. Sepulveda brings to the Board strong accounting and financial oversight coupled with experience in enterprise and operational risk +management. +8 +Table of Contents +Vote Required +To be elected as a director, each director nominee must receive a plurality of the votes cast by the shareholders entitled to vote for the +election of directors. If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will not have the authority to vote your shares. Abstentions and broker non-votes will each be counted as present for +purposes of determining the presence of a quorum but will have no effect upon the outcome of the vote. +The Board of Directors recommends that you vote FOR each of the Nominees. +Directors Continuing in Office +Biographical information for our directors who are continuing in office is provided below. +Mr. Joseph Wm. Foran . Mr. Foran, age 60, founded Matador Resources Company in July 2003 and has served as Chairman of the Board, Chief Executive Officer, President and Secretary since our +founding. He is also chair of the Board’s Executive Committee. Mr. Foran began his career as an oil and natural gas independent in 1983 when he and his wife, Nancy, founded Foran Oil Company with $270,000 in contributed capital from 17 of +his closest friends and neighbors. Foran Oil Company was later contributed into Matador Petroleum Corporation upon its formation by Mr. Foran in 1988, and Mr. Foran served as Chairman and Chief Executive Officer of that company from +inception until the time of its sale to Tom Brown, Inc. in June 2003 for an enterprise value of $388 million in an all-cash transaction. Under Mr. Foran’s guidance, Matador Petroleum realized a 21% average annual rate of return for its +shareholders for 15 years. Mr. Foran is originally from Amarillo, Texas, where his family owned a pipeline construction business. From 1980 to 1983, he was Vice President and General Counsel of J. Cleo Thompson and James Cleo Thompson, Jr., Oil +Producers. Prior to that time, he was a briefing attorney to Chief Justice Joe R. Greenhill of the Supreme Court of Texas. Mr. Foran graduated with a Bachelor of Science degree in Accounting from the University of Kentucky with highest honors +and a law degree from the Southern Methodist University Dedman School of Law, where he was a Hatton W. Sumners scholar and the Leading Articles Editor of the Southwestern Law Review. He is currently active as a member of various industry and civic +organizations, including his church and various youth activities. In 2002, Mr. Foran was honored as the Ernst & Young “Entrepreneur of the Year” for the Southwest Region. As the founder and Chairman of the Board, Chief +Executive Officer and President of Matador Resources Company, Mr. Foran has provided leadership, experience and long relationships with many of our shareholders. +Dr. Stephen A. Holditch. Dr. Holditch, age 66, was a shareholder in and advisor to Matador Petroleum Corporation and is an original shareholder in Matador Resources Company. He was +first elected to our Board in January 2004 and currently serves as chair of the Board’s Operations and Engineering Committee. He is now a Professor Emeritus in the Harold Vance Department of Petroleum Engineering at Texas A&M University, +having retired from the University on January 31, 2013. He was the Director of the Texas A&M University Energy Institute in 2011 and 2012. From January 2004 to January 2012, he was Head of the Harold Vance Department of Petroleum +Engineering at Texas A&M University. Prior to rejoining Texas A&M University full-time in 2004, he was with Schlumberger Limited, a leading oilfield services provider, as a Fellow, one of only a handful of technical experts so recognized +with this title in that company. In that position, Dr. Holditch advised top management within Schlumberger Limited on production and reservoir engineering matters. Dr. Holditch joined Schlumberger in 1997, following Schlumberger +Limited’s acquisition of S.A. Holditch & Associates, Inc., the consulting company he founded and grew over 20 years into a preeminent engineering firm worldwide in the analysis of low permeability natural gas reservoirs and the design +of hydraulic fracture treatments. During the latter half of the 1980s and into the 1990s, Dr. Holditch expanded the services offered by S.A. Holditch & Associates, building the company from three employees in 1977 to more than 80 +employees. At the time of its sale to Schlumberger in 1997, S.A. Holditch & Associates had become a full-service petroleum engineering consulting company. From 1974 to 1976, Dr. Holditch worked as an independent consulting engineer on +reservoir studies, well completions and fracture treatment design for numerous clients in East and South Texas. +9 +Table of Contents +During that period, he also attended Texas A&M University to earn a PhD degree in Petroleum Engineering and conducted research in reservoir flow behavior in fractured, low permeability +natural gas reservoirs. From 1970 to 1974, he was a Production Engineer with Shell Oil Company, an integrated energy company, where his responsibilities included production engineering for numerous oil and natural gas fields, well completions and +massive hydraulic fracture treatment designs in several deep, geopressured fields in South Texas. From 1968 to 1969, he worked for Pan American Petroleum Corporation as a field engineer on various projects in East Texas. Dr. Holditch received +Bachelor and Master of Science degrees in Petroleum Engineering from Texas A&M University in 1969 and 1970, respectively, and a PhD degree in Petroleum Engineering from Texas A&M University in 1976. Dr. Holditch was President of the +Society of Petroleum Engineers, International (SPE) in 2002 and served on the Society’s board of directors from 1998 to 2003. In addition, he served as a Trustee for the American Institute of Mining, Metallurgical, and Petroleum Engineers from +1997 to 1998. He was also on the board of directors of Triangle Petroleum Corporation, an oil and natural gas exploration corporation, from February 2006 to December 2011. He has received numerous awards in recognition of his technical achievements +and leadership. In 1995, Dr. Holditch was elected to the National Academy of Engineering, the highest professional honor awarded to an engineer. In 1997, he was elected to the Russian Academy of Natural Sciences, and in 1998, Dr. Holditch +was elected to the Petroleum Engineering Academy of Distinguished Graduates at Texas A&M University. In 2010, he was named a Distinguished Alumnus of the Dwight Look College of Engineering at Texas A&M University. Dr. Holditch received +the SPE Distinguished Service Award for Petroleum Engineering Faculty in 1981 and held the Shell Distinguished Chair in Petroleum Engineering at Texas A&M University from 1983 to 1987. He was awarded the R. L. Adams Professorship in 1995. He +taught graduate level courses in formation evaluation, well stimulation and production engineering, and actively performed and supervised research at Texas A&M University from 1974 until his retirement in 2013 in a wide range of engineering +areas. Dr. Holditch is a member of numerous professional societies and serves as a board member and/or trustee for several business affiliations. He has been an SPE Distinguished Lecturer and has co-authored or edited three books and more than +100 technical papers; he has made more than 80 invited technical presentations to petroleum industry audiences. His prior positions as Professor and Head of the Harold Vance Department of Petroleum Engineering at Texas A&M University, his prior +positions with Schlumberger and S. A. Holditch & Associates, Inc. and his prior service on the board of directors of Triangle Petroleum Corporation provide our Board with additional perspective on our completion and stimulation operations +and other business and engineering matters. +Mr. David M. Laney. Mr. Laney, age 64, is an original +shareholder in Matador Resources Company and was an original shareholder in Matador Petroleum Corporation. He was one of the original directors on our Board in July 2003 and currently serves as lead independent director and chair of the Board’s +Nominating, Compensation and Planning Committee. He is an attorney who since March 2007 has practiced law as a solo practitioner. Between 2003 and 2007, he was a partner with the law firm of Jackson Walker LLP in Dallas where he practiced in the +area of corporate and financial law. Prior to joining Jackson Walker, Mr. Laney practiced at the law firm of Jenkens & Gilchrist, a Professional Corporation, from 1977 to 2003 and was Managing Partner of the Jenkens & +Gilchrist law firm from 1990 to 2002. During his tenure as Managing Partner, Jenkens & Gilchrist was recognized as one of the fastest growing firms in the country and was named by industry press as among the top 50 firms in the country +(from the standpoint of size and financial performance). From a regional law firm of roughly 160 lawyers in two Texas cities in 1990, the firm expanded under Mr. Laney’s leadership to over 625 attorneys in nine cities by the end of his +tenure in 2002. Mr. Laney has also served in several capacities as an appointee of Texas Governors William Clements and George W. Bush on various state boards continuously from 1989 through 2001. He was Governor Clements’ appointee to the +Texas Finance Commission, responsible for regulatory oversight of the state banking and thrift industries as the Texas banking system emerged from the recession and collapse of the 1980s. He then served as Governor Bush’s Texas Commissioner of +Transportation (Chairman of the Texas Department of Transportation) from 1995 to 2000. Mr. Laney completed his term with the Texas Department of Transportation (TxDOT) in 2001. As Commissioner of Transportation, his responsibilities were +largely those of the chief executive of TxDOT, a 14,000 employee state agency with a $5 billion annual budget. In that position, he initiated and oversaw the planning and successful execution of an extensive number of organizational and +operational innovations throughout the organization, and developed and +10 +Table of Contents +managed TxDOT’s legislative agenda during three regular sessions of the Texas Legislature. In 2002, Mr. Laney was nominated by President George W. Bush to the board of directors of +Amtrak and confirmed by the U. S. Senate for a five-year term. In November 2007, he completed his term as Chairman of Amtrak’s board of directors. From 1998 to 2003, Mr. Laney served as a member of the Stanford University Board of +Trustees, and for two years as Chairman of its Audit Committee. Mr. Laney has also served in various capacities in connection with numerous civic and educational organizations and projects in the Dallas area. Mr. Laney graduated with a +Bachelor of Arts degree with honors from Stanford University and a law degree from the Southern Methodist University Dedman School of Law. Mr. Laney’s legal experience and leadership positions in governmental departments provide our Board +with additional perspective on our corporate governance, legal and governmental relations matters and general business matters. +Mr. Michael C. Ryan. Mr. Ryan, age 52, joined our Board in February 2009 and currently serves as chair of the +Board’s Audit Committee. Prior to joining the Board, he served as a Board Advisor to the Financial Committee and frequently participated in Board planning and strategy sessions. Since October 2004, Mr. Ryan has been a Partner and member of +the Investment Committee at Berens Capital Management LLC, an investment firm based in New York. From February 1998 to June 2004, he worked with Goldman, Sachs & Co., a global investment banking and securities services firm, leading its +West Coast international institutional equities business. In this role, he developed and built a team of professionals to advise large institutional clients on their global investment decisions. From 1995 to 1998, Mr. Ryan lived in Oslo, +Norway, where he was a Partner at Pareto Securities, a Scandinavian-based securities firm where he led and built the institutional equities business into the United States and United Kingdom. From 1991 to 1994, Mr. Ryan represented multiple +eastern European governments in the preparation, negotiation and sale of many of their largest state-owned companies. He began his career with Honeywell, Inc., which invents and manufactures technologies, including in the safety, security and energy +areas, in 1983, working in the Systems and Research Center, which focused on advanced weapons development programs. Mr. Ryan received a Master of Business Administration degree from The Wharton School at the University of Pennsylvania and a +Bachelor of Science degree from the University of Minnesota. Mr. Ryan’s background and experience in the domestic and international financial markets provide our Board with additional perspective on accounting and auditing functions, +economic trends and our capital sourcing and financing opportunities. +Ms. Margaret B. Shannon . +Ms. Shannon, age 63, joined our Board in June 2011 and currently serves as chair of the Board’s Corporate Governance Committee. She served as Vice President and General Counsel of BJ Services Company, an international oilfield services +company, from 1994 to 2010, when Baker Hughes Incorporated acquired BJ Services. Prior to 1994, she was a partner with the law firm of Andrews Kurth LLP. Ms. Shannon has served on the board of directors of Quanta Services Inc. (NYSE:PWR), a +Houston-based public company that provides specialized infrastructure contracting services for the electric power, natural gas and pipeline and telecommunication industries, since December 2012. Ms. Shannon is also active in community +activities serving as the chair of the finance committee and the governance committee of the board of directors of the Harris County Health Alliance and a member of the board of directors of the Houston Department of Health and Human Services +Foundation. She previously served as the Chair of the Executive Women’s Partnership sponsored by the Greater Houston Partnership, chair of the audit committee of the board of directors of the South Texas College of Law and the chair of the +Endowment Board of Palmer Memorial Episcopal Church and was a participant in the American Leadership Forum. Ms. Shannon received her J.D. cum laude from the Southern Methodist University Dedman School of Law in 1976 and her Bachelor of Arts +degree from Baylor University in 1971. Ms. Shannon’s experience as an attorney, as a partner with Andrews Kurth LLP, as general counsel for a public company for more than 15 years and as a director for numerous other organizations provides +our Board with important insights into public company obligations, corporate governance and board functions. +Special Board Advisors +In addition to our Board, we have four individuals who have significant oil and natural gas experience or legal, accounting and other business experience who advise our Board on various matters. Other +than +11 +Table of Contents +indemnification agreements in form similar to those entered into with our directors and officers, or as otherwise noted below, we have not entered into written agreements with these individuals +with respect to their service as special advisors to our Board. Their business histories are described below: +Mr. Marlan W. Downey. Mr. Downey worked for Shell Oil Company, an integrated energy company, from 1957 to 1987. In +1977, he moved to Shell Oil’s International Exploration & Production business and became Vice President of Shell, and then President of Shell Oil’s newly-formed international subsidiary, Pecten International. Mr. Downey +joined ARCO International in 1990 as Senior Vice President of Exploration, becoming President of ARCO International and then Senior Vice President and Executive Exploration Advisor to ARCO. Mr. Downey retired from ARCO in 1996. He is a fellow +of the American Association for the Advancement of Science. Mr. Downey is past President of the American Association of Petroleum Geologists (“AAPG”) and has served as Bartell Professor and Chief Scientist—Sarkeys Energy Center +at the University of Oklahoma. Mr. Downey is the 2009 recipient of the AAPG’s Sidney Powers Medal, which is the highest honor awarded by the AAPG. He is active in several scientific organizations and serves on the board of Berkeley Earth. +Mr. Downey received a Bachelor of Arts degree in Chemistry in 1952 at Peru State College in Nebraska. He served in the Army in Korea and the Philippines, then entered graduate school at the University of Nebraska, and received a Bachelor of +Science degree in 1956 and a Master of Science degree in Geology in 1957. Mr. Downey previously served on Matador Petroleum Corporation’s board of directors with Mr. Foran. He has served as a special advisor since our inception in +July 2003 and currently serves as chair of the Board’s Prospect Committee and on the Operations and Engineering Committee. +Mr. Wade I. Massad . Mr. Massad served as Executive Vice President—Capital Markets of the Company from December +2011 to July 2012. Following his resignation as an officer of the Company, Mr. Massad resumed his role as a consultant to the Company and as a special advisor to the Board as he did during portions of 2010 and 2011, pursuant to a consulting +agreement entered into in August 2012. Mr. Massad is the Co-Founder and Co-Managing Member of Cleveland Capital Management L.L.C., a registered investment advisor and General Partner of Cleveland Capital L.P., a private investment fund focused +on micro-cap public and private equity securities, established in October 1996. Previously, Mr. Massad was an investment banker with Keybanc Capital Markets and RBC Capital Markets, where he was the head of U.S. equity institutional sales from +1997 to 1998 and the head of U.S. Capital Markets business from 1999 to 2003. He also served on the firm’s executive committee. Mr. Massad has served on multiple public and private company boards and currently is a board member of +4Licensing Corporation. Mr. Massad received a Bachelor of Arts in business management from Baldwin-Wallace College in 1989 and currently serves on its Board of Trustees. +Mr. Edward R. Scott, Jr. Mr. Scott is a successful Amarillo, Texas lawyer, civic leader and businessman, managing a varied portfolio of real estate and development-related concerns. +Currently, he is the primary developer for two residential developments in Amarillo: Pheasant Run and The Greenways. He serves as primary owner of Document Shredding & Storage, which services the entire Panhandle area, Sparky’s Storage +Solutions in Amarillo, Texas and is part owner in two car washes in the Dallas/Fort Worth area. From 1968 to 1996, Mr. Scott was an attorney with the Amarillo law firm of Gibson, Ochsner & Adkins. From 1965 to 1968, he served as an +accountant with Price Waterhouse & Co. Mr. Scott received his Bachelor of Business Administration degree in Accounting from West Texas State University in 1962 and an LLB from The University of Texas School of Law in 1965. +Mr. Scott has previously served as a director and chairman of the Amarillo Economic Development Corporation and is currently serving as a board member of the Salvation Army, Amarillo Area Foundation and the Amarillo Club. He is a past President +of the Rotary Club of Amarillo, the Amarillo Businessmen’s Club, the Amarillo Club, Big Brothers and Big Sisters and the Amarillo Business Foundation. He is a former chairman of the Amarillo Board of City Development and a former member of the +Board of Regents for West Texas State University. Mr. Scott has previously served as an officer and/or board member to many other local civic and/or charitable organizations. He is a member of the Texas Bar Association, the Amarillo Bar +Association, the Texas Society of Certified Public Accountants and the Panhandle Chapter of the Texas Society of Certified Public Accountants. Mr. Scott is an original shareholder in both Matador Resources Company and Matador Petroleum +Corporation. He was an original director on the Matador Resources +12 +Table of Contents +Company Board and served as chair of the Audit Committee for eight years until his retirement from the Board in June 2011. +Mr. W.J. “Jack” Sleeper, Jr. Mr. Sleeper has over 55 years of experience evaluating oil and natural gas +properties. Mr. Sleeper joined DeGolyer and MacNaughton, a petroleum consulting firm, as a Petroleum Engineer in 1965. He performed numerous field studies in North and South America, the North Sea and the Middle East. Mr. Sleeper retired +as President and Chief Operating Officer of DeGolyer and MacNaughton on January 1, 1995. He served on DeGolyer and MacNaughton’s board of directors from 1978 until his retirement. Upon his graduation from the University of Oklahoma with a +Bachelor of Science degree in Petroleum Engineering (with Distinction) in 1955, he was employed by Shell Oil Company, an integrated energy company, as an Exploitation Engineer. During his 10 years with Shell, he spent three years performing research +at Shell Development Company in the fields of Reservoir Engineering, Geology and Petrophysics. He held the titles of Project Engineer, Senior Exploitation Engineer and Senior Production Geologist during his tenure with Shell. Mr. Sleeper has +served on the Mewborne Petroleum and Geological Board of Advisors at the University of Oklahoma since 1995. He is a Licensed Professional Engineer (retired) in the states of Oklahoma and Texas. Mr. Sleeper previously served on Matador Petroleum +Corporation’s board of directors with Mr. Foran. He has served as a special advisor since our inception in July 2003. He currently serves on our Operations and Engineering Committee and Prospect Committee. +13 +Table of Contents +CORPORATE GOVERNANCE +The business affairs of Matador are managed under the direction of the Board in accordance with the Texas Business Organizations Code, the +Company’s Amended and Restated Certificate of Formation and its Amended and Restated Bylaws. The Board has adopted Corporate Governance Guidelines, which are reviewed annually by the Corporate Governance Committee. The Company has a Code of +Ethics and Business Conduct, which is applicable to all officers, directors and employees of the Company. The Company intends to post any amendments to, and waivers from, its Code of Ethics and Business Conduct on the Company’s website to the +extent applicable to an executive officer or a director of the Company. The Corporate Governance Guidelines and the Code of Ethics and Business Conduct are available on the Company’s website at www.matadorresources.com under the heading +“Investors—Corporate Governance.” +At December 31, 2012, our Board had seven members. An additional +director, Mr. Sepulveda, was appointed to the Board effective April 11, 2013 to fill a vacancy. The Board holds regular and special meetings and spends such time on the affairs of the Company as their duties require. During 2012, the Board +held eight meetings. The Board also meets regularly in non-management executive sessions in accordance with NYSE regulations. The Corporate Governance Guidelines provide that one of the Company’s independent directors should serve as a lead +independent director at any time when the chief executive officer serves as the chairman of the board. The lead independent director presides over the non-management executive sessions, serves as a liaison between the chairman and the independent +directors and performs such additional duties as the Board may otherwise determine and delegate. Because Mr. Foran serves as Chairman of the Board and Chief Executive Officer, our independent directors have appointed Mr. Laney to serve as +lead independent director. In 2012, all directors of the Company attended at least 75% of the meetings of the Board and the committees on which they served. It is Company policy that each of our directors is expected to attend Annual Meetings of +Shareholders. All of our directors who were then serving were in attendance at the 2012 Annual Meeting. +Independence of Directors +The Board makes all determinations with respect to director independence in accordance with the NYSE listing standards and the rules and regulations promulgated by the SEC. The actual determination of +whether a director is independent is made by the Board on a case-by-case basis. +In connection with its preparation for the +Annual Meeting, the Board undertook its annual review of director independence and considered transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates. In +making its determination, the Board applied the NYSE listing standards and SEC rules and regulations. +The Board reviewed the +independence of our directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. After this review, our Board +determined that seven of our eight directors are “independent directors” as defined under the rules of the SEC and the NYSE: Ms. Shannon, Messrs. Laney, Mitchell, Ryan and Sepulveda and Drs. Holditch and Ohnimus. +Board Leadership Structure +Mr. Foran serves as the Chairman, President and Chief Executive Officer of the Company. As stated in the Corporate Governance Guidelines, the Board does not believe that the offices of Chairman of +the Board and Chief Executive Officer must be separate. The members of the Board possess experience and unique knowledge of the challenges and opportunities the Company faces. They are, therefore, in the best position to evaluate the current and +future needs of the Company and to judge how the capabilities of the directors and senior managers can be most effectively organized to meet those needs. Given his deep knowledge of the Company and experience in leading it, the Board believes that +the most effective leadership structure for the Company is to have Mr. Foran serve as the Chairman, President and Chief Executive Officer. +14 +Table of Contents +While Mr. Foran serves as Chairman, President and Chief Executive Officer, all other +directors are independent. After considering the recommendations of our Nominating, Compensation and Planning Committee, the independent directors determine Mr. Foran’s compensation. Further, the Company has four standing committees and an +independent lead director. The Board believes that each of these measures counterbalances any risk that may exist in having Mr. Foran serve as the Chairman, President and Chief Executive Officer. For these reasons, the Board believes that this +leadership structure is effective for the Company. +As the Lead Director, Mr. Laney has the following roles and +responsibilities: +• +He chairs the executive sessions of the non-management and independent directors; +• +He leads the independent directors in the evaluation of the Chief Executive Officer; +• +He facilitates communication among the non-management and independent directors; and +• +He acts as a liaison between the non-management and independent directors and the Chief Executive Officer. +Mr. Laney, as Lead Director, may also perform such other duties as the Board or the Corporate Governance Committee from time to time +may assign, which may include, but are not limited to, the following: +• +Help develop Board agendas and ensure critical issues are included; +• +Determine quality, quantity and timeliness of information from management; +• +Make recommendations about retaining consultants or special advisors for the Board; +• +Interview Board candidates; +• +Oversee Board and director evaluations; and +• +Help improve communications and processes by and between management and the Board and the Chief Executive Officer. +Board Committees +The standing committees of the Board are the Audit Committee; Nominating, Compensation and Planning Committee; Corporate Governance Committee; and Executive Committee. The Board has also established the +following advisory committees: Operations and Engineering Committee; Financial Committee; and Prospect Committee. Each of the standing committees is governed by a charter, and a copy of the charters of each of these committees is available on the +Company’s website at www.matadorresources.com under the heading “Investors—Corporate Governance.” Director membership of all of our committees at December 31, 2012 is identified below. +Director +Audit +Committee +Nominating, +Compensation +and Planning +Committee +Corporate +Governance +Committee +Executive +Committee +Operations +and +Engineering +Committee +Financial +Committee +Prospect +Committee +Joseph Wm. Foran +** +* +** +* +Stephen A. Holditch +* +** +* +David M. Laney +* +** +* +* +* +Gregory E. Mitchell +* +* +Steven W. Ohnimus +* +* +* +* +Michael C. Ryan +** +* +* +Carlos M. Sepulveda, Jr. (1) +Margaret B. Shannon +* +* +** +* +* +Member +** +Chair +(1) +We anticipate that Mr. Sepulveda will be appointed to the Audit Committee at the next regularly scheduled meeting of the Board. +15 +Table of Contents +Audit Committee +The Audit Committee assists the Board in monitoring: +• +the integrity of our financial statements and disclosures; +• +our compliance with legal and regulatory requirements; +• +the qualifications and independence of our independent auditor; +• +the performance of our internal audit function and our independent auditor; and +• +our internal control systems. +In addition, the Audit Committee is charged with review of compliance with our Code of Ethics and Business Conduct for Officers, Directors and Employees. +During 2012, our Audit Committee met eight times and currently consists of Ms. Shannon, Messrs. Laney and Ryan and Dr. Ohnimus, +each of whom is independent under the rules of the NYSE and the SEC. Mr. Ryan is the chair of the Audit Committee. SEC rules require a public company to disclose whether or not its audit committee has an “audit committee financial +expert” as a member. An “audit committee financial expert” is defined as a person who, based on his or her experience, possesses the attributes outlined in such rules. Our Board has determined that Mr. Ryan is an “audit +committee financial expert.” Mr. Sepulveda was appointed to the Board in April 2013 to fill a vacancy. We anticipate that he will be designated as an “audit committee financial expert” and appointed to the Audit Committee at the +next regularly scheduled meeting of the Board. +Nominating, Compensation and Planning Committee +The Nominating, Compensation and Planning Committee has the following responsibilities: +• +It identifies and recommends to the Board individuals qualified to be nominated for election to the Board; +• +It recommends to the Board the members and chair of each committee of the Board; +• +It assists the Board and the independent members of the Board in the discharge of their fiduciary responsibilities relating to the fair and competitive +compensation of our executive officers; +• +It provides overall guidance with respect to the establishment, maintenance and administration of our compensation programs, including stock and +benefit plans; +• +It oversees and advises the Board and the independent members of the Board on the adoption of policies that govern our compensation programs; and +• +It recommends to the Board the strategy, tactical and performance goals of the Company, including those performance and tactical goals that relate to +performance-based compensation, including but not limited to goals for production, reserves, cash flows and shareholder value. +Our Nominating, Compensation and Planning Committee has the authority to delegate authority and responsibilities to subcommittees of its members, so long as the subcommittee consists of at least two +members. +Our Nominating, Compensation and Planning Committee currently consists of Ms. Shannon, Messrs. Laney and Ryan +and Dr. Holditch, each of whom is independent under the rules of the NYSE, a “non-employee director” pursuant to Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and an “outside +director” pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Mr. Laney is the chair of the Nominating, Compensation and Planning Committee. During 2012, the Nominating, Compensation and +Planning Committee met eight times. +16 +Table of Contents +The Board has also established a Director Nominating Advisory Committee that is charged with +receiving and considering possible nominees for election by shareholders to the Board. Pursuant to the Director Nominating Advisory Committee charter, this committee is comprised of 8 to 12 persons selected by the Nominating, Compensation and +Planning Committee, and consists of at least: +• +two members of the Nominating, Compensation and Planning Committee; +• +two former members of or special advisors to the Board; +• +two shareholders who beneficially own Common Stock having a market value of at least $1.0 million (such value to be based on the market value of the +Common Stock immediately prior to designation of such shareholders to the Director Nominating Advisory Committee); and +• +two shareholders who have beneficially owned Common Stock continuously for at least the five years prior to such shareholders’ designation to the +Director Nominating Advisory Committee. +The current members of the Director Nominating Advisory Committee +are Messrs. Laney and Ryan, Edward R. Scott, Jr., Kevin M. Grevey, Joe E. Coleman, James M. Funk, Scott E. King, James S. Kone, Jr. and James H. “Jake” Trewin. +The Director Nominating Advisory Committee makes recommendations based on its conclusions to the Nominating, Compensation and Planning Committee for its consideration and review. +The Nominating, Compensation and Planning Committee and the Director Nominating Advisory Committee consider individuals recommended by +the Company’s shareholders to serve on the Board. In considering candidates submitted by shareholders, the Director Nominating Advisory Committee and the Nominating, Compensation and Planning Committee take into consideration the needs of the +Board and the qualifications of the candidate. To have a candidate considered by the Director Nominating Advisory Committee and the Nominating, Compensation and Planning Committee, a shareholder must submit the recommendation in writing and must +include the following information: +• +The name and address of the shareholder, evidence of the person’s ownership of Company stock or derivatives, including the number of shares owned, +a description of all arrangements or understandings regarding the right to vote shares of the Company, any short interest in any security of the Company, any rights to dividends that are separated or separable from the underlying shares, any +proportionate interest in shares or derivatives held by a general or limited partnership whereby the shareholder is a general partner or beneficially owns an interest in the general partner, any performance-related fees (other than an asset-based +fee) that the shareholder is entitled to based on any change in the value of the shares or derivatives, any other information relating to the shareholder that would be required to be disclosed in connection with solicitations of proxies for the +election of directors in a contested election and a statement whether or not the shareholder will deliver a proxy to shareholders; and +• +The name, age, business and residence addresses of the candidate, the candidate’s résumé or a listing of his or her qualifications +to be a director of the Company, the person’s consent to be a director if selected by the Nominating, Compensation and Planning Committee, nominated by the Board and elected by the shareholders and any other information that would be required +to be disclosed in solicitations of proxies for the election of directors. +The shareholder recommendation +and information described above and in more detail in our Amended and Restated Bylaws must be sent to the Corporate Secretary at One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240 and must be received by the Corporate Secretary +not less than 45 or more than 75 days prior to the one-year anniversary date of the date the Company’s proxy statement was mailed in connection with the previous year’s Annual Meeting of Shareholders. +17 +Table of Contents +The Nominating, Compensation and Planning Committee believes that a potential director of +the Company must demonstrate that such candidate has: +• +a depth of experience at the policy-making level in business, government or education; +• +a balance with the business knowledge and experience of the incumbent or nominated directors; +• +availability and willingness to devote adequate time to Board duties; +• +any unfilled expertise needed on the Board or one of its committees; +• +character, judgment and ability to make independent analytical, probing and other inquiries; +• +willingness to exercise independent judgment yet willingness to listen and learn from the other directors and the Company’s staff; and +• +financial independence to ensure such candidate will not be financially dependent on director compensation. +In the case of an incumbent director, the Nominating, Compensation and Planning Committee will also consider such director’s past +performance on the Board. +The Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee +may identify potential nominees by asking, from time to time, current directors and executive officers for their recommendation of persons meeting the criteria described above who might be available to serve on the Board. The Nominating, +Compensation and Planning Committee or the Director Nominating Advisory Committee may also engage firms that specialize in identifying director candidates. As described above, the Nominating, Compensation and Planning Committee and Director +Nominating Advisory Committee will also consider candidates recommended by shareholders. +Once a person has been identified by +the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee as a potential candidate, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will make an initial +determination regarding the need for additional Board members to fill vacancies or expand the size of the Board. If the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee determines that additional +consideration is warranted, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will review such information and conduct interviews as it deems necessary to fully evaluate each director candidate. In +addition to the qualifications of a candidate, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will consider such relevant factors as it deems appropriate, including the current composition of the +Board, the evaluations of other prospective nominees and the need for any required expertise on the Board or one of its committees. The Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee also contemplate +multiple dynamics that promote and advance diversity amongst the members of the Board. Although the Nominating, Compensation and Planning Committee does not have a formal diversity policy, the Nominating, Compensation and Planning Committee +considers a number of factors regarding diversity of personal and professional backgrounds, specialized skills and acumen and breadth of experience in energy production, consumption, distribution or transportation, government policy, finance or law. +The Nominating, Compensation and Planning Committee’s evaluation process will not vary based on whether or not a candidate is recommended by a shareholder. +Corporate Governance Committee +The Corporate Governance Committee +is responsible for periodically reviewing and assessing our Corporate Governance Guidelines and making recommendations for changes thereto to the Board, reviewing any other matters related to our corporate governance, unless the authority to conduct +such review has been retained by the Board or delegated to another committee, and overseeing the evaluation of the Board and management. +18 +Table of Contents +Our Corporate Governance Committee currently consists of Ms. Shannon and Messrs. Laney +and Mitchell, each of whom is independent under the rules of the NYSE. Ms. Shannon is the chair of the Corporate Governance Committee. During 2012, the Corporate Governance Committee met three times. +Executive Committee +The Executive Committee has authority to discharge all the responsibilities of the Board in the management of the business and affairs of the Company, except where action of the full Board is required by +statute or by our Amended and Restated Certificate of Formation. +Our Executive Committee consists of Messrs. Foran and Laney +and Dr. Ohnimus. Mr. Foran is the chair of the Executive Committee. +Operations and Engineering Committee +The Operations and Engineering Committee provides oversight of the development of our prospects, our drilling and completion operations +and our production operations and associated costs. In addition, the Operations and Engineering Committee provides oversight of the amount and classifications of our reserves and the design of our completion techniques and hydraulic fracturing +operations and various other reservoir engineering matters. The current members of the Operations and Engineering Committee are Mr. Foran, Drs. Holditch and Ohnimus and Messrs. Downey ( ex officio ) and Sleeper ( ex officio ), +who are special advisors to our Board. Dr. Holditch is the chair of the Operations and Engineering Committee. +Financial Committee +The Financial Committee provides oversight of our financial position, liquidity and capital needs and the various +methods for financing our business. The current members of the Financial Committee are Ms. Shannon and Messrs. Foran, Laney, Mitchell and Ryan. Mr. Foran is the chair of the Financial Committee. +Prospect Committee +The Prospect Committee provides oversight of the technical analysis, evaluation and selection of our oil and natural gas prospects. The +current members of the Prospect Committee are Messrs. Foran, Downey ( ex officio ) and Sleeper ( ex officio ) and Drs. Holditch and Ohnimus. Mr. Downey is the chair of the Prospect Committee. +Board’s Role in Risk Oversight +The Audit Committee has the responsibility to oversee the Company’s guidelines and policies to govern the process by which risk assessment and risk management are undertaken by management. The +Nominating, Compensation and Planning Committee has the responsibility to oversee that our incentive pay does not encourage unnecessary risk taking and to review and discuss the relationship between risk management policies and practices, corporate +strategy and senior executive compensation. +Compensation Committee Interlocks and Insider Participation +Ms. Shannon, Messrs. Laney, Mitchell and Ryan and Drs. Holditch and Ohnimus served on our Nominating, Compensation +and Planning Committee during the last completed fiscal year. None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer that serves on our Board or Nominating, Compensation +and Planning Committee. No member of our Board serves as an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company. There were no compensation +committee interlocks during 2012. +19 +Table of Contents +Communications with Directors +The Board has established a process to receive communications from shareholders and other interested parties by mail. Shareholders and +other interested parties may contact any member of the Board, any Board committee or the entire Board. To communicate with the Board, any individual director or any committee of directors, correspondence should be addressed to the Board. All such +correspondence should be sent “c/o Corporate Secretary” at One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. The Corporate Secretary will review and forward correspondence to the appropriate person or persons. +Any communications to the Company from one of the Company’s officers or directors will not be considered +“shareholder communications.” Communications to the Company from one of the Company’s employees or agents will only be considered “shareholder communications” if they are made solely in such employee’s or agent’s +capacity as a shareholder. Any shareholder proposal submitted pursuant to Rule 14a-8 promulgated under the Exchange Act will not be viewed as “shareholder communications.” +Executive Officers +The following table sets +forth the names, ages and positions of our executive officers at April 24, 2013: +Name +Age +Positions Held With Us +Joseph Wm. Foran +60 +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +56 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +52 +Executive Vice President—Operations +David F. Nicklin +64 +Executive Director—Exploration +Bradley M. Robinson +58 +Vice President—Reservoir Engineering +Craig N. Adams +46 +Vice President and General Counsel +Ryan C. London +34 +Vice President and General Manager +Kathryn L. Wayne +52 +Controller and Treasurer +The following biographies describe the business experience of our executive officers. Each officer serves +at the discretion of our Board. There are no family relationships among any of our officers. +Mr. Joseph Wm. +Foran . Please see the biography of Mr. Foran on page 9 of this Proxy Statement. +Mr. David E. +Lancaster . Mr. Lancaster joined Matador Resources Company in December 2003 and serves as Executive Vice President, Chief Operating Officer and Chief Financial Officer. Mr. Lancaster has served in several capacities since joining +Matador, including Vice President—Business Development, Acquisitions and Finance from December 2003 to May 2005; Vice President and Chief Financial Officer from May 2005 to May 2007; and Executive Vice President and Chief Financial Officer from +May 2007 to May 2009. He assumed his current role in May 2009. From August 2000 to December 2003, he was Marketing Manager for Schlumberger Limited’s Data & Consulting Services which provided full-field reservoir characterization, +production enhancement, multidisciplinary reservoir and production solutions and field development planning. In this position, he was responsible for global marketing strategies, business models, input to research and development, commercialization +of new products and services and marketing communications. From 1999 to 2000, Mr. Lancaster was Business Manager, North and South America, for Schlumberger Holditch-Reservoir Technologies, the petroleum engineering consulting organization +formed following Schlumberger’s acquisitions of S.A. Holditch & Associates, Inc. and Intera Petroleum Services. In this role, he was responsible for the business operations of 12 consulting offices throughout North and South America. +Mr. Lancaster worked with Schlumberger for six years following its acquisition of S.A. Holditch & Associates, Inc. in October 1997. He joined S.A. Holditch & Associates in 1980, and was one of the principals in that well-known +petroleum engineering consulting firm. Between 1980 and 1997, Mr. Lancaster held positions ranging from Senior Petroleum Engineer to Senior Vice President—Business Development. In this latter role, he was responsible for marketing and +sales, as well as the company’s commercial training business. During most of his tenure at +20 +Table of Contents +S.A. Holditch & Associates, Inc., Mr. Lancaster was a consulting reservoir engineer with particular emphasis on characterizing and improving production from unconventional +natural gas reservoirs. For more than seven years during this time, he was the Project Manager for the Gas Research Institute’s Devonian Shales applied research projects investigating ways to improve reservoir characterization, completion +practices and natural gas recovery in low permeability, natural gas shale reservoirs. He was also the lead reservoir engineer for the Secondary Gas Recovery project sponsored by the Gas Research Institute and the U.S. Department of Energy, looking +at ways to improve recovery from compartmentalized natural gas reservoirs in North and South Texas. Mr. Lancaster began his career as a reservoir engineer for Diamond Shamrock Corporation in 1979. Mr. Lancaster received Bachelor and Master +of Science degrees in Petroleum Engineering from Texas A&M University in 1979 and 1988, respectively, graduating summa cum laude. He has authored or co-authored more than 50 technical papers and articles, as well as numerous other published +reports and industry presentations. He is a member of the Society of Petroleum Engineers, and he served as a charter member and former Vice Chairman of the Texas A&M University Petroleum Engineering Advisory Board. Mr. Lancaster is a +Licensed Professional Engineer in the State of Texas. +Mr. Matthew V. Hairford . Mr. Hairford joined +Matador Resources Company in July 2004 as its Drilling Manager. He was named Vice President—Drilling in May 2005; Vice President—Operations in May 2006; and in May 2009 assumed the title of Executive Vice President—Operations. He is +in charge of our drilling and production operations. He was previously with Samson Resources, an exploration and production company, as Senior Drilling Engineer, having joined Samson in 1999. His responsibilities there included difficult Texas and +Louisiana Gulf Coast projects, horizontal drilling projects and a start-up drilling program in Wyoming. The scope of this work ranged from multi-lateral James Lime wells in East Texas to deep wells in South Texas and South Louisiana. +Mr. Hairford has drilled many geo-pressured wells in Texas and Louisiana, along with normally pressured wells in Southwest Wyoming and East Texas. Additional responsibilities included a horizontal well program in Roger Mills County, Oklahoma at +15,000 feet vertical depth. Mr. Hairford has experience in air drilling, underbalanced drilling, drilling under mud caps and high temperature and pressure environments. From 1998 until 1999, Mr. Hairford served as Senior Drilling Engineer +with Sonat, Inc. in Tyler, Texas, a global company involved with natural gas transmission and marketing, oil and natural gas exploration and production and oil services. There his responsibilities included Pinnacle Reef wells in East Texas and deep +horizontal drilling in the Austin Chalk field in Central Louisiana. From 1984 to 1998, Mr. Hairford served in various drilling engineering capacities with Conoco, Inc., an integrated energy company. His operational areas included the +Appalachian Basin, Illinois Basin, Permian Basin, Texas Panhandle and Val Verde Basin. Mr. Hairford was selected as a member of a three-person team to explore the use of unconventional technologies to identify a potential step change in the +drilling sector. Multiple techniques were evaluated and tested, including declassified defense department technologies. Additional Conoco assignments included both field and office drilling positions in Midland and Oklahoma City. Earlier in his +career with Conoco, Mr. Hairford was selected to participate in the Conoco Drilling Rig Supervisor Training Program in Houston. This program consisted of two years working a regular rotation as a drilling representative on rigs and as a +drilling engineer in various domestic offices. Mr. Hairford began his career in 1984 with Conoco in a field production assignment in Hobbs, New Mexico. Mr. Hairford received his Bachelor of Science degree in Petroleum Engineering +Technology from Oklahoma State University in 1984. He is an active member of the American Association of Drilling Engineers, the American Petroleum Institute and the Society of Petroleum Engineers. Mr. Hairford has also undertaken additional +training through Stanford University’s Executive Education programs including, most recently in the summer of 2011, the Stanford Graduate School of Business flagship six week Stanford Executive Program. +Mr. David F. Nicklin. Mr. Nicklin joined Matador Resources Company in February 2009 as Executive +Director—Exploration after working with us as an independent contractor since November 2007. Prior to joining Matador, Mr. Nicklin provided executive level consulting services to a variety of clients since January 2000 through his +wholly-owned corporation, David F. Nicklin International Consulting Inc. In 2006, Mr. Nicklin co-founded and currently leads a small, private oil and natural gas company, Salt Creek Petroleum LLC. Salt Creek Petroleum owns small, non-operated +interests in a variety of onshore oil and natural gas fields in the United States. Since 2009, Mr. Nicklin has consulted almost exclusively for us, with the primary exception of the +21 +Table of Contents +minimal time he has devoted to Salt Creek Petroleum. Mr. Nicklin worked approximately 210 days for us in each of 2010 and 2011 and 230 days in 2012. We have determined that +Mr. Nicklin’s involvement with Salt Creek Petroleum does not detract from his performance for Matador and does not result in any conflict of interest between Mr. Nicklin and Matador due to the fact that Salt Creek Petroleum is not +involved in plays and prospects that compete with our interests. In 2000, Mr. Nicklin founded and led for three years a private oil and natural gas exploration company, Serica Energy, which is now a public company with assets in Indonesia, the +United Kingdom, Spain, Ireland and Morocco. Between 1981 and 2000, Mr. Nicklin was an employee of ARCO, an integrated energy company, where he participated in and led several international exploration teams, particularly in the Middle East, +southeast Asia and Australasia. In 1991, he became the Chief Geologist for ARCO, a position he held until his retirement in 2000. In this position, Mr. Nicklin was responsible for the quality of the geological effort at ARCO, in particular, +ensuring the application of state-of-the-art geological technology, the company’s risk management process, the selection of new ventures and the high-grading of a large geoscience staff. Throughout his career at ARCO, Mr. Nicklin was +closely involved with the successful exploration for and development of a number of large oil and natural gas discoveries. Prior to joining ARCO, Mr. Nicklin was a senior development and operations geologist in a variety of positions in the +United Kingdom, Angola, Norway and the Middle East. He was a specialist in well-site operations and provided training in operations to entry-level personnel. Mr. Nicklin was born in the United Kingdom and received a Bachelor of Science degree +in Geology from the University of Wales in 1971. He is an active member of the American Association of Petroleum Geologists and various other professional groups. +Mr. Bradley M. Robinson. Mr. Robinson joined Matador Resources Company in August 2003 as one of its founders and has served as our Vice President—Reservoir Engineering since +that time. Prior to joining Matador, from 1997 to August 2003, Mr. Robinson held the position of Advisor with Schlumberger Limited’s Data & Consulting Services business unit, which provided full-field reservoir characterization, +production enhancement, multidisciplinary reservoir and production solutions and field development planning, where he was responsible for the development and application of new technologies for well completions and stimulation, provided technical +expertise for reservoir management and field development projects, taught basic and advanced industry courses in well completions and stimulation and provided internal training in production engineering and stimulation methods. Mr. Robinson +worked with Schlumberger for six years following its acquisition of S.A. Holditch & Associates, Inc. in 1997. Mr. Robinson joined Holditch in 1979, and was one of the principals in that well-known petroleum engineering consulting firm. +From 1979 to 1982, Mr. Robinson served as Senior Petroleum Engineer and was involved in all aspects of reservoir and production engineering for both conventional and low permeability oil and natural gas fields. From 1982 to 1997, he was +Holditch’s Vice President—Production Engineering, where he was responsible for coordination and management of production and completion engineering projects, including development drilling and openhole data acquisition programs, design and +supervision of initial well completions and workovers, transient well test design and analysis and hydraulic fracture stimulation design and supervision. His duties also included reserves evaluation and economic analysis of new and existing wells, +and his areas of specialization included low permeability natural gas sands, coalbed methane reservoirs and horizontal wells. For approximately 10 years during this time, he served as assistant project manager for the Gas Research Institute’s +Tight Gas Sands and Horizontal Gas Wells applied research projects investigating ways to improve reservoir characterization, completion practices and natural gas recovery in low permeability natural gas reservoirs and horizontal natural gas wells. +During his career, he has worked all over the world including the United States, Canada, Venezuela, Colombia, Mexico, Egypt, the North Sea, Russia and Indonesia, among others. Mr. Robinson began his career in 1977 with Marathon Oil Company, +serving as an Associate Production Engineer and later as a Reservoir Engineer in Midland. Mr. Robinson received Bachelor and Master of Science degrees in Petroleum Engineering from Texas A&M University in 1977 and 1986, respectively. He has +authored or co-authored more than 30 technical articles appearing in industry and/or technical publications and has made numerous engineering technical presentations. Mr. Robinson is a member of the Society of Petroleum Engineers and is a +Licensed Professional Engineer in the State of Texas. He served as Chairman of the Dallas Section of the Society of Petroleum Engineers in 2011 and 2012. He also received the 2013 Engineer of the Year Award presented by the Dallas Section of the +Society of Petroleum Engineers. +22 +Table of Contents +Mr. Craig N. Adams . Mr. Adams joined Matador Resources Company in +September 2012 as its Vice President and General Counsel. Before joining the Company, Mr. Adams was a partner with Baker Botts L.L.P. from March 2001 to September 2012 where he focused his practice on securities, mergers and acquisitions and +corporate governance matters. He was a partner with Thompson & Knight L.L.P. from January 1999 to February 2001 and an associate from September 1992 to December 1998. Mr. Adams received a Bachelor of Business Administration degree in +finance from Southern Methodist University in 1988 and his law degree in 1992 from Texas Tech University School of Law, where he was a Comment Editor of the Texas Tech Law Review. +Mr. Ryan C. London . Mr. London first worked at Matador Resources Company in the summer of 2004 as a student intern. +He joined Matador Resources Company full-time as a Petroleum Engineer in May 2005 and advanced to the positions of Senior Operations Engineer in January 2008 and Asset Manager in March 2012. He was promoted to Vice President and General Manager in +March 2013. In this position, Mr. London manages the day-to-day activities of our various asset teams. Mr. London received his Bachelor of Science degree in Mechanical Engineering from Texas A&M University in 2002 and his Master of +Engineering degree in Petroleum Engineering from Colorado School of Mines in 2005. Mr. London is a member of the Society of Petroleum Engineers and is a Licensed Professional Engineer in the State of Texas. +Ms. Kathryn L. Wayne . Ms. Wayne was one of the original employees of Matador Resources Company and serves as the +Company’s Controller and Treasurer. She was previously with Matador Petroleum Corporation, joining the company in 1991. Immediately prior to its sale, Ms. Wayne was Senior Revenue Accountant, and her duties included supervision of the +revenue accounting staff, management of the revenue distribution process and preparation of monthly accruals and various required regulatory reports. Ms. Wayne began her career with Mobil Oil Corporation, where she held various positions in the +gas accounting department. Ms. Wayne received a Bachelor of Arts degree in Accounting from Texas A&M University in 1983. She is recognized by the Council of Petroleum Accountants Societies (COPAS) as an Accredited Petroleum Accountant +(APA), having passed all eight parts of the accreditation examination. She is an active member of COPAS and served a three-year term on the COPAS APA Board of Examiners. +23 +Table of Contents +PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED +EXECUTIVE OFFICER COMPENSATION +The Company seeks a non-binding advisory vote from its shareholders to approve the +compensation of its Named Executive Officers as described in this Proxy Statement. +As discussed in the Compensation +Discussion and Analysis section of this Proxy Statement, we believe the Company’s future success and the ability to create long-term value for our shareholders depends on our ability to attract, retain and motivate highly qualified individuals +in the oil and natural gas industry. Additionally, we believe that our success also depends on the continued contributions of our Named Executive Officers. The Company’s compensation system plays a significant role in its ability to attract, +motivate and retain a high quality workforce. As described in the Compensation Discussion and Analysis, the Company’s Named Executive Officer compensation program is designed to reward, in both the short-term and the long-term, performance that +contributes to the implementation of our business strategies, maintenance of our culture and values and the achievement of our objectives. In addition, we reward qualities that we believe help achieve our business strategies such as teamwork; +individual performance in light of general economic and industry-specific conditions; relationships with shareholders and vendors; the ability to manage and enhance production from our existing assets; the ability to explore new opportunities to +increase oil and natural gas production; the ability to identify and acquire additional acreage; the ability to increase year-over-year proved reserves; the ability to control unit production costs; level of job responsibility; industry experience; +and general professional growth. +This proposal provides shareholders the opportunity to endorse or not endorse the +Company’s executive compensation program through the following resolution: +“Resolved, that the +compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.” +The above referenced Compensation Discussion and Analysis disclosure appears on pages 28 to 43 of this Proxy Statement. +Because this is an advisory vote, it will not be binding upon the Board. However, the Nominating, Compensation and Planning +Committee will take into account the outcome of the vote when considering future executive compensation arrangements. +Vote Required +The affirmative vote of the holders of a majority of the shares present in person or by proxy and +entitled to vote at the Annual Meeting is required to approve this resolution on a non-binding basis. If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will not have the authority to vote your +shares. Abstentions will have the effect as a vote cast against the proposal. Broker non-votes will be counted as present for purposes of determining the presence of a quorum but will have no effect upon the outcome of the vote. +The Board of Directors recommends that you vote FOR approval of this resolution. +24 +Table of Contents +PROPOSAL 3 — RATIFICATION OF THE APPOINTMENT OF +GRANT THORNTON LLP +The Audit Committee has appointed Grant Thornton LLP as the independent registered public accounting +firm of the Company for the year ending December 31, 2013, and the Board has directed that such appointment be submitted to our shareholders for ratification at the Annual Meeting. If the shareholders do not ratify the appointment of Grant +Thornton, the Audit Committee will reconsider the appointment. +The Company has been advised by Grant Thornton that the firm +has no relationship with the Company or its subsidiaries other than that arising from the firm’s engagement as auditors. +The Company has been advised that representatives of Grant Thornton will be present at the Annual Meeting and will be available to +respond to appropriate questions and make a statement if they desire to do so. +Fees of Independent Registered +Public Accounting Firm for Fiscal Years 2012 and 2011 +The following table presents fees for professional audit services +rendered by Grant Thornton for the audits of the Company’s annual financial statements for the years ended December 31, 2012 and 2011, and fees for other services rendered by Grant Thornton during those periods: +2012 +2011 +Audit fees +$ +598,730 +$ +811,549 +Audit-related fees +— +— +Tax fees +— +— +All other fees +2,858 +4,650 +Total +$ +601,588 +$ +816,199 +Services rendered by Grant Thornton in connection with the fees presented above were as follows: +Audit Fees +For fiscal year 2012, audit fees consist of fees associated with the audit of the Company’s consolidated financial statements, including the audit of the effectiveness of the Company’s internal +control over financial reporting, required reviews of our quarterly condensed consolidated financial statements and review of our Form S-3. For fiscal year 2011, audit fees consist of fees associated with the audit of the Company’s +consolidated financial statements and reviews of our quarterly condensed consolidated financial statements for inclusion in our registration statements, final prospectus and Annual Report on Form 10-K, and providing the underwriters with comfort +letters on certain information contained in our registration statements and final prospectus. +Audit-Related Fees +We did not incur any audit-related fees in 2012 or 2011. +Tax Fees +We did not incur any fees for tax advice, planning and other services in 2012 or 2011. +All Other Fees +For fiscal years 2012 and 2011, all other fees +included the use of online research tools provided by Grant Thornton. +The Audit Committee pre-approves all audit and +permissible non-audit services provided by Grant Thornton. These services may include audit services, audit-related services, tax services and other services. The +25 +Table of Contents +Audit Committee has authorized the chair of the Audit Committee to pre-approve audit and permissible non-audit services provided by Grant Thornton up to $750,000. Pursuant to this delegation, the +decisions of the chair must be presented to the Audit Committee at its next meeting. +Report of the Audit +Committee +We are a standing committee comprised of independent directors as currently defined by SEC regulations and the +applicable listing standards of the NYSE. The Board has determined that one of the members of the Audit Committee is an “audit committee financial expert” as defined by applicable SEC rules and regulations. We operate under a written +charter adopted by the Board. A copy of the charter is available free of charge on the Company’s website at www.matadorresources.com under “Investors—Corporate Governance.” +We annually select the Company’s independent auditors. If the shareholders do not ratify the appointment of Grant Thornton at the +Annual Meeting, the Audit Committee will reconsider the appointment of the independent auditors. +Management is responsible +for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards +generally accepted in the United States of America and issuing a report thereon. As provided in our charter, our responsibilities include the monitoring and oversight of these processes. +Consistent with our charter responsibilities, we have met and held discussions with management and the independent auditors. In this +context, management and the independent auditors represented to us that the Company’s consolidated financial statements for the fiscal year ended December 31, 2012 were prepared in accordance with U.S. generally accepted accounting +principles. We reviewed and discussed the consolidated financial statements with management and the independent auditors and discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61, as +amended (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. +The Company’s independent auditors have also provided to us the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the +independent auditor’s communications with the Audit Committee, and we discussed with the independent auditors that firm’s independence. +Based upon our reviews and discussions with management and the independent auditors and our review of the representation of management and the report of the independent auditors to the Audit Committee, we +recommended that the Board include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC. +Audit Committee, +Michael C. Ryan, Chair +David M. Laney +Steven W. Ohnimus +Margaret B. Shannon +Vote Required +The affirmative vote of the holders of a majority of the shares of the Company’s voting securities represented in person or by proxy +at the Annual Meeting entitled to vote on such proposal is required for the ratification of the appointment of Grant Thornton as the Company’s independent registered public accounting +26 +Table of Contents +firm for the year ending December 31, 2013. If the shareholders do not ratify the appointment of Grant Thornton, the Audit Committee will reconsider the appointment. Abstentions will have +the effect as a vote cast against the proposal. +The Board of Directors recommends that you vote FOR the ratification of the appointment of Grant Thornton as the +Company’s independent registered public accounting firm for the year ending December 31, 2013. +27 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +In this compensation discussion and analysis, we discuss our compensation objectives, our decisions and the rationale behind those decisions relating to compensation for 2012 for our principal executive +officer, our principal financial officer and our other three most highly compensated executive officers. Furthermore, this compensation discussion and analysis discusses our decisions regarding compensation for 2013 to date and the rationale behind +those decisions. This compensation discussion and analysis provides a general description of our compensation program and specific information about its various components. +Named Executive Officers +Throughout this discussion, the following +individuals are referred to as the “Named Executive Officers” and are included in the Summary Compensation Table: +• +Joseph Wm. Foran, Chairman of the Board, Chief Executive Officer and President; +• +David E. Lancaster, Executive Vice President, Chief Operating Officer and Chief Financial Officer; +• +Matthew V. Hairford, Executive Vice President—Operations; +• +David F. Nicklin, Executive Director—Exploration; and +• +Bradley M. Robinson, Vice President—Reservoir Engineering. +Objectives of Our Compensation Program +Our future success and the ability to create long-term value for our shareholders depends on our ability to attract, retain and motivate highly qualified individuals in the oil and natural gas industry. +Additionally, we believe that our success also depends on the continued contributions of our Named Executive Officers. Our executive compensation program is designed to provide a comprehensive compensation program to meet the following objectives: +• +to be fair to both the executive and the Company; +• +to attract and retain talented and experienced executives with the skills necessary for us to execute our business plan; +• +to provide opportunities to achieve a total compensation level that is competitive with comparable positions at companies with which we may compete for +executives; +• +to align the interests of our executive officers with the interests of our shareholders and with the performance of our Company for long-term value +creation; +• +to provide financial incentives to our executives to achieve our key corporate and individual objectives; +• +to provide an appropriate mix of fixed and variable pay components to maintain a “pay-for-performance” oriented compensation program; +• +to foster a shared commitment among executives by coordinating their corporate and individual goals; +• +to provide compensation that takes into consideration the education, professional experience and knowledge that is specific to each job and the unique +qualities the executive possesses; and +• +to recognize an executive’s commitment and dedication in his job performance and in support of our culture. +What Our Compensation Program Is Designed to Reward +Our compensation program is designed to reward, in both the short-term and the long-term, performance that contributes to the implementation of our business strategies, maintenance of our culture and +values and the +28 +Table of Contents +achievement of our objectives. In addition, we reward qualities that we believe help achieve our business strategies such as teamwork; individual performance in light of general economic and +industry-specific conditions; relationships with shareholders and vendors; the ability to manage and enhance production from our existing assets; the ability to explore new opportunities to increase oil and natural gas production; the ability to +identify and acquire additional acreage; the ability to increase year-over-year proved reserves; the ability to control unit production costs; level of job responsibility; industry experience; and general professional growth. +2012 +How We Determined Each Element of 2012 Compensation +In early 2011, in consideration of becoming a public company and in connection with our initial public offering, a predecessor committee to the Nominating, Compensation and Planning Committee engaged Pay +Governance LLC as its independent executive compensation advisory firm. The Nominating, Compensation and Planning Committee has continued to engage Pay Governance LLC as its independent executive compensation advisory firm. +For purposes of benchmarking executive compensation, Pay Governance LLC developed a list of recommended peer companies in the oil and +natural gas exploration and production sector with comparable revenue size (approximately $50 million to approximately $700 million), market capitalization (less than $1 billion to approximately $3.3 billion) and competitors, especially competitors +in the Eagle Ford shale due to our current emphasis on the Eagle Ford shale. These companies and the rationale for their inclusion in our peer group were considered and approved by the Nominating, Compensation and Planning Committee and the +Independent Directors. The compensation peer companies are as follows (the “Peer Group”): +Approach Resources Inc. +Carrizo Oil & Gas, Inc. +Clayton +Williams Energy, Inc. +Comstock Resources, Inc. +Crimson Exploration Inc. +Forest Oil Corporation +Goodrich Petroleum Corporation +Gulfport Energy Corporation +Laredo Petroleum Holdings, Inc. +Penn Virginia +Corporation +PDC Energy, Inc. +Resolute +Energy Corporation +Rex Energy Corporation +Rosetta Resources Inc. +Mr. Foran was compared against the chief executive officer position of all 14 companies in the Peer +Group. Mr. Lancaster was compared against the average of the chief financial officer position and the second highest paid position based on annual cash compensation of the 14 companies in the Peer Group. Messrs. Hairford, Nicklin and Robinson +were compared against the third, fourth and fifth highest paid positions based on annual cash compensation of the Peer Group, respectively. However, Gulfport Energy Corporation did not report a fourth and fifth highest paid position. The data +regarding the peer comparison was based on information presented in their 2011 filings regarding compensation for the year ended December 31, 2010. +As an overall compensation philosophy for 2012, we increased Named Executive Officer base salaries to meet the objective of having total compensation for the Named Executive Officers in approximately the +25 th – 50 th percentile of the Peer Group, anticipating that the Independent +Directors would approve future salary increases based on the Company’s growth and performance. +Elements of Our 2012 +Compensation Program and Why We Paid Each Element +For 2012, our management compensation program was comprised of the +following four elements: +• +Base Salary . We paid base salary to compensate each executive for his assigned responsibilities, experience, leadership and expected future +contribution. +29 +Table of Contents +• +Performance-Based Cash Bonus . We adopted the Matador Resources Company Annual Incentive Plan for Management and Key Employees (the “Annual +Incentive Plan”) as part of our management compensation program because we believed this element of compensation (i) helped focus and motivate management to achieve key corporate and individual objectives by rewarding the achievement of +these objectives; (ii) helped retain management; (iii) rewarded our successes over the prior year; and (iv) was necessary to be competitive from a total remuneration standpoint. +• +Equity Awards . We used stock options, restricted stock and restricted stock unit grants as the primary vehicles for (i) linking our +long-term performance and increases in shareholder value to the total compensation for our executive officers and (ii) providing competitive compensation to attract and retain our executive officers. +• +Benefits . We offered a variety of health and welfare programs to all eligible employees, including the executive officers other than +Mr. Nicklin. The health and welfare programs were intended to protect employees against catastrophic loss and encourage a healthy lifestyle. +Nominating, Compensation and Planning Committee +In October 2011, we formed +the Nominating, Compensation and Planning Committee of our Board and adopted a charter for such committee which provided a new process for approving compensation of the Named Executive Officers. The Nominating, Compensation and Planning Committee +has the authority, at our expense, to retain and terminate independent third-party compensation consultants and other expert advisors. +In addition, the Nominating, Compensation and Planning Committee will confirm at least annually that our incentive pay does not encourage unnecessary risk taking and review and discuss the relationship +between risk management policies and practices, corporate strategy and senior executive compensation. The Nominating, Compensation and Planning Committee considered, in establishing and reviewing our executive compensation program, whether the +program encourages unnecessary or excessive risk taking and has concluded that it does not. Several features of our program reflect sound risk management practices. Base salaries are fixed in amount and thus do not encourage risk taking. While our +bonuses are tied to management’s achievements during the previous fiscal year and may encourage the taking of short-term risks at the expense of long-term results, executives’ annual bonuses take into account multiple performance criteria +based on the executive’s individual performance and are within the discretion of the Independent Directors. The Nominating, Compensation and Planning Committee believes that our bonus awards appropriately balance risk and the desire to focus +executives on specific short-term goals important to the Company’s success, and that they do not encourage unnecessary or excessive risk taking. In addition, the Nominating, Compensation and Planning Committee believes that our current equity +compensation program provides an appropriate balance between the goals of increasing the price of our Common Stock and avoiding potential risks that could threaten our growth and stability due to the fact that stock options and service-based +restricted stock typically vest on the second and/or fourth anniversaries of the grant and the performance-based restricted stock and restricted stock units vest based on the stock performance as compared to our peers over a three year period. +With regard to all of the Named Executive Officers, the Nominating, Compensation and Planning Committee recommends to the +independent members of our Board (the “Independent Directors”): +• +option guidelines and size of overall grants; +• +option grants and other equity and non-equity related awards; and +• +limitations, restrictions and conditions upon any award as the Nominating, Compensation and Planning Committee deems appropriate and as permitted under +the applicable plan. +The Independent Directors are required to be independent pursuant to the listing +standards of the NYSE and the rules and regulations promulgated under the Exchange Act and Section 162(m) of the Code. +The Nominating, Compensation and Planning Committee annually reviews and makes recommendations to the Independent Directors regarding the +matters related to Mr. Foran’s compensation, including corporate goals +30 +Table of Contents +and objectives applicable to Mr. Foran’s compensation. The Nominating, Compensation and Planning Committee also evaluates Mr. Foran’s performance in light of these established +goals and objectives at least annually. Based upon these evaluations, the Nominating, Compensation and Planning Committee makes recommendations to the Independent Directors regarding Mr. Foran’s annual compensation, including salary, bonus +and equity and non-equity incentive compensation. The Nominating, Compensation and Planning Committee reviews and recommends to the Independent Directors with regard to Mr. Foran: +• +any employment agreement, severance agreement, change in control agreement or provision or separation agreement or amendment thereof; +• +any deferred compensation arrangement or retirement plan or benefits; and +• +any benefits and perquisites. +On an annual basis, after consultation with Mr. Foran, the Nominating, Compensation and Planning Committee reviews and makes recommendations to the Independent Directors on the evaluation process and +compensation structure for the other Named Executive Officers. After considering the evaluation and recommendations of Mr. Foran, the Nominating, Compensation and Planning Committee evaluates the performance of the other Named Executive +Officers and makes recommendations to the Independent Directors regarding the annual compensation of such Named Executive Officers, including salary, bonus and equity and non-equity incentive compensation. +After considering the recommendations of Mr. Foran with regard to the other Named Executive Officers, the Nominating, Compensation +and Planning Committee reviews and recommends to the Independent Directors regarding the other executive officers: +• +any employment agreement, severance agreement, change in control agreement or provision or separation agreement or amendment thereof; +• +any deferred compensation arrangement or retirement plan or benefits; and +• +any benefits and perquisites. +In addition, pursuant to its charter, the Nominating, Compensation and Planning Committee reviews and recommends to the Independent Directors any proposals for the adoption, amendment, modification or +termination of our incentive compensation, equity-based plans and non-equity based plans. +2012 Base Salary +In December 2011 and January 2012, based on the recommendations of Mr. Foran (other than with regard to his base salary), the +Nominating, Compensation and Planning Committee (which until June 2012 consisted of all the members of the Board other than Mr. Foran) and the Independent Directors decided that for 2012 the base salaries for our Named Executive Officers would +be as follows: +Executive Officer +2012 Base +Salary +Joseph Wm. Foran +$ +550,000 +Chairman of the Board, +Chief Executive Officer and President +David E. Lancaster +$ +340,000 +Executive Vice President, +Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +$ +300,000 +Executive Vice President—Operations +Bradley M. Robinson +$ +240,000 +Vice President—Reservoir Engineering +31 +Table of Contents +Although Mr. Nicklin is retained officially as an independent contractor, he serves as +our Executive Director—Exploration and is included and treated as a Named Executive Officer. Mr. Nicklin retired in 2000 as the Chief Geologist for ARCO and desires to maintain a measure of independence and flexibility in his schedule. +Under this independent contractor arrangement, we are able to obtain the benefit of his experience and expertise. Based on the recommendation of Mr. Foran, the Nominating, Compensation and Planning Committee and Independent Directors decided +that, for 2012, Mr. Nicklin’s base rate would be $2,000 per day of which $250 will be deferred until the end of his three-year independent contractor agreement, provided that Mr. Nicklin’s engagement continues until that point. +Mr. Foran’s base salary was set between the 25 th -50 th percentiles of base compensation levels of the Peer Group based on compensation set forth in the Peer Group’s +2011 proxy statements. The base salaries of the other Named Executive Officers were set in the range of the +25 th percentile of the base compensation levels of the +Peer Group based on compensation set forth in the Peer Group’s 2011 proxy statements. +2012 Annual Incentive +Compensation +Effective January 1, 2012, we adopted the Annual Incentive Plan, pursuant to which we may award Named +Executive Officers annual incentive compensation awards based on certain terms and conditions established by the Board. In early 2012, the Nominating, Compensation and Planning Committee recommended to the Independent Directors and the Independent +Directors set annual performance criteria for 2012 for the Named Executive Officers based on the performance criteria that are set forth in the Annual Incentive Plan (the “2012 Incentive Program”). Such criteria included financial, +operational and strategic performance goals for the Company, Company performance measures and Company performance relative to peers. These performance criteria had corresponding performance payment amounts that were guidelines for actual amounts to +be paid based on the achievement of such performance criteria by each Named Executive Officer. +In addition to the annual +performance criteria, in order to give the Nominating, Compensation and Planning Committee and the Independent Directors flexibility, the Nominating, Compensation and Planning Committee had the discretion to make recommendations to the Independent +Directors and the Independent Directors had the discretion to decide after the completion of the year ended December 31, 2012 to decrease the amount of the payments relating to the corresponding performance criteria or to increase the amount of +the payments to the Named Executive Officers. Any increase could have been in response to unforeseen circumstances when the performance criteria were set. Any such increase could have been or not have been based on the list of performance criteria +set forth in the 2012 Incentive Program and could have been made irrespective of whether any payments were made regarding the performance criteria. +For 2012, representatives of the Nominating, Compensation and Planning Committee met with Pay Governance LLC and management to determine potential criteria for the 2012 Incentive Program. As a result of +these meetings, the Nominating, Compensation and Planning Committee recommended and the Independent Directors determined to use the following performance criteria as guidelines: +• +Adjusted +EBITDA (1) growth for 2012 as compared to 2011 +• +Reserves +growth (2) for 2012 as compared to 2011 +• +Increase in stock price for 2012 as compared to our $12.00 per share initial public offering price +• +Increase in oil production for 2012 as compared to 2011 +(1) +We define Adjusted EBITDA as earnings before interest expense, income taxes, depletion, depreciation and amortization, accretion of asset retirement +obligations, property impairments, unrealized derivative gains and losses, certain other non-cash items and non-cash stock-based compensation expense, including stock option and grant expense and restricted stock and restricted stock units expense, +and net gain or loss on asset sales and inventory impairment. Adjusted EBITDA is a non-GAAP financial measure. +(2) +Reserves growth based on PV-10 at December 31, 2012, calculated using a prescribed natural gas price of $4.12 per MMBtu and a prescribed oil price +of $100 per Bbl. PV-10 was calculated by adding estimated future income taxes to the standardized measure of discounted future net cash flows of our reserves. PV-10 is a non-GAAP financial measure. +32 +Table of Contents +• +Increase in “Tier One” quality net oil acreage +• +Increase in oil produced and sold on a natural gas equivalent basis (using 1 Bbl of oil = 6 Mcf of natural gas) +The Nominating, Compensation and Planning Committee and the Independent Directors determined that these six criteria were general +measures of our performance and were the key criteria on which management should focus during 2012. The Independent Directors established the threshold levels of the performance criteria as representing an achievable increase over 2011, the target +levels as representing a considerable but reasonable increase over 2011 and the maximum levels as representing an exceptional increase over 2011. Since the actual payments to be made under the 2012 Incentive Program were discretionary with the +Independent Board, there was no weighting among the performance criteria. Below are the threshold, target and maximum performance criteria set for 2012. +2012 Incentive Program Metrics +Performance Metric +2011 Baseline +Threshold +Target +Maximum +Adjusted EBITDA +$49.9 million +$75.0 million +$100.0 million +$125.0 million +Reserves Growth +$248.7 million +$350.0 million +$375.0 million +$400.0 million +Stock Price/Share +$12.00 +$14.00 +$16.00 +$18.00 +Oil Production (1) +154,000 Bbl +1.2 million Bbl +1.3 million Bbl +1.4 million Bbl +Oil Acreage (Total) +27,000 net acres +29,500 net acres +32,000 net acres +37,000 net acres +Oil as Percentage of Total Production +6% +30% +35% +40% +(1) +In August 2012, the Company revised its previously-released 2012 oil production guidance, and the Independent Directors adjusted this performance metric accordingly. +In making recommendations regarding the potential payment guidelines under the 2012 Incentive Program, Pay +Governance LLC made recommendations regarding the target payment guidelines. The Nominating, Compensation and Planning Committee reviewed the Pay Governance LLC recommendations regarding target payment guidelines as well as the recommendations of +management regarding the threshold, target and maximum payment guidelines. Based on the review of the Pay Governance recommendations and the management recommendations, which took into account the differing responsibilities of each Named Executive +Officer by the Nominating, Compensation and Planning Committee and the Independent Directors, the following threshold, target and maximum payment guidelines were adopted. +33 +Table of Contents +The table which follows sets forth the threshold, target and maximum annual incentive +guidelines for the Named Executive Officers for 2012 based on the performance criteria guidelines set forth above. +Participant +Threshold +Annual +Incentive +Opportunity +as % of 2012 +Base Salary +Target +Annual +Incentive +Opportunity +as % of 2012 +Base Salary +Maximum +Annual +Incentive +Opportunity +as % of 2012 +Base Salary +Joseph Wm. Foran +38% +75% +150% +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +44% +74% +147% +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +33% +67% +133% +Executive Vice President—Operations +David F. Nicklin (1) +29% +43% +86% +Executive Director—Exploration +Bradley M. Robinson +25% +40% +50% +Vice President—Reservoir Engineering +(1) +The target annual incentive opportunity, expressed in dollars, assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. +In early 2013, after reviewing the Company’s 2012 results compared to the financial and operational +metrics set forth above, the Nominating, Compensation and Planning Committee concluded that the Company had met or exceeded the target performance metrics for Adjusted EBITDA, oil acreage and oil as a percentage of total production and exceeded the +maximum performance metric for reserves growth. The Company’s stock price and oil production, however, were below the target performance metrics. After completing this comparison, the Nominating, Compensation and Planning Committee noted that +during 2012 the Company: +• +more than doubled its Adjusted EBITDA; +• +increased proved oil reserves by 176%; +• +increased oil production from 154,000 Bbl in 2011 to over 1.2 million Bbl in 2013; +• +acquired over 5,000 net acres prospective for oil; and +• +continued its shift from natural gas to oil production, with oil production in 2012 constituting 37% of the Company’s total production by volume +as compared to only 6% in 2011 and 2% in 2010. +With regard to each Named Executive Officer, after taking +into account the performance criteria guidelines, the Company’s 2012 results and all other information with regard to such Named Executive Officer, the Nominating, Compensation and Planning Committee recommended to the Independent Directors +that the Named Executive Officers be paid annual awards as set forth below, and the Independent Directors determined the annual award to be paid to each Named Executive Officer. The amounts of such annual awards were approximately equal to the +Target Annual Incentive Opportunity for Messrs. Hairford, Nicklin and Robinson. With respect to Messrs. Foran and Lancaster, the amounts of such annual awards were between the Threshold and Target Annual Incentive Opportunity as a result of the +Company’s stock price performance and 2012 oil production being below the target performance metrics. The Nominating, Compensation and Planning Committee considers shareholder return to be of particular importance in the evaluation of annual +performance. As a result, it exercised its discretion in reducing the incentive awards to Messrs. Foran and Lancaster. All +34 +Table of Contents +awards made pursuant to the 2012 Incentive Program were cash awards. Such awards were paid to the Named Executive Officers in the first quarter of 2013. +Executive Officer +2012 Incentive +Program +Compensation +% of 2012 +Base Salary +Joseph Wm. Foran +$ +330,000 +60.0 +% +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +$ +200,000 +58.8 +% +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +$ +200,000 +66.7 +% +Executive Vice President—Operations +David F. Nicklin +$ +150,000 +42.9 +% +Executive Director—Operations +Bradley M. Robinson +$ +100,000 +41.7 +% +Vice President—Reservoir Engineering +2012 Long-Term Incentive Compensation +Effective January 1, 2012, the Board adopted the 2012 Long-Term Incentive Plan (the “2012 Plan”). This plan permits the +granting of long-term equity and cash incentive awards, including the following: +• +stock options; +• +stock appreciation rights; +• +restricted stock (service-based and performance-based); +• +restricted stock units (both service-based and performance-based); +• +performance shares; +• +performance units; +• +stock grants; and +• +performance cash awards. +After receiving recommendations from the Nominating, Compensation and Planning Committee, the 2012 Plan is administered by the Independent Directors. For 2012, the Nominating, Compensation and Planning +Committee met with Pay Governance LLC and management regarding the appropriate types and amounts of equity grants based on differing levels of responsibility of the Named Executive Officers and made recommendations to the Independent Directors. +Non-qualified stock options, service-based restricted shares and performance-based restricted stock and restricted stock units were granted approximately equal in value to a specified percentage of the Named Executive Officer’s salary. +The stock options were equal to approximately 49% of the total value of the awards, vest 50% on the second and 50% on the +fourth anniversaries of the grant date if the Named Executive Officer is still employed by us on the vesting dates, have an exercise price of $10.49 per share and have a five-year term. The service-based restricted stock comprised approximately 23% +of the total value of the awards and vests 50% on the second and 50% on the fourth anniversaries of the grant date if the Named Executive Officer is still employed by us on the vesting dates. The performance-based restricted stock and restricted +stock units were each equal to approximately 28% of the total value of the awards and vest on April 16, 2015 according to the Company’s percentile rank within the Peer Group as described below, provided the Named Executive Officer is still +employed by us on the vesting date. During the restricted period prior to vesting of the service-based restricted stock and the performance-base restricted stock, the Named Executive Officer will be eligible to receive dividends on and vote the +restricted shares. The stock options and service-based restricted stock were granted in order to facilitate +35 +Table of Contents +retention of our Named Executive Officers, encourage improved future results and provide a reward for future results. The performance-based restricted stock and restricted stock units align with +creating value for the shareholders while further encouraging the performance and retention of the Named Executive Officers. +The approximate value of the 2012 equity grants as a percentage of 2012 base salary and the number of shares underlying each grant are +set forth in the table below: +Participant +% of 2012 +Base +Salary +Stock +Options +Service-Based +Restricted +Stock +Performance-Based +Restricted +Stock +Performance-Based +Restricted Stock +Units +Joseph Wm. Foran +169 +% +80,208 +20,052 +20,052 +20,052 +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +145 +% +42,500 +10,625 +10,625 +10,625 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +126 +% +32,500 +8,125 +8,125 +8,125 +Executive Vice President—Operations +David F. Nicklin +102 +% (1) +30,625 +7,657 +7,656 +7,656 +Executive Director—Exploration +Bradley M. Robinson +97 +% +20,000 +5,000 +5,000 +5,000 +Vice President—Reservoir Engineering +(1) +The value assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. +The performance-based restricted stock and performance-based restricted stock units vest depending upon the percentile rank of our Common +Stock within the Peer Group based upon the annualized total equivalent shareholder return from March 19, 2012 to April 15, 2015 as set forth below: +Company’s Percentile Rank +within the Peer Group +Percentage of Vested +Shares +91 st and Above +200% +81 st – 90 th +175% +71 st – 80 th +150% +61 st – 70 th +125% +51 st – 60 th +100% +41 st – 50 th +50% +40 th and Below +0% +The performance-based restricted stock vests up to 100% of the shares granted. Any amounts above 100% of +the shares granted up to 200% of the shares granted consist of the performance-based restricted stock units which will vest and be converted into a corresponding number of shares of Common Stock, subject to the Company meeting the performance +criteria outlined above. +Benefits +We offer a variety of health and welfare programs to all eligible employees, including the executive officers other than Mr. Nicklin. The health and welfare programs are intended to protect employees +against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical, pharmacy, dental, disability and life insurance. We also have a 401(k) plan for all full time employees, including the executive officers, +other than Mr. Nicklin, in which we contribute 3% of the employee’s base salary and have the discretion to match dollar-for-dollar up to an additional 4% of the employee’s elective deferral contributions. We generally do not offer +perquisites to our executives, including our Named Executive Officers. +36 +Table of Contents +2013 +Role of Shareholder Say-on-Pay Votes +On June 7, 2012, we held a +shareholder advisory vote on the compensation of the Named Executive Officers as described in the 2012 Proxy Statement, commonly referred to as a say-on-pay vote. The shareholders approved the Named Executive Officers’ compensation, with +approximately 95% of the shares present in person or represented by proxy and entitled to vote on the say-on-pay vote at the 2012 Annual Meeting voting in favor of the 2012 say-on-pay resolution. As we evaluated our compensation practices, the +Nominating, Compensation and Planning Committee and the Independent Directors were mindful of the overwhelming support shareholders expressed for our compensation philosophy. As a result, in considering 2013 compensation, the Nominating, +Compensation and Planning Committee and the Independent Directors decided to maintain moderate levels of executive compensation with respect to our Peer Group. Also, in determining to have a say-on-pay vote at this Annual Meeting, the Board took +into account the preference by approximately 96% of the shares present in person or represented by proxy and entitled to vote on the frequency of say-on-pay votes at the 2012 Annual Meeting voting for an annual vote. +2013 Base Salary +For 2013, after receiving input from Mr. Foran (other than with regard to his base salary), the Nominating, Compensation and Planning Committee and the Independent Directors decided that for 2013 the +base salaries for our Named Executive Officers would be as follows: +Executive Officer +2013 Base +Salary +Joseph Wm. Foran +$ +600,000 +Chairman of the Board, +Chief Executive Officer and President +David E. Lancaster +$ +375,000 +Executive Vice President, +Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +$ +330,000 +Executive Vice President—Operations +Bradley M. Robinson +$ +255,000 +Vice President—Reservoir Engineering +Mr. Nicklin’s base rate stayed the same as for 2012. The 2013 base +salaries reflect the general philosophy for 2013 of having total target compensation for the Named Executive Officers in approximately the 25 th -50 th percentile of the Peer Group based on compensation set forth in the Peer Group’s 2012 proxy statements. +2013 Annual Incentive Compensation +As with 2012, effective January 1, 2013, we set annual performance criteria for 2013 for the Named Executive Officers based on the possible performance criteria that are set forth in the Annual +Incentive Plan (the “2013 Incentive Program”). Such criteria included financial, operational and strategic performance goals for the Company, Company performance measures and Company performance relative to peers. These performance +criteria had corresponding performance payment amounts that will be guidelines for actual amounts to be paid based on the achievement of such performance criteria by each Named Executive Officer. +All awards made pursuant to the 2013 Incentive Program will be cash awards. Such awards are to be paid to the Named Executive Officers as +soon as practicable following completion of 2013 and, in any case, within the first 135 days following the end of 2013. The 2013 Incentive Program operates in a similar fashion to the 2012 Incentive Program described above. +37 +Table of Contents +For 2013, the Chair of the Nominating, Compensation and Planning Committee met with Pay +Governance LLC and management to determine potential criteria for the 2013 Incentive Program. Based on these meetings, the Chair proposed certain preliminary performance criteria metrics for consideration by the Nominating, Compensation and Planning +Committee. The Nominating, Compensation and Planning Committee then met with Pay Governance and management to review the proposed criteria. As a result of these meetings, the Nominating, Compensation and Planning Committee recommended and the +Independent Directors determined to use the following performance criteria as guidelines: +• +Adjusted +EBITDA (3) growth for 2013 as compared to 2012 +• +Reserves +growth (4) for 2013 as compared to 2012 +• +Increase in stock price for 2013 as compared to 2012 +• +Increase in oil production for 2013 as compared to 2012 +It is important to note that performance goals are part of our incentive program and do not correspond to any financial guidance that the Company has provided to the investment community or that the +Company will provide and should, therefore, not be considered as statements of our expectations or estimates. +The Nominating, +Compensation and Planning Committee and the Independent Directors determined that these four criteria are general measures of our performance and are the key criteria on which management should focus during 2013. The Independent Directors +established the threshold levels of the performance criteria as representing an achievable increase over 2012, the target levels as representing a considerable but reasonable increase over 2012 and the maximum levels as representing an exceptional +increase over 2012. In addition, the Nominating, Compensation and Planning Committee and the Independent Directors have asked Mr. Foran to establish initial individual performance criteria for each Named Executive Officer (other than himself), which +criteria are intended to measure individual performance of the Named Executive Officers during 2013. Since the actual payments to be made under the 2013 Incentive Program are discretionary with the Independent Board, there is no weighting among the +performance criteria. Below are the threshold, target and maximum performance criteria. +2013 Incentive Program Metrics +Performance Metric +2012 Baseline +Threshold +Target +Maximum +Adjusted EBITDA +$116 million +$135 million +$150 million +$170 million +Reserves Growth +$423 million +$500 million +$550 million +$600 million +Stock Price/Share +$8.20 +$10.00 +$12.00 +$14.00 +Oil Production +1.2 million Bbl +1.5 million Bbl +1.75 million Bbl +2.0 million Bbl +In making recommendations regarding the 2013 Incentive Program, Pay Governance LLC made recommendations +regarding the target payment guidelines. The Nominating, Compensation and Planning Committee reviewed the Pay Governance LLC recommendations regarding target payment guidelines as well as the recommendations of management regarding the threshold, +target and maximum payment guidelines. Based on the review of the Pay Governance recommendations and the management recommendations which took into +(3) +We define Adjusted EBITDA as earnings before interest expense, income taxes, depletion, depreciation and amortization, accretion of asset retirement obligations, +property impairments, unrealized derivative gains and losses, and non-cash stock-based compensation expense, including stock option and grant expense and restricted stock and restricted stock units expense and net gain or loss on assets sales and +inventory impairment. Adjusted EBITDA is a non-GAAP financial measure. +(4) +Reserves growth will be based on PV-10 at December 31, 2013, calculated using a prescribed natural gas price of $2.757 per MMBtu and a prescribed oil price of +$91.21 per Bbl, such commodity prices being the commodity prices used to determine the Company’s proved reserves and PV-10 at December 31, 2012. PV-10 is calculated by adding estimated future income taxes to the standardized measure of +discounted future net cash flows of our reserves. PV-10 is a non-GAAP financial measure. +38 +Table of Contents +account the differing responsibilities of each Named Executive Officer by the Nominating, Compensation and Planning Committee and the Independent Directors, the following threshold, target and +maximum payment guidelines were adopted. +The table which follows sets forth the threshold, target and maximum annual +incentive guidelines for the Named Executive Officers for 2013 based on the performance criteria guidelines set forth above. +Participant +Threshold +Annual +Incentive +Opportunity +as % of 2013 +Base Salary +Target +Annual +Incentive +Opportunity +as % of 2013 +Base Salary +Maximum +Annual +Incentive +Opportunity +as % of 2013 +Base +Salary +Joseph Wm. Foran +38 +% +75 +% +100 +% +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +44 +% +74 +% +100 +% +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +33 +% +67 +% +100 +% +Executive Vice President—Operations +David F. Nicklin (1) +29 +% +43 +% +85 +% +Executive Director—Exploration +Bradley M. Robinson +25 +% +40 +% +50 +% +Vice President—Reservoir Engineering +(1) +The target annual incentive opportunity, expressed in dollars, assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. +In early 2014, with regard to each Named Executive Officer, after taking into account the performance criteria +guidelines and all other information with regard to such Named Executive Officer, the Nominating, Compensation and Planning Committee may recommend to the Independent Directors that any Named Executive Officer be paid an annual award for 2013 and +the Independent Directors will determine the annual award for 2013 to be paid to such Named Executive Officer, if any. The amount of such annual award may be greater than or less than the payment opportunity based on the performance criteria +guidelines so long as the annual award does not exceed 200% of the applicable Named Executive Officer’s annual base salary. +2013 Long-Term Incentive Compensation +For 2013, the Nominating, +Compensation and Planning Committee met with Pay Governance LLC and management regarding the appropriate types and amounts of equity grants based upon differing levels of responsibility of the Named Executive Officers and made recommendations to the +Independent Directors. Based on this discussion, non-qualified stock options and restricted shares were granted to each Named Executive Officer. +The stock options vest 50% on the second and 50% on the fourth anniversaries of the grant date if the Named Executive Officer is still employed by us on the vesting dates, have an exercise price of $8.21 +per share and have a five-year term. The restricted stock vests 100% on the fourth anniversary of the grant date if the Named Executive Officer is still employed by us on the vesting date. During the restricted period prior to vesting of the +restricted stock, the Named Executive Officer will be eligible to receive dividends on and vote the restricted shares. The stock options and restricted stock are granted in order to facilitate retention of our Named Executive Officers, encourage +improved future results and provide a reward for future results. +39 +Table of Contents +The approximate value of the 2013 equity grants as a percentage of 2013 base salary and the +number of shares underlying each grant are set forth in the table below: +Participant +% of 2013 +Base +Salary +Stock +Options +Restricted +Stock +Joseph Wm. Foran +164 +% +175,000 +40,000 +Chairman of the Board, Chief Executive Officer and President +David E. Lancaster +190 +% +125,000 +30,000 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +Matthew V. Hairford +195 +% +117,500 +25,000 +Executive Vice President—Operations +David F. Nicklin +78 +% (1) +40,000 +15,000 +Executive Director— Exploration +Bradley M. Robinson +63 +% +10,000 +15,000 +Vice President—Reservoir Engineering +(1) +The value assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. +How Elements of Our Compensation Program Are Related to Each Other +We view the various components of compensation as related but distinct with generally a significant portion of total compensation +reflecting “pay for performance.” We do not have any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation or between cash or non-cash compensation. +Accounting and Tax Considerations +Under Section 162(m) of the Code, a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1.0 +million in any taxable year, unless the compensation is performance-based. Since we were not a publicly-held company until February 2012, Section 162(m) has not applied to us, and there is an exception to this deductibility limitation for a +specified period of time in the case of companies such as us that become publicly-held. +Termination of Employment +Arrangements and Independent Contractor Agreement +Employment Agreements and Independent Contractor Agreement +As described under “Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table,” in +contemplation of our initial public offering, on August 9, 2011, we entered into employment agreements with Messrs. Foran, Lancaster, Hairford and Robinson and an independent contractor agreement with Mr. Nicklin and his consulting +company. +Under the employment agreements, if one of the following occurs: +• +the Named Executive Officer dies; +• +the Named Executive Officer is totally disabled; +• +we mutually agree to end the employment agreement; +• +we dissolve and liquidate; or +• +the term of the employment agreement ends, +40 +Table of Contents +we will pay the Named Executive Officer the average of his annual bonus, which includes non-equity incentive +compensation, for the prior two years pro-rated based on the number of complete or partial months completed during the year of termination. +Also, under the employment agreements, if one of the following occurs: +• +the Named Executive Officer is terminated other than (i) as set forth above, (ii) by us for just cause, or (iii) in connection with a +“change in control” as described below; or +• +the Named Executive Officer terminates his employment for “good reason,” +if the Named Executive Officer is Mr. Foran, we will pay him twice his base salary and twice the average of his annual bonus for the prior two +years; if the Named Executive Officer is Messrs. Lancaster or Hairford we will pay him 1.5 times his base salary and 1.5 times the average of his annual bonus for the prior two years; and if the Named Executive Officer is Mr. Robinson, we will +pay him one year of base salary and the average of his annual bonus for the prior two years. +Finally, under the employment +agreements, upon a “change in control” and within 30 days prior to the “change in control” or within 12 months after the “change in control,” if we terminate a Named Executive Officer without just cause or the Named +Executive Officer terminates his employment with or without “good reason,” if the Named Executive Officer is Messrs. Foran, Lancaster or Hairford, we will pay him three times his base salary and three times the average of his annual bonus +for the prior two years; and if the Named Executive Officer is Mr. Robinson, we will pay him twice his base salary and twice the average of his annual bonus for the prior two years. In addition, if Messrs. Foran, Lancaster, Hairford or Robinson +are terminated or terminate their employment as set forth above in connection with a “change in control,” all equity awards of such Named Executive Officer vest immediately prior to such termination. +“Change in control” is defined under Section 409A of the Code as follows: +• +A change in ownership of the Company occurs on the date that, except in certain situations, results in someone acquiring more than 50% of the total +fair market value or voting power of the Company’s stock; +• +A change in effective control of the Company occurs on one of the following dates: +• +The date that a person acquires (or has acquired in a 12 month period) ownership of 30% or more of the Company’s total voting power; however, if a +person already owns at least 30% of the Company’s total voting power, the acquisition of additional control does not constitute a change in control; or +• +The date during a 12 month period where a majority of the Company’s Board is replaced by directors whose appointment or election was not endorsed +by a majority of the Board; or +• +A change in the ownership of a substantial portion of the Company’s assets occurs on the date a person acquires (or has acquired in a 12 month +period) assets of the Company having a total gross market value of at least 40% of the total gross fair market value of all of the Company’s assets immediately before such acquisition. +For purposes of the employment agreements, “good reason” means: +• +The assignment of duties inconsistent with the title of the Named Executive Officer or his current office or a material diminution of the Named +Executive Officer’s current authority, duties or responsibilities; +• +A diminution of the Named Executive Officer’s base salary or a material breach of the employment agreement; or +41 +Table of Contents +• +The relocation of the Company’s principal executive offices more than 30 miles from the Company’s present principal executive offices or the +transfer of the Named Executive Officer to a place other than the Company’s principal executive offices; and +• +The action causing the “good reason” is not cured within the applicable cure period. +For purposes of the employment agreements, “just cause” means: +• +The Named Executive Officer’s continued and material failure to perform the duties of his employment consistent with his position other than due +to disability; +• +The Named Executive Officer’s failure to perform his material obligations under the employment agreement other than due to disability; +• +The Named Executive Officer’s material breach of the Company’s written policies concerning discrimination, harassment or securities trading; +• +The Named Executive Officer’s refusal or failure to follow lawful directives of the Board and any supervisors other than due to disability; +• +The Named Executive Officer’s commission of fraud, theft or embezzlement; +• +The Named Executive Officer’s conviction or indictment of a felony or other crime involving moral turpitude; or +• +The Named Executive Officer’s intentional breach of fiduciary duty; and +• +The action causing the “just cause” is not cured within the applicable cure period. +Under Mr. Nicklin’s independent contractor agreement, if one of the following occurs: +• +he dies; +• +he is totally disabled; +• +we mutually agree to end the independent contractor agreement; +• +we dissolve and liquidate; or +• +the term of the independent contractor agreement ends, +we must pay his consulting company (i) the average of the annual bonus paid to the consulting company for the prior two years pro-rated based on the number of complete or partial months completed +during the year of termination and (ii) all accrued and vested compensation under our incentive plans. In addition, if Mr. Nicklin dies or is totally disabled during the three-year term of the independent contractor agreement, his +consulting company will be paid $250 per day that Mr. Nicklin consulted for us during the term of the independent contractor agreement. +Also, under the independent contractor agreement, if one of the following occurs: +• +the independent contractor agreement is terminated by us for a reason other than as set forth above or in connection with a “change in +control” as described below; or +• +he terminates the independent contractor agreement for “good reason” (as described in connection with the employment agreements set forth +above), +we must pay an amount equal to $1,000 per full business day that Mr. Nicklin consulted for us during the prior +twelve months of the term of the independent contractor agreement plus accrued and vested compensation under our equity plans. +Finally, under the independent contractor agreement, upon a “change in control” (as described in connection with the employment +agreements set forth above) and within 30 days prior to the “change in control” or within 12 months after the “change in control,” if we terminate Mr. Nicklin without “just cause” (as described in +42 +Table of Contents +connection with the employment agreements set forth above) or Mr. Nicklin terminates his independent contractor agreement with or without “good reason” (as described in connection +with the employment agreements set forth above), we will pay an amount equal to two times the aggregate amount paid based on the daily rate during the prior twelve months plus accrued and vested compensation under our equity plans. +Equity Plans +The 2003 Stock and Incentive Plan (the “2003 Plan”) provides that all awards automatically vest upon a “change in control.” For equity grants under the 2012 Plan, vesting upon a +“change in control” for Messrs. Foran, Lancaster, Hairford and Robinson mirrors the terms of their employment agreements. For Mr. Nicklin, for equity grants under the 2012 Plan, vesting occurs if within 12 months after a “change +in control” Mr. Nicklin is terminated without “just cause” (as defined above) or terminates his employment with “good reason” (as defined above other than with respect to relocation). +For the 2003 Plan, see the definition of “change in control” below in the section “—Potential Payments upon +Termination or Change in Control.” +The “change in control” provisions in the employment agreements, +independent contractor agreement and the equity grants under the 2012 Plan and the 2003 Plan help prevent management from being distracted by rumored or actual changes in control. The “change in control” provisions provide: +• +incentives for those Named Executive Officers to remain with us despite the uncertainties of a potential or actual change in control; +• +assurance of severance payments for terminated Named Executive Officers; and +• +access to equity compensation after a change in control. +We believe a single trigger or modified single trigger is appropriate given the Company’s size, early stage of development and strong growth aspirations. Further, the Company believes that such +provisions would help to retain its Named Executive Officers in the event of speculation regarding an unfriendly takeover. +Stock Ownership Guidelines +We have adopted stock ownership guidelines for our executive officers that cover the following executive officers and designated amounts: +• +Chairman, President and Chief Executive Officer—shares equal to five times base salary; +• +Executive Vice Presidents—shares equal to two and +1 / 2 times base salary; and +• +Vice Presidents and Executive Directors—shares equal to one and +1 / 2 times base salary. +Each of the foregoing executive +officers has five years from the later of the date of the closing of our initial public offering and the fifth anniversary of his or her appointment as an officer of the Company in which to achieve the stock ownership position. Shares which will +count toward the stock ownership guidelines include time-lapse restricted shares that are still restricted and any shares held in trust by the executive officer or his immediate family over which he has direct beneficial ownership interest. Shares +which will not count toward the stock ownership guidelines include shares underlying unexercised stock options, unexercised stock appreciation rights and performance-based awards for which the performance requirements have not been satisfied. +Messrs. Foran, Lancaster, Hairford and Robinson each owns shares in excess of the minimum requirement set forth in the stock ownership guidelines. +43 +Table of Contents +Nominating, Compensation and Planning Committee Report +We have reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and +based on such review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. +Nominating, Compensation and Planning Committee +David M. Laney, +Chair +Stephen A. Holditch +Michael C. Ryan +Margaret B. Shannon +44 +Table of Contents +Summary Compensation Table +The following table summarizes the total compensation awarded to, earned by or paid to Messrs. Foran, Lancaster, Hairford, Nicklin and +Robinson for 2012, 2011 and 2010. This table and the accompanying narrative should be read in conjunction with the Compensation Discussion and Analysis, which sets forth the objectives and other information regarding our executive compensation +program. +Name and Principal Position +Year +Salary +Bonus +Stock +Awards (1) +Option +Awards (2) +Non-Equity +Incentive Plan +Compensation (3) +All Other +Compensation +Total +Joseph Wm. Foran +2012 +$ +550,000 +$ +— +$ +475,834 +$ +455,581 +$ +330,000 +$ +18,471 +(4) +$ +1,829,886 +Chairman of the Board, Chief +2011 +$ +240,000 +$ +650,000 +$ +— +$ +— +$ +— +$ +18,019 +(5) +$ +908,019 +Executive Officer and President +2010 +$ +240,000 +$ +400,000 +$ +— +$ +— +$ +— +$ +17,994 +(6) +$ +657,994 +David E. Lancaster +2012 +$ +340,000 +$ +— +$ +252,131 +$ +241,400 +$ +200,000 +$ +17,500 +(7) +$ +1,051,031 +Executive Vice President, Chief +2011 +$ +248,333 +$ +390,000 +$ +— +$ +— +$ +— +$ +17,150 +(7) +$ +655,483 +Operating Officer and +Chief Financial Officer +2010 +$ +240,000 +$ +100,000 +$ +— +$ +46,781 +$ +— +$ +17,150 +(7) +$ +403,931 +Matthew V. Hairford +2012 +$ +300,000 +$ +— +$ +192,806 +$ +184,600 +$ +200,000 +$ +17,500 +(7) +$ +894,906 +Executive Vice President +2011 +$ +242,917 +$ +270,000 +$ +— +$ +— +$ +— +$ +17,150 +(7) +$ +530,067 +—Operations +2010 +$ +240,000 +$ +150,000 +$ +— +$ +31,187 +$ +— +$ +17,150 +(7) +$ +438,337 +David F. Nicklin +2012 +$ +402,500 +(8) +$ +— +$ +181,687 +$ +173,950 +$ +150,000 +$ +— +$ +908,137 +Executive Director +2011 +$ +320,750 +(9) +$ +125,000 +$ +— +$ +— +$ +— +$ +— +$ +445,750 +—Exploration +2010 +$ +315,000 +(10) +$ +35,000 +$ +— +$ +32,556 +$ +— +$ +— +$ +382,556 +Bradley M. Robinson +2012 +$ +240,000 +$ +100,000 +$ +118,650 +$ +113,600 +$ +100,000 +$ +17,500 +(7) +$ +689,750 +Vice President—Reservoir +2011 +$ +225,000 +$ +75,000 +$ +— +$ +— +$ +— +$ +15,831 +(7) +$ +315,831 +Engineering +2010 +$ +200,000 +$ +50,000 +$ +— +$ +15,594 +$ +— +$ +17,150 +(7) +$ +282,744 +(1) +Reflects the grant date fair value of service-based restricted stock and performance-based restricted stock and restricted stock units computed in accordance with FASB +ASC Topic 718. The grant date fair value of the performance-based awards was estimated based on the most likely outcome of the performance-based awards as determined using the Monte Carlo method. This is the amount that will be expensed for these +awards, regardless of the actual number of shares of Common Stock, if any, that will ultimately be issued to the recipients of the awards, provided that the requisite service is furnished. +(2) +Reflects the grant date fair value of option awards computed in accordance with FASB ASC Topic 718. Our policy and assumptions made in the valuation of the stock +options are contained in Note 2 and Note 8 of the audited financial statements for the year ended December 31, 2012. +(3) +Represents awards pursuant to the 2012 Incentive Program. +(4) +Consists of $17,500 in 401(k) matching contributions as described in “—Benefits” and $971 in premiums reimbursed to Mr. Foran for a disability +policy covering Mr. Foran. +(5) +Consists of $17,150 in 401(k) matching contributions as described in “—Benefits” and $869 in premiums reimbursed to Mr. Foran for a disability +policy covering Mr. Foran. +(6) +Consists of $17,150 in 401(k) matching contributions as described in “—Benefits” and $844 in premiums reimbursed to Mr. Foran for a disability +policy covering Mr. Foran. +(7) +Consists of 401(k) matching contributions as described in “—Benefits.” +(8) +Based on the aggregate amount of payments made to Mr. Nicklin under his independent contractor agreement as determined by his base rate of $1,750 per day. +(9) +Based on the aggregate amount of payments made to Mr. Nicklin under his independent contractor agreement as determined by his base rate of $1,500 per day from +January 1, 2011 through November 30, 2011 and $1,750 per day for December 2011. +(10) +Based on the aggregate amount of payments made to Mr. Nicklin under his independent contractor agreement as determined by his base rate of $1,500 per day. +45 +Table of Contents +Grants of Plan-Based Awards Table +The following table sets forth certain information regarding non-equity awards granted by the Company pursuant to the 2012 Incentive +Program and stock and option awards granted by the Company pursuant to the 2012 Plan during the year ended December 31, 2012 to the Named Executive Officers below: +Estimated Possible Payouts +Under Non-Equity Incentive +Plan Awards (1) +Estimated Future Payouts Under +Equity Incentive +Plan Awards +All Other +Stock +Awards: +Number +of Shares +or Stock +Units +All Other +Option +Awards: +Number +of +Securities +Underlying +Options +Exercise +or Base +Price of +Option +Awards +Grant +Date Fair +Value of +Stock and +Option +Awards (5) +Threshold +Target +Maximum +Threshold +(2) +Target (3) +Maximum (4) +Name +Grant Date +($) +($) +($) +(# shares) +(# shares) +(# shares) +(# shares) +(# shares) +($/share) +($) +Joseph Wm. Foran +4/16/2012 +209,000 +412,500 +825,000 +10,026 +20,052 +40,104 +20,052 +80,208 +10.49 +931,415 +David E. Lancaster +4/16/2012 +149,600 +251,600 +499,800 +5,312 +10,625 +21,250 +10,625 +42,500 +10.49 +493,531 +Matthew V. Hairford +4/16/2012 +99,000 +201,000 +399,000 +4,062 +8,125 +16,250 +8,125 +32,500 +10.49 +377,406 +David F. Nicklin +4/16/2012 +101,500 +150,500 +301,000 +3,828 +7,656 +15,312 +7,657 +30,625 +10.49 +355,637 +Bradley M. Robinson +4/16/2012 +60,000 +96,000 +120,000 +2,500 +5,000 +10,000 +5,000 +20,000 +10.49 +232,250 +(1) +See “Compensation Discussion and Analysis—2012—2012 Annual Incentive Compensation” and “Summary Compensation Table—Non-Equity Incentive +Plan Compensation” regarding the actual payments made to the Named Executive Officers. +(2) +The threshold level represents the Company’s shareholder return ranking in the 41 st to 50 th percentile within the Peer Group. +(3) +The target level represents the Company’s shareholder return ranking in the +51 st to 60 th percentile within the Peer Group. +(4) +The maximum level represents the Company’s shareholder return ranking in the +91 st or above percentile within the Peer Group. +(5) +Grant date fair value for the performance-based equity incentive awards was estimated based on the most likely outcome of the award as determined using the Monte Carlo +method. +Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table +On August 9, 2011, we entered into employment agreements with Messrs. Foran, Lancaster, Hairford and Robinson and an +independent contractor agreement with Mr. Nicklin. +Mr. Foran . His employment agreement extends for a +twenty-four month term which automatically renews each month for an additional month unless either the Company or Mr. Foran gives written notice that the term will no longer be extended. For 2012, his base salary was $550,000. Effective +January 1, 2013, his base salary is $600,000, and he is eligible to participate in the 2013 Incentive Program and the 2012 Plan. See “Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent +Contractor Agreement—Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Foran upon termination of his employment and/or a “change in control.” +Mr. Lancaster . His employment agreement extends for an eighteen month term which automatically renews each month for an +additional month unless either the Company or Mr. Lancaster gives written notice that the term will no longer be extended. For 2012, his base salary was $340,000. Effective January 1, 2013, his base salary is $375,000, and he is eligible +to participate in the 2013 Incentive Program and the 2012 Plan. See “Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor +Agreement” regarding the payments to be made to Mr. Lancaster upon termination of his employment and/or a “change in control.” +Mr. Hairford . His employment agreement extends for an eighteen month term which automatically renews each month for an additional month unless either the Company or Mr. Hairford gives +written notice that the term will no longer be extended. For 2012, his base salary was $300,000. Effective January 1, 2013, his base salary is $330,000, and he is eligible to participate in the 2013 Incentive Program and the 2012 Plan. See +“Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Hairford +upon termination of his employment and/or a “change in control.” +46 +Table of Contents +Mr. Robinson . His employment agreement extends for a twelve month term which +automatically renews each month for an additional month unless either the Company or Mr. Robinson gives written notice that the term will no longer be extended. For 2012, his base salary was $240,000. Effective January 1, 2013, his base +salary is $255,000, and he is eligible to participate in the 2013 Incentive Program and the 2012 Plan. See “Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment +Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Robinson upon termination of his employment and/or a “change in control.” +Mr. Nicklin . His independent contractor agreement extends for a thirty-six month term. For 2012, the daily rate was $1,750 +per day that Mr. Nicklin consulted for us. If the independent contractor agreement remains in effect until the end of the thirty-six month term, we will pay Mr. Nicklin an additional $250 per day that he consulted for us during the +thirty-six month term of the agreement. For 2013, our arrangement with Mr. Nicklin remains the same. In addition, Mr. Nicklin, through his consulting company, is eligible to participate in the 2013 Incentive Program and the 2012 Plan. See +“Compensation Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to +Mr. Nicklin’s consulting company upon termination of the independent contractor agreement and/or a “change in control.” +Non-Equity Incentive Plan Compensation. See “Compensation Discussion and Analysis—2012—2012 Annual Incentive Compensation” regarding the 2012 Incentive Program compensation +goals, threshold, target and maximum potential payments and actual payments. +Long-Term Incentive Compensation . See +“Compensation Discussion and Analysis—2012—2012 Long-Term Incentive Compensation” regarding 2012 long-term incentive compensation. +General. Base salary and the amount of cash bonuses, including non-equity awards granted by the Company pursuant to the 2012 Incentive Program, paid for 2012 represented from approximately 48% to +approximately 64% of the Named Executive Officers’ total compensation as represented in the Summary Compensation Table with the percentages being as follows: Mr. Foran—48.1%; Mr. Lancaster—51.4%; +Mr. Hairford—55.9%; Mr. Nicklin—60.8%; and Mr. Robinson—63.8%. +47 +Table of Contents +Outstanding Equity Awards at December 31, 2012 +The following table summarizes the total outstanding option awards at December 31, 2012 for each Named Executive Officer: +Option Awards +Name +Number of +Securities +Underlying +Unexercised +Stock +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Stock +Options (#) +Unexercisable +Option +Exercise +Price +Option +Expiration +Date +Joseph Wm. Foran +— +80,208 +$ +10.49 +4/15/17 +David E. Lancaster +75,000 +— +$ +10.00 +2/12/13 +(1) +7,500 +7,500 +$ +9.00 +2/21/20 +— +42,500 +$ +10.49 +4/15/17 +Matthew V. Hairford +90,000 +— +$ +10.00 +2/12/13 +(1) +5,000 +5,000 +$ +9.00 +2/21/20 +— +32,500 +$ +10.49 +4/15/17 +David F. Nicklin +15,000 +— +$ +10.00 +2/12/13 +(1) +5,000 +5,000 +$ +9.00 +2/21/20 +— +30,625 +$ +10.49 +4/15/17 +Bradley M. Robinson +30,000 +— +$ +10.00 +2/12/13 +(1) +2,500 +2,500 +$ +9.00 +2/21/20 +— +20,000 +$ +10.49 +4/15/17 +(1) +The options expiring on February 12, 2013 expired unexercised. +The following table provides the vesting dates at December 31, 2012 for unvested stock options: +Vesting Date +Joseph Wm. +Foran +David E. +Lancaster +Matthew V. +Hairford +David F. +Nicklin +Bradley M. +Robinson +2/22/13 +— +3,750 +2,500 +2,500 +1,250 +2/22/14 +— +3,750 +2,500 +2,500 +1,250 +4/16/14 +40,104 +21,250 +16,250 +15,312 +10,000 +4/16/16 +40,104 +21,250 +16,250 +15,313 +10,000 +Total Unvested Stock Options +80,208 +50,000 +37,500 +35,625 +22,500 +The following table summarizes the total outstanding stock awards at December 31, 2012 for each +Named Executive Officer: +Stock Awards +Name +Number of +Shares or +Units of +Stock That +Have Not +Vested (#) +Market Value of +Shares or Units of +Stock That Have +Not +Vested +Number of +Unearned +Shares, Units +or Other +Rights That +Have Not +Vested (#) (1) +Market or +Payout Value of +Unearned +Shares, Units or +Other +Rights +That Have Not +Vested (2) +Joseph Wm. Foran +20,052 +$ +164,426 +10,026 +$ +82,213 +David E. Lancaster +10,625 +$ +87,125 +5,312 +$ +43,558 +Matthew V. Hairford +8,125 +$ +66,625 +4,062 +$ +33,308 +David F. Nicklin +7,657 +$ +62,787 +3,828 +$ +31,390 +Bradley M. Robinson +5,000 +$ +41,000 +2,500 +$ +20,500 +(1) +The number of performance-based shares or units listed represents the threshold number of shares that could be issued under this award. +(2) +The market value presented is based on achievement of the threshold performance level under this award. The number of shares that would have been issued based on the +performance criteria as measured on December 31, 2012 was zero. +48 +Table of Contents +The following table provides the vesting dates at December 31, 2012 for restricted +stock and restricted stock units: +Vesting Date +Joseph Wm. +Foran +David E. +Lancaster +Matthew V. +Hairford +David F. +Nicklin +Bradley M. +Robinson +4/16/14 +10,026 +5,312 +4,062 +3,828 +2,500 +4/16/15 (1) +10,026 +5,312 +4,062 +3,828 +2,500 +4/16/16 +10,026 +5,313 +4,063 +3,829 +2,500 +Total Unvested Shares and Units +30,078 +15,937 +12,187 +11,485 +7,500 +(1) +The restricted stock and restricted stock units vesting on this date are performance-based shares or units. The number of shares and units that vest on this date is +estimated based on achievement of the threshold performance level under this award. The number of shares that would have been issued based on the performance criteria as measured on December 31, 2012 was zero. +Option Exercises During 2012 +The following table summarizes, for the Named Executive Officers in 2012, the number of shares acquired upon exercise of stock options and the value realized, each before payout of any applicable +withholding tax: +Option Awards +Name +Number of +Shares +Acquired on +Exercise +(#) +Value +Realized +on +Exercise +($) (1) +Date of +Exercise +Joseph Wm. Foran +— +— +— +David E. Lancaster +60,000 +180,000 +2/7/12 +Matthew V. Hairford +30,000 +90,000 +2/7/12 +David F. Nicklin +— +— +— +Bradley M. Robinson +15,000 +45,000 +2/7/12 +(1) +Determined based on the difference between the $9.00 per share exercise price of the stock options and the initial public offering price of our Common Stock, which was +$12.00 per share. +Potential Payments Upon Termination or Change in Control +2003 Plan +All equity +awards granted to Named Executive Officers under the 2003 Plan vest upon a change in control. Assuming there was a change in control on December 31, 2012, the Named Executive Officers would not have received any amounts in automatic vesting of +stock based compensation because the exercise price of all stock options held by such Named Executive Officers was above the closing price of our Common Stock of $8.20 per share on December 31, 2012. A “change in control” occurs upon +any of the following events: +• +any person (or group of persons acting in concert), other than the Company or an affiliate, becomes the beneficial owner, directly or indirectly, of +voting securities representing 30% or more of the voting power of our then outstanding voting securities (with the threshold percentage being increased, not to exceed 50% for the beneficial owners of our voting securities for whom Wellington +Management Company, LLP serves as an investment advisor if those owners are deemed to be a “group” for this purpose); +• +our Board ceases to consist of a majority of continuing directors; where “continuing director” means a member of the Board who was either +(i) a member of the Board at October 31, 2008 or (ii) nominated, appointed or approved (following nomination by our shareholders), to serve as a director by a majority of the then continuing directors; +49 +Table of Contents +• +our shareholders approve (i) any consolidation or merger with us or any subsidiary that results in the shareholders immediately prior to the +consolidation or merger holding less than a majority ownership interest in the outstanding voting securities of the surviving entity, (ii) any sale, lease, exchange or other transfer of all or substantially all of our assets or (iii) any +plan or proposal for our liquidation or dissolution; or +• +our shareholders accept a share exchange in which our shareholders immediately before such share exchange do not hold, immediately following such share +exchange, the total voting securities of the surviving entity in substantially the same proportion as held before the share exchange. +Employment Agreements and Independent Contractor Agreement +As described +under “Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table,” in contemplation of our initial public offering, on August 9, 2011, we entered into employment agreements with Messrs. Foran, Lancaster, +Hairford and Robinson and an independent contractor agreement with Mr. Nicklin and his consulting company. Pursuant to the terms of the employment agreements and independent contractor agreement, we may be required to make certain payments to +one or more of our Named Executive Officers upon the occurrence of certain events resulting in such Named Executive Officer’s termination. For a detailed description of the events that may trigger such payments, see “Compensation +Discussion and Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement.” +The employment agreements and the independent contractor agreement each contain a non-disclosure of confidential information provision that requires each Named Executive Officer to maintain, both during +and after employment, the confidentiality of information used by such Named Executive Officer in the performance of his job duties. +Additionally, each of the employment agreements contains a non-competition provision, pursuant to which Messrs. Foran, Lancaster, Hairford and Robinson have agreed that: (i) for six months following +termination by us for total disability, or by such Named Executive Officer for good reason, or (ii) for 12 months following termination (a) by us for just cause, (b) by such Named Executive Officer other than for good reason, or +(c) in connection with a change in control, such Named Executive Officer shall not, without our prior written consent (not to be unreasonably withheld if the Named Executive Officer’s employment is terminated by the Named Executive Officer +other than for good reason), directly or indirectly: (x) invest in (other than investments in publicly-owned companies which constitute not more than 1% of the voting securities of any such company) a competing business with significant assets +in the restricted area (each as defined below), or (y) participate in a competing business as a manager, employee, director, officer, consultant, independent contractor, or other capacity or otherwise provide, directly or indirectly, services +or assistance to a competing business in a position that involves input into or direction of such competing business’s decisions within the restricted area. +Similarly, Mr. Nicklin’s independent contractor agreement contains a non-competition provision pursuant to which Mr. Nicklin has agreed that following termination: (i) by us for total +disability or just cause, (ii) by Mr. Nicklin for good reason or other than for good reason, or (iii) in connection with a change in control, then for a period of 12 months thereafter, Mr. Nicklin may not, without our prior +written consent, directly or indirectly (x) invest in (other than investments in publicly-owned companies which constitute not more than 5% of the voting securities of any such company) a competing business with significant assets in the +restricted area, or (y) participate in a competing business as a manager, employee, director, officer, consultant, independent contractor, or other capacity or otherwise provide, directly or indirectly, services or assistance to a competing +business in a position that involves input into or direction of the competing business’s decisions within the restricted area. +50 +Table of Contents +For purposes of the employment agreements and independent contractor agreement: +“competing business” means any person or entity engaged in oil and natural gas exploration, development, production and +acquisition activities; +“significant assets” means oil and natural gas reserves with an aggregate fair market value +of $25 million or more; and +“restricted area” means a one-mile radius of any oil and natural gas reserves held by +us as of the end of the Named Executive Officer’s employment, plus any county or parish where we have significant assets as of the end of the Named Executive Officer’s employment. However, for purposes of Mr. Nicklin’s +independent contractor agreement, “restricted area” means a one-mile radius of any oil and natural gas reserves held by us as of the end of the performance of his independent contractor services, plus any county or parish where we have +significant assets as of the end of the performance of his independent contractor services other than a one-mile radius of any oil and natural gas reserves held by Salt Creek Petroleum as of August 9, 2011 to the extent previously disclosed to +us and any new oil and natural gas reserves that may be approved by us after August 9, 2011. See the definitions of “change in control,” “good reason” and “just cause” set forth in “Compensation Discussion and +Analysis—Termination of Employment Arrangements and Independent Contractor Agreement—Employment Agreements and Independent Contractor Agreement.” +Furthermore, other than Mr. Foran’s employment agreement, each employment agreement and the independent contractor agreement contains an anti-solicitation provision, pursuant to which, during +the restricted periods described above, subject to certain exceptions, Messrs. Lancaster, Hairford, Nicklin and Robinson shall not, without our prior written consent, solicit for employment or a contracting relationship, or employ or retain any +person who is or has been, within six months prior to such time, employed by or engaged as an individual independent contractor by us or our affiliates or induce or attempt to induce any such person to leave his or her employment or independent +contractor relationship with us or our affiliates. +For the Named Executive Officer to receive any severance payments +described below for termination by us without just cause, by the Named Executive Officer for good reason or, following a change in control, by us without cause or by the Named Executive Officer with or without good reason, the Named Executive +Officer must comply with the non-disclosure, non-competition and non-solicitation provisions described above. +Finally, as a +condition to receiving any severance payments and other payments under their respective employment agreements or independent contractor agreement, as applicable, each Named Executive Officer is required to execute a separation agreement and release +in favor of us. +51 +Table of Contents +To describe the payments and benefits that are triggered for each event of termination, we +have created the following table estimating the payments and benefits that would be paid to each Named Executive Officer under each element of our compensation program assuming that such Named Executive Officer’s employment agreement or +independent contractor agreement, as applicable, terminated on December 31, 2012, the last day of our 2012 fiscal year. In all cases, the amounts were valued as of December 31, 2012, based upon, where applicable, the closing price of our +Common Stock of $8.20 per share. The amounts in the following table are calculated as of December 31, 2012 pursuant to SEC rules and are not intended to reflect actual payments that may be made. Actual payments that may be made will be based on +the dates and circumstances of the applicable event. +Payment Upon Termination +Named Executive Officer +Category of +Payment +Upon Death or +Total +Disability (1) +Upon Mutual +Agreement or +Dissolution/ +Liquidation (1) +Termination by +Us Without Just +Cause or by +Named +Executive +Officer for Good +Reason (1) +Termination +Following a Change +in Control Without +Cause or by +Named +Executive Officer +With or Without +Good Reason (10) +Joseph Wm. Foran +Salary +$ +— +$ +— +$ +1,100,000 +(4) +$ +1,650,000 +(11) +Bonus +490,000 +(2) +490,000 +(2) +980,000 +(5) +1,470,000 +(12) +Vesting equity +— +— +— +493,279 +(13) +Total: +$ +490,000 +$ +490,000 +$ +2,080,000 +$ +3,613,279 +David E. Lancaster +Salary +$ +— +$ +— +$ +510,000 +(6) +$ +1,020,000 +(11) +Bonus +295,000 +(2) +295,000 +(2) +442,500 +(7) +885,000 +(12) +Vesting equity +— +— +— +261,375 +(13) +Total: +$ +295,000 +$ +295,000 +$ +952,500 +$ +2,166,375 +Matthew V. Hairford +Salary +$ +— +$ +— +$ +450,000 +(6) +$ +900,000 +(11) +Bonus +235,000 +(2) +235,000 +(2) +352,500 +(7) +705,000 +(12) +Vesting equity +— +— +— +199,875 +(13) +Total: +$ +235,000 +$ +235,000 +$ +802,500 +$ +1,804,875 +David F. Nicklin +Salary +$ +79,125 +(3) +$ +— +$ +230,000 +(8) +$ +805,000 +(14) +Bonus +137,500 +(2) +137,500 +(2) +— +— +Vesting equity +— +— +— +125,567 +(15) +Total: +$ +216,625 +$ +137,500 +$ +230,000 +$ +930,567 +Bradley M. Robinson +Salary +$ +— +$ +— +$ +240,000 +(9) +$ +480,000 +(4) +Bonus +137,500 +(2) +137,500 +(2) +137,500 +(2) +275,000 +(5) +Vesting equity +— +— +— +123,000 +(13) +Total: +$ +137,500 +$ +137,500 +$ +377,500 +$ +878,000 +(1) +Amounts due upon death, total disability, mutual agreement, dissolution or liquidation, termination by us without cause or termination by Named Executive Officer for +good reason are payable in a lump sum on the sixtieth day following the date of termination unless otherwise required by Section 409A of the Code. +(2) +Represents the average annual amount of bonuses, including pursuant to the 2012 Incentive Program, paid to such Named Executive Officer with respect to prior two +calendar years (2011-2012). +(3) +Consists of cash payment of $250 for each full business day worked by Mr. Nicklin during the term of the independent contractor agreement. +(4) +Represents two times such Named Executive Officer’s base salary as of the termination date. +(5) +Represents two times an amount equal to the average annual amount of bonuses, including pursuant to the 2012 Incentive Program, paid to such Named Executive Officer +with respect to prior two calendar years (2011-2012). +(6) +Represents 1.5 times such Named Executive Officer’s base salary as of the termination date. +(7) +Represents 1.5 times an amount equal to the average annual amount of bonuses, including pursuant to the 2012 Incentive Program, paid to such Named Executive Officer +with respect to prior two calendar years (2011-2012). +(8) +Consists of a cash payment of $1,000 for each full business day worked by Mr. Nicklin during the prior 12 months. +(9) +Represents such Named Executive Officer’s base salary as of the termination date. +52 +Table of Contents +(10) +Amounts due following a change in control are payable in lump sum on the date which immediately follows six months from the date of termination or, if earlier, within +30 days of such Named Executive Officer’s death. +(11) +Represents three times such Named Executive Officer’s base salary as of the termination date. +(12) +Represents three times an amount equal to the average annual amount of bonuses, including pursuant to the 2012 Incentive Program, paid to such Named Executive Officer +with respect to prior two calendar years (2011-2012). +(13) +The employment agreements provide for accelerated and full vesting of unvested incentive awards held by these Named Executive Officers in the event that such Named +Executive Officer is terminated without “Just Cause” or terminates his employment with or without “Good Reason” within 30 days prior to, or 12 months following, a “change in control.” The 2003 Plan provides that all +awards automatically vest upon a “change in control.” The amount disclosed reflects the closing price of our Common Stock on December 31, 2012 of $8.20 per share multiplied by the number of unvested (i) service-based shares of +restricted stock, (ii) performance-based shares of restricted stock and (iii) performance-based restricted stock units held by such Named Executive Officer on December 31, 2012. Additionally, the exercise price of all stock options +held by such Named Executive Officers was above the closing price of our Common Stock on December 31, 2012; therefore, these options had no intrinsic value at December 31, 2012. +(14) +Consists of a cash payment consisting of two times his daily contract rate of $1,750 for each full business day worked during the year ended December 31, 2012. +(15) +Mr. Nicklin’s equity grants under the 2012 Plan provide for accelerated and full vesting of certain unvested incentive awards in the event that +Mr. Nicklin is terminated without “Just Cause” or terminates his employment for “Good Reason” within 12 months following a “change in control.” The 2003 Plan provides that all awards automatically vest upon a +“change in control.” The amount disclosed reflects the closing price of our Common Stock on December 31, 2012 of $8.20 per share multiplied by the number of unvested (i) service-based shares of restricted stock and +(ii) performance-based shares of restricted stock held by Mr. Nicklin on December 31, 2012. None of the unvested performance-based restricted stock units held by Mr. Nicklin on December 31, 2012 would vest under a change in +control. Additionally, the exercise price of all stock options held by Mr. Nicklin was above the closing price of our Common Stock on December 31, 2012; therefore, these options had no intrinsic value at December 31, 2012. +53 +Table of Contents +DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in +Cash +($) +Stock +Awards +(1)(2) +($) +Restricted +Stock Units +(1)(3) +($) +All +Other +Compensation +($) +Total +($) +Charles L. Gummer (4) +25,667 +38,840 +(5) +18,745 +— +83,252 +Stephen A. Holditch +54,000 +— +74,977 +— +128,977 +David M. Laney +48,000 +— +74,977 +— +122,977 +Gregory E. Mitchell +48,000 +— +74,977 +— +122,977 +Steven W. Ohnimus +49,000 +— +74,977 +— +123,977 +Michael C. Ryan +51,333 +— +74,977 +— +126,310 +Margaret B. Shannon +48,000 +— +74,977 +— +122,977 +(1) +Based on the fair market value of the stock awards on the date of grant. +(2) +The following directors owned the following number of fully vested options to purchase Common Stock at December 31, 2012: Stephen A. Holditch (3,750), David M. +Laney (3,000), Steven W. Ohnimus (5,250) and Michael C. Ryan (1,500). The options are not reflected in the 2012 stock awards. +(3) +Subject to a three year vesting period. One-third of these restricted stock units vest on each of the first, second and third anniversaries of the grant dates. +(4) +Mr. Gummer’s term ended on June 7, 2012, at which date his restricted stock units were forfeited. +(5) +Represents the fair value of an award of 4,000 shares of Common Stock in connection with the termination of Mr. Gummer’s Board service. +We target our non-employee directors’ compensation at the 25th percentile of the Peer Group used for +benchmarking the non-employee directors’ compensation. Upon consummation of our initial public offering, our director compensation program became the following: +• +Annual cash retainer of $40,000; +• +Cash meeting fee of $1,000 per day for each day of Board and committee service; +• +The chairs of the Audit Committee and Engineering Committee each receive an additional cash retainer of $5,000 annually; and +• +Each non-employee director receives restricted stock units (“RSUs”) equal to up to $75,000 in value annually with the restrictions lapsing in +one-third increments on each of the first, second and third anniversaries of the date of grant. Each grant may be adjusted downward (but not upward) in value based upon the non-employee director’s attendance and contributions at Board or +committee meetings called during the period for which RSUs are due. +In addition, we reimburse our directors +for travel, lodging and related expenses incurred in attending Board and committee meetings. +The non-employee directors +follow our voluntary stock ownership guidelines for non-employee directors. Within three years of becoming a director, each non-employee director will be expected to own $250,000 of the Company’s Common Stock and continue to hold such shares +while serving as a director. All directors presently meet this standard. Shares which will count toward the stock ownership guidelines include time-lapse restricted shares or RSUs that are still restricted and any shares held in trust by the +director or his immediate family over which he has direct beneficial ownership interest. Shares which will not count toward the stock ownership guidelines include shares underlying unexercised stock options and unexercised stock appreciation rights. +Special Board Advisor Compensation +Other than Messrs. Downey and Massad, each special Board advisor is paid $1,250 each month in cash for a total annual stipend of $15,000. In addition, other than Messrs. Downey and Massad, each special +Board advisor is granted 250 shares of Common Stock for each day of attendance at each Board meeting or committee meeting, +54 +Table of Contents +other than telephonic meetings. In addition, we reimburse our special Board advisors for travel, lodging and related expenses incurred in attending Board and committee meetings. Other than +Messrs. Downey and Massad, special Board advisors do not receive any other remuneration for their service as special Board advisors. Mr. Downey’s special Board advisor compensation is the same as for the non-employee directors as described +above. +Mr. Massad resigned effective July 31, 2012 as our Executive Vice President—Capital Markets. In +connection with his resignation, he entered into a Consulting Agreement with us pursuant to which he is paid $7,500 per month. +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +The following table presents the securities authorized for issuance under our equity compensation plans as of December 31, 2012. +Plan Category +Number of +Shares to be +Issued Upon +Exercise +of +Outstanding +Options, +Warrants +and +Rights +Weighted- +Average +Exercise +Price of +Outstanding +Options, +Warrants +and +Rights +Number of +Shares +Remaining +Available for +Future +Issuance +Under +Equity +Compensation +Plans +Equity compensation plans approved by security +holders (1)(2) +1,229,437 +$ +10.19 +3,056,957 +Equity compensation plans not approved by security +holders +— +— +— +Total +1,229,437 +$ +10.19 +3,056,957 +(1) +Our Board has determined not to make any additional awards under the 2003 Plan. +(2) +Our 2012 Plan was approved by our Board in December 2011 and took effect on January 1, 2012. The 2012 Plan was also approved by our shareholders at the Annual +Meeting of Shareholders on June 7, 2012. +55 +Table of Contents +TRANSACTIONS WITH RELATED PERSONS +Since January 1, 2012, there has not been, nor is there currently proposed, any transaction or series of similar transactions to +which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any +of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described in “Compensation of Named Executive Officers” and the +transactions described or referred to below. +Participation in Our Initial Public Offering +On February 7, 2012, upon the closing of our initial public offering, the following directors purchased at least $120,000 of Common +Stock in the directed share program from the underwriters in the offering at the initial price to the public: +Director or Executive Officer +Amount +Joseph Wm. Foran (1) +$ +1,660,800 +David M. Laney (2) +684,000 +Gregory E. Mitchell (3) +200,004 +Carlos M. Sepulveda, Jr. +600,000 +Margaret B. Shannon +200,004 +(1) +$1,200,000 of shares were purchased by Mr. Foran, and $460,800 of shares were purchased by Sage Resources, Ltd., a limited partnership owned by the Foran family, +including Mr. Foran. +(2) +$180,000 of shares were purchased by Mr. Laney, $144,000 of shares were purchased by Mr. Laney’s adult children, who gave Mr. Laney voting power of +such shares through a revocable power of attorney, which power of attorney is no longer in effect, and $360,000 of shares were purchased by Laney Investments Ltd., for which Mr. Laney has sole voting and investment power. +(3) +All of the shares were purchased by JAMAL Enterprises, LP, for which Mr. Mitchell has sole voting and investment authority. +Loan Program +During 2011, we guaranteed the repayment of loans to certain of our executive officers by Comerica Bank. The purpose of these loans was to assist our executive officers in buying shares of our Common +Stock pursuant to the exercise of stock options. We guaranteed the repayment of the following loans, and made deposits of funds in certificates of deposit to secure our guarantees, for the following executive officers until January 2012, when such +guarantees were terminated. +Executive Officer and Date of Loan or Renewal +Loan +Amount +Interest +Rate +Interest Paid or Payable +in 2012 through +Termination of +the +Loan Guarantee in +January 2012 +Matthew V. Hairford; December 29, 2009; renewed October 8, 2011 +$ +310,000 +5.25 +% +$ +1,067 +David E. Lancaster; April 30, 2009; renewed May 30, 2011 +$ +470,000 +5.25 +% +$ +1,618 +Bradley M. Robinson; December 29, 2008; renewed January 29, 2011 +$ +280,000 +5.25 +% +$ +964 +Our Board approved the termination of the loan program on April 7, 2011, and we terminated our +guarantees and the associated pledge of our certificates of deposit with Comerica Bank relating to these loans in January 2012. We made no payments to Comerica Bank pursuant to these loan guarantees. +56 +Table of Contents +Procedures for Approval of Related Party Transactions +Our Board has adopted a written related party transaction policy. Pursuant to this policy, a “Related Party Transaction” is +defined as a transaction (including any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness)), or series of related transactions, or any material amendment to any such transaction, involving a +Related Party (as defined below) and in which we are a participant, other than: +• +a transaction involving compensation of directors; +• +a transaction involving compensation of an executive officer or involving an employment agreement, severance agreement, change in control provision or +agreement or a special supplemental benefit for an executive officer; +• +a transaction available to all employees generally or to all salaried employees generally; +• +a transaction with a Related Party involving less than $120,000; +• +a transaction in which the interest of the Related Party arises solely from the ownership of a class of our equity securities and all holders of that +class receive the same benefit on a pro rata basis; or +• +a transaction in which the rates or charges involved therein are determined by competitive bids, or a transaction that involves the rendering of +services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. +“Related Party” means: +• +any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors or nominees for directors; +• +any person who is known by us to be the beneficial owner of more than 5% of our Common Stock; +• +any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, +father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, nominee for director, executive officer or a beneficial owner of more than 5% of our Common Stock; and +• +any firm, corporation or other entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons is a general +partner or executive officer or in which such person, together with all other of the foregoing persons, owns 10% or more of the equity interests thereof. +Pursuant to our related party transaction policy, the Audit Committee must review all material facts of each Related Party Transaction and recommend either approval or disapproval of the Related Party +Transaction to the full Board, subject to certain limited exceptions. In determining whether to recommend approval or disapproval of the Related Party Transaction, the Audit Committee must, after reviewing all material facts of the Related Party +Transaction and the Related Party’s relationship and interest, determine whether the Related Party Transaction is fair to the Company. Further, the policy requires that all Related Party Transactions be disclosed in our filings with the SEC +and/or our website in accordance with applicable laws, rules and regulations. All of the Related Party Transactions discussed above occurred prior to the adoption of the policy, except for participation in our initial public offering. Those +executive officers and directors who participated in our initial public offering negotiated with RBC Capital Markets, LLC; therefore, the related party transaction policy was not triggered. +57 +Table of Contents +SECURITY OWNERSHIP +Security Ownership of Certain Beneficial Owners and Management +The following table presents the beneficial ownership of our Common Stock as of April 19, 2013 for (i) each person beneficially +owning more than 5% of the outstanding shares of our Common Stock, (ii) each director and nominee for director of the Company, (iii) each executive officer of the Company listed in the Summary Compensation Table and (iv) all of our +directors and executive officers as a group. Except pursuant to applicable community property laws and except as otherwise indicated, each shareholder possesses sole voting and investment power with respect to its, his or her shares. The business +address of each of our directors and executive officers is c/o Matador Resources Company, One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. The applicable percentage ownership is based on 55,846,340 shares of our Common Stock +issued as of April 19, 2013, plus, on an individual basis, the right of that individual to obtain Common Stock upon exercise of stock options within 60 days of April 19, 2013. The information is based on Form 3s, Form 4s, Schedule 13Ds and +Schedule 13Gs filed through April 19, 2013. +Name +Amount and +Nature of +Ownership of +Common Stock +Percent +of Class +Directors and Named Executive Officers: +Joseph Wm. Foran (1) +3,931,617 +7.0 +% +Matthew V. Hairford (2) +188,050 +* +Stephen A. Holditch (3) +123,570 +* +David E. Lancaster (4) +299,250 +* +David M. Laney (5) +456,294 +* +Gregory E. Mitchell (6) +192,859 +* +David F. Nicklin (7) +73,813 +* +Steven W. Ohnimus (8) +94,094 +* +Bradley M. Robinson (9) +237,750 +* +Michael C. Ryan (10) +254,887 +* +Carlos M. Sepulveda, Jr. +282,000 +* +Margaret B. Shannon +43,009 +* +All Directors and Executive Officers as a Group +(15 persons) (11 ) : +6,331,578 +11.3 +% +Other 5% Owners: +T. Rowe Price Associates, Inc. (12) +4,410,200 +7.9 +% +GRT Capital Partners L.L.C. (13) +3,683,685 +6.6 +% +General Mills Group Trust (14) +3,405,109 +6.1 +% +* +Less than one percent (1%) +(1) +Includes (i) 1,074,933 shares of Common Stock held of record by Sage Resources, Ltd., a limited partnership owned by the Foran family, including Mr. Foran; +(ii) 4,000 shares of Common Stock held of record by the reporting person’s spouse through her Individual Retirement Account; (iii) 10,000 shares of Common Stock held of record by Mr. Foran’s college age child; +(iv) 135,500 shares and 50,000 shares of Common Stock held of record by The Don Foran Family Trust 2008 and The Foran Family Special Needs Trust, respectively, for which Mr. Foran is the co-trustee and over which Mr. Foran has shared +voting and investment power with other members of his family; (v) 1,208,640 shares and 1,208,640 shares of Common Stock held of record by the JWF 2011-1 GRAT and the NNF 2011-1 GRAT, respectively, for which Mr. Foran is the trustee and +over which Mr. Foran has sole voting and investment power; and (vi) 80,104 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Foran has the right to vote such shares but may only dispose of such +shares to the extent they have vested. +(2) +Includes 7,500 shares of Common Stock issuable to Mr. Hairford upon the exercise of stock options and 3,000 shares held of record by his Individual Retirement +Account. Also includes 41,250 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Hairford has the right to vote such shares but may only dispose of such shares to the extent they have vested. +(3) +Includes 3,000 shares of Common Stock issuable to Dr. Holditch upon the exercise of stock options. +(4) +Includes 11,250 shares of Common Stock issuable to Mr. Lancaster upon the exercise of stock options and 75,500 shares of Common Stock held of +record by his Individual Retirement Account. Also includes 51,250 shares of restricted stock. Pursuant to the terms of the +58 +Table of Contents +restricted stock grants, Mr. Lancaster has the right to vote such shares but may only dispose of such shares to the extent they have vested. +(5) +Includes 1,500 shares of Common Stock issuable to Mr. Laney upon the exercise of stock options. Also includes 56,000 shares of Common Stock held of record by Laney +Investments Ltd., for which Mr. Laney has sole voting and investment power. +(6) +Includes 191,292 shares of Common Stock held of record by JAMAL Enterprises, LP, for which Mr. Mitchell has sole voting and investment power. +(7) +Includes 7,500 shares of Common Stock issuable to Mr. Nicklin upon the exercise of stock options and 36,000 shares of Common Stock held of record by his Individual +Retirement Account. Also includes 30,313 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Nicklin has the right to vote such shares but may only dispose of such shares to the extent they have vested. +(8) +Includes 3,000 shares of Common Stock issuable to Dr. Ohnimus upon the exercise of stock options. +(9) +Includes 3,750 shares of Common Stock issuable to Mr. Robinson upon the exercise of stock options and 50,000 shares of Common Stock held of record by his +Individual Retirement Account. Also includes 25,000 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Robinson has the right to vote such shares but may only dispose of such shares to the extent they have +vested. +(10) +Includes 1,500 shares of Common Stock issuable to Mr. Ryan upon the exercise of stock options. +(11) +Includes an aggregate of 67,125 shares of Common Stock which our executive officers and directors as a group have the right to acquire within 60 days of April 19, +2013 upon the exercise of stock options. Also includes 294,919 shares of restricted stock held by our executive officers. Pursuant to the terms of the restricted stock grants, the executive officers have the right to vote such shares but may only +dispose of such shares to the extent they have vested. +(12) +Information based on a Schedule 13G filed with the SEC on February 13, 2013. These securities are owned by various individual and institutional investors, for +which T. Rowe Price Associates, Inc. (“Price Associates”) serves as an investment adviser registered under the Investment Advisers Act of 1940, as amended, with power to direct investments and/or sole power to vote the securities. For +purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial +owner of such securities. Price Associates’ address is 100 E. Pratt Street, Baltimore, MD 21202. +(13) +Information based on a Schedule 13G filed with the SEC on February 14, 2013. GRT Capital Partners, L.L.C. (“GRT Capital”) is an investment adviser +registered under the Investment Advisers Act of 1940, as amended. GRT Capital, in such capacity, may be deemed to share beneficial ownership over the shares held by its client accounts. GRT Capital’s address is One Liberty Square, Floor 11, +Boston, MA 02109. +(14) +Information based on a Schedule 13G filed with the SEC on February 14, 2013. General Mills Group Trust’s address is c/o Benefit Finance Committee of General +Mills, Inc., Number One General Mills Boulevard, Minneapolis, MN 55426. +59 +Table of Contents +ADDITIONAL INFORMATION +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who own more than ten percent +of the Company’s Common Stock to file initial reports of ownership and changes in ownership with the SEC. +Additionally, +SEC regulations require that the Company identify any individuals for whom one of the referenced reports was not filed on a timely basis during the most recent fiscal year. Based solely on the Company’s review of copies of the reports received +and written inquiries to the Company’s directors and officers, the Company believes that all persons subject to Section 16(a) of the Exchange Act timely filed all reports required pursuant to such section relating to the Company’s +Common Stock with the exception of: Mr. Foran filed a Form 4 on February 9, 2012, relating to two purchases on February 2, 2012, and each of Scott E. King, Bradley M. Robinson and Kathryn L. Wayne filed a Form 4 on April 24, 2012, +relating to an equity award granted on April 16, 2012. +Shareholder Proposals for the 2014 Proxy Statement +For shareholder proposals to be included in the Company’s Proxy Statement and form of proxy relating to the 2014 +Annual Meeting of Shareholders, such proposals must be received by the Company at its offices in Dallas, Texas, addressed to the Corporate Secretary of the Company, no later than December 25, 2013. Upon timely receipt of any such proposal, the +Company will determine whether or not to include such proposal in the proxy statement and proxy in accordance with applicable regulations and provisions governing the solicitation of proxies. +Director Nominations or Other Business for Presentation at the 2014 Annual Meeting +Under the Amended and Restated Bylaws of the Company, certain procedures are provided that a shareholder must follow in order to place in nomination persons for election as directors at an Annual Meeting +of Shareholders or to introduce an item of business at an Annual Meeting of Shareholders. These procedures provide, generally, among other things, that shareholders desiring to place in nomination persons for election as directors, and/or bring a +proper subject of business before an Annual Meeting, must do so by a written notice timely received (on or before March 10, 2014, but no earlier than February 8, 2014, for the 2014 Annual Meeting) to the Corporate Secretary of the Company +containing the name and address of the shareholder and the number of shares of the Company’s Common Stock beneficially owned by the shareholder. If the notice relates to a nomination for director, it must also set forth the name, age, business +and residence addresses of the candidate, the candidate’s résumé or a listing of his or her qualifications to be a director of the Company, the person’s written consent to be a director if selected by the Nominating, +Compensation and Planning Committee, nominated by the Board and elected by the shareholders and any other information that would be required to be disclosed in solicitations of proxies for the election of directors. The Company may require any +proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as director. Notice of an item of business shall include a brief description of the +proposed business and any material interest of the shareholder in such business. +The Chairman of the meeting may refuse to +allow the transaction of any business not presented, or to acknowledge the nomination of any person not made, in compliance with the foregoing procedures. Copies of the Company’s Amended and Restated Bylaws are available from the Corporate +Secretary of the Company. +See “Corporate Governance—Board Committees—Nominating, Compensation and Planning +Committee” for the process for shareholders to follow to suggest a director candidate to the Nominating, Compensation and Planning Committee for nomination by the Board. +60 +Table of Contents +Annual Report on Form 10-K +The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC, including financial +statements, accompanies this proxy statement. Shareholders may obtain without charge another copy of the Annual Report on Form 10-K, excluding certain exhibits, by writing to Investor Relations, Matador Resources Company, One Lincoln Centre, 5400 +LBJ Freeway, Suite 1500, Dallas, Texas 75240. +61 +Table of Contents +OTHER BUSINESS +Management of the Company is not aware of other business to be presented for action at the Annual Meeting; however, if other matters are +presented for action, it is the intention of the persons named in the accompanying form of proxy to vote in accordance with their judgment on such matters. +By Order of the Board of Directors, +Joseph Wm. Foran +Chairman, President and Chief Executive Officer +April 24, 2013 +62 +Table of Contents +MATADOR RESOURCES COMPANY +5400 LBJ FREEWAY, SUITE 1500 +DALLAS, TX 75240 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. +Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and +annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials +electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern +Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your +proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +— — — — — — — — — — — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED +AND DATED. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of +the nominee(s) on the line below. +The Board of Directors recommends you vote FOR the following: +1. +Election of Directors +¨ +¨ +¨ +Nominees +01 +Gregory E. Mitchell 02 Steven W. +Ohnimus 03 Carlos M. Sepulveda, Jr +The Board of Directors recommends you vote FOR the following proposals: +For +Against +Abstain +2 . +Advisory vote to approve named executive officer compensation. +¨ +¨ +¨ +3 . +Ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2013. +¨ +¨ +¨ +NOTE: The proxies are authorized to vote in their discretion on such other business as may properly come before the meeting or any adjournment thereof. +Yes +No +Please indicate if you plan to attend this meeting +¨ +¨ +Please sign exactly as your name(s) appear(s) hereon. When +signing as +attorney, executor, administrator, or other fiduciary, please give full +title as such. Joint owners should each sign personally. All holders must +sign. If a corporation or partnership, +please sign in full corporate or +partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the Annual +Meeting: The Annual Report for the year ended December 31, 2012, Notice of Annual Meeting and Proxy Statement is/are available at www.proxyvote.com . +— — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — — — — — — — — — — — — +MATADOR +RESOURCES COMPANY +Annual Meeting of Shareholders +June 6, 2013 9:30 A.M. +This proxy is solicited by the Board of Directors. +As an alternative to completing this form, you may enter your +vote instruction by telephone at 1-800-690-6903, or via the internet at www.proxyvote.com . Have your proxy card in hand and follow +the instructions. +The shareholder hereby appoints Joseph Wm. Foran and +Michael C. Ryan, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of MATADOR +RESOURCES COMPANY that the shareholder is entitled to vote at the Annual Meeting of Shareholders to be held at 9:30 A.M., CDT on June 6, 2013, at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, and any adjournment or +postponement thereof. The shareholder hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such shares of stock. +This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in +accordance with the Board of Directors’ recommendations. +Continued and +to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0001520006/0001193125-13-170584/proxy_rpt.txt b/raw/proxies/0001520006/0001193125-13-170584/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..1c12ce6b7d7a266d18d3938c0bf4120918f1b82f --- /dev/null +++ b/raw/proxies/0001520006/0001193125-13-170584/proxy_rpt.txt @@ -0,0 +1,106 @@ +TRANSACTIONS WITH RELATED PERSONS +Since January 1, 2012, there has not been, nor is there currently proposed, any transaction or series of similar transactions to +which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any +of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described in “Compensation of Named Executive Officers” and the +transactions described or referred to below. +Participation in Our Initial Public Offering +On February 7, 2012, upon the closing of our initial public offering, the following directors purchased at least $120,000 of Common +Stock in the directed share program from the underwriters in the offering at the initial price to the public: +Director or Executive Officer +Amount +Joseph Wm. Foran (1) +$ +1,660,800 +David M. Laney (2) +684,000 +Gregory E. Mitchell (3) +200,004 +Carlos M. Sepulveda, Jr. +600,000 +Margaret B. Shannon +200,004 +(1) +$1,200,000 of shares were purchased by Mr. Foran, and $460,800 of shares were purchased by Sage Resources, Ltd., a limited partnership owned by the Foran family, +including Mr. Foran. +(2) +$180,000 of shares were purchased by Mr. Laney, $144,000 of shares were purchased by Mr. Laney’s adult children, who gave Mr. Laney voting power of +such shares through a revocable power of attorney, which power of attorney is no longer in effect, and $360,000 of shares were purchased by Laney Investments Ltd., for which Mr. Laney has sole voting and investment power. +(3) +All of the shares were purchased by JAMAL Enterprises, LP, for which Mr. Mitchell has sole voting and investment authority. +Loan Program +During 2011, we guaranteed the repayment of loans to certain of our executive officers by Comerica Bank. The purpose of these loans was to assist our executive officers in buying shares of our Common +Stock pursuant to the exercise of stock options. We guaranteed the repayment of the following loans, and made deposits of funds in certificates of deposit to secure our guarantees, for the following executive officers until January 2012, when such +guarantees were terminated. +Executive Officer and Date of Loan or Renewal +Loan +Amount +Interest +Rate +Interest Paid or Payable +in 2012 through +Termination of +the +Loan Guarantee in +January 2012 +Matthew V. Hairford; December 29, 2009; renewed October 8, 2011 +$ +310,000 +5.25 +% +$ +1,067 +David E. Lancaster; April 30, 2009; renewed May 30, 2011 +$ +470,000 +5.25 +% +$ +1,618 +Bradley M. Robinson; December 29, 2008; renewed January 29, 2011 +$ +280,000 +5.25 +% +$ +964 +Our Board approved the termination of the loan program on April 7, 2011, and we terminated our +guarantees and the associated pledge of our certificates of deposit with Comerica Bank relating to these loans in January 2012. We made no payments to Comerica Bank pursuant to these loan guarantees. +56 +Table of Contents +Procedures for Approval of Related Party Transactions +Our Board has adopted a written related party transaction policy. Pursuant to this policy, a “Related Party Transaction” is +defined as a transaction (including any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness)), or series of related transactions, or any material amendment to any such transaction, involving a +Related Party (as defined below) and in which we are a participant, other than: +• +a transaction involving compensation of directors; +• +a transaction involving compensation of an executive officer or involving an employment agreement, severance agreement, change in control provision or +agreement or a special supplemental benefit for an executive officer; +• +a transaction available to all employees generally or to all salaried employees generally; +• +a transaction with a Related Party involving less than $120,000; +• +a transaction in which the interest of the Related Party arises solely from the ownership of a class of our equity securities and all holders of that +class receive the same benefit on a pro rata basis; or +• +a transaction in which the rates or charges involved therein are determined by competitive bids, or a transaction that involves the rendering of +services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. +“Related Party” means: +• +any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors or nominees for directors; +• +any person who is known by us to be the beneficial owner of more than 5% of our Common Stock; +• +any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, +father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, nominee for director, executive officer or a beneficial owner of more than 5% of our Common Stock; and +• +any firm, corporation or other entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons is a general +partner or executive officer or in which such person, together with all other of the foregoing persons, owns 10% or more of the equity interests thereof. +Pursuant to our related party transaction policy, the Audit Committee must review all material facts of each Related Party Transaction and recommend either approval or disapproval of the Related Party +Transaction to the full Board, subject to certain limited exceptions. In determining whether to recommend approval or disapproval of the Related Party Transaction, the Audit Committee must, after reviewing all material facts of the Related Party +Transaction and the Related Party’s relationship and interest, determine whether the Related Party Transaction is fair to the Company. Further, the policy requires that all Related Party Transactions be disclosed in our filings with the SEC +and/or our website in accordance with applicable laws, rules and regulations. All of the Related Party Transactions discussed above occurred prior to the adoption of the policy, except for participation in our initial public offering. Those +executive officers and directors who participated in our initial public offering negotiated with RBC Capital Markets, LLC; therefore, the related party transaction policy was not triggered. +57 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0001520006/0001193125-14-157225/proxy.txt b/raw/proxies/0001520006/0001193125-14-157225/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0f5b262b41e31947db2b0f6d2ddba822820add8d --- /dev/null +++ b/raw/proxies/0001520006/0001193125-14-157225/proxy.txt @@ -0,0 +1,3358 @@ +DEF 14A +1 +d691816ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 (Amendment No.) +Filed by the Registrant þ Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +Matador Resources Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1) +Title of each class of securities to which transaction applies: +2) +Aggregate number of securities to which transaction applies: +3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +4) +Proposed maximum aggregate value of transaction: +5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +1) +Amount Previously Paid: +2) +Form, Schedule or Registration Statement No.: +3) +Filing Party: +4) +Date Filed: +Table of Contents +One Lincoln Centre +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +www.matadorresources.com +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held on June 4, 2014 +To the Matador Resources Company Shareholders: +Please join us for the 2014 Annual Meeting of Shareholders of Matador Resources Company. The meeting will be held at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, on Wednesday, +June 4, 2014, at 9:30 a.m. , Central Daylight Time. +At the meeting, you will hear a report on our business and act on +the following matters: +(1) +Election of the three nominees for director named in the attached Proxy Statement; +(2) +Advisory vote to approve the compensation of our named executive officers as described herein; +(3) +Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2014; and +(4) +Any other matters that may properly come before the meeting. +All shareholders of record at the close of business on April 9, 2014 are entitled to vote at the meeting or any postponement or adjournment of the meeting. A list of the shareholders is available at +the Company’s offices in Dallas, Texas. +By Order of the Board of Directors, +Joseph Wm. Foran +Chairman and Chief Executive Officer +April 24, 2014 +YOUR VOTE IS IMPORTANT! +Whether or not you will attend the meeting, please vote as +promptly as possible by using the Internet or telephone or by signing, dating and returning your proxy card to the address listed on the card. +Important Notice Regarding the Availability of Proxy Materials for the +Annual Meeting of Shareholders to Be Held on June 4, 2014: +Our Proxy Statement and the Annual Report to Shareholders for the fiscal year ended December 31, 2013 are available for viewing, +printing and downloading at https://materials.proxyvote.com/576485 . +Table of Contents +TABLE OF CONTENTS +Page +Proxy Statement +1 +Proxy Summary +3 +Information About the Annual Meeting +5 +Proposal 1 — Election of Directors +9 +Nominees +9 +Vote Required +10 +Directors Continuing in Office +11 +Special Board Advisors +13 +Corporate Governance +15 +Independence of Directors +15 +Board Leadership Structure +15 +Board Committees +16 +Board’s Role in Risk Oversight +20 +Compensation Committee Interlocks and Insider Participation +20 +Communications with Directors +21 +Executive Officers and Other Senior Officers of the Company +21 +Proposal 2 — Advisory Vote to Approve Named Executive Officer Compensation +27 +Vote Required +27 +Proposal 3 — Ratification of the Appointment of KPMG LLP +28 +Fees of Independent Registered Public Accounting Firm for Fiscal Years 2013 and 2012 +29 +Report of the Audit Committee +29 +Vote Required +30 +Executive Compensation +31 +Compensation Discussion and Analysis +31 +Nominating, Compensation and Planning Committee Report +44 +Summary Compensation Table +45 +Grants of Plan-Based Awards Table +46 +Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table +46 +Outstanding Equity Awards at December 31, 2013 +48 +Potential Payments Upon Termination or Change in Control +49 +Director Compensation +54 +Securities Authorized for Issuance Under Equity Compensation Plans +55 +Transactions with Related Persons +56 +Security Ownership +57 +Additional Information +59 +Section 16(a) Beneficial Ownership Reporting Compliance +59 +Shareholder Proposals for the 2015 Proxy Statement +59 +Director Nominations or Other Business for Presentation at the 2015 Annual Meeting +59 +Annual Report on Form 10-K +60 +Other Business +61 +Table of Contents +Matador Resources Company +One Lincoln Centre +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +www.matadorresources.com +PROXY STATEMENT +For +ANNUAL MEETING OF SHAREHOLDERS +To Be Held on June 4, 2014 +This Proxy Statement is being mailed on +or about April 24, 2014 to the shareholders of Matador Resources Company (“Matador” or the “Company”) in connection with the solicitation of proxies by the Board of Directors (the “Board”) of the Company to be +voted at the Annual Meeting of Shareholders of the Company to be held at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, on June 4, 2014, at 9:30 a.m., Central Daylight Time (the “Annual Meeting”), or at any +postponement or adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. The address of the Company’s principal executive office is One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, +Texas 75240. +If you are a shareholder of record, you may vote in person by attending the meeting, by completing and returning +a proxy by mail or by using the Internet or telephone. You may vote your proxy by mail by marking your vote on the enclosed proxy card and following the instructions on the card. To vote your proxy using the Internet or telephone, see the +instructions on the proxy form and have the proxy form available when you access the Internet website or place your telephone call. +The named proxies will vote your shares according to your directions. If you sign and return your proxy but do not make any of the selections, the named proxies will vote your shares: (i) FOR the +election of the three nominees for director as set forth in this Proxy Statement, (ii) FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers as disclosed in this Proxy Statement and +(iii) FOR the ratification of KPMG LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2014. The proxy may be revoked at any time before it is exercised by filing with the Company a +written revocation addressed to the Corporate Secretary, by executing a proxy bearing a later date or by attending the Annual Meeting and voting in person. +The cost of soliciting proxies will be borne by the Company. In addition to the use of postal services and the Internet, proxies may be solicited by directors, officers and employees of the Company (none +of whom will receive any additional compensation for any assistance they may provide in the solicitation of proxies) in person or by telephone. +The outstanding voting securities of the Company consist of shares of common stock, $0.01 par value per share (“Common Stock”). The record date for the determination of the shareholders entitled +to notice of and to vote at the Annual Meeting, or any postponement or adjournment thereof, has been established by the Board as the close of business on April 9, 2014 (the “Record Date”). At that date, there were outstanding and +entitled to vote 65,805,555 shares of Common Stock. +The presence, in person or by proxy, of the holders of record of a +majority of the outstanding shares entitled to vote is necessary to constitute a quorum for the transaction of business at the Annual Meeting, but if a quorum should not be present, the meeting may be adjourned from time to time until a quorum is +obtained. A holder of Common Stock will be entitled to one vote per share on each matter properly brought before the meeting. Cumulative voting is not permitted in the election of directors. +The proxy card provides space for a shareholder to withhold voting for any or all nominees for the Board. The election of directors +requires a plurality of the votes cast at the meeting. All other proposals require the +1 +Table of Contents +affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting. Shares held by a shareholder who abstains from voting on any or all +proposals will be included for the purpose of determining the presence of a quorum. Votes withheld with respect to the election of the Company’s directors will have no effect on the election of the nominees. In the case of the other proposals +being submitted for shareholder approval, an abstention will effectively count as a vote cast against such proposal. Broker non-votes on any matter, as to which the broker has indicated on the proxy that it does not have discretionary authority to +vote, will be treated as shares not entitled to vote with respect to that matter and therefore will have no effect upon the approval of such matter. However, such shares will be considered present and entitled to vote for quorum purposes so long as +they are entitled to vote on at least one other matter. +2 +Table of Contents +PROXY SUMMARY +This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information +that you should consider, and you should read the entire Proxy Statement carefully prior to voting. For more complete information regarding our 2013 performance, please review our Annual Report on Form 10-K for the year ended December 31, 2013. +2014 Annual Meeting of Stockholders +Date and Time : June 4, 2014, at 9:30 a.m., Central Daylight Time +Location : Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207 +Record Date : April 9, 2014 +Voting : +Shareholders as of the close of business on the Record Date are entitled to vote. Each share of Common Stock is entitled to one vote at the Annual Meeting. +Voting Matters and Board Recommendation +Proposal +Board +Recommendation +Election of Three Director Nominees to Serve for a Three-Year Term Expiring in 2017 (page 9) +FOR +Advisory Vote to Approve Named Executive Officer Compensation (page 27) +FOR +Ratification of the Appointment of KPMG LLP as the Company’s Independent Registered Public Accounting Firm for +2014 (page 28) +FOR +2013 Business Highlights +In 2013, Matador delivered record results as our oil and natural gas revenues, total oil production, average daily oil equivalent production and Adjusted EBITDA were the highest in Matador’s history. +Business highlights during 2013 included the following: +• +A 76% increase in oil production from 1,214,000 barrels (“Bbl”) produced in 2012 to 2,133,000 Bbl produced in 2013. +• +A 30% increase in daily oil equivalent production from 9,000 barrels of oil equivalent (“BOE”) per day produced in 2012 to 11,740 BOE per day +produced in 2013. +• +An increase of 72% in oil and natural gas revenues from $156.0 million in 2012 to $269.0 million in 2013. +• +An increase of 65% in Adjusted EBITDA from $115.9 million reported for 2012 to $191.8 million reported for 2013. Adjusted EBITDA is a non-GAAP +financial measure. For a definition of Adjusted EBITDA and a reconciliation to our net income (loss) and net cash provided by operating activities, see our Annual Report on Form 10-K for the year ended December 31, 2013. +• +An increase of 117% in total proved oil and natural gas reserves from 23.8 million BOE, including 10.5 million Bbl of oil and 80.0 billion +cubic feet (“Bcf”) of natural gas, at December 31, 2012 to 51.7 million BOE at December 31, 2013, including 16.4 million Bbl of oil and 212.2 Bcf of natural gas. The PV-10 of our total proved reserves increased from +$423.2 million at December 31, 2012 to $655.2 million at December 31, 2013. PV-10 is a non-GAAP financial measure. For a reconciliation of PV-10 to Standardized Measure, see our Annual Report on Form 10-K for the year ended +December 31, 2013. +• +The acquisition of approximately 55,400 gross (38,900 net) acres in the Permian Basin in Southeast New Mexico and West Texas, bringing our total +Permian Basin acreage position to approximately 70,800 gross (44,800 net) acres as of December 31, 2013. +3 +Table of Contents +Director Nominees (page 9) +Our Board has eight members divided into three classes of directors, designated Class I, Class II and Class III. Directors are elected for three-year terms. The table below provides certain summary +information about each nominee for director named in this Proxy Statement. +Name +Age +Director +Since +Principal Occupation +Committee +Memberships +Joseph Wm. Foran +61 +2003 +Chairman and CEO of Matador +Resources Company +E, F, OP, P +David M. Laney* +65 +2004 +Attorney +A, CG, E, F, NCP +Reynald A. Baribault* +50 +** +Vice President /Engineering of +North Plains Energy, LLC +** +* +Independent Director or Nominee for Director +** +Mr. Baribault has not previously served on our Board +A +Audit Committee +CG +Corporate Governance Committee +E +Executive Committee +F +Financial Committee +NCP +Nominating, Compensation and Planning Committee +OP +Operations and Engineering Committee +P +Prospect Committee +Executive Compensation +Highlights (page 31) +Our compensation program is designed to reward, in both the short-term and the long-term, performance +that contributes to the implementation of our business strategies, maintenance of our culture and values and the achievement of our objectives. In addition, we reward qualities that we believe help achieve our business strategies such as teamwork, +individual performance in light of general economic and industry-specific conditions, relationships with shareholders and vendors, the ability to manage and enhance production from our existing assets, the ability to explore new opportunities to +increase oil and natural gas production, the ability to identify and acquire additional acreage, the ability to increase year-over-year proved reserves, the ability to control unit production costs, level of job responsibility, industry experience +and general professional growth. +Our Board has a “pay for performance” philosophy and recognizes the leadership of +Mr. Joseph Wm. Foran, our Chairman and Chief Executive Officer, and our other executive officers in contributing to the Company’s success in 2013. Accordingly, approximately 72% of Mr. Foran’s 2013 total compensation was +performance based with approximately 45% of his total compensation consisting of long-term incentive awards. Details of our executive compensation are shown in the 2013 Summary Compensation Table on page 45. +4 +Table of Contents +INFORMATION ABOUT THE ANNUAL MEETING +We are furnishing you this Proxy Statement in connection with the solicitation of proxies by the Board to be used at the Annual Meeting +and any adjournment thereof. The Annual Meeting will be held on Wednesday, June 4, 2014 at 9:30 a.m., Central Daylight Time. We are sending this Proxy Statement to our shareholders on or about April 24, 2014. +All references in this Proxy Statement to “we,” “our,” “us,” “Matador” or the “Company” +refer to Matador Resources Company, including our subsidiaries and affiliates. +What is the purpose of the Annual Meeting? +At the Annual Meeting, shareholders will act upon the matters outlined in the Annual Meeting notice, including the following: +• +the election of the three nominees for director named in this Proxy Statement for a term expiring at the 2017 Annual Meeting of Shareholders; +• +an advisory vote to approve the compensation of our named executive officers as described herein; +• +the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year ending +December 31, 2014; and +• +any other matters that may properly come before the meeting. +What are the Board’s voting recommendations? +• +For the election of the three nominees for director named in this Proxy Statement for a term expiring at the 2017 Annual Meeting of +Shareholders; +• +For the approval, on an advisory basis, of the compensation of the Company’s named executive officers; and +• +For the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year ending +December 31, 2014. +Who is entitled to vote? +Shareholders as of the close of business on April 9, 2014 are eligible to vote their shares at the Annual Meeting. As of the Record +Date, there were 65,805,555 shares of our Common Stock outstanding. Each share of Common Stock is entitled to one vote at the Annual Meeting. +Why did I receive a Notice Regarding the Internet Availability of Proxy Materials in the mail instead of a full set of proxy materials? +Securities and Exchange Commission (“SEC”) rules allow companies to furnish proxy materials over the Internet. +We have elected to send a separate Notice of Internet Availability of Proxy Materials (the “Notice”) to most of our shareholders instead of a paper copy of the proxy materials. This approach conserves natural resources and reduces the +costs of printing and distributing our proxy materials while providing shareholders with a convenient way to access our proxy materials. Instructions on how to access the proxy materials over the Internet or to request a paper copy of proxy +materials, including a proxy card or voting instruction form, may be found in the Notice. In addition, shareholders may request to receive future proxy materials in printed form by mail or electronically by email by following the instructions in the +Notice. A shareholder’s election to receive proxy materials by mail or email will remain in effect until the shareholder terminates it. +5 +Table of Contents +How do I vote? +You may: +• +attend the Annual Meeting and vote in person; or +• +dial the toll-free number listed on the Notice, proxy card or voting instruction form provided by your broker. Easy-to-follow voice prompts allow you +to vote your shares and confirm that your voting instructions have been properly recorded. Telephone voting will be available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time on June 3, 2014; or +• +go to the website www.proxyvote.com and follow the instructions, then confirm that your voting instructions have been properly recorded. If you +vote using the website, you can request electronic delivery of future proxy materials. Internet voting will be available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time on June 3, 2014; or +• +if you received a paper copy of your proxy materials and elect to vote by written submission, mark your selections on the proxy card, date and sign it, +and return the card in the pre-addressed, postage-paid envelope provided. +Why did I receive paper copies of proxy +materials? +We are providing certain shareholders with paper copies of the proxy materials instead of a separate Notice. If +you received a paper copy and would no longer like to receive printed proxy materials, you may consent to receive all future proxy materials electronically via email or the Internet. To sign up for electronic delivery, please follow the instructions +provided in your proxy materials. When prompted, indicate that you agree to receive or access shareholder communications electronically in the future. +Will each shareholder in our household receive proxy materials? +Generally, +no. To the extent you are receiving printed proxy materials, we try to provide only one set of proxy materials to be delivered to multiple shareholders sharing an address, unless you have given us other instructions. Any shareholder at a shared +address may request delivery of single or multiple copies of printed proxy materials for future meetings by contacting us at: +Matador Resources Company +Attention: Corporate Secretary +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +Email: investors@matadorresources.com +Telephone: (972) 371-5200 +We hereby undertake to deliver promptly, upon written or oral request, a copy of proxy materials to a shareholder at a shared address to +which a single copy of the proxy materials was delivered. Requests should be directed to the Corporate Secretary at the address or phone number set forth above. +Who will be admitted to the Annual Meeting? +Admission to the Annual +Meeting will be limited to our shareholders of record, persons holding proxies from our shareholders, beneficial owners of our Common Stock and our employees. If your shares are registered in your name, we will verify your ownership at the meeting +in our list of shareholders as of the Record Date. If your shares are held through a broker, bank or other nominee, you must bring proof of your ownership of the shares. This proof could consist of, for example, a bank or brokerage firm account +statement or a letter from your bank or broker confirming your ownership as of the Record Date. You may also send proof of ownership to us at Matador Resources Company, Attention: Corporate Secretary, 5400 LBJ Freeway, Suite 1500, Dallas, Texas +75240, or email: investors@matadorresources.com before the Annual Meeting, and we will send you an admission card. +6 +Table of Contents +If I vote via telephone or the Internet or by mailing my Proxy Card, may I still attend the Annual +Meeting? +Yes. +What if I want to change my vote? +You may revoke your proxy before it is voted by submitting a new proxy with a later date (by mail, telephone or Internet), by voting at the Annual Meeting or by filing a written revocation with our +Corporate Secretary. Your attendance at the Annual Meeting will not automatically revoke your proxy. +What constitutes a quorum? +A majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum. If you vote by +telephone or Internet or by returning your Proxy Card, you will be considered part of the quorum. The Inspector of Election will treat shares represented by a properly executed proxy as present at the meeting. Abstentions and broker non-votes will +be counted for purposes of determining a quorum. A broker non-vote occurs when a nominee holding shares for a beneficial owner submits a proxy but does not vote on a particular proposal because the nominee does not have discretionary voting power +for that item and has not received instructions from the beneficial owner. +How many votes will be required to approve a proposal? +Election of directors at the Annual Meeting will be by a plurality of votes cast at the Annual Meeting. Votes may be cast +in favor of the election of each director nominee or withheld. With respect to other matters, the affirmative vote of the holders of a majority of the shares, present in person or by proxy, and entitled to vote at the Annual Meeting, is required to +take any other action. +Shares cannot be voted at the Annual Meeting unless the holder of record is present in person or by +proxy. +Can brokers who hold shares in street name vote those shares if they have received no instructions? +Under the rules of the New York Stock Exchange (“NYSE”), brokers may not vote the shares held by them in street name for their +customers and for which they have not received instructions, except with respect to a routine matter. The only matter to be voted on at the Annual Meeting that is considered routine for these purposes is the ratification of the appointment of our +independent registered public accounting firm. Accordingly, brokers may not vote your shares on any other matter if you have not given specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so +that your vote will be counted. +How will you treat abstentions and broker non-votes? +A plurality of the votes cast at the Annual Meeting is required to elect each nominee for director. Accordingly, abstentions and broker +non-votes will have no effect on the election of directors. Shares of a shareholder who abstains from voting on any or all proposals will be included for the purpose of determining the presence of a quorum. Votes withheld with respect to the +election of the Company’s directors will have no effect on the election of the nominees. In the case of the other proposals being submitted for shareholder approval, an abstention will effectively count as a vote cast against such proposal. +Broker non-votes on any matter, as to which the broker has indicated on the proxy that it does not have discretionary authority to vote, will be treated as shares not entitled to vote with respect to that matter and therefore will have no effect +upon the approval of such matter. However, such shares will be considered present and entitled to vote for quorum purposes so long as they are entitled to vote on at least one other matter. +7 +Table of Contents +Who pays the solicitation expenses? +We will bear the cost of solicitation of proxies. Proxies may be solicited by mail or personally by our directors, officers or employees, +none of whom will receive additional compensation for such solicitation. Those holding shares of Common Stock of record for the benefit of others, or nominee holders, are being asked to distribute proxy soliciting materials to, and request voting +instructions from, the beneficial owners of such shares. We will reimburse nominee holders for their reasonable out-of-pocket expenses. +Where can I find the voting results of the Annual Meeting? +We will announce preliminary voting results at the Annual Meeting, and we will publish final results in a Current Report on Form 8-K that will be filed with the SEC within four business days of the Annual +Meeting. You may obtain a copy of this and other reports free of charge at www.matadorresources.com , or by contacting our Investor Relations Department at (972) 371-5200 or investors@matadorresources.com or by accessing the SEC’s +website at www.sec.gov . +Will the Company’s independent registered public accounting firm be available at the Annual Meeting to +respond to questions? +Yes. The Audit Committee of the Board has conducted a competitive process to review the independent +registered public accounting firm and approved KPMG LLP to serve as our independent registered public accounting firm for the year ending December 31, 2014 replacing Grant Thornton LLP, the Company’s independent registered public +accounting firm for the year ended December 31, 2013. Representatives of KPMG LLP and Grant Thornton LLP will be present at the Annual Meeting. They will have an opportunity to make a statement, if they desire to do so, and will be available to +respond to shareholder questions. +Where can I contact the Company? +Our mailing address is: +Matador Resources Company +5400 LBJ Freeway, Suite 1500 +Dallas, Texas 75240 +Our telephone number is (972) 371-5200. +8 +Table of Contents +PROPOSAL 1 — ELECTION OF DIRECTORS +The Board currently consists of eight members. Our Board is divided into three classes of directors, designated Class I, Class II and +Class III, with the term of office of each director ending on the date of the third Annual Meeting following the Annual Meeting at which such director’s class was elected. The numbers of directors in each class will be as nearly equal as +possible at all times. The current Class III directors are Messrs. Joseph Wm. Foran and David M. Laney and Dr. Stephen A. Holditch. Messrs. Foran and Laney are Class III director nominees at the Annual Meeting. Dr. Holditch’s +term will expire at the Annual Meeting, and he is not being nominated for re-election to the Board. Mr. Reynald A. Baribault has been nominated by the Board as a Class III director nominee. Ms. Margaret B. Shannon and Messrs. +Michael C. Ryan and Carlos M. Sepulveda, Jr. are the Class I directors, who will hold office until the 2015 Annual Meeting of Shareholders and until the election and qualification of their respective successors or until their earlier death, +retirement, resignation or removal. The Class II directors are Mr. Gregory E. Mitchell and Dr. Steven W. Ohnimus, who will hold office until the 2016 Annual Meeting of Shareholders and until the election and qualification of +their respective successors or until their earlier death, retirement, resignation or removal. +Messrs. Foran, Laney and +Baribault have been nominated by the Board for election as Class III directors at the Annual Meeting to hold office until the 2017 Annual Meeting and until the election and qualification of their respective successors or until their earlier death, +retirement, resignation or removal. The nomination of Mr. Baribault, who is nominated for his first election to the Board, was recommended to the Director Nominating Advisory Committee and the Nominating, Compensation and Planning Committee by +the Company’s Chief Executive Officer. The Board has determined that Mr. Laney is an “independent director” and that Mr. Baribault will be an “independent director” upon his election to the Board. +The Board believes that each of the director nominees possesses the qualifications described below in “Corporate Governance — +Board Committees — Nominating, Compensation and Planning Committee.” That is, the Board believes that each nominee possesses: (i) deep experience at the policy making level in business, government or education; (ii) the +availability and willingness to devote adequate time to Board duties; (iii) the character, judgment and ability to make independent analytical, probing and other inquiries; (iv) a willingness to exercise independent judgment along with a +willingness to listen and learn from others; (v) business knowledge and experience that provides a balance with the other directors; (vi) financial independence; and (vii) with respect to incumbent directors, excellent past +performance on the Board. +The information provided below is biographical information about each of the nominees, as well as a +description of the experience, qualifications, attributes or skills that led the Board to conclude that the individual should be nominated for election as a director of the Company. +Nominees +Mr. Joseph Wm. Foran . +Mr. Foran, age 61, founded Matador Resources Company in July 2003 and has served as Chairman of the Board, Chief Executive Officer and Secretary since our founding. He served as President from our founding until November 2013 and is also chair +of the Board’s Executive Committee. Mr. Foran began his career as an oil and natural gas independent in 1983 when he and his wife, Nancy, founded Foran Oil Company with $270,000 in contributed capital from 17 of his closest friends and +neighbors. Foran Oil Company was later contributed into Matador Petroleum Corporation upon its formation by Mr. Foran in 1988, and Mr. Foran served as Chairman and Chief Executive Officer of that company from inception until the time of +its sale to Tom Brown, Inc. in June 2003 for an enterprise value of $388 million in an all-cash transaction. Under Mr. Foran’s guidance, Matador Petroleum realized a 21% average annual rate of return for its shareholders for 15 years. +Mr. Foran is originally from Amarillo, Texas, where his family owned a pipeline construction business. From 1980 to 1983, he was Vice President and General Counsel of J. Cleo Thompson and James Cleo Thompson, Jr., Oil Producers. Prior to that +time, he was a briefing attorney to Chief Justice Joe R. Greenhill of the Supreme Court of Texas. Mr. Foran graduated with a Bachelor of Science degree in Accounting from the University of Kentucky with highest honors and a law degree from the +Southern Methodist University Dedman +9 +Table of Contents +School of Law, where he was a Hatton W. Sumners scholar and the Leading Articles Editor of the Southwestern Law Review. He is currently active as a member of various industry and civic +organizations, including his church and various youth activities. In 2002, Mr. Foran was honored as the Ernst & Young “Entrepreneur of the Year” for the Southwest Region. As the founder, Chairman of the Board and Chief +Executive Officer of Matador Resources Company, Mr. Foran has provided leadership, experience and long relationships with many of our shareholders. +Mr. David M. Laney. Mr. Laney, age 65, is an original shareholder in Matador Resources Company and was an original shareholder in Matador Petroleum Corporation. He was one of the +original directors on our Board and currently serves as lead independent director and chair of the Board’s Nominating, Compensation and Planning Committee. He is an attorney who since March 2007 has practiced law as a solo practitioner. Between +2003 and 2007, he was a partner with the law firm of Jackson Walker LLP in Dallas where he practiced in the area of corporate and financial law. Prior to joining Jackson Walker, Mr. Laney practiced at the law firm of Jenkens & +Gilchrist, a Professional Corporation, from 1977 to 2003 and was Managing Partner of Jenkens & Gilchrist from 1990 to 2002. During his tenure as Managing Partner, Jenkens & Gilchrist was recognized as one of the fastest growing +firms in the country and was named by industry press as among the top 50 firms in the country. Mr. Laney has also served in several capacities as an appointee of Texas Governors William Clements and George W. Bush on various state boards +continuously from 1989 through 2001. He was Governor Clements’ appointee to the Texas Finance Commission, responsible for regulatory oversight of the state banking and thrift industries as the Texas banking system emerged from the recession and +collapse of the 1980s. He then served as Governor Bush’s Texas Commissioner of Transportation (Chairman of the Texas Transportation Commission) from 1995 to 2001. Mr. Laney completed his term with the Texas Department of Transportation +(“TxDOT”) in 2001. As Commissioner of Transportation, his responsibilities were largely those of the chief executive of TxDOT, a 14,000 employee state agency with a $5 billion annual budget. In 2002, Mr. Laney was nominated by +President George W. Bush to the board of directors of Amtrak and confirmed by the U. S. Senate for a five-year term. In November 2007, he completed his term as Chairman of Amtrak’s board of directors. From 1998 to 2003, Mr. Laney served as +a member of the Stanford University Board of Trustees, and for two years as Chairman of its Audit Committee. Mr. Laney currently serves on boards overseeing the development of major transportation projects and serves as an advisor to various +transportation initiatives. He has also served in various capacities in connection with numerous civic and educational organizations and projects in the Dallas area. Mr. Laney graduated with a Bachelor of Arts degree with honors from Stanford +University and a law degree from the Southern Methodist University Dedman School of Law. Mr. Laney’s legal experience and leadership positions in governmental departments provide our Board with additional perspective on our corporate +governance, legal and governmental relations matters and general business matters. +Mr. Reynald A. Baribault. +Mr. Baribault, age 50, is Vice President / Engineering of North Plains Energy, LLC, a Denver-based exploration and production operator he co-founded in 2007. North Plains Energy’s operations are focused on the Bakken play in North Dakota. +In addition, he co-founded and serves as President and CEO of IPR Energy Partners, LLC, a Dallas-based oil and gas production operator with past operations in Louisiana, Southeast New Mexico and North Central Texas and current operations in the Fort +Worth Basin. Prior to co-founding North Plains Energy and IPR Energy Partners, Mr. Baribault served as Vice President, Supervisor and Petroleum Engineering Consultant of Netherland, Sewell & Associates, Inc. from 1990 to 2002. +Mr. Baribault began his professional career with Exxon Company in 1985 and oversaw operations reservoir engineering matters of high-pressure natural gas fields in South Louisiana. Mr. Baribault received his Bachelor of Science degree in +Petroleum Engineering from Louisiana State University in 1985 and is a registered Petroleum Engineer in the State of Texas. We believe that Mr. Baribault will provide valuable insight to our Board on our drilling, completion and reservoir +engineering operations. +Vote Required +To be elected as a director, each director nominee must receive a plurality of the votes cast by the shareholders entitled to vote for the +election of directors. If you hold your shares through a broker and you do not +10 +Table of Contents +instruct the broker how to vote, your broker will not have the authority to vote your shares. Abstentions and broker non-votes will each be counted as present for purposes of determining the +presence of a quorum but will have no effect upon the outcome of the vote. +The Board of Directors recommends that you vote FOR each of the nominees. +Directors Continuing in Office +Biographical information for our directors who are continuing in office is provided below. +Mr. Gregory E. Mitchell . Mr. Mitchell, age 62, joined our Board in June 2011. With 47 years of grocery and petroleum retailing experience, he is currently President and CEO of +Toot’n Totum Food Stores, LLC, his family company located in Amarillo, Texas. The company, founded in 1950, consists of 73 convenience store/fueling locations, as well as eight car wash and car care centers, and 10 Mr. Payroll check cashing +locations with an employee base of over 900 team members. His experience within the petroleum industry includes extensive negotiations with various major refiners in the United States. A 1973 graduate of the University of Oklahoma, with a Bachelor +of Business Administration degree, Mr. Mitchell was appointed by former Governor William Clements to the Texas Higher Education Coordinating Board, where he served from 1987 through 1993. Additionally, he has served as Chairman of the Amarillo +Chamber of Commerce, Chairman of the United Way of Amarillo and Canyon, Chairman of the Harrington Foundation and President of the Amarillo Area Foundation. Mr. Mitchell is a former director of the Holding Committee of Amarillo National Bank, a +current director of Cal Farley’s Boys Ranch and will be Board Chairman of Cal Farley’s Boys Ranch in the upcoming term. Mr. Mitchell’s experience as President and CEO of his large family business, and as a past director of +several large companies, provides our Board with extensive business, strategic and executive leadership experience. +Dr. Steven W. Ohnimus. Dr. Ohnimus, age 67, was first elected to our Board in January 2004. He spent his entire +professional career from 1971 to 2000 with Unocal Corporation, an integrated energy company. From 1995 to 2000, he was General Manager—Partner Operated Ventures, where he represented Unocal’s non-operated international interests at board +meetings, management committees and other high level meetings involving projects in the $200 million range in countries such as Azerbaijan, Bangladesh, China, Congo, Myanmar and Yemen. From 1994 to 1995, Dr. Ohnimus was General Manager of Asset +Analysis, where he managed and directed planning, business plan budgeting and scenario plans for the domestic and international business unit with an asset portfolio totaling $5.5 billion. From 1990 to 1994, Dr. Ohnimus was Vice President and +General Manager, Unocal Indonesia, located in Balikpapan, operating five offshore fields and one onshore liquid extraction plant and employing 1,200 nationals and 50 expatriates. From 1989 to 1990, he served as Regional Operations Manager in +Anchorage, Alaska, and from 1988 to 1989, he was District Operations Manager in Houma, Louisiana. From 1981 to 1988, Dr. Ohnimus was in various management assignments in Houston and Houma, Louisiana, and from 1971 to 1981 he handled various +technical assignments in reservoir engineering, production and drilling in the Gulf Coast area (Houston, Van, Lafayette and Houma). From 1975 to 1979, Dr. Ohnimus was Assistant Professor of Petroleum Engineering at the University of Southwest +Louisiana (now University of Southern Louisiana) where he taught eleven undergraduate and graduate night classes. In 1980, he taught drilling seminars at the University of Texas Petroleum Extension Service of the International Association of +Drilling Contractors (“IADC”). Dr. Ohnimus has authored several published papers concerning reservoir recompletion and increased recovery. He received his Bachelor of Science degree in Chemical Engineering from the University of +Missouri at Rolla in 1968, a Master of Science degree in Petroleum Engineering from the University of Missouri at Rolla in 1969 and a PhD degree in Petroleum Engineering from the University of Missouri at Rolla in 1971. Dr. Ohnimus served as a +director of the American Petroleum Institute in 1978 and 1979, served as Session Chairman for the Society of Petroleum Engineers’ Annual Convention in 1982, was the Evangeline Section Chairman of the Society of Petroleum Engineers in 1978 and +1979 and served as President of the Unocal Credit Union from 1986 to 1988. In 2007, he was elected President of the Unocal Gulf Coast Alumni Club, which reports through the Chevron Retirees Association, for which Dr. Ohnimus is a director. From +2008 to 2009, Dr. Ohnimus served as the vice chairman of the advisory board of Western Standard Energy Corp. (OTCBB:WSEG), an oil and natural gas exploration company. Due to his long +11 +Table of Contents +oil and natural gas industry career and significant operational and international experience, Dr. Ohnimus provides valuable insight to our Board on our drilling and completion operations and +management, as well as providing a global technology and operations perspective. +Mr. Michael C. Ryan. +Mr. Ryan, age 53, joined our Board in February 2009. Prior to joining the Board, he served as a Board Advisor to the Financial Committee and frequently participated in Board planning and strategy sessions. Since October 2004, Mr. Ryan +has been a Partner and member of the Investment Committee at Berens Capital Management LLC, an investment firm based in New York. From February 1998 to June 2004, he worked with Goldman, Sachs & Co., a global investment banking and +securities services firm, leading its West Coast international institutional equities business. In this role, he developed and built a team of professionals to advise large institutional clients on their global investment decisions. From 1995 to +1998, Mr. Ryan lived in Oslo, Norway, where he was a Partner at Pareto Securities, a Scandinavian-based securities firm where he led and built the institutional equities business into the United States and United Kingdom. From 1991 to 1994, +Mr. Ryan represented multiple eastern European governments in the preparation, negotiation and sale of many of their largest state-owned companies. He began his career with Honeywell, Inc., which invents and manufactures technologies, including +in the safety, security and energy areas, in 1983, working in the Systems and Research Center, which focused on advanced weapons development programs. Mr. Ryan received a Master of Business Administration degree from The Wharton School at the +University of Pennsylvania and a Bachelor of Science degree from the University of Minnesota. Mr. Ryan’s background and experience in the domestic and international financial markets provide our Board with additional perspective on +accounting and auditing functions, economic trends and our capital sourcing and financing opportunities. +Mr. Carlos M. Sepulveda, Jr. Mr. Sepulveda, age 56, joined our Board in April 2013 and currently serves as chair of +the Board’s Audit Committee. Mr. Sepulveda is Executive Chairman of Triumph Bancorp, Inc. (“TBI”), a financial holding company with interests in wholesale and community banking, specialty finance and investment management. He has +served on TBI’s board of directors since 2010. In November 2013, TBI acquired THE National Bank, and Mr. Sepulveda became vice chairman of its board of directors. Mr. Sepulveda served from March 2004 until his retirement in May 2013 +as President and Chief Executive Officer of Interstate Battery System International, Inc. He remains a member of its board of directors, a position he has held since 1995. He has also served since 2007 on the board of directors of Cinemark Holdings, +Inc. (NYSE: CNK), a company that owns and manages movie theaters, and is chair of its audit committee. In March 2014, Mr. Sepulveda became a member of the board of directors of Savoya LLC, an industry-leading provider of chauffeured ground +transportation services. From 1979 to 1990, Mr. Sepulveda was with KPMG Peat Marwick and was a partner in its audit department from July 1989 to October 1990. Mr. Sepulveda received his Bachelor of Business Administration degree in +accounting from the University of Texas in 1979 and is a licensed Certified Public Accountant. Mr. Sepulveda’s experience as President and Chief Executive Officer of Interstate Batteries along with his extensive public accounting +background provide the Board invaluable executive leadership and financial and accounting expertise. As a certified public accountant with proven management skills, Mr. Sepulveda brings to the Board strong accounting and financial oversight +coupled with experience in enterprise and operational risk management. +Ms. Margaret B. Shannon . +Ms. Shannon, age 64, joined our Board in June 2011 and currently serves as chair of the Board’s Corporate Governance Committee. She served as Vice President and General Counsel of BJ Services Company, an international oilfield services +company, from 1994 to 2010, when Baker Hughes Incorporated acquired BJ Services. Prior to 1994, she was a partner with the law firm of Andrews Kurth LLP. Ms. Shannon has served on the board of directors of Quanta Services Inc. (NYSE:PWR), a +Houston-based public company that provides specialized infrastructure contracting services for the electric power, natural gas and pipeline and telecommunication industries, since December 2012. Ms. Shannon is also active in community +activities currently serving as the chair of the board of directors of the Harris County Health Alliance and a member of the board of directors of the Houston Department of Health and Human Services Foundation. She previously served as chair of the +Executive Women’s Partnership sponsored by the Greater Houston Partnership, chair of the audit committee of the board of directors of the South Texas College of Law and chair of the +12 +Table of Contents +Endowment Board of Palmer Memorial Episcopal Church and was a participant in the American Leadership Forum. Ms. Shannon received her J.D. cum laude from the Southern Methodist University +Dedman School of Law in 1976 and her Bachelor of Arts degree from Baylor University in 1971. Ms. Shannon’s experience as an attorney, as a partner with Andrews Kurth LLP, as general counsel for a public company for more than 15 years and +as a director for numerous other organizations provides our Board with important insights into public company obligations, corporate governance and board functions. +Special Board Advisors +In addition to our Board, +we have four individuals who have significant oil and natural gas experience or legal, accounting and other business experience who advise our Board on various matters. Other than indemnification agreements in form similar to those entered into with +our directors and officers, or as otherwise noted below, we have not entered into written agreements with these individuals with respect to their service as special advisors to our Board. Their business histories are described below: +Mr. Marlan W. Downey. Mr. Downey worked for Shell Oil Company, an integrated energy company, from 1957 to 1987. In +1977, he moved to Shell Oil’s International Exploration & Production business and became Vice President of Shell, and then President of Shell Oil’s newly-formed international subsidiary, Pecten International, retiring in 1987. +Mr. Downey joined ARCO International in 1990 as Senior Vice President of Exploration, becoming President of ARCO International and then Senior Vice President and Executive Exploration Advisor to ARCO. Mr. Downey retired from ARCO in 1996. +He serves on the board of TransAtlantic Petroleum Ltd., operating internationally. He is a fellow of the American Association for the Advancement of Science. He is an elected fellow of the Geological Society in London. Mr. Downey is past +President of the American Association of Petroleum Geologists (“AAPG”) and has served as Bartell Professor and Chief Scientist—Sarkeys Energy Center at the University of Oklahoma. Mr. Downey is the 2009 recipient of the +AAPG’s Sidney Powers Medal, which is the highest honor awarded by the AAPG. He is active in several scientific organizations and serves on the board of Berkeley Earth, a non-profit organization. Mr. Downey received a Bachelor of Arts +degree in Chemistry in 1952 at Peru State College in Nebraska. He served in the Army in Korea and the Philippines, then entered graduate school at the University of Nebraska, and received a Bachelor of Science degree in 1956 and a Master of Science +degree in Geology in 1957. Mr. Downey previously served on Matador Petroleum Corporation’s board of directors. He has served as a special advisor since our inception in July 2003 and currently serves as chair of the Board’s Prospect +Committee and on the Operations and Engineering Committee. +Mr. Wade I. Massad . Mr. Massad served as a +consultant to the Company and a special advisor to the Board from 2010 to December 2011, when he was elected Executive Vice President—Capital Markets of the Company. He held this role until July 2012, when he resumed his role as a consultant to +the Company and as a special advisor to the Board, pursuant to a consulting agreement entered into in August 2012. Mr. Massad is the Co-Founder and Co-Managing Member of Cleveland Capital Management L.L.C., a registered investment advisor and +General Partner of Cleveland Capital L.P., a private investment fund focused on micro-cap public and private equity securities, established in October 1996. Previously, Mr. Massad was an investment banker with Keybanc Capital Markets and RBC +Capital Markets, where he was the head of U.S. equity institutional sales from 1997 to 1998 and the head of U.S. Capital Markets business from 1999 to 2003. He also served on the firm’s executive committee. Mr. Massad has served on +multiple public and private company boards and currently is a board member of 4Licensing Corporation. Mr. Massad received a Bachelor of Arts in business management from Baldwin-Wallace University in 1989 and currently serves on its Board of +Trustees. +Mr. Edward R. Scott, Jr. Mr. Scott is a successful Amarillo, Texas lawyer, civic leader and +businessman, managing a varied portfolio of real estate and development-related concerns. Currently, he is the primary developer for two residential developments in Amarillo: Pheasant Run and The Greenways. From 1968 to 1996, Mr. Scott was an +attorney with the Amarillo law firm of Gibson, Ochsner & Adkins. From 1965 to 1968, he served as an accountant with Price Waterhouse & Co. Mr. Scott received his Bachelor of Business Administration degree in Accounting from +West Texas State University in 1962 and an LLB from The +13 +Table of Contents +University of Texas School of Law in 1965. Mr. Scott has previously served as a director and chairman of the Amarillo Economic Development Corporation and is currently serving as a board +member of the Salvation Army, Amarillo Area Foundation and the Amarillo Club. He is a past President of the Rotary Club of Amarillo, the Amarillo Businessmen’s Club, the Amarillo Club, Big Brothers and Big Sisters and the Amarillo Business +Foundation. He is a former chairman of the Amarillo Board of City Development and a former member of the Board of Regents for West Texas State University. Mr. Scott has previously served as an officer and/or board member to many other local +civic and/or charitable organizations. He is a member of the Texas Bar Association, the Amarillo Bar Association, the Texas Society of Certified Public Accountants and the Panhandle Chapter of the Texas Society of Certified Public Accountants. +Mr. Scott is an original shareholder in both Matador Resources Company and Matador Petroleum Corporation. He was an original director on the Matador Resources Company Board and served as chair of the Audit Committee for eight years until his +retirement from the Board in June 2011. +Mr. W.J. “Jack” Sleeper, Jr. Mr. Sleeper has over 55 years +of experience evaluating oil and natural gas properties. Mr. Sleeper joined DeGolyer and MacNaughton, a petroleum consulting firm, as a Petroleum Engineer in 1965. He performed numerous field studies in North and South America, the North Sea +and the Middle East. Mr. Sleeper retired as President and Chief Operating Officer of DeGolyer and MacNaughton on January 1, 1995. He served on DeGolyer and MacNaughton’s board of directors from 1978 until his retirement. Upon his +graduation from the University of Oklahoma with a Bachelor of Science degree in Petroleum Engineering (with Distinction) in 1955, he was employed by Shell Oil Company, an integrated energy company, as an Exploitation Engineer. During his 10 years +with Shell, he spent three years performing research at Shell Development Company in the fields of Reservoir Engineering, Geology and Petrophysics. He held the titles of Project Engineer, Senior Exploitation Engineer and Senior Production Geologist +during his tenure with Shell. Mr. Sleeper has served on the Mewborne Petroleum and Geological Board of Advisors at the University of Oklahoma since 1995. He is a Licensed Professional Engineer (retired) in the states of Oklahoma and Texas. +Mr. Sleeper previously served on Matador Petroleum Corporation’s board of directors. He has served as a special advisor to the Board since our inception in July 2003. He currently serves on our Operations and Engineering Committee and +Prospect Committee. +14 +Table of Contents +CORPORATE GOVERNANCE +The business affairs of Matador are managed under the direction of the Board in accordance with the Texas Business Organizations Code, +the Company’s Amended and Restated Certificate of Formation and its Amended and Restated Bylaws. The Board has adopted Corporate Governance Guidelines, which are reviewed annually by the Corporate Governance Committee of the Board. The Company +has a Code of Ethics and Business Conduct for Officers, Directors and Employees (“Code of Ethics”), which is applicable to all officers, directors and employees of the Company. The Company intends to post any amendments to, and waivers +from, its Code of Ethics on the Company’s website to the extent applicable to an executive officer or a director of the Company. The Corporate Governance Guidelines and the Code of Ethics are available on the Company’s website at +www.matadorresources.com under the heading “Investors — Corporate Governance.” +The Board holds regular +and special meetings and spends such time on the affairs of the Company as their duties require. During 2013, the Board held seven meetings. The Board also meets regularly in non-management executive sessions in accordance with NYSE regulations. The +Corporate Governance Guidelines provide that one of the Company’s independent directors should serve as a lead independent director at any time when the chief executive officer serves as the chairman of the board. The lead independent director +presides over the non-management executive sessions, serves as a liaison between the chairman and the independent directors and performs such additional duties as the Board may otherwise determine and delegate. Because Mr. Foran serves as +Chairman of the Board and Chief Executive Officer, our independent directors have appointed Mr. Laney to serve as lead independent director. In 2013, all directors of the Company attended at least 75% of the meetings of the Board and the +committees on which they served. Our Company policy states that each of our directors is expected to attend Annual Meetings of Shareholders. All of our directors were in attendance at the 2013 Annual Meeting. +Independence of Directors +The Board makes all determinations with respect to director independence in accordance with the NYSE listing standards and the rules and regulations promulgated by the SEC. The actual determination of +whether a director is independent is made by the Board on a case-by-case basis. +In connection with its preparation for the +Annual Meeting, the Board undertook its annual review of director independence and considered transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates. In +making its determination, the Board applied the NYSE listing standards and SEC rules and regulations. +The Board reviewed the +independence of our directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. After this review, our Board +determined that seven of our eight current directors are “independent directors” as defined under the rules of the SEC and the NYSE: Ms. Shannon, Messrs. Laney, Mitchell, Ryan and Sepulveda and Drs. Holditch and Ohnimus. In addition, +our Board determined that Mr. Baribault will be an “independent director” as defined under the rules of the SEC and the NYSE upon his election to the Board. No member or nominee for our Board has a family relationship with any +executive officer or other members of our Board. +Board Leadership Structure +Mr. Foran serves as Chairman of the Board and Chief Executive Officer of the Company. As stated in the Corporate Governance +Guidelines, the Board does not believe that the offices of Chairman of the Board and Chief Executive Officer must be separate. The members of the Board possess experience and unique knowledge of the challenges and opportunities the Company faces. +They are, therefore, in the best position to evaluate the current and future needs of the Company and to judge how the capabilities of the directors and senior managers can be most effectively organized to meet those needs. Given his deep knowledge +of the Company and experience in leading it, the Board currently believes that the most effective leadership structure for the Company is to have Mr. Foran serve as Chairman of the Board and Chief Executive Officer. +15 +Table of Contents +While Mr. Foran serves as Chairman and Chief Executive Officer, all other directors are +independent. After considering the recommendations of our Nominating, Compensation and Planning Committee, the independent directors determine Mr. Foran’s compensation. Further, the Company has four standing committees and an independent +lead director. The Board believes that each of these measures counterbalances any risk that may exist in having Mr. Foran serve as Chairman and Chief Executive Officer. For these reasons, the Board believes that this leadership structure is +effective for the Company. +As the Lead Director, Mr. Laney has the following roles and responsibilities: +• +he chairs the executive sessions of the non-management and independent directors; +• +he leads the independent directors in the evaluation of the Chief Executive Officer; +• +he facilitates communication among the non-management and independent directors; and +• +he acts as a liaison between the non-management and independent directors and the Chief Executive Officer. +Mr. Laney, as Lead Director, may also perform such other duties as the Board or the Corporate Governance Committee from time to time +may assign, which may include, but are not limited to, the following: +• +help develop Board agendas and ensure critical issues are included; +• +determine quality, quantity and timeliness of information from management; +• +make recommendations about retaining consultants or special advisors for the Board; +• +interview Board candidates; +• +oversee Board and director evaluations; and +• +help improve communications and processes by and between management and the Board and the Chief Executive Officer. +Board Committees +The standing committees of the Board are the Audit Committee; Nominating, Compensation and Planning Committee; Corporate Governance Committee; and Executive Committee. The Board has also established the +following advisory committees: Operations and Engineering Committee; Financial Committee; and Prospect Committee. Each of the standing committees is governed by a charter, and a copy of the charters of each of these committees is available on the +Company’s website at www.matadorresources.com under the heading “Investors — Corporate Governance.” Director membership of all of our committees at December 31, 2013 is identified below. +Director +Audit +Committee +Nominating, +Compensation +and Planning +Committee +Corporate +Governance +Committee +Executive +Committee +Operations +and +Engineering +Committee +Financial +Committee +Prospect +Committee +Joseph Wm. Foran +** +* +* +* +Stephen A. Holditch +* +** +* +David M. Laney +* +** +* +* +* +Gregory E. Mitchell +* +Steven W. Ohnimus +* +* +* +* +Michael C. Ryan +* +* +** +Carlos M. Sepulveda, Jr. +** +* +* +Margaret B. Shannon +* +** +* +* +Member +** +Chair +16 +Table of Contents +Audit Committee +The Audit Committee assists the Board in monitoring: +• +the integrity of our financial statements and disclosures; +• +our compliance with legal and regulatory requirements; +• +the qualifications and independence of our independent auditor; +• +the performance of our internal audit function and our independent auditor; and +• +our internal control systems. +In addition, the Audit Committee is charged with review of compliance with our Code of Ethics. +During 2013, our Audit Committee met five times and as of December 31, 2013 consisted of Messrs. Laney, Ryan and Sepulveda and Dr. Ohnimus, each of whom is independent under the rules of the +NYSE and the SEC. Mr. Sepulveda is the chair of the Audit Committee. SEC rules require a public company to disclose whether or not its audit committee has an “audit committee financial expert” as defined by applicable SEC rules and +regulations. Our Board has determined that each of Messrs. Ryan and Sepulveda is an “audit committee financial expert.” +Nominating, Compensation and Planning Committee +The Nominating, Compensation and Planning Committee has the following responsibilities: +• +identifies and recommends to the Board individuals qualified to be nominated for election to the Board; +• +recommends to the Board the members and chair of each committee of the Board; +• +assists the Board and the independent members of the Board in the discharge of their fiduciary responsibilities relating to the fair and competitive +compensation of our executive officers; +• +provides overall guidance with respect to the establishment, maintenance and administration of our compensation programs, including stock and benefit +plans; +• +oversees and advises the Board and the independent members of the Board on the adoption of policies that govern our compensation programs; and +• +recommends to the Board the strategy, tactical and performance goals of the Company, including those performance and tactical goals that relate to +performance-based compensation, including but not limited to goals for production, reserves, cash flows and shareholder value. +Our Nominating, Compensation and Planning Committee has the authority to delegate authority and responsibilities to subcommittees of its members, so long as the subcommittee consists of at least two +members. +As of December 31, 2013, our Nominating, Compensation and Planning Committee consisted of Ms. Shannon, +Messrs. Laney and Ryan and Dr. Holditch, each of whom is independent under the rules of the NYSE, a “non-employee director” pursuant to Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” +and an “outside director” pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Mr. Laney is the chair of the Nominating, Compensation and Planning Committee. During 2013, the +Nominating, Compensation and Planning Committee met 10 times. Dr. Holditch’s term as a director, and as a member of the Nominating, Compensation and Planning Committee, will expire at the Annual Meeting. +The Board has also established a Director Nominating Advisory Committee that is charged with receiving and considering possible nominees +for election by shareholders to the Board. Pursuant to the Director +17 +Table of Contents +Nominating Advisory Committee charter, this committee is comprised of eight to 12 persons selected by the Nominating, Compensation and Planning Committee, and consists of at least: +• +two members of the Nominating, Compensation and Planning Committee; +• +two former members of or special advisors to the Board; +• +two shareholders who beneficially own Common Stock having a market value of at least $1.0 million (such value to be based on the market value of the +Common Stock immediately prior to designation of such shareholders to the Director Nominating Advisory Committee); and +• +two shareholders who have beneficially owned Common Stock continuously for at least the five years prior to such shareholder’s designation to the +Director Nominating Advisory Committee. +The current members of the Director Nominating Advisory Committee +are Messrs. Laney and Scott, Ms. Shannon, Craig T. Burkert, Joe E. Coleman, James M. Funk, Kevin M. Grevey, Scott E. King, James S. Kone, Jr. and James H. “Jake” Trewin. +The Director Nominating Advisory Committee makes recommendations based on its conclusions to the Nominating, Compensation and Planning +Committee for its consideration and review. +The Nominating, Compensation and Planning Committee and the Director Nominating +Advisory Committee consider individuals recommended by the Company’s shareholders to serve on the Board. In considering candidates submitted by shareholders, the Director Nominating Advisory Committee and the Nominating, Compensation and +Planning Committee take into consideration the needs of the Board and the qualifications of the candidate. To have a candidate considered by the Director Nominating Advisory Committee and the Nominating, Compensation and Planning Committee, a +shareholder must submit the recommendation in writing and must include the following information: +• +The name and address of the shareholder, evidence of the person’s ownership of Common Stock or derivatives, including the number of shares owned, +a description of all arrangements or understandings regarding the right to vote shares of the Company, any short interest in any security of the Company, any rights to dividends that are separated or separable from the underlying shares, any +proportionate interest in shares or derivatives held by a general or limited partnership whereby the shareholder is a general partner or beneficially owns an interest in the general partner, any performance-related fees (other than an asset-based +fee) that the shareholder is entitled to based on any change in the value of the shares or derivatives, any other information relating to the shareholder that would be required to be disclosed in connection with solicitations of proxies for the +election of directors in a contested election and a statement whether or not the shareholder will deliver a proxy to shareholders; and +• +The name, age, business and residence addresses of the candidate, the candidate’s résumé or a listing of his or her qualifications +to be a director of the Company, the person’s consent to be a director if selected by the Nominating, Compensation and Planning Committee, nominated by the Board and elected by the shareholders and any other information that would be required +to be disclosed in solicitations of proxies for the election of directors. +The shareholder recommendation +and information described above and in more detail in our Amended and Restated Bylaws must be sent to the Corporate Secretary at One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240 and must be received by the Corporate Secretary +not less than 45 or more than 75 days prior to the one-year anniversary date of the date the Company’s proxy statement was mailed in connection with the previous year’s Annual Meeting of Shareholders. +The Nominating, Compensation and Planning Committee believes that a potential director of the Company must demonstrate that such +candidate has: +• +a depth of experience at the policy-making level in business, government or education; +• +a balance with the business knowledge and experience of the incumbent or nominated directors; +18 +Table of Contents +• +availability and willingness to devote adequate time to Board duties; +• +any unfilled expertise needed on the Board or one of its committees; +• +character, judgment and ability to make independent analytical, probing and other inquiries; +• +willingness to exercise independent judgment yet willingness to listen and learn from the other directors and the Company’s staff; and +• +financial independence to ensure such candidate will not be financially dependent on director compensation. +In the case of an incumbent director, the Nominating, Compensation and Planning Committee will also consider such director’s past +performance on the Board. +The Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee +may identify potential nominees by asking, from time to time, current directors and executive officers for their recommendation of persons meeting the criteria described above who might be available to serve on the Board. The Nominating, +Compensation and Planning Committee or the Director Nominating Advisory Committee may also engage firms that specialize in identifying director candidates. As described above, the Nominating, Compensation and Planning Committee and Director +Nominating Advisory Committee will also consider candidates recommended by shareholders. +Once a person has been identified by +the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee as a potential candidate, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will make an initial +determination regarding the need for additional Board members to fill vacancies or expand the size of the Board. If the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee determines that additional +consideration is warranted, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will review such information and conduct interviews as it deems necessary to fully evaluate each director candidate. In +addition to the qualifications of a candidate, the Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee will consider such relevant factors as it deems appropriate, including the current composition of the +Board, the evaluations of other prospective nominees and the need for any required expertise on the Board or one of its committees. The Nominating, Compensation and Planning Committee or the Director Nominating Advisory Committee also contemplate +multiple dynamics that promote and advance diversity amongst the members of the Board. Although the Nominating, Compensation and Planning Committee does not have a formal diversity policy, the Nominating, Compensation and Planning Committee +considers a number of factors regarding diversity of personal and professional backgrounds, specialized skills and acumen and breadth of experience in energy production, consumption, distribution or transportation, government policy, finance or law. +The Nominating, Compensation and Planning Committee’s evaluation process will not vary based on whether or not a candidate is recommended by a shareholder. +Corporate Governance Committee +The Corporate Governance Committee +is responsible for periodically reviewing and assessing our Corporate Governance Guidelines and making recommendations for changes thereto to the Board, reviewing any other matters related to our corporate governance, unless the authority to conduct +such review has been retained by the Board or delegated to another committee, and overseeing the evaluation of the Board and management. +As of December 31, 2013, our Corporate Governance Committee consisted of Ms. Shannon and Messrs. Laney, Mitchell and Sepulveda, each of whom is independent under the rules of the NYSE. +Ms. Shannon is the chair of the Corporate Governance Committee. During 2013, the Corporate Governance Committee met four times. +19 +Table of Contents +Executive Committee +The Executive Committee has authority to discharge all the responsibilities of the Board in the management of the business and affairs of the Company, except where action of the full Board is required by +statute or by our Amended and Restated Certificate of Formation. +As of December 31, 2013, our Executive Committee +consisted of Messrs. Foran and Laney and Dr. Ohnimus. Mr. Foran is the chair of the Executive Committee. The Executive Committee did not meet during 2013. +Operations and Engineering Committee +The Operations and Engineering +Committee provides oversight of the development of our prospects, our drilling and completion operations and our production operations and associated costs. In addition, the Operations and Engineering Committee provides oversight of the amount and +classifications of our reserves and the design of our completion techniques and hydraulic fracturing operations and various other reservoir engineering matters. As of December 31, 2013, the members of the Operations and Engineering Committee +were Mr. Foran, Drs. Holditch and Ohnimus and Messrs. Downey ( ex officio ) and Sleeper ( ex officio ), who are special advisors to our Board. Dr. Holditch is the chair of the Operations and Engineering Committee. +Dr. Holditch’s term as a director, and as a member of the Operations and Engineering Committee, will expire at the Annual Meeting. +Financial Committee +The Financial Committee provides oversight of our financial position, liquidity and capital needs and the various methods for financing our business. As of December 31, 2013, the members of the +Financial Committee were Ms. Shannon and Messrs. Foran, Laney, Ryan and Sepulveda. Mr. Ryan is the chair of the Financial Committee. +Prospect Committee +The Prospect Committee provides oversight of the technical analysis, evaluation and selection of our oil and natural gas prospects. As of +December 31, 2013, the members of the Prospect Committee were Messrs. Foran, Downey ( ex officio ) and Sleeper ( ex officio ) and Drs. Holditch and Ohnimus. Dr. Holditch’s term as a director, and as a member of the Prospect +Committee, will expire at the Annual Meeting. Mr. Downey is the chair of the Prospect Committee. +Board’s Role in Risk Oversight +The Audit Committee has the responsibility to oversee the Company’s guidelines and policies to govern the process by which risk assessment and risk management are undertaken by management. The +Nominating, Compensation and Planning Committee has the responsibility to oversee that our incentive pay does not encourage unnecessary risk taking and to review and discuss the relationship between risk management policies and practices, corporate +strategy and senior executive compensation. +Compensation Committee Interlocks and Insider Participation +Ms. Shannon, Messrs. Laney and Ryan and Dr. Holditch served on our Nominating, Compensation and Planning +Committee during the last completed fiscal year. None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer that serves on our Board or Nominating, Compensation and Planning +Committee. No member of our Board serves as an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company. There were no compensation committee +interlocks during 2013. +20 +Table of Contents +Communications with Directors +The Board has established a process to receive communications from shareholders and other interested parties by mail. Shareholders and +other interested parties may contact any member of the Board, any Board committee or the entire Board. To communicate with the Board, any individual director or any committee of directors, correspondence should be addressed to the Board. All such +correspondence should be sent “c/o Corporate Secretary” at One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. The Corporate Secretary will review and forward correspondence to the appropriate person or persons. +Any communications to the Company from one of the Company’s officers or directors will not be considered +“shareholder communications.” Communications to the Company from one of the Company’s employees or agents will only be considered “shareholder communications” if they are made solely in such employee’s or agent’s +capacity as a shareholder. Any shareholder proposal submitted pursuant to Rule 14a-8 promulgated under the Exchange Act will not be viewed as “shareholder communications.” +Executive Officers and Other Senior Officers of the Company +The following table sets forth the names, ages and positions of our executive officers and certain of our other senior officers at April 24, 2014: +Name +Age +Positions Held With Us +Executive Officers +Joseph Wm. Foran +61 +Chairman of the Board and Chief Executive Officer +Matthew V. Hairford +53 +President +David E. Lancaster +57 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +David F. Nicklin +65 +Executive Director of Exploration +Bradley M. Robinson +59 +Vice President of Reservoir Engineering, Chief Technology Officer +Craig N. Adams +47 +Executive Vice President—Land & Legal +Ryan C. London +35 +Vice President and General Manager +Other Senior Officers +Billy E. Goodwin +56 +Vice President of Drilling +William F. McMann +51 +Vice President of Production and Facilities +Van H. Singleton, II +36 +Vice President of Land +G. Gregg Krug +53 +Vice President of Marketing; Vice President of Longwood Gathering and Disposal Systems, LP +Sandra K. Fendley +51 +Vice President and Chief Accounting Officer +Kathryn L. Wayne +53 +Controller and Treasurer +The following biographies describe the business experience of our executive officers and other senior +officers. Each officer serves at the discretion of our Board. There are no family relationships among any of our officers. +Executive +Officers +Mr. Joseph Wm. Foran . Please see the biography of Mr. Foran on page 9 of this Proxy +Statement. +Mr. Matthew V. Hairford . Mr. Hairford joined Matador Resources Company in July 2004 as its +Drilling Manager. He was named Vice President of Drilling in May 2005; Vice President of Operations in May 2006; Executive Vice President of Operations in May 2009; and in November 2013 assumed the title of President. He was previously with Samson +Resources, an exploration and production company, as Senior Drilling Engineer, having joined Samson in 1999. His responsibilities there included difficult Texas and Louisiana Gulf Coast projects, horizontal drilling projects and a start-up drilling +program in Wyoming. The scope of this work ranged +21 +Table of Contents +from multi-lateral James Lime wells in East Texas to deep wells in South Texas and South Louisiana. Mr. Hairford has drilled many geo-pressured wells in Texas and Louisiana, along with +normally pressured wells in Southwest Wyoming and East Texas. Additional responsibilities included a horizontal well program in Roger Mills County, Oklahoma at 15,000 feet vertical depth. Mr. Hairford has experience in air drilling, +underbalanced drilling, drilling under mud caps and high temperature and pressure environments. From 1998 until 1999, Mr. Hairford served as Senior Drilling Engineer with Sonat, Inc., a global company involved with natural gas transmission and +marketing, oil and natural gas exploration and production and oil services. His responsibilities included Pinnacle Reef wells in East Texas and deep horizontal drilling in the Austin Chalk field in Central Louisiana. From 1984 to 1998, +Mr. Hairford served in various drilling engineering capacities with Conoco, Inc., an integrated energy company. His operational areas included the Appalachian Basin, Illinois Basin, Permian Basin, Texas Panhandle and Val Verde Basin. +Mr. Hairford was selected as a member of a three-person team to explore the use of unconventional technologies to identify a potential step change in the drilling sector. Multiple techniques were evaluated and tested, including declassified +defense department technologies. Additional Conoco assignments included both field and office drilling positions in Midland and Oklahoma City. Earlier in his career with Conoco, Mr. Hairford was selected to participate in the Conoco Drilling +Rig Supervisor Training Program in Houston. This program consisted of two years working a regular rotation as a drilling representative on rigs and as a drilling engineer in various domestic offices. Mr. Hairford began his career in 1984 with +Conoco in a field production assignment in Hobbs, New Mexico. Mr. Hairford received his Bachelor of Science degree in Petroleum Engineering Technology from Oklahoma State University in 1984. He is an active member of the American Association of +Drilling Engineers, the American Petroleum Institute and the Society of Petroleum Engineers. Mr. Hairford has also undertaken additional training through Stanford University’s Executive Education programs including, most recently in the +summer of 2011, the Stanford Graduate School of Business flagship six week Stanford Executive Program. +Mr. David E. Lancaster . Mr. Lancaster joined Matador Resources Company in December 2003 and serves as Executive +Vice President, Chief Operating Officer and Chief Financial Officer. Mr. Lancaster has served in several capacities since joining Matador, including Vice President of Business Development, Acquisitions and Finance from December 2003 to May +2005; Vice President and Chief Financial Officer from May 2005 to May 2007; and Executive Vice President and Chief Financial Officer from May 2007 to May 2009. He was named Chief Operating Officer in May 2009. From August 2000 to December 2003, he +was Marketing Manager for Schlumberger Limited’s Data & Consulting Services, which provided full-field reservoir characterization, production enhancement, multidisciplinary reservoir and production solutions and field development +planning. In this position, he was responsible for global marketing strategies, business models, input to research and development, commercialization of new products and services and marketing communications. From 1999 to 2000, Mr. Lancaster +was Business Manager, North and South America, for Schlumberger Holditch-Reservoir Technologies, the petroleum engineering consulting organization formed following Schlumberger’s acquisitions of S.A. Holditch & Associates, Inc. and +Intera Petroleum Services. In this role, he was responsible for the business operations of 12 consulting offices throughout North and South America. Mr. Lancaster worked with Schlumberger for six years following its acquisition of S.A. +Holditch & Associates, Inc. in October 1997. He joined S.A. Holditch & Associates in 1980, and was one of the principals in that well-known petroleum engineering consulting firm. Between 1980 and 1997, Mr. Lancaster held +positions ranging from Senior Petroleum Engineer to Senior Vice President—Business Development. In this latter role, he was responsible for marketing and sales, as well as the company’s commercial training business. During most of his +tenure at S.A. Holditch & Associates, Inc., Mr. Lancaster was a consulting reservoir engineer with particular emphasis on characterizing and improving production from unconventional natural gas reservoirs. For more than seven +years during this time, he was the Project Manager for the Gas Research Institute’s Devonian Shales applied research projects investigating ways to improve reservoir characterization, completion practices and natural gas recovery in low +permeability, natural gas shale reservoirs. He was also the lead reservoir engineer for the Secondary Gas Recovery project sponsored by the Gas Research Institute and the U.S. Department of Energy, looking at ways to improve recovery from +compartmentalized natural gas reservoirs in North and South Texas. Mr. Lancaster began his career as a reservoir engineer for Diamond Shamrock Corporation in 1979. Mr. Lancaster received Bachelor and Master of Science degrees in Petroleum +Engineering from Texas A&M University in 1979 and 1988, +22 +Table of Contents +respectively, graduating summa cum laude. He has authored or co-authored more than 50 technical papers and articles, as well as numerous other published reports and industry presentations. He is +a member of the Society of Petroleum Engineers, and he served as a charter member and former Vice Chairman of the Texas A&M University Petroleum Engineering Advisory Board. Mr. Lancaster is a Licensed Professional Engineer in the State of +Texas. +Mr. David F. Nicklin. Mr. Nicklin joined Matador Resources Company in February 2009 as Executive +Director of Exploration after working with us as a consultant since November 2007. Prior to joining Matador, since January 2000, Mr. Nicklin provided executive level consulting services to a variety of clients. In 2006, Mr. Nicklin +co-founded and currently leads a small, private oil and natural gas company, Salt Creek Petroleum LLC. Salt Creek Petroleum owns small, non-operated interests in a variety of onshore oil and natural gas fields in the United States. Since 2009, +Mr. Nicklin has consulted almost exclusively for Matador, with the primary exception of the minimal time he has devoted to Salt Creek Petroleum. Mr. Nicklin worked approximately 210 days for us in 2011, 230 days in 2012 and 237.5 days in +2013. We have determined that Mr. Nicklin’s involvement with Salt Creek Petroleum does not detract from his performance for Matador and does not result in any conflict of interest between Mr. Nicklin and Matador due to the fact that +Salt Creek Petroleum is not involved in plays and prospects that compete with our interests. In 2000, Mr. Nicklin founded and led for three years a private oil and natural gas exploration company, Serica Energy, which is now a public company +with assets in Indonesia, the United Kingdom, Spain, Ireland and Morocco. Between 1981 and 2000, Mr. Nicklin was an employee of ARCO, an integrated energy company, where he participated in and led several international exploration teams, +particularly in the Middle East, southeast Asia and Australasia. In 1991, he became the Chief Geologist for ARCO, a position he held until his retirement in 2000. In this position, Mr. Nicklin was responsible for the quality of the geological +effort at ARCO, in particular, ensuring the application of state-of-the-art geological technology, the company’s risk management process, the selection of new ventures and the high-grading of a large geoscience staff. Throughout his career at +ARCO, Mr. Nicklin was closely involved with the successful exploration for and development of a number of large oil and natural gas discoveries. Prior to joining ARCO, Mr. Nicklin was a senior development and operations geologist in a +variety of positions in the United Kingdom, Angola, Norway and the Middle East. He was a specialist in well-site operations and provided training in operations to entry-level personnel. Mr. Nicklin was born in the United Kingdom and received a +Bachelor of Science degree in Geology from the University of Wales in 1971. He is an active member of the American Association of Petroleum Geologists and various other professional groups. +Mr. Bradley M. Robinson. Mr. Robinson joined Matador Resources Company in August 2003 as one of its founders and +has served as our Vice President of Reservoir Engineering since that time. He assumed the additional role of Chief Technology Officer in May 2013. Prior to joining Matador, from 1997 to August 2003, Mr. Robinson held the position of Advisor +with Schlumberger Limited’s Data & Consulting Services business unit, which provided full-field reservoir characterization, production enhancement, multidisciplinary reservoir and production solutions and field development planning, +where he was responsible for the development and application of new technologies for well completions and stimulation, provided technical expertise for reservoir management and field development projects, taught basic and advanced industry courses +in well completions and stimulation and provided internal training in production engineering and stimulation methods. Mr. Robinson worked with Schlumberger for six years following its acquisition of S.A. Holditch & Associates, Inc. in +1997. Mr. Robinson joined Holditch in 1979, and was one of the principals in that well-known petroleum engineering consulting firm. From 1979 to 1982, Mr. Robinson served as Senior Petroleum Engineer and was involved in all aspects of +reservoir and production engineering for both conventional and low permeability oil and natural gas fields. From 1982 to 1997, he was Holditch’s Vice President—Production Engineering, where he was responsible for coordination and +management of production and completion engineering projects, including development drilling and openhole data acquisition programs, design and supervision of initial well completions and workovers, transient well test design and analysis and +hydraulic fracture stimulation design and supervision. His duties also included reserves evaluation and economic analysis of new and existing wells, and his areas of specialization included low permeability natural gas sands, coalbed methane +reservoirs and horizontal wells. For approximately 10 years during this time, he served as assistant project manager for the Gas Research Institute’s +23 +Table of Contents +Tight Gas Sands and Horizontal Gas Wells applied research projects investigating ways to improve reservoir characterization, completion practices and natural gas recovery in low permeability +natural gas reservoirs and horizontal natural gas wells. During his career, he has worked all over the world, including the United States, Canada, Venezuela, Colombia, Mexico, Egypt, the North Sea, Russia and Indonesia, among others. +Mr. Robinson began his career in 1977 with Marathon Oil Company, serving as an Associate Production Engineer and later as a Reservoir Engineer in Midland. Mr. Robinson received Bachelor and Master of Science degrees in Petroleum +Engineering from Texas A&M University in 1977 and 1986, respectively. He has authored or co-authored more than 30 technical articles appearing in industry and/or technical publications and has made numerous engineering technical presentations. +Mr. Robinson is a member of the Society of Petroleum Engineers and is a Licensed Professional Engineer in the State of Texas. He served as Chairman of the Dallas Section of the Society of Petroleum Engineers in 2011 and 2012. He also received +the 2013 Engineer of the Year Award presented by the Dallas Section of the Society of Petroleum Engineers and the 2013 Completions Optimization and Technology award presented by the Mid-Continent region of the Society of Petroleum Engineers. +Mr. Craig N. Adams . Mr. Adams joined Matador Resources Company in September 2012 as its Vice President +and General Counsel. In July 2013, Mr. Adams became Executive Vice President—Land & Legal. Before joining Matador Resources Company, Mr. Adams was a partner with Baker Botts L.L.P. from March 2001 to September 2012 where he +focused his practice on securities, mergers and acquisitions and corporate governance matters. He was a partner with Thompson & Knight L.L.P. from January 1999 to February 2001 and an associate from September 1992 to December 1998. +Mr. Adams received a Bachelor of Business Administration degree in finance from Southern Methodist University in 1988 and his law degree in 1992 from Texas Tech University School of Law, where he was a Comment Editor of the Texas Tech Law +Review. +Mr. Ryan C. London . Mr. London first worked at Matador Resources Company in the summer of 2004 +as a student intern. He joined Matador Resources Company full-time as a Petroleum Engineer in May 2005 and advanced to the positions of Senior Operations Engineer in January 2008 and Asset Manager in March 2012. He was promoted to Vice President and +General Manager in March 2013. In this position, Mr. London manages the day-to-day activities of our various asset teams. Mr. London received his Bachelor of Science degree in Mechanical Engineering from Texas A&M University in 2002 +and his Master of Engineering degree in Petroleum Engineering from Colorado School of Mines in 2005. Mr. London is a member of the Society of Petroleum Engineers and is a Licensed Professional Engineer in the State of Texas. +Other Senior Officers +Mr. Billy E. Goodwin. Mr. Goodwin joined Matador Resources Company in July 2010 as Drilling Manager. He was promoted to Vice President of Drilling in September 2013. He was +previously with Samson Resources, a company he joined in 2001 to supervise the drilling of underbalanced multilateral horizontal wells. In his roles as Senior Drilling Engineer and Area Drilling Manager for Samson, Mr. Goodwin engineered +and managed operations in the Permian Basin, South Texas, East Texas, Mid-Continent and Gulf Coast areas. Mr. Goodwin worked with Conoco, Inc. before joining Samson. He began his career in 1985 in Conoco’s production department before +joining the drilling department in 1989. Mr. Goodwin has diverse horizontal operational experience both onshore and offshore, and both domestically and internationally, including in the Middle East, Southeast Asia and South +America. Throughout his career, Mr. Goodwin has developed underbalanced drilling, managed pressure drilling and drill-in casing techniques for normal and geo-pressured environments. Mr. Goodwin received a Bachelor of Science degree in +Petroleum Engineering Technology from Oklahoma State University in 1984. He is a member of the Society of Petroleum Engineers and the American Association of Drilling Engineers. Mr. Goodwin served in the United States Marine Corps. +Mr. William F. McMann. Mr. McMann began work for Matador Resources Company as an engineering consultant in +December 2011, working with the completions and production groups, before formally joining the Company as Vice President of Production and Facilities in January 2014. Mr. McMann previously served as an independent petroleum engineering +consultant from June 2008 to March 2009 and again from December 2010 +24 +Table of Contents +until December 2011. From April 2009 to December 2010 he served as Operations Manager and Vice President – Operations at Wagner Oil Company, where he managed drilling, completion and field +operations in West Texas, South Texas and South Louisiana. He worked as Operations Manager at Cinco Resources, Inc. from February 2008 to June 2008. From 1998 to 2008 he was employed by Denbury Resources, Inc. where he helped to engineer and manage +the growth of the company including waterflood development in the Upper Cretaceous Eutaw formation and horizontal drilling and completions in the Selma Chalk formation. During his last three years at Denbury Mr. McMann worked as Asset Manager +of their East Mississippi and Alabama assets and oversaw the initiation of Denbury’s East Mississippi CO 2 development. In 1994 Mr. McMann joined Vintage Petroleum in Tulsa, Oklahoma as District Engineer managing their Ventura and Bakersfield, California production operations, a position he held until +1998. Mr. McMann began his career with Amerada Hess Corporation in 1985 working as a Field Production Engineer in the Seminole San Andres Unit CO 2 flood in Seminole, Texas through 1989 when he was transferred to Houston to work their offshore Gulf of Mexico assets. +Mr. McMann received a Bachelor of Science degree in Petroleum Engineering from West Virginia University in 1985 and a Master of Business Administration from Oklahoma State University in 1996. He is a member of the Society of Petroleum +Engineers, Oilfield Christian Fellowship and the American Association of Drilling Engineers (“AADE”), and participates in DFW Honor Flight by escorting World War II veterans to Washington, D.C. to visit the World War II Memorial. +Mr. McMann also serves as the liaison between the Dallas/Fort Worth AADE chapter and the AADE Student Section chapters of Missouri University of Science and Technology and West Virginia University. +Mr. Van H. Singleton, II. Mr. Singleton joined Matador Resources Company in August 2007 as a Landman and was promoted to +Senior Staff Landman in 2009 and then to General Land Manager in 2011. In September 2013, Mr. Singleton became Vice President of Land for the Company. Prior to joining Matador, Mr. Singleton founded and was President of VanBrannon and +Associates, LLC and Southern Escrow and Title of Mississippi, LLC from 1998 to 2003, which provided full-spectrum land title work and title insurance in Mississippi, Louisiana, Texas and Arkansas. From 2003 until joining Matador in 2007 he served as +general manager of his family’s real estate brokerage in Houston. Mr. Singleton received a Bachelor of Arts degree in Criminal Justice from the University of Mississippi in 2000. He is an active member of the American Association of +Professional Landmen, the New Mexico Landman Association, the Permian Basin Landman Association and the Dallas Association of Petroleum Landmen. +Mr. G. Gregg Krug. Mr. Krug joined Matador Resources Company in April 2012 as its Marketing Manager. He was named Vice President of Marketing and Vice President of Longwood +Gathering & Disposal Systems, LP in September 2013. He has overall responsibility for Matador’s marketing activities of its oil and natural gas, as well as responsibility for all business aspects for Longwood Gathering & +Disposal Systems, LP. Previously, Mr. Krug was with Unit Petroleum Company, an exploration and production company based in Tulsa, Oklahoma, as Marketing Manager, having joined in 2006. He and his staff were responsible for marketing, gas +measurement, contract administration and production reporting in their core areas of Oklahoma, the Texas Panhandle, East Texas and Northwestern Louisiana. From 2005 to 2006, Mr. Krug served as Marketing Manager with Matador Resources Company +developing our Marketing Department. From 2000 to 2005, Mr. Krug served as Gas Scheduling Supervisor with Samson Resources in Tulsa, Oklahoma where he and his staff were responsible for scheduling natural gas sales as well as procurement +of natural gas supply on Samson owned gathering systems. From 1983 to 2000, Mr. Krug served with The Williams Companies in various capacities including in the Kansas Hugoton Field in Ulysses, Kansas and Tulsa, Oklahoma for Williams Natural +Gas Pipeline and on the trading floor in Tulsa, Oklahoma for Williams Energy Services Company. Mr. Krug received a Bachelor of Business Administration degree from Oklahoma City University in 1996. +Ms. Sandra K. Fendley . Ms. Fendley joined Matador Resources Company in December 2013 as Vice President and Chief +Accounting Officer. She has over 20 years of experience in the utility, oil and natural gas and midstream industries. Ms. Fendley previously served as Controller of J-W Midstream, a subsidiary of J-W Energy Company. Prior to joining J-W +Midstream, she held a number of financial roles with Crosstex Energy (now EnLink Midstream), including serving as Director of Financial Accounting, Director of Financial Reporting +25 +Table of Contents +and Corporate Controller from 2006 until her departure in 2013. She also held numerous and varied accounting roles with TXU (currently Energy Future Holdings) from 1991 to 2006. In her various +roles, Ms. Fendley has led the financial accounting group and SEC reporting group for a publicly traded master limited partnership, a crude oil operational accounting group, a financial planning and analysis group and fixed asset accounting, +inventory and accounts payable departments. Ms. Fendley received a Bachelor of Business Administration degree in Accounting from Texas A&M University at Commerce in 1991, earned a Master of Business Administration degree from Tarleton State +University in 2001 and is a licensed certified public accountant. +Ms. Kathryn L. Wayne . Ms. Wayne was +one of the original employees of Matador Resources Company and has served as the Company’s Controller and Treasurer since 2003. She was previously with Matador Petroleum Corporation, joining the company in 1991. Immediately prior to its sale, +Ms. Wayne was Senior Revenue Accountant, and her duties included supervision of the revenue accounting staff, management of the revenue distribution process and preparation of monthly accruals and various required regulatory reports. +Ms. Wayne began her career with Mobil Oil Corporation, where she held various positions in the gas accounting department. Ms. Wayne received a Bachelor of Arts degree in Accounting from Texas A&M University in 1983. She is recognized +by the Council of Petroleum Accountants Societies (COPAS) as an Accredited Petroleum Accountant (APA), having passed all eight parts of the accreditation examination. She is an active member of COPAS and served a three-year term on the COPAS APA +Board of Examiners. +26 +Table of Contents +PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED +EXECUTIVE OFFICER COMPENSATION +The Company seeks a non-binding advisory vote from its shareholders to approve the +compensation of its Named Executive Officers (as defined below) as described in this Proxy Statement. +As discussed under the +“Executive Compensation — Compensation Discussion and Analysis” section of this Proxy Statement (“CD&A”), we believe the Company’s future success and the ability to create long-term value for our shareholders +depends on our ability to attract, retain and motivate highly qualified individuals in the oil and natural gas industry. Additionally, we believe that our success also depends on the continued contributions of our Named Executive Officers. The +Company’s compensation system plays a significant role in its ability to attract, motivate and retain a high quality workforce. As described in CD&A, the Company’s compensation program for Named Executive Officers is designed to +reward, in both the short-term and the long-term, performance that contributes to the implementation of our business strategies, maintenance of our culture and values and the achievement of our objectives. In addition, we reward qualities that we +believe help achieve our business strategies such as teamwork; individual performance in light of general economic and industry-specific conditions; relationships with shareholders and vendors; the ability to manage and enhance production from our +existing assets; the ability to explore new opportunities to increase oil and natural gas production; the ability to identify and acquire additional acreage; the ability to increase year-over-year proved reserves; the ability to control unit +production costs; level of job responsibility; industry experience; and general professional growth. +This proposal provides +shareholders the opportunity to endorse or not endorse the Company’s executive compensation program through the following resolution: +“Resolved, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, +compensation tables and narrative discussion, is hereby approved.” +The above referenced CD&A disclosure appears on +pages 31 to 43 of this Proxy Statement. +Because this is an advisory vote, it will not be binding upon the Board. However, the +Nominating, Compensation and Planning Committee and the independent members of the Board (the “Independent Directors”) will take into account the outcome of the vote when considering future executive compensation arrangements. +Vote Required +The affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required to approve this resolution on a non-binding basis. If +you hold your shares through a broker and you do not instruct the broker how to vote, your broker will not have the authority to vote your shares. Abstentions will have the effect as a vote cast against the proposal. Broker non-votes will be counted +as present for purposes of determining the presence of a quorum but will have no effect upon the outcome of the vote. +During +our 2012 Annual Meeting of Shareholders, our shareholders approved a non-binding, advisory proposal to hold annual advisory votes to approve our executive compensation. In consideration of the results of this advisory vote, the Board has adopted a +policy providing for annual advisory votes on executive compensation. Unless the Board modifies this policy, the next advisory vote on compensation following this vote will be held at our 2015 Annual Meeting of Shareholders. +The Board of Directors recommends that you vote FOR approval of this resolution. +27 +Table of Contents +PROPOSAL 3 — RATIFICATION OF THE APPOINTMENT OF +KPMG LLP +The Audit Committee has appointed KPMG LLP (“KPMG”) as the independent registered public accounting +firm of the Company for the year ending December 31, 2014, and the Board has directed that such appointment be submitted to our shareholders for ratification at the Annual Meeting. The Audit Committee conducted a competitive process to review +the appointment of our independent registered public accounting firm for the year ending December 31, 2014. The process included consideration of audit firms in addition to Grant Thornton LLP (“Grant Thornton”), which was the +Company’s independent registered public accounting firm for the year ended December 31, 2013. The decision to evaluate more than one potential audit firm was made in connection with the Audit Committee’s annual review of the +independent registered public accounting firm. Upon completion of this process, on April 9, 2014, the Audit Committee appointed KPMG as the Company’s registered public accounting firm for the year ending December 31, 2014. +Grant Thornton’s audit reports on the Company’s consolidated financial statements for the years ended December 31, 2012 +and 2013 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. +During the years ended December 31, 2012 and 2013, and through April 9, 2014, there were no (i) disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K) between the Company +and Grant Thornton on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Grant Thornton’s satisfaction, would have caused it to make reference to the matter +in conjunction with its report on the Company’s consolidated financial statements for the relevant year, or (ii) reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. +During the years ended December 31, 2012 and 2013, and through April 9, 2014, neither the Company, nor anyone on behalf of the +Company, consulted with KPMG with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated +financial statements, and no written report or oral advice was provided by KPMG to the Company that KPMG concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue +or (ii) any matter that was the subject of either a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). The Company has been advised by KPMG +that the firm has no relationship with the Company or its subsidiaries other than that arising from the firm’s engagement as auditors. +If the shareholders do not ratify the appointment of KPMG, the Audit Committee will consider whether to engage a different independent registered public accounting firm but will not be obligated to do so. +The Company has been advised that representatives of KPMG and Grant Thornton will be present at the Annual Meeting and will +be available to respond to appropriate questions and make a statement if they desire to do so. +28 +Table of Contents +Fees of Independent Registered Public Accounting Firm for Fiscal Years 2013 +and 2012 +We paid no fees to KPMG for the years ended December 31, 2013 and 2012. The following table presents fees +for professional audit services rendered by Grant Thornton for the audits of the Company’s annual financial statements for the years ended December 31, 2013 and 2012, and fees for other services rendered by Grant Thornton during those +periods: +2013 +2012 +Audit fees +$ +604,815 +$ +598,730 +Audit-related fees +— +— +Tax fees +— +— +All other fees +4,900 +2,858 +Total +$ +609,715 +$ +601,588 +Services rendered by Grant Thornton in connection with the fees presented above were as follows: +Audit Fees +For fiscal year 2013, audit fees consisted of fees associated with the audit of the Company’s consolidated financial statements, including the audit of the effectiveness of the Company’s +internal control over financial reporting, required reviews of our quarterly condensed consolidated financial statements, including for inclusion in our prospectus related to our 2013 equity offering, and providing the underwriters of such offering +with comfort letters on certain information contained, or incorporated by reference, in the prospectus. For fiscal year 2012, audit fees consisted of fees associated with the audit of the Company’s consolidated financial statements, including +the audit of the effectiveness of the Company’s internal control over financial reporting, required reviews of our quarterly condensed consolidated financial statements and review of our Registration Statement on Form S-3. +Audit-Related Fees +We did not incur any audit-related fees in 2013 or 2012. +Tax Fees +We did not incur any fees for tax advice, planning and +other services in 2013 or 2012. +All Other Fees +For fiscal years 2013 and 2012, all other fees included the use of online research tools provided by Grant Thornton. +The Audit Committee pre-approves all audit and permissible non-audit services provided by KPMG. These services may include audit services, audit-related services, tax services and other services. The +Audit Committee has authorized the chair of the Audit Committee to pre-approve audit and permissible non-audit services provided by KPMG up to $750,000. Pursuant to this delegation, the decisions of the chair must be presented to the Audit Committee +at its next meeting. +Report of the Audit Committee +We are a standing committee comprised of independent directors as currently defined by SEC regulations and the applicable listing +standards of the NYSE. The Board has determined that at least one of the members of the Audit Committee is an “audit committee financial expert” as defined by applicable SEC rules and regulations. We operate under a written charter adopted +by the Board. A copy of the charter is available free of charge on the Company’s website at www.matadorresources.com under “Investors — Corporate Governance.” +29 +Table of Contents +We annually select the Company’s independent auditors. If the shareholders do not +ratify the appointment of KPMG at the Annual Meeting, the Audit Committee will reconsider the appointment of the independent auditors. +Management is responsible for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s +consolidated financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board and issuing a report thereon. As provided in our charter, our responsibilities include the monitoring and oversight of +these processes. +Consistent with our charter responsibilities, we have met and held discussions with management and the +independent auditors. In this context, management and the independent auditors represented to us that the Company’s consolidated financial statements for the fiscal year ended December 31, 2013 were prepared in accordance with U.S. +generally accepted accounting principles. We reviewed and discussed the consolidated financial statements with management and the independent auditors and discussed with the independent auditors matters required to be discussed by Auditing Standard +No. 16, as amended (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. +The Company’s independent auditors have also provided to us the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the +independent auditor’s communications with the Audit Committee, and we discussed with the independent auditors that firm’s independence. +Based upon our reviews and discussions with management and the independent auditors and our review of the representation of management and the report of the independent auditors to the Audit Committee, we +recommended that the Board include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC. +Audit Committee, +Carlos M. Sepulveda, Jr., Chair +David M. Laney +Steven W. Ohnimus +Michael C. Ryan +Vote Required +The affirmative vote of the holders of a majority of the shares of the Company’s voting securities represented in person or by proxy +at the Annual Meeting entitled to vote on such proposal is required for the ratification of the appointment of KPMG as the Company’s independent registered public accounting firm for the year ending December 31, 2014. If the shareholders +do not ratify the appointment of KPMG, the Audit Committee will consider whether to engage a different independent registered public accounting firm but will not be obligated to do so. Abstentions will have the effect as a vote cast against the +proposal. +The Board of Directors recommends that you vote FOR the ratification of the appointment of KPMG as the Company’s +independent registered public accounting firm for the year ending December 31, 2014. +30 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +In this compensation discussion and analysis, we discuss our compensation objectives, our decisions and the rationale behind those decisions relating to compensation for 2013 for our principal executive +officer, our principal financial officer and our other three most highly compensated executive officers. This compensation discussion and analysis provides a general description of our compensation program and specific information about its various +components. +Named Executive Officers +Throughout this discussion, the following individuals are referred to as the “Named Executive Officers” and are included in the Summary Compensation Table: +• +Joseph Wm. Foran, Chairman of the Board and Chief Executive Officer; +• +Matthew V. Hairford, President; +• +David E. Lancaster, Executive Vice President, Chief Operating Officer and Chief Financial Officer; +• +David F. Nicklin, Executive Director of Exploration; and +• +Ryan C. London, Vice President and General Manager. +Executive Summary +We are an independent energy company engaged in +the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays. Our current operations are focused primarily on the oil and +liquids-rich portion of the Eagle Ford shale play in South Texas and the Wolfcamp and Bone Spring plays in the Permian Basin in Southeast New Mexico and West Texas. We also operate in the Haynesville shale and Cotton Valley plays in Northwest +Louisiana and East Texas. In addition, we have a large exploratory leasehold position in Southwest Wyoming and adjacent areas of Utah and Idaho where we are testing the Meade Peak shale. +31 +Table of Contents +2013 Business Highlights +In 2013, our Company delivered record results as our oil and natural gas revenues, total oil production, average daily oil equivalent +production and Adjusted EBITDA were the highest in our Company’s history. Our Board has a “pay for performance” philosophy and recognizes the leadership of Mr. Foran and our executive officers in contributing to the +Company’s success in 2013. Highlights of our 2013 success are summarized below: +(1) +We define Adjusted EBITDA as earnings before interest expense, income taxes, depletion, depreciation and amortization, accretion of asset retirement obligations, +property impairments, unrealized derivative gains and losses, certain other non-cash items and non-cash stock-based compensation expense, and net gain or loss on assets sales and inventory impairment. Adjusted EBITDA is a non-GAAP financial measure. +For a reconciliation of Adjusted EBITDA to our net income (loss) and net cash provided by operating activities, see our Annual Report on Form 10-K for the year ended December 31, 2013. +Objectives of Our Compensation Program +Our future success and the ability to create long-term value for our shareholders depends on our ability to attract, retain and motivate highly qualified individuals in the oil and natural gas industry. +Additionally, we believe that our success also depends on the continued contributions of our Named Executive Officers. Our executive compensation program is designed to provide a comprehensive compensation program to meet the following objectives: +• +to be fair to both the executive and the Company; +• +to attract and retain talented and experienced executives with the skills necessary for us to execute our business plan; +• +to provide opportunities to achieve a total compensation level that is competitive with comparable positions at companies with which we may compete for +executives; +• +to align the interests of our executive officers with the interests of our shareholders and with the performance of our Company for long-term value +creation; +• +to provide financial incentives to our executives to achieve our key corporate and individual objectives; +• +to provide an appropriate mix of fixed and variable pay components to maintain a “pay-for-performance” oriented compensation program; +• +to foster a shared commitment among executives by coordinating their corporate and individual goals; +32 +Table of Contents +• +to provide compensation that takes into consideration the education, professional experience and knowledge that is specific to each job and the unique +qualities the executive possesses; and +• +to recognize an executive’s commitment and dedication in his job performance and in support of our culture. +What Our Compensation Program Is Designed to Reward +Our compensation program is designed to reward, in both the short-term and the long-term, performance that contributes to the implementation of our business strategies, maintenance of our culture and +values and the achievement of our objectives. In addition, we reward qualities that we believe help achieve our business strategies such as teamwork, individual performance in light of general economic and industry-specific conditions, relationships +with shareholders and vendors, the ability to manage and enhance production from our existing assets, the ability to explore new opportunities to increase oil and natural gas production, the ability to identify and acquire additional acreage, the +ability to increase year-over-year proved reserves, the ability to control unit production costs, level of job responsibility, industry experience and general professional growth. +How We Determined Each Element of 2013 Compensation +The Nominating, +Compensation and Planning Committee has engaged Pay Governance LLC as its independent executive compensation advisory firm. The Nominating, Compensation and Planning Committee has assessed the independence of Pay Governance LLC pursuant to +applicable SEC and NYSE rules and concluded that Pay Governance LLC’s engagement by the Nominating, Compensation and Planning Committee does not raise any conflict of interest. +For purposes of benchmarking executive compensation, Pay Governance LLC developed a list of recommended peer companies in the oil and +natural gas exploration and production sector with comparable revenue size (approximately $90 million to approximately $775 million), market capitalization (less than $1 billion to approximately $3.1 billion) and competitors, especially competitors +in the Eagle Ford shale due to our emphasis on the Eagle Ford shale in 2013. These companies and the rationale for their inclusion in our peer group were considered and approved by the Nominating, Compensation and Planning Committee and the +Independent Directors. The compensation peer companies are as follows (the “Peer Group”): +Abraxas Petroleum Corporation +Approach Resources Inc. +Bonanza Creek Energy, Inc. +Callon Petroleum Company +Carrizo Oil & Gas, Inc. +Clayton Williams Energy, Inc. +Comstock Resources, Inc. +Contango Oil & Gas Company +Goodrich Petroleum Corporation +Magnum Hunter Resources Corporation +Penn Virginia Corporation +Resolute Energy +Corporation +Rex Energy Corporation +Rosetta Resources Inc. +Mr. Foran was compared against the chief executive officer position of all 14 companies in the Peer +Group. Mr. Lancaster was compared against the average of the chief financial officer position and the second highest paid position based on annual cash compensation of the 14 companies in the Peer Group. Messrs. Hairford, Nicklin and London +were compared against the comparable positions of the Peer Group. The data regarding the peer comparison was based on information presented in their 2012 filings regarding compensation for the year ended December 31, 2011. +As an overall compensation philosophy for 2013, we increased Named Executive Officer base salaries to meet the +objective of having total compensation for the Named Executive Officers in approximately the 50 th percentile of the Peer Group. +33 +Table of Contents +Elements of Our 2013 Compensation Program and Why We Paid Each Element +For 2013, our management compensation program was comprised of the following four elements: +• +Base Salary. We paid base salary to compensate each executive for his assigned responsibilities, experience, leadership and expected future +contribution. +• +Performance-Based Cash Bonus. We adopted the Matador Resources Company Annual Incentive Plan for Management and Key Employees (the “Annual +Incentive Plan”) effective January 1, 2012 as part of our management compensation program because we believed this element of compensation (i) helps focus and motivate management to achieve key corporate and individual objectives by +rewarding the achievement of these objectives; (ii) helps retain management; (iii) rewards our successes over the prior year; and (iv) is necessary to be competitive from a total remuneration standpoint. +• +Equity Awards. We used stock options and restricted stock as the primary vehicles for (i) linking our long-term performance and increases +in shareholder value to the total compensation for our executive officers and (ii) providing competitive compensation to attract and retain our executive officers. +• +Benefits. We offered a variety of health and welfare programs to all eligible employees, including the Named Executive Officers other than +Mr. Nicklin. The health and welfare programs were intended to protect employees against catastrophic loss and encourage a healthy lifestyle. +Nominating, Compensation and Planning Committee +The Nominating, +Compensation and Planning Committee has the authority, at our expense, to retain and terminate independent third-party compensation consultants and other expert advisors. +In addition, the Nominating, Compensation and Planning Committee confirms at least annually that our incentive pay does not encourage unnecessary risk taking and reviews and discusses the relationship +between risk management policies and practices, corporate strategy and senior executive compensation. The Nominating, Compensation and Planning Committee considered, in establishing and reviewing our executive compensation program, whether the +program encourages unnecessary or excessive risk taking and has concluded that it does not. Several features of our program reflect sound risk management practices. Base salaries are fixed in amount and thus do not encourage risk taking. While our +bonuses are tied to management’s achievements during the previous fiscal year and may encourage the taking of short-term risks at the expense of long-term results, executives’ annual bonuses take into account multiple performance criteria +based on the executive’s individual performance and are within the discretion of the Independent Directors. The Nominating, Compensation and Planning Committee believes that our bonus awards appropriately balance risk and the desire to focus +executives on specific short-term goals important to the Company’s success, and that they do not encourage unnecessary or excessive risk taking. In addition, the Nominating, Compensation and Planning Committee believes that our current equity +compensation program provides an appropriate balance between the goals of increasing the price of our Common Stock and avoiding potential risks that could threaten our growth and stability due to the fact that stock options and service-based +restricted stock typically vest over three or four years. In addition, our Named Executive Officers hold performance-based restricted stock and restricted stock units granted in 2012 that vest based on our stock performance as compared to our peers +over a three-year period. +With regard to all of the Named Executive Officers, the Nominating, Compensation and Planning +Committee recommends to the Independent Directors: +• +option guidelines and size of overall grants; +• +option grants and other equity and non-equity related awards; and +• +limitations, restrictions and conditions upon any award as the Nominating, Compensation and Planning Committee deems appropriate and as permitted under +the applicable plan. +The Independent Directors are required to be independent pursuant to the listing +standards of the NYSE and the rules and regulations promulgated under the Exchange Act and Section 162(m) of the Code. +34 +Table of Contents +The Nominating, Compensation and Planning Committee annually reviews and makes +recommendations to the Independent Directors regarding the matters related to Mr. Foran’s compensation, including corporate goals and objectives applicable to Mr. Foran’s compensation. The Nominating, Compensation and Planning +Committee also evaluates Mr. Foran’s performance in light of these established goals and objectives at least annually. Based upon these evaluations, the Nominating, Compensation and Planning Committee makes recommendations to the +Independent Directors regarding Mr. Foran’s annual compensation, including salary, bonus and equity and non-equity incentive compensation. The Nominating, Compensation and Planning Committee reviews and recommends to the Independent +Directors with regard to Mr. Foran: +• +any employment agreement, severance agreement, change in control agreement or provision or separation agreement or amendment thereof; +• +any deferred compensation arrangement or retirement plan or benefits; and +• +any benefits and perquisites. +On an annual basis, after consultation with Mr. Foran, the Nominating, Compensation and Planning Committee reviews and makes recommendations to the Independent Directors on the evaluation process and +compensation structure for the other Named Executive Officers. After considering the evaluation and recommendations of Mr. Foran, the Nominating, Compensation and Planning Committee evaluates the performance of the other Named Executive +Officers and makes recommendations to the Independent Directors regarding the annual compensation of such Named Executive Officers, including salary, bonus and equity and non-equity incentive compensation. +After considering the recommendations of Mr. Foran with regard to the other Named Executive Officers, the Nominating, Compensation +and Planning Committee reviews and recommends to the Independent Directors regarding the other Named Executive Officers: +• +any employment agreement, severance agreement, change in control agreement or provision or separation agreement or amendment thereof; +• +any deferred compensation arrangement or retirement plan or benefits; and +• +any benefits and perquisites. +In addition, pursuant to its charter, the Nominating, Compensation and Planning Committee reviews and recommends to the Independent Directors any proposals for the adoption, amendment, modification or +termination of our incentive compensation, equity-based plans and non-equity based plans. +2013 Base Salary +In early 2013, based on the recommendations of Mr. Foran (other than with regard to his base salary), the Nominating, Compensation +and Planning Committee recommended and the Independent Directors approved the following 2013 base salaries for our Named Executive Officers: +Executive Officer +2013 Base +Salary +Joseph Wm. Foran +$ +600,000 +Chairman of the Board and Chief Executive Officer +Matthew V. Hairford +$ +330,000 +President +David E. Lancaster +$ +375,000 +Executive Vice President, +Chief Operating Officer and Chief Financial Officer +Ryan C. London +$ +260,000 +Vice President and General Manager +35 +Table of Contents +At the beginning of 2013, Mr. Hairford served as Executive Vice President of +Operations. He was elected President effective November 18, 2013 with Mr. Foran continuing as Chairman of the Board and Chief Executive Officer. +Although Mr. Nicklin is retained officially as an independent contractor, he serves as our Executive Director of Exploration and is included and treated as a Named Executive Officer. Mr. Nicklin +retired in 2000 as the Chief Geologist for ARCO and desires to maintain a measure of independence and flexibility in his schedule. Under this independent contractor arrangement, we are able to obtain the benefit of his experience and expertise. +Based on the recommendation of Mr. Foran, the Nominating, Compensation and Planning Committee and Independent Directors decided that, for 2013, Mr. Nicklin’s base rate would be $2,000 per day of which $250 will be deferred until the +end of his independent contractor agreement, provided that Mr. Nicklin’s engagement continues until that point. +The base salaries of the Named Executive Officers were set at the +50 th percentile of base compensation levels of the Peer +Group based on compensation set forth in the Peer Group’s 2012 proxy statements. +2013 Annual Incentive Compensation +Effective January 1, 2012, we adopted the Annual Incentive Plan, pursuant to which we may award Named Executive +Officers annual incentive compensation cash awards based on certain terms and conditions established by the Board. We set annual performance criteria each year for the Named Executive Officers based on the performance criteria that are set forth in +the Annual Incentive Plan (each, an “Annual Incentive Program”). Such criteria include financial, operational and strategic performance goals for the Company, Company performance measures and Company performance relative to peers. These +performance criteria have corresponding performance payment amounts that serve as guidelines for actual amounts to be paid based on the achievement of such performance criteria by each Named Executive Officer. +In addition to the annual performance criteria, in order to give the Nominating, Compensation and Planning Committee and the Independent +Directors flexibility, the Nominating, Compensation and Planning Committee has the discretion to make recommendations to the Independent Directors and the Independent Directors have the discretion to decide after the completion of each year to +decrease the amount of the payments relating to the corresponding performance criteria or to increase the amount of the payments to the Named Executive Officers. Any increase could be in response to unforeseen circumstances when the performance +criteria were set. Any such increase could be or not be based on the list of performance criteria set forth in the Annual Incentive Program and could be made irrespective of whether any payments were made based upon the performance criteria. +For 2013, the Chair of the Nominating, Compensation and Planning Committee met with Pay Governance LLC and management to +determine potential criteria for the 2013 Annual Incentive Program (the “2013 Incentive Program”). Based on these meetings, the Chair proposed certain preliminary performance criteria metrics for consideration by the Nominating, +Compensation and Planning Committee. The Nominating, Compensation and Planning Committee then met with Pay Governance and management to review the proposed criteria. As a result of these meetings, the Nominating, Compensation and Planning Committee +recommended and the Independent Directors determined to use the following performance criteria as guidelines: +• +Adjusted +EBITDA (1) growth for 2013 as compared to 2012; +• +reserves +growth (2) for 2013 as compared to 2012; +(1) +We define Adjusted EBITDA as earnings before interest expense, income taxes, depletion, depreciation and amortization, accretion of asset retirement obligations, +property impairments, unrealized derivative gains and losses, certain other non-cash items and non-cash stock-based compensation expense, and net gain or loss on assets sales and inventory impairment. Adjusted EBITDA is a non-GAAP financial measure. +(2) +Reserves growth was to be based on PV-10 at December 31, 2013, calculated using a prescribed natural gas price of $2.757 per MMBtu and a prescribed oil price of +$91.21 per Bbl, such commodity prices being the commodity prices used to determine the Company’s proved reserves and PV-10 at December 31, 2012. PV-10 is calculated by adding estimated future income taxes to the Standardized Measure of +discounted future net cash flows of our reserves. PV-10 is a non-GAAP financial measure. +36 +Table of Contents +• +increase in stock price for 2013 as compared to 2012; and +• +increase in oil production for 2013 as compared to 2012. +The Nominating, Compensation and Planning Committee and the Independent Directors determined that these four criteria were general measures of our performance and were the key criteria on which management +should focus during 2013. The Independent Directors established the threshold levels of the performance criteria as representing an achievable increase over 2012, the target levels as representing a considerable but reasonable increase over 2012 and +the maximum levels as representing an exceptional increase over 2012. Since the actual payments to be made under the 2013 Incentive Program were discretionary with the Independent Directors, there was no weighting among the performance criteria. +Below are the threshold, target and maximum performance criteria set for 2013, as well as the Company’s actual results. +2013 Incentive Program Metrics +Performance Metric +2012 Baseline +Threshold +Target +Maximum +2013 Actual +Adjusted EBITDA (1) +$116 million +$135 million +$150 million +$170 million +$191.8 million +Reserves Growth +$423 million +$500 million +$550 million +$600 million +$556 million (2) +Stock Price/Share +$8.20 +$10.00 +$12.00 +$14.00 +$18.64 +Oil Production +1.2 million Bbl +1.5 million Bbl +1.75 million Bbl +2.0 million Bbl +2.1 million Bbl +(1) +We define Adjusted EBITDA as earnings before interest expense, income taxes, depletion, depreciation and amortization, accretion of asset retirement obligations, +property impairments, unrealized derivative gains and losses, certain other non-cash items and non-cash stock-based compensation expense, and net gain or loss on assets sales and inventory impairment. Adjusted EBITDA is a non-GAAP financial measure. +For a reconciliation of Adjusted EBITDA to our net income (loss) and net cash provided by operating activities, see our Annual Report on Form 10-K for the year ended December 31, 2013. +(2) +This amount differs from the actual value of the Company’s estimated proved reserves at December 31, 2013 due to commodity prices at December 31, 2012 being +held constant at $2.757 per MMBtu for natural gas and $91.21 per Bbl for oil, solely for purposes of this 2013 Incentive Program calculation. +In making recommendations regarding the potential payment guidelines under the 2013 Incentive Program, Pay Governance LLC made recommendations regarding the target payment guidelines. The Nominating, +Compensation and Planning Committee reviewed the Pay Governance LLC recommendations regarding target payment guidelines as well as the recommendations of management regarding the threshold, target and maximum payment guidelines. Based on the review +of the Pay Governance recommendations and the management recommendations, which took into account the differing responsibilities of each Named Executive Officer by the Nominating, Compensation and Planning Committee and the Independent Directors, +the threshold, target and maximum payment guidelines set forth below were adopted. +Participant +Threshold +Annual +Incentive +Opportunity +as % of 2013 +Base +Salary +Target +Annual +Incentive +Opportunity +as % of 2013 +Base Salary +Maximum +Annual +Incentive +Opportunity +as % of 2013 +Base +Salary +Joseph Wm. Foran +38 +% +75 +% +100 +% +Chairman of the Board and Chief Executive Officer +Matthew V. Hairford +33 +% +67 +% +100 +% +President +David E. Lancaster +44 +% +74 +% +100 +% +Executive Vice President, Chief Operating Officer and Chief Financial Officer +David F. Nicklin (1) +29 +% +43 +% +85 +% +Executive Director of Exploration +Ryan C. London +25 +% +45 +% +75 +% +Vice President and General Manager +(1) +The target annual incentive opportunity, expressed in dollars, assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. +37 +Table of Contents +Pursuant to the 2013 Incentive Program, the amount of any annual award could have been +greater or less than the payment opportunity based on the performance criteria guidelines so long as the annual award did not exceed 200% of the Named Executive Officer’s annual base salary. +In early 2014, after reviewing the Company’s 2013 results compared to the financial and operational metrics set forth above, the +Nominating, Compensation and Planning Committee concluded that the Company had exceeded the maximum performance metrics for Adjusted EBITDA, stock price and oil production and had exceeded the target performance metric for reserves growth. +With regard to each Named Executive Officer, after taking into account the performance criteria guidelines, the +Company’s 2013 results and other information with regard to such Named Executive Officer, the Nominating, Compensation and Planning Committee recommended to the Independent Directors that the Named Executive Officers be paid annual cash awards +as set forth below, and the Independent Directors approved such annual cash awards. The Independent Directors exercised their discretion in awarding the amounts of annual cash awards under the 2013 Incentive Program set forth below. Since the actual +payments to be made under the 2013 Incentive Program were discretionary with the Independent Directors, there was no formulaic calculation nor weighting among the performance criteria by the Independent Directors. The Nominating, Compensation and +Planning Committee recommended, and the Independent Directors determined, that Mr. Foran should receive a cash award equal to his Maximum Annual Incentive Opportunity due to the Company’s growth in 2013, particularly in its stock price per +share which increased from $8.20 at December 31, 2012 to $18.64 at December 31, 2013. All awards made pursuant to the 2013 Incentive Program were cash awards and were paid to the Named Executive Officers in the first quarter of 2014. As a +result of our 2013 performance, in February 2014, the Nominating, Compensation and Planning Committee recommended, and the Independent Directors awarded, one-time equity grants to our Named Executive Officers in addition to the cash awards under the +2013 Incentive Program and in addition to the traditional annual equity awards to the Named Executive Officers that were granted in March 2014. The Nominating, Compensation and Planning Committee and Independent Directors determined to make such +awards in lieu of higher 2013 Incentive Program awards and believe such awards will serve to further align our Named Executive Officers’ long-term interests with the interests of our shareholders. +Executive Officer +2013 +Incentive +Program +Compensation +% of 2013 +Base +Salary +Joseph Wm. Foran +$ +600,000 +100.0 +% +Chairman of the Board and President +Matthew V. Hairford +$ +250,000 +75.8 +% +President +David E. Lancaster +$ +225,000 +60.0 +% +Executive Vice President, Chief Operating Officer and Chief Financial Officer +David F. Nicklin +$ +200,000 +57.1 +% +Executive Director of Exploration +Ryan C. London +$ +180,000 +69.2 +% +Vice President and General Manager +38 +Table of Contents +2013 Long-Term Incentive Compensation +Effective January 1, 2012, the Board adopted the 2012 Long-Term Incentive Plan (the “2012 Plan”). This plan permits the +granting of long-term equity and cash incentive awards, including the following: +• +stock options; +• +stock appreciation rights; +• +restricted stock (service-based and performance-based); +• +restricted stock units (service-based and performance-based); +• +performance shares; +• +performance units; +• +stock grants; and +• +performance cash awards. +After receiving recommendations from the Nominating, Compensation and Planning Committee, the Independent Directors administer the 2012 Plan. For 2013, the Nominating, Compensation and Planning Committee +met with Pay Governance LLC and management regarding the appropriate types and amounts of equity grants based on differing levels of responsibility of the Named Executive Officers and made recommendations to the Independent Directors. Based on this +discussion, non-qualified stock options and restricted stock were granted to each Named Executive Officer. +The stock options +have a five-year term, vest 50% on the second and 50% on the fourth anniversaries of the grant date if the Named Executive Officer is still employed by us on the vesting dates, and have an exercise price of $8.21 per share with respect to Messrs. +Foran, Hairford, Lancaster and Nicklin and $8.18 per share with respect to Mr. London, whose grant occurred on a different date. The restricted stock vests 100% on the fourth anniversary of the grant date if the Named Executive Officer is still +employed by us on the vesting date. During the restricted period prior to vesting of the restricted stock, the Named Executive Officer will be eligible to receive dividends on and vote the restricted stock. The stock options and restricted stock +were granted in order to facilitate retention of our Named Executive Officers and provide a reward for positive future results. +The approximate value of the 2013 equity grants as a percentage of 2013 base salary and the number of shares underlying each grant are +set forth in the table below: +Participant +% of 2013 +Base +Salary +Stock +Options +Restricted Stock +Joseph Wm. Foran +164% +175,000 +40,000 +Chairman of the Board and Chief Executive Officer +Matthew V. Hairford +195% +117,500 +25,000 +President +David E. Lancaster +190% +125,000 +30,000 +Executive Vice President, Chief Operating Officer and Chief Financial Officer +David F. Nicklin +78% (1) +40,000 +15,000 +Executive Director of Exploration +Ryan C. London +117% +39,000 +19,500 +Vice President and General Manager +(1) +The value assumes that Mr. Nicklin works 200 days per year at the daily rate of $1,750 per day. +39 +Table of Contents +Benefits +We offer a variety of health and welfare programs to all eligible employees, including the Named Executive Officers other than Mr. Nicklin. The health and welfare programs are intended to protect +employees against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical, pharmacy, dental, disability and life insurance. We also have a 401(k) plan for all full time employees, including the Named +Executive Officers, other than Mr. Nicklin, in which we contribute 3% of the employee’s base salary and have the discretion to contribute up to an additional 4% of the employee’s base salary as a dollar-for-dollar match of his or her +elective deferral contributions. The discretionary dollar-for-dollar match is subject to vesting based upon years of service to the Company. In addition, we provide long-term care insurance for certain of our executive officers. +How Elements of Our Compensation Program Are Related to Each Other +We view the various components of compensation as related but distinct with generally a significant portion of total compensation reflecting “pay for performance.” We do not have any formal or +informal policies or guidelines for allocating compensation between long-term and currently paid out compensation or between cash or non-cash compensation. +Accounting and Tax Considerations +Under Section 162(m) of the +Code, a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1.0 million in any taxable year, unless the compensation is performance-based. However, +due to the transition rules of Section 162(m), the $1.0 million deduction limit has not applied to us and is not intended to apply to us until the third calendar year following our initial public offering, which occurred in February 2012. +Termination of Employment Arrangements and Independent Contractor Agreement +Employment Agreements and Independent Contractor Agreement +As described under “Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table,” in contemplation of our initial public offering, on August 9, 2011, we entered +into employment agreements with Messrs. Foran, Hairford and Lancaster and an independent contractor agreement with Mr. Nicklin and his consulting company. In March 2014, we entered into an employment agreement with Mr. London in +substantially the same form as that of Messrs. Foran, Hairford and Lancaster. The principal difference in Mr. London’s employment agreement as compared to the employment agreement of Messrs. Foran, Hairford and Lancaster is that +Mr. London’s agreement does not include a “modified single trigger” that would have allowed him to receive a “change in control” payment if he terminated his agreement without “good reason” within 30 days +prior to or 12 months after a change in control. +Under the employment agreements, if one of the following occurs: +• +the Named Executive Officer dies; +• +the Named Executive Officer is totally disabled; +• +we mutually agree to end the employment agreement; +• +we dissolve and liquidate; or +• +the term of the employment agreement ends, +we will pay the Named Executive Officer the average of his annual bonus, which includes non-equity incentive compensation, for the prior two years pro-rated based on the number of complete or partial +months completed during the year of termination. +40 +Table of Contents +Also, under the employment agreements, if one of the following occurs: +• +the Named Executive Officer is terminated other than (i) as set forth above, (ii) by us for just cause, or (iii) in connection with a +“change in control” as described below; or +• +the Named Executive Officer terminates his employment for “good reason,” +if the Named Executive Officer is Mr. Foran, we will pay him twice his base salary and twice the average of his annual bonus for the prior two +years; if the Named Executive Officer is Messrs. Hairford, Lancaster or London we will pay him 1.5 times his base salary and 1.5 times the average of his annual bonus for the prior two years. +Finally, under the employment agreements of Messrs. Foran, Hairford and Lancaster, upon a “change in control” and within 30 +days prior to the “change in control” or within 12 months after the “change in control,” if we terminate a Named Executive Officer without just cause or the Named Executive Officer terminates his employment with or without +“good reason,” we will pay him three times his base salary and three times the average of his annual bonus for the prior two years. These agreements were entered into prior to our initial public offering. At that time, we believed a +“single trigger” or “modified single trigger” was appropriate given the Company’s size, early stage of development and strong growth aspirations. The agreement entered into with Mr. London in March 2014, however, includes a +“double trigger” such that upon a “change in control” and within 30 days prior to the “change in control” or within 12 months after the “change in control,” if we terminate him without just cause or he +terminates his employment with “good reason,” we will make the same required payments. In addition, if Messrs. Foran, Hairford, Lancaster or London are terminated or terminate their employment as set forth above in connection with a +“change in control,” all equity awards of such Named Executive Officer vest immediately prior to such termination. +“Change in control” is defined under Section 409A of the Code as follows: +• +a change in ownership of the Company occurs on the date that, except in certain situations, results in someone acquiring more than 50% of the total +fair market value or voting power of the Company’s stock; +• +a change in effective control of the Company occurs on one of the following dates: +• +the date that a person acquires (or has acquired in a 12 month period) ownership of 30% or more of the Company’s total voting power; however, if a +person already owns at least 30% of the Company’s total voting power, the acquisition of additional control does not constitute a change in control; or +• +the date during a 12 month period where a majority of the Company’s Board is replaced by directors whose appointment or election was not endorsed +by a majority of the Board; or +• +a change in the ownership of a substantial portion of the Company’s assets occurs on the date a person acquires (or has acquired in a 12 month +period) assets of the Company having a total gross market value of at least 40% of the total gross fair market value of all of the Company’s assets immediately before such acquisition. +For purposes of the employment agreements, “good reason” means: +• +the assignment of duties inconsistent with the title of the Named Executive Officer or his current office or a material diminution of the Named +Executive Officer’s current authority, duties or responsibilities; +• +a diminution of the Named Executive Officer’s base salary or a material breach of the employment agreement by the Company; or +• +the relocation of the Company’s principal executive offices more than 30 miles from the Company’s present principal executive offices or the +transfer of the Named Executive Officer to a place other than the Company’s principal executive offices; and +• +the action causing the “good reason” is not cured within the applicable cure period. +For purposes of the employment agreements, “just cause” means: +• +the Named Executive Officer’s continued and material failure to perform the duties of his employment consistent with his position other than due +to disability; +41 +Table of Contents +• +the Named Executive Officer’s failure to perform his material obligations under the employment agreement other than due to disability; +• +the Named Executive Officer’s material breach of the Company’s written policies concerning discrimination, harassment or securities trading; +• +the Named Executive Officer’s refusal or failure to follow lawful directives of the Board and any supervisors other than due to disability; +• +the Named Executive Officer’s commission of fraud, theft or embezzlement; +• +the Named Executive Officer’s conviction or indictment of a felony or other crime involving moral turpitude; or +• +the Named Executive Officer’s intentional breach of fiduciary duty; and +• +the action causing the “just cause” is not cured within the applicable cure period, if any. +Under Mr. Nicklin’s independent contractor agreement, if one of the following occurs: +• +he dies; +• +he is totally disabled; +• +we mutually agree to end the independent contractor agreement; +• +we dissolve and liquidate; or +• +the term of the independent contractor agreement ends, +we must pay his consulting company (i) the average of the annual bonus paid to the consulting company for the prior two years pro-rated based on the number of complete or partial months completed +during the year of termination and (ii) all accrued and vested compensation under our incentive plans. In addition, if Mr. Nicklin dies or is totally disabled during the three-year term of the independent contractor agreement, his +consulting company will be paid $250 per day that Mr. Nicklin consulted for us during the term of the independent contractor agreement. +Also, under the independent contractor agreement, if one of the following occurs: +• +the independent contractor agreement is terminated by us for a reason other than as set forth above or in connection with a “change in +control” as described below; or +• +he terminates the independent contractor agreement for “good reason” (as described in connection with the employment agreements set forth +above), +we must pay an amount equal to $1,000 per full business day that Mr. Nicklin consulted for us during the prior +twelve months of the term of the independent contractor agreement plus accrued and vested compensation under our equity plans. +Finally, under the independent contractor agreement, upon a “change in control” (as described in connection with the employment +agreements set forth above) and within 30 days prior to the “change in control” or within 12 months after the “change in control,” if we terminate Mr. Nicklin’s independent contractor arrangement without “just +cause” (as described in connection with the employment agreements set forth above) or Mr. Nicklin terminates his independent contractor agreement with or without “good reason” (as described in connection with the employment +agreements set forth above), we will pay an amount equal to two times the aggregate amount paid based on the daily rate during the prior twelve months plus accrued and vested compensation under our equity plans. +42 +Table of Contents +Equity Plans +The 2003 Stock and Incentive Plan (the “2003 Plan”) provides that all awards automatically vest upon a “change in control.” For equity grants under the 2012 Plan, vesting upon a +“change in control” for Messrs. Foran, Hairford and Lancaster mirrors the terms of their employment agreements. For Mr. Nicklin, and for Mr. London with respect to equity grants made prior to March 2014, for equity grants under +the 2012 Plan, vesting occurs if within 12 months after a “change in control” the Named Executive Officer is terminated without “just cause” (as defined above) or terminates his employment with “good reason” (as defined +above other than with respect to relocation). For Mr. London, with respect to equity grants made in March 2014 or later under the 2012 Plan, vesting upon a “change in control” mirrors the terms of his employment agreement. +For the 2003 Plan, see the definition of “change in control” below in the section “—Potential Payments upon +Termination or Change in Control.” +The “change in control” provisions in the employment agreements, +independent contractor agreement and the equity grants under the 2012 Plan and the 2003 Plan help prevent management from being distracted by rumored or actual changes in control. The “change in control” provisions provide: +• +incentives for those Named Executive Officers to remain with us despite the uncertainties of a potential or actual change in control; +• +assurance of severance payments for terminated Named Executive Officers; and +• +access to equity compensation after a change in control. +Stock Ownership Guidelines +We have adopted stock ownership +guidelines for the following officers and designated amounts: +• +Chairman and Chief Executive Officer—shares equal to five times base salary; +• +President—shares equal to five times base salary; +• +Executive Vice Presidents—shares equal to two and +1 / 2 times base salary; and +• +Vice Presidents and Executive Directors—shares equal to one and +1 / 2 times base salary. +Each of the foregoing officers has +five years from the later of the date of the closing of our initial public offering and the fifth anniversary of his or her appointment as an officer of the Company in which to achieve the stock ownership position. Shares which will count toward the +stock ownership guidelines include time-lapse restricted stock that are still restricted and any shares held in trust by the officer or his immediate family over which he has direct beneficial ownership interest. Shares which will not count toward +the stock ownership guidelines include shares underlying unexercised stock options, unexercised stock appreciation rights and performance-based awards for which the performance requirements have not been satisfied. Messrs. Foran, Hairford, +Lancaster, Nicklin and London each owns shares in excess of the minimum requirement set forth in the stock ownership guidelines. +At its July 2013 meeting, the Corporate Governance Committee recommended, and the Board subsequently adopted, a revised insider trading policy that prohibits hedging of the Company’s securities by +directors, officers or employees. The revised insider trading policy also restricts directors and executive officers from pledging more than 25% of his or her holdings of the Company’s stock without the prior written consent of the Corporate +Governance Committee. +43 +Table of Contents +Nominating, Compensation and Planning Committee Report +We have reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and +based on such review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. +Nominating, Compensation and Planning Committee +David M. Laney, +Chair +Stephen A. Holditch +Michael C. Ryan +Margaret B. Shannon +44 +Table of Contents +Summary Compensation Table +The following table summarizes the total compensation awarded to, earned by or paid to Messrs. Foran, Hairford, Lancaster, Nicklin and +London for 2013, 2012 and 2011. This table and the accompanying narrative should be read in conjunction with the Compensation Discussion and Analysis, which sets forth the objectives and other information regarding our executive compensation +program. +Name and Principal Position +Year +Salary +Bonus +Stock +Awards +(1) +Option +Awards +(2) +Non-Equity +Incentive +Plan +Compensation (3) +All Other +Compensation +Total +Joseph Wm. Foran +2013 +$ +600,000 +$ +— +$ +328,400 +$ +652,750 +$ +600,000 +$ +19,818 +(4) +$ +2,200,968 +Chairman of the Board and +Chief Executive Officer +2012 +$ +550,000 +$ +— +$ +475,834 +$ +455,581 +$ +330,000 +$ +18,471 +(5) +$ +1,829,886 +2011 +$ +240,000 +$ +650,000 +$ +— +$ +— +$ +— +$ +18,019 +(6) +$ +908,019 +Matthew V. Hairford +2013 +$ +330,000 +$ +— +$ +205,250 +$ +438,275 +$ +250,000 +$ +18,826 +(7) +$ +1,242,351 +President +2012 +$ +300,000 +$ +— +$ +192,806 +$ +184,600 +$ +200,000 +$ +17,500 +(8) +$ +894,906 +2011 +$ +242,917 +$ +270,000 +$ +— +$ +— +$ +— +$ +17,150 +(8) +$ +530,067 +David E. Lancaster +2013 +$ +375,000 +$ +— +$ +246,300 +$ +466,250 +$ +225,000 +$ +17,850 +(8) +$ +1,330,400 +Executive Vice President, +Chief Operating Officer +and Chief Financial Officer +2012 +$ +340,000 +$ +— +$ +252,131 +$ +241,400 +$ +200,000 +$ +17,500 +(8) +$ +1,051,031 +2011 +$ +248,333 +$ +390,000 +$ +— +$ +— +$ +— +$ +17,150 +(8) +$ +655,483 +David F. Nicklin +2013 +$ +415,625 +(9) +$ +— +$ +123,150 +$ +149,200 +$ +200,000 +$ +— +$ +887,975 +Executive Director +2012 +$ +402,500 +(9) +$ +— +$ +181,687 +$ +173,950 +$ +150,000 +$ +— +$ +908,137 +of Exploration +2011 +$ +320,750 +(10) +$ +125,000 +$ +— +$ +— +$ +— +$ +— +$ +445,750 +Ryan C. London +2013 +$ +260,000 +$ +— +$ +159,510 +$ +143,520 +$ +180,000 +$ +18,530 +(11) +$ +761,560 +Vice President and +2012 +(12) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +General Manager +2011 +(12) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +(1) +Reflects the grant date fair value of service-based restricted stock and performance-based restricted stock and restricted stock units computed in accordance with FASB +ASC Topic 718. The grant date fair value of the performance-based awards granted in 2012 was estimated based on the most likely outcome of the performance-based awards as determined using the Monte Carlo method. This is the amount that will be +expensed for these awards, regardless of the actual number of shares of Common Stock, if any, that will ultimately be issued to the recipients of the awards, provided that the requisite service is furnished. +(2) +Reflects the grant date fair value of option awards computed in accordance with FASB ASC Topic 718. Our policy and assumptions made in the valuation of the stock +options are contained in Note 2 and Note 8 of the audited financial statements included in our Annual Report on 10-K for the year ended December 31, 2013. +(3) +Represents awards pursuant to the 2013 and 2012 Incentive Programs, respectively. +(4) +Consists of $17,850 in 401(k) matching contributions as described in “—Compensation Discussion and Analysis—Benefits,” $1,318 in premiums reimbursed +to Mr. Foran for a disability policy covering Mr. Foran and $650 in long-term care insurance premiums. +(5) +Consists of $17,500 in 401(k) matching contributions as described in “—Compensation Discussion and Analysis—Benefits” and $971 in premiums +reimbursed to Mr. Foran for a disability policy covering Mr. Foran. +(6) +Consists of $17,150 in 401(k) matching contributions as described in “—Compensation Discussion and Analysis—Benefits” and $869 in premiums +reimbursed to Mr. Foran for a disability policy covering Mr. Foran. +(7) +Consists of $17,850 in 401(k) matching contributions as described in “—Compensation Discussion and Analysis—Benefits” and $976 in long-term care +insurance premiums. +(8) +Consists of 401(k) matching contributions as described in “—Compensation Discussion and Analysis—Benefits.” +(9) +Based on the aggregate amount of payments made to Mr. Nicklin under his independent contractor agreement as determined by his base rate of $1,750 per day. +(10) +Based on the aggregate amount of payments made to Mr. Nicklin under his independent contractor agreement as determined by his base rate of $1,500 per day from +January 1, 2011 through November 30, 2011 and $1,750 per day for December 2011. +(11) +Consists of $17,850 in 401(k) matching contributions as described in “—Compensation Discussion and Analysis—Benefits” and $680 in long-term care +insurance premiums. +(12) +Mr. London was not a Named Executive Officer in 2012 or 2011. +45 +Table of Contents +Grants of Plan-Based Awards Table +The following table sets forth certain information regarding non-equity awards granted by the Company pursuant to the 2013 Incentive +Program and stock and option awards granted by the Company pursuant to the 2012 Plan during the year ended December 31, 2013 to the Named Executive Officers below: +Estimated Future +Payouts +Under Non-Equity Incentive +Plan +Awards (1) +All +Other +Stock +Awards: +Number +of Shares +of Stock +or Units +All +Other +Option +Awards: +Number of +Securities +Underlying +Options +Exercise +or +Base +Price of +Option +Awards +Grant +Date +Fair +Value of +Stock and +Option +Awards +Threshold +Target +Maximum +Name +Grant Date +($) +($) +($) +(# shares) +(# shares) +($/share) +($) +Joseph Wm. Foran +3/8/2013 +228,000 +450,000 +600,000 +40,000 +175,000 +8.21 +981,150 +Matthew V. Hairford +3/8/2013 +108,900 +221,100 +330,000 +25,000 +117,500 +8.21 +643,525 +David E. Lancaster +3/8/2013 +165,000 +277,500 +375,000 +30,000 +125,000 +8.21 +712,550 +David F. Nicklin +3/8/2013 +101,500 +150,500 +297,500 +15,000 +40,000 +8.21 +272,350 +Ryan C. London +3/12/2013 +65,000 +117,000 +195,000 +19,500 +39,000 +8.18 +303,030 +(1) +See “— Compensation Discussion and Analysis — 2013 Annual Incentive Compensation” and “— Summary Compensation Table — Non-Equity +Incentive Plan Compensation” regarding the actual payments made to the Named Executive Officers pursuant to the 2013 Incentive Program. +Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table +On August 9, 2011, we entered into employment agreements with Messrs. Foran, Lancaster and Hairford and an independent contractor agreement with Mr. Nicklin. On March 13, 2014, we entered +into an employment agreement with Mr. London. The principal difference in Mr. London’s employment agreement as compared to the employment agreement of Messrs. Foran, Hairford and Lancaster is that Mr. London’s agreement does +not include a “modified single trigger” that would have allowed him to receive a “change in control” payment if he terminated his agreement without “good reason” within 30 days prior to or 12 months after a change in +control. +Mr. Foran . His employment agreement extends for a twenty-four month term which automatically renews each +month for an additional month unless either the Company or Mr. Foran gives written notice that the term will no longer be extended. For 2013, his base salary was $600,000. Effective January 1, 2014, his base salary is $750,000, and he is +eligible to participate in the 2014 Incentive Program and receive awards pursuant to the 2012 Plan. See “— Compensation Discussion and Analysis — Termination of Employment Arrangements and Independent Contractor Agreement — +Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Foran upon termination of his employment and/or a “change in control.” +Mr. Hairford . His employment agreement extends for an eighteen month term which automatically renews each month for an +additional month unless either the Company or Mr. Hairford gives written notice that the term will no longer be extended. For 2013, his base salary was $330,000. Effective January 1, 2014, his base salary is $450,000, and he is eligible to +participate in the 2014 Incentive Program and receive awards pursuant to the 2012 Plan. See “— Compensation Discussion and Analysis — Termination of Employment Arrangements and Independent Contractor Agreement — Employment +Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Hairford upon termination of his employment and/or a “change in control.” Mr. Hairford was elected President of the Company effective +November 18, 2013. +Mr. Lancaster . His employment agreement extends for an eighteen month term which +automatically renews each month for an additional month unless either the Company or Mr. Lancaster gives written notice that the term will no longer be extended. For 2013, his base salary was $375,000. Effective January 1, 2014, his base +salary is $400,000, and he is eligible to participate in the 2014 Incentive Program and receive awards pursuant to the 2012 Plan. See “— Compensation Discussion and Analysis — Termination of Employment Arrangements +46 +Table of Contents +and Independent Contractor Agreement — Employment Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Lancaster upon termination of his +employment and/or a “change in control.” +Mr. Nicklin . His independent contractor agreement extends for +a thirty-six month term. For 2013, the daily rate was $1,750 per day that Mr. Nicklin consulted for us. If the independent contractor agreement remains in effect until the end of the thirty-six month term expiring in August 2014, we will pay +Mr. Nicklin an additional $250 per day that he consulted for us during the term of the agreement. For 2014, our arrangement with Mr. Nicklin remains the same. In addition, Mr. Nicklin, through his consulting company, is eligible to +participate in the 2014 Incentive Program and receive awards pursuant to the 2012 Plan. See “— Compensation Discussion and Analysis — Termination of Employment Arrangements and Independent Contractor Agreement — Employment +Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. Nicklin’s consulting company upon termination of the independent contractor agreement and/or a “change in control.” +Mr. London . His employment agreement extends for an eighteen month term which automatically renews each month for an +additional month unless either the Company or Mr. London gives written notice that the term will no longer be extended. For 2013, his base salary was $260,000. Effective January 1, 2014, his base salary is $375,000, and he is eligible to +participate in the 2014 Incentive Program and receive awards pursuant to the 2012 Plan. See “— Compensation Discussion and Analysis — Termination of Employment Arrangements and Independent Contractor Agreement — Employment +Agreements and Independent Contractor Agreement” regarding the payments to be made to Mr. London upon termination of his employment and/or a “change in control.” +Non-Equity Incentive Plan Compensation. See “— Compensation Discussion and Analysis — 2013 Annual Incentive +Compensation” regarding the 2013 Incentive Program compensation goals, threshold, target and maximum potential payments and actual payments. +Long-Term Incentive Compensation . See “— Compensation Discussion and Analysis — 2013 Long-Term Incentive Compensation” regarding 2013 long-term incentive compensation. +General . Base salary and the amount of cash bonuses, including non-equity awards granted by the Company pursuant to +the 2013 Incentive Program, paid for 2013 represented from approximately 45% to approximately 69% of the Named Executive Officers’ total compensation as represented in the Summary Compensation Table with the percentages being as follows: +Mr. Foran—54.5%; Mr. Hairford—46.7%; Mr. Lancaster—45.1%; Mr. Nicklin—69.3%; and Mr. London—57.8%. +47 +Table of Contents +Outstanding Equity Awards at December 31, 2013 +The following table summarizes the total outstanding option awards at December 31, 2013 for each Named Executive Officer: +Option Awards +Name +Number of +Securities +Underlying +Unexercised +Stock +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Stock +Options (#) +Unexercisable +Option +Exercise +Price +Option +Expiration +Date +Joseph Wm. Foran +— +80,208 +$ +10.49 +4/15/17 +— +175,000 +$ +8.21 +3/7/18 +Matthew V. Hairford +7,500 +2,500 +$ +9.00 +2/21/20 +— +32,500 +$ +10.49 +4/15/17 +— +117,500 +$ +8.21 +3/7/18 +David E. Lancaster +11,250 +3,750 +$ +9.00 +2/21/20 +— +42,500 +$ +10.49 +4/15/17 +— +125,000 +$ +8.21 +3/7/18 +David F. Nicklin +7,500 +2,500 +$ +9.00 +2/21/20 +— +30,625 +$ +10.49 +4/15/17 +— +40,000 +$ +8.21 +3/7/18 +Ryan C. London +7,500 +2,500 +$ +9.00 +2/21/20 +— +18,750 +$ +10.49 +4/15/17 +— +39,000 +$ +8.18 +3/11/18 +The following table provides the vesting dates at December 31, 2013 for unvested stock options: +Vesting Date +Joseph Wm. +Foran +Matthew V. +Hairford +David E. +Lancaster +David F. +Nicklin +Ryan C. +London +2/22/14 +— +2,500 +3,750 +2,500 +2,500 +4/16/14 +40,104 +16,250 +21,250 +15,312 +9,375 +3/8/15 +87,500 +58,750 +62,500 +20,000 +— +3/12/15 +— +— +— +— +19,500 +4/16/16 +40,104 +16,250 +21,250 +15,313 +9,375 +3/8/17 +87,500 +58,750 +62,500 +20,000 +— +3/12/17 +— +— +— +— +19,500 +Total Unvested Stock Options +255,208 +152,500 +171,250 +73,125 +60,250 +48 +Table of Contents +The following table summarizes the total outstanding stock awards at December 31, 2013 +for each Named Executive Officer: +Stock Awards +Name +Number of +Shares or +Units of +Stock That +Have Not +Vested (#) +Market Value of +Shares +or Units of +Stock That Have +Not Vested +Number of +Unearned +Shares, Units +or Other +Rights That +Have Not +Vested (#) (1) +Market or +Payout Value +of +Unearned +Shares, Units +or +Other Rights +That Have +Not Vested (1) +Joseph Wm. Foran +60,052 +$ +1,119,369 +10,026 +$ +186,885 +Matthew V. Hairford +33,125 +$ +617,450 +4,062 +$ +75,716 +David E. Lancaster +40,625 +$ +757,250 +5,312 +$ +99,016 +David F. Nicklin +22,657 +$ +422,326 +3,828 +$ +71,354 +Ryan C. London +24,188 +$ +450,864 +2,344 +$ +43,692 +(1) +Represents performance-based shares and units granted in April 2012 that vest depending upon the percentile rank of the Company’s Common Stock within a specified +peer group based upon the annualized total equivalent shareholder return from March 19, 2012 to April 15, 2015. The performance-based shares vest up to 100% of the shares granted. Any amounts above 100% up to 200% of the shares granted consist of +the performance-based restricted stock units, which will vest and be converted into a corresponding number of shares of Common Stock, subject to the Company meeting certain performance criteria. The number of performance-based shares or units listed +herein, and the market value thereof, represents the threshold number of shares, or 50%, that could be issued under this award. The number of shares that would have been issued based on the performance criteria as measured on December 31, 2013 was +200% of the shares granted. +The following table provides the vesting dates at December 31, 2013 for +restricted stock and restricted stock units: +Vesting Date +Joseph Wm. +Foran +Matthew V. +Hairford +David E. +Lancaster +David F. +Nicklin +Ryan C. +London +4/16/14 +10,026 +4,062 +5,312 +3,828 +2,344 +3/8/15 +20,000 +12,500 +15,000 +7,500 +— +3/12/15 +— +— +— +— +9,750 +4/16/15 (1) +10,026 +4,062 +5,312 +3,828 +2,344 +4/16/16 +10,026 +4,063 +5,313 +3,829 +2,344 +3/8/17 +20,000 +12,500 +15,000 +7,500 +— +3/12/17 +— +— +— +— +9,750 +Total Unvested Shares and Units +70,078 +37,187 +45,937 +26,485 +26,532 +(1) +The restricted stock and restricted stock units vesting on this date are performance-based shares or units. The performance-based shares vest up to 100% of the shares +granted. Any amounts above 100% up to 200% of the shares granted consist of the performance-based restricted stock units, which will vest and be converted into a corresponding number of shares of Common Stock, subject to the Company meeting certain +performance criteria. The number of performance-based shares or units listed herein represents the threshold number of shares, or 50%, that could be issued under this award. The number of shares that would have been issued based on the performance +criteria as measured on December 31, 2013 was 200% of the shares granted. +Potential Payments Upon +Termination or Change in Control +2003 Plan +All equity awards granted to Named Executive Officers under the 2003 Plan vest upon a change in control. A “change in control” occurs upon any of the following events: +• +any person (or group of persons acting in concert), other than the Company or an affiliate, becomes the beneficial owner, directly or indirectly, of +voting securities representing 30% or more of the voting power of our then outstanding voting securities (with the threshold percentage being increased, not to exceed 50% for the beneficial owners of our voting securities for whom Wellington +Management Company, LLP serves as an investment advisor if those owners are deemed to be a “group” for this purpose); +49 +Table of Contents +• +our Board ceases to consist of a majority of continuing directors; where “continuing director” means a member of the Board who was either +(i) a member of the Board at October 31, 2008 or (ii) nominated, appointed or approved (following nomination by our shareholders), to serve as a director by a majority of the then continuing directors; +• +our shareholders approve (i) any consolidation or merger with us or any subsidiary that results in the shareholders immediately prior to the +consolidation or merger holding less than a majority ownership interest in the outstanding voting securities of the surviving entity, (ii) any sale, lease, exchange or other transfer of all or substantially all of our assets or (iii) any +plan or proposal for our liquidation or dissolution; or +• +our shareholders accept a share exchange in which our shareholders immediately before such share exchange do not hold, immediately following such share +exchange, the total voting securities of the surviving entity in substantially the same proportion as held before the share exchange. +2012 Plan +Equity awards under the 2012 Plan vest upon a +“change in control” for Messrs. Foran, Hairford and Lancaster according to the terms of their employment agreements described below. For Mr. Nicklin, and for Mr. London with respect to equity awards outstanding as of December 31, +2013, vesting occurs for all equity awards other than performance-based awards if within 12 months after a “change in control” such officer is terminated without “just cause” or terminates his employment with “good +reason.” For performance-based awards, vesting occurs following a “change in control” as described above with respect to performance shares, but not performance-based restricted stock units. The definitions of “change in +control,” “just cause” and “good reason” are consistent with the definitions of such terms (except for the definition of “good reason” which excludes relocation of the Company’s principal executive offices) as +defined in the employment agreements and independent contractor agreement described in “— Compensation Discussion and Analysis — Termination of Employment Arrangements and Independent Contractor Agreement — Employment Agreements +and Independent Contractor Agreement.” +Employment Agreements and Independent Contractor Agreement +As described under “Discussion Regarding Summary Compensation Table and Grants of Plan-Based Awards Table,” in contemplation of +our initial public offering, on August 9, 2011, we entered into employment agreements with Messrs. Foran, Hairford and Lancaster and an independent contractor agreement with Mr. Nicklin and his consulting company. In addition, on +March 13, 2014, we entered into an employment agreement with Mr. London. The principal difference in Mr. London’s employment agreement as compared to the employment agreement of Messrs. Foran, Hairford and Lancaster is that +Mr. London’s agreement does not include a “modified single trigger” that would have allowed him to receive a “change in control” payment if he terminated his agreement without “good reason” within 30 days +prior to or 12 months after a change in control. Pursuant to the terms of the employment agreements and independent contractor agreement, we may be required to make certain payments to one or more of our Named Executive Officers upon the occurrence +of certain events resulting in such Named Executive Officer’s termination. For a detailed description of the events that may trigger such payments, see “— Compensation Discussion and Analysis — Termination of Employment +Arrangements and Independent Contractor Agreement — Employment Agreements and Independent Contractor Agreement.” +The employment agreements and the independent contractor agreement each contain a non-disclosure of confidential information provision +that requires each Named Executive Officer to maintain, both during and after employment, the confidentiality of information used by such Named Executive Officer in the performance of his job duties. +Additionally, each of the employment agreements contains a non-competition provision, pursuant to which Messrs. Foran, Hairford, +Lancaster and London have agreed that: (i) for six months following termination by us for total disability, or by such Named Executive Officer for good reason, or (ii) for 12 months following termination (a) by us for just cause, +(b) by such Named Executive Officer other than for good reason or (c) in connection with a change in control, such Named Executive Officer shall not, without our prior written consent (not to be unreasonably withheld if the Named Executive +Officer’s employment is terminated by the Named +50 +Table of Contents +Executive Officer other than for good reason), directly or indirectly: (x) invest in (other than investments in publicly-owned companies which constitute not more than 1% of the voting +securities of any such company) a competing business with significant assets in the restricted area (each as defined below), or (y) participate in a competing business as a manager, employee, director, officer, consultant, independent +contractor or other capacity or otherwise provide, directly or indirectly, services or assistance to a competing business in a position that involves input into or direction of such competing business’s decisions within the restricted area. +Similarly, Mr. Nicklin’s independent contractor agreement contains a non-competition provision pursuant to which +Mr. Nicklin has agreed that following termination: (i) by us for total disability or just cause, (ii) by Mr. Nicklin for good reason or other than for good reason or (iii) in connection with a change in control, then for a +period of 12 months thereafter, Mr. Nicklin may not, without our prior written consent, directly or indirectly (x) invest in (other than investments in publicly-owned companies which constitute not more than 5% of the voting securities of +any such company) a competing business with significant assets in the restricted area, or (y) participate in a competing business as a manager, employee, director, officer, consultant, independent contractor or other capacity or otherwise +provide, directly or indirectly, services or assistance to a competing business in a position that involves input into or direction of the competing business’s decisions within the restricted area. +For purposes of the employment agreements and independent contractor agreement: +“competing business” means any person or entity engaged in oil and natural gas exploration, development, production and +acquisition activities; +“significant assets” means oil and natural gas reserves with an aggregate fair market value +of $25 million or more; and +“restricted area” means a one-mile radius of any oil and natural gas reserves held by +us as of the end of the Named Executive Officer’s employment, plus any county or parish where we have significant assets as of the end of the Named Executive Officer’s employment. However, for purposes of Mr. Nicklin’s +independent contractor agreement, “restricted area” means a one-mile radius of any oil and natural gas reserves held by us as of the end of the performance of his independent contractor services, plus any county or parish where we have +significant assets as of the end of the performance of his independent contractor services other than a one-mile radius of any oil and natural gas reserves held by Salt Creek Petroleum as of August 9, 2011 to the extent previously disclosed to +us and any new oil and natural gas reserves that may be approved by us after August 9, 2011. See the definitions of “change in control,” “good reason” and “just cause” set forth in “— Compensation +Discussion and Analysis — Termination of Employment Arrangements and Independent Contractor Agreement — Employment Agreements and Independent Contractor Agreement.” +Furthermore, other than Mr. Foran’s employment agreement, each employment agreement and the independent contractor agreement +contains an anti-solicitation provision, pursuant to which, during the restricted periods described above, subject to certain exceptions, Messrs. Hairford, Lancaster, Nicklin and London shall not, without our prior written consent, solicit for +employment or a contracting relationship, or employ or retain any person who is or has been, within six months prior to such time, employed by or engaged as an individual independent contractor by us or our affiliates or induce or attempt to induce +any such person to leave his or her employment or independent contractor relationship with us or our affiliates. +For the +Named Executive Officer to receive any severance payments described below for termination by us without just cause, by the Named Executive Officer for good reason or, following a change in control, by us without cause or by the Named Executive +Officer with good reason, with respect to Mr. London, or with or without good reason, with respect to Messrs. Foran, Hairford, Lancaster and Nicklin, the Named Executive Officer must comply with the non-disclosure, non-competition and +non-solicitation provisions described above. +Finally, as a condition to receiving any severance payments and other payments +under their respective employment agreements or independent contractor agreement, as applicable, each Named Executive Officer is required to execute a separation agreement and release in favor of us. +51 +Table of Contents +To describe the payments and benefits that are triggered for each event of termination, we +have created the following table estimating the payments and benefits that would be paid to each Named Executive Officer under each element of our compensation program assuming that such Named Executive Officer’s employment agreement or +independent contractor agreement, as applicable, terminated on December 31, 2013, the last day of our 2013 fiscal year. In all cases, the amounts were valued as of December 31, 2013, based upon, where applicable, the closing price of our +Common Stock of $18.64 per share. The amounts in the table below are calculated as of December 31, 2013 pursuant to SEC rules and are not intended to reflect actual payments that may be made. Actual payments that may be made will be based on +the dates and circumstances of the applicable event. +Payment Upon Termination +Named Executive Officer +Category of +Payment +Upon Death +or +Total +Disability (1) +Upon Mutual +Agreement or +Dissolution/ +Liquidation (1) +Termination by +Us Without Just +Cause or by +Named +Executive +Officer for Good +Reason (1) +Termination +Following a Change +in Control Without +Cause or by +Named +Executive Officer +With or Without +Good Reason (9) +Joseph Wm. Foran +Salary +$ +— +$ +— +$ +1,200,000 +(4) +$ +1,800,000 +(10) +Bonus +465,000 +(2) +465,000 +(2) +930,000 +(5) +1,395,000 +(11) +Vesting equity +— +— +— +4,345,853 +(12) +Total +$ +465,000 +$ +465,000 +$ +2,130,000 +$ +7,540,853 +Matthew V. Hairford +Salary +$ +— +$ +— +$ +495,000 +(6) +$ +990,000 +(10) +Bonus +225,000 +(2) +225,000 +(2) +337,500 +(7) +675,000 +(11) +Vesting equity +— +— +— +2,434,850 +(12) +Total +$ +225,000 +$ +225,000 +$ +832,500 +$ +4,099,850 +David E. Lancaster +Salary +$ +— +$ +— +$ +562,500 +(6) +$ +1,125,000 +(10) +Bonus +212,500 +(2) +212,500 +(2) +318,750 +(7) +637,500 +(11) +Vesting equity +— +— +— +2,839,625 +(12) +Total +$ +212,500 +$ +212,500 +$ +881,250 +$ +4,602,125 +David F. Nicklin +Salary +$ +138,500 +(3) +$ +— +$ +237,500 +(8) +$ +831,250 +(13) +Bonus +175,000 +(2) +175,000 +(2) +— +— +Vesting equity +— +— +— +1,255,928 +(14) +Total +$ +313,500 +$ +175,000 +$ +237,500 +$ +2,087,178 +Ryan C. London (15) +Salary +$ +— +$ +— +$ +— +$ +— +Bonus +— +— +— +— +Vesting equity +— +— +— +1,123,101 +(14) +Total +$ +— +$ +— +$ +— +$ +1,123,101 +(1) +Amounts due upon death, total disability, mutual agreement, dissolution or liquidation, termination by us without cause or termination by Named Executive Officer for +good reason are payable in a lump sum on the sixtieth day following the date of termination unless otherwise required by Section 409A of the Code. +(2) +Represents the average annual amount of bonuses, including pursuant to the 2012 and 2013 Incentive Programs, paid to such Named Executive Officer with respect to prior +two calendar years (2012-2013). +(3) +Consists of cash payment of $250 for each full business day worked by Mr. Nicklin during the term of the independent contractor agreement. +(4) +Represents two times such Named Executive Officer’s base salary as of the termination date. +(5) +Represents two times an amount equal to the average annual amount of bonuses, including pursuant to the 2012 and 2013 Incentive Programs, paid to such Named Executive +Officer with respect to prior two calendar years (2012-2013). +(6) +Represents 1.5 times such Named Executive Officer’s base salary as of the termination date. +(7) +Represents 1.5 times an amount equal to the average annual amount of bonuses, including pursuant to the 2012 and 2013 Incentive Programs, paid to such Named Executive +Officer with respect to prior two calendar years (2012-2013). +(8) +Consists of a cash payment of $1,000 for each full business day worked by Mr. Nicklin during the prior 12 months. +(9) +Amounts due following a change in control are payable in a lump sum on the date which immediately follows six months from the date of termination or, if earlier, within +30 days of such Named Executive Officer’s death. +52 +Table of Contents +(10) +Represents three times such Named Executive Officer’s base salary as of the termination date. +(11) +Represents three times an amount equal to the average annual amount of bonuses, including pursuant to the 2012 and 2013 Incentive Programs, paid to such Named Executive +Officer with respect to prior two calendar years (2012-2013). +(12) +The employment agreements provide for accelerated and full vesting of unvested incentive awards held by these Named Executive Officers in the event that such Named +Executive Officer is terminated without “Just Cause” or terminates his employment with or without “Good Reason,” with respect to Messrs. Foran, Hairford and Lancaster, within 30 days prior to, or 12 months following, a +“change in control.” The 2003 Plan provides that all awards automatically vest upon a “change in control.” The amount disclosed reflects the closing price of our Common Stock on December 31, 2013 of $18.64 per share +multiplied by the number of unvested (i) service-based shares of restricted stock, (ii) performance-based shares of restricted stock and (iii) performance-based restricted stock units held by such Named Executive Officer on +December 31, 2013, in addition to the intrinsic value of the stock options held by such Named Executive Officer based upon the exercise price of such stock options being less than the closing price of our Common Stock on December 31, 2013. +(13) +Consists of a cash payment consisting of two times his daily contract rate of $1,750 for each full business day worked during the year ended December 31, 2013. +(14) +The equity grants under the 2012 Plan to Messrs. Nicklin and London as of December 31, 2013 provide for accelerated and full vesting of certain unvested incentive +awards in the event that either is terminated without “Just Cause” or terminates his employment for “Good Reason” within 12 months following a “change in control.” The 2003 Plan provides that all awards automatically +vest upon a “change in control.” The amount disclosed reflects the closing price of our Common Stock on December 31, 2013 of $18.64 per share multiplied by the number of unvested (i) service-based shares of restricted stock and +(ii) performance-based shares of restricted stock held by Mr. Nicklin and Mr. London, respectively, on December 31, 2013, in addition to the intrinsic value of the stock options held by Mr. Nicklin and Mr. London, +respectively, based upon the exercise price of such stock options being less than the closing price of our Common Stock on December 31, 2013. None of the unvested performance-based restricted stock units held by Messrs. Nicklin or London +on December 31, 2013 would vest under a change in control. +(15) +Prior to executing an employment agreement with the Company on March 13, 2014, Mr. London was an at-will employee of the Company and was not entitled to any +payments upon termination. +53 +Table of Contents +DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards +($) +Restricted +Stock Units +(1) +($) +All Other +Compensation +($) +Total +($) +Stephen A. Holditch +59,000 +— +74,994 +— +133,994 +David M. Laney +53,000 +— +74,994 +— +127,994 +Gregory E. Mitchell +52,000 +— +74,994 +— +126,994 +Steven W. Ohnimus +56,000 +— +74,994 +— +130,994 +Michael C. Ryan +53,500 +— +74,994 +— +128,494 +Carlos M. Sepulveda, Jr. (2) +40,583 +— +56,062 +— +96,645 +Margaret B. Shannon +53,000 +— +74,994 +— +127,994 +(1) +Based on the fair market value of the stock awards on the date of grant. Subject to a three year vesting period. One-third of these restricted stock units vest on each +of the first, second and third anniversaries of the grant dates. +(2) +Mr. Sepulveda joined the Board in April 2013. +Compensation for 2013 +During 2013, we targeted our non-employee +directors’ compensation at the 25th percentile of the Peer Group used for benchmarking the non-employee directors’ compensation. During 2013, our director compensation program was the following: +• +annual cash retainer of $40,000; +• +cash meeting fee of $1,000 per day for each day of Board and committee service; +• +the chairs of the Audit Committee and Operations and Engineering Committee each received an additional cash retainer of $5,000 annually; and +• +each non-employee director received restricted stock units (“RSUs”) equal to up to $75,000 in value annually with the restrictions lapsing in +one-third increments on each of the first, second and third anniversaries of the date of grant. Each grant may be adjusted downward (but not upward) in value based upon the non-employee director’s attendance and contributions at Board or +committee meetings called during the period for which RSUs are due. +In addition, we reimbursed our +directors for travel, lodging and related expenses incurred in attending Board and committee meetings. +Compensation for 2014 +For 2014, our non-employee directors’ compensation program is the following: +• +annual cash retainer of $50,000; +• +cash meeting fee of $1,000 per day for each day of Board and committee service; +• +the chairs of the Audit Committee and the Operations and Engineering Committee will each receive an additional cash retainer of $15,000 annually and +the chairs of the Nominating, Compensation and Planning Committee and the Corporate Governance Committee will each receive an additional cash retainer of $5,000 annually; and +• +each non-employee director receives RSUs equal to up to $90,000 in value annually with the restrictions lapsing in one-third increments on each of the +first, second and third anniversaries of the date of grant. Each grant may be adjusted downward (but not upward) in value based upon the non-employee director’s attendance and contributions at Board or committee meetings called during the +period for which RSUs are due. +54 +Table of Contents +In addition, we will continue to reimburse our directors for travel, lodging and related +expenses incurred in attending Board and committee meetings. +Director Ownership Guidelines +The non-employee directors follow our voluntary stock ownership guidelines for non-employee directors. Within three years of becoming a +director, each non-employee director will be expected to own $250,000 of Common Stock and continue to hold such shares while serving as a director. All directors own in excess of $250,000 of Common Stock and presently meet this standard. Shares +which will count toward the stock ownership guidelines include time-lapse restricted stock or RSUs that are still restricted and any shares held in trust by the director or his immediate family over which he has direct beneficial ownership interest. +Shares which will not count toward the stock ownership guidelines include shares underlying unexercised stock options and unexercised stock appreciation rights. +Special Board Advisor Compensation +Other than +Messrs. Downey and Massad, each special Board advisor was paid $1,250 each month in cash for a total annual stipend of $15,000 during 2013. In addition, during 2013, other than Messrs. Downey and Massad, each special Board advisor was granted 250 +shares of Common Stock for each day of attendance at each Board meeting or committee meeting, other than telephonic meetings. For 2014, the annual stipend was increased to $1,500 each month in cash for a total annual stipend of $18,000 and the +number of shares granted to each special Board advisor was modified to equal approximately $1,500 in value for each day of attendance at Board or committee meetings other than telephonic meetings. In addition, we reimburse our special Board advisors +for travel, lodging and related expenses incurred in attending Board and committee meetings. Other than Messrs. Downey and Massad, special Board advisors do not receive any other remuneration for their service as special Board advisors. +Mr. Downey’s special Board advisor compensation is the same as for the non-employee directors as described above. Mr. Massad is paid $7,500 per month pursuant to his consulting agreement with the Company. +SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS +The following table presents the securities authorized for issuance under our equity compensation plans as of December 31, 2013. +Plan Category +Number of +Shares to be +Issued Upon +Exercise +of +Outstanding +Options, +Warrants +and +Rights +Weighted- +Average +Exercise +Price of +Outstanding +Options, +Warrants +and +Rights +Number of +Shares +Remaining +Available for +Future +Issuance +Under +Equity +Compensation +Plans +Equity compensation plans approved by security holders (1)(2) +1,613,695 +$ +9.32 +1,778,715 +Equity compensation plans not approved by security holders +— +— +— +Total +1,613,695 +$ +9.32 +1,778,715 +(1) +Our Board has determined not to make any additional awards under the 2003 Plan. +(2) +Our 2012 Plan was approved by our Board in December 2011 and took effect on January 1, 2012. The 2012 Plan was also approved by our shareholders at the Annual +Meeting of Shareholders on June 7, 2012. +55 +Table of Contents +TRANSACTIONS WITH RELATED PERSONS +Since January 1, 2013, there has not been, nor is there currently proposed, any transaction or series of similar transactions to +which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any +of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described in “Executive Compensation—Compensation Discussion and +Analysis” above. +Procedures for Approval of Related Party Transactions +Our Board has adopted a written related party transaction policy. Pursuant to this policy, a “Related Party Transaction” is +defined as a transaction (including any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness)), or series of related transactions, or any material amendment to any such transaction, involving a +Related Party (as defined below) and in which we are a participant, other than: +• +a transaction involving compensation of directors; +• +a transaction involving compensation of an executive officer or involving an employment agreement, severance agreement, change in control provision or +agreement or a special supplemental benefit for an executive officer; +• +a transaction available to all employees generally or to all salaried employees generally; +• +a transaction with a Related Party involving less than $120,000; +• +a transaction in which the interest of the Related Party arises solely from the ownership of a class of our equity securities and all holders of that +class receive the same benefit on a pro rata basis; or +• +a transaction in which the rates or charges involved therein are determined by competitive bids, or a transaction that involves the rendering of +services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. +“Related Party” means: +• +any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors or nominees for directors; +• +any person who is known by us to be the beneficial owner of more than 5% of our Common Stock; +• +any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, +father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, nominee for director, executive officer or a beneficial owner of more than 5% of our Common Stock; and +• +any firm, corporation or other entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons is a general +partner or executive officer or in which such person, together with all other of the foregoing persons, owns 10% or more of the equity interests thereof. +Pursuant to our related party transaction policy, the Audit Committee must review all material facts of each Related Party Transaction and recommend either approval or disapproval of the Related Party +Transaction to the full Board, subject to certain limited exceptions. In determining whether to recommend approval or disapproval of the Related Party Transaction, the Audit Committee must, after reviewing all material facts of the Related Party +Transaction and the Related Party’s relationship and interest, determine whether the Related Party Transaction is fair to the Company. Further, the policy requires that all Related Party Transactions be disclosed in our filings with the SEC +and/or our website in accordance with applicable laws, rules and regulations. +56 +Table of Contents +SECURITY OWNERSHIP +Security Ownership of Certain Beneficial Owners and Management +The following table presents the beneficial ownership of our Common Stock as of April 24, 2014 for (i) each person beneficially +owning more than 5% of the outstanding shares of our Common Stock, (ii) each director and nominee for director of the Company, (iii) each executive officer of the Company listed in the Summary Compensation Table and (iv) all of our +directors, nominees for director and executive officers as a group. Except pursuant to applicable community property laws and except as otherwise indicated, each shareholder possesses sole voting and investment power with respect to its, his or her +shares. The business address of each of our directors, nominees for director and executive officers is c/o Matador Resources Company, One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. The applicable percentage ownership is based +on 65,802,155 shares of our Common Stock issued and outstanding as of April 24, 2014, plus, on an individual basis, the right of that individual to (i) obtain Common Stock upon exercise of stock options or (ii) obtain Common Stock +upon the vesting of restricted stock units, in each case within 60 days of April 24, 2014. The information is based on Form 3s, Form 4s, Schedule 13Ds and Schedule 13Gs filed through April 24, 2014. +Name +Amount and +Nature of +Ownership of +Common Stock +Percent +of Class +Directors, Nominees for Director and Named Executive Officers: +Joseph Wm. Foran (1) +4,013,815 +6.1 +% +Matthew V. Hairford (2) +216,106 +* +David E. Lancaster (3) +338,286 +* +David F. Nicklin (4) +102,573 +* +Ryan C. London (5) +94,365 +* +Stephen A. Holditch (6) +124,495 +* +David M. Laney (7) +458,719 +* +Gregory E. Mitchell (8) +196,784 +* +Steven W. Ohnimus (9) +95,019 +* +Michael C. Ryan (10) +257,312 +* +Carlos M. Sepulveda, Jr. (11) +285,160 +* +Margaret B. Shannon (12) +46,934 +* +Reynald A. Baribault (13) +2,000 +* +All Directors, Nominees for Director and Executive Officers as a Group (15 persons) (14) : +6,521,968 +9.9 +% +Other 5% Owners: +T. Rowe Price Associates, Inc. (15) +3,901,611 +5.9 +% +The Vanguard Group (16) +3,687,906 +5.6 +% +BlackRock, Inc. (17) +3,511,017 +5.3 +% +* +Less than one percent (1%) +(1) +Includes (i) 1,079,933 shares of Common Stock held of record by Sage Resources, Ltd., a limited partnership owned by the Foran family, including +Mr. Foran; (ii) 4,000 shares of Common Stock held of record by the reporting person’s spouse through her Individual Retirement Account; (iii) 10,000 shares of Common Stock held of record by Mr. Foran’s college age +child; (iv) 135,500 shares and 50,000 shares of Common Stock held of record by The Don Foran Family Trust 2008 and The Foran Family Special Needs Trust, respectively, for which Mr. Foran is the co-trustee and over which Mr. Foran has +shared voting and investment power with other members of his family; (v) 675,293 shares of Common Stock held of record by each of the JWF 2011-1 GRAT and the NNF 2011-1 GRAT, for which Mr. Foran is the trustee and over which Mr. Foran +has sole voting and investment power; (vi) 371,459 shares of Common Stock held of record by each of the JWF 2013-1 GRAT and the NNF 2013-1 GRAT, for which Mr. Foran is the trustee and over which Mr. Foran has sole voting and +investment power; (vii) 161,888 shares of Common Stock held of record by each of the JWF 2014-1 GRAT and the NNF 2014-1 GRAT, for which Mr. Foran is the trustee and over which Mr. Foran has sole voting and investment power; +(viii) 28,250 shares of Common Stock held of record by the Foran 2012 Security Trust, for which Mr. Foran is the trustee and +57 +Table of Contents +over which Mr. Foran has sole voting and investment power; (ix) 151,550 shares of Common Stock held of record by the Foran 2012 Savings Trust, for which Mr. Foran’s spouse is +a trustee; and (x) 87,172 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Foran has the right to vote such shares but may only dispose of such shares to the extent they have vested. Also includes +40,104 shares of Common Stock issuable to Mr. Foran upon the exercise of stock options. +(2) +Includes 26,250 shares of Common Stock issuable to Mr. Hairford upon the exercise of stock options and 3,000 shares held of record by his Individual Retirement +Account. Also includes 45,494 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Hairford has the right to vote such shares but may only dispose of such shares to the extent they have vested. Mr. Hairford +has pledged 67,400 shares of Common Stock. +(3) +Includes 36,250 shares of Common Stock issuable to Mr. Lancaster upon the exercise of stock options and 75,500 shares of Common Stock held of record by his +Individual Retirement Account. Also includes 60,427 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Lancaster has the right to vote such shares but may only dispose of such shares to the extent they have +vested. +(4) +Includes 25,312 shares of Common Stock issuable to Mr. Nicklin upon the exercise of stock options and 37,600 shares of Common Stock held of record by his +Individual Retirement Account. Also includes 35,833 shares of restricted stock. Pursuant to the terms of the restricted stock grants, Mr. Nicklin has the right to vote such shares but may only dispose of such shares to the extent they have +vested. +(5) +Includes 19,375 shares of Common Stock issuable to Mr. London upon the exercise of stock options. Also includes 51,638 shares of restricted stock. Pursuant to the +terms of the restricted stock grants, Mr. London has the right to vote such shares but may only dispose of such shares to the extent they have vested. +(6) +Includes 768 vested restricted stock units, delivery of which has been deferred pursuant to the award agreement, and 660 shares of Common Stock issuable to +Dr. Holditch upon the vesting of restricted stock units. +(7) +Includes 56,000 shares of Common Stock held of record by Laney Investments Ltd., for which Mr. Laney has sole voting and investment power. Also includes 660 shares +of Common Stock issuable to Mr. Laney upon the vesting of restricted stock units. +(8) +Includes 191,292 shares of Common Stock held of record by JAMAL Enterprises, LP, for which Mr. Mitchell has sole voting and investment power. Also includes 660 +shares of Common Stock issuable to Mr. Mitchell upon the vesting of restricted stock units. +(9) +Includes 768 vested restricted stock units, delivery of which has been deferred pursuant to the award agreement, and 660 shares of Common Stock issuable to +Dr. Ohnimus upon the vesting of restricted stock units. Dr. Ohnimus has pledged 23,070 shares of Common Stock. +(10) +Includes 4,000 shares of Common Stock held of record by Mr. Ryan’s one college-age child and three minor age children. Also includes 660 shares of Common +Stock issuable to Mr. Ryan upon the vesting of restricted stock units. +(11) +Includes 660 shares of Common Stock issuable to Mr. Sepulveda upon the vesting of restricted stock units. +(12) +Includes 660 shares of Common Stock issuable to Ms. Shannon upon the vesting of restricted stock units. +(13) +Mr. Baribault is a nominee for director at the Annual Meeting. +(14) +Includes an aggregate of 162,291 shares of Common Stock which our executive officers as a group have the right to acquire within 60 days of April 24, 2014 upon the +exercise of stock options. Also includes 336,532 shares of restricted stock held by our executive officers. Pursuant to the terms of the restricted stock grants, the executive officers have the right to vote such shares but may only dispose of such +shares to the extent they have vested. Also includes 6,156 shares of Common Stock issuable to directors upon the vesting of restricted stock units. Includes 120,470 shares of Common Stock pledged by our executive officers and directors. +(15) +Information based solely on a Schedule 13G filed with the SEC on February 10, 2014. The Schedule 13G reports that T. Rowe Price Associates, Inc. (“Price +Associates”) beneficially owns 3,901,611 shares, has sole voting power with respect to 580,000 shares and has sole dispositive power with respect to 3,901,611 shares. According to the Schedule 13G, these securities are owned by various +individual and institutional investors, for which Price Associates serves as an investment adviser registered under the Investment Advisers Act of 1940, as amended, with power to direct investments and/or sole power to vote the securities. For +purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial +owner of such securities. According to the Schedule 13G, Price Associates’ address is 100 E. Pratt Street, Baltimore, MD 21202. +(16) +Information based solely on a Schedule 13G filed with the SEC on February 11, 2014. The Schedule 13G reports that The Vanguard Group (“Vanguard”) +beneficially owns 3,687,906 shares, has sole voting power with respect to 82,250 shares, has sole dispositive power with respect to 3,609,056 shares and has shared dispositive power with respect to 78,850 shares. According to the Schedule 13G, +Vanguard’s address is 100 Vanguard Blvd., Malvern, PA 19355. +(17) +Information based solely on a Schedule 13G filed with the SEC on January 30, 2014. The Schedule 13G reports that BlackRock, Inc. (“BlackRock”) +beneficially owns 3,511,017 shares, has sole voting power with respect to 3,313,286 shares and has sole dispositive power with respect to 3,511,017 shares. According to the Schedule 13G, BlackRock’s address is 40 East 52nd Street, New York, NY +10022. +58 +Table of Contents +ADDITIONAL INFORMATION +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who own more than ten percent +of the Company’s Common Stock to file initial reports of ownership and changes in ownership with the SEC. +Additionally, +SEC regulations require that the Company identify any individuals for whom one of the referenced reports was not filed on a timely basis during the most recent fiscal year. Based solely on the Company’s review of copies of the reports received +and written inquiries to the Company’s directors and officers, the Company believes that all persons subject to Section 16(a) of the Exchange Act timely filed all reports required pursuant to such section relating to the Company’s +Common Stock with the exception of a Form 4 filed by Mr. Foran on May 28, 2013, relating to a gift of stock to a trust made in December 2012. +Shareholder Proposals for the 2015 Proxy Statement +For shareholder proposals to be included in the Company’s Proxy Statement and form of proxy relating to the 2015 Annual Meeting of Shareholders, such proposals must be received by the Company at its +offices in Dallas, Texas, addressed to the Corporate Secretary of the Company, no later than December 25, 2014. Upon timely receipt of any such proposal, the Company will determine whether or not to include such proposal in the proxy statement +and proxy in accordance with applicable regulations and provisions governing the solicitation of proxies. +Director Nominations or Other Business for Presentation at the 2015 Annual Meeting +Under the Amended and Restated Bylaws of the Company, certain procedures are provided that a shareholder must follow in order to place in +nomination persons for election as directors at an Annual Meeting of Shareholders or to introduce an item of business at an Annual Meeting of Shareholders. These procedures provide, generally, among other things, that shareholders desiring to place +in nomination persons for election as directors, and/or bring a proper subject of business before an Annual Meeting, must do so by a written notice timely received (on or before March 10, 2015, but no earlier than February 8, 2015, for the +2015 Annual Meeting) to the Corporate Secretary of the Company containing the name and address of the shareholder and the number of shares of the Company’s Common Stock beneficially owned by the shareholder. If the notice relates to a +nomination for director, it must also set forth the name, age, business and residence addresses of the candidate, the candidate’s résumé or a listing of his or her qualifications to be a director of the Company, the person’s +written consent to be a director if selected by the Nominating, Compensation and Planning Committee, nominated by the Board and elected by the shareholders and any other information that would be required to be disclosed in solicitations of proxies +for the election of directors. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as director. Notice of an item +of business shall include a brief description of the proposed business and any material interest of the shareholder in such business. +The Chairman of the meeting may refuse to allow the transaction of any business not presented, or to acknowledge the nomination of any person not made, in compliance with the foregoing procedures. Copies +of the Company’s Amended and Restated Bylaws are available from the Corporate Secretary of the Company. +See +“Corporate Governance—Board Committees—Nominating, Compensation and Planning Committee” for the process for shareholders to follow to suggest a director candidate to the Nominating, Compensation and Planning Committee for +nomination by the Board. +59 +Table of Contents +Annual Report on Form 10-K +The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the SEC, including financial +statements, accompanies this proxy statement. Shareholders may obtain without charge another copy of the Annual Report on Form 10-K, excluding certain exhibits, by writing to Investor Relations, Matador Resources Company, One Lincoln Centre, 5400 +LBJ Freeway, Suite 1500, Dallas, Texas 75240. +60 +Table of Contents +OTHER BUSINESS +Management of the Company is not aware of other business to be presented for action at the Annual Meeting; however, if other matters are +presented for action, it is the intention of the persons named in the accompanying form of proxy to vote in accordance with their judgment on such matters. +By Order of the Board of Directors, +Joseph Wm. Foran +Chairman and Chief Executive Officer +April 24, 2014 +61 +Table of Contents +MATADOR RESOURCES COMPANY +5400 LBJ FREEWAY, SUITE 1500 +DALLAS, TX 75240 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. +Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and +annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials +electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. +Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your +proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +— — — — — — — — — — — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED +AND DATED. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of +the nominee(s) on the line below. +The Board of Directors recommends you vote FOR the following: +1. +Election of Directors +¨ +¨ +¨ +Nominees +01 +Joseph Wm. Foran 02 David M. +Laney 03 Reynald A. Baribault +The Board of Directors recommends you vote FOR the following proposals: +For +Against +Abstain +2 . +Advisory vote to approve named executive officer compensation. +¨ +¨ +¨ +3 . +Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2014. +¨ +¨ +¨ +NOTE: The proxies are authorized to vote in their discretion on such other business as may properly come before the meeting or any adjournment thereof. +Yes +No +Please indicate if you plan to attend this meeting +¨ +¨ +Please sign exactly as your name(s) appear(s) hereon. When +signing as +attorney, executor, administrator, or other fiduciary, please give full +title as such. Joint owners should each sign personally. All holders must +sign. If a corporation or partnership, +please sign in full corporate or +partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +0000207789_1 R1.0.0.51160 +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the +Annual Meeting: The Annual Report for the year ended December 31, 2013, Notice of Annual Meeting and Proxy Statement is/are available at www.proxyvote.com . +— — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — — — — — — — — — — — — +MATADOR +RESOURCES COMPANY +Annual Meeting of Shareholders +June 4, 2014 9:30 A.M. +This proxy is solicited by the Board of Directors. +As an alternative to completing this form, you may enter your +vote instruction by telephone at 1-800-690-6903, or via the internet at www.proxyvote.com . Have your proxy card in hand and follow +the instructions. +The shareholder hereby appoints Joseph Wm. Foran and +Carlos M. Sepulveda, Jr., or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of +MATADOR RESOURCES COMPANY that the shareholder is entitled to vote at the Annual Meeting of Shareholders to be held at 9:30 A.M., CDT on June 4, 2014, at the Hilton Anatole, 2201 North Stemmons Freeway, Dallas, Texas 75207, and any adjournment or +postponement thereof. The shareholder hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such shares of stock. +This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in +accordance with the Board of Directors’ recommendations. +Continued and +to be signed on reverse side +0000207789_2 R1.0.0.51160 \ No newline at end of file diff --git a/raw/proxies/0001520006/0001193125-14-157225/proxy_rpt.txt b/raw/proxies/0001520006/0001193125-14-157225/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..0a675465bdf84d59a2568e7bd9bd9faab096c204 --- /dev/null +++ b/raw/proxies/0001520006/0001193125-14-157225/proxy_rpt.txt @@ -0,0 +1,41 @@ +TRANSACTIONS WITH RELATED PERSONS +Since January 1, 2013, there has not been, nor is there currently proposed, any transaction or series of similar transactions to +which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any +of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described in “Executive Compensation—Compensation Discussion and +Analysis” above. +Procedures for Approval of Related Party Transactions +Our Board has adopted a written related party transaction policy. Pursuant to this policy, a “Related Party Transaction” is +defined as a transaction (including any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness)), or series of related transactions, or any material amendment to any such transaction, involving a +Related Party (as defined below) and in which we are a participant, other than: +• +a transaction involving compensation of directors; +• +a transaction involving compensation of an executive officer or involving an employment agreement, severance agreement, change in control provision or +agreement or a special supplemental benefit for an executive officer; +• +a transaction available to all employees generally or to all salaried employees generally; +• +a transaction with a Related Party involving less than $120,000; +• +a transaction in which the interest of the Related Party arises solely from the ownership of a class of our equity securities and all holders of that +class receive the same benefit on a pro rata basis; or +• +a transaction in which the rates or charges involved therein are determined by competitive bids, or a transaction that involves the rendering of +services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. +“Related Party” means: +• +any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors or nominees for directors; +• +any person who is known by us to be the beneficial owner of more than 5% of our Common Stock; +• +any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, +father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, nominee for director, executive officer or a beneficial owner of more than 5% of our Common Stock; and +• +any firm, corporation or other entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons is a general +partner or executive officer or in which such person, together with all other of the foregoing persons, owns 10% or more of the equity interests thereof. +Pursuant to our related party transaction policy, the Audit Committee must review all material facts of each Related Party Transaction and recommend either approval or disapproval of the Related Party +Transaction to the full Board, subject to certain limited exceptions. In determining whether to recommend approval or disapproval of the Related Party Transaction, the Audit Committee must, after reviewing all material facts of the Related Party +Transaction and the Related Party’s relationship and interest, determine whether the Related Party Transaction is fair to the Company. Further, the policy requires that all Related Party Transactions be disclosed in our filings with the SEC +and/or our website in accordance with applicable laws, rules and regulations. +56 +Table of Contents \ No newline at end of file